Barack Obama articulated a key point regarding housing in tonight’s Democratic debate. He said that if you freeze interest rates as Hillary wants to in order to “protect” homeowners, you’d actually punish others by raising their interest rates.
But it’s not all gloom and doom apparently. Slowing GDP growth points toward recession sure, but the jobs market seems still to be growing better than expected:
The labor market may not be in weak shape after all. The latest forecast by payroll firm Automatic Data Processing shows job creation soaring in January.
Nonfarm private employment surged by a seasonally adjusted 130,000 during the month, ADP said. Adding in 22,000 government jobs (the average gain over 12 months), total nonfarm payroll gains are estimated at 152,000 for the month. That’s more than double most economists’ estimates for Friday’s Labor Department report. It would also represent a huge rebound from the 18,000-job increase the government reported for December. (ADP revised its December down to a gain of 37,000.)
BankUnited’s earnings call late last week was chock full of quotes that are worth noting for the record. I will post again once I’ve been through their detailed financials. In the meantime, this should entertain:
As part of the “stimulus” package Congress is set to approve, we’re about to put taxpayers at far greater risk from the housing collapse. One of the most dangerous parts of the package is raising the threshold for “conforming” loans, which will raise, from $417,000 to perhaps $730,000, the value of mortgages Fannie Mae and Freddie Mac are allowed to guarantee. Already Fannie and Freddie back over $4.0 TRILLION of single-family home mortgages, hundreds of billions of which are subprime, Alt A, high LTV, low FICO, etc. And they have only $80 billion of capital to absorb losses. What does that mean in English?
It was another bad quarter for BankUnited in Florida.
Non-performing assets jumped:
The ratio of non-performing assets as a percentage of total assets increased to 2.99% at Dec. 31, 2007, up from 1.39% at Sept. 30, 2007. The allowance for loan loss was $117.7 million at Dec. 31, 2007, compared to $58.6 million at Sept. 30, 2007, and $39.2 million at Dec. 31, 2006. The allowance for loan losses as a percentage of total loan portfolio was 0.93% at Dec. 31, 2007, compared to 0.46% at Sept. 30, 2007, and 0.34% at Dec. 31, 2006.
That’s a question I’ve been getting from some readers recently. Notwithstanding this afternoon’s dramatic rise in stocks, the first 2.5 days of the week made it look as if the world was coming to an end. After Bernanke lowered interest rates, stocks fell dramatically anyway, before climbing back a bit Tuesday afternoon. It was Tuesday morning that a reader asked, why isn’t the government doing more?
It has occurred to a few commentators that repeal of the Depression-era Glass-Steagall Act may be partly to blame for the banking and real estate morass we find ourselves in today. Glass-Steagall, you may or may not recall, effectively locked commercial banks and investment banks out of each others’ businesses. It was felt at the time the law passed, that the Great Crash was exacerbated because commercial banks had been allowed to underwrite securities and had therefore exposed depositors to stock market risk…..(to the extent that their deposits disappear if the bank saw heavy losses from its exposure to the stock market).
…..to drop, that is. The large bond insurance companies, Ambac and MBIA, may soon see their debt downgraded to junk like their smaller cousin ACA. This will make the insurance the two have written against bond defaults virtually worthless. The fear many have is the havoc this could cause in municipals. I’m not as concerned with that piece of the market; Warren Buffett’s Berkshire Hathaway is gearing up to insure high quality municipal issues. And with $40 billion of cash on its balance sheet, Berkshire Hathaway is in a good position to write insurance. Besides, default rates on municipals have always been close to zero. There will clearly be disruption in the municipals market, but not the widespread bloodletting that we’re seeing with securities tied to subprime. At least I hope not.
Below is an e-mail I received from a friend who was manufacturing CDOs for a big bank until very recently. The guy knows his stuff and offered the following thoughts. To follow his thinking, you might want to open up the image in another window and toggle between that and his analysis.
Is the smart money really that smart? Remember how, back in August, B of A’s $2.0 billion investment in Countrywide was interpreted as a vote of confidence? Investors voted by bidding up the shares significantly the day of the announcement. Watching CNBC this past week, the Power Lunch anchor asked Felix Rohatyn if the conventional wisdom, that BofA’s planned acquisition of CFC signaled a bottom, was correct. Felix, playing the cheerleader like a good investment banker, said yes.
Not everyone is losing from the subprime mortgage bomb. Hedge-funder John Paulson is said to have earned $3-$4 billion last year profiting from the implosion of subprime mortgages. That’s cash folks. Not the kind of illiquid paper wealth that Bill Gates or Warren Buffett have. And Paulson earned it in one year. The previous record for hedge fund compensation I believe was set last year when John Arnold at Centaurus was on the other side of the trades that drove Amaranth under. It is believed that Arnold made $1.5 to $2.0 billion in 2006.