The Coming Recession

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As ye sow, so shall ye reap...

Wall Street crisis means big job losses
Thursday 24th April, 2008 - Employment analysts in the US say New York's Wall Street could shed over 35,000 jobs due to the financial credit crisis.

The ratio of losses would be one in five jobs, which would have serious consequences for the city's economy.

In New York, layoffs and falling profits on Wall Street pose a greater risk to the local economy than the housing-led downturn throughout the country.

At the end of last month, there were 182,300 people working at banks and financial service offices; down more than 5,000 jobs since September.

Wall Street crisis means big job losses

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ARM loans draining the middle class...

Middle class taps nest eggs to keep homes
Sun Apr 27, 2008 - Trapped by rising mortgage payments and falling house values, a growing number of squeezed middle-class homeowners are tapping into their treasured retirement nest eggs to ward off foreclosure.

"This is definitely an issue we've been hearing about from our members," said Kevin Stein, associate director of the California Reinvestment Coalition, which represents 250 nonprofit groups and public agencies in the state. "It does seem the crisis is impacting a broader segment of America, and it clearly calls for broader solutions than what we have so far," Stein said.

Apart from being a fresh sign that the housing crisis has spread up the U.S. income ladder, tapping tax-deferred savings accounts like 401(k) plans could have profound effects on taxpayer welfare, social security and employment patterns, economists and financial advisers said. "I think this means we'll see some baby boomers having to work well into their 70s to make ends meet," University of Maryland economist Peter Morici said.

Before 1980, most U.S. workers relied on so-called defined benefit or "pension" plans managed by their employers. Those were meant to supplement government Social Security payments, which first become available to workers at age 62. But pensions have been gradually replaced by 401(k)s, or defined contribution plans that let employees decide how much they want to contribute. They can also withdraw funds, as this encourages younger workers to contribute, experts said.

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1 In 20 Homeowners In California To Face Foreclosure
April 27, 2008 - - House Speaker Nancy Pelosi was in San Francisco, California on Saturday to campaign on legislation to curb the country's mortgage crisis, reports said Sunday.

Pelosi told the San Francisco Chronicle that about 8.8 million homeowners in the U.S. owed more on mortgages than their homes are originally worth. In California, Pelosi said, one in every 20 homeowners will face foreclosure in the next two years. According to ABC News, Pelosi was pushing for a series of bailout measures and expects Congress to act by May 5.

"We want to simplify it for homeowners so they can keep their homes. We want to make it possible for renters to be able to live in affordable housing," ABC News reported quoting Pelosi. San Francisco Mayor Gavin Newsom, who promoted his 'don't borrow trouble' campaign, said lenders foreclosed some 130 properties in the Bayview in the first quarter, the report added.

The Chronicle said Pelosi blamed the mortgage crisis on greedy lenders and the Bush administration. She urged voters to vote for a Democrat as the country's next president. Pelosi were among the speakers in a foreclosure workshop in San Francisco's Bayview District. The workshop was one of 25 being held in California, ABC News said.

Pelosi: 1 In 20 Homeowners In California To Face Foreclosure | April 28, 2008 | AHN

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Ol' Warren on the economy...

Buffett says recession may be worse than feared
Mon., April. 28, 2008 - Billionaire investor thinks downturn may last longer

Warren Buffett, the world's richest person, said on Monday the U.S. economy is in a recession that will be more severe than most people expect. Buffett made his comments on CNBC television after his Berkshire Hathaway Inc. agreed to invest $6.5 billion in the takeover of chewing gum maker Wm. Wrigley Jr. Co. by Mars Inc. in a $23 billion transaction. "This is not a field of specialty for me, but my general feeling is that the recession will be longer and deeper than most people think," Buffett said. "This will not be short and shallow.

"I think consumers are feeling gas and food prices," he added, "and not feeling they've got a lot of money for other things." He was not immediately available for further comment. Known for his frugality, the 77-year-old Buffett has lived in the same 10-room Omaha, Neb. house for a half-century, despite being worth an estimated $62 billion.

On Wednesday, the U.S. Commerce Department is expected to say how fast the economy grew in the first quarter. Economists on average have projected that gross domestic product grew at an annualized 0.2 percent rate in the quarter. Two quarters of declining GDP is a traditional indicator of recession. That last happened in 2001. Economists expect the U.S. Federal Reserve on Wednesday to cut a key lending rate for a seventh time beginning last September.

