the visible hand

it is the theory which decides what can be observed – einstein

Archive for February, 2008

good news for the north coast

Posted by ecoshift on February 28, 2008

This just in from the Blown Mortgage blog:
Wells Fargo Names Most of California Severely Distressed…
and, Del Norte, Humboldt and Mendocino are not on the list.

“Wells Fargo has named nearly every California county a “Severely Distressed Market” which requires LTV reductions of 5% for any conforming loan over 75% LTV and also eliminates financing over 75% LTV for any non-conforming loan. The Wells Fargo Mortgage Express product (which is Wells Fargo’s stated income/stated asset program) is also not permitted in “Severely Distressed Market” areas.”

Check out the link above to see the list of counties. If you are looking for a good deal on a house you’ll at least have to go to Sonoma — though it’s only distressed, not severely distressed. For a real deal you might have to go as far as Napa. You’ll need to bring cash, but you’ve got time.

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House Votes to End Big Oil’s Tax Breaks, Passes Renewable Energy Credits

Posted by ecoshift on February 28, 2008

House Votes to End Big Oil’s Tax Breaks – washingtonpost.com
By Steven Mufson
Washington Post Staff Writer
Thursday, February 28, 2008; Page A03

The House of Representatives brushed aside threats of a White House veto yesterday and voted 236 to 182 in favor of an $18 billion tax package that would rescind a tax break for the five biggest oil companies and use the revenue to boost incentives for wind and solar energy and energy efficiency.

The measure now heads to the Senate, where Democrats face a challenge in getting enough support to bring the bill to a vote. This is the fourth time in the past year that Democrats have tried to get the package adopted.

The Bush administration, Republican lawmakers and big oil companies condemned the bill, which they said would raise fuel prices for consumers, discourage oil and gas exploration in the United States and unfairly discriminate against a single industry while other manufacturers continue to enjoy tax breaks.

But hours after crude oil hit a new high of $102 a barrel on the New York Mercantile Exchange, most lawmakers said they saw no reason why the oil industry couldn’t pay an additional $1.8 billion a year in taxes over the next 10 years.

“We don’t think it’s asking too much to ask them to assist in a partnership to help find out whether there’s a better way to meet our energy needs,” said Charles B. Rangel (D-N.Y.), chairman of the House Ways and Means Committee. He called the money raised from the oil giants “grains of sand on the beach.”


House Passes Renewable Energy Credits – New York Times
By DAVID M. HERSZENHORN
Published: February 28, 2008

WASHINGTON — The House on Wednesday approved a bill to extend more than $17 billion in tax credits and other incentives to encourage the production of energy from solar, wind and other renewable sources, and to promote energy conservation. The bill would be financed by ending tax incentives for oil and natural gas producers.

Democratic leaders in the House hailed the legislation as a step toward energy independence and a moral victory for protecting the environment, by encouraging production of clean alternative fuels. But the White House threatened to veto the bill, saying it would be a mistake to increase the tax burden on American oil companies.

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One in Five Expect to Borrow to Heat Homes This Winter

Posted by ecoshift on February 28, 2008

One in Five Expect to Borrow to Heat Homes This Winter
by Connie Prater, CreditCards.com
Tuesday, December 18, 2007

For perhaps as many as 27 million American adults, keeping warm this winter will mean borrowing money and 20 million will use credit cards to be able to afford their heating bills, according to a CreditCards.com poll.

Nearly 12 percent of Americans say they will need to borrow money to pay winter heating bills; 9 percent will need to use credit cards to be able to afford their heating bills. The poll, commissioned by CreditCards.com and conducted by GfK Roper Public Affairs & Media, surveyed 1,004 randomly selected American adults by telephone Dec. 7-9, 2007 to gauge their attitudes about energy costs in 2008.

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Decline in Home Prices Accelerates

Posted by ecoshift on February 26, 2008

Home prices down, oil up, dollar index set to hit new lows.

And stocks are up. Go figure.

Wonder what the drop in US home prices looks like measured in Euros.


Decline in Home Prices Accelerates – WSJ.com
Fed’s Efforts Have Only Muted Effect On Mortgage Rates
By KELLY EVANS, SERENA NG and RUTH SIMON
February 27, 2008; Page A1

The decline in U.S. home prices accelerated in the fourth quarter, according to two leading barometers, compounding two of the biggest threats facing the nation’s economy: faltering consumer spending and tight credit markets.

