Obama rejects McCain’s plan to buy mortgages

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ELYAC Realty- U.S. economy shrank in the third quarter

U.S. economy shrank in the third quarter

Contraction at 0.3 percent pace suggests the onset of recession

The Associated Press

updated 12:20 p.m. PT, Thurs., Oct. 30, 2008

WASHINGTON – The government reported Thursday the economy shrank in the summer, the strongest signal yet that a recession may have already begun, a day after the Federal Reserve slashed a key interest rate to battle an economic downturn.

The Commerce Department reported that the gross domestic product, the broadest measure of economic health, fell at an annual rate of 0.3 percent in the July-September period, a significant slowdown after growth of 2.8 percent in the prior quarter.

The spring activity had been boosted by the $168 billion economic stimulus program, but the economy ran into a wall in the summer as the mass mailings of stimulus checks ended and consumer confidence was shaken by the upheavals on global markets. Consumer spending, which accounts for two-thirds of the economy, dropped by the largest amount in 28 years in the third quarter.

The classic definition of a recession is two consecutive quarters of negative GDP. Many analysts believe the GDP will decline in the current October-December period by an even larger amount and they are forecasting a negative GDP figure in the first three months of next year.

The National Bureau of Economic Research, which is the official arbiter of recessions in this country, has not said when it will make its determination of whether the country has entered a recession.

Meanwhile, the Labor Department reported Thursday that applications for unemployment benefits remained at an elevated level last week, another sign of the economy’s struggles. The number of laid-off workers filing new claims totaled 479,000, the same as the previous week, disappointing analysts who had expected a small drop.

On Wednesday, the Fed cut the federal funds rate — the interest banks charge each other on overnight loans — by half a percentage point, and the government finally began distributing funds from the billions in the financial rescue package.

Those efforts were part of a concerted drive by officials, just days before a national election, to demonstrate they are moving as quickly as possible to deal with the most serious financial crisis to hit the country since the 1930s.

“Policymakers have their foot to the accelerator and they are using every effort at their disposal to stop the slide in the economy and financial markets,” said Mark Zandi, chief economist with Moody’s Economy.com. “And it’s not a moment too soon given the serious damage that has already been done.”

While Wall Street posted its second biggest point gain in history Tuesday in anticipation of the Fed rate cut, the bleak economic reality appeared to ensure that the euphoria was short-lived. The Dow Jones industrial average rallied Thursday morning after closing down 74 points on Wednesday, a drop analysts said partly reflected growing worries about whether the government’s actions will be sufficient to avert a deep and prolonged recession.

The Fed, as investors had hoped, announced the half-point cut in the federal funds rate, driving it down to 1 percent, a low last seen in 2003-2004. That rate has not been lower since 1958 when Dwight Eisenhower was president.

Reducing the rate as low as zero cannot be ruled out, some analysts said, but they cautioned that reducing rates that far carried some risks, including that if the credit crisis suddenly worsened, the Fed would have used up its ammunition.

Analysts also noted that just lowering rates cannot serve as a panacea to overcome a credit crisis. While the goal is to encourage banks to begin lending again, financial institutions are skittish about extending new loans given the huge losses they have racked up in bad mortgages.

Meanwhile, the administration announced that the spigot had been opened on the $700 billion fund created by Congress Oct. 3 to rescue the U.S. financial system. Treasury issued a report showing checks had been disbursed for $125 billion in payments to nine major banks, including Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs and Morgan Stanley. The goal is to bolster their balance sheets so they will resume more normal lending.

And the administration was nearing an agreement on a plan to help around 3 million homeowners avoid foreclosure, according to sources who had been briefed on the matter. The program would be the most aggressive effort yet to limit damages from the severe housing slump.

Besides cutting interest rates, the Fed announced it was extending credit lines worth $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore in an effort to bolster financial markets in those countries and relieve investors’ anxieties.

It brought to 14 the number of central banks that the Fed has entered into so-called swap arrangements for currency as a way to pump more liquidity into global credit markets, part of an effort that the Bank of England estimated has resulted in $5 trillion in support being put forward by governments worldwide.

The International Monetary Fund unveiled a new streamlined lending process to get support to countries caught up in the credit crisis, another effort by the 185-member institution to show it was prepared to perform its job as lender of last resort to countries facing difficulties. The IMF already has moved to help Iceland, Ukraine and Hungary with other nations quickly lining up for aid.

The Fed’s half-point interest rate cut marked the second rate reduction this month. The Fed slashed the rate by a half-point on Oct. 8 in a coordinated action with other foreign central banks. Economists predict foreign central banks will follow suit with another round of rate cuts over the next week.

In a brief statement explaining Wednesday’s action, the Fed said that “downside risks to growth remain” holding out the promise of further rate cuts if needed. The rate-cut decision was unanimous.

Many analysts said they believe the Fed will not stop at 1 percent if officials see the need to cut rates further. Some are forecasting another half-point move at the Fed’s last meeting of the year on Dec. 16.

But other economists said with rates already so low, the Fed may decide to hold at 1 percent, leaving some room for a further reduction next year should the country’s economic troubles intensify.

The Fed’s action was quickly followed by a reduction by commercial banks in their prime lending rate, the benchmark for millions of consumer and business loans, which was cut from 4.5 percent down to 4 percent, its lowest level in four years.

The central bank also announced that it was lowering its discount rate, the interest it charges to make direct loans to banks, by a half-point to 1.25 percent. This rate has become increasingly important as the central bank has dramatically increased direct loans to banks in an effort to break the grip of the credit crisis.

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ELYAC Realty- Consumers Drag Economy Down

The gross domestic product numbers released this morning were better than I expected, and depended in part on some optimistic guesses about statistics not yet measured. I expect the 0.3 percent rate of decline will be much worse by the time they finish revising the figure.

That will, however, be long after the election. So this is the figure that voters will be able to consider on Tuesday.

And it is bad enough. Consumers are clearly in retreat, and the economy is suffering. The year-over-year increase in real G.D.P. is 0.8 percent, the lowest for any four-quarter period since 2001.

Real personal consumption spending is estimated to have fallen a tiny bit (0.04 percent) over the four-quarter period. That is the first decline for that segment since 1991.

Another number worth noting is final sales to domestic purchasers, whether businesses, consumers or governments. That leaves out gains from exports, and it ignores changes in business inventories. It is down 0.1 percent on a year-over-year basis. Again, that is the first decline since 1991.

This recession, in other words, is already deeper than the 2001 downturn. And there are clear signs it is, or soon will be, worse than the 1990-91 recession as well.

If only consumer purchases were counted in G.D.P., it would have fallen at a 3.1 percent annual rate in the quarter. That is the worst quarterly performance in that regard since the second quarter of 1980. Then, in a desperate attempt to control inflation, the Fed imposed credit controls. Now we have credit controls imposed despite every attempt by the Fed to stimulate the economy.

With consumers fearful, what kept the overall quarterly decline so small?

Government spending, for one. It added 1.1 percent to the growth rate. Another 0.6 percent came from increases in private inventories, which probably represents items that were not sold because customers were not buying. The government also thinks that non-residential construction — stores and office buildings — added 0.3 percent to the growth rate. And a big contributor was net exports, which added 1.1 percent.

Will any of those be repeated? Federal government spending may accelerate, but unless Washington sends cash increases are less likely in state and local government outlays. Inventories may fall, particularly if it does not get easier for businesses to finance them. Non-residential construction is clearly slowing.

And net exports? For exports to rise there have to be increases in imports somewhere else, and that is looking less and less likely. Today the consumer sentiment figure for the euro zone came out. It fell to a 15-year low. Here is what Jennifer McKeown, an economist for Capital Economics in London, had to say about that survey:

“We had been hoping that the region’s relative lack of imbalances would mean that it escaped the severe recession facing the U.S. and the U.K., but this and other recent surveys suggest that the economy will continue to contract for some quarters at least.”

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ELYAC Realty- U.S. to unveil effort to help homeowners

U.S. to unveil effort to help homeowners

Government may spend $50 billion to provide relief on 3 million mortgages

The Associated Press

updated 3:46 p.m. PT, Wed., Oct. 29, 2008

WASHINGTON – The government is preparing to unveil a plan that would help around 3 million homeowners avoid foreclosure, sources briefed on the matter said.

A final deal had not been reached as of Wednesday afternoon and negotiations could still fall apart, but government agencies were contemplating using around $50 billion from the recently passed bailout of the financial industry to guarantee about $500 billion in mortgages.

The plan could include loan modifications that would lower interest rates for a five-year period, according to two people briefed on the plan, who asked not to be identified because details were still being worked out and the plan was not yet public.

