San Diego Housing Bubble News and Analysis

California Tribe Hopes to Woo Salmon Home New York Times

Shark-Bitten Crocodile Poop Fossils Found (No, Really) Wired (hat tip reader John M)

For One Tiny Instant, Physicists May Have Broken a Law of Nature PhysOrg (hat tip reader John D)

Baldness ‘could be good for your health’ say scientists BBC (hat tip reader John D)

Nancy Pelosi steeled White House for health push Politico (hat tip Clusterstock)

The ties that bind America to Israel are beginning to fray and break Chris McGreal, Guardian

Another Gulf War Syndrome? Mother Jones (hat tip reader John D)

Greenspan versus Reality, Part 1 David Merkel

Pools That Need Some Sun Gretchen Morgenson, New York Times. Wow, even that presumed reliable bank stuffee, the Federal Home Loan Bank, are now suing banks for misrepresenting the quality of loans they sold.

Bernanke Says Large Bank Bailouts ‘Unconscionable,’ Must End Bloomberg. Kinda late to be saying that…..And even worse, he is a defender of “innovation”: “Toward a More Competitive, Efficient, and Innovative Financial System” Mark Thoma

Why financial regulation must also rebuild trust VoxEU. Per above, Bernanke does not appear to be with the program.

BTW, a week from today, from 2-4 EDT, Lambert Strether will host a discussion of ECONNED at his site. I will participate.

Antidote du jour:

Sales of new homes doubled in Orange County in January, and tripled for newly built single-family houses, Costa Mesa-based Hanley Wood Market Intelligence has reported.

Orange County’s jump from the year before was the biggest in the state among 23 California metro areas.

Buyers signed contracts to purchase 146 newly built houses, condos and townhomes in January, compared to 73 in January 2009. While many of those homes won’t close escrow, the numbers are significant since they give a glimpse of how final new home sales figures will turn out a few months from now.

And these numbers didn’t include the sellout crowds that showed up for the Jan. 30 launch of the Irvine Co.’s new developments in Woodbury. The project hit the company’s 2010 goal of 200 signed contracts within their first month, the company said.

Other highlights from the Hanley Wood report show:

Metro area Jan-09 Jan-10 % ch Orange County 33 100 203% Vallejo/Fairfield 24 53 120.8% Madera 3 6 100.0% Santa Clara County 24 34 41.7% Visalia/Porterville 38 51 34.2% Hanford/Corcoran 12 14 16.7% San Diego County 104 114 9.6% Stockton 42 45 7.1% Bakersfield 84 87 3.6% Sacramento 171 176 2.9% El Centro 17 16 -5.9% East S.F. Bay 121 98 -19.0% Napa 5 4 -20.0% Yuba City/Marysville 8 6 -25.0% S.F. Peninsula 10 7 -30.0% Inland Empire 466 273 -41.4% L.A. County 77 42 -45.5% Ventura County 13 7 -46.2% Fresno 156 83 -46.8% Modesto 24 10 -58.3% Chico 5 1 -80.0% Salinas 11 2 -81.8% Merced 16 1 -93.8% Calif. 1,480 1,230 -16.9%

• Buyers signed contracts to buy 100 newly built houses in the county in January, compared to 33 in January 2009. That’s a 203% gain, the biggest percentage gain in the state. (See chart at right.)
• Buyers signed 23 new condo contracts, up 156% from the year before when just 9 were signed.
• Only townhome and sales of duplexes, triplexes and fourplexes declined: Buyers signed up to buy 23 homes of these types, down 25.8%.
• Prices increased for all housing types except houses. Overall, the median price for all homes combined (or the price at the midpoint of all sales) was $678,267, up 26.8% from the year before.
• House prices fell 20.7% to $773,333.
• Statewide, more than half the metro areas had declines in house sales contracts signed, while house contracts dropped 16.9% in California as a whole.
• The median house price declined 4.6%  to $332,562 statewide.

The Hanley Wood Market New-Home Sales and Pricing Report is based on surveys of housing developments of 10 units or more.

Jonathan Dienhart, Hanley Wood’s published research director, said:

“The last several months have bent the trend of improvement back toward one of volatile uncertainty. As California’s broader economy still struggles with a myriad of challenges, it is unlikely we will see any dramatic recovery in coming months. Nevertheless, as we head into the spring selling season we expect to see incremental improvements and an end to year-over-year sales volume declines.”

Other real estate trends:

New house sales triple in January is a post from: Lansner on Real Estate

I don’t mean to beat up on Spencer at Angry Bear, who has provided an interesting set of comparisons on the perennial question of many investors, “Whither the stock market?”

But one section of his discussion, precisely because it is such conventional thinking, is an illustration of how the blind pursuit of “maximizing shareholder value” is not all it is cracked up to be:

The recent productivity report received much attention. But I did not see anyone point out that the spread between nonfarm corporate prices and unit labor cost was 5.25%, the widest spread on record.

This spread is the single most important variable driving corporate profit margins and implies that you should expect major positive earnings surprises.

Yves here. Translation: employers are continuing to squeeze down on workers to improve their margins. And the US has been pursuing that strategy for some time, of shifting the composition of GDP growth away from increases in worker incomes (via hiring and/or paying them more) to increases in corporate profits. The shift was dramatic in the last supposed expansion; it was called a “jobless recovery” for good reason. In every previous postwar growth period, the labor share of GDP growth was never less than 55% and had averaged not much less than 60%. In the pre-crisis expansion, it plunged to 29%.

Before some readers contend that this pattern is inherent to the “maximizing shareholder value,” let’s start with one consideration: strategies that focus on that goal actually do less well than ones that pursue broader aims. John Kay notes in a 2004 Financial Times article (sadly, no longer available on line):

Paradoxical as it sounds, goals are more likely to be achieved when pursued indirectly. So the most profitable companies are not the most profit -oriented, and the happiest people are not those who make happiness their main aim. The name of this idea? Obliquity….

Obliquity is characteristic of systems that are complex, imperfectly understood, and
change their nature as we engage with them…..

Obliquity is equally relevant to our businesses and our bodies, to the management of our lives and our national economies. We do not maximise shareholder value or the length of our lives, our happiness or the gross national product, for the simple but fundamental reason that we do not know how to and never will. No one will ever be buried with the epitaph “He maximised shareholder value”. Not just because it is a less than inspiring objective, but because even with hindsight there is no way of recognising whether the objective has been achieved.

For most of the 20th century, ICI was Britain’s largest and most successful manufacturing company. In 1987, ICI described its business purpose thus: “ICI aims to be the world’s leading chemical company, serving customers internationally through the innovative and responsible application of chemistry and related science. “Through achievement of our aim, we will enhance the wealth and well-being of our shareholders, our employees, our customers and the communities which we serve and in which we operate.”….

In 1991, Hanson, the predatory UK conglomerate that had successfully acquired and reorganised sluggish British manufacturing businesses such as Ever Ready and Imperial Tobacco, bought a modest stake in ICI. While the threat to the company’s independence did not last long, the effects were galvanising. ICI restructured its operations and floated the pharmaceutical division as a separate business, Zeneca. The rump business of ICI declared a new mission statement: “Our objective is to maximise value for our shareholders by focusing on businesses where we have market leadership, a technological edge and a world competitive cost base.”….

ICI made the opposite shift – from a grand vision of the responsible application of chemistry to a narrow concentration on established, successful activities. The aim of bringing benefit to a wide range of stakeholders was replaced by the specific objective of creating shareholder value from narrowly focused operations. The company translated this into an operational strategy by disposing of the company’s interests in bulk chemicals to acquire a niche group of speciality businesses: ICI, once the main supplier of chemical products to one third of the world, was reinvented as a smells company.

The outcome was not successful in any terms, including those of creating shareholder
value. The share price peaked in 1998, soon after the new strategy was announced.
The decline since then has been relentless. After two successive dividend cuts the
company was ejected in early 2003 from the FTSE 100 index, the transition from
industrial giant to mid-cap corporation had taken only 12 years…..

