By Karl Denninger, The Market Ticker

The next two days could prove to be very interesting – but probably won’t.

Dick Fuld is prepared to later assert:

Lehmans demise was caused by uncontrollable market forces and the incorrect perception and accompanying rumors that Lehman did not have sufficient capital to support its investments.

Uh huh.  It wasn’t caused by 30:1 leverage Dick?  You know, leverage you got "enabled" to use by Pauslon?  Of course you weren’t forced to use that, but heh, if the music is playing, you had to get up and dance, right?

In 2007, when the U.S. housing market began to show signs of weakening, Lehman Brothers and many of its competitors had already accumulated large positions in what were considered less liquid assets. Many market observers, including government officials charged with oversight of the financial markets, believed that the problems in the subprime residential mortgage market were and would be contained.

You were wrong.  But a prudent CEO, and a prudent company, doesn’t "bet the firm" on a premise that their largest-concentration of assets in what is clearly a bubble economic environment, unsupported by the macro level fundamentals, will not only go on forever but will see it’s equivalent of multiple expansion continue forever. That by definition – the belief in expansion of a compound-growth function at ever-increasing rates – is a Ponzi Scheme.

Ponzi schemes are broadly illegal.  While it’s not illegal to place bets on asset appreciation, when you claim to be in a position of "systemic risk" you should be held to a higher standard.  That standard was not only loosened it was destroyed in the years from 2003-2007.  Bear Stearns was a final warning that the Ponzi had collapsed, yet Lehman refused to heed that warning, instead choosing to rely on the premise that a government tit would be proffered to suckle from.  When it was not the firm collapsed.

Then there’s Wachovia.  I read through Scott Alvarez’s testimony (FRB’s Counsel) which goes through the usual mantra of how Wachovia’s business deteriorated due to macro-level economic developments not under it’s control, along with the seizure of WaMu. 

Notably missing from this analysis, along with Steele’s, Wachovia’s former CEO, is any mention of the fact that Wachovia was writing credit-default swaps (CDS) on their own deals in the Option ARM space and bundling them with the lower-rated tranches as a means of being able to sell them!

This is important for two reasons: It is roughly equivalent to you writing fire insurance on your own house, when the entirety of your net worth including all your liquid cash is contained within the house in a shoebox.  Should the house burn you will of course be unable to pay off on your self-dealt "insurance."  Second, there is no mention as to where those instruments are now or what they’re actually worth.  We know where they are – they’re off-balance sheet at Wells, which now has roughly one trillion dollars of off-balance sheet exposure – with no way to evaluate the "wisdom" (or lack thereof) on the marks on those "assets."

It is that fact, incidentally, that led myself and many others, including hedge fund managers, to short the stock.  That in turn drove the CDS spreads out.  But the predicate act that led people like myself to reach this conclusion – that the bank was hiding losses and likely was insolvent – was an act taken by their own hand and enabled by willfully-blind regulators.

Indeed, the bottom line problem here with Wachovia is the same as it has been up and down the line since this mess began – ridiculously over-optimistic asset "values".  This has not abated, as we keep seeing every week with FDIC bank seizures, where banks that are allegedly solvent (by their accounting of "assets" and "liabilities") are nonetheless seized and huge losses, often as much as 30% of the asset base, are absorbed.  This isn’t possible unless the "asset values" are pure works of FICTION.

After the 1929 crash the Pecora Commission was formed to find the causes and prevent it from happening again.  What Pecora found was that too much leverage combined with self-dealing and lies about asset valuations led to the collapse of banks and other members of the financial system when the falsehood of those asset "value" claims was exposed to the light of day, and that self-dealing in various forms led to covering up these deficiencies until they reached critical levels (where banks were literally unable to pay the light bill), by which point the entirety of the depositors’ funds were often gone.  Just as today, banks often maintained that they were "fine" right up until the fact that their assets were worth pennies was exposed.

Glass-Steagall was an attempt to prevent that from happening again by separating deposit-holding banks from securities activities.  Between that and strict leverage limits, along with bank examiners, it was believed that loss-hiding would no longer be possible to a degree where these sorts of panics could develop.

