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Monday, December 21, 2009

The recovery real estate lie is on

Again a very good piece from Reggie Middleton - we know that banks are hiding many losses in their balance cheats in order to earn them through the steep yield curve but the time is running out on that as the curve might implode for many reasons. They would need to curve to stay stable for a decade to earn back those losses and that can not be achieved as the problems are mounting on all ends and the upcoming mid term elections will make it even tougher. It is a lost decade for regular investors but it was a great decade for bankers as they are the only winner besides the corrupt politicians. After Clinton took away Glass Steagall he gathered tens of millions in speeches for Wallstreet after his presidency - that's a legal way to collect the 'fee's'. He also started again the statistics fraud showing lesser inflation and higher GDP growth which Bush took up and extended - Obama did not bring any 'change' to that DC fraud.

Excerpt 1
http://www.apfn.org/THEWINDS/archive/government/evans-pritchard-1-04-98.html

"The Clintons look good from a distance. As Yale Law School graduates they have mastered the language and style of the mandarin class. It is only when you walk through the looking glass into the Arkansas underworld they came from that you begin to realize something is horribly wrong.

"You learn that Bill Clinton grew up in the Dixie mafia stronghold of Hot Springs, and that his brother, Roger, was a convicted drug dealer who was once taped during under-cover surveillance saying 'got to get some for my brother, he's got a nose like a vacuum cleaner'. [1] You learn about sworn testimony that links Clinton to cocaine smuggling in the early 1980's. You learn that Clinton's chief of security in Little Rock was gunned down in 1993 by assassins who seem to be enjoying immunity."

As Mr. Evans-Pritchard points out, Bill Clinton does not hold exclusive rights to being the only U.S. president with mob connections. "Harry Truman, for instance, was a protégé of the Pendergast crime machine in Kansas City. All you have to know about Bill Clinton is that he chose Patsy Thomasson - top lieutenant of convicted cocaine dealer Dan Lasater - to be his White House chief of personnel."

"Once that has sunk in," the British journalist says, "you can start to understand how seriously this president has been compromised, and how much of a threat he could pose to the democratic system if allowed to get away with incremental abuse at a national level."




Excerpt 2
http://www.zerohedge.com/article/we-are-still-very-much-bubble-yet-many-analysts-are-preaching-recovery-why

We are still very much in a bubble, yet many "analysts" are preaching recovery. Why???


As many people focus on commercial real estate exposure, they forget that we are only about halfway or so through the residential crash. The $8k homebuyer tax credit did serve to support the lower end of the residential market (from my anecdotal observations), but did very little to solve the problem. Basically, prices must fall, credit must be loosened or incomes must rise in order to stabilize home prices. With 10% plus unemployment (incomes have actually dropped since the initial bubble burst) and banks holding on to cash tighter than Fido grips his steak bone, you know what prices really need to do to reach equilibrium. Click the graphs below to expand.

Unsustainable government policies prove.... Unsustainable, with very transient results

tax_credit_performance.jpg

Most people, including so-called professionals don't get it. We are still very much in a protracted housing bubble.

case_shille__change_april_09.png

Yes, housing prices collapsed. Yes, it hurt - a lot! Remember, housing prices are a function of supply and demand. We have gobs of supply from overbuilding - See "Who are ya gonna believe, the pundits or your lying eyes?" and "Who are you going to believe, the pundits or your lying eyes, part 2". for a clear understandng of how bad off this vital urban and suburban market actually is. We have decreased demand due to stingy banks (tightened credit) and high unemployment. In terms of unemployment, we are already breaching the worst case scenario projection of the government's stress tests - two years into the future!

scap_unemployment.png

As you can see, the major driver of future bank credit losses has been woefully underestimated, and thus the capital requirements of said banks have been woefully underestimated, among other things. Now, what happens to home prices when you have lower income? Well...

price_to_income.png

Yes, we are still very much in a bubble!Once you come to the realization that we are still in a bubble that has yet to finish bursting, you can come to grips with the realization that we are already following in the Japanese "lost decade" footsteps, lockstep even.

lost_decade.jpg

Reference "They ARE trying to kick the bad mortgages down the road, here's proof!" and "More on kicking that housing can down the road...". We have government complicity in the purposeful opacity of the values of the mortgage assets. See the FDIC "Prudent Commercial Real Estate Loan Workouts" guidance issued Oct 30th, as reported by the WSJ: Banks Hasten to Adopt New Loan Rules and the new FDIC guidance that states performing loans "made to creditworthy
borrowers" will not require write downs "solely because the value of the underlying collateral declined"). It really does appear that many have adopted this false sense of security even as I tried to warn about in such a bombastic fashion in "You've Been Bamboozled, Hoodwinked and Lied To! Here's the Proof. What Are You Going to Do About It?".