More Buffett says recession may be worse than feared - Stocks & economy - MSNBC.com

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Housing relief efforts slow as pace of foreclosures rise
April 28, 2008: Hope Now reports that it has helped keep over a half a million home owners out of foreclosure this year. Critics say that still isn't enough.

The pace of housing rescue efforts slowed in the first quarter of the year, according to a new report, while the number of people losing their homes to foreclosure skyrocketed during the same period. More than a half million at-risk home owners had their loans reworked during the first three months of the year, according to Hope Now, the coalition of mortgage lenders, servicers, investors and community advocates put together to help ease the foreclosure crisis. Nearly 1.4 million homeowners have gone through some sort of loan workout since July.

But the effort is not keeping pace with the rate of foreclosures. "Unless you think the foreclosure problem [is bottoming out], the deceleration in workouts might be considered a disappointment," said economist Jared Bernstein of the Economic Policy Institute. He doesn't think that the mortgage crisis has hit its nadir yet.

"All the signs indicate that we're still headed for the bottom," said Bernstein, who is the author of Crunch: Why Do I Feel so Squeezed?. "You definitely want to see these workouts ramping up at a higher rate." The administration-backed coalition says that through the end of March it helped 503,000 homeowners avoid foreclosure. That's up just 6% from the roughly the 473,000 borrowers it helped in the last quarter of 2007 - and a notable slowdown from the 20% increase in the number of people Hope Now helped in 2007's third quarter.

Meanwhile, the number of homes lost to bank repossessions during the first three months of 2008 totaled 205,207, up 36% from 151,403 a quarter earlier, according to Hope Now. "Hope Now is helping some people," said Bernstein, "but not enough to hasten the [housing] correction along. It's a small piece of the puzzle."

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Housing still takin' a beatin'...

First Qtr. Home Foreclosures Up 112%
Tuesday, Apr. 29, 2008 - The number of U.S. homes heading toward foreclosure more than doubled in the first quarter from a year earlier, as weakening property values and tighter lending left many homeowners powerless to prevent homes from being auctioned to the highest bidder, a research firm said Monday.

Among the hardest hit states were Nevada, Florida and, in particular, California, where Stockton led the nation with a foreclosure rate that was 6.6 times the national average, Irvine, Calif.-based RealtyTrac Inc. said. Nationwide, 649,917 homes received at least one foreclosure-related filing in the first three months of the year, up 112 percent from 306,722 during the same period last year, RealtyTrac said. The latest tally also represents an increase of 23 percent from the fourth quarter of last year.

RealtyTrac monitors default notices, auction sale notices and bank repossessions. All told, one in every 194 households received a foreclosure filing during the quarter. Foreclosure filings increased in all but four states. The most recent quarter marked the seventh consecutive quarter of rising foreclosure activity, RealtyTrac noted. "What would normally alleviate the foreclosure situation in a normal market is people starting to buy properties again," said Rick Sharga, RealtyTrac's vice president of marketing.

However, the unavailability of loans for people without perfect credit and a significant down payment is slowing the process, he said. "It's a cycle that's going to be difficult to break, and we're certainly not at the breaking point just yet," Sharga added.

The surge in foreclosure filings also suggests that much-touted campaigns by lawmakers and the mortgage lending industry aimed at helping at-risk homeowners aren't paying off. Hope Now, a Bush administration-organized mortgage industry group, said nearly 503,000 homeowners had received mortgage aid in the first quarter. Most of the aid was temporary, however.

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Housing prices post record declines
April 29, 2008: Las Vegas, Miami and Phoenix all saw prices plummet by at least 20%. And so far, there is no sign of a bottom.

Home prices have posted another record decline, as most of the nation's largest markets suffered double-digit drops over last year, a survey released Tuesday shows. The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That's the biggest fall since the index began tracking prices in 2000. Of those 20 metro areas, 17 posted their largest year-over-year declines ever. Ten of the 20 cities posted double-digit dips.