For 40 years it worked.

Then we had the S&Ls, which gamed the system.  Bluntly, they broke the law, "trading" assets between themselves with a wink and a nod, thereby "establishing" asset valuations that were false.  This "supported" their lending and other activities – right up until, just as with the 1920s (and now) it led to their destruction when the truth began to leak out. 

But unlike today Bill Black came in with a mandate and started referring cases to prosecutors, who promptly sent over 1,000 people to prison for their lies and scams.

The FCIC will fail to be effective unless we have another Bill Black.  We must reverse those decisions of Congress to extort FASB, as well as exposing and laying bare on the table the inside baseball, hidden caches of alleged "assets" that are not really worth what is being claimed, and other forms of rooking the public while laying off the costs on taxpayers.

Sadly, I see no evidence that the FCIC will do any of this.  There is nothing in the hearings I’ve seen to date that suggests that Wachovia’s Steele, for example, nor The Fed, will be called to account on exactly where are those CDS, what are they worth, and why did The Fed and other regulators ignore their existence and lack of public valuation and disclosure?

Nor has the FCIC asked Henry Paulson (or Tim Geithner for that matter) why is it that the former 14:1 leverage limit was removed and why shouldn’t it be put back in force now, since it is now a known fact that had it been in place neither Lehman or Bear would have failed, and if it had applied to AIG they wouldn’t have failed either!

No, instead we have a circle jerk of monkeys, prancing before the cameras, but with no substantive progress and disclosure.

Phil Angelides is no Ferdinand Pecora.

More articles from the Market Ticker….

By Chris Carey, Bailout Sleuth

The nation’s banks had an aggregate profit of $21.6 billion in the second quarter, a vast improvement from the $4.4 billion net loss the sector had at this point a year ago, the Federal Deposit Insurance Corp. reported in its quarterly banking profile released Tuesday.

The quarter’s earnings were the highest since the third quarter of 2007.

The FDIC also reported that noncurrent loans and leases had a year-to-year decline for the first time since the fourth quarter of 2006. Institutions charged off $49 billion in uncollectible loans in the second quarter, compared to $214 million in charge-offs the previous year.

More good news: Only 20 percent of institutions suffered a net loss in the quarter, an improvement over the 29 percent with losses a year ago.

“This is the best quarterly profit for the banking sector in almost three years,” FDIC Chairman Sheila Bair said in a statement. “Nearly two out of every three banks are reporting better year-over-year earnings. As long as economic conditions remain supportive, most institutions should maintain profitability and increase their capacity to lend.”

Bair conceded that the industry “still faces challenges.” Earnings are still low by historical standards, and the number of failed and problem banks remains high. She also said that although small banks are gradually recovering, they are doing so at a slower rate than their larger counterparts.

The FDIC attributed the improvements in earnings to reduced provisions for loan losses. Those amounted to $40.3 billion in the second quarter of 2010, more than 40 percent below the total from a year ago.

Still, there were troubling figures in the report. The number of institutions on the FDIC’s super-secret list of “problem” banks rose from 775 to 829, the highest number since 1993. But the collective assets of those institutions, $431 billion, was down 7 percent from a year ago.

More articles from the Bailout Sleuth….

By Chris Carey, Bailout Sleuth

Regulators could go two weeks in a row without closing a bank for the first time in more than 18 months.

That’s because banks that opened for business last Friday experienced something that is unusual these days: none were shut down by regulators at the end of the day.

Regulators have seized 118 banks so far this year, compared with 84 in the corresponding period of 2009.

Only once in the last year — April 2 — has a non-holiday weekend gone by without any bank closures, according to Federal Deposit Insurance Corp. records.

Since regulators often don’t close banks on holiday weekends — and Labor Day weekend begins Friday — that means the country could potentially go two weeks in a row without bank closures.

At a time when banks are closed almost every weekend, a two-week span without a closure seems almost unheard of. The last time the country went two weeks without a bank failure was Christmas Day 2009 to New Year’s Day 2010.