The plan would be the most aggressive effort yet to limit damages from the collapse of the housing bubble that has shaken financial markets around the world and sparked fears of a global recession.

More than 4 million American homeowners were at least one payment behind on their mortgage loans at the end of June, and 500,000 were in some stage of the foreclosure process, according to the most recent data from the Mortgage Bankers Association.

The government’s program would be run by the Federal Deposit Insurance Corp. The agency’s chairman, Sheila Bair, said last week she was working “closely and creatively” with the Treasury Department on such a plan, but revealed few details.

The plan had been scheduled to be announced Wednesday but was pushed back because the details were still being finalized.

Andrew Gray, an FDIC spokesman, said it would be “premature to speculate about any final framework or parameters of a potential program.”

Treasury Department spokeswoman Jennifer Zuccarelli called details of the loan modification plan “simply inaccurate.” She said the Bush administration “is looking at ways to reduce foreclosures, and that process is ongoing,” but has not decided on a final approach.

Borrower frustration is growing over the government’s slow and limited assistance programs.

On Wednesday, about 100 demonstrators marched in front of the headquarters of Fannie Mae and forced a midafternoon meeting with the company’s chief executive, Herbert Allison.

Some held signs that read “Restructure our loans now,” “Fannie Mae destroys lives” and “Foreclose on Fannie Mae.”

Bruce Marks, chief executive of the Boston-based Neighborhood Assistance Corp. of America, said Fannie Mae should adopt a program similar to the one the FDIC put in place at failed IndyMac Bank of Pasadena, Calif. Borrowers there are getting interest rates of about 3 percent for five years.

Fannie Mae, as the largest buyer and guarantor of mortgages “sets the standard” for the industry, said Marks. “They talk and they talk and they never do.”

After the meeting, which included Allison and other top managers, company spokeswoman Amy Bonitatibus said “we agreed to continue to meet with them and work together on foreclosure prevention.”

Over the past 10 weeks, Fannie Mae says it has received more than 40,000 defaulting loans and stopped 80 percent of them from going into foreclosure.

Last month, the government seized control Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, with a rescue plan that could require the Treasury Department to inject as much as $100 billion into each to keep them afloat.

It was unclear Wednesday what role Fannie and Freddie would play in the government’s sweeping plan to help millions of American homeowners. But lawmakers on Capitol Hill want the companies to take a more aggressive approach.

Sen. Christopher Dodd, D-Conn., the chairman of the Senate Banking Committee, said in a statement Wednesday that “federal agencies and financial institutions must do more to modify the mortgages they hold in order to stop foreclosures and help families keep their homes.”

By guaranteeing millions of mortgages, the government could help restore confidence in the market for securities backed by mortgage loans. That was where the global credit crisis started.

As a surprising number of homeowners began defaulting on their loans, investors could no longer put a value on the securities which were backed by pools of mortgages. So trading of these securities froze, sending shock waves through the financial industry.

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ELYAC Realty- The Worst Appetizers in America

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Aggressive Fed Cuts Key Rate by a Half-Point

Bowing to growing concerns about a deep recession and the remarkable declines on Wall Street, the Federal Reserve lowered its benchmark interest rate by half a percentage point on Wednesday, tapping its most visible policy tool to free up more money for banks and businesses.

The move brings the Federal funds rate to 1 percent. While Fed policy makers now have less room to maneuver on interest rates if the economy deteriorates further, investors had been hoping for the relatively aggressive cut as a sign of vigilance among American central bankers seeking to restore the free flow of credit. The move brought the rate down to near the lows reached in 2003 and 2004.

But the economic outlook is much grimmer than it was in 2003. Back then, policy makers were trying to vanquish the last remnants of a downturn.

This time, policy makers face an economy that is sputtering on all fronts — consumer spending, job creation, business investment, housing and possibly even exports — and the downturn has only begun.

The Federal Reserve is within striking range of reducing the overnight lending rate to zero, a point that Japan reached in the 1990s and remained at for years while it struggled to revive its economy.

If the Federal funds rate were to reach zero, the Fed would not be out of tools for stimulating the economy. But it would have to resort to unconventional tools that it has never used before. Instead of trying to reduce rates on overnight loans between banks, for example, it might start buying longer-term Treasury securities in order to push those rates down.

The Fed’s biggest weakness at the moment is that the economy’s problems have less to do with interest rates than the reluctance of banks and financial institutions to lend money. Even though the Fed has loaned out almost $600 billion to financial institutions in the last month alone, banks are still reluctant to lend to businesses or consumers.

Since the credit crisis began in August 2007, the Federal Reserve has slashed the Fed funds rate from 5.25 percent to 1.5 percent. But interest rates for 30-year fixed-rate mortgages are about 6.3 percent, roughly where they were when the credit crisis began.

Many economists contend that the United States economy has already slipped into a recession that could well last longer and be more severe than any downturn since the early 1970s.

The crisis in financial markets and banking, which began more than a year ago and has choked off lending to corporations and consumers, is spreading to the broader economy. But credit remains tight, even though the Federal Reserve has tried to jumpstart credit markets by lending nearly $700 billion over the last month.

Both consumers and businesses have ratcheted back spending. Major corporations from General Electric to Coca-Cola have announced layoffs, and Detroit’s car makers are struggling to survive.

Consumer spending, which accounts for about two-thirds of the nation’s economic activity, appears to have declined in the third quarter and will probably remain low for some time. The Conference Board’s closely watched measure of consumer confidence declined in October to the lowest point in the survey’s history.

Private forecasters expect that the Commerce Department, which on Thursday will release its initial estimate of third-quarter growth, will report that the economy contracted about one-half of 1 percent. But most forecasters expect the fourth quarter to be worse.

The United States has been shedding jobs every month this year, for a total decline of more than 700,000 jobs so far. What makes that alarming to many analysts is that the job losses have come so early in the downturn.

Traditionally, companies have been cautious about laying off workers at the start of a downturn and equally cautious about adding workers after a recovery begins.

“The ground is moving from underneath us,” said Diane Swonk, chief economist at Mesirow Financial, an investment firm in Chicago.

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ELYAC Realty- Consumers Feel the Next Crisis: It’s Credit Cards

By ERIC DASH

First came the mortgage crisis. Now comes the credit card crisis.

After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.

The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.

Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.

“If unemployment continues to increase, credit card net charge-offs could exceed historical norms,” Gary L. Crittenden, Citigroup’s chief financial officer, said.

Faced with sobering conditions, companies that issue MasterCard, Visa and other cards are rushing to stanch the bleeding, even as options once easily tapped by borrowers to pay off credit card obligations, like home equity lines or the ability to transfer balances to a new card, dry up.

Big lenders — like American Express, Bank of America, Citigroup and even the retailer Target — have begun tightening standards for applicants and are culling their portfolios of the riskiest customers. Capital One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines by 4.5 percent in the second quarter from the previous period, according to regulatory filings.

Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries. In some cases, lenders are even reining in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.

While such changes protect lenders, some can come back to haunt consumers. The result can be a lower credit score, which forces a borrower to pay higher interest rates and makes it harder to obtain loans. A reduced line of credit can also make it harder for consumers to manage their budgets, because lenders have 30 days to notify their customers, and they often wait to do so after taking action.

The depth of the financial crisis has shocked a credit-hooked nation into rethinking its habits. Many families once content to buy now and pay later are eager to trim their reliance on credit cards. The Treasury Department, which is spending billions of dollars in taxpayer money to clean up an economic mess brought on in part by all sorts of easy credit, recently started an advertising campaign inviting consumers to check into the “Bad Credit Hotel,” an online game that teaches the basics of maintaining good credit.

At the same time, the fear factor among lenders has deepened just as the crisis makes it harder for some financially stretched consumers to wean themselves from credit cards for even basic needs, like gas and food.

“We are not going to say, ‘Yahoo, this is over,’ and extend credit like we did without fear,” Jamie Dimon, JPMorgan Chase’s chief executive, said in a recent conference call. “If you’re not fearful, you’re crazy.”

Even those with good credit ratings are not excepted. American Express, which traditionally catered to more upscale cardholders, said it would be increasing effective interest rates by 2 or 3 percentage points for some of its credit card holders — a move that could, for example, push a 15 percent rate up to 18 percent.

“We think it’s prudent given the nature of those products and the economic environment we face,” Daniel Henry, its chief financial officer, said in a recent conference call.

Some reward programs have also gotten stingier as lenders cut corners to save money. Card companies, for example, have taken to substituting cheaper brands for a Sony big-screen television as a way of lowering the cost of their redemption prizes.

