The delinquency rate does NOT include loans that somewhere in the process of foreclosure. If you combine the current foreclosures with the delinquents, you get a whopping 14.41 percent.

The MBA didn't pull any punches when assessing the situation (emphasis ours):

"The outlook is that delinquency rates and foreclosure rates will continue to worsen before they improve. First, it is unlikely the employment picture will get better until sometime next year and even then jobs will increase at a very slow pace.

Perhaps more importantly, there is no reason to expect that when the economy begins to add more jobs, those jobs will be in areas with the biggest excess housing inventory and the highest delinquency rates.

Second, the number of loans 90 days or more past due or in foreclosure is now a little over 4 million as compared with 3.9 million new and previously occupied homes currently for sale, although there is likely some overlap between the two numbers. The ultimate resolution of these seriously delinquent loans will put added pressure on the hardest hit sections of the country."

Delinquencies Continue to Climb in Latest MBA National Delinquency Survey (Press Release) [MBA]
(Photo:Nick Bastian Tempe, AZ)

"100th Bank Failure of the Year" [CNBC]
(Photo: naught_facility)

From CNN:

Guaranty was the third largest bank to fail in 2009. It tied for the title of 11th largest bank failure in U.S. history with First City Bancorporation, which failed in 1988.

The estimated cost of Guaranty's failure to the FDIC is $3 billion.

And what was Guaranty Bank's downfall? Option adjustable rate mortgages. The bank also financed home builders in, gulp, California.

Third largest bank failure of 2009 announced [USAToday]

From Reuters:

"July marks the third time in the last five months where we've seen a new record set for foreclosure activity," James J. Saccacio, RealtyTrac's chief executive, said in a statement.

"Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we're seeing significant growth in both the initial notices of default and in the bank repossessions."

RealtyTrac says notices of default, auction or repossession have reached nearly 2.3 million in the first seven months of the year. There are now more than half a million bank repossessions currently on the books. Repossessions are particularly awful because they represent properties that the bank couldn't even sell at auction. These vacant properties lower the value of the surrounding real estate.

As unemployment rises and property values fall it makes it more difficult for people to sell their homes, which in turn increases the number of foreclosure filings.

The national unemployment rate is currently at 9.4%. I am sorry to have to tell you all of this. Here is a picture of a kitty playing XBOX.

U.S. home foreclosures set another record in July [Reuters]
(Photo:Seven_Null7)
(Photo:darabidduckie)

The Oasis I luxury condominium, offspring of the mortgage bubble and discarded in its burst, never got to full occupancy. Those that did swapped their condos for the more full Oasis II next door. However, for no apparent reason, Victor's bank wouldn't let him swap his mortgage. What was supposed to be a vacation home and eventually a permanent residence has now become a strange parallel life. The vacant building attracts unauthorized visitors at night. Other times, reports news-press.com, standing still in the building, the silence is overpowering.

We all knew the mortgage meltdown was devastating, but now it's also creepy.

Downtown Fort Myers condo has 32 stories, and one lonely tale [news-press.com] (Thanks to Anita!)

The WSJ says that the SEC has already informed Mr. Orangeface of their intention to file insider trading and disclosure violations.

Other Countrywide executives, including former president David Sambol are also about to have very bad days.

SEC Expected to Approve Civil Charges Against Mozilo [WSJ]

Neighbors were furious the 67-unit building on East New York Ave., where apartments were supposed to sell for $250,000 to $350,000, has been turned into a shelter.

"I'm a hardworking taxpayer, and I don't think homeless people should be living better than me," fumed Desmond John, 35, a window salesman who wanted to rent one of the fancy apartments. "They said it's not for rent. It's a shelter. I was shocked."

The lucky residents are thrilled with the arrangement, however:

"When I first saw it, I was like, 'Damn, everything is brand new,'" said Raymond, who wouldn't give his last name. "It has marble counters and marble floors in the bathrooms, too. I like the big kitchen. That's my favorite."

The developer is also excited about the deal, and though he wouldn't tell the paper how much of the $90 a night he's getting, he did say that he's been able to keep the building, avoid default and stay current on his mortgage.

"This is a case of innovation and outside-the-box thinking that benefits all those involved," Department of Homeless Services spokeswoman Heather Janik told the Daily News.

City turns upscale building in Crown Heights into homeless shelter [Daily News]
(Photo:Fevelo/Daily News)

RealtyTrac says:

The 10 states with the most properties with foreclosure filings in April accounted for more than 75 percent of the national total. California documented the highest total (96,560), followed by Florida (64,588), Nevada (16,266) and Arizona (16,245).

Foreclosure filings were reported on 13,647 Illinois properties in April, the nation's fifth highest state total. Illinois foreclosure activity decreased 11 percent from the previous month but was still up 54 percent from April 2008. With one in every 384 housing units receiving a foreclosure filing, the state's foreclosure rate ranked eighth highest in the country but was still below the national average.