If you discount that weekend, the last time the U.S. saw two weeks in a row without closings was New Year’s Day 2009 and the following week.

The last time there were two consecutive non-holiday weekends without a bank closure was Friday, Aug. 8, 2008 and Friday, Aug. 15, 2008.

BailoutSleuth asked the FDIC why there were no bank closures Friday. Greg Hernandez, a spokesman for the agency, said the FDIC isn’t responsible for the closures — that decision belongs toother state or federal regulatory agencies — and the FDIC simply helps coordinate when it will be named receiver. “It’s up to the respective regulators to decide when they want to close a bank,” Hernandez said.

One reason for the lack of closures may be the quantity of banks that went under the week before, making the FDIC and other regulators busier than usual.

Eight banks were closed Aug. 20. The last time more banks failed on a single day was when nine failed on Oct. 30, 2009.

Still, it remains to be seen whether the FDIC will take a week off for Labor Day or plow through it.

Often, regulators do not close banks on the Friday of a three-day weekend. This year, for example, banks have been spared on the Friday before Independence Day, George Washington’s Birthday, and New Year’s Day.

But that’s not a hard and fast rule. Banks were closed the Fridays before Memorial Day and Martin Luther King Day.

Five banks were closed on Friday, Sept. 4, 2009, a Labor Day weekend. And one was shuttered on Friday, Aug. 29, 2008, which also preceded Labor Day.

Undoubtedly, bank officials’ whose institutions are teetering will be encouraging their colleagues at state and federal regulatory agencies to enjoy their upcoming long weekend and take some much-deserved time off.

More articles from the Bailout Sleuth….

By Karl Denninger, The Market Ticker

I love this guy….

McCain was poorly positioned to counter Isaacs arguments because McCain had proposed the same accounting gimmicks Isaac was proposing. The defeat of TARP I embarrassed McCain and Senator Obamas lead over Senator McCain in the polls increased substantially.

Right.  McCain was and still is today all for accounting fraud.  In the summer of 2008 I had several "conversations" (more like talking to a brick wall) with his campaign manager Kevin Daucher, some of them in writing and thus documented.  I pointed out at the time that McCain had to get in front of this or he was going to lose.  I went so far as to attend (as a private, concerned citizen, not as a lobbyist or corporate "hack") one of his campaign events in Washington DC, at which time Tom Ridge told me while smiling for my picture with him that he, and thus I presume the McCain campaign, was fully aware of the scams – in somewhat-"sideways" language.

Senator Obama, as a candidate, and his administration after the election did not take a public position on covering up the losses. The Chamber of Commerce and bank lobbyists made the cover up of bank losses their top regulatory goal. Their strategy was to get Congress to extort the Financial Accounting Standards Board (FASB) to force a change in the accounting rules so that banks did not have to recognize loan losses. House Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski (D., Pa.) held a hearing in March 2008. The hearing was a bipartisan assault on FASB. Kanjorski demanded the prompt adoption of the cover up. Otherwise, he promised the prompt passage of legislation to remove the FASBs power to set accounting rules.

Exactly.  Gee, we’ve documented that here too.  Kanjorski is a traitor to his oath to uphold the Constitution, which incidentally demands equality before the law.  This duty is something that CONgress conveniently forgets whenever it thinks it can find a "free lunch", especially when the consequences of not doing so are that it’s 20-year history of suborning fraud would otherwise come crashing down upon their heads.

Instead of holding oversight hearings that exposed the Bush and Obama administrations evasion of the PCA and demanded compliance, prominent members of Congress encouraged it. House Financial Services Chairman Barney Frank (D., Ma.) said:

"This is important for all regulators. We need to give you some discretion in how you react to these things. I am asking everyone — the Office of the Comptroller of the Currency and others — if anything in the existing legislation deprives you of discretion in how you react … I insist that you tell us."

Fraud is fraud.  PCA is black-letter law.  Evading it by lying is still fraudulent activity.  Whether you make it "legal" ex-post-facto (as was done in 2009 by Kanjorski’s threats) or not is immaterial.  A thing is either wrong or it is not.  In this case it’s not only wrong, it’s crippling our economy and financial system.