Now, for those of you who believe that the government's "pretend and extend" policy has any chance in hell of working (the prevailing logic is that we hide the losses long enough for banks to earn their way out of the hole) let's see how well that EXACT SAME tact worked for Japan. There are nearly no Japanese banks in the top 20 bank category on global basis by 2003 - NONE (save potentially Nomura, which arguably survived in name, alone). As you can see, they literally dominated 90% of the space in 1990!

Click to enlarge...

top_20_banks.jpg

Source: Cap Gemini Banking M&A

With the government's explicit consent, we are doing exactly what the Japanese did with their banks. Hiding losses and failing to take the proper writedowns, hence condemning our stature as global banking leaders. Our only saving grace is that this time around, the rest of the world is in a very similar boat. We are definitely going to fall, it is just that much of the other global banking centers are going to fall with us!

There is little wonder that as Moody's is set to downgrades (belatedely) $143 Billion Of Jumbo RMBS, as reported by Zerohedge, they are actually quite late to the party - as usual. The pure mortgage insurers are getting creamed by claims and losses, and the hybrids (Fannie, Freddie, etc.) are ready to ask for a couple of hundred EXTRA billion from the taxpayer. I am at a loss to see the improvement.

So, how far do we have to go? Well...

cpi_defaled_house_prices.png


real_home_prices.png

Recall "The Truth! The Truth? Banker's Can't Handle the Truth!!!"

CNBC comes out with "US to Push Mortgage Lenders To Modify More Home Loans: The US Treasury announced plans to push lenders to modify more loans after the administration's $75 billion housing rescue plan, called Making Home Affordable, fell short and foreclosures continued rising."

Hmmm... $75 billion is a lot of money. Mayhap the problem is that the banks know how useless pushing on a string is, or mayhap $75 billion is not enough to stem $304 billion (and counting) in Alt A and subprime losses that are still in the pipeline (see graphic below).

It gets worse though. Let's glance at the non-conforming loan losses that have already occurred in comparison to the SCAP projections that justified the return of TARP in many cases. Recovery rates had the illusion of increasing ever so slightly due to an increase in prices as illustrated by the Case Shiller index. I have expressed my doubts about this housing price recovery for several reasons, the least of which is the construction flaws in the index itself which fail to capture the nature of the transient price increases, namely the activity of short term investors and flippers (see On the Latest Housing Numbers). There are some areas that have witnessed some firming of pricing though, but that firmness is the result of the Fed and Treasury trying to blow another bubble within a bursting bubble and is more than outdone by the rampant deterioration in credit quality of loans that result in the dumping of foreclosures -> REOs -> short turnaround sales/flips (via investors, which are not captured by Case Shiller, hence the illusion of a firming market in the lower end of housing prices) all over the place.

image019.png

CNBC comes out with "US to Push Mortgage Lenders To Modify More Home Loans: The US Treasury announced plans to push lenders to modify more loans after the administration's $75 billion housing rescue plan, called Making Home Affordable, fell short and foreclosures continued rising."

Hmmm... $75 billion is a lot of money. Mayhap the problem is that the banks know how useless pushing on a string is, or mayhap $75 billion is not enough to stem $304 billion (and counting) in Alt A and subprime losses that are still in the pipeline (see graphic below).

It gets worse though. Let's glance at the non-conforming loan losses that have already occurred in comparison to the SCAP projections that justified the return of TARP in many cases. Recovery rates had the illusion of increasing ever so slightly due to an increase in prices as illustrated by the Case Shiller index. I have expressed my doubts about this housing price recovery for several reasons, the least of which is the construction flaws in the index itself which fail to capture the nature of the transient price increases, namely the activity of short term investors and flippers (see On the Latest Housing Numbers). There are some areas that have witnessed some firming of pricing though, but that firmness is the result of the Fed and Treasury trying to blow another bubble within a bursting bubble and is more than outdone by the rampant deterioration in credit quality of loans that result in the dumping of foreclosures -> REOs -> short turnaround sales/flips (via investors, which are not captured by Case Shiller, hence the illusion of a firming market in the lower end of housing prices) all over the place.

image019.png

Subprime delinquency, charge-off and foreclosure rates are still flying through the roof - with many other categories rushing to keep up. This is as I described from the beginning (2007) through the Asset Securitization Crisis series - there was an underwriting induced crisis and never a true "subprime crisis". As such, there is a very strong chance that many other loan categories may outstrip subprime loans in terms of aggregate losses. It hasn't happened yet, but the Alt-A category is hot on subprime's heels (see below). Construction and CRE will follow up the rear with unsecured consumer (ex. credit cards) and commercial loans fighting to get into the race.

image021.png




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