Other states with totals among the 10 highest in the country were Ohio (12,324), Georgia (11,521), Texas (11,314), Michigan (10,830) and Virginia (6,254).

FORECLOSURE ACTIVITY REMAINS AT RECORD LEVELS IN APRIL [RealtyTrac]
(Photo:Andrew Ciscel)

The NYT explains:

If the bank is unable to raise the capital cushion by selling assets or stock, it would have to rely on the government, which has provided $45 billion in capital through the Troubled Asset Relief Program.

It could satisfy regulators' demands simply by converting non-voting preferred shares it gave the government in return for the capital, into common stock.

But that would make the government one of the bank's largest shareholders.

Lewis is having a difficult few weeks, having recently been fired from his position as chairman of the board. He remains CEO.

Bank of America Needs $33.9 Billion Cushion, U.S. Says [NYT]
(Photo:frankieleon)

Option-ARMs are so risky that they are illegal in many states — and offer payments that are so low that they don't even cover the monthly interest. This results in a mortgage that actually grows over time.

60 Minutes' whistleblower says that World Savings was "packaging" (their name for falsifying documents) loans in order to approve as many people as possible for risky mortgages. Their motivation was allegedly the huge fees that the bank and its mortgage brokers collected for processing each loan.

Maeve-Elyse Brown, a lawyer for a non-profit group working to save homeowners from foreclosure, says Betty Townes' actual income was about $1,875, but that the income written on her loan application was over $4,000.

Asked who did that, Brown told Pelley, "The interviewer that's listed is a staff person for World, for World Savings, according to the loan documents."

"What does that tell you?" Pelley asked.

"Looks like whoever typed up this document put in the number that they thought was the right number to get the loan approved," Brown said.

"The term was 'packaged.' It had to be packaged correctly when it got to the underwriter," Bishop told Pelley.

Bishop says a story like Betty's was common at his former office.

He says facts were manipulated on some loan documents to get past company underwriters who approved the loans. "You know, let's not say this. Let's delete these items that they're probably not gonna check on. Let's add this. Let's just move it around."

"Packaging the loan meant modifying [the loan]…to make sure it would pass the underwriters' inspection?" Pelley asked.

"Correct. It was one grand wink-wink, nod-nod," Bishop said.

60 Minutes says that World Savings' option-arm portfolio has now lost over $36 billion.

World Savings denies that there was any fraud or irresponsible lending at the bank.

World Of Trouble [CBS]

Today we meet Mr. Vernon Frontz. He's 92-years-old and was sold a refinance over the phone. He went from a fixed rate mortgage to an option-ARM where each month his mortgage balance increases because his monthly payment doesn't even cover the interest on the loan. These types of loans are illegal in many states.

When his daughter looked at his mortgage papers, she noticed that his income was stated as $4,480 a month. It's actually more like $1,400.

If you're having trouble paying your mortgage, the Federal Housing Administration may be able to help. Contact them at 1-800-CALL-FHA, 1-800-225-5342.

Our sister publication, Consumer Reports, put together some video interviews with people who, for one reason or another, are facing foreclosure. They are the human side of this financial meltdown.

Today meet Langdon McAlpin, a former police officer who presented his mortgage broker with a letter explaining that he had a traumatic brain injury and may not be able to fully understand any documents he was asked to sign. Mr. McAlpin and his wife ended up refinancing with ARM that had an initial payment of 60% of their monthly income and are fighting to stay in their home of 19 years.

If you're having trouble paying your mortgage, the Federal Housing Administration may be able to help. Contact them at 1-800-CALL-FHA, 1-800-225-5342.

[House Financial Services Committee Chairman Barney] Frank said the Fed shouldn't reveal the assets it holds or how it values them because of ``delicacy with respect to pricing.'' He said such disclosure would ``give people clues to what your pricing is and what they might be able to sell us and what your estimates are.'' He wouldn't say why he thought that information would be problematic.

[Bloomberg] (Thanks, James!)
(Photo: Meg Marco )

Sam Glover is a consumer rights lawyer, enemy of shady debt collectors, previous Consumerist contributor, and writes the Caveat Emptor blog. This is the first of his new column for Consumerist, appearing the first Monday of every month.

...that if a company violates the law, the consumer may sue them. A private right of action is so important because regulators charged with enforcing existing regulations rarely bother to do their jobs. Even Congress, in spite of abundant warnings, did nothing to prevent the economic meltdown. Therefore we need to...

GIVE CONSUMERS THE RIGHT TO ENFORCE REGULATIONS, AND THEY WILL
And consumers will enforce regulations long before slow-moving, ineffective government regulators and legislators get around to it. Consumers are the canaries in the coal mine, but a private right of action is the key to the birdcage.

