Monday, October 24, 2011

notes on the week ended Oct 22nd

there was an interesting and probably nationally significant ruling on real estate ownership handed down by the Massachusetts Supreme Court on tuesday that will at least affect those homes with clouded titles which have be foreclosed on and then sold by the banks, and may affect any other number of homes in which the banks failed to convey title properly through securitization and thus have clouded the titles; in the case of "Bevilacqua v. Rodriguez", (scribd) the court ruled that a  home buyer cannot claim title to a home if the bank that sold it to him didn’t have the right to foreclose on the original owner (a legal clarification of the ruling by law professor adam levitin is here)...this case was a followup to a 2009 decision, U.S. Bank v. Ibanezdiscussed here, wherein a foreclosure initiated in 2006 was overturned because the bank failed to show proof of ownership on the home that they foreclosed on, because the documentation of the numerous title transfers during securitization was never filed...i have long known this to be a problem, but seeing the property records of my neighbors declared "unreliable and unverifiable" last week sure brought the problem into focus; i assume that any "homeowner" losses that may occur as a result of this decision will be covered by the title insurance companies, but i have not seen an official opinion on this either..nor do i have a clue what one's liability would be should one attempt to sell a home with such a clouded title...this decision still seems to leave those toxic titles transferred during this process out there in limbo, and whether all the kings horses & all the kings men will ever be able to put this mess back together again still remains to be seen...

there was what was called a “trial balloon” floated in the mortgage-fraud settlement being pushed by the administration, the OCC, & the majority of the state attorney generals whereby the banks would pay a small fine & be released from future liability in exchange for refinancing homes that are underwater, current on payments, & owned by the banks outright (ie not securitized) – the banks would be giving up the higher income stream they’ve been receiving from those few underwater homeowners who’ve been unable to refinance, but they cant do that for the majority of loans that are securitized because there are 3rd parties are involved…as of now, 7 attorney generals remain opposed to the settlement, & california’s kamala harris, who’s been on & off the fence, this week subpoenaed Bank of America for selling toxic mortgage-backed securities to california investors “under false pretenses”...

in a separate BofA issue, associated with it’s third quarter accounting gimmickry, the bank moved what was said to be $75 trillion in risky derivatives from its Merrill Lynch unit to a bank subsidiary “flush with insured deposits”, with Fed approval, but over strenuous objections from the FDIC…the derivatives themselves arent insured by the FDIC, but they would have senior status over the deposits, which means that the bank could use its deposit base to pay off the derivatives if necessary, forcing the FDIC to step in to make the depositors whole…as bad as all that is, what i want to focus on is the amount, $75 trillion, which was confirmed by the comptroller of the currency; that's 5 times the annual GDP of the entire country! i’ve had a long running unease about the nominal amounts of derivatives outstanding, now said to be $600 trillion, down from a crisis high of over a quadrillion, but i’ve always been told not to worry, that’s only the nominal amount, they cancel each other out when they’re settled and the banksters pocket their fractional percentages; that may be true in the universe of derivatives, but any subset of them is enough to destabilize a systemically important institution – just ask AIG!

Total Housing Starts and Single Family Housing Starts there were a few monthly housing related reports to note this week; first, seasonably adjusted existing home sales fell from an annual rate of 5.06 million in august to a rate of 4.91 in september; still 11.3 percent above the 4.41 million unit pace the same month last year; sellers were said to be holding properties off the market, hoping for higher prices...but not boding well for future sales, mortgage applications fell to their lowest in 15 years this week, after a post "operation twist" spike in mortgage rates, which had been at records lows....new home starts in september, at a seasonally adjusted annual rate of 658,000, were 15% higher than september, almost entirely on the strength of multi-family starts (click adjacent chart); realizing that housing starts usually slow going into fall, i meant to check both of these reports for actual figures but time didnt permit…bill mcbride at calculated risk, who follows housing closer than anyone, forecast that this years housing completions will again hit a record low, breaking last years record, but that rising starts of multifamily units will showing completions of those rising by year end (see his graphs)