For less creditworthy customers, issuers are pulling back on promotional offers that allowed borrowers to pay no interest for months as they try to get ahead of stiffer lending rules that have been proposed by federal banking regulators and Congress.

The regulations, while beneficial to consumers, will curb profits on card issuers’ riskiest customers. JPMorgan said that it was withdrawing some teaser-rate loans that were only marginally profitable. Discover Financial shortened the duration of its zero-balance offers.

And lenders, over all, are slowing the flood of mail offers to a trickle with moves that would translate for the average American household into about 13 fewer pieces of credit card junk mail a year than its peak in 2005. Mail offers to new and existing customers are on pace to drop below 8.4 billion pieces, the lowest level since 2004, according to Mintel Comperemedia, a direct marketing research firm.

Online credit card applications have fallen for the first time in five quarters, in part because customers are receiving fewer mail offers that drive them to the Web, according to data from comScore, an Internet marketing research firm.

“We used to get a couple of offers a week, but I haven’t seen a credit card offer in over a year,” said Brett Barry, who owns a real estate agency outside Phoenix and described his credit record as strong. “What blows me away is these companies are in the business of extending credit, but they don’t want to do it for me.”

Mr. Barry said that, without any notice, American Express had reduced the credit limit on his business and personal credit card at least four times in the last year, which he said had lowered his credit score. The moves have also made it difficult for him to manage his payroll and budget, he said.

“Credit card issuers have realized their market is shrinking and that there is no room for extra credit cards, so they have to scale back,” said Lisa Hronek, a research analyst at Mintel. “People are completely maxed out with mortgages, home equity lines and credit card debt.”

At the same time, credit card profit margins have been narrowing, largely because lenders’ own financing costs remain elevated as investors spurn credit card bonds, just as they did mortgages. Another factor is that the interest rates banks charge even creditworthy borrowers have come down after the emergency actions taken by the Federal Reserve to ease the credit crisis.

Meanwhile, bank executives say consumers are starting to curb their spending, to an extent that may become clearer Wednesday when Visa reports its third-quarter results.

In previous downturns, banks could make up the missing profits by raising fees. This time, there may be less room to maneuver.

“The last time credit costs spiked, the late fees were much lower, so card issuers could turn to that and reprice more nimbly,” a Morgan Stanley analyst, Betsy Graseck, said. “There is just more scrutiny now, and coming after the subprime mortgage crisis, the world is more sensitive to the way lenders behave.”

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ELYAC Realty- Dow ends up almost 900, but no one is exhaling

Wall Street’s best day in two weeks — and one of its best ever — was a joyless rally. Even a manic, final-hour stampede of buying that sent the Dow Jones industrials soaring almost 900 points did nothing to dispel the feeling that the market could turn on investors in an instant.

But the extraordinary, lurching volatility that has gripped Wall Street since the financial meltdown began in mid-September meant there were no guarantees the rally would hold, not even for a few days.

Investors are expecting a cut in interest rates when the Federal Reserve announces its decision Wednesday. But they’re also staring into an economic abyss, bracing for a recession of a depth no one knows for sure.

Any other day like this — the Dow and the Standard and Poor’s 500 both rose almost 11 percent — might have ended with boisterous cheers and paper tossed into the air. On Tuesday, 4 p.m. came with meager applause.

“I don’t think it will be a sustained move,” said Matt King, chief investment officer at Bell Investment Advisors.

The Dow finished 889 points higher to close at 9,065. On Oct. 13, the Dow rose 936 points, its best ever; no other single-day rally has come close in terms of points to what happened Tuesday.

Analysts ventured a number of explanations for the sudden rally — including coming interest rate cuts, bargain hunting, a market desperate to find a bottom and the expectation that banks, at the urging of the White House, will quit hoarding money and start making loans.

“There is nothing fundamental that came out today or yesterday that would take it up or down. We’re all groping for something meaningful to talk about,” said Bob Andres, chief investment strategist at Portfolio Management Consultants. “The market is exhausted from going down.”

The mood on Main Street is decidedly more pessimistic, and new data Tuesday showed Americans are more depressed than market analysts had expected.

The Conference Board’s consumer confidence index plunged to the lowest level in its 41-year history in the wake of this month’s financial meltdown, the sharp drop in home prices and increasing job losses.

The index fell to 38, down from a September reading of about 61 — the third-steepest monthly decline since the board started the measure in 1967. Analysts, way off the mark, had expected 52.

“It’s the worst consumer environment since the 1981-1982 recession,” said Adam York, an economist at Wachovia Corp. Americans believe “there’s a very dire situation in the U.S. economy right now, and they’re not far from being right,” he added.

Financial market turmoil and falling housing prices have wiped out trillions of dollars of household wealth in recent months. The S&P 500 had fallen 27 percent in October, and 40 percent for the year, before Tuesday’s jump.

In addition, companies cut 760,000 jobs in the first nine months this year, sending the unemployment rate to 6.1 percent last month. Many economists expect layoffs to continue and the unemployment rate to rise to 8 percent or higher in 2009.

After the last recession, in 2001, the unemployment rate rose as high as 6.3 percent in June 2003.

On Tuesday, Whirlpool Corp. said it will cut 5,000 jobs. That’s on top of other recent layoffs of thousands of workers by Xerox Corp., drugmaker Merck & Co. Inc. and financial services firm National City Corp.

“The collapse in confidence is directly tied to perceptions about economic conditions and that is likely to mean that households will keep their wallets closed,” said Joel Naroff, an economist with Naroff Economic Advisors.

If they do, it’ll happen at a bad time. The holiday season is just weeks away, and it’s expected to be anemic.

“I don’t know how long this is going to last,” said Johnny Hunt, 50, a carpenter in Deltona, Fla., who says he is cutting back on a lot of things. “So I got to save money. You’ve got to hold onto what you do have.”

S&P said in a report earlier this week that holiday retail sales would probably fall 2 percent to $250 billion this year, “the most difficult holiday season in memory for U.S. retailers.”

Holiday sales have increased an average of 4.4 percent a year in the past decade, the report said.

Meanwhile, the housing slump, which set off the mortgage crisis that has consumed Wall Street for more than a year, shows no sign of abating. A closely watched index of home prices fell Tuesday by its steepest ever annual rate in August.

The Standard & Poor’s/Case-Shiller 20-city housing index dropped a record 16.6 percent from August last year, the largest drop since its inception in 2000.

In addition, the Census Bureau reported that 2.8 percent of U.S. homes — excluding rental properties — were vacant and for sale in the third quarter, unchanged from the second quarter. That works out to 2.22 million properties, the second-highest quarterly number in records going back to 1956.

The first quarter clocked in at a 2.9 percent vacancy rate. In a normal market, it’s about 1.7 percent, said Patrick Newport, an economist at IHS Global Insight. That means there’s more than 800,000 excess vacant homes on the market.

Exacerbating the pricing environment is a rash of foreclosures, especially in once-hot markets like California, Las Vegas, Florida and Phoenix. Home prices are falling fastest there, according to Case-Shiller — dropping as much as 30 percent in August.

To move foreclosed properties off their books, lenders are sharply discounting prices, which is weighing down median prices.

On Thursday, the Commerce Department will provide its first estimate of the economy’s third quarter performance, and many economists think the economy shrank. Economic contraction for the third and fourth quarters consecutively would meet the classic definition of recession.

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ELYAC Realty- Stocks fluctuate as banks, housing stocks gain

NEW YORK – Wall Street fluctuated Monday as investors weighed a surprise increase in new home sales and the effectiveness of government aid for regional banks against worries over whether the economy can avoid a protracted downturn. The Dow Jones industrial average showed the most volatility while broader market indexes showed moderate declines.

The market’s moves, coming on light volume, appeared tentative as investors remain nervous over the possibility of a global recession. The Street’s back-and-forth was typical for a volatile market that has seen many recent rallies evaporate.

Investors’ guessing about the economy came ahead of possible interest rate moves from central banks, including the Federal Reserve, which is set to begin a two-day meeting Tuesday. The Fed is expected to lower its fed funds rate by a half-point to 1 percent on Wednesday. Investors are also optimistic that the European Central Bank is moving toward its own cut after President Jean-Claude Trichet said Monday such a step was “a possibility.”

Policymakers around the world have been trying to find a remedy for the fear of bad debt that has paralyzed parts of the credit markets in the past month. While some signs point to a recent ease in lending conditions, investors are now also worried that a drop-off in lending has damaged the economy.

The U.S. government is taking some of its first steps to steady the banking sector. The Treasury said it signed agreements with nine banks and will buy stock in the companies this week. The proceeds from the stock sales are intended to bolster the banks’ balance sheets so they will begin more normal lending.