The 10-city Case/Shiller index is down 13.6% year-over-year, the biggest drop since its launch in 1987. "There is no sign of a bottom in the numbers," S&P spokesman David M. Blitzer, said in a prepared statement. "Prices of single family homes continue to drop across the nation." "This is huge," said Dean Baker, co-director of the Center for Economic and Policy Research. "Back a couple of years ago, people were saying, 'Housing prices are not like stocks; they change slowly,'" he said.

But the drop in home prices appears to be accelerating. Indeed, Baker said that at the rate prices are falling, as much as $6 trillion in home values could be wiped out from the top of the market in June, 2006, through the end of this year. Prices in the Las Vegas metro area have plunged more than any other city, down 22.8% over the 12 months through February. Miami prices plummeted 21.7%. In Phoenix, they've fallen 20.8%. Of the 20 cities Case/Shiller tracks, only Charlotte, N.C. showed higher prices, up 1.5% over the 12-month period.

A vicious cycle

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Job market good for process servers...

Foreclosure Industry Is Booming
April 29, 2008 - Foreclosure Specialists Multiply While Housing Crisis Has Yet to Peak

If you want a sense of the scale of the mortgage meltdown in this country, tag along with Sean Zawyer and Seth Gissen for a day. They are process servers, sworn officers of the court, hired to deliver bad news. Their company delivers about 5,000 foreclosure notices in the Miami area each month. "I don't even know if there's words to describe the number of foreclosures that are coming out," Zawyer said.

"Amazing, because we've been in business for 10 years and grown steadily, 20, 30 percent, steadily. And in a year and a half, you double an existing business." They now have 55 employees — 25 in the office and another 30 servers who deliver foreclosure notices. Zawyer and Gissen are not the only ones kept busy by the foreclosure crisis — so are moving companies, as banks evict owners who fall behind on their payments. In Rockwall County, Texas, the sheriff is called in to evict about six families a week.

On the other side of the country, outside Los Angeles, there's a booming industry in preparing repossessed homes for resale. Two years ago, WSR Preservation Services, a California property maintenance company that specializes in cleaning up foreclosed homes, had 10 employees. Today, they have 60. "We have bicycles, we have toys, you know. Again, this was probably a nice little family who could just not make the mortgage payment," John Plocher, president of WSR Preservation Services, said as he surveyed a home in suburban Los Angeles that had clearly been abandoned in a hurry.

More ABC News: Foreclosure Industry Is Booming

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Still good times in Asia...

Can the World Survive US Downturn?
Wednesday, Apr. 30, 2008 - Recession? What recession?

Finding an empty table at a Starbucks in Hong Kong on a Sunday afternoon these days feels like winning the lottery. So does getting a reservation at a good dim sum restaurant or renting an affordable apartment. While the U.S. suffers the convulsions of an impending recession and massive wealth destruction, here the malls are stuffed full and the streets bumper-to-bumper with BMWs. The good times keep rolling, and not just in Hong Kong, but across much of emerging Asia, from Shanghai to Mumbai. Sure, the U.S. turmoil has had some impact — jittery investors have knocked back stock markets from last year's lofty heights — but in general, the story of America's economic woes has been confined to the morning newspapers.

In the past, any downturn in the U.S. economy would send Asian policy makers, businessmen and workers into cold sweats. The reason is that Asia has been so dependent on exports to the U.S. that any slowdown in demand in the American economy inevitably dragged down Asian growth as well. In recent months, however, there has been a debate raging among economists over whether the forces of globalization have weaned the rest of the world off its heavy reliance on the U.S. The hope has been that the global economy can continue to grow quite nicely even if the U.S. fell into recession.

So far, that seems to be true, at least here in Asia. Though the exact extent of America's downturn is still uncertain, the early signs tell us that Asia isn't as reliant on the U.S. as it once was. "Economies in Asia will see potential to grow at reasonably fast rates" says Robert Horrocks, head of research at fund management firm Mirae Asset Global Investments. Nigel Richardson, chief investment officer for Asia at AXA Investment Managers says that "the U.S. is still the driving force of the world economy" but "Asia is probably far more resilient than it would have been in the past."

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Businesses that profit in a recession...

