AIG, bank bailouts, banks, credit default swaps, cricketdiane, economic crisis, failed US banks, foreclosures, housing prices, International Concerns, macroeconomic forecasting, mortgage insurers, mortgages, Wall Street
|Failed Bank List
AIG Decides to Keep Unprofitable Mortgage Insurer (Update1)
February 12, 2010, 04:20 PM EST
AIG, which was rescued in September 2008 after losses from bad bets tied to housing markets, posted a $1.43 billion operating loss from mortgage insurance in the first nine months of 2009 as U.S. foreclosure filings climbed to a record. The company said in November that it tapped the Treasury Department line within its $182.3 billion rescue package for about $4.2 billion, in part to restructure United Guaranty.
Feb. 12 (Bloomberg) — American International Group Inc., the insurer divesting assets to repay a government bailout, opted to keep its money-losing U.S. mortgage guarantor after selling Canadian and Israeli subsidiaries of the unit.
AIG made a “recent decision” to hold onto Greensboro, North Carolina-based United Guaranty, Arlene Isaacs-Lowe, a Moody’s Investors Service analyst, wrote yesterday in a research note. AIG executives told her of the move within the past few months, Isaacs-Lowe said today in an interview.
United Guaranty was founded in 1963 and sold to AIG in 1981. The business generated $2.8 billion in operating income and $600 million in dividends for AIG in the eight years prior to the housing slump, the company has said.
United Guaranty was ranked the fourth-largest U.S. mortgage insurer in the first six months of 2009, behind No. 1 MGIC Investment Corp., Radian Group Inc. and PMI Group Inc., according to Inside Mortgage Finance, a trade journal. All the firms were unprofitable in the first nine months of 2009.
Essent Guaranty Inc., backed by investors including Goldman Sachs Group Inc. and JPMorgan Chase & Co., became the first newcomer to the U.S. mortgage-guaranty business since the housing collapse, leaving it unburdened by policies sold in 2005 and 2006 when underwriting standards were lower.
Until 2007, private mortgage policies had been among the most profitable types of coverage sold by insurers. From 2004 to 2006, members of the Mortgage Insurance Companies of America reported a profit margin of at least 35 cents for every dollar they collected in premiums. Auto insurers made less than 5 cents on every dollar in 2006, according to A.M. Best Co.
The Year in Foreclosures
Published: February 14, 2010
New York Times
Last week offered some sobering news on the housing market: Even with broad government support for housing, data from the National Association of Realtors showed that the median price of single-family homes continued to decline in 2009. RealtyTrac, an online marketer of foreclosed properties, said foreclosure filings rose by 15 percent in January compared with a year ago.
Foreclosure is generally a long process, with multiple filings as delinquent borrowers fall ever further behind. What is most ominous about the latest RealtyTrac numbers is that nearly 88,000 people had their homes repossessed in January, a 31 percent increase from a year ago. The big jump indicates that many foreclosures that were in process in 2009 are now beginning to move to repossession and, eventually, auction. With more than four million homes in that pipeline, the foreclosure crisis shows no sign of abating.
[ . . . ]
There is an emerging consensus among financial experts and policy makers that the key to successful modifications is to reduce the amount of the borrower’s loan balance, rather than merely reducing the monthly payment. The goal is to lower the payment while restoring equity, thus giving borrowers both the means and the incentive to keep up with their payments.
Administration officials have resisted that approach, in part because they believe it would be too expensive. Another obstacle is the lenders themselves. In general, a lender is unwilling to take losses by reducing principal unless the owners of the second mortgage on a home also take a hit. For banks that own the second mortgages, such losses would be huge — something they clearly would prefer not to face up to.
Banks’ unwillingness to take losses on second mortgages may also be holding up so-called short sales, in which a lender agrees to retire a first-mortgage debt by taking the proceeds from the sale of the home, even when the amount is less than the mortgage balance.
(Excerpt from – )
The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.
They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.
“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.”
Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are turning into a full-throated barrage. Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment.
[ . . . ]
It would cost about $745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they were breaking even, according to First American.
Using government money to do that would be seen as unfair by many taxpayers, Mr. Barr said. On the other hand, doing nothing about underwater mortgages could encourage more walk-aways, dealing another blow to a fragile economy.
With prices now down by about 30 percent, underwater borrowers fall into two groups. Some have owned their homes for many years and got in trouble because they used the house as a cash machine. Others, like Mr. Koellmann in Miami Beach, made only one mistake: they bought as the boom was cresting.
Guy D. Cecala, publisher of Inside Mortgage Finance magazine, says he does not hear much sympathy from lenders for their underwater customers.
“The banks tell me that a lot of people who are complaining were the ones who refinanced and took all the equity out any time there was any appreciation,” he said. “The banks are damned if they will help.”