“Clearly, what’s most important is that the funding crisis needs to be contained at this point,” said Chris Orndorff, director of equity strategy at Payden & Rygel in Los Angeles.

“The banks need to start taking on some more risks,” he said. “I think it’s going to take months.”

Beyond troubles in the financial sector, Orndorff contends investors are focusing on the outcome of the Fed meeting and any shot of confidence that a rate cut could bring.

In late afternoon trading, the Dow fell 5.89, or 0.07 percent, to 8,373.06; advances by Verizon Communications Inc. and Home Depot Inc. helped contain the blue chips‘ losses.

Broader stock indicators showed more sizable losses. The Standard & Poor’s 500 index fell 6.28, or 0.72 percent, to 870.49, and the Nasdaq composite index fell 12.32, or 0.79 percent, to 1,569.71.

The Russell 2000 index of smaller companies fell 9.69, or 2.06 percent, to 461.43.

Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where volume came to a light 844.1 million shares. Lighter volume can call into question the conviction behind big market advances or declines.

Light, sweet crude fell 93 cents to $63.24 per barrel on the New York Mercantile Exchange.

The gyrations in U.S. stocks have been sizable since the market’s peak a year ago, but particularly since last month’s bankruptcy of Lehman Brothers Holdings Inc. and the government rescue of insurer American International Group. With investors uncertain about the economy, the market appears to be bouncing along a rocky bottom after falling sharply earlier this month.

Wall Street was cheered Monday by news that sales of new homes showed an unexpected increase in September. While median home prices have dropped to the lowest level in four years, investors appeared pleased that the market was beginning to chip away at an inventory glut. The Commerce Department reported that sales of new single-family homes rose by 2.7 percent in September to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales would drop from August.

The median price of a new home declined by 9.1 percent from a year ago to $218,400, its lowest level since September 2004.

Regional banks advanced after the Treasury began rolling out its investments. Fifth Third Bancorp. rose 77 cents, or 9.5 percent, to $8.84, while SunTrust Banks Inc. rose $1.86, or 5.3 percent, to $36.97.

Home builders rose after the housing data. Centex Corp. advanced 7 cents $6.59, and Lennar Corp. rose 8 cents to $6.60. Some companies dependent on the housing sector rose as well. Home Depot rose 60 cents, or 3.2 percent, to $19.11, while Target Corp., which sells home-decorating items, advanced 73 cents, or 2.2 percent, to $33.65.

Verizon rose $2.97, or 11.8 percent, to $28.05, making it the strongest advancer among the 30 stocks that comprise the Dow industrials. The company reported that its third-quarter earnings rose 31 percent after its wireless business showed stronger-than-expected results.

Even with several pieces of welcome news, investors around the world remain worried about the prospects for economic expansion. A surge in the yen illustrated investors’ nervousness about how much economic activity could slow. Japan’s Nikkei 225 index dropped to its lowest close in 26 years. The yen is seen as a safe haven holding for investors who contend the Japanese economy will fare better in a global recession.

The ongoing selling is due in part to the belief that a worldwide recession is likely inevitable, but it’s also being triggered by hedge funds and other investors unloading stock because they’re being hit by margin calls. In a margin call, a broker who lent money to an investor calls in the loan, forcing the investor to sell stock to repay the loan.

Greg Church, chief investment officer of Church Capital Management in Yardley, Pa., contends the markets likely will remain volatile as hedge funds and mutual funds step into the market to sell. He also expects that some skittish investors will look to sell their positions as rallies emerge but that the severity of the market’s recent sell-off has left it overdue for a rally, even if it’s only temporary.

“We probably are due for some type of a bounce. Bear market rallies can be beautiful things. I think we could get one of those things sooner than later,” he said.

Investors uneasy about where the market is headed continued to propel demand for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.74 percent from 3.72 percent late Friday. The dollar was higher against most other major currencies, except the yen, while gold prices rose.

The yield on the three-month bill, regarded as the safest asset around, fell to 0.78 percent from 0.82 percent late Thursday.

A key bank-to-bank lending rate slipped Monday. The London Interbank Offered Rate, or Libor, on three-month loans in dollars dipped to 3.51 percent from 3.52 percent on Friday. While Libor has fallen steadily for over 10 days as confidence slowly returns to the banking system, investors remain skittish, particularly overseas.

The Nikkei fell 6.4 percent to its lowest level since October 1982, while Hong Kong’s Hang Seng Index tumbled 12.7 percent, its lowest finish in more than four years and its biggest single-session drop since 1991.

Selling spread to Europe. Britain’s FTSE 100 fell 0.79 percent, Germany’s DAX index rose 0.91 percent, and France’s CAC-40 declined 3.96 percent. Stocks in Europe pulled well off their lows after Wall Street sidestepped the steep sell-off that hit Asia and after Trichet raised the prospect of an interest rate cut.

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ELYAC Realty- Existing home sales see largest gain in years

September number possible glimmer of hope housing bottoming out

msnbc.com staff and news service reports

updated 3:06 p.m. PT, Fri., Oct. 24, 2008

WASHINGTON – Sales of existing homes rose by the largest amount in more than five years in September. But analysts cautioned against reading too much into the gain, noting that it reflected conditions before the latest upheaval in financial markets increased the likelihood of a recession in the overall economy.

The National Association of Realtors reported that sales of existing homes rose by 5.5 percent from August to September to a seasonally adjusted annual rate of 5.18 million units — far better than the flat results analysts had expected. On an unadjusted basis, sales were up 7.8 percent from September last year.

But even with the gain in sales, prices kept falling. The median sales price has dropped to $191,600, down by 9 percent from a year ago.

In Richmond, Va., Jack Jebo sold his three-bedroom house last month for $267,000, after lowering his price $18,000. He carried two mortgages for two months before the house was sold in the Richmond area.

“In retrospect, (the experience) probably wasn’t too bad,” said Jebo, 32, an attorney. “At the time, it probably felt pretty difficult because we didn’t get an offer before we lowered the price.”

But analysts said that the current financial crisis, which has contributed to the biggest upheavals on Wall Street since the 1930s, was sending consumer confidence down, unemployment up and had greatly increased the prospects that the country was either in or about to enter a full-blown recession. All these factors were expected to add to the headwinds buffeting housing in the months ahead.

“In October, mortgage applications sank to six-year lows,” said Sal Guatieri, an economist at BMO Capital Markets. “This suggests house sales, like the rest of the economy, fell off a cliff because of the worsening credit crunch.”

Many analysts are predicting that home prices — already down 18 percent nationally from their peak in mid-2006 — could decline another 10 percent, as a continued glut of foreclosed homes being dumped on the market depresses prices further.

The National Association of Realtors estimated that 35 percent to 40 percent of sales currently are distressed sales — either foreclosed homes or short sales in which the owner is selling the house for less than the value of the mortgage.

Distressed sales are having a big impact in lowering prices in some formerly red-hot sales markets in such regions as the West, where sales prices fell in September by 18.5 percent from a year ago.

Lawrence Yun, chief economist for the Realtors, said there were some glimmers of hope that the bottom of the housing slump may be near. He said that a sales turnaround first seen in California was beginning to broaden to other regions of the country including Colorado, Kansas, Minnesota, Missouri and Rhode Island.

And the number of unsold existing homes on the market dropped by 1.6 percent in September to 4.27 million units. That marked the second month in a row inventories have dipped, but the level still represented a 9.9-month supply — about double what’s normal.

Yun cautioned that this rebound could be aborted by what he said was the high likelihood that the country has fallen into a recession. For that reason, he said, it was important for Congress to pass a second stimulus package including measures that would bolster the housing market.

Other economists, including former Federal Reserve Chairman Alan Greenspan, are expressing concerns that the financial market turmoil will further weaken housing activity and prolong the current slump.

Greenspan told Congress on Thursday that the country had been hit by a “once-in-a-century credit tsunami.” He said he did not expect the overall economy to make a sustained rebound until housing, where the economic troubles began, stabilized. He said that was still many months away.

Congress on Oct. 3 passed a $700 billion rescue package for the financial system. Shelia Bair, the head of the Federal Deposit Insurance Corp., is pushing Treasury to include in that package a new program to prevent more mortgage foreclosures as a way to provide further support for housing.

Under Bair’s proposal, the government would provide guarantees for mortgages that have been reworked by banks to lower the payment schedules to more affordable levels.

By region of the country, sales in the West soared by 43 percent, on an unadjusted basis, from September last year, and rose a more moderate 5 percent in the Midwest. In the South, sales dipped 1.2 percent and in the Northeast they slipped 1.4 percent.

Housing has been suffering through its worst downturn in decades following a five-year boom that ended in 2006. Since that time sales and prices have plummeted.