ATTORNEY FEES MUST BE INCLUDED
A private right of action must include attorney fees if the consumer wins. Navigating the court system is difficult, and consumers often need the help of a knowledgeable lawyer to assert their rights and win. But without an attorney fee provision, they often will not have the financial means to do so.

"TRIAL-LAWYER" IS NOT A FOUR-LETTER WORD
Companies use the phrase "trial lawyers" as if it were a four-letter word. But trial lawyers who do consumer rights work are just private regulators, keeping companies in compliance with the law one consumer at a time. It's no wonder they don't like us.

IT DOESN'T MATTER HOW SMART OR STUPID REGULATIONS ARE, COMPANIES WANT THEM WEAKER
Meanwhile, debt collectors, credit bureaus, credit card companies, mortgage lenders and brokers, and many others are trying to weaken consumer protections already in place, like the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the bankruptcy code, and prevent new regulations, however smart.

TELL YOUR ELECTED OFFICIALS YOU CARE ABOUT YOUR CONSUMER RIGHTS
Consumers must protect good regulations that are already on the books, and now is the time to push for better regulation of things like mortgage lending, credit cards, payday lending, and product safety. Call your senator, write to your representative, and make sure your consumer rights are on their minds.

(Photo: Getty)

From Bloomberg:

"Yes, I found a flaw,'' Greenspan said in response to grilling from the House Committee on Oversight and Government Reform. ``That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.''
...
The admission that free markets have their faults was a shift for the former Fed chairman who declared in a May 2005 speech that ``private regulation generally has proved far better at constraining excessive risk-taking than has government regulation.''

Today Committee Chairman Henry Waxman, a California Democrat, said Greenspan had ``the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis.''

``You were advised to do so by many others,'' he told Greenspan. ``And now our whole economy is paying the price.''

Waxman and other lawmakers repeatedly interrupted Greenspan as he answered their questions, in contrast to deference to his testimony while he was Fed chairman.

Greenspan then claimed that the Fed had no idea how large the subprime mortgage market had become until late 2005, says Bloomberg.

Greenspan Concedes to `Flaw' in His Market Ideology (Update2) [Bloomberg]

Let's dive into the text and see what renter protections Congress cooked up:

SEC. 109. FORECLOSURE MITIGATION EFFORTS.

(b) Coordination- The Secretary shall coordinate with the Corporation, the Board (with respect to any mortgage or mortgage-backed securities or pool of securities held, owned, or controlled by or on behalf of a Federal reserve bank, as provided in section 110(a)(1)(C)), the Federal Housing Finance Agency, the Secretary of Housing and Urban Development, and other Federal Government entities that hold troubled assets to attempt to identify opportunities for the acquisition of classes of troubled assets that will improve the ability of the Secretary to improve the loan modification and restructuring process and, where permissible, to permit bona fide tenants who are current on their rent to remain in their homes under the terms of the lease. In the case of a mortgage on a residential rental property, the plan required under this section shall include protecting Federal, State, and local rental subsidies and protections, and ensuring any modification takes into account the need for operating funds to maintain decent and safe conditions at the property.

Renters are explicitly allowed to keep any legal rental subsidies, so even if grandma's nine-room penthouse Park Avenue suite is foreclosed, she can keep her rent-controlled rate of $32 per month.

SEC. 110. ASSISTANCE TO HOMEOWNERS.

(b) Homeowner Assistance by Agencies-

(3) TENANT PROTECTIONS- In the case of mortgages on residential rental properties, modifications made under paragraph (1) shall ensure—

(A) the continuation of any existing Federal, State, and local rental subsidies and protections; and
(B) that modifications take into account the need for operating funds to maintain decent and safe conditions at the property.

The bailout bill is full of goodies to help keep people stay in their homes. If you're facing eviction, read our post explaining the bailout bill, and then immediately call your local HUD office to discuss your options.

Text of H.R. 1424: Emergency Economic Stabilization Act of 2008 [GovTrack]
PREVIOUSLY: Chicago Sheriff Halts Foreclosure Evictions, Won't Toss Innocent Renters
What Does The Bailout Mean For You?
(Photo: Getty)

UPDATE: Now the block has been blocked! Madness continues apace.

Citibank previously teamed up with the FDIC to pick off Wachovia's banking operation for $2.2 billion. Four days after the deal was announced, Wells Fargo loaded up the stagecoach, buying Wachovia as a whole for $15 billion. The FDIC shrugged its shoulders, glad not to have pay $42 billion to secure against losses, and let Wells Fargo proceed with the takeover.

Citigroup raised the stakes in the merger battle on Saturday afternoon, asking Justice Charles E. Ramos of New York State Supreme Court to issue an emergency order blocking the deal between Wachovia and Wells Fargo.