Obliquity gives rise to the profit -seeking paradox: the most profitable companies are
not the most profit -oriented. ICI and Boeing illustrate how a greater focus on
shareholder returns was self -defeating in its own narrow terms. Comparisons of the
same companies over time are mirrored in contrasts between different companies in
the same industries. In their 2002 book, Built to Last: Successful Habits of Visionary
Companies, Jim Collins and Jerry Porras compared outstanding companies with
adequate but less remarkable companies with similar operations….

Collins and Porras….found the same result in each case: the company that put more emphasis on profit in its declaration of objectives was the less profitable in its financial statements.

Yves again. Simple-minded profit seeking is not what it is cracked up to be. And worse, squeezing worker wages to not simply preserve, but increase profits, is destructive on an economy-wide level (note the rising gap between wages and prices disproves the canard that the wage pressure is necessary to preserve competitiveness).

US business used to operate with the idea that the returns resulting from productivity gains would be shared by workers and the company; that notion now seems as dead as the dodo. But not allowing workers to participate in improvements in corporate returns blunts overall economic growth. Companies are fattening their current bottom lines at the expense of future top line growth. But in our current climate, this strategy looks just dandy….until government stimulus starts to be withdrawn.

It's pretty obvious that when when some promoter suckers multiple investors into investing in a real estate deal with false promises, that's real estate fraud.  Many people however, are not aware that by the act of creating a real estate investment product, a security can be created. Real estate fraud can sometimes be securities fraud as well.  Here are some recent cases prosecuted by the Arizona Corporation Commission:

The Commission ordered Rex G. Wheeler of Utah to pay $3,174,871 in restitution and a $150,000 administrative penalty for committing securities fraud in connection with an unregistered real estate investment program. The Commission found that while not registered as a securities dealer or salesman in Arizona, Wheeler pooled the money of 17 investors, promising that he would fund real estate loans made to a company in the business of acquiring high-end residences. He assured investors that their money would be safe due to the superior industry reputation of the company acquiring the real estate, but the Commission found that the company did not provide Wheeler with a first-position deed of trust on any real estate. Further, the Commission found that Wheeler extensively comingled investor funds with those of his real estate companies, spending the funds for business and personal expenses. In settling this matter, Wheeler agreed to the entry of the consent order and admitted to the Commission’s findings only for purposes of the administrative proceeding. In a separate case, the Commission ordered Phoenix resident Scot A. Oglesby to pay $13,760 in restitution and a $40,000 administrative penalty for fraudulently offering and selling unregistered deed of trust investments. The restitution amount represents the commissions that Oglesby earned while working as an employee of Mutual Financial Services. The Commission found that while not registered as a securities salesman, Oglesby sold the deed of trust investments to at least 18 investors, most of whom were Arizona seniors. Oglesby told investors that the investment was safe because it was secured by real estate, [I wonder if his was the ad I remember reading?] but the Commission found that he failed to disclose that the real estate development was already encumbered by a first mortgage and that the state of Nevada had taken legal action against him for securities violations. In settling this matter, Oglesby agreed to the entry of the consent order and admitted to the Commission’s findings only for the purposes of the administrative proceeding.

In another matter, the Commission sanctioned Gregory M. Sir of Paradise Valley and his company with a $90,000 administrative penalty for offering and selling unregistered investment contracts and deed of trust investments while not registered to sell securities in Arizona. The Commission found that as the president of Sir Mortgage and Finance of Arizona, Inc., a licensed Arizona mortgage broker, Sir used investor money to fund a wide variety of “hard-money” loans, ranging from $100,000 to $4.5 million secured by real estate. In settling this matter, Sir neither admitted nor denied the Commission findings, but agreed to the entry of the consent order, submitting full payment for the administrative penalty to the state of Arizona.

…

A separate matter involved Stephen G. Van Campen of Peoria who agreed to pay $855,000 in restitution and a $50,000 administrative penalty for offering and selling unregistered securities in a real estate investment program. Van Campen was a licensed real estate salesman, but was not registered to offer or sell securities in Arizona. The Commission found that Van Campen promised investment returns up to 100 percent and represented that investor money would be used to buy commercial buildings under construction—including a condominium project in Rocky Point, Mexico—that would eventually be sold for substantial gains. The Commission found that while working as an employee of Mark Bosworth & Associates, LLC, [ Remember Bosworth?]Van Campen sold the investment program to five investors who were solicited either through newspaper advertisements, web sites, seminars or van trips to Mexico. In settling this matter, Van Campen agreed to the entry of the consent order and admitted to the Commission’s findings only for purposes of the administrative proceeding.

So how can you tell if a real estate investment program is a security or not?  According to the Arizona Corporation Commission, you need to ask:

Even when selling a legitimate product, some promoters do not recognize the investment program they have created is a security. Whether a real estate investment is a security is not always easy to determine and depends upon the unique facts and circumstances of the transaction and not on what a promoter calls the investment product. Even when investing with someone they know, investors should verify the registration of sellers and investment opportunities and investigate disciplinary histories…

Sorry if I"m supposed to already know this even tucked away up here the the Maritimes, but what exactly does this Geico company do all of …

.

.

.

.

.

This is an article describing the changing dynamics in the Phoenix housing market ...

From Craig Anderson at the Arizona Republic: Real-estate investors, who once fueled a run-up in home values, now helping stabilize market (ht JG) For decades to come, participants in the Valley's housing economy are sure to remember 2009 as the Year of the Investor. ... Investors and bank foreclosures helped boost Maricopa County home sales up to 78,899 in 2009, up from 58,454 the previous year, according to The Arizona Republic's analysis of 2009 Valley home-values data from the Information Market, based in Phoenix.

... [Alan] Langston, executive director of the Arizona Real Estate Investors Association, based in Tempe, said a number of recent developments have slowed the rate of lender foreclosure in recent months ...

One factor is the rise in short sales, which have replaced about 25 percent of the foreclosures banks were initiating a year ago, he said. ...

Another recent change is the decision by some lenders to use "drop bids" to sell more properties in default to third-party investors before they become bank-owned, he said.

Before the first half of 2009, it was rare for private parties to buy homes at a trustee's deed sale, a cash-only auction for pre-foreclosed properties that takes place daily at the Maricopa County courthouse.

Drop bids changed all that, Langston said. They are a last-minute decision by the lender to slash a property's auction price. Langston said drop bidding has helped lenders avoid taking possession of even more homes while providing new opportunities for buyers.These investors are very different from the "investors" (really speculators) in the 2003 - 2006 period. The current investors are paying all cash - and planning on renting the homes until prices increase. Of course this is supply that will come back on the market eventually ...

A flurry of news reports abound as President Obama puts on a full court press to pass legislation no one really wants except the President and those who have been bribed. Let's take a look at a handful of articles.

Democrats About Six Votes Short on Health Care, Officials Say
March 19 (Bloomberg) -- Democrats need about six more votes from House members to pass a U.S. health-care overhaul, Obama administration officials said today.

White House and Democratic leaders aim to collect those votes from a pool of about 14 to 15 undecided lawmakers to get to the 216 votes needed to pass the measure, according to the officials, who spoke on condition of anonymity.

Obama has met or called about three dozen lawmakers in the last five days and has cleared his schedule today for more last- minute appeals, including a campaign-style rally in nearby Fairfax, Virginia.

Obama postponed a five-day foreign trip to Indonesia and Australia to remain at the White House this weekend to ensure passage of a $940 billion bill that is of “paramount importance” to his presidency, spokesman Robert Gibbs told reporters yesterday. House Leaders Work to Alleviate 11th-Hour Medicare Concerns
March 19 (Bloomberg) -- House Democratic leaders worked to defuse an 11th-hour rebellion by more than a dozen lawmakers angry that hard-fought increases in Medicare reimbursements for local hospitals were removed from health-care legislation.

“My state is getting screwed,” said Representative Peter DeFazio, an Oregon Democrat. “They have to fix it. I’m a ‘no’ vote unless they fix it.”

Lawmakers representing health-care providers in 17 states are affected by the change, he said. As House leaders corral votes in favor of the legislation, DeFazio said “there are a number of people who may be miscounted at this time.”

House leaders, trying to round up 216 votes to pass revisions to the Senate bill, are working to craft a provision on the Medicare payments that would survive parliamentary challenges by Republicans when the measure is debated in the Senate.