Builders have responded to the huge glut of unsold homes by sharply cutting back on construction as their confidence levels have fallen to record lows. The National Association of Home Builders is projecting that construction of new homes and apartments will total just 936,000 units for this year, which would be the weakest performance since 1945.

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ELYAC Realty- U.S. to announce about 20 banks receiving capital

WASHINGTON (Reuters) – The U.S. government is expected to shortly announce a list of about 20 banks in the next round of companies receiving capital injections under a $700 billion rescue package, according to a source familiar with the U.S. Treasury Department’s thinking.

The Treasury in recent days has detailed a plan to directly inject $250 billion of capital into U.S. banks in exchange for preferred shares. Nine of the largest U.S. banks were essentially arm-twisted last week into signing on for the first $125 billion in capital infusions.

Neel Kashkari, Treasury’s interim manager for the rescue program, told lawmakers on Thursday that more banks are expected to receive capital infusions within a few weeks, meaning that Treasury is expected to announce those banks in the coming days.

The announcement of an additional 20 to 22 banks receiving capital is expected as soon as today, the source said.

(Reporting by Karey Wutkowski, editing by Gerald E. McCormick)

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ELYAC Realty- Greenspan Concedes Error on Regulation

WASHINGTON – For years, a Congressional hearing with Alan Greenspan was a marquee event. Lawmakers doted on him as an economic sage. Markets jumped up or down depending on what he said. Politicians in both parties wanted the maestro on their side.

But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.

Now 82, Mr. Greenspan came in for one of the harshest grillings of his life, as Democratic lawmakers asked him time and again whether he had been wrong, why he had been wrong and whether he was sorry.

Critics, including many economists, now blame the former Fed chairman for the financial crisis that is tipping the economy into a potentially deep recession. Mr. Greenspan’s critics say that he encouraged the bubble in housing prices by keeping interest rates too low for too long and that he failed to rein in the explosive growth of risky and often fraudulent mortgage lending.

“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

On a day that brought more bad news about rising home foreclosures and slumping employment, Mr. Greenspan refused to accept blame for the crisis but acknowledged that his belief in deregulation had been shaken.

He noted that the immense and largely unregulated business of spreading financial risk widely, through the use of exotic financial instruments called derivatives, had gotten out of control and had added to the havoc of today’s crisis. As far back as 1994, Mr. Greenspan staunchly and successfully opposed tougher regulation on derivatives.

But on Thursday, he agreed that the multitrillion-dollar market for credit default swaps, instruments originally created to insure bond investors against the risk of default, needed to be restrained.

“This modern risk-management paradigm held sway for decades,” he said. “The whole intellectual edifice, however, collapsed in the summer of last year.”

Mr. Waxman noted that the Fed chairman had been one of the nation’s leading voices for deregulation, displaying past statements in which Mr. Greenspan had argued that government regulators were no better than markets at imposing discipline.

“Were you wrong?” Mr. Waxman asked.

“Partially,” the former Fed chairman reluctantly answered, before trying to parse his concession as thinly as possible.

Mr. Greenspan, celebrated as the “Maestro” in a book about him by Bob Woodward, presided over the Fed for 18 years before he stepped down in January 2006. He steered the economy through one of the longest booms in history, while also presiding over a period of declining inflation.

But as the Fed slashed interest rates to nearly record lows from 2001 until mid-2004, housing prices climbed far faster than inflation or household income year after year. By 2004, a growing number of economists were warning that a speculative bubble in home prices and home construction was under way, which posed the risk of a housing bust.

Mr. Greenspan brushed aside worries about a potential bubble, arguing that housing prices had never endured a nationwide decline and that a bust was highly unlikely.

Mr. Greenspan, along with most other banking regulators in Washington, also resisted calls for tighter regulation of subprime mortgages and other high-risk exotic mortgages that allowed people to borrow far more than they could afford.

The Federal Reserve had broad authority to prohibit deceptive lending practices under a 1994 law called the Home Owner Equity Protection Act . But it took little action during the long housing boom, and fewer than 1 percent of all mortgages were subjected to restrictions under that law.

This year, the Fed greatly tightened its restrictions. But by that time, the subprime market as well as the market for other kinds of exotic mortgages had already been wiped out.

Mr. Greenspan said that he had publicly warned about the “underpricing of risk” in 2005 but that he had never expected the crisis that began to sweep the entire financial system in 2007.

“This crisis,” he told lawmakers, “has turned out to be much broader than anything I could have imagined. It has morphed from one gripped by liquidity restraints to one in which fears of insolvency are now paramount.”

Many Republican lawmakers on the oversight committee tried to blame the mortgage meltdown on the unchecked growth of Fannie Mae and Freddie Mac, the giant government-sponsored mortgage-finance companies that were placed in a government conservatorship last month. Republicans have argued that Democratic lawmakers blocked measures to reform the companies.

But Mr. Greenspan, who was first appointed by President Ronald Reagan, placed far more blame on the Wall Street companies that bundled subprime mortgages into pools and sold them as mortgage-backed securities. Global demand for the securities was so high, he said, that Wall Street companies pressured lenders to lower their standards and produce more “paper.”

“The evidence strongly suggests that without the excess demand from securitizers, subprime mortgage originations (undeniably the original source of the crisis) would have been far smaller and defaults accordingly far lower,” he said.

Despite his chagrin over the mortgage mess, the former Fed chairman proposed only one specific regulation: that companies selling mortgage-backed securities be required to hold a significant number themselves.

“Whatever regulatory changes are made, they will pale in comparison to the change already evident in today’s markets,” he said. “Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime.”

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ELYAC Realty- Bear Stearns $30 billion mortgage portfolio falls 9 percent

NEW YORK (Reuters) – A Bear Stearns mortgage portfolio backed by the U.S. government racked up $2.7 billion of losses in the third quarter, amounting to a 9 percent decline on about $30 billion of assets, the Federal Reserve said Thursday.

Roughly $2 billion of those losses will be borne by the U.S. taxpayer. As of the end of September, the portfolio, originally worth about $30 billion, was worth $26.8 billion.

The Bear Stearns mortgage portfolio’s risk ended up mainly in taxpayers hands in June, after JPMorgan Chase & Co agreed in March to buy the faltering Bear Stearns. JPMorgan Chase would only agree to buy Bear Stearns if the government guaranteed some of the failing investment bank’s assets.

The U.S. government has provided well over $1 trillion in support to the financial system this year, through steps ranging from extra deposit guarantees to a $700 billion fund that is buying bad assets and injecting capital into financial companies.

“The government is stemming the crisis by socializing companies’ losses,” said Steve Persky, chief executive at Dalton Investments.

The decline in the value of the Bear Stearns mortgage assets so far has been about $3 billion, an amount equal to about a quarter of the book value, or accounting value of the company at the end of February. The assets’ decline would have severely cut into Bear Stearns’ capital had the company survived into the third quarter.

In other words, Bear Stearns could have had trouble surviving even if it hadn’t faced a run on the bank in March, analysts said. The four other major U.S. investment banks have either sold themselves, converted to banks, or filed for bankruptcy.

JPMorgan agreed to take about the first $1.15 billion of losses from the portfolio, with the U.S. taxpayers bearing the rest of the losses.

The United States, like other major global economies has been hammered by the credit crisis. U.S. housing prices in major metro areas have fallen 20 percent since July 2006, while the Standard & Poor’s 500 index has dropped by almost 40 percent so far this year.

Vast swathes of the corporate bond and mortgage markets are frozen, although many are showing some signs of thawing.

In that kind of an environment, the Bear Stearns portfolio decline seems relatively mild, said William Smith, chief executive of Smith Asset Management.

“When I saw the decline, I said, ‘is that all?’” Smith said.

(Editing by Gary Hill)

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Get 85% Commission and Company Leads from a Well Respected Brokerage

Description

About ELYAC Realty:
ELYAC Realty is a full service residential & commercial real estate broker, mortgage financing, & insurance company serving the greater Southern California area. ELYAC Realty established itself through honesty, integrity, great customer services and always putting clients first.

Companies who offer 100% commission leave you to fend for yourself and have a very hands-off approach because in the end it’s not worth their time or money to provide assistance for you. Big name companies are all about putting as much money in their pockets in order to cover their high expenses ultimately stinging you on commission splits.

Your best bet is to join an emerging well respected real estate company, such as ELYAC Realty, that combines both high commission splits with a hands on approach that will guide, train, and be your partner in every transaction.

We are looking to expand our business and seeking to bring on hardworking Real Estate Agents and Mortgage Loan Officers who have a passion for making money.