The premise of this scam was that if we just "overlooked" the problem the banks would "earn their way out."  This was bogus from the start, because the underlying problem isn’t just the BS accounting, it’s the fact that the BS accounting allowed leverage (debt) to be cranked to unsustainable levels.  You can’t fix this without taking that leverage out, and yet doing so requires recognition that the alleged "assets" aren’t worth what they are claimed at.

We see the depths of this every Friday when banks are closed and magically when the FDIC swoops in we have an institution that allegedly had more assets than liabilities is deemed insolvent and millions of dollars of losses are absorbed by the FDIC.  How is this possible?  There is only one way: The "assets" are being reported at FICTITIOUS values – we always know what the liabilities (in the case of a bank, these are the deposits) are to the penny!

For a banker, whats not to love about the right not to recognize even massive losses on assets? He gets to keep his job, reputation, and obtain bonuses for blowing up the bank. For a senior regulator whose failures allowed the bankers to cause the epidemic of mortgage fraud (FBI 2004), the mother of all bubbles, and the Great Recession a cover up is ideal. Bank failures are supposed to lead to investigations by the Inspector General and can lead to embarrassing congressional oversight hearings.

Even worse than congressional hearings are 20-year dates with a guy named "Bubba."  Mr. Wall Street no like that – most of them aren’t gay, for openers, not to mention that the caviar, blow, limousines and expensive hookers they’re accustomed to aren’t available in prison.

There’s only one small problem with all the lies about asset valuations: The fundamental truth about those values doesn’t change no matter how much you lie about it.  Therefore, those who are lying have two choices: either go under anyway, or start stealing literally everything in sight down to the carpet on the floor, fencing it to keep ahead of ever-increasing cash-flow demands that can’t be met by these impaired assets.

This is the black-hole vortex into which our economy is now spiraling.  It is, in fact, the precise same mistake that was made by FDR.  Instead of forcing those who did the evil things to admit their insolvency and be resolved, wiping out the imprudent (including those who invested in them) we are instead caught in the vortex and are unable to truly recover in our economy and markets.

Last time we "got out of it" by destroying the production facilities of essentially the entire developed world (except us, of course.)  This time such a "fix" would entail irradiating that entire developed world, and thus one would hope that nobody is that dumb.  Of course with the record we’ve seen thus far of "intelligence" coming out of DC…..

We’re headed for at best a Japan-style scenario and at worst something akin to the 1930s – if we’re lucky.  We have dramatically increased the pain level that has to be absorbed by blowing $4.5 trillion in the last three years for one purpose above all others – covering up the fraud and scams through government spending. 

It won’t work, as is now being documented as sector-by-sector fails as soon as the government tit stops dispensing "free" (really borrowed from China) milk.  Housing is just the most-recent example; as soon as the "tax credit" expired home sales cratered – right into the summer selling season, prompting panicked Administration Officials to start muttering about "re-enacting" the homebuyer handout.

While Washington continues to play this game it might want to gaze toward the East, where there are rumors that the Chinese have taken a huge loss on their foreign bond holdings, and their Central Banker is rumored to have defected (to the US!) – a rumor that, thus far, I give little credibility to.

Of course should he suddenly be found to have suffered a "heart attack"…….

More articles from the Market Ticker….

Brian Rezny submits:

Source: finance.yahoo.com

Read more…. »

By Charles Hugh Smith, OFTWOMINDS
Actually doing what everyone fears as horribly inflationary–printing and dropping cash into households–might not be as terrible an idea as many assume.

Go to my main site at www.oftwominds.com/blog.html
for the full posts and archives.

More articles from Charles Hugh Smith….

By Chris Carey, Bailout Sleuth

Nine banks that received TARP aid through the Capital Purchase Program were sanctioned by the Federal Deposit Insurance Corp. in July for violating bank standards, according to the agency’s monthly release of enforcement actions today.

The banks include:

• CB&S Bank, Inc., Russellville, Ala.