‘Legitimate Concern’

Asked about the issue at a press conference, House Speaker Nancy Pelosi told reporters “we do want the language to be closer” to the House measure, which satisfied lawmakers “who have a legitimate concern about the reimbursement to their states being unfair.”

“We are working on that language,” the speaker said.

A provision to change the Senate version was removed from the legislation yesterday, shortly before House leaders unveiled changes, DeFazio said. It was deleted because Senate staff members told House leaders it might run afoul of parliamentary challenges by Senate Republicans, DeFazio said.

To pass muster, every provision must reduce the deficit under budget reconciliation procedures being deployed to enact the most comprehensive redesign of the health-care system in five decades.

Lawmakers are trying to rewrite the provision to win a favorable ruling from the Senate parliamentarian.
House Bill on Healthcare Is Constitutional, Hoyer Tells CNBC
March 19 (Bloomberg) -- The U.S. House bill on health care that is slated to come to a vote this Sunday is constitutional and should withstand legal challenges, Majority Leader Steny Hoyer told CNBC.

“There’s little doubt in my mind that this bill and its provisions are in fact constitutional,” Hoyer, a Maryland Democrat, said today.

Hoyer said with a “bill of this magnitude,” legal challenges are likely. “That’s the American system that people have an opportunity to say, ‘Look, what you did was not appropriate.’”

The stakes are so high for President Barack Obama that he postponed until June a planned five-day trip to Guam, Indonesia and Australia to remain at the White House this weekend to lobby wavering lawmakers to support the 10-year, $940 billion bill in the last two days.
Obama Rallies Democrats Who Predict Health Passage March 20 (Bloomberg)

President Barack Obama rallied House Democrats to back health-care legislation that he called “the toughest insurance reforms in history” as party leaders said they would have the votes to pass the overhaul tomorrow.

“We have been debating health care for decades,” Obama told lawmakers today at the U.S. Capitol. “It is time to pass health-care reform for Americans, and I am confident you are going to do it.”

The legislation requires Americans to get insurance, offering government aid and new purchasing exchanges to help. Insurers such as Indianapolis-based WellPoint Inc. would get millions of new policyholders, while being required to accept all customers, even with pre-existing conditions.

Representative Dan Lipinski, an Illinois Democrat, said he’s switching his vote to “no” because of the abortion issue. New York Representative Michael Arcuri, who voted for the original House bill, said he’s now a “no” because the new measure doesn’t do enough to control costs. Massachusetts Representative Stephen Lynch is also switching to “no,” the Boston Herald reported.

‘Yes’ Votes

On the other side, Democrats John Boccieri of Ohio, Allen Boyd of Florida, Bart Gordon of Tennessee, Dennis Kucinich of Ohio, Suzanne Kosmas of Florida, Betsy Markey of Colorado and Scott Murphy of New York all now plan to vote “yes” after voting “no” in November, according to statements from the lawmakers or their offices. Hatch Says It’s ’Nuts’ to Think House Vote Ends Health Issue
March 20 (Bloomberg) -- Republican Senator Orrin Hatch said Democrats in the U.S. House of Representatives are “nuts” to think tomorrow’s vote on health-care legislation will resolve the issue.

If the measure passes, Senate Republicans have enough votes on at least two points of order to alter the measure and send it back to the House for a second round of votes, Hatch said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.

“If those people think they’re only going to vote on this once, they’re nuts,” Hatch said as House Democratic leaders rounded up support before the scheduled vote on President Barack Obama’s top domestic priority.

The senator from Utah also said the approach Democrats are using to pass the legislation in the House may be unconstitutional because the House and Senate aren’t voting on “exactly the same language.” Business Groups Press Lawmakers to Oppose Health-Care Measure
March 19 (Bloomberg) -- Business groups led by the U.S. Chamber of Commerce today urged lawmakers to oppose the Democratic-backed health-care legislation, as the House headed for a showdown vote this weekend.

The Chamber, the nation’s largest business group, the National Association of Manufacturers and the National Retail Federation told lawmakers in letters that their health-care votes will be highlighted in annual scorecards sent to members before the November election.

The bill is “fundamentally flawed” and would impose job- killing mandates and penalties on businesses and increase taxes, the Chamber said in a letter to members of the House of Representatives. The group said Congress must “start over.”

“The measure would drive up labor costs to the point of forcing job losses,” the National Retail Federation said in its letter. “A ‘transparent procedural ploy’ for passing the package would harm Congress’s reputation.” Caterpillar: Health Bill Would Cost Company $100 Million
Caterpillar Inc. said the proposed overhaul of the U.S. health-care system could increase its costs by $100 million, signaling disquiet in corporate America about the controversial plan.

In a letter Thursday to House Speaker Nancy Pelosi (D., Calif.) and House Republican Leader John Boehner (R., Ohio), Caterpillar urged lawmakers to vote against the plan "because of the substantial cost burdens it would place on our shareholders, employees and retirees."

The company said the potential extra costs would primarily come from provisions to tax the federal subsidies the company now receives for providing prescription-drug benefits to retirees and their spouses.

Since the Medicare drug program was enacted in 2003, Caterpillar and more than 3,500 companies that already provided drug benefits for retirees have received tax-free subsidies from the federal government as an incentive to maintain their drug programs.

The subsidies average $665 per person covered under a company-sponsored prescription program, according to benefits consultant Towers Watson, which recently completed a study on the health-care legislation's effects.

Watson Towers estimates federal taxes on the drug subsidies would amount to $233 per person receiving drug benefits under such programs.

McDevitt estimates that a company with 25,000 retirees on subsidized drug benefits could see its 2010 earnings reduced by $70 million.

Business executives have long complained that the options offered for covering 32 million uninsured would result in higher insurance costs and hinder economic growth. Opponents of the legislation have stepped up their attacks in recent days as the House moves closer toward a vote on the Senate version of the health-care legislation.

A letter Thursday to President Barack Obama and members of Congress signed by more than 130 economists predicted the legislation would discourage companies from hiring more workers and would cause reduced hours and wages for those already employed. States Say We Don’t Need No Stinkin’ Health Reform
If Democratic leaders ever get a health-care overhaul through Congress, they could find themselves only halfway through the slog.

While no arm is left untwisted, no parliamentary maneuver ignored on Capitol Hill, state legislatures have been busy themselves passing laws to defeat whatever package emerges.

Idaho wants no part of any overhaul dreamed up in Washington. Neither does Virginia or Arizona, their legislators say.

“The citizens of our state won’t be subject to another federal mandate or turn over another part of their life to government control,” Idaho Governor Butch Otter declared this week when he became the first governor to sign into law a so- called Health Freedom Act.

The Idaho law says every Idahoan is free “to choose any mode of securing health-care services without penalty.” It then instructs the attorney general to go to court to make that happen.

Already, the law has legal problems of its own. Idaho Attorney General Lawrence Wasden points out that the state constitution gives him the job of deciding whether to go to court and when. No mere statute can change that.

And Wasden isn’t ready to declare his position.

“If Congress does pass legislation, we will review it and determine at that point whether we can bring a lawsuit that has merit,” says Wasden spokesman Bob Cooper.

Virginia’s Route

Virginia’s legislature went a different route. Without telling the attorney general how to do his job, the lawmakers passed a bill that says no Virginia resident “shall be required to obtain or maintain a policy of individual insurance coverage.”

Even advocates say that amending the constitution is a legally preferable route to passing a mere statute.

The Arizona legislature has already gone the amendment route and passed a proposal that will appear on the ballot in November.

But that isn’t law yet. And if you put those three all together, they don’t add up to much of a roadblock at this point.

Gaining Momentum

So advocates point to their movement’s momentum. Beyond the three states, some 30 to 35 others have bills pending, they are quick to say.

There is a long road between dropping a bill in a hopper and attending a signing ceremony. And then, whatever state efforts get that far would have to survive a federal court fight.

“The ivory tower folks will tell you, ‘No, they’re not going anywhere,’” Otter told reporters. “But I’ll tell you what. You get 36 states, that’s a critical mass. That’s a constitutional mass.”

