bank run blog

The Bank for International Settlements, sometimes called the “Central Banks’ Central Bank”, has issued another in a series of warnings about the global economy. The BIS has been unusually frank and accurate in its recent assessments. Today’s report got the attention of the Wall Street Journal :

“The global economy may be close to a ‘tipping point’ that could see it enter a slowdown so severe that it transforms the current period of rising inflation into a period of falling prices, the Bank for International Settlements said Monday.

In its annual report, the central bank for central banks said the impact of rising food and energy prices on consumers’ incomes, combined with heavy household debts and a pullback in bank lending, may lead to a slowdown in global growth that ‘could prove to be much greater and longer-lasting than would be required to keep inflation under control.’

‘Over time, this could potentially even lead to deflation,’ it said.”

full story

Perhaps unsurprisingly, the bank is still sticking to the “worst of the credit crisis is over” line, by which financial institutions mean they have stopped making risky securities investments. The hundreds of trillions in collateralized debt that has never been marked to market is not mentioned in the BIS report, or in this article form the Guardian :

“In its annual report, the BIS – the central banks’ central bank – said that although the worst of the credit crisis seemed to be over, it be wrong to assume this meant the all-clear could be sounded for the world economy. It warned that the credit crunch that has paralysed world financial markets since last August was a reflection of deeper problems relating to huge debt build-up during the credit boom of recent years.”

full story

Each new day yields another loser among the large commercial and investment banks. Last week the whole sector performed abominably, with Merrill Lynch, Morgan Stanley, Washington Mutual, and UBS capturing the headlines. Today, as Reuters reports, rumors are swirling around Wachovia :

“Wachovia Corp shares fell as much as 9 percent on Monday after the New York Post reported that Prudential Financial Inc could force the bank to buy its stake in a brokerage joint venture.

The report was a latest blow to Wachovia, which was the biggest decliner among large banks, and is trading at a 16-1/2-year low.

The fourth-largest U.S. bank has already been throttled by concern that it might have to again cut its dividend and potentially raise more capital after raising $8.05 billion in April.

Roughly 34,000 puts, which give the right to sell the stock, compared to 23,000 calls traded in Wachovia in the morning session, according to option analytics firm Trade Alert.

The newspaper said that Prudential, starting on Tuesday, could force Wachovia to buy the insurer’s 23 percent stake in the Wachovia Securities partnership, which it said some analysts value at around $5 billion.”

Forbes is reporting that analysts remain concerned about Wachovia’s exposure in residential mortgages and mortgage backed securities, and unimpressed with its reserve-building efforts so far :

“Wachovia built its loan loss reserve by $2 billion in first quarter 2008, however, this represents only about 1.2 percent of the company’s substantial $170 billion residential mortgage portfolio, Fitch noted.

It added that included in the portfolio is $121 billion worth of pick-a-pay mortgages, a product that has exhibited more significant deterioration in performance metrics than conventional 30-year or 15-year fixed-rate mortgages for the industry.”

Ironically, the bank just scrapped that program this afternoon, according to this report from the Associated Press :

“Beleaguered consumer bank Wachovia Corp. will quit offering a mortgage payment option that allows borrowers to pay less each month than the bank charges in interest.”

Reuters : Wachovia shares slump on Prudential sale report

Forbes : Wachovia and subsidiaries ‘AA-/F1+’ IDR’s on negative watch-Fitch

Associated Press : Wachovia quits offering risky mortgage loan

More media have begun to report on a growing phenomenon caused by the surge of foreclosures in the US; middleclass families becoming homeless and seeking shelter in their automobiles. Earlier this spring, bank run blog reported on victims of foreclosure who are employed, but live in their automobiles and SUVs.

Today, the Associated Press did a piece on how Los Angeles citiy authorities are responding to the increased numbers of homeless Americans, including members of the professional classes, who are camping on city streets;

“Tourist states with temperate climates, such as California and Florida, have long been magnets for the homeless. Los Angeles is the nation’s homelessness capital, with an estimated 73,000 people on the streets. A survey of 3,230 homeless people last year in Los Angeles County found nearly 7 percent living in vehicles, according to the Los Angeles Homeless Services Authority.”