(CBS Banc-Corp)

• Metro United Bank, San Diego, Calif.

(MetroCorp Bancshares Inc.)

• TIB Bank, Naples, Fla.

(TIB Financial Corp)

• Pinnacle Bank, Orange City, Fla.

(Pinnacle Bank Holding Co.)

• First Bank and Trust, New Orleans, La.

(First Trust Corp.)

• Main Street Bank, Kingwood, Tex.

(MS Financial Inc.)

• Cascade Bank, Everett, Wash.

(Cascade Financial Corp)

• West Bank, West Des Moines, Iowa

(West Bancorporation)

• Tri-State Bank of Memphis, Memphis, Tenn.

To see the full list of FDIC enforcement actions in July, and for links to copies of the action, click here.

Metro United Bank is a subsidiary of Texas-based MetroCorp Bancshares, which accepted $45 million in taxpayer aid in January 2009. That holding company accepted more aid than any other on the July enforcement list.

In terms of deposits, TIB Bank is the largest bank on the list, with $1.34 billion. In terms of assets, Cascade Bank is the largest, with $1.68 billion. TIB Bank got a $37 million TARP investment in December 2008; Cascade got $39 million in November of that year.

Earlier this summer, TIB Bank entered into a deal with North American Financial Holdings, Inc. which would give the company 99 percent ownership of TIB’s common stock. That should aid its recapitalization efforts.

North American Financial, a new institution led by former Bank of America Corp. executives, earlier this year took over three failed banks in Florida, as BailoutSleuth has previously reported.

Two directors on the board of Cascade Bank’s parent company resigned following the FDIC’s cease and desist order. The directors cited irreconciable differences with the bank’s chief executive officer and other board members, as well as the “unreasonable and untenable conditions” imposed by the order, as their reason for resigning.

The bank reported net operating losses of $55.6 million through June 30 of this year, compared to losses of $26.6 million at this point a year ago.

West Bank and Tri-State Bank of Memphis were given relatively small fines for violating banking standards and were not subject to heightened restrictions.

The other seven banks, however, werl issued cease-and-desist orders that called for them to make significant changes, such as getting their boards of directors more involved in company oversight; increasing capital ratios; restricting growth; addressing problem loans and developing liquidity plans.

The FDIC specifically said that two of the banks — Metro United Bank and Main Street Bank — must retain qualified CEOs. 

A total of 30 banks received cease-and-desist orders in July.

BailoutSleuth reported earlier this year on the high rate of enforcement action against banks and bank holding companies that got taxpayer money through the Troubled Asset Relief Program.

Supporters of TARP say that the enforcement record does not necessarily mean that the banks were unhealthy at the time of the CPP loan, as enforcement action is just one component of determining a bank’s viability, and a bank’s condition may have deteriorated in the months since it received aid.

But critics say that the growing number of penalties against TARP banks may indicate that Treasury should have shown greater scrutiny when determining who would receive aid.

Three of the TARP banks on the latest enforcement list got their TARP aid in March 2009. CBS Banc-Corp received $24.3 million that month, while Main Street Bank’s parent company got $7.72 million and Pinnacle Bank’s parent got $4.39 million.

First Trust Corp., which owns First Bank and Trust in New Orleans, got $18 million in June 2009.

More articles from the Bailout Sleuth….

Who is Talking About What Matters

Aren’t job losses and foreclosures as important as a “Ground Zero Mosque” (that isn’t a mosque, hasn’t been built or isn’t even at ground zero?)

We know we live in hard times that are on the verge of getting harder with 500,000 new claims for unemployment last week, a recent record.

The stock market may be over for now as fear and panic drives small investors out. Big corporations hoard stashes of cash rather then hire workers. The D-Word (depression) is back in play.

Foreclosures are up, and the administration’s programs to stop them are down, well below their stated goals, only helping 1/6th of those promised assistance.

And here’s a statistic for you: 300,000. That’s the number of foreclosure filings every month for the past 17 months. This year, 1.9 million homes will be lost, down from 2 million last year. Is that progress? In July alone, 92, 858 homes were repossessed.