That number approaches the 38 states it takes to ratify an amendment to the U.S. Constitution. Otter is getting ahead of himself, given that his own attorney general, a fellow Republican, has already said he may or may not try to enforce the new law.What A Mess

I am confident President Obama will buy the six votes he needs. That is the way the system works. I am less certain that the House reconciliation bill passes Senate challenges. If not, expect to see the bill back in the House at least once. Should that happen President Obama may need to convince 6 more representatives to sign on. Is that doable? At what cost?

There will not be a vote on Monday unless Pelosi thinks she has the votes. However "think" and "have" are likely but not necessarily the same thing. All it would take is a couple of representatives to decide to torpedo the legislation or simply get cold feet.

That said, the most likely outcome is President Obama will buy the votes he needs. It will be much more difficult the second time if the Senate sends it back because of procedural rules so the House better get it right the first time.

Next week, we will see who is "nuts" and who isn't. Meanwhile, a bill that 37 states and the majority of the US do not want is about to be rammed through Congress by a President willing to buy out anyone and everyone who is against it.

Payback time is November.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

This was lawsuit was filed on March 15th. Here are some details from the bank and see Morgenson's story in the NY Times for more ...

From the Federal Home Loan Bank of San Francisco: Statement Regarding PLRMBS Litigation Today the Federal Home Loan Bank of San Francisco (Bank) filed complaints in the Superior Court of California, County of San Francisco, against nine securities dealers in relation to certain of the Bank’s investments in private-label residential mortgage-backed securities (PLRMBS). The Bank is seeking to rescind its purchases of 134 securities in 113 securitization trusts, for which the Bank originally paid more than $19.1 billion. The Bank’s complaints allege that the dealers made untrue or misleading statements about the characteristics of the mortgage loans underlying the securities.

All of the PLRMBS in the Bank’s mortgage portfolio, including those identified in the complaints filed today, were rated AAA when purchased, based on the information provided by the securities dealers.From Grechen Morgenson at the NY Times: Pools That Need Some Sun The suit, filed March 15 in state court in California, seeks the return of the $5.4 billion as well as broader financial damages.
...
The defendants in the Federal Home Loan Bank case were among the biggest sellers of mortgage-backed securities back in the day; among those named are Deutsche Bank; Bear Stearns; Countrywide Securities, a division of Countrywide Financial; Credit Suisse Securities; and Merrill Lynch. The securities at the heart of the lawsuit were sold from mid-2004 into 2008 ...

In the complaint, the Federal Home Loan Bank recites a list of what it calls untrue or misleading statements .... The alleged inaccuracies involve disclosures of the mortgages’ loan-to-value ratios ... as well as the occupancy status of the properties securing the loans. ...

Finally, the complaint said, the sellers of the securities made inaccurate claims about how closely the loan originators adhered to their underwriting guidelines.All the private mortgage insurers are working hard to rescind as many insurance policies as possible based on fraud and misrepresentation . As are Fannie and Freddie. Fannie Mae and Freddie Mac may force lenders including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. to buy back $21 billion of home loans this year as part of a crackdown on faulty mortgages. It makes sense that the Federal Home Loan Banks get more aggressive too.

Last week I reviewed some possible upside surprises for my economic outlook for sluggish and choppy growth in 2010. The most likely upside surprise appears to be coming from consumer spending and the lack of an increase in the saving rate. I still think the saving rate will continue to rise - although maybe not as fast as I originally expected.

Before I comment on downside risks, a quick comment on forecasts: I think a reasonably intelligent person can always make a compelling bearish argument for the economy, and yet most of the time the economy grows and employment increases. Just something I like to remember.

And although I enjoy being a contrarian at times (like calling the housing bubble and bust, or predicting in 2006 that a recession would start in 2007 - or calling the bottom for housing and autos early last year), I try to avoid the mistake of being a contrarian just to be contrary.

Right now my forecast is middle-of-the-road; no V-shaped recovery and no double-dip recession in 2010. Of the two, I think a double-dip is more likely, but I think we will avoid both. Of course the downside to sluggish growth is that unemployment will probably stay elevated for some time.

Don't get me wrong - I'd like to see 6% to 8% GDP growth and the unemployment rate dropping sharply (a "V-shaped recovery") but that seems very unlikely with the two usual engines of recovery, consumer spending and residential investment, both under pressure.

Downside Risks

There are a number of international risks that might impact the U.S. economy in 2010 such as a sovereign debt issues in Europe and elsewhere, and the escalating dispute with China over currency manipulation or a slowdown in the global economy. My guess is the impact on the U.S. this year will be minimal. And there are also long term issues - like the U.S. structural budget deficit and debt - but this will have little impact in the short term.

So I'll focus on domestic issues, and the number one risk remains housing:

Housing Market. The government has been doing everything possible to support house prices - by reducing supply with the modification programs, foreclosure moratoriums, and servicer backlogs - and boosting demand with the homebuyer tax credit and loose lending standards (especially with FHA insured loans).

The next wave of distressed sales is building based on analysis by both Barclays Capital and economist Tom Lawler. Although this wave will probably be somewhat smaller than in late 2008, it might be more sustained (it will just keep flooding the market with distressed homes).

After the expiration of the tax credit, demand will probably decline - and prices could start falling again in areas with significant distressed sale activity. Note: For the tax credit, buyers have to sign agreements by April 30th and close by June 30th. This wave of distressed sales will probably be concentrated in the bubble states, but will be more price diverse than the late 2008 foreclosure wave that was primarily in lower end areas.

If prices fall further than I expect that could have a serious impact on banks (more losses) and consumer confidence (less spending).

Note: Most of the forecasts for residential investment (RI) in 2010 were for moderate growth. My forecast was for RI to move sideways with perhaps sluggish growth. This is especially important for construction related industries and employment. Most of the forecasts have recently been revised down substantially, as an example from Reuters: Fannie Mae slashes mortgage investment forecastResidential investment is likely to drop 17.2 percent in the first quarter and rebound for the rest of 2010, Fannie Mae economists, led by Doug Duncan, said in their outlook. Just a month ago, they expected the first quarter's residential investment would rise 2.8 percent.

For all of 2010, residential investment will grow 10 percent, slightly below the previous forecast, they said. The other possible downside risks I mentioned last year were (these all still remain although are less likely):

Consumer Spending and Exports. The flip side to consumer spending is that households might increase their saving rate faster than I expect. And with exports, if the global recovery falters, exports would probably decline.

Unemployment and Wage Deflation If the unemployment rate keeps rising (say to 11% or higher), and CPI goes negative - this could lead to falling wages and even more downward pressure on consumer spending. And deflationary expectations might lead to consumers putting off certain expenditures.

Small businesses. Small business are still reporting poor sales, and these business are key to an employment recovery (although construction is probably over weighted in the small business sector). From Rex Nutting at MarketWatch: Small business optimism falls in Feb., NFIB says An index measuring small-business optimism fell 1.3 points to 88.0 in February, erasing January's gain, according to a monthly survey released Tuesday by the National Association of Independent businesses. To summarize: I think sluggish and choppy growth in 2010 is still likely, but the key downside risks are from falling home prices and less than expected residential investment.

I had not pointed to the letter written by Matthew Lee, the so-called Lehman whistle blower, because it seemed to add little to the main story: insider alerts senior management to a Big Problem (or in Lehman’s case, that its chicanery/incompetence was so pervasive as to be impossible for anyone within hailing distance of it to miss). The fact that there was someone who knew things did not smell right, alerted the top brass, and was ignored with prejudice (as in fired, demoted, or marginalized) is typical and disheartening.

But reader Michael C, who was involved in Sarbanes-Oxley compliance for a major bank, argues that the letter is significant, despite its failure to mention Repo 105 by name.