The S&P/Case-Shiller national home-price index for the fourth quarter fell 8.9% from a year earlier, the largest drop in its 20 years of data. And the Office of Federal Housing Enterprise Oversight’s index — which tracks only homes purchased with mortgages guaranteed by home-loan giants Fannie Mae or Freddie Mac — was down 0.3%, the first year-to-year decline in the measure’s 16 years.Lower home prices threaten the economy’s growth by making consumers feel less wealthy and thus less willing to spend. They also curtail homeowners’ ability to borrow against the value of their homes to finance other purchases. In addition, lower housing prices erode the value of banks’ collateral, prompting them to tighten their lending standards, which further damps economic growth.

A top Federal Reserve official indicated the housing slump and its broadening impact on the economy probably would keep the central bank biased in favor of more interest-rate cuts. “It appears that the correction in the housing market has further to go,” Fed Vice Chairman Donald Kohn said yesterday in a speech in North Carolina. Mr. Kohn said that the downturn, after being “contained” for nearly two years, “appears to have spread to other sectors of the economy.” He added that if the housing market deteriorates more than expected, “lenders might further reduce credit availability.”

The Fed’s efforts so far to soften the blow of the housing slump with lower interest rates appear to be having a muted effect. Since September, the Fed has reduced its target for short-term interest rates by 2.25 percentage points to 3%. But some mortgage rates are actually rising, and those that are falling haven’t fallen that much.

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IMF ‘must reform to remain relevant’

Posted by ecoshift on February 25, 2008

Well golly. I guess so. Time was the IMF would loan money to developing countries contingent on their adopting enlightened economic policies — adjusting them structurally. All for their own good of course. Turns out the countries that followed IMF advice the least are the ones in the best shape today. Now they are loaning us money and investing in our bailouts. We surely wouldn’t want any upstart sovereign wealth funds imposing any IMF style fiscal discipline on us should we fall behind by a payment or two or fail deliver expected returns. High time for some reform. All for our own good of course.

Joseph Stiglitz has a recent article Financial Hypocrisy that points out, in a much more professional tone:

“Looking back at the [Asian Financial] crisis a decade later, we can see more clearly how wrong the diagnosis, prescription, and prognosis of the IMF and United States Treasury were. Had, for instance, Korea’s problems been as severe and fundamental as they had suggested, Korea would not have enjoyed the rapid comeback it had. The fundamental problem was premature capital market liberalization. Malaysia imposed capital controls, and as a result it had the shortest and shallowest of downturns; and when it recovered, it was left with less of a legacy of debt. Yet this lesson seems to be ignored with respect to India. It is ironic to see the US Treasury Secretary once again pushing for capital market liberalization in India one of the two major developing countries (along with China) to emerge un-scathed from the 1997 crisis…

“The contrast between the IMF/US Treasury advice to East Asia and what has happened in the current sub-prime debacle is glaring. East Asian countries were told to raise their interest rates, in some cases to 25%, 40%, or higher, causing a rash of defaults. In the current crisis, the U.S. Federal Reserve and the European Central Bank cut interest rates, fearing the collapse that high interest rates could cause.

“The countries caught up in the East Asia crisis were lectured on the need for greater transparency and better regulation. But lack of transparency played a central role in this past summer’s credit crunch; toxic mortgages were sliced and diced, spread around the world, pack- aged with better products, and hidden away as collateral, so no one could be sure who was holding what. Yet, there is now a chorus of caution about new regulations, which supposedly might hamper financial markets (including their exploitation of uninformed borrowers, which lay at the root of the problem). Finally, despite all the warnings about moral hazard, Western banks have been partly bailed out of their bad investments. It would be reassuring if this contrasting attitude to today’s crisis represents a learning of what I preached ten years ago. Am I too cynical in suggesting that it is simply hypocrisy?”

To paraphrase Lily Tomlin: no matter how cynical you get, it’s hard to keep up.

Check out the whole article here:
Stiglitz, Joseph E. (2007) “Financial Hypocrisy,” The Economists’ Voice: Vol. 4 : Iss. 6, Article 2.
Available at: http://www.bepress.com/ev/vol4/iss6/art2

Now for the Financial Times article:


FT.com / World – IMF ‘must reform to remain relevant’
By Krishna Guha in Washington
Published: February 25 2008 22:18

The US stepped up its call for reform of the International Monetary Fund on Monday, calling for a shake-up of its executive board as well as its shareholding structure to give greater weight to emerging economies.

David McCormick, the undersecretary for international affairs at the US Treasury, proposed cutting the number of executive directors from 24 to 20 and eliminating the rule that reserves positions for the US, Japan, Germany, France and Britain. The proposal is likely to result in fewer European directors on the IMF board.