Why you should join ELYAC Realty:
1. One of the top pages on Google and Yahoo Directories for both “Real Estate Agents Los Angeles” and “Mortgage Brokers Los Angeles”. It took us one year of heavily investing in SEO to get these positions
2. We actively invest in our company: advertisements, sponsorships, newspapers, online banners, etc. all to get leads for our agents
3. We have an email list serve of more than 50,000 emails that we actively send: agent listing blasts, news blasts, rate discount blasts, new agent hire blast, market info blasts, etc
4. Depending on your closings ability and experience level, you should get 1-2 qualified leads a month.
5. The agents who generate business through personal referrals get more company leads
6. We are in this business for the long haul and we understand that in order for us to be successful our agents have to be successful
7. We provide every real estate agent or loan officer an opportunity to succeed even if it means we have to hold their hand through their first few transactions
8. We have a hands on approach to help every agent with any problems he or she may have
9. When you join ELYAC Realty, you are joining a family and we are always here to answer any inquires and to help with any situation

What you receive when you join ELYAC Realty:

1. Experienced agents receive: 85% commission on self generated Real Estates/Loans with a flat fee of $150 per file. 50% commission on company generated Real Estate/Loans with a flat fee of $150 per file.
2. New agents with little or no experience get: 75% commission on self generated Real Estates/Loans with a flat fee of $150 per file. 50% commission on company generated Real Estate/Loans with a flat fee of $150 per file. 3. Professional brochures made to market your listings and to market yourself (see attached)
4. Professionally made flyers with your pictures on them so you can send out to your own email list
5. We also have a staff of highly trained & qualified professionals, to process your Loans or coordinate your Real Estate Transactions at no extra charge to you.
6. Help with writing contracts and contract negotiations
7. A real estate transaction checklist for buying and selling
8. No sign up fees & No monthly fees only a flat $150 per files to cover E&O and other charges
9. We pay out same day as close of escrow
10. Flexibility to work from home or your self-provided office
11. If you do commercial real estate, get help with underwriting, financial analysis, due diligence, investment book preparation, discounted cash flow modeling, pro-forma projects, etc.
12. Although this is much easier than selling real estate on your own because we provide some clients for you to work with, you still have to work hard to follow up with clients and to close them.
13. Approved with 70+ major lenders (Sub-prime, A-paper, Alt A, Commercial, Hard Money)
For more information please contact us direct at 408-898-4650 or email Jake at jake@elyacrealty.com

ELYAC Realty
Brokerage | Financing | Insurance
Tel: 310.562.0572 | Toll: 877.44.ELYAC | Fax: 310.882.6848
Email: info@elyacrealty.com | Web: ww.elyacrealty.com

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ELYAC Realty- Where are home prices going up?

When the headlines about the housing market are apocalyptic, the last thing a homeowner wants to do is sell. But a funny thing happened to Jeff and Jennifer Boyd when they put their three-bedroom house in Philadelphia’s Graduate Hospital district on the market this summer: They turned a profit. Just 45 days after the listing went up, a buyer snapped up the property for $555,000-$29,000 more than the Boyds paid in 2006. “We were pretty hesitant, knowing what the market is like,” says Jeff. “But a few weeks later, it was gone.”

Here’s a surefire way to start an argument: Suggest that the housing market has reached bottom. To be sure, the near-term outlook is still grim, and nobody is forecasting a rapid nationwide rebound. But there are signs that the overbuilding and speculative pricing that inflated the bubble are working their way through the system. In October 2005, near the peak of the boom, the median sales price for a U.S. home reached 7.3 times per capita income; by this May it had fallen to 5.7, in line with historical norms. Nationally, the rate of decline in sales is slowing, and in some regions sales numbers have actually perked up. “The indicators are starting to look better,” says Adam York, an economic analyst with Wachovia.

Why the disconnect? For starters, the national sales figures that get so much attention-and remain depressing-are brought down by boom-and-bust markets like Las Vegas, Miami and Phoenix. David Berson, chief economist with mortgage insurance firm The PMI Group, says that if hard-hit states like California, Arizona, Nevada and Florida are taken out of the statistical mix, the picture is much more promising. According to PMI’s “risk index,” which estimates the odds of prices falling in a given market, at least 65 percent of the nation’s 386 metro areas have less than a 10 percent chance of seeing lower prices two years from now. What’s more, the government’s sweeping bailout of the financial sector could boost the housing market by making borthe rowing easier for buyers.

We dug into those numbers as well as other forecasts and analysis to determine which markets are in the best shape for a rebound. We also talked with housing experts to learn which kinds of neighborhoods and suburbs are thriving. Our search led us to 25 metropolitan areas that look particularly promising, and there are more than a few surprises. Here, we profile seven of the best-looking markets; for the full list of 25, see November’s issue of SmartMoney magazine.

Seattle

The Emerald City is that rare major metro area near the coast that is not on a nausea-inducing roller-coaster ride. While home prices in Florida and Southern California are in a free fall, homeowners here are experiencing a gentler landing. Of course, that’s partly because the ride up was not as euphoric-home prices here peaked at 65 percent above January 2003 levels, compared with more than 95 percent in Los Angeles. Thanks to well-paying mega-employers like Microsoft, Amazon.com and Boeing, unemployment remains under 4 percent. That, in turn, has kept median sales prices from falling far. Just as encouraging: Only 11.5 percent of local homeowners who bought within the past five years have negative equity on their property, well below the national average of 29 percent, according to the real estate services firm Zillow. That indicates there won’t be a flood of foreclosures and short sales around the corner.

Among Seattle’s neighborhoods and suburbs, yesteryear’s star performers-affluent areas like the Victorian-studded Queen Anne district or Redmond, home of Microsoft-are beginning to slide back a bit. The most resilient part of the region lies across the Duwamish River from downtown, in West Seattle. The small community is directly accessible by only one bridge. That can lead to traffic snarls, but many residents simply bike 20 minutes to jobs downtown. On weekends the relative seclusion means the 2.5-mile Alki Beach promenade along Elliot Bay doesn’t get too crowded. As long as people like great views of water, mountains and city skylines, “those homes will always maintain their value,” says local broker Febe Cude. Dave and Alison Keith recently sold their two-bedroom townhome in West Seattle for $289,000, up more than 25 percent from their purchase price four years ago. They plowed that windfall into a home in the same neighborhood with twice the living space and a fenced-in yard, for $429,000. “You’re always nervous, but I feel like things are holding up well here,” Alison says.

Des Moines

The specter of a prior real estate bubble helped Iowa avoid the current bust. After an agricultural debt crisis in the 1980s, when many farmers found themselves owing much more than the value of their land, Iowa began an aggressive push to diversify its economy. Many of the resulting development subsidies have contributed to a thriving region around Des Moines, the capital. Major insurance and financial-services companies call Des Moines home, including the Principal Financial Group. The media company Meredith Corporation, publisher of Ladies’ Home Journal and Better Homes and Gardens, also maintains its headquarters in the city. Young people flocking to jobs here from other parts of Iowa have helped keep housing demand steady. But homebuyers in these high-paying, white-collar jobs don’t need to stretch much to afford the metro area’s median home price of $156,600.

Though it’s undergone a slight slowdown this year, Des Moines’s real estate market never crashed, in part because it didn’t experience much of a run-up. “Nobody here was flipping houses,” says David Swenson, an economist with Iowa State University.

The suburb of West Des Moines is a particularly strong market, with only six to seven months of inventory, compared with 10 or 11 months in other parts of the metro area. Much of West Des Moines’s housing stock is new construction, both condos and single-family homes, but some historic flavor remains in the Valley Junction neighborhood, a collection of antique shops and other retailers in storefronts dating from the late 19th century. Tom Bernau, 47, moved this spring with his wife and 2-year-old son into a new, five-bedroom home on the third fairway of a private golf course in the city. The couple moved to West Des Moines for its excellent public schools, but before their son starts kindergarten, he’s keeping busy at the country club next door. “We can take our golf cart from our house and go to the pool without going on a city street,” Bernau says.

Raleigh

North Carolina’s capital seems to have gotten a free pass where the housing slump is concerned. Prices have been buoyed by job growth in the Research Triangle, home to dozens of tech firms. Total sales in the first quarter of this year were the fifth highest on record. In some cities, suburbanites stung by gas prices are moving downtown in favor of walkable neighborhoods. But not in Raleigh. “People move here to get away from that type of living,” says local market analyst Stacey Anfindsen, only partly in jest. Although downtown Raleigh has added hundreds of condos and lofts, the real growth has come in suburbs like Cary, Morrisville and Apex, all on the western side of Raleigh, where home prices have risen steadily.