This was the meat of Michael Lee’s May 2008 letter:

1. Senior Firm management manages its balance sheet assets on a daily basis. On the last day of each month, the books and records of the Firm contain approximately five (5) billion dollars of net assets in excess of what is managed on the last day of the month. I believe this pattern indicates that the Firm’s senior management is not in sufficient control of its assets to be able to establish that its financial statements are presented to the public and governmental agencies in a “full, fair accurate and timely manner”. In my opinion, respectfully submitted, I believe the result is that at the end of each month, there could be approximately five (5) billion dollars of assets subject to a potential write-off. I believe it will take a significant investment of personnel and better control systems to adequately identify and quantify these discrepancies but, at the minimum, I believe the manner in which the Firm is reporting these assets is potentially misleading to the public and various governmental agencies. If so, I believe the Firm may be in violation of the Code.

2. The Firm has an established practice of substantiating each balance sheet account for each of its worldwide legal entities on a quarterly basis. While substantiation is somewhat subjective, it appears to me that the Code as well as Generally Accepted Accounting Principles require the Firm to support the net dollar amount in an account balance in a meaningful way supporting the Firm’s stated policy of “full, fair, accurate and timely manner” valuation. The Firm has tens of billions of dollars of unsubstantiated balances, which may or may not be “bad” or non-performing assets or real liabilities. In any event, the Firm’s senior management may not be in a position to know whether all of these accounts are, in fact, described in a “full, fair, accurate and timely” manner, as required by the Code. I believe the Firm needs to make an additional investment in personnel and systems to adequately address this fundamental flaw.

3. The Firm has tens of billions of dollar of inventory that it probably cannot buy or sell in any recognized market, at the currently recorded current market values, particularly when dealing in assets of this nature in the volume and size as the positions the Firm holds. I do not believe the manner in which the Firm values that inventory is fully realistic or reasonable, and ignores the concentration in these assets and their volume size given the current state of the market’s overall liquidity.

4. I do not believe the Firm has invested sufficiently in the required and reasonably necessary financial systems and personnel to cope with this increased balance sheet, specifically in light of the increased number of accounts, dollar equivalent balances and global entities, which have been created by or absorbed within the Firm as a result of the Firm’s rapid growth since the Firm became a publicly traded company in 1994.

5. Based upon my experience and the years I have worked for the Firm, I do not believe there is sufficient knowledgeable management in place in the Mumbai, India Finance functions and department. There is a very real possibility of a potential misstatement of material facts being efficiently distributed by that office.

6. Finally, based upon my personal observations over the past years, certain senior level internal audit personnel do not have the professional expertise to properly exercise the audit functions they are entrusted to manage, all of which have become increasingly complex as the Firm has undergone rapid growth in the international marketplace.

Yves here. It is important to note that Sarbanes Oxley requires the CEO and CFO to certify the published financial statements (which must adhere to SEC standards) and the adequacy of financial controls. So the issues that Lee raises point to multiple Sarbox violations.

As Michael C noted:

In his role he would be one of the key signers of the internal control assesments. His letter serves to both blow the whistle on some specific charges (i.e $5b in excess assets (?) and to formally inform mgt and the auditors that a fundamental key control (substantiation of the accounts)is compromised. This is a big deal, since the auditors, both internal and external rely on the substantiations to sign off on the overall internal control assessment. One would expect a letter like this to trigger a significant response from E+Y.

Every major GL [general ledger] account is assigned an individual ‘owner’ at the firm. That individual is responsible for certifying that the account balance is reported correctly and the balance can be substantiated.

It’s not surprising then that he didn’t mention the 105 specifically. He didn’t need to, since he’s implying that the 105 isn’t the only material issue, the entire control structure was at least ’significantly deficient’ a term that normally sets off alarms, especially with the external auditors, and demands prompt corrective action.

Yves here. One thing that continues to puzzle me is the press continuing to harp on the idea that it would be hard to succeed in a criminal case against Lehman. Huh? This letter arrived before the end of 2Q, so Lehman issued what turned out to be its final quarterly reports with this information in hand. Fuld was not one of the recipients but Callan was. The barrier that is arguably hard to surmount in a criminal case is intent, that is, that the perps knowingly did something wrong, as opposed to were merely stupid or sloppy. The Lee letter strikes me as a smoking gun for a criminal case.

And the noise in the media re the supposed difficulty of successful criminal prosecution raises a second set of issues: whose interest is served by promoting that point of view?

As Frank Partnoy has pointed out, it is true the SEC has not had much success in prosecuting complex criminal cases, but this case (cooking the books) is not as difficult as ones involving, say, derivatives. Is the failure due to the difficulty of mounting these cases, or that the SEC lacks its own ability to pursue these cases (no joke, it has to go to the DoJ) and the SEC-DoJ combination is dysfunctional?

… oops! almost forgot to thank the Implode-O-Gang for the dig.

I was wondering how the bond raters would mark problems with America's gilts before their reputations became hopelessly compromised …

… and without getting nuked.

Fitch has found a elegant solution — simply create a higher implicit rating that treasuries don't have.

Financial innovation at its best

Research Recap: "Fitch Says US and UK Need to Cut Budget Deficits by 6-7 percentage points of GDP to Bolster AAA Ratings"

In a presentation to the recent HSBC AAA Issuer and Investor Summit, Fitch says that the most effective manner to minimize “confidence shocks” and the risk of financing distress is for governments to recognize the size of the fiscal challenge and set out and implement credible plans to place public finances on a sustainable path.

Among the many other less-than-desirable features of the mortgage modification program known as HAMP (Home Affordable Modification Program) is the revelation that, according to this AP report, your credit score will probably be lowered soon after you apply for help.For borrowers who are making their payments on time but are on the verge of default, the Obama administration's loan modification program can reduce their credit score as much as 100 points. That makes it harder to get a loan and can present a problem when applying for a new job.

Housing counselors say it's unfair, especially because the news often comes as a surprise to homeowners.

"Why should people's credit be hurt even worse when they're trying to do the right thing?" said Eileen Anderson, senior vice president at Community Development Corp. of Long Island, a housing counseling group in New York.

And many homeowners are angry that a program designed to help carries such a penalty, said Kathy Conley, a housing counselor with GreenPath Inc., a nonprofit group in Farmington Hills, Mich.

"It's a feeling of being duped," she said.Apparently, Treasury Department guidelines require that mortgage companies notify credit bureaus at some early stage of the process, though it probably doesn't say this on any of the HAMP application forms.

Of course, from the point of view of the credit agencies, this all makes good sense, however, it does seem like a double-standard. When the big banks got their big backing from the government when they ran into trouble, the ratings agencies thought that was swell, but, after the little guy gets his little bailout, his credit gets hit.

Click on graphic for Full Image at Der Spiegel

This graphic is from Anne Seith at Der Spiegel: Moment of Truth for Europe's Common CurrencyGreece's financial difficulties have exposed numerous weaknesses which threaten Europe's common currency. Now, policy makers and economic experts are trying to find ways to stabilize the euro. SPIEGEL ONLINE takes a look at the proposals. Seith looks at several proposals from the formation a common EU economic government, to having better and automatic economic stablizers, to a Eurpoean Monetary Fund (EMF). None seem likely in the near term ...

"Worst of the IMF, without the benefits of a loan"

And from Le Monde (Google Translation): The cacophony lowers the euro Greek Prime Minister George Papandreou has ... called for EU leaders to agree at the summit of Heads of State and Government on 25 and 26 March. Otherwise, it could well turn to the IMF. ... Mr. Papandreou stressed that with the austerity measures demanded by Brussels to Athens, his country had, in theory, "the worst of the IMF, but without the benefits of a loan".
...
Meanwhile, the IMF scenario seems to attract more and more within a Euro disoriented. After Germany, it is the Netherlands, Finland and Sweden are out of the woods Friday to support such intervention. Some are opposed, however, as the President of the European Central Bank (ECB), Jean-Claude Trichet.

Here’s the middle part of a great series created by the National Inflation Association. It begins with a look at Zimbabwe’s hyperinflation, then goes on to explain that the U.S. is traveling the same road. Social Security is a Ponzi scheme, the dollar is heading for its intrinsic value, and  gold is the solution. It [...]

Chalk up another victory for Bloomberg in its ongoing legal battles with the Fed over Freedom of Information.

Please consider Federal Reserve Must Disclose Bank Bailout Records.

The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said.

The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.

The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.