Representatives from the banks met at Justice Ramos’s home in Cornwall, Conn., late Saturday afternoon for more than three hours of oral arguments, according to people briefed on the situation.

In the unusual weekend session, Citigroup presented Justice Ramos with a 16-page complaint naming both Wells Fargo and Wachovia, and their boards, as defendants. But it has not yet filed the suit formally because the courts were closed.

Late Saturday, after several hours of intense legal jockeying, Justice Ramos issued an injunction effectively blocking the Wells Fargo deal, pending a hearing scheduled for Friday.

Wachovia hasn't seen the judge's order yet, but that didn't stop them from debasing Citibank's lawsuit as nothing more than a "pointless legal maneuver."

Wachovia customers can sit back and feel loved. Your accounts are safe, and for the moment, your banking experience will remain the same as it ever was.

Citigroup Says Judge Suspends Wachovia Deal [The New York Times]
Citi: Wells Fargo blocked from buying Wachovia [AP]
PREVIOUSLY: Giddyup! Wells Fargo Rides In And Steals Wachovia From Citibank!
(Photo: So Cal Metro)

The announcement came just four days after Citigroup had agreed to buy Wachovia’s banking operations of Wachovia for $2.2 billion of about $1 a share. But Wachovia, which is based in Charlotte, N.C., has now rejected that deal in favor of one where the entire company would be acquired. How Citigroup will respond to the news remained a question Friday morning.

In a statement, Wells Fargo, which is based in San Francisco, said that the deal required no assistance from the Federal Deposit Insurance Corporation or any other government agency.

Under the old deal, the FDIC agreed to guarantee losses above $42 billion in exchange for stock and warrants worth about $12 billion, says the NYT.

As far as the mortgage meltdown goes, Wells Fargo didn't take the risks that many other banks did, and are therefore in a good position to acquire Wachovia. It also did not have a big investment bank, so was spared the recent investment banking bloodbath.

Wells Fargo in a Deal to Buy All of Wachovia [NYT]
(Photo: So Cal Metro )

UBS has been more aggressive about marking down its assets than many of the banks for whom the rescue package is intended, making it easier for the Swiss bank to sell them on. UBS will probably also struggle to find any buyers for more toxic assets such as its high risk collateralized-debt obligations.

UBS, whose troubles began in May 2007 when it shut its Dillon Read hedge fund, has been one of the heaviest-hit victims of the credit crunch. But it has acted swiftly to get back on track, pumping shareholders and two sovereign wealth funds for billions in new capital. In August, it announced that it would be abandoning its "universal bank" model, slashing the balance sheet of its securities division, and slicing itself into three divisions to curb the outflow of money from its core wealth management business in Switzerland.

However:

UBS will probably also struggle to find any buyers for more toxic assets such as its high risk collateralized-debt obligations.

Capitalism, you say? That sounds like an intriguing concept. We should get some of that going on over here.

UBS Gets An Alternative Bailout [Forbes] (Photo: On Stage Lighting)

The bailout will be expanded to pension plans, local governments, and community banks. Here are the details as reported by Reuters:

• The $700 billion in buying power would be doled out by Congress in stages. After the first $250 billion is authorized, the President could request another $100 billion. The final $350 billion could be cleared by a further act of Congress.
• Washington will take a stake in companies helped through the program so that taxpayers can share in the profits if those companies get back on their feet.
• A new congressional panel would have oversight power and the Treasury secretary would report regularly to lawmakers in two elements of a multi-level oversight apparatus.
• Compensation limits would be set for the chiefs of participating firms to prevent excessive pay and "golden parachutes" for those who might tap government aid and then quit.
• The federal government may stall foreclosure proceedings on home loans purchased under the plan.
• Alongside the plan to buy securities outright, the Treasury Department will conceive an alternative insurance program that would underwrite troubled loans and would be paid for by participating companies.
• If the government has taken losses five years into the program, the Treasury Department will draft a plan to tax the companies that took part to recoup taxpayer losses.

Both parties will now release their Whips into the horde of election-weary members. Expect an exciting (yes, exciting) vote late tonight before the Asian markets open.

Lawmakers Reach Tentative Bailout Deal [WSJ]
PREVIOUSLY: BREAKING: Congress Has A Bailout Plan
(Photo: Associated Press)

CNN says:

Both parties and both houses agreed Thursday to a set of principles on revisions to the rescue plan, which calls for the Treasury Department to buy up bad mortgage securities from banks in an effort to get them to lend again.

The proposal will help homeowners, curb executive pay packages at participating firms and provide oversight of Treasury's actions, said Sen. Christopher Dodd, D-Conn., a key architect of the congressional effort. He did not provide details but said lawmakers will sit down with Treasury officials to discuss it.

"We've reached a fundamental agreement on a set of principles, one, for taxpayers, which is tremendously important," Dodd said.