The Los Angeles City Council passed a provision that prohibits overnight parking in residential neighborhoods earlier this year because residents had complained, as the AP writes, that “rusty, dilapidated campers can be seen lined up outside neat single-family homes.” Police authorities often warn homeless car-campers to move along, but fines can be levied on offenders. Police also have the authority to impound vehicles.

The Guardian reported today, “As mortgage foreclosures continue to rise, growing numbers of middle-class professionals are losing their homes and downsizing from four bedrooms to four wheels.” In California, some have moved into one of the 12 parking lot homeless shelters in the city of Santa Barbara run by a homeless support organization called New Beginnings. A spokesperson for the organization told CNN recently, “The way the economy is going, it’s amazing the people who are becoming homeless. It’s hit the middle class.” The Guardian quoted one resident of a Santa Barbara parking lot shelter who cautioned;

“The people sleeping at the [car parks] are … just like me. They come from normal, everyday homes. I think a lot of people in this country don’t realize that they, too, are a couple of pay cheques away from destitution.”

see stories-
bank run blog video : economic indicators : parking lot living
Associated Press : L.A. seeing more people living out of their cars
Guardian UK : Credit crunch forcing US middle classes to live in their cars

Based upon a deal being negotiated with the government oil ministry in Iraq, several of the world’s largest petroleum producing companies will gain exclusive access to Iran’s vast oil fields for thefirst time since oil production was nationalized by the former Iraqi regime more than 30 years ago.

When approved, the no-bid oil field servicing contracts will give Exxon, Shell and BP initial access to Iraq’s producing oil fields. It was these same companies who were members of a small cartel of companies that established the Iraq Petroleum Company that had exclusive control of oil production in Iraq between 1925 and 1961 and who lost oil production contracts when Iraq’s oil fields were placed under the control of a the state run Iraqi National Oil company. 36 companies were selected to receive contracts. Several companies from China, India and Russia were excluded from the deals.

The no-bid contracts are novel in the oil-producing world in that they are simple pay-for-service contracts as opposed to agreements held between the petroleum companies and other nations, which generally are licenses to drill for oil. The contracts are intended to be a stopgap measure to get Iraq’s oil fields producing as the Iraqi Oil Law is being debated by the Iraqi National Assembly. The oil companies would be paid directly in oil instead of cash.

The Iraqi government is negotiating the agreements, ostensibly, outside of the influence of the occupying US government, but as previously reported by redstateupdate.net, the Iraqi Oil Law was drafted in cooperation with the same oil companies now receiving no-bid contracts, and the US required that the Iraqi Oil Ministry include representatives of western oil production firms in its membership. Although the deals currently being negotiated will last for only one or two years, experts agree that being the first companies to have access to oil production in Iraq will certainly give the companies an advantage in consummating future deals with the government.

Iraq also awarded 6 service contracts to state owned oil companies from nations including Turkey and Pakistan. The ministry hopes to increase oil production by half over the next few years as new oil fields in the country are exploited. It is estimated that Iraq’s oil reserves exceed 300 billion barrels.

cross posted at

redstateupdate.net

In a brief interview with the Sacramento Bee, Mark Zandi, chief economist of the financial research firm Moody’s Economy.com predicts that, due to the significant number of foreclosers, property values will continue to decline through this year and next.

Zandi told the Bee, “Given the continuing surge in foreclosure starts, and the fact that the average amount of time a loan remains in the foreclosure process is about a year – and then that it takes about six months to be sold – that would strongly argue it will not be before the end of 2009 that the inventory of (bank-owned houses) peaks.” Zandi said that the time frames;

“strongly argue it will not be before the end of 2009 that the inventory of (bank-owned houses) peaks. This problem is not going away…this problem is going to be with us into the next decade. Those 2005 Alt-A loans (a loan variety not as risky as subprime, but more risky than typical prime loans) are all under water…if you’re buying a home…you should have a long horizon. If you have two years (and then plan to sell), chances are you’re being overly optimistic. If it’s five to 10 years you will be OK.”

see interview-
Sacramento Bee : Glut of repossessed homes will weigh on capital region until late 2009, economist says