bank run blog

The House Financial Services committee approved a $15 billion housing bill that is intended to assist American families who run the risk of having their homes seized by financial institutions through foreclosure actions leaving them homeless. Though there has been bipartisan support for a measure that would provide relief for homeowners, the bills currently under consideration in both houses rely heavily on tax breaks and incentives for homebuilders and offer little for families facing foreclosure and no funding at all directly to homeowners who are locked into expensive loans as their properties rapidly lose value.

Key provisions in both bills call for supplying $4 billion in federal aid to local governments in areas hit hardest by foreclosures, offering a $7000 dollar tax credit to purchasers of foreclosed properties, and providing $100 million in federal funding to groups that offer mortgage counseling.

The most expensive component of the federal spending measures proposed, however, is a tax provision that provides aid not to families, but rather to the home building industry. The provision allows companies to charge off losses from this year and next year against taxes that the companies have paid going back to 2004. This would allow businesses to either receive refunds of taxes paid in past years or use their losses to reduce their taxable income in any of the next 20 years. The write-off provision is estimated to cost taxpayers $6.1 billion. The provision was promoted by the National Association of Home Builders, which has donated more than $11 million to political candidates and parties since 2000.

The Center for Budget and Policy Priorities estimates that “about three-fifths of the bill’s cost reflects tax-cut provisions that will do little or nothing to help either homeowners or hard-hit communities.”

A provision that would allow bankruptcy judges to cut interest rates on mortgages to help families that have filed for bankruptcy protection to remain in their homes was killed in the Senate version of the bill by a vote of 58-36. Eight Senate Democrats and independent Joe Lieberman of Connecticut voted with republican Senate members to deny homeowners this protection.

cross posted at

redstateupdate.net

In is often difficult to find meaningful or critical analysis of the current banking crisis in the mainstream financial press in the United States, with most news outlets recycling government and corporate press releases. Actual forecasts for earnings in the banking sector are grim, but most of the American chatter assumes that bottoms have been reached in housing, banking, and financials. The optimism ignores warnings from economists familiar with the fundamental numbers. A report from the BBC asks, Can the US economy be revived? :

“They have allowed all the major financial institutions – which include investment as well as commercial banks – to borrow from a $100bn short-term fund set up to by the Fed.

This has eased their short-term liquidity problems, but it is not clear that we have reached the end of the write-offs from sub-prime and other credit losses.

So far, only around $250bn of the $1 trillion in credit losses estimated by the IMF has been announced.”

full story

At Minyanville, Mr. Practical has a markedly different point of view than most American market analysts, in US banking system on the fritz :

“We’re still very early in this process. You can choose to listen to the assurances of those that never saw this coming, or worse, denied it all along saying that the worst is over. Or you can use logic in understanding that there is six times the normal amount of debt in the system and the level of actual savings and income in the economy cannot support half of that.”

full story

Yesterday, the US Treasury began sending out tax rebates to millions of American families and individuals, as part of the Bush administration’s “economic stimulus” package. With giant corporations like Wal-Mart scrambling shamelessly to position themselves to gain from the meager increase in consumer spending, it is doubtful that any of the benefits of the package will accrue to small or locally owned businesses.

But even mega-retailers like Wal-Mart won’t be first in line to profit from the stimulus checks. They will be behind the sector of the economy least in need of stimulation: multinational petroleum corporations. Cynical observers have been predicting for months that the arrival of the checks would coincide with record oil and gas prices.

Associated Press : Tax rebates start going out today, earlier than planned

Reuters : Wal-Mart to cash tax rebate checks for free

Guardian (UK) : US retail gasoline price hits record $3.60/gln-EIA

New York Times : Shell and BP Report Record First-Quarter Profits

New data out today shows that vacancies in the US housing market have hit another all-time high. Analysts have so far underestimated the extent to which the sheer volume of foreclosures will act as a drag on the economy over the next few years. According to Reuters :

“The share of vacant U.S. homes rose to a record level in the first quarter, the government reported on Monday, with homeowners finding it increasingly difficult to find buyers in a collapsed market and more homes in foreclosure.”

The article goes on to note the market fundamentals that make a soft landing or a quick recovery impossible :

“According to data last week from the National Association of Realtors (NAR), 18 percent of previously owned homes that are for sale have negative equity and are either in foreclosure proceedings or headed for a ‘short sale’ in which the lender will write off some of the original loan amount.”

full story

S&P released a statement today warning of downgrades in the ratings of large commercial banks, tacitly admitting that the economic fundamentals remain bleak and the financial services sector remains highly exposed. Reuters reports :

“Standard & Poor’s on Monday said the chance of rating downgrades to large U.S. banks has increased over the past two weeks and their current high ratings have little cushion for volatile earnings.”

One of the exposed entities, investment bank Morgan Stanley, issued its own pessimistic forecast for bank earnings, according to Bloomberg :

“U.S. banks’ earnings may fall 26 percent this year and a further 15 percent in 2009, as credit continues to deteriorate and trim profit, according to analysts at Morgan Stanley.

Bank earnings will decline by $17 billion this year and a further $13 billion in 2009, driven by higher borrowing expenses and bad loans, analysts including New York-based Betsy L. Graseck wrote in a note to investors today. Lenders will probably cut dividends and raise capital to offset the losses, she said.

‘We are only in the 3rd inning of the credit cycle and expect it will be worse than 1990-91,’ Graseck wrote. ‘Credit deterioration will accelerate and banks will raise more dilutive equity and cut dividends.’”

Reuters : S&P says chance of U.S. bank downgrades has increased

Bloomberg : U.S. Banks’ Earnings May Fall 26% in 2008, Morgan Stanley Says