Americans should "legitimately feel better about the overall approach," said Rep. Barney Frank, D-Mass., who heads the House Financial Services Committee.

CNN also noted that the stock market was up over 300 points on news that a bailout may be forthcoming.

Congress has a plan [CNN]

The New York Times, on the other hand, says that Citigroup, JPMorgan Chase, HSBC, Banco Santander (of Spain), and Wells Fargo are also interested in picking WaMu's bones clean.

It is generally accepted that the prognosis is not good.

WaMu steps up talks to find savior [CNNMoney] (Photo: James Callan )

Republican officials said Treasury Secretary Henry M. Paulson Jr. had agreed to demands from lawmakers in both parties to limit the pay of executives whose companies benefit from the bailout. The enormous pay packages of some Wall Street executives, coupled with the realization among nonwealthy Americans that the crisis could affect their financial foundations, have created an incendiary issue on Capitol Hill.

That's a good term! It's inclusive and condescending at the same time. "Nonwealthy Americans." I'm a "Nonwealthy American," how about you?

Paulson Said to Give Way on C.E.O. Pay; Bush to Speak [NYT]
(Photo: spinadelic )

For $100 Billion you can Universal Health Care for all people in the U.S. without it.

For $35 Billion you can get universal preschool. Half-days for 3-year-olds and full days for 4-year-olds.

For $10 Billion you can carry out all the security recommendations issued by the 9/11 commission.

All these costs are annual. We're not saying this is how we should spend the money, but it does give you an idea of what a large amount we're talking about.

Putting the annual cost of war into perspective [NYT]
(Photo: donbuciak )

The New York Times says:

But one after another, senators from both parties said that, while they were prepared to move fast, they were far from ready to give the administration everything it wanted in its proposed $700 billion plan to buy up and hopefully resell troubled mortgages.
...
Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate banking panel, called the Treasury proposal “stunning and unprecedented in its scope and lack of detail.”

Asserting that the plan would allow Mr. Paulson to act with “absolute impunity,” Senator Dodd said, “After reading this proposal, I can only conclude that it is not only our economy that is at risk, Mr. Secretary, but our Constitution, as well.”

Another expression of disgust came from Senator Jim Bunning, Republican of Kentucky, who said the plan would “take Wall Street’s pain and spread it to the taxpayers.”

“It’s financial socialism, and it’s un-American,” Mr. Bunning said.

Paulson responded that he was "angry" at Wall Street and that he needed the bailout not for the fat cats who bet badly and lost, but for you, the taxpayer.

“This is all about the taxpayers. That is all we are about,” said Paulson, who was formerly the CEO of Goldman Sachs for 7 years before becoming Secretary of the Treasury in 2006.

Finance Officials Face Wary Lawmakers [NYT]
(Photo:Andrew Councill for The New York Times)

The WSJ says that Dodd wants the government to receive shares in the firms that are dumping their questionable debt on taxpayers, as well as a provision to help distressed homeowners, whereas the White House is calling for a "clean" bailout that would allow the Treasury to grant "nearly unfettered powers" to its Secretary. The New York Times says that the Bush plan, "could prove to be the largest government bailout of private industry in the nation’s history."

CNN reports that most of the regular people that they've talked to are extraordinarily pissed about the bailout and think that, while ignoring the problem may not be practically possible, that Wall Street doesn't deserve any help:

"Companies, like individuals, should be held responsible for their decisions," wrote Jorge from El Paso, Texas. "This buyout does not address the other problems in the pipeline such as personal credit default and market slowdowns in most industries. No new jobs will be created."

"It is time for the financial institutions of this country to be called to the mat. We should be expecting and demanding responsible and ethical business practice, not rewarding it at the expense of taxpayers."

And John from Springfield, Va., said the government action actually hurts the people it is intended to help.

"The government does not have $700 billion dollars. WE have $700 billion, and it is being taken from us. If this is passed then the next administration and the next will be extracting this one from the people who are supposedly being protected by this bailout."

Other consumers vowed to get rid of any politician that supported a bailout:

"I will be watching to see which of our representatives vote for this bailout," said R. Kidd in Troy, N.C. "Let the American people see how many we can fire come election time."

And many readers, including Danny from Texas said we should stop typing and start dialing the lawmakers who are prepared to give the OK to the bailout.

"Call your Congressman. Stop blogging, posting comments, and call your congressman. This is the patriotic thing to do. Let them hear your opinion, show them this is still America and that you will not stand for this!!"

President Bush took today as an opportunity to ask Congress not to tack on any unnecessary nonsense to the bailout, and politely asked them to hurry:

Americans are watching to see if Democrats and Republicans, the Congress and the White House, can come together to solve this problem with the urgency it warrants. Indeed, the whole world is watching to see if we can act quickly to shore up our markets and prevent damage to our capital markets, businesses, our housing sector, and retirement accounts.