20K Jobs Lost but See Who's Profiting
May 2, 2008 - From Auction Houses to Shrinks: For Some, the Downturn Brings More Dollars

Employers cut another 20,000 jobs in April, the Department of Labor reported today. The reduction, while smaller than expected, marks the fourth straight month of job losses in the U.S., as many companies fight to stay in the black in a weakened economy. The unemployment rate now stands at 5 percent, down slightly from 5.1 percent last month. The construction, manufacturing and retail sectors led the nation in payroll cuts.

As those industries continue to struggle, certain businesses and professions are thriving, and the slump is what's driving them. Some are less obvious than others. Take, for instance, the video game industry. Conventional wisdom dictates that during tough times, consumers cut back on the extras in life, including entertainment. While movie ticket and DVD sales have flagged, it's been a banner year so far for video game makers.

In the first three months of the year, the video game industry logged more than $4.2 billion in sales, an increase of just under $1 billion from the same period in 2007, according to NPD Group, a New York-based market research firm. One of the factors behind the boom is consumers' desire to get more value for what they spend on entertainment and recreation, according to said David Riley, a director at NPD and a gamer himself If you're "going to a bar with friends and spending $8 on a cocktail -- after five or six cocktails, you're broke. It's hard to justify, especially in this economy," Riley said.

More ABC News: 20K Jobs Lost but See Who's Profiting

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Ol' Warren says it ain't gonna be so bad...

Buffett doesn't see CDS market collapsing
Sat May 3, `08 - Warren Buffett said on Saturday he does not expect the credit default swap market to collapse, and possibly throw financial markets worldwide into chaos.

Speaking at the annual meeting of his Berkshire Hathaway Inc. insurance and investment company, Buffett cited the U.S. Federal Reserve's recent backing of an emergency buyout of the investment bank Bear Stearns Cos by JPMorgan Chase & Co, which helped keep Bear Stearns from failing.

Credit default swaps are contracts that shift default risk between two investors, or allow investors to bet on the direction of credit markets. Buffett estimated the size of the market at more than $60 trillion.

"With credit default swaps, (the question is) whether counterparties could fail," Buffett said, referring to wide-ranging failures. "I don't think it's going to happen, and I think the chances of it happening were reduced significantly by the fact the Fed stepped in at Bear Stearns."

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Warren Buffet: Global credit crisis ebbing for Wall Street
Sunday, May 4, 2008 - Warren Buffett, chief executive officer of Berkshire Hathaway Inc., said the global credit crunch has eased for bankers and the Federal Reserve probably averted more failures by helping to rescue Bear Stearns Cos.

"The worst of the crisis in Wall Street is over," Buffett said Saturday on Bloomberg Television. "In terms of people with individual mortgages, there's a lot of pain left to come." Buffett was interviewed before the Omaha, Nebraska-based company's annual meeting, attended by about 31,000 people.

Buffett, the world's richest man according to Forbes magazine, said the Fed acted properly when it arranged a US$2.4 billion bailout in March of New York-based Bear Stearns by JPMorgan Chase & Co. The billionaire said he turned down the opportunity because he lacked enough capital and time to grasp the situation. More failures and wider panic may have resulted if the regulators didn't halt the run on Bear Stearns, he said.

"The worry was that there would be contagion; it was a very real worry," Buffett said. "If Bear Stearns had gone, the next day, somebody else would have gone. It could've been a very, very, very chaotic situation." Buffett said he was contacted in March before JPMorgan, the third-biggest U.S. bank by assets, agreed to buy Bear Stearns. The person calling him, whom he wouldn't identify, was "someone responsible" and wasn't from the Federal Reserve or the Treasury. The call lasted about half an hour, Buffett said.

"As I understand it, Bear Stearns had US$65 billion due on Monday and I didn't have US$65 billion," Buffett said. "I couldn't get my mind around that situation in the required time." New York-based JPMorgan was the right buyer for Bear Stearns, he added.

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Think small...

Buffett tells investors to lower expectations
Sunday 4th May, 2008 - Things have changed, and lofty earnings should no longer be expected, says Warren Buffett.

The Berkshire Hathaway CEO was addressing investors at the company's annual general meeting on Saturday at the Qwest Center in Omaha, Nebraska. A record 31,000 shareholders were in attendance. Investors need to lower their expectations, the tycoon told his audience.