The U.S. Freedom of Information Act, or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

Tripartite Test

In its opinion today, the appeals court said that the exception applies only if the agency can satisfy a three-part test. The information must be a trade secret or commercial or financial in character; must be obtained from a person; and must be privileged or confidential, according to the opinion.

The court said that the information sought by Bloomberg was not “obtained from” the borrowing banks. It rejected an alternative argument the individual Federal Reserve Banks are “persons,” for purposes of the law because they would not suffer the kind of harm required under the “privileged and confidential” requirement of the exemption.

In a related case, U.S. District Judge Alvin Hellerstein in New York previously sided with the Fed and refused to order the agency to release Fed documents that Fox News Network sought. The appeals court today returned that case to Hellerstein and told him to order the Fed to conduct further searches for documents and determine whether the documents should be disclosed.

“We are pleased that this information is finally, and rightfully, going to be made available to the American public,” said Kevin Magee, Executive Vice President of Fox Business Network, in a statement.

Balance Sheet Debt

The Fed’s balance sheet debt doubled after lending standards were relaxed following Lehman’s failure on Sept. 15, 2008. That year, the Fed began extending credit directly to companies that weren’t banks for the first time since the 1930s. Total central bank lending exceeded $2 trillion for the first time on Nov. 6, 2008, reaching $2.14 trillion on Sept. 23, 2009.

“It’s gratifying that the court recognizes the considerable interest in knowing what is being done with our tax dollars,” said Lucy Dalglish, executive director of the Reporters Committee for Freedom of the Press in Arlington, Virginia.

“We’ve learned some powerful lessons in the last 18 months that citizens need to pay more attention to what’s going on in the financial world. This decision will make it easier to do that.”

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York). This is a victory for common sense over secrecy. The Fed does not want an audit nor will it honor reasonable requests for information. The irony is Bernanke promised more transparency. Bernanke's actions prove what a lair he is. Expect more delays as the Fed will fight this.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

-by the Mysterious Flying Miser

From Oregon Live
“Oregon’s single-family home prices will fall another 3.9 percent in 2010, the second largest decline in the country, according to a forecast out this morning from First American CoreLogic.  Oregon’s projected price decline between January 2010 and January 2010 (sic) trails only the firm’s prediction for a 5.2 percent drop in Michigan. Nationwide, First American predicts a 4.5 percent gain in home prices in that period, according to the LoanPerformance Home Price Index.
 
“Oregon and Michigan join Nevada, Maryland and Arizona as the markets with the largest predicted declines in 2010.  The projections show that distressed sales will weigh heavily on home prices.  With distressed sales excluded, Oregon’s prices would actually rise 2 percent in 2010.

“The index measures home prices changes over a 12-month period ending in January.

“Mark Fleming, First American CoreLogic’s chief economist, said: ‘The cumulative loss in home prices of (29 percent) is more severe than the next worst housing recession of 24 percent cumulative decline which began in Louisiana in the mid-1980s. It took Louisiana five years to recover from the bottom, we expect this recovery to take at least as long.’

“First American expects that single-family home prices will fall another 3.7 percent before hitting bottom in April. That will be followed by a modest recovery through 2010.

“First American says two major unknowns not included in its forecast are the ‘shadow inventory’ of homes that may get dumped onto the market later this year once the market shows some signs of stabilizing; and the expiration of the federal homebuyer tax credit in April, which the firm says has boosted demand.”

From the Seattle Times
“More than a year after the $120 million Four Seasons Hotel and Private Residences opened to considerable fanfare, a dozen firms that designed and built the ultraluxury project say they haven’t been paid in full.  They have recorded claims totaling more than $34 million against the downtown Seattle building.  The largest lien, for $23.7 million, was filed in August by Lease Crutcher Lewis, the project’s general contractor.

“In an e-mail, Lease Crutcher Lewis CEO Bill Lewis indicated the Four Seasons is experiencing financial difficulties.  ‘The Four Seasons project is not immune to impacts related to current market conditions,” he wrote, calling those impacts “significant.’

“The 21-story building, at First Avenue and Union Street, features 36 of the most expensive condos ever marketed in Seattle, atop a 149-room hotel.  Only one condo has been sold during the past year, according to county records, leaving 13 still on the market.  One is a 5,200-square-foot, two-story unfinished penthouse with two spacious terraces whose sales price recently was reduced by 20 percent, to $8.7 million.

“Information on the Four Seasons Hotel’s economic performance was not available.  John Oppenheimer, managing partner of project owner Seattle Hotel Group (SHG), would not address the Four Seasons’ finances.  Surgent’s attorney and Stirrett Johnsen’s president did not return calls.

“Partners in SHG, besides Oppenheimer, include former Seattle Mayor Paul Schell and venture capitalist Tom Alberg.  Oppenheimer is president and CEO of Columbia Hospitality, a hotel and conference-center management and consulting firm.”

“The Four Seasons isn’t the only project caught in the chill of the real-estate downturn.  It actually has sold a higher share of its condos than several high-end downtown condo towers.  Some local developers have lost properties to foreclosure.  A few have sought bankruptcy protection.  Others are struggling to satisfy lenders at a time when the sluggish economy has slashed demand for new buildings, both residential and commercial.

“The Four Seasons generated considerable buzz when it opened in fall 2008.  It marked the return of the swanky Four Seasons hotel brand to Seattle after a five-year absence.  And the condos, ranging from 1,300 to 10,000 square feet, were perhaps Seattle’s most expensive multifamily residences ever on a per-square-foot basis.

“Presale buyers had closed on 22 of the 36 units by February 2009, paying between $1.26 million and $11.4 million.  Buyers included arts patrons Bagley and Virginia Wright, retired Nordstrom cochairman John McMillan and Space Needle coowner H.S. Wright III.  The one condo that has sold since then went for $1.84 million in November.  SHG cut prices on the remaining 13 units last month, announcing reductions ranging from 8 to 47 percent.”
 

OK, I realize this isn’t exactly the news, but still!
“I went to the Brian Buffini live nationwide cinemeeting that Wells Fargo Home Mortgage sponsored today. It was great! I haven’t heard Buffini speak before.  Made me feel very encouraged that the market is improving.  He makes a strong case for the fact that there could well be a housing shortage in the coming years.  Those of us in the industry that are consistent and stick with it can look forward to a brighter future.  Everything he has to say about doing business is common sense.  Problem is we often don’t take the time to be disciplined and systematic.  Being reactive rather than proactive will hold us back.  Here’s the bottom line:  call your past clients and check in with them.  Don’t be afraid to sound like a pushy sales person.  If you don’t keep in touch they’ll think you are indifferent.  Your past clients are your best resource for new business.  Simple but we forget.

I’m encouraged.  SO encouraged that I decided that I’m going to buy a house!! (actually a condo) Wish me luck!!” 

The following links were posted by Ben Jones:

The Seattle PI in Washington. “Every month, there seems to be another auction. Some high-end condominium complex, likely conceived near the height of the housing bubble and mostly empty since its completion, is up for grabs to the highest bidders.”

“The latest to throw in the towel is the development at 5th Avenue and Madison Street in downtown Seattle. Later this month, luxury units originally priced between $399,000 and $899,000 will open for bidding at $195,000. Most have reserve prices higher than that, but the properties will no doubt be sold at deep discounts, if they are sold at all.”

“The list of casualties is long — Queen Anne High School, Gallery in Belltown, Brix on Capitol Hill, Lumen in Queen Anne, just to name a few. Edward Krigsman, vice president at Windermere Real Estate, said the type of buyer has changed since the real estate market took a downturn. Speculative buyers have been replaced by buyers looking for primary residences. The unbridled spending of investors has been replaced by more careful shopping and intangibles are more important than square footage and views.”

“‘Buyers are asking themselves, ‘Is this a community I want to be in for a long time?’ Krigsman said. ‘Real estate is not as liquid as we once thought it was.’”

“Every Seattle neighborhood seems littered with at least one: A construction carcass that began as a developer’s dream and died in the recession, leaving a yawning pit or weedy lot. For Bruce Lorig, the developer behind the Green Lake project, the uncertainty of the credit market makes it impractical for him to turn an empty lot into a public space. ‘You have no idea of when you can do something,’ said Lorig, whose company took on an ambitious, 120,000-square-foot, mixed-use project with nearly 500 apartments and a grocery store at the old Vitamilk Dairy site.”