Failure to act would have broad consequences far beyond Wall Street. It would threaten small business owners and homeowners on Main Street.

Everyone recognizes that it's not easy to write a bill of this magnitude in a timely manner, and all those who have worked so hard over the weekend and continue this morning deserve the thanks and appreciation of every American. Working together, I am confident we can enact the legislation necessary to prevent lasting damage to our economy and meet the unique challenge facing us today.

President Bush's Statement [NYT]
Dodd's Bailout Draft Could Give Companies' Shares to Government [WSJ]
Mad as hell - taxpayers lash out [CNN]
(AP Photo/Ron Edmonds)

The firms requested the change themselves, even as Congress and the Bush administration rushed to pass a $700 billion rescue of financial firms. It was a blunt acknowledgment that their model of finance and investing had become too risky and that they needed the cushion of bank deposits that had kept big commercial banks like Bank of America and JPMorgan Chase relatively safe amid the recent turmoil.

It also is a turning point for the high-rolling culture of Wall Street, with its seven-figure bonuses and lavish perks for even midlevel executives. It effectively returns Wall Street to the way it was structured before Congress passed a law during the Great Depression separating investment banking from commercial banking, known as the Glass-Steagall Act.

Former FDIC chairman William Isaac told Bloomberg:

"The decision marks the end of Wall Street as we have known it. It's too bad.''

Shift for Goldman and Morgan Marks the End of an Era [NYT]
Goldman, Morgan Stanley Bring Down Curtain on an Era (Update3) [Bloomberg]
(AP Photo/Mark Lennihan)

10. Food Preservation. Learn to preserve fruits and vegetables for the long winter. Make beef jerky! It's healthy and fun.

9. Risk Management. Wikipedia says, "Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly Credit risk and market risk." Apparently, there is a need for people to learn how to do this.

8. Learn A Second Language. It's a global economy, boys and girls. Time to learn to communicate!

7. Cooking. The days of getting take out every single night are over. You must learn to cook, and by cook, we mean "Prepare nutritious meals at a reasonable price." You will probably not need to own any saffron.

6. Dumpster Diving. There are sure to be some good "deals" on office furniture to be had pretty soon...

5. Budgeting. Creating and using a simple budget is easy! Even you can do it.

4. Cooperation. For example, you could find other people in your neighborhood and car pool with them. To begin, locate another human who lives near you. Say, "Hello!"

3. General Repair and Maintenance Skills. Learn how to fix things! Change your own oil! You can do it! Hardware stores often rent tools, and some cities have "tool libraries" where you can check out what you need and then return it.

2. Gardening. Growing herbs on your windowsill is easier than you might think. Start small and concentrate on inexpensive plants that are hard to kill.

1. Self-Control. Benjamin Franklin said:

When I was a child of seven years old, my friends, on a holiday, filled my pocket with coppers. I went directly to a shop where they sold toys for children; and, being charmed with the sound of a whistle, that I met by the way in the hands of another boy, I voluntarily offered and gave all my money for one.

I then came home, and went whistling all over the house, much pleased with my whistle, but disturbing all the family. My brothers, and sisters, and cousins, understanding the bargain I had made, told me I had given four times as much for it as it was worth; put me in mind what good things I might have bought with the rest of the money; and laughed at me so much for my folly, that I cried with vexation; and the reflection gave me more chagrin than the whistle gave me pleasure.

This however was afterwards of use to me, the impression continuing on my mind; so that often, when I was tempted to buy some unnecessary thing, I said to myself, Don’t give too much for the whistle; and I saved my money.

(Photo: Maulleigh )

From the NYT:

“We have acted on a case-by-case basis in recent weeks, addressing problems at Fannie Mae and Freddie Mac, working with market participants to prepare for the failure of Lehman Brothers, and lending to A.I.G. so it can sell some of its assets in an orderly manner,” Mr. Paulson said.

“Despite these steps, more is needed,” he said. “We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system’s stresses.”

President Bush admitted that taxpayer money was funding these "decisive actions," but did add that he expected the money to be paid back:
“These measures will require us to put a significant amount of taxpayer dollars on the line,” Bush said in a statement, "But we expect that this money will eventually be paid back."

Stocks Surge as U.S. Acts to Shore Up Money Funds and Limits Short Selling [NYT]

From A.I.G. and credit default swaps to why Bear Stearns got a bailout but Lehman Brothers did not, this Q&A sheds some much appreciated light on the most nagging puzzles presented to us in the past week.