Mr McCormick said if a reform package were agreed in time, the Bush administration would go to Congress this year to seek approval for the sale of some of the IMF’s gold to establish an endowment to finance its operations.

The call marks an effort to renew the momentum for reform of the IMF. Dominique Strauss-Kahn, the new managing director, favours governance reform but has been focused on the credit crisis and, internally, on the need to find $100m in budget cuts. Mr McCormick said: “The IMF must reform to remain relevant.” Afterwards, he told the Financial Times that the fund had to update its mission, governance structure and financial model to be effective.

He pressed the IMF to make use of its recently enhanced mandate to monitor exchange rates more aggressively.

“If the IMF fails to shoulder this fundamental responsibility, all other reforms will ring hollow,” he said. He also called on the IMF to make “meeting the unique challenges posed by sovereign wealth funds” a second priority.

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Home sales slip 0.4% in January despite drop in prices

Posted by ecoshift on February 25, 2008

More signs of home sales weakness – CNNMoney.com

Realtors’ group report shows lowest level in existing sales since it began keeping records in 1999.
February 25 2008: 11:15 AM EST

NEW YORK (CNNMoney.com) — The new year picked up where 2007 left off, as sales of existing homes fell in January to the lowest level in nearly a decade, according to a reading by an industry trade group released Monday.

The National Association of Realtors reported that sales by homeowners fell 0.4% in January to an annual pace of 4.89 million, down from the revised December reading of 4.91 million. Home sales were down

The reading was the lowest since the group began reporting annual sales pace in 1999, down 23.4% from a year earlier. Nevertheless, sales narrowly beat expectations. Economists surveyed by Briefing.com expected the report to show existing home sales slowed to an annual pace of 4.8 million.

Despite beating forecasts, analysts remained skeptical.

“This is more doom and gloom,” said Northern Trust chief economist, Paul Kasriel. “The mind set for buyers now is, ‘if prices are falling, why do I want to buy an asset that’s going down in price?'”

The median price of a home sold during the month fell 4.6% to $201,100 from $210,900 a year earlier. Before the start of the current housing slump, it had been 11 years since prices fell compared to a year earlier.

The median price of a single-family home dropped to the lowest point since February 2005, falling 5.1% to $198,700. The trade group has tracked those sales prices going back to 1989.

The excess supply of homes on the market rose in January. Realtors estimated that there are now 4.2 million homes available for sale, which represents more than a 10-month supply. That is up from the 9.7-month supply in December.

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Fed rate cuts can’t stop long-term rates from rising

Posted by ecoshift on February 25, 2008

Interest rates: The new conundrum
By Chris Isidore, CNNMoney.com senior writer
February 25 2008: 8:25 AM EST

NEW YORK (CNNMoney.com) — The Fed has lowered short-term interest rates this year but longer-term bond yields have risen. Call it the new conundrum. And it’s adding to the confusion on Wall Street about the economy.

In his final year as chairman of the Federal Reserve, Alan Greenspan repeatedly talked about a “conundrum” in the markets. He was referring to the fact that rates for the 10-year U.S. Treasury and 30-year mortgages remained low even as the Fed jacked its key short-term federal funds rate from 1% to 4.5%.

This conundrum didn’t go away after the Maestro retired either.

By the time Greenspan’s successor Ben Bernanke was done raising rates in June 2006, the yield on the 10-year Treasury stood at 5.22% while the federal funds rate was at 5.25%

What’s more, the 10-year yield was only 0.6 percentage points higher than where it was when the rate hikes began two years earlier. The average 30-year fixed rate mortgage had risen by less than a half-point.

These low long-term rates helped fuel the home building boom and the credit market’s appetite for securities backed by increasingly riskier mortgage loans. And it arguably put the economy into the trouble the Fed finds itself dealing with today.

So starting last September, the Fed started trimming rates. And last month, it slashed rates, with two cuts totaling 1.25 percentage points in a little more than a week.

But long-term rates are once again moving in the opposite direction of the Fed: the yields on the benchmark 10-year Treasury note and fixed-rate mortgages are higher now than where they were in late January. This could add to pain in the housing market…or be cause for optimism. It depends on who you ask.

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Sales at Lowe’s down 7.6%

Posted by ecoshift on February 25, 2008

Lowe’s forecasts year profit below estimates | Reuters
Mon Feb 25, 2008 8:03am EST

Sales edged down to $10.38 billion from $10.41 billion a year earlier. Analysts expected sales of $10.6 billion for the quarter, according to Reuters Estimates. Sales at stores open at least a year, or same-store sales, fell 7.6 percent.

