Economic Despair

Time to clip the credit cards. They are getting way too expensive...

Credit-card issuers have drawn fire for jacking up interest rates on cardholders who aren't behind on payments, but whose credit score has fallen for another reason. Now, some consumers complain, Bank of America (BAC) is hiking rates based on no apparent deterioration in their credit scores at all.

The major credit-card lender in mid-January sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving an explanation for the increase, according to copies of five letters obtained by BusinessWeek. Fine print at the end of the letter—headed "Important Amendment to Your Credit Card Agreement"—advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer. "No one could give me an explanation," says Eric Fresch, a Huron (Ohio) engineer who is on time with his Bank of America card payments and knows of no decline in the status of his overall credit.

Here is an interesting story; a survey shows that most homeowners have difficulty believing that house prices have fallen. Funny that they had no problem believing that house prices had increased during the bubble.

NEW YORK (CNNMoney.com) -- Despite numerous reports showing home values in historic decline, more than three out of four homeowners believe their own home has not lost value in the past year, according to an online survey.

The survey was conducted by Harris Interactive for Zillow.com, a Web site that gives estimated home values. The survey of 1,619 homeowners found 36% believe their home has increased in value, and another 41% believe their value has stayed the same. Only 23% believe their home has lost value.

"This survey reveals that despite the data to the contrary, people either aren't paying attention to their housing market or are in denial about their own home's value," said Stan Humphries, Zillow.com vice president of data & analytics. Zillow's own estimates are that home values declined 5% on average last year, with many markets posting much steeper declines.

I rmember when TOLL shares were going through the roof. Now, all I am left with are the memories.

BOSTON (MarketWatch) -- Toll Brothers Inc. doesn't see any end in sight to the U.S. housing market's woes as the luxury home builder said Wednesday that first quarter home-construction revenue fell 22% compared to the same period last year. "The housing market remains very weak in most areas. Based on current traffic and deposits, we are not yet seeing much light at the end of the tunnel," said Robert Toll, chairman and CEO also said its backlog fell to $2.4 billion, down 42% from the first quarter of fiscal 2007, as the number of signed contracts on homes fell 46% from last year. In addition, the average price of a house sold by Toll fell, while the average price of canceled houses rose. Joel Rassman, Toll's chief financial officer, said in a press release: "With conditions still weak in most markets, we expect to continue to face challenging times ahead. We are still in the midst of finalizing our first-quarter impairment analysis."

Does anyone remember hearing about the "housing shortage"?

CLEVELAND - Judge Raymond Pianka views his courtroom as the emergency room of the foreclosure crisis. Weary of lenders and wholesalers who don’t show up to answer to housing code violations like unsecured doors and windows on foreclosed properties, he began holding trials without them. He’s put 12 companies on trial in absentia and has fined most, leaving each unable to sell any properties in the area until it pays up.

Rust Belt cities, already beaten down by a miserable economy before foreclosures began spiraling nationally, are moving to cut the number of houses left vacant when the mortgage can’t be paid. At stake are valuable tax dollars and the survival of neighborhoods. County treasurers and mayors are filing lawsuits and developing land banks to buy distressed properties and either demolish them or repair and sell them. Buffalo, N.Y., brings property owners and lenders together in court on monthly “Bank Days” to find solutions for cleaning up vacant homes.

Structuredd credit; who would have thought that it would become the source of humor.

Things must be bleak when your hedge fund manager—after posting an approximately 40% decline on the year—looks for solace in black humor. Structured credit shop Eidesis Capital is licking its wounds after a disastrous 2007. And, quoting comedian Lily Tomlin, it warns, “things are going to get a lot worse before they get worse.”

“Despite all the well-publicized and traumatic developments to date, the extent of the problems in credit are underestimated and mechanics of what is transpiring in the credit formation infrastructure are still not fully appreciated by most market participants,” the firm’s managing members wrote to investors last month.

