Poetic Justice on Wall Street in This Issue of Money and Markets
Mike Larson takes a look at central banking and what's in store for the U.S. economy. In this issue of Money and Markets, Mr. Larson examines some of the largest banking companies and takes a look at what strategies they are implementing to prevent further debts.
Jupiter, FL (PRWEB) December 23, 2007 -- Mike Larson takes a look at central banking and what's in store for the U.S. economy. Mr. Larson examines some of the largest banking companies and takes a look at what strategies they are implementing to prevent further debts.
Never before in the history of central banking has the U.S. seen so much money handed out so liberally to so many institutions that have only themselves to blame for the problems they're facing.
These are the same financial institutions whose origination, bundling, sales, and trading of sliced and diced home mortgages helped fuel the housing bubble in the first place.
These are the same people whose clients and investment managers took huge risks by purchasing opaque securities: Debt issued by Special Investment Vehicles (SIVs), Collateralized Debt Obligations (CDOs), subprime Residential Mortgage Backed Securities (RMBS), and more. They could have just as easily stuck with Treasuries, but they got greedy and are now getting burned.
And these companies are the same ones that have been raking in tens of billions of dollars in profit for the past several years thanks to the global boom in easy credit.
It was only just this summer that the former CEO of Citigroup, Chuck Prince, famously told the Financial Times in reference to easy-money fueled deals:
"As long as the music is playing, you've got to get up and dance. We're still dancing."
And now, these firms are going hat in hand to the central banks of the world, begging for the biggest low-cost money bailout in history.
Can these colossal efforts offset the worst housing and mortgage downturn in decades? The latest news in the housing sector is grim:
| | - Existing home sales have collapsed 31% from their 2005 peak. New home sales are down even more at 48%.
- Home prices dropped 4.5% from 2006 in the third quarter, according to S&P/Case-Shiller, the biggest drop on record (the data goes back to 1988). And new home prices plunged 13% in October, the sharpest decline in 37 years.
- Single family home starts have cratered 55% from their January 2006 peak. Meanwhile, the issuance of building permits for future construction has dropped to its lowest level since 1991.
- An index that measures home builder optimism, buyer traffic, and expected sales sits at record lows.
- The nationwide home vacancy rate is running at a near-record of 2.7%, a testament to the dramatic glut of empty, unproductive homes piling up on the market.
- About 5.6% of the nation's homeowners have fallen behind on their mortgage payments, the most since 1986.
- The percentage of homes in some stage of foreclosure has surged to 1.7%, the highest rate the Mortgage Bankers Association has ever found (its data goes back to 1972).
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The financial hits keep on coming, too. Morgan Stanley just reported the company's first quarterly loss in history thanks to $9.4 billion in write-downs on mortgage-linked investments. It was the exact same story at Bear Stearns, first quarterly loss ever. And Merrill Lynch recently took an $8.4 billion hit, with another $8 billion plus in additional write-downs reportedly in the offing.
"Banks are reaching out to private investors around the globe, also. Morgan Stanley sought, and received, a $5 billion infusion from China Investment Corp., the investment fund run by that country's government. Citigroup scored $7.5 billion from Abu Dhabi. And UBS managed to wrangle $11.5 billion from the Government of Singapore Investment Corp. and unidentified Middle Eastern investors," Mr. Larson states.
To read this issue online, please visit:
http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1290
About Mike Larson and Money and Markets
Mike Larson joined the company in 2001, and has more than 10 years of experience researching and writing about personal finance, investing, and the housing and mortgage industry. In 2003, Mr. Larson was named associate editor of the company's monthly Safe Money Report. In this role, he is responsible for writing and editing as well as analyzing trading opportunities for clients. Mr. Larson is also a regular contributor to the company's daily e-letter, Money and Markets.
Before joining Weiss Research, Mr. Larson was a personal finance reporter for Bankrate.com, where he wrote extensively on mortgage lending, banking, residential real estate, and Federal Reserve Board policy. His responsibilities included analyzing economic data and interest rate trends for a weekly column and developing rate forecasts for a regular index feature. Previously, Mr. Larson held positions at Bloomberg News and the Boston Herald.
Recognized as an interest rate and mortgage market expert, Mr. Larson's views have been quoted in the Washington Post, Chicago Tribune, Dow Jones Newswires, Reuters, Sun-Sentinel and the Palm Beach Post. He has also appeared as an investment expert to discuss the housing market on CNBC, CNN, and Bloomberg Television. His writing has been acknowledged by both the National Association of Real Estate Editors and the Massachusetts Press Association.
Among the first analysts to call the housing slide, Mr. Larson's new policy paper, "How Federal Regulators, Lenders and Wall Street Created America's Housing Crisis: Nine Proposals for a Long-Term Recovery" has received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC.
Mr. Larson holds B.A. and B.S. degrees from Boston University.
Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.
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