At the same time, the number of canceled mortgage modifications exceeded the number of successful ones. According to Ml-implode.com, last month, “the number of trial modification cancellations surged to 616,839, greatly outnumbering the 421,804 active permanent modifications.”

And don’t think this is only a problem that affects the homeowners about to go homeless. The New York Times quotes Michael Feder, the chief executive of the real estate data firm Radar Logic to the effect that we are all at risk.

“My concern is that if we have another protracted housing dip, it’s going to bring the economy down,” Mr. Feder said. “If consumers don’t think their houses are worth what they were six months ago, they’re not going to go out and spend money. I’m concerned this problem isn’t being addressed.”

The larger point is that even if you believe the economy is already down, it can go lower. No one knows how to “fix it” either just as BP couldn’t plug the “leak” that, truth be told, is still oozing oil.

So what are we doing about it? Are we demanding debt relief or a moratorium on foreclosures? Are we shutting down the foreclosure factories?

Nope.

Progressives are spending time and wasting passion this August debating on an Islamic Cultural Center near Ground Zero, invariably responding to the provocations and agenda of adversaries. They are always on the defense, never taking the offense.

Who is beating the drum for job creation and a new economic policy? Maybe the unions, but their voice is muted and ignored in the electronic noise machine. Marches are planned by the UAW and Rev. Jesse Jackson on August 28th in Detroit and in Washington on 10.02.10. But the expected war of the words between Rev. Al Sharpton and Glenn Beck over the legacy of the March on Washington is expected to generate more heat.

Meanwhile, even as the administration seems to be finding signs of a “recovery,” a parade of failures march on from the discovery that there is an oil slick the size of Manhattan in the Gulf to the persistence of frauds in finance from state pension funds in New Jersey to the case against the head of the Bank of America.

Even worse, Shorebank, one of the banks that community activists considered a national model of social responsibility has gone down in Chicago, the 104th bank to fail this year with fifteen branches including some in Detroit and Cleveland. It was also active in 40 countries. In June, it reported over $2 billion in deposits. By August, it was gone.

In all, 349 US banks have disappeared since 2007.

ShoreBank promoted itself as a community development and environmental bank. It was based in Michelle Obama’s old neighborhood with the slogan “Lets Change The World.” Now the world of Wall Street has changed the bank with a partnership of investors including American Express, Bank of America and Goldman Sachs taking over under the name “United Partnership.”

Hundreds of other banks are on the FDIC hit parade and may be next.

There were many worse casualties in banking in the past according to Barry James Dyke’s informative book, Pirates of Manhattan. He notes that ten thousand banks failed during the depression and 2,900 bit the dust in the S&L crisis. The current number may have been higher had Congress not bailed out the Banksters who used some of our money to play PacMan, gobbling up smaller institutions.

AP reported, “ShoreBank lost $39.5 million in the second quarter amid soured real estate loans. The bank had been under a so-called cease and desist order from the FDIC for more than a year, requiring it to boost its capital reserves. ShoreBank was able to raise more than $146 million in capital this spring from several big Wall Street institutions. It was unable, however, to secure federal bailout funds it sought from the Treasury Department’s Troubled Asset Relief Program.”

Republicans are “investigating” alleged administration support for the Bank.

AP explained, “Rep. Darrell Issa of California, the senior Republican on the House Oversight and Government Reform Committee, sent a letter to a White House legal adviser asking specific questions on possible contacts between administration officials and executives of ShoreBank or potential investors.

The White House has said no administration officials met with ShoreBank concerning its rescue or requested help from financial institutions on its behalf.”

Questions raised by Republicans, of course, seek to politicize the issue when it is the FDIC ‘s deal with the big banks that needs to be probed, as Zero Hedge explains:

“As it stands, Goldman and 11 other banks are receiving a multimillion dollar gift to conduct a portfolio liquidation run-off of ShoreBank’s assets, while merely making sure existing deposits are serviced.”

(Note: the FDIC is led by a Republican.)

Blogger Mike, “Mish” Shedlock concludes: “The FDIC’s handling of Shore Bank smells as bad as a pile of dead alewives on a Chicago beach in mid-July.”