The subdivision of Preston, where prices are up 3.5 percent over last year, reigns as the area’s übersuburb. The northwest Cary neighborhood was bankrolled in the 1990s by Jim Goodnight, founder of software giant SAS, and supersizes the standard suburban amenities: Most lots are at least a quarter-acre, double the size of newer developments, and prices approach $500,000. Parents can choose from a roster of lauded private and public schools. John Minicucci, a technology analyst, moved his family to Preston in May after stints in New York and Vancouver, B.C., and chose the neighborhood in part because it is already built out; it doesn’t run the risk of being flooded with discounted properties because of overbuilding. “Since this area didn’t really experience the boom, it won’t be as susceptible to tanking,” he says. And he’s loving perks like abundant tee times. Like more than 60 percent of Preston residents, Minicucci belongs to the local country club, which hosts 54 holes of championship golf, two tennis facilities and three swimming pools.

Salt Lake City

Salt Lake City supports a diverse economy that could be called “Mormons and more.” The Church of Jesus Christ of Latter-Day Saints remains a large employer here, but the area has also seen steady job gains in health care, education and natural resources. That diversity has offset tough times for local home builders and information technology companies, keeping job growth in positive territory–and putting a safety net under home prices. “There’s a very pro-business, pro-development atmosphere,” says Jeff Thredgold, the economist for regional Zions Bank.

The city’s downtown is a testament to that. The 40-square-block area buzzes with construction projects, many of them related to City Creek Center, a $1.5 billion development that will include retail stores, offices and condos. The downtown area is home to several of Salt Lake City’s hottest residential neighborhoods, along with the Utah Jazz NBA team, outdoor concerts, theater and nightlife (though you may have to join a private club to be served alcohol). Of the seven zip codes in Salt Lake County that saw median prices rise in the second quarter of this year, three were downtown locales.

This fall, Kolaleh Rahimi, 40, moved with her daughter into a historic 1934 home in the Avenues, a popular neighborhood with an eclectic mix of Victorians, bungalows and ranch homes just north of downtown. Rahimi, a pharmacy manager, bikes five minutes downtown for shopping, music festivals and the Saturday farmers’ market. “Whatever you can do in downtown New York these days, you can do in downtown Salt Lake,” she says. But there’s nothing New Yorkish about home prices: Three-bedroom houses in the Avenues sell for around $360,000.

Philadelphia

Philadelphia bashers like to note how the city doesn’t quite keep pace with its northeastern neighbors New York and Boston. When it comes to real estate, that may be a good thing. While prices in the Big Apple and Beantown soared during the bubble years from 2003 to 2006, the City of Brotherly Love charted slow and steady growth. Over the past year, Philadelphia prices have stayed stable, while New York and Boston suffered small declines. And only 7 percent of Philly-area homeowners sold for a loss in the past year, according to Zillow—well below the national average of almost 24 percent.

The region did see some overbuilding, but employers such as pharmaceutical and other health care companies are drawing an influx of newcomers to the suburbs. That’s especially true in Collegeville, a former bedroom community 30 minutes northwest of Philly’s city center that is now home to operations of both Wyeth and GlaxoSmithKline, with mutual fund giant Vanguard just a few towns down the road. So named for the leafy campus of Ursinus College, Collegeville offers multi-acre horse farms and country estates for executive types, with more quaint accommodations in town for tweedy academics. Prudential Fox & Roach, a brokerage with about 4,000 agents in greater Philadelphia, says Collegeville prices are up 16 percent this year. “We are getting a lot of lowball offers, but we are negotiating them up,” says realtor Megan Goldstein. Other Philly suburbs are benefiting from the more traditional migration of young families from the city center. The Boyds, the couple who sold their house in town at a profit, are using the proceeds to buy a four-bedroom, 3,000-square-foot home in a new development in Skippack, Pa.

Birmingham

The University of Alabama at Birmingham anchors this city’s economy, operating an 18,000-student campus and major medical center whose recession-proof demand has helped the local economy weather the current downturn. And even the manufacturing sector is relatively healthy here: About 40 miles outside Birmingham, two auto plants—for Mercedes and Honda—employ workers whose textile jobs moved offshore over the past couple of decades. The city’s low labor and land costs attract businesses to locate here rather than in rival cities elsewhere in the region like Atlanta or Charlotte. Birmingham holds its own in the culture department as well: It boasts two restaurants with chefs nominated for James Beard Foundation Awards, in addition to the Alabama Symphony Orchestra, Opera Birmingham and the Birmingham Museum of Art, whose popular Art on the Rocks programs draw young professionals to sip cosmos amid the Cassatts.

The region’s attractions have helped cushion the impact of the national housing slump. Median home prices in the area that encompasses Birmingham’s Jefferson and three other counties have held up well. “We have avoided the peaks and the valleys,” says Russell Cunningham, president of the Birmingham Regional Chamber of Commerce. The suburb of Mountain Brook has fared particularly well, with a median home price increase of just under 5 percent in the first half of this year. The affluent community’s three villages, most of them laid out in the 1920s and ’30s, form a leafy triangle in the Appalachian foothills. At $535,000, Mountain Brook’s median home price for the first half of 2008 is well above the region’s median of $163,500. And the area lies less than five miles from Birmingham’s downtown business district, so residents are anything but cut off from the city’s amenities.

Denver

Denver’s overall outlook is sunnier than for most western cities because neither inventory nor prices spiraled out of control during the boom. Dinged by a telecom bust earlier in the decade that cost the city 5 percent of its jobs, the local economy wasn’t primed for irrational exuberance. Now with six months’ worth of homes in inventory—the level most experts judge to be roughly in balance—the city offers considerable upside.

In particular, upscale buyers are flocking to Cherry Creek, the tony neighborhood that’s home to Neiman Marcus and the Cherry Creek Arts Festival, one of the country’s top urban arts fairs. Here, prices leaped 16 percent in the past year, according to Integrated Asset Services, an firm specializing in mortgage investments. The area’s popularity illustrates a common theme in U.S. housing markets: established, close-in neighborhoods are often holding up better than suburbs, because they didn’t endure overbuilding and because higher-income owners were less likely to need subprime or adjustable-rate mortgages.

Cherry Creek’s success also highlights the strength of the envy factor. In a recent Coldwell Banker survey of luxury homeowners, 17 percent said they’ve considered moving to get into a certain address or zip code—a reminder that the lure of prestige or good schools moves homes even in a shaky economy. Cherry Creek’s 80206 zip code may be Denver’s ritziest—as seen in the new development North Creek, which features a mix of million-dollar tower condos and brownstones along with a private garden courtyard, à la New York’s Gramercy Park.

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ELYAC Realty- The dark side of lower prices

October 17 2008: 05:54 AM EDT

NEW YORK (CNNMoney.com)
Stock prices have plunged in recent weeks. So have oil prices.

Most Americans probably see the former as terrible news and the latter as a ray of sunshine at a dark time.

But both could contribute to a growing concern among economists – deflation.

Simply put, deflation is the opposite of inflation: It’s when prices for a wide range of products start falling, rather than rising.

And while consumers struggling with the high cost of gas and food might think the idea of deflation sounds attractive, economists almost universally agree that it would be very bad news.

“When prices start to fall because of lack of demand, they can go well below the cost it takes to produce products,” said Bernard Baumohl, executive director of the Economic Outlook Group. “Companies have no alternative than to cut back production and lay off a lot of workers. That cuts demand more. You get this vicious downward spiral in prices.”

Most economists point out that the current economic conditions do not yet suggest that deflation is present, or even imminent.

The Consumer Price Index, the government’s key inflation measure, did show no rise in prices in September. But prices are still up 4.5% over the past 12 months.

Baumohl puts the risk of deflation about 10% to 15%, and no more than 20%. But he said only a month ago he would have thought the risk of deflation was less than 5%.

The credit market crisis, combined with the recent stock market declines and the plunge in home values over the past two years, is setting off the deflationary alarm bells for economists.

Paul Kasriel, chief economist with Northern Trust in Chicago, said most bouts of deflation have started with sharp declines in assets such as stocks or homes. That has tended to lead to a loss of value of collateral for loans and ultimately, large losses by lenders and very tight credit.

“I still don’t think deflation is going to happen,” said Kasriel, who puts the chance at between 10% and 30%. “But these are the initial conditions that lead to it.”

In the United States, the worst period of deflation was the Great Depression.

While a recent CNN poll found 59% of Americans thinking that another depression is likely, most economists dismiss the threat of a depression. But they say deflation is something that gets them worried. And they are very careful using the word.

This week, San Francisco Federal Reserve Bank President Janet Yellen broke a taboo among Fed officials when she said in a speech that the economy “appears to be in a recession.”