Asked if Buffet's latest purchases would yield returns of more than 7 to 10% over time, Buffett candidly answered, 'No.' 'We would be very happy if we earned 10%, pre-tax' on the additions to Berkshire's equity portfolio,' he said. 'Anyone that expects us to come close to replicating the past should sell their stock; it isn't going to happen.'

'We'll get decent results over time, but not indecent results,' he added. Buffett was also cool on U.S. dollar assets, saying he preferred to invest in assets and companies that generated foreign exchange.

More Buffett tells investors to lower expectations

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Fed Reports Tighter Bank Lending
Monday, May. 05, 2008 (WASHINGTON) — The Federal Reserve reports that more banks are tightening lending standards on home mortgages, other types of consumer loans and business loans in response to a spreading credit crisis.

The Fed reported Monday that the percentage of banks reporting tighter lending standards was near historic highs for nearly all loan categories. The survey, conducted in April, found that nearly two-thirds of banks surveyed had tightened lending standards on traditional home mortgages with 15 percent saying those standards had been tightened considerably.

The current credit crisis began last year with rising defaults in the market for subprime loans, loans extended to borrowers with weak credit histories. Many of those subprime loans were packaged into mortgage-backed securities and sold to investors around the world. Those investors, however, have pulled back from the subprime market and from other types of credit as losses have soared with the rising mortgage defaults.

As losses have mounted, more and more banks have grown reluctant to make loans and have been tightening up on standards. The Fed has been pumping billions of dollars into the banking system in an effort to encourage banks to keep lending to guard against the threat that the tighter credit could push the country into a deep recession.

The latest Fed survey found that banks tightened their lending standards on not just prime or traditional mortgages but also on nontraditional mortgages such as "Alt-A" loans given to people who supplied only limited income verification. The survey found that about 32 percent of the banks responding to the survey had tightened "considerably" their standards for nontraditional mortgages and another 43 percent had tightened standards in this category "somewhat."

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It’s Going to Get Worse...

Why housing’s going to get worse
May 6, 2008 - Economist David Lereah was once the housing market's biggest cheerleader. Now he says the bust isn't near over, and home prices still have a long way to fall.

Whenever a boom goes bust, there's always a round of finger pointing and blame assigning, of people asking "Why didn't the experts see this coming?" So as the housing bust has morphed from a cyclical downturn into a full-blown crisis, there's been no shortage of culprits. Some blame Alan Greenspan for badly orchestrated monetary policy, a charge against which he's lately been fighting back. Some blame the subprime lenders and the brokers who found clients for them; together they underwrote many of the loans that are now causing so many foreclosures and so much pain. And at least a few observers include an industry economist in this lineup: David Lereah, the former chief forecaster for the National Association of Realtors, whose irrational exuberance for real estate has led to some measure of ridicule.

Let me confess at the start: I spoke with Lereah frequently during the boom, and I always found him to be a smart, thoughtful observer. Sure, his assessment of the real estate market was consistently upbeat, but that's hardly surprising given that he served as chief spokesman for a trade organization that believes it’s always a good time to buy a home. And the truth is I feel a little sorry for the teasing he has absorbed since the housing bubble burst. Yes, he did publish a book in 2006 with the unfortunate title "Why the Real Estate Boom Will Not Bust"—but he didn't pick the title, the same way columnists like me aren't always thrilled by the headlines our editors put atop our stories. And while I thought it was funny when my colleague Daniel Gross and others compared Lereah to Baghdad Bob, the Iraqi information minister who repeatedly announced his army's military successes even as U.S. tanks were overtaking the capital, I can't help feeling bad for him. But if you judge from the blogosphere, I'm in the minority with my sympathy.

It's been more than a year since Lereah left NAR, so I called this week to check in. It turns out he has recently set up a new firm called Reecon Advisors, which is advising Wall Street firms and institutional investors about the real estate market. "Wall Street has an intense interest in [this], because they're looking for when is the recovery going to come, and at what point does the cycle turn," Lereah told me. His answer: not yet. "We're not at the bottom," he says. "[People] want it to be near the bottom, but we're not there yet. The leading indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low … There's still supply out there in abundance … This thing is going to get worse before it gets better."

More Real Estate: Why the Market Will Worsen | Newsweek Voices - Daniel McGinn | Newsweek.com