My question is: Why didn’t the administration help shore up ShoreBank (if it could be shored up) as they did so many of the “too big to fail” banks?

Their hands-off attitude, perhaps in fear of being criticized, as they were anyway, helped doom the bank and, by extension, the idea that we could have socially responsible lending institutions.

So much for the priorities and power of Obama’s “Chicago Mafia.”

If they don’t have the guts to save a bank in their own hometown they know has meant so much to so many, is it any wonder they won’t take on the crimes on Wall Street?

Last week, Treasury Secretary Tim Geithner was complaining that he is being falsely identified as a “Goldman Guy,” insisting he never worked for the financial institution that was recently branded a “Giant Squid On The Face Of Humanity.”

He doesn’t seem to realize that the speculation is not based on the details of his resume but on an assessment of his track record with the pals he worked with when he ran the Federal Reserve Bank in New York.

And by the way, Tim, why the hold-up on the appointment of Elizabeth Warren to run the new Consumer Financial Protection Bureau in your old institution? Is she too smart and popular for you?

Why the fiddling while our modern Rome burns?

News Dissector Danny Schechter directed Plunder The Crime of Our Time, a DVD and a companion book, The Crime Of Our Time on the financial crisis as a crime story. Comments to: dissector@mediachannel.org

Read more….

Zero Hedge

I know, I shouldn’t say I told you so but those perma-bullish, green
shoots smoking pundits who have been saying for three years that we are
nearing the bottom in real estate either have an agenda or really don’t
know much about real estate cycles.  It really gets under brother’s
skin… From CNBC:

Existing Home Sales At 15-Year Low, As Housing Weakens

We’ve been down this path before. We have every reason to be very,
very pessimistic on the housing front.  We’re in a HOUSING DEPRESSION!

Rates as close to zero as they have ever been, yet close to no demand
while supply is piling up in droves as banks sell more homes (out of
foreclose) than homebuilders do, yet developers keep building! If you
look around in NYC, banks are STILL funding developers who are STILL
building stuff right next to stuff that they STILL can’t sell! This is
video from a little more than a year ago that shocked many, even those
who live in NYC: Who are ya gonna believe, the pundits or your lying eyes?.
If  you take a trip down the same strip today, you will still see empty
lots with tractors, cranes, for rent signs in the commercial ground
space and a whole lot of empty apartments looking for a home owner or
renter, dusty from the construction right next to it.

Way back in 2007, I predicted that banks would handily outstrip
homebuilders in terms of property sales due to rampant REOs and
foreclosures. I issued a reminder last year since the synthetic and
contrived equity rally on vapor volume seemed to have had everybody
forgetting that we were in a real estate depression: Back to the Homebuilders vs. the Banks, as excerpted…

Back to the Homebuilders vs. the Banks

In 2007 I put out a lot of research and opinion on the home builders
and attempted to portray them in a light that the sell side analyst
community and apparently the buy side investors failed to notice. See

• Voodoo, Zombies, Lennar’s Off Balance Sheet Accounting and Other Things of Mystery & Myth
  (I believe this was the first time anyone ever called the homebuilders
  on their off balance sheet debt through unconsolidated JVs),
• Lennar Insolvent: Enron redux??? Lennar, Voodoo & the Year of the Living Dead!
• Now, a “Realistic” View of Lennar’s Solvency
• Bubble, Banks and Builders – Pt III: Do or Die BedStuy

In December of 2007 I predicted that they will compete in a losing
battle with the soon to be larger residential home and land owners
looking to move properties at highly discounted prices: the banks
sitting on foreclosed properties – Bubbles, Banks and Builders.

Well, although I do feel I have been relatively prescient in my predictions and predilections, all of you guys who were waiting for me to be wrong can now have your day. As it turns out, the largest residential land home owner will probably not turn out to be Countrywide (see Would you buy Countrywide if all of its bad mortgages were magically wiped off the books?) or any other bank or builder after all, but most likely the FDIC, or in more direct terms – You, Mr. and Mrs Taxpayer, see: FDIC Holds $1.8 Billion in Property From Closed Banks: WSJ Link. 
There are properties repossessed this year by the FDIC that were
actually also repossessed during the S&L Crisis. Talk about not
learning your lesson!