“The project, at Woodlawn Avenue Northeast and Northeast 71st Street, died roughly two years ago, when the grocery store - the anchor tenant - backed out. ‘We’re in such an unusual time, where there literally isn’t any money to do development,’ Lorig said.”

From KXLY 4 in Washington. “Spokane realtors are calling the area housing market a bloodbath, with prices continuing to plummet while homes are sitting for months on the market with little if any interest. The numbers for the Spokane market tell the tale of woe for area realtors: In February of 2008 Spokane’s median home price was $177,000. One year later at the bottom of the recession that price dropped by $7,000. Last month – one year later – prices dropped to $157,500.”

“The picture is equally bleak for people trying to sell their homes. In February 2006 the odds of selling your home within three months was around 30-percent. This year that figure is down to seven-percent. ‘There are a lot of homes to buy, the interest rates are really good, so really, if you’re in a position to buy, now is a really good time to do it,’ Century 21 realtor Cindy Crisler said.”

The HeraldNet in Washington. “The price of Everett’s most talked-about real estate venture just got a little more affordable. Library Place, an ultramodern collection of rental units, received a rush of fanfare at a coming out party Thursday afternoon. The company dropped the price of its rental units in time for Thursday’s event. Anyone who rents between now and May 1 receives a 20 percent discount.”

“So far, only three of the 22-unit development’s town homes and studios have rented, the company’s president Craig Skotdal said Thursday. His company has already delayed plans indefinitely for phase-two of Library Place: a second, 178-unit structure. ‘In a perfect world, we would have built everything at once,’ Skotdal said.”

“That’s because in a perfect world, the economy doesn’t tank and the real estate market doesn’t come to a grinding halt. But that’s what Skotdal Real Estate is dealing with, a reality that makes delaying the second phase and reducing unit prices smart business, if not a necessity.”

“The company considered selling the units as condos initially, but decided early on to retain ownership of the building. With the 20 percent discount, a studio rental starts at $895 per month. A one-bedroom townhouse starts at $1,250, and the two-bedroom goes for $1,450.”

The Vancouver Sun in Canada. “Katie Thompson and her husband are two-year residents of the new-home neighbourhood, Suter Brook Village, in which the Residences households will make their homes. They are proof that to leave vibrant, dense downtown Vancouver is not necessarily to lose any of the attractions of downtown residency.”

“The couple could not afford a downtown purchase. ‘I’m originally from a small town, so [moving to a smaller area] wasn’t such a big adjustment,’ says Thompson, 27, who commutes daily between work in downtown Vancouver and the couple’s home in the Aria 1 building in Suter Brook Village in Port Moody.”

“The organizers of the Residences at Suter Brook Village sales and marketing campaign, Tim Orr and Cam Good, say they expect this new-home project to make a big contribution to the disappearance of stereotypes about suburban residency. Good, who invited more than 100 real estate agents to a special agents event, found the same attitude: Vancouverites tend to judge places based on how far they have to go outside their own boundaries. The closer to the city, the more ‘urban,’ the assumption goes.”

“‘When I told them where Suter Brook Village was, they said, ‘I guess we better get the helicopters out.’”

“Cameron McNeill’s tone is downright reverential when he talks about Nat Bosa. ‘The man’s a visionary,’ says the president of MAC Marketing Solutions.”

“Over the past four decades, Bosa has led the construction of more than 20,000 condos around North America. ‘Look at what he [Bosa] has done for the Belltown area of Seattle,’ says McNeill. ‘He built half of Brentwood, he was way ahead of his time with developing the waterfront in New Westminster and Citygate (in Vancouver.)’”

“Bosa downplayed any sense of self-importance in a rare interview. He pointed out that his sons continued building here while he focused on projects in California. ‘Basically it got a lot worse down there than anybody expected,’ he says. ‘While we wait for that to rebound, I said ‘Let’s revisit back home for a while.’”

“Bosa agrees that he’s never been afraid to be a market leader and to enter a new area. ‘When I bought Citygate, people thought I was nuts.’”

“So what does coming back to Vancouver mean now? ‘Yeah, I could say it’s a vote of confidence in the Lower Mainland, because I come in, get on this project, and I start building. Obviously, I gotta have confidence, otherwise I’m losing it!’”

The Toronto Sun in Canada. “Last week, I let readers in on the highlights of the inaugural address of the newly elected president of the Canadian Home Builders’ Association, Victor Fiume, of Durham Custom Homes. BILD wishes Fiume well as he takes over the reins from Gary Friend, a Vancouver builder who led his industry at the national level with great distinction throughout one of the most challenging years ever faced by a CHBA president given the global economic crisis that dominated Friend’s tenure.”

“As if picking up on the optimism that always comes with spring, the economic presentations we heard were quite encouraging. As Dr. Peter Andersen, consulting economist to the CHBA told builders, ‘fears of a double-dip recession have been put on the back-burner and it looks like we’re in for a sustainable recovery.’”

“Andersen declared that the recession ended in August, 2009, described 2010 as a ‘transition year’and said the true recovery would kick-in next year with 4-5% growth. Unfortunately that economic growth rate will bring with it rising rates but that’s next year — for the balance of this year, Andersen sees rates as being on hold. Holding at the lowest levels in 50 years is a very good thing.”

“Commenting on house prices, Andersen stated that he sees no sign of runaway prices and wondered out loud why all the fuss. ‘I don’t buy the bubble theory,’ he stated. ‘Prices are just getting back to where they were before the economic crisis,’ he added.”

In response to High Tech Research Moves From U.S. To China, I received this Email from Mark N. ...
Hello Mish,

Great article about High Tech research moving to China.

This, unfortunately, fits in with my personal observations.

Many of my daughter's friends who are graduating college this year plan on beginning their careers in other countries.

The schools they are graduating from include Harvard Business School, MIT, Colorado School of Mines, St. John's College and Stanford.

They will be starting their careers in New Zealand, France, South Africa, Canada, Brazil and England. Even my daughter's job choice will probably have her traveling to Italy and Germany on a regular basis.

It was startling to see that many bright young people so willing to leave this country. I don't know how many of those young men and women will actually retain their U.S. citizenship. Some really didn't seem to care one way or the other.

From my conversations with them, it is my understanding that they are very aware of what is happening in this country, as well as the world, and just wish to keep their options open.

This anecdotal observation, combined with conversations with other parents and articles that I've read, leads me to believe that the U.S. is about to encounter a "brain drain" of the next generation.

Very concerned about the ramifications of current U.S. policies and humbly yours,
MarkBlog Comments Of Note

Malencid Writes:
In my science department 20 years ago the graduate students were 80% American, 20% foreign, mostly European and Japaneese. They all returned to their countries of origin. The INS was on their case 10 days after graduation. Today the ratio is 85% Chinese 15% Americans. None of the Chinese I've known ever return to China. All the support is ultimately coming from grants awarded to the Principal Investigator. These funds are all Federal.Fedwatcher Writes:This is Great Depression II papered over by programs created in Great Depression I so that the government's GDP figures hide the fact. Wake Up America! Silicon Valley's lust for indentured servants, H1-Bs, has morphed into the mechanism to transfer Silicon Valley to China and India.

The train has left the station and anyone paying on an $800,000.00 mortgage on a $1,000,000.00 Silicon Valley house will in as little as five years see themselves 50% underwater and their wages declining.

We need to immediately give a green card to every H1-B worker and end the H1-B program. If we need them, why should we ask them to leave? We either need them or we don't need them. As for foreign hard science Masters candidates, a green card, as for foreign hard science PhD candidates, a fast track to citizenship. But let us end this "indentured servitude" that harms the American worker and the H1-B worker. I don't want them to leave, I want them to be free to stay and not be exploited. This would take away the corporation's ability to cheat and game the system. Many of the successful start-ups in Silicon Valley were started by former (that is green card carrying) H1-Bs who latter became citizens.

