Rolfe Winkler

Tishman gives up Stuyvesant Town (Wei/Spector, WSJ) Way underwater was this deal: the price tag was $5.4 billion, but the property is thought to be worth only $1.8 billion now. Tishman put up only $112 million of equity. Lenders and investors get wiped out. Good. By the way, if underwater investors can walk away, there’s little reason underwater homeowners should feel a moral obligation to keep paying their own overpriced mortgages….

SEC mulled national security status for AIG details (Goldstein, Reuters) “U.S. securities regulators originally treated the New York Federal Reserve’s bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security…”

Avatar to surpass Titanic as top box office draw of all time (Box Office Mojo) Inflation in the price of movie tickets plus the fact that many are paying $16 to watch Avatar in 3D, mean the comparison isn’t totally fair. But whatever. James Cameron has directed the two best grossing movies of all time. And Avatar is poised to go well over $2 billion…in less than two months!

BOJ open to extending loans, bond buying (Hidaka/Otsuma, Bloomberg) The Japanese central bank has engaged in various rounds of quantitative easing since the late ’90s I believe. Yet they’re still unable to keep deflation at bay. There are those that say this is proof that QE doesn’t necessarily lead to inflation. The bet being made by guys like David Einhorn is that eventually the debt load overwhelms the Japanese economy causing the yen to collapse. Indeed, the inflation that people fear here in the U.S. isn’t so much the old wage-push variety. Rather it’s a sudden loss of confidence in the dollar when it becomes clear the U.S. can’t pay its bills.

Bernanke confirmation looks set (Gelsi, Marketwatch) When Barbara Boxer and Russ Feingold pulled their support last Friday, it appeared Ben Bernanke might not get Senate confirmation for a second term. Now he look safe.

Fannie, Freddie should be eliminated, Frank says (Timiraos/Crittenden, WSJ) Unlikely this means Barney Frank will stop rolling the dice to subsidize housing with the public purse.

Leviathan stirs again (Economist) The return of big government the world over. This is not a good thing. Federal government is probably the least efficient allocator of resources in the economy. Not that we need smaller government overall, we just need smaller federal government. States and localities govern more efficiently. The federal government should be shrunk dramatically and the power/tax base of state and local gov’ts should expand.

Right-wing flame war (Dee, NYT) The story of Charles Johnson and his blog Little Green Footballs.

Newspapers are failing because their articles are too long (Kinsley, Atlantic) Shameless self-promotion: Reuters BreakingViews tells you what you need to know about financial news in 350 words or less!

2010: The year of the renter? (Toy, NYT) This story is NY specific. But I must say it’s good to live in the Hudson Yards area of Manhattan. Some of the best deals on apts in NYC at the moment as there’s way too much inventory around here….

Will NY soda tax drive some to drink? (CityRoom) This is a pretty stupid argument from soda bottlers who are opposed to new taxes on their product. Beer and soda aren’t exactly perfect substitutes…

Cat vs. Bear

Why bother? That’s the question more underwater Americans are asking themselves about their mortgage.

Trapped in the abyss of negative equity, more will decide to quit paying. As they should.

About a quarter of all mortgages in the United States are on houses that are worth less than the unpaid balance of the mortgage, according to real estate consultant First American CoreLogic. About half of that group, 5.3 million borrowers, are 20 percent or more underwater. For 2.2 million, the property is worth less than half the mortgage balance.

Those folks are called “homeowners,” but “homeborrowers” would be more accurate. All they own is an obligation to whatever entity services their mortgage. They’re essentially renters paying above-market prices.

But that “ownership” tag is often felt to be important. Americans who are trained to believe that a mortgage is a moral obligation fear punishment or a bad conscience if they walk away.

But foreclosure is hardly the mark of Cain, especially in states like California and Arizona, where lenders have no practical recourse to pursue a borrower’s other assets.

As more underwater homeowners realize there’s no hope to regain their equity, more will cut their losses. The reduction of liabilities brings immediate debt relief and often a lower cash outlay — on rent — for comparable housing. The financial shot in the arm should outweigh the stigma of foreclosure.

Financial self-interest is likely to be contagious. A study by three economists suggests that when a few borrowers in a neighborhood just say no, others are likely to follow.

Lenders do what they can to keep the disease of economic rationality from spreading. They try to “extend and pretend” with lower interest rates, extended terms, and the pretence that eventually the borrower will make good. Anything, really, to avoid the hit to capital that comes from a writedown of the principal.

Until now, borrower guilt has helped protect bank balance sheets. That is likely to change. If it does, the next chapter of the financial crisis could be a painful one.