Interesting Times

Let's Start with Real Estate - Not Pretty

Another day another record. Prime mortgages, in terms of delinquency rates and foreclosures, are at record levels. Since most mortgages fall into this category, that is problematic.

http://www.calculatedriskblog.com/2010/05/mba-q1-national-delinquency-survey.html

The continuing foreclosure problems, homeowners under water, unemployment and everything else is perhaps the cause for housing prices continuing to drop. My own house just appraised for 5% less than nine months ago, despite the fact the the housing price index for my region was only down around .5% in that period - go figure.

http://www.calculatedriskblog.com/2010/05/first-american-corelogic-house-prices.html

Of course things on the commercial front are no better, and might be regarded as a good bit worse. Down 42% from peak. Yeah, that is going to leave a bruise.

http://www.calculatedriskblog.com/2010/05/moodys-cre-prices-decline-05-in-march.html

And perhaps the most significant story on real estate is that mortgage applications are down significantly between April (when government incentives ended) and March. The Purchase Index actually dropped over 27% in one week, to the lowest level in 13 years. Looks like the incentives worked - while they were in place. Now we get to see how much benefit the economy gets from front-loading sales.

http://www.calculatedriskblog.com/2010/05/mba-mortgage-purchase-applications_19.html

And if you are keeping track, every link I have had in this blog so far has been from Calculated Risk, my favorite real estate oriented blog - though it is definitely not limited to real estate and daily has some amazing stats. I highly recommend it.

Time for Plan "B" - as in Take down the "B"astards

It would seem that politics has gotten in the way of government attempts at Wall Street reforms. Ask me if I am surprised? The bill aimed at enhancing regulation of Wall Street lacked the votes in the Senate to move it forward.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aN1_yEusVoQE


I suspect there are some significant lobbying dollars coming into play here. Either way, anything Congress passes will be watered-down and likely ineffective in the long run, so I am not sure how much this matters aside from election sound-bites.

So we are off the Plan B, which is the existing regulatory, corporate and litigation framework. I have spoken here about stockholders taking action by getting active in stockholder director votes (mostly driven by pension funds), about derivative suits and the like, so I will not repeat that now. The government action against Goldman is also old news I will not repeat. The greater promise is the government undertaking further investigations of suspect behavior and not being afraid to criminally prosecute where appropriate. There are a lot of stones to turn over and I suspect the government will find gold under many of them. One recent stone uncovered revealed some nice booty. It involves banks giving kickbacks to municipal advisors to get them to steer municipalities to investments that are not as good as they should be. Some institutions have already confessed. This should be interesting.

http://www.nakedcapitalism.com/2010/05/doj-banks-colluded-with-municipal-advisers-to-rig-bids-on-gics.html

I dearly hope the DOJ and state AGs keep up the pressure. In addition to all of our debt and other financial problems there is a massive moral hazard created by the financial bailouts the past couple of years and reports confirm that many of the same companies are back to their same old tricks. I hope the prosecutors feel free to go against individuals. The corporate form does not protect individuals from their individual misdeeds and they should all pay the price if they misled their clients, the public or the government. Only in this way might we have hope for deterring this insane behavior.

If the government prosecutors do not do them in, we can always hope they get hoisted by their own petard. The existing suit against Goldman demonstrates to its clients that it may have been selling them crap when it knew better and was serving the best interests of other "clients," if not actively betting (investing) against their own clients. Indeed, Goldman clients are a bit wary of what Goldman is telling them. They seem to be a bit concerned over conflicts and trading issues. Gee, why would I give them a lot of commissions if they do not have my bests interests in mind and, indeed, may sell me a sack of something.

http://www.nakedcapitalism.com/2010/05/goldman-clients-increasingly-wary-of-firms-conflicts-and-trading-orientation.html

It certainly does not help that Goldman has made profit virtually 98% of the days this year including every single day the first quarter, when seven of nine of its recommended top trades of 2010 have lost its clients money - and those making money were not doing so great either. It appears they have made their own bed.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aF5tV7uvY0FU&pos=12

Disclosures: None