Here's a taste:

The Fannie and Freddie situation was a result of their unique roles in the economy. They had been set up to support the housing market. They helped guarantee mortgages (provided they met certain standards), and were able to fund these guarantees by issuing their own debt, which was in turn tacitly backed by the government. The government guarantees allowed Fannie and Freddie to take on far more debt than a normal company. In principle, they were also supposed to use the government guarantee to reduce the mortgage cost to the homeowners, but the Fed and others have argued that this hardly occurred. Instead, they appear to have used the funding advantage to rack up huge profits and squeeze the private sector out of the “conforming” mortgage market. Regardless, many firms and foreign governments considered the debt of Fannie and Freddie as a substitute for U.S. Treasury securities and snapped it up eagerly.

Fannie and Freddie were weakly supervised and strayed from the core mission. They began using their subsidized financing to buy mortgage-backed securities which were backed by pools of mortgages that did not meet their usual standards. Over the last year, it became clear that their thin capital was not enough to cover the losses on these subprime mortgages. The massive amount of diffusely held debt would have caused collapses everywhere if it was defaulted upon; so the Treasury announced that it would explicitly guarantee the debt.

But once the debt was guaranteed to be secure (and the government would wipe out shareholders if it carried through with the guarantee), no self-interested investor was willing to supply more equity to help buffer the losses. Hence, the Treasury ended up taking them over.

Diamond and Kashyap on the Recent Financial Upheavals [Freakonomics]
(Photo: shadowmancer76 )

IN THE rolling credit crisis, more than £46 billion of the bank's shareholder value has evaporated into thin air. The collapse has hit pension funds, wiped out the nest-eggs of many investors – and added to the misery of staff, many of whom had built up substantial holdings of HBOS shares.

The bank is going to be rescued by a merger with another UK bank, Lloyds TSB. [Scotsman & MarketWatch]

Hmm.

We wonder why.

The FDIC is responding to the renewed interest in their services with some PSAs featuring everyone's favorite personal finance guru and striped shirt aficionado, Suze Orman.

They've also launched a friendly-looking website that will help you, the supposedly insured, make sure your money is protected. You can check it out here.

Oh, and he's another topic that Google's New York users have found oddly compelling in the past month.

From the NYT:

The announcement was made by the Primary Fund, which had almost $65 billion in assets at the end of May. It is part of the Reserve Fund, a group whose founder helped invent the money market fund more than 30 years ago.

The fund said that because the value of some investments had fallen, customers now have only 97 cents for each dollar they had invested.

This is only the second time in history that a money market fund has “broken the buck” — that is, reported a share’s value was less than a dollar.

How could this happen? The NYT says that in this year alone banks have poured billions of dollars into shoring up money market funds that were caught holding questionable mortgage backed securities — leading millions of investors to pull their money out of other investments and place it into money market funds.

The trouble came when The Primary Fund realized that its stake in now-bankrupt Lehman Brothers was essentially worthless, causing the fund's value to drop to 97 cents per share. For now, the fund will rely its right to delay redemption for seven days:

But, as prospectuses and regulators make clear, money funds are not legally required to keep their share prices at or above a dollar, or to redeem investors’ shares immediately. Like all regulated mutual funds, their share prices are determined solely by dividing total portfolio assets by the number of shares outstanding, and they have seven days to meet redemption demands.

Those facts would probably surprise most money fund investors, who have come to think of money funds as being “just like cash, just like a checking account,” a fund industry lawyer, Jay Baris, said.

The Investment Company Institute tried to reassure investors in a statement Tuesday. Here it is:

"Today, Reserve Management Corporation announced that one of its money market mutual funds is unable to maintain a $1.00 net asset value (NAV), an event triggered by unprecedented market conditions that have affected a wide range of financial firms. This type of event—known as "breaking the buck"—is extremely rare.

"Money market mutual funds have been a successful financial product for millions of investors. Although money market funds are not guaranteed, investors have benefited from the security, liquidity, and diversification that these funds provide under stringent and effective regulation. Today, money market funds hold $3.5 trillion in assets for a wide range of individual and institutional investors.

"ICI is working closely with its members and with regulators, including the U.S. Securities and Exchange Commission and the Federal Reserve, to maintain open communications about market conditions and their impact on funds.

"The fundamental structure of money market funds remains sound. These funds are subject to strict regulation governing credit quality, liquidity, diversification, and transparency. Rule 2a-7, administered by the SEC, strictly limits the types of securities in which money market funds can invest. Securities held by money market funds must be judged highly credit-worthy by both objective and subjective tests, and Rule 2a-7 imposes strict requirements for diversification of assets. The provisions of Rule 2a-7 have operated to help money market funds maintain a stable NAV of $1.00 per share. While not obligated to do so, fund sponsors have voluntarily lent support to their money market funds with credit lines or cash infusions in a number of recent instances.

"In the only previous instance of a money market fund breaking the buck, Community Bancshares, a small institutional money market fund, paid investors 96 percent of their principal."