The home improvement sector has suffered as consumers pulled back spending on home renovations in the face of declining home values, lower sales and tighter credit requirements.

Home Depot is expected to report lower quarterly results on Tuesday

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The answer is blowing in the wind…

Posted by ecoshift on February 23, 2008

Sandwiched in the middle of this article about Texas wind farms is the news that foreign companies own two thirds of the wind power projects under construction in Texas. Implicit in the Texas model: the US, the “leader of the free world”, has to turn to foreign capital and expertise to build clean tech projects on home soil. Guess we’d better learn to follow.

“Stupid is as stupid does.”
— Forrest Gump


Move Over, Oil, There’s Money in Texas Wind – New York Times
By CLIFFORD KRAUSS
Published: February 23, 2008

SWEETWATER, Tex. — The wind turbines that recently went up on Louis Brooks’s ranch are twice as high as the Statue of Liberty, with blades that span as wide as the wingspan of a jumbo jet. More important from his point of view, he is paid $500 a month apiece to permit 78 of them on his land, with 76 more on the way.

“That’s just money you’re hearing,” he said as they hummed in a brisk breeze recently.

Texas could be a model for the entire nation,” said Patrick Woodson, a senior development executive with E.On, a German utility operating here.

The quaint windmills of old have been replaced by turbines that stand as high as 20-story buildings, with blades longer than a football field and each capable of generating electricity for small communities. Powerful turbines are able to capture power even when the wind is relatively weak, and they help to lower the cost per kilowatt hour.

Much of the boom in the United States is being driven by foreign power companies with experience developing wind projects, including Iberdrola of Spain, Energias de Portugal and Windkraft Nord of Germany. Foreign companies own two-thirds of the wind projects under construction in Texas.
[emphasis added]

It has dawned on many Texans in recent years that wind power, whatever its other pros and cons, represents a potent new strategy for rural economic development.

Since the wind boom began a few years ago, the total value of property here in Nolan County has doubled, and the county judge, Tim Fambrough, estimated it would increase an additional 25 percent this year. County property taxes are going down, home values are going up and the county has extra funds to remodel the courthouse and improve road maintenance.

“Wind reminds us of the old oil and gas booms,” Mr. Fambrough said.

Teenagers who used to flee small towns like Sweetwater after high school are sticking around to take technical courses in local junior colleges and then work on wind farms. Marginal ranches and cotton farms are worth more with wind turbines on them.

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Capitalism in an Apocalyptic Mood

Posted by ecoshift on February 22, 2008

Walden Bello weighs in with a perspective on the credit crisis not constrained by US nationalism.


Foreign Policy In Focus | Capitalism in an Apocalyptic Mood
Walden Bello | February 20, 2008
http://www.fpif.org

Skyrocketing oil prices, a falling dollar, and collapsing financial markets are the key ingredients in an economic brew that could end up in more than just an ordinary recession. The falling dollar and rising oil prices have been rattling the global economy for sometime. But it is the dramatic implosion of financial markets that is driving the financial elite to panic.

And panic there is. Even as it characterized Federal Reserve Board Chairman Ben Bernanke’s deep cuts amounting to a 1.25 points off the prime rate in late January as a sign of panic, the Economist admitted that “there is no doubt that this is a frightening moment.” The losses stemming from bad securities tied up with defaulted mortgage loans by “subprime” borrowers are now estimated to be in the range of about $400 billion. But as the Financial Times warned, “the big question is what else is out there” at a time that the global financial system “is wide open to a catastrophic failure.” In the last few weeks, for instance, several Swiss, Japanese, and Korean banks have owned up to billions of dollars in subprime-related losses. The globalization of finance was, from the beginning, the cutting edge of the globalization process, and it was always an illusion to think that the subprime crisis could be confined to U.S. financial institutions, as some analysts had thought.

Some key movers and shakers sounded less panicky than resigned to some sort of apocalypse. At the global elite’s annual week-long party at Davos in late January, George Soros sounded positively necrological, declaring to one and all that the world was witnessing “the end of an era.” World Economic Forum host Klaus Schwab spoke of capitalism getting its just desserts, saying, “We have to pay for the sins of the past.” He told the press, “It’s not that the pendulum is now swinging back to Marxist socialism, but people are asking themselves, ‘What are the boundaries of the capitalist system?’ They think the market may not always be the best mechanism for providing solutions.”

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