Jim Jubak lashes into the Fed. Well worth a read....

Do the members of the Federal Reserve think we're stupid? Do they think we don't understand that their quick fix for the economy and the financial markets in 2008 is going to completely unravel in 2009?

Do they think we can't see that they're setting up the economy and the financial markets for a replay of the bust-to-boom-to-bust cycle that followed the bursting of the stock market bubble in 2000, in which easy money created a housing bubble that has now burst?

The Fed's actions of the past five months are going to lead to higher inflation or higher interest rates (and a slowing economy again) in 2009. Apparently the Fed doesn't think we can read between the paragraphs of its Jan. 30 press release and see that coming.

The credit crunch continues; the CDO market is still stuck in the mud.

Feb. 5 (Bloomberg) -- Buying and selling of collateralized debt obligations based on mortgage bonds, high-yield loans or preferred shares has ground to a near-halt, traders said at the securitization industry's largest conference.

The slowdown of the more than $2 trillion CDO market follows record downgrades in mortgage-linked securities last year. Some AAA rated debt lost all its value. CDOs, which have fueled unprecedented bank writedowns since mid-2007, repackage assets into new securities with varying risks.

Lighter trading volumes for asset-backed bonds and larger- than-typical differences between the prices at which they can be bought and sold have made valuing holdings difficult and dissuaded investors from purchasing the debt, said Sanjeev Handa, head of global public markets at TIAA-CREF.

Demand for new CDOs has stalled, with just one created in the U.S. so far this year, according to JPMorgan. The creation of CDOs dipped about 10 percent last year to $494.7 billion, according to the company. The figures include only issuance for which investor money was collected upfront.

After resisting price cuts, builders have started to roll back the housing bubble.

WASHINGTON (MarketWatch) -- U.S. builders slashed prices by more than 10% in December in a failed bid to boost sales, which dropped about 5% to the lowest level in nearly 13 years, the Commerce Department reported Monday. For the year, sales declined at a record 26.4% pace. "A lousy end to a lousy year," summarized Richard Moody, chief economist for Mission Residential. The grim figures show no relief in sight for a battered building sector and are certain to be a major item on the Federal Reserve's agenda for its two-day policy-setting meeting that begins Tuesday.

The fall guy is fighting back. He says it is not his fault that SocGen lost billions.

Jérôme Kerviel, the trader accused of fake transactions costing Société Générale billions of euros, insisted on Tuesday he would not be used as a “scapegoat” by the bank. In his first public comments since the scandal broke, Mr Kerviel told Agence France Presse he recognised his “share of the responsibility”, but he would not take all the blame.

”I was designated [as being solely responsible] by Société Générale. I accept my share of responsibility but I will not be made a scapegoat for Société Générale,” the 31-year-old former bank employee said in an interview at his lawyer’s office in Paris. Mr Kerviel’s first public intervention came a day after he was questioned by two investigating magistrates who are examining the case. Judges Renaud van Ruymbeke and Françoise Desset grilled Mr Kerviel for eight hours on Monday, AFP reported.

Didn't GM once make cars? Now it makes losses on the housing market.

Feb. 5 (Bloomberg) -- GMAC LLC, the auto and mortgage lending company 49 percent owned by General Motors Corp., posted a $724 million fourth-quarter loss as bad loans in the U.S. rose to a record.

The net loss compares with a profit of $1 billion a year earlier, the Detroit-based company said in a statement. GMAC, whose majority owners include Cerberus Capital Management, is talking to buyers for parts of the Residential Capital mortgage unit, which had a $921 million loss.

GMAC vowed today to make money in 2008 after falling home prices and record U.S. foreclosures led to a $2.3 billion loss for 2007. Auto finance profit slid 77 percent as sales declined at GM's North American unit. Moody's Investors Service cut its ratings on GMAC and ResCap, citing concern about ResCap's liquidity and the effect on GMAC's financial health.