Money Market Fund Says Customers Could Lose Money [NYT]
ICI Statement on Money Market Mutual Funds [ICI]
(Photo: atbartlett )

"Alan Greenspan told everyone to take a teaser rate and then raised the rate 17 times?" Cramer yelled back in August, pleading with Bernanke to focus on the issue. "Open the darn Fed window. He has NO IDEA how bad it is out there. HE HAS NO IDEA."

Here's his initial meltdown:

And here's Jimmy's elegy to the economy:

[via Gawker]

From ABCNews:

Eble owes $334,000 on his first house, which is now worth only $219,000 and is still dropping in value. He has an adjustable rate mortgage that has doubled to more than $4,000 a month, more than Eble can afford to pay.

So before the bank forecloses on his first house he is taking advantage of falling real estate prices to buy a new home for $285,000, with a fixed rate mortgage he can afford. Once inside the new home, he can either sell the first property for a huge loss to the bank or walk away completely and let it slip into foreclosure.

This exit strategy only helps homeowners who can afford the down payment on the second home as well as carry both mortgages until they are in their new home.

Like Jim Eble, homeowner Kim Hinske just bought a new home — for $280,000 — as a way to get out of an expensive mortgage.

"Yes, it's a scary thing, but I know that my family's taken care of 'cause we have another house, a bigger house and a mortgage that's less," Hinske said.

ABCNews says that the practice is prompting lenders to improse more strict guidelines for approving a second mortgage. A spokesperson from RealtyTrac, the firm that compiles foreclosure statistics, says that the trend is caused by desperation on the part of both borrowers and lenders.

"Desperate people do desperate things and again, we're at a point now where the relationships between the borrowers and lenders really seem to have devolved into a survival of the fittest mode," said Rich Sharga, a spokesman for RealtyTrac, an online marketplace for homes in foreclosure.

In Foreclosure? Buy a Second Home [ABCNews]
(Photo: stirwise )

Thanks to a collapsing housing market and a weak economy, a growing number of banks are struggling to stay afloat, with not enough cash on hand to cover losses from bad loans.

At the beginning of the year, 90 banks were on the FDIC watch list. There are now 117, FDIC chairwoman Sheila C. Bair announced at a news conference this afternoon. That is the highest number in five years, but some analysts expect the list to grow even more in coming months.

"I think there's going to be a steady drip, drip, drip of bad news," said Sean Ryan, a banking analyst with Sterne Agee. "We've only seen the very tip of the iceberg in terms of bank failures."

...
"I fully expect the FDIC insurance fund to be depleted," Ryan added. "The FDIC is going to be one of what is going to be an increasing string of government bailouts."

So should you worry?

Nah, says one expert:

Ultimately though, Ryan said depositors with less than $100,000 in the bank have nothing to worry about.

"The reality is anybody who is within that threshold shouldn't lose any sleep at night," he said. "For all the kind of unjustifiable bailouts being done on Wall Street there's no chance that the government is going to let John Q. Public's money disappear."

Still, the numbers are sobering. The FDIC currently has about $50.2 billion in its fund — 20% of which will be depleted by the recent IndyMac failure. How many more IndyMacs do we have to look forward too? Who knows.

FDIC Warns of More Bank Troubles [ABCNews]

Even at the low, low price of a double cheeseburger at McDonald's, it took 19 days to find a buyer for a gutted house on Detroit's east side, says the Detroit News. The house in question used to be the nicest house around. After foreclosure, however, vandals stripped the property of everything valuable from the wiring to the kitchen sink.

The home, at 8111 Traverse Street, a few blocks from Detroit City Airport, was the nicest house on the block when it sold for $65,000 in November 2006, said neighbor Carl Upshaw. But the home was foreclosed last summer, and it wasn't long until "the vultures closed in," Upshaw said. "The siding was the first to go. Then they took the fence. Then they broke in and took everything else."
...
"It about doesn't make sense to put the family out," Upshaw said. "Once people are gone, you're gonna lose the house in this neighborhood."

Empty houses are becoming more and more of a problem in Detroit and other cities hard hit by the foreclosure crisis. Banks are so desperate to rid themselves of these properties that they're willing to pay $10,000 to sell a house for $1.

So desperate was the bank owner of 8111 Traverse Street to unload the property that it agreed to pay $2,500 in sales commission and another $1,000 bonus for closing the $1 sale; the bank also will pay $500 of the buyer's closing costs. Throw in back taxes and a water bill, and unloading the house will cost the bank about $10,000.

"It doesn't make sense in some neighborhoods to keep paying costs and costs," Colpaert said. "It can make more financial sense to give it away."

While a $1 house is certainly unusual, even for Detroit, houses can be had for as little as a few hundred dollars these days.

"My 14-year-old son could buy a block of Detroit property," said Ann Laciura, senior servicing specialist for the Bearing Group.

Foreclosure Fallout: Houses Go For $1 [Detroit News]