David Rosenberg, the chief economist of the investment firm Gluskin Sheff, wrote recently that borrowers were not victims. They “signed contracts, and as adults should also be held accountable,” he wrote.
Of course, this is not necessarily how Wall Street itself behaves, as demonstrated by the case of Stuyvesant Town and Peter Cooper Village. An investment group led by the real estate giant Tishman Speyer recently defaulted on $4.4 billion in debt that it had used to buy the two apartment developments in Manhattan, handing the properties back to the lenders.
Moreover, during the boom, it was the banks that helped drive prices to unrealistic levels by lowering credit standards and unleashing a wave of speculative housing demand.
[ . . . ]
Mr. Koellmann applied last fall to Bank of America for a modification, noting that his income had slipped. But the lender came back a few weeks ago with a plan that added more restrictive terms while keeping the payments about the same.
“That may have been the last straw,” Mr. Koellmann said.
No Help in Sight, More Homeowners Walk Away
Published: February 2, 2010
The Making of a Euromess
For the truth is that lack of fiscal discipline isn’t the whole, or even the main, source of Europe’s troubles — not even in Greece, whose government was indeed irresponsible (and hid its irresponsibility with creative accounting).
No, the real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment.
Consider the case of Spain, which on the eve of the crisis appeared to be a model fiscal citizen. Its debts were low — 43 percent of G.D.P. in 2007, compared with 66 percent in Germany. It was running budget surpluses. And it had exemplary bank regulation.
But with its warm weather and beaches, Spain was also the Florida of Europe — and like Florida, it experienced a huge housing boom. The financing for this boom came largely from outside the country: there were giant inflows of capital from the rest of Europe, Germany in particular.
The result was rapid growth combined with significant inflation: between 2000 and 2008, the prices of goods and services produced in Spain rose by 35 percent, compared with a rise of only 10 percent in Germany. Thanks to rising costs, Spanish exports became increasingly uncompetitive, but job growth stayed strong thanks to the housing boom.
Then the bubble burst. Spanish unemployment soared, and the budget went into deep deficit. But the flood of red ink — which was caused partly by the way the slump depressed revenues and partly by emergency spending to limit the slump’s human costs — was a result, not a cause, of Spain’s problems.
(etc. – he claims that the single currency Euro has created the problem – – I don’t agree, but it does mean that some options for currency adjustments are not available to use for fixing the situation as a result of the single currency – my note)
My Notes – Who decided that the value and costs of property, including basic shelter / housing would be at a price far beyond the reach of any real wages made in a year or in five years of a citizen’s efforts?
When was that created and was it by the natural laws of supply and demand at the time or was it constructed with intention?
And, what has it become now / as a natural outgrowth of housing values having exceeded the real income of the majority of our population, along with the uses of mortgages as an asset class to be bought and sold and leveraged against – what do we have now as a result of this huge disparity between income and housing costs?
What happens when banks are allowed to borrow at 0% interest from our Treasury using our money, although they are a bad credit risk in every respect at the time they are allowed to borrow many millions at 72 to 1 (or more) against every dollar of assets they pretend to have? (and at asset valuations they pretend are at a level that was taken before the economic downturn)?
Not only are people walking away from their upside down mortgages, they are also not being employed in any reasonable period of time after being dumped by companies whose only interest was to pad the bottom line for a short period of time to inspire conditional confidence in their stock shares?
What happens when people realize that they are not going to be employed anytime in the next five years, are not going to be able to own another house in their lifetimes, watch their children not have access to a higher education because the money intended for it was returned to them depleted of over 75% of its initial value, and begin to understand the disparity of return on their time and efforts if and when companies do choose to hire them back?
Who was it that decided the next natural progression in the economic foundation of our country would drop manufacturing and replace it with money making money industries? Who decided that it would be a strong, healthy foundation for our economic future? What bunch of ninnies came up with that?
So, now that companies do not have to profit or to be profitable in the primary business model under which their business operates, but simply have to manipulate investment portfolios to their advantage, what real value do those companies (and state budgets and Wall Street firms) have to the employment base, in interactive services and products available to the benefits of our population, and in our longterm financial growth as a nation?
When large corporate and institutional players are the only ones basically manipulating the markets, the stock markets, the commodities markets, the futures and speculative plays marketplaces, and international economies and markets, what actual real values exist for any of the things being traded?
Just as when in 2008, the speculative increase in the oil futures drove prices up to record profits for those speculators and their firms, entire industries across the United States suffered massive losses as they covered the extra costs of those oil prices at the consumer level. But, the entire play was no more than a manipulated construct. It wasn’t the real value of the commodity in any sense but it was passed along to the consumers, including throughout the increased business costs passed along secondarily to consumers.