As lately as the 2nd quarter of this year, alleged experts were
still pontificating the coming bottom in real estate, despite the fact
that unemployment was high, supply was high, demand is low, and credit
is tighter than frog ass! Exactly two months ago, I said As I Made Very Clear In March, US Housing Has a Way to Fall. See the following excerpt…

From Bloomberg, early in the morning you get the usual, inaccurate analyst chatter: Sales of Existing Homes in U.S. Probably Climbed on Tax Credit

Sales of U.S. previously owned homes rose in May to the highest
level in six months as buyers rushed to beat a June tax-credit
deadline, economists said before a report today.

Purchases
of existing houses, which are tabulated when a contract closes,
increased 6 percent to a 6.12 million annual rate, according to the
median of 73 forecasts in a Bloomberg News survey. To receive a
government incentive worth as much as $8,000, buyers must have signed
contracts by the end of April and need to complete deals by the end of
this month.

Credit-induced gyrations will make the underlying health of the
market difficult to determine over the next couple of months. A slump
in builder shares since early May signals investors are concerned the
damage caused by the end of government stimulus, mounting foreclosures
and unemployment will exceed the benefits of lower mortgage rates.

Then the actual report comes out: Existing Home Sales in U.S. Unexpectedly Fell to 5.66 Million Rate in May

June 22 (Bloomberg) — Sales of U.S. previously owned homes
unexpectedly fell in May, a sign demand was probably pulled into prior
months before a June tax-credit deadline.

Purchases
of existing houses, which are tabulated when a contract closes,
decreased 2.2 percent to a 5.66 million annual rate, figures from the
National Association of Realtors showed today in Washington. To receive a
government incentive worth as much as $8,000, buyers must have signed
contracts by the end of April and need to complete deals by the end of
this month.

The decline raises the risk the retrenchment following the
expiration of the tax credit will be deeper than anticipated. A slump
in builder shares since late April has exceeded the retreat in the
broader market on concern the damage from the end of government
stimulus, mounting foreclosures and unemployment may cause renewed weakness.

Now, this is the BoomBustBlog version from March of this year where I
made it crystal clear that housing will fall further and
significantly. The governmetn incentives are just market interference
and pricing distortions, prolonging the pain: It’s Official: The US Housing Downturn Has Resumed in Earnest

Let’s take a look at some charts sourced from the upcoming BoomBustBlog subscriber “A Fundamental Investor’s Peek into the Alt-A and Subprime Market”should
be released withing 24 hours or so. This release will include all of
the raw data necessary for users to run their own calculation and draw
their own conclusions. update, which

Click to enlarge

…

In the chart above, you can see where
CA has made some progress interms of appreciation. CA, FL, and NV
account for nearly 50% of nationwide price damage. Let’s take a closer
look…

Click here to read the rest of this entry »

Banks have been, without a doubt, attempting to hide the extent of thier inventory and valuation issues. See Anecdotal Evidence That Banks Are Hiding Depressed High End Real Estate, as excerpted…

Why are Banks Hiding High End Residential Real Estate? Courtesy of the Real Estate Channel:

• Without the FTB tax credit, the housing market is receiving
  artificial demand and price support from the FHA loan guarantees and
  banks sitting on mortgages of homes once valued at $300,000
• Banks in areas that were severely damaged by the downturn in
  domestic real estate (Cook County, Illinois, Miami-Dade County, Florida,
  Orange County, California) have significant inventories of homes
  worth more than $300,000 that they will not put on the market, even
  after foreclosures lasting more than 2 years

According to Bruce Krasting over at Zero Hedge, the FHA is “Officially Broke” anyway: FHA – “We are Officially Broke” After perusing the data above, one would wonder why… (Link to FHA/FR)

More articles from Zero Hedge….

Tony Abbate submits:

Read more…. »