realizing we’ve got an inventory of 3.5 million homes for sale nationwide, and an even larger shadow inventory of homes held off the market or delinquent and likely to be foreclosed on, two senators introduced a bill on thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the US; something i’ve always advocated (i actually thought we could auction off such visas)…but the bill falls short of what i would like to see; first, in the high mcmansion level limit, which wouldnt apply to most of our housing inventory, and second in that the visas are for residence only, hence immigrants wouldn't able to work

i should mention the flurry of excitement in the econo-blogosphere over a goldman sachs economic note which recommended the Fed abandon their low inflation target and instead target nominal GDP, which was subsequently endorsed by paul krugman; this isnt a new idea, in fact, it's been advocated for years by a couple market monetarists who've i've always thought to be somewhat quixotic, scott sumner and david beckworth...obviously, IF the Fed could goose nominal GDP, it would likely increase employment, and i dont see inflation as a problem; but there has been no indication from anyone at the Fed they would consider targeting nominal GDP (written as NGDP), nor is that considered to be part of the Fed's mandate, so there'd likely be political pushback against such a change; nonetheless, if you're interested in the proposals, there's a bunch of links on it near the beginning of this weeks GGO blogpost, right after the handful on bernanke's speech...

as we figured would happen last week, the president's jobs bill is being re-introduced in the Senate piecemeal, to see what parts of it might pass; the first segment introduced this week was a $35 billion bill to help re-hire teachers police and firefighters who've been laid off at the local level; but senate republicans, joined by three conservative members of the democratic caucus, blocked any floor debate on it in a 50-50 vote to support a filibuster, so it went nowhere; indications are also that the supercommittee of congress which is charged with finding $1.2 trillion of spending cuts is also going nowhere, which may mean the automatic $1.2 trillion in cuts negotiated during the debt limit standoff would take effect after thanksgiving; on wednesday, the supercommittee was said to have met privately with the notorious "gang of six", who had advocated cuts to medicare, social security COLA, tax cuts for the rich, & an end to the mortgage interest deduction...

i should also mention that a new study released this week which was led by physicist Richard Muller, a prominent climate-change skeptic, and funded in part by the anti-science Koch brothers, reviewed more than a billion temperature records dating back to the 1800s from 15 sources around the world and confirmed what NASA & the british Met office have been saying all along, that the planet has in fact warmed by 1.8F since the 1950s; while this should settle it for the scientists, there's already been pushback from the deniers...i've always accepted that the planet was warming, but i’ve always suspected that heating incidental to human activity might be a greater contributor to AGW than the greenhouse effect, but i had never seen it quantified; but this week Takashi Hirose, a japanese scientist, in showing that nuclear power is no answer to warming, computed that in japan's nuclear energy program before fukushima, two thirds of the heat energy, or approximately 100,000,000 kilowatts of energy per day, was being lost; meaning "that every day they were pumping into the sea energy equivalent to 100 of the atomic bombs dropped on Hiroshima"...i am guessing the heat loss from other forms of electric generation is comparable, but whatever the case, it's obvious that our heating of the planet goes far beyond the heat trapped by human generated greenhouse gases...a separate studied show that our global warming is already baked in, & that sea levels would continue to rise for 500 years irregardless, so i'd think that rather than being overly concerned about mitigation, adaption planning should become part of policy...

early this week, articles were appearing saying that Oct 23 was some kind of deadline for europe, suggesting that if there wasnt an agreement by today, europe would go to hell in a handbasket and the rest of the world would quickly follow...but first germany threw cold water on the timetable, then france, threatened by a moodys downgrade, backed off of their commitment to a $2 trillion plan...so now they are planning a six day marathon meeting starting today to iron out their differences; although they approved the next tranche of funds for greece, they still have yet to increase the funding of their EFSF to cover spain & italy (whose ten year bond rate spiked to over 6% this week), renegotiate the haircut on greek debt from 21% to something near 60%, and come up with a better plan for bank recapitalization than the €80bn floated this week (some estimates are of as much as €413 billion of recap)…& of course, the european whole play by play is at the end of this week's blogpost...

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me

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