And, what value do those speculators have and the profits they skimmed off that play when their time, effort, talents, resources, and availability of cash isn’t used for anything productive that enhances the overall economic foundation and future of the United States? It isn’t being used to underwrite alternative energy options, it isn’t the speculators that are inventing something which solves real problems in our communities nor that solves climate change causes nor do those resources make our companies more solvent and more competitive. What good do they do?
When housing mortgages are packaged and sold, then resold and a number of financial products are made based on them, including the credit default swaps, the mortgage insurance products, leverages are made against them in huge loan packages based on their value, then what real value do they have going forward? Are they real? Are they a pretense with no more value than what someone in Wall Street or the backrooms of a banking firm somewhere says that they have? Are they real capital formation, or are they in fact, not worth the paperwork they are printed on? What trade actually exists on them in any solvent form once people across the world in every aspect of our society and financial systems are aware that the values are unfairly being manipulated and don’t exist in the real world?
Trickle down economics is a failed economic policy from the Reagan years and beyond Greenspan’s idea of an unregulated economy – at what point do the Wall Street firms and gigantic banking conglomerates realize the basis of their comparative valuation structures have re-valued real assets somewhere below zero? Why don’t they know that now? Losses that required a loan over $180 Billion dollars for AIG seem to be a clear indication of what that means. As they have tried to sell off assets, which have borne little of their estimated and accounting values – it would indicate the disparity that exists between the real economy, the real values and their perceptions of values? Why does it not tell them anything that makes sense to them in a broader understanding of what they are doing?
To me, it indicates that using a “money making money” basis for our overall economic foundation is not a sound choice, among other things. It also shows me that the integral factors of trading values are manufactured and not real.
Over the course of all these elements put together, it tells me that our economy and our economic growth, our economic foundation, our economic future, it set out over air with no real foundation whatsoever. The basic relationships that should exist to maintain a stable structure of values for the purposes of comparison and realistic values being set to actual assets, values, housing, properties, corporations, loans, loan products or whatever financial instruments does not exist in any actual sense.
It also shows me that the rules do not exist for either the values nor for the plays that can be made with them which makes the system more like a polished poker game of bluffing than a real market or any other monetary concept of actual values.
What happens when those banks, financial firms, investment banks, investment houses, stock brokerages, financial investment funds, insurance companies acting as hedge funds, and other exaggerated examples of financial imprudence get to play by a set of rules which offers large grants, loans and offsets when they are insolvent, defaulting on loans, exemplify a bad credit score and a bad credit risk, whose past behavior indicates bad choices and even tremendous bad judgments and bad plays, insider trades, conflicts of interest and abuse of their fiduciary trust?
What basis of economic growth and what new understanding of fiduciary trust does that become when those same people and institutions are refusing credit to anyone whose credit score resembles what they had when they used and continue to use the American taxpayer’s money and our National Treasury to cover their losses?
(An implicit obligation of the United States means what now?)
– cricketdiane, 02-15-10
I watched as the economic forecasters and analysts continued to say it is all better now, the same way they said in 2008 that we weren’t in a Recession (while not being willing to even use the word in many cases). Either they don’t know what the hell they are doing or they are lying about what they do know. I’m not sure which it is, but to continue paying analysts and advisors whose sole intent is to propagate lies in the name of instilling a falsely founded confidence in a system whose values are distorted, at best – is beyond me to understand.
The economic models that I understand are dimensional and well-founded in larger pictures of integrated values. When the Reagan administration cronies and Republican administration policy makers decided to fudge the numbers throughout statistical data sets that they had to collect and make public by law, it did not change the facts. The unemployment numbers inclusively are not the numbers published by the US Labor Department as a result of the changes made by Republican administrators, however – it didn’t change the facts on the ground in this country. And, since everyone making analyses knows that those employment and unemployment numbers have been divided into unnatural categories of data and statistically manipulated by that division, they should know better than to assume the rate of unemployment is anywhere close to 10% in the United States. Even adding the admitted unemployment figures across every state, yields a figure much higher on any given date and even those do not include those citizens who are in our prisons at the moment, put in mental hospitals for some reason, having to work part-time when they can’t afford to live at that rate, retired by having to go back to work because their pensions have been stolen by Wall Street, and those who have not continued to collect unemployment benefits but are still unemployed. The real loss in consumer buying power can be significant enough that even China knew to put its focus on other markets that don’t include the United States.
Don’t tell me that everything is all okay now – that isn’t even close to the truth.
If nobody can afford to buy a house except those people who “flip houses” – then what is a house really worth?
If 90% of the bread produced goes unsold and into the trash bin, then what is a loaf of bread worth? Is it really worth the $4.29 that is being charged for that loaf of bread?
(everything from my notes on down are my thoughts about it – understandably I still have more questions that are unanswered – I will study it some more.)