The incentives today are for them to go "home" and start businesses there. We need to reverse that trend. For those of you not familiar with Applied Materials, they are the ones who make the secret sauce that transforms a silicon wafer into a product that drives technology. There are two firms that hold the keys to this kingdom: Applied Materials and KLA-Tencor. Now with Applied Materials moving to China, we have at most 5 years to fix things before it is "Game Over".Hang10-In-Panama Writes:I'll offer a few observations that have provided some context for me during a 20 year career as an engineer and corporate executive.

1 - I'm an American-born/raised, formally trained engineer (Registered Professional Engineer in Mechanical Engineering [FL]), trained at a top 10 engineering college here in the US. Many of the graduate students at the school I attended (casual observation suggests a majority) were either Indian or Chinese nationals, who were:
* very bright
* hard working
* multilingual
* self-motivated
* willing to travel wherever in the world their services were required
* did not have any sort of entitlement attitude - they worked strictly in a meritocracy

2) In my career of more than 20 years, I have worked with a number of individuals who were outstanding engineers (mostly field engineers as opposed to research engineers) who had no "formal" college-level engineering training. They were simply people with high levels of intellectual curiosity, and innate mechanical aptitude.

3. At present I'm engaged in systems-oriented work, and am working here in the US with two gentlemen from India who speak 4 languages, have Master's Degrees in Computer Science, are willing to travel away from their families for months at a time, do outstanding work (nights/weekends included) and are eager for the opportunity to apply themselves. All this for $32/hr US, which is roughly $64K/yr US (excluding benefits).

My personal response to the changing landscape is to have learned a foreign language (Spanish in my case), and gravitated towards work in areas that are less susceptible to globalized wage equilibrium. Specifically, those areas that outsourcing can't easily overcome, as the competitive advantage is related to geographic proximity. Things like domestic transportation/distribution optimization and strategic inventory management. Even so, there are large regulatory headwinds in even these areas that are a competitive disadvantage (ever try managing hazmat and/or CARB related items in California?)...

The next few years will be very interesting to watch in terms of where production and technical talent migrate, and more telling, what portion of the flux is driven by regulatory and bureaucratic considerations.

Should make for good fun watching from the sidelines as an expat in Panama...Meanwhile Back In The U.S.

Here is an article that typifies job hunting at its finest. Please consider Scores of job seekers vie for 75 positions
A line of hopeful job applicants snaked Friday through the parking lot of a grocery store that will open May 7 in Thousand Oaks. Throughout the morning, a steady stream of people kept arriving in the hope of finding work at Sprouts Farmers Market, which has taken over the former Circuit City location at Lynn Road and West Hillcrest Drive.

“I expect we’ll have about 1,000 to 1,200 applicants if it keeps up like this,” predicted Norv Rivera, who is overseeing the two-day job fair held all day Friday and again today from 9 a.m. to 2 p.m.

Rivera, the California human resources manager for the Arizona-based Sprouts, said that in the current slow economy, applicants are coming from all walks of life, with only about 15 percent having any direct retail experience.

“We have folks coming from the construction industry. We had an actor come by, and there are a lot of folks coming in from non-retail backgrounds,” he said.There are many interesting anecdotes in the above story offering strong evidence that Brain Drain and underemployment are both rampant.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

The United States and Canada have two very different housing finance systems; the U.S. system is much riskier, but both countries have virtually identical home-ownership rates. In fact, Canada's home-ownership rate is currently higher than the rate in the United States, despite a lack of government-subsidized housing finance. This difference calls into question the longstanding U.S. beliefs about the relationship between government-subsidized housing finance and home ownership. – Alex Pollock1

The draft transcript Sub VI Hotel for AEI's Feb 18th seminar "Canadian versus U.S. Housing Finance: Comparison and Implications" is now finished except for a final run-through and finishing touches.

So perhaps it's appropriate that on Thursday seminar chair Alex Pollock's "lessons learned" memo was published in the Wall Street Journal.  If you go to the WSJ version you'll see that the last paragraph's assertion is something Doomers have been hearing from me off and on for a long time.

Let's remember that the original sin of making Fannie a GSE in 1968 was to get it off the federal budget so the deficit looked smaller. Canada in this respect looks superior to the U.S. in candor as well as credit performance.

For the slightly younger Doomers out there who might have slept through that unit in History class, we're talking about the deficit including costs of the Vietnam War.  And guess what?  That chicken's still out there along with its friends AF & IQ, as represented by that $5 trillion or so of Fannie and Freddie debt which is still not quite on Uncle Sam's balance sheet.  Those chickens may not have quite come home to roost yet, but they're certainly scratching at the door.

——————-

[1]: "Why Canada Avoided a Mortgage Meltdown", by Alex J. Pollock, WSJ / AEI, March 18, 2010.

• Headlines in today's Seattle Times RE section focus on fixer-uppers & downsizing. Quite a shift from a couple years ago. http://is.gd/aySqh #
• It's always a good time to generate a commission! http://is.gd/aBKCJ #
• Zillow teams up with John L. Scott – http://digg.com/u1QNSW #
• While you're waiting for me to put up today's post, enjoy some frogs. http://tinyurl.com/y9gujhn #
• Home Builders $2.3 Billion "Gift" from Taxpayers http://is.gd/aIvUg via @CalculatedRisk #
• City Bank of Lynnwood faces regulatory ultimatum http://is.gd/aKHiZ via @SeattleTimes #
• Treasurer of Maison Ville Condos on Capitol Hill embezzled $80k over 4 years from HOA fund http://is.gd/aKT2c #
• RT @KirstenGrind: #Sterling Financial says it found private equity money, but won't say from who. http://bit.ly/d99xml #
• Hah! "I Wasn't Going To Buy This House Until I Saw The Realtor's Headshot On The Sign" http://is.gd/aLsI0 (ht @ArdellD) #
• So far three of the four speakers at #PNWHS have mentioned that they were specifically asked to make their presentations upbeat. #
• Over at @SeattlePI they run down some of the many incentives flowing freely in the rental market today. http://is.gd/aNIkq #
• Frontier Bank insists that everything is under control. For reals you guys. http://is.gd/aNIrq #
• A short story from @KING5Seattle on the local commercial real estate market: http://is.gd/aNIH5 #
• Thanks to @jillayne, I was finally personally introduced to Lennox Scott. #
• I invited Lennox Scott again to an interview, he said he would have to pass me to Shelley Rossi again. (Last time: http://is.gd/aNPir ) #
• What a shock, Spencer Rascoff of @Zillow says the #1 way 4 agents 2 adapt 2 the internet 2 to syndicate their listings… #PNWHS #
• J. Lennox Scott just explained his $19k homebuyer purchase advantage theory at #PNWHS http://is.gd/aNRyQ #
• No joke, I heard "amens" and "hallelujahs" from the agent crowd here at #PNWHS during and after J. Lennox Scott's speech / pep talk. #
• Sweet, Zillow jumps on the Android bandwagon: http://is.gd/aNZlw #
• The Think Big Work Small guys (@ilovetbws) are still standing by their OneWest Bank story at the #PNWHS breakout panel. #
• Listening to @MikeSimonsen trying to teach real estate agents how to use data and statistics to become local market experts at #REBCSEA #
• .@MikeSimonsen: "How's the market?" Room full of agents: "It's great!" Mike: "No matter how bad the market is agents always say it's great." #

Powered by Twitter Tools

There have been 205 bank failures in this cycle (starting in 2007):

FDIC Bank Failures by Year 200732008252009140201037Total205
Click on graph for larger image in new window.

The first graph shows bank failures by week in 2008, 2009 and 2010.

The FDIC started fast in 2010, but slowed down when the snow storm hit D.C. - now it looks like the pace is picking back up again.

My (easy) prediction is the FDIC will close more banks in 2010 than in 2009 (more than 140), but fewer banks than in 1989 - peak of the S&L crisis (534 banks).

The second graph shows bank failures by year since the FDIC was started.

The 140 bank failures last year was the highest total since 1992 (181 bank failures).

For those interested in bank failures by number of institutions and assets, the December Congressional Oversight Panel’s Troubled Asset Relief Program report through Nov 30th for 2009 (see page 45).