But in the same speech, she was reluctant to use the word deflation, even though she danced around the concept. She said falling commodity prices, job losses and weak demand for products were likely to “push inflation down to, and possibly even below, rates … consistent with price stability.”

Her reluctance to say deflation, even in a speech notable for the use of the word recession, doesn’t surprise economists.

“Deflation is very scary, scarier than a recession, because once you get into it, it’s hard to get out of,” said David Wyss, chief economist for Standard & Poor’s.

Wyss said deflation doesn’t have to lead to a 1930s style depression, with double-digit declines in economic activity and unemployment of 25%.

But it can lead to the kind of extended economic pain seen in Japan’s so-called “lost decade,” a period that left Japan with little economic growth from the early 1990s until the middle of this decade.

“The Japanese had deflation during their lost decade when their banks were unable to create credit,” said Kasriel.

The Fed’s attention to the rising threat of deflation is encouraging, Kasriel said. The central bank has pumped hundreds of billions of dollars into the financial system to try to spur lending and support spending and prices.

This is a sign that inflation is no longer a concern for many Fed policymakers.

“It maybe premature to worry about deflation but it’s long past the time to talk about inflation,” Wyss said.

Kasriel added that American consumers should be concerned about deflation as well – even if lower prices sound like a good “problem.”

“Sure, you feel like you’re on top of the world when you pay less than $3 for gas,” Kasriel said. “But it’s not because we’ve discovered new oil reserves. It’s because demand is very weak. It’s a symptom of a global recession rather than a cause for hope of a quick recovery in the economy.”

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ELYAC Realty- How Wall Street’s Bust Threatens Dubai’s Boom

Saif Ahmed began living the Dubai dream five years ago. The University of Toronto business school grad moved to the Gulf city-state and quickly co-founded property developer Universal Canlink Inc. By 2006, the firm was turning over $15 million a year as its brochures lured foreign investors with tales of “meteoric” growth in the Dubai real estate market. Lately, as the global credit crisis spirals from Wall Street to the Middle East, Ahmed has been coming back down to earth. There’s still interest, he explains, but the buying frenzy in Dubai is gone. “Before, people were buying blindly, without asking much about the details,” says Ahmed, a Canadian. “Now such risk takers have disappeared from the market.”

Among the harbingers of the changing mood: Nakheel, the developer of Dubai’s proposed kilometer-high skyscraper near Jebel Ali airport, recently announced that it is reassessing its overall staffing needs in line with “predictions of a downturn in the global economy.” Boardrooms and coffee shops alike are buzzing with talk about the coming fall. The Cairo-based investment bank EFG-Hermes recently predicted that Dubai property values could tumble as much as 20% in the next three years. Share prices of Emaar, a public Dubai company that has become one of the biggest real estate developers in the world, have fallen by two-thirds since January.

To be sure, nobody’s calling it a bust — not yet, anyway. Mid-sized builders like Ahmed are still open for business. And a record 70,000 visitors attending Dubai’s annual Cityscape property show this month, where mega-projects worth a total of some $180 billion were unveiled.

Yet Dubai and its real estate market are vulnerable to an international economic downturn, especially compared to many of its Gulf neighbors. As the region’s premier business, transportation and tourism hub, it is by definition more entwined with the global economy. And in tight times, Dubai lacks the windfall oil profits that have enabled sister emirate Abu Dhabi,for example, to amass a financial cushion in sovereign wealth funds totaling hundreds of billions of dollars.

But Dubai’s biggest risk is its daring reliance on debt to drive its breath-taking building boom. Last week, Moody’s estimated that in 2006, the most recent year for figures, Dubai’s government and public sector company debt was at least $47 billion, a staggering 103% of Gross Domestic Product. The investment rating agency said it expected Dubai’s debt to continue outpacing GDP for another five years, exposing Dubai to pronounced financing and geopolitical risks.

Dubai officials insist that they can meet their debt obligations for the next two years. Analysts point out, however, that the credit squeeze compounds a growing challenge to Dubai’s revenue streams. The most obvious is the halving of the price of oil from $147 to $70 a barrel since July, sending Middle East stocks tumbling and rendering regional investors increasingly cautious. Likewise, a global recession is likely to tighten the belts of the international investors and holidaymakers that Dubai relies on for its real estate and tourism developments. Even before the global crunch, banks in the United Arab Emirates were being hit by an outrunning stampede of billions of UAE dirhams — so-called “hot money” that one report valued at $55 billion — in 2008 led by speculators giving up on hopes that the country would de-peg its currency from the U.S. dollar.

All is not gloom and doom, however. The UAE government has funneled $33 billion into the country’s banking system to calm the nerves of depositors and investors, promising coverage to foreign as well as local institutions. If the credit crunch shakes out speculators, known as “flippers,” from Dubai’s real estate market, that could help stabilize wildly inflationary conditions. “I am not necessarily thinking we are in a crash scenario,” EFG-Hermes managing director Hashem Montasser tells TIME. “There is still genuine demand. Economies here are still growing. Overall, the economic situation is still very sound. We will see a deceleration of prices and it’s probably a good thing as long as it’s done in an orderly way and doesn’t turn into a panic. The market has gone to where it is too quickly.”

An underlying reason for the relative lack of panic so far is that Dubai real estate remains a financial haven for wealthy individuals from riskier nearby countries like Iran and Pakistan. What’s more, Dubai’s real estate sector is dominated by a handful of major companies — collectively dubbed “Dubai Inc.” — that are directly or indirectly owned and controlled by the government. This means, analysts say, that Dubai authorities could effectively stave off a bubble burst by keeping finished projects off line until market conditions improved. In the event of a systemic threat, Dubai can probably rely on super-rich Abu Dhabi for a bailout. “We consider it highly likely that the authorities will step in at some level to support entities that are strategically important for the economy,” Moody’s analyst Tristan Cooper tells TIME.

That kind of reassurance is what keeps Dubai property builders like Saif Ahmed plugging away. Believing that foreign interest in Dubai is alive, he’s planning a major sales exhibition in Los Angeles in December. He acknowledges, however, that the days of the easy sell may be over. “People are more educated and calculated about their investments,” Ahmed explains. “Now they are asking for a more detailed sales pitch. They want to know about the developer’s track record.” As it faces the most serious financial challenge in its history, Dubai Inc.’s reputation is now on the line, too.

—With reporting by Shadiah Abdullah

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Powell endorses Obama, chides McCain campaign tone

WASHINGTON – Colin Powell, a Republican who was President Bush’s first secretary of state, endorsed Democrat Barack Obama for president Sunday and criticized the tone of Republican John McCain’s campaign.

The former chairman of the Joint Chiefs of Staff said either candidate, both of them senators, is qualified to be commander in chief. But he said Obama is better suited to handle the nation’s economic problems as well as help improve its standing in the world.

“It isn’t easy for me to disappoint Sen. McCain in the way that I have this morning, and I regret that,” Powell, interviewed on NBC’s “Meet the Press,” said of his longtime friend, the Arizona senator.

But, he added: “I think we need a transformational figure. I think we need a president who is a generational change and that’s why I’m supporting Barack Obama, not out of any lack of respect or admiration for Sen. John McCain.”

Powell’s endorsement has been much anticipated because he is a Republican with impressive foreign policy credentials, a subject on which Obama, a first-term senator from Illinois, is weak. Powell is a Republican centrist who is popular among moderate voters.

At the same time, Powell is a black man and Obama would be the nation’s first black president. Powell said he was cognizant of the racial aspect of his endorsement, but said that was not the dominant factor in his decision. If it was, he said, he would have made the endorsement months ago.

Powell expressed disappointment in the negative tone of McCain’s campaign, his choice of Alaska Gov. Sarah Palin as a running mate and McCain’s and Palin’s decision to focus in the closing weeks of the contest on Obama’s ties to 1960s-era radical William Ayers. A co-founder of the Weather Underground, which claimed responsibility for nonfatal bombings during the Vietnam War-era, Ayers is now a college professor who lives in Obama’s Chicago neighborhood. He and Obama also served together on civic boards in Chicago.

“This Bill Ayers situation that’s been going on for weeks became something of a central point of the campaign,” Powell said. “But Mr. McCain says that he’s a washed-out terrorist. Well, then, why do we keep talking about him?”

Powell said McCain’s choice of Palin raised questions about judgment.

“I don’t believe she’s ready to be president of the United States,” Powell said.

McCain seemed dismissive of Powell’s endorsement, saying he had support from four other former secretaries of state, all veterans of Republican administrations: Henry Kissinger, James A. Baker III, Lawrence Eagleburger and Alexander Haig.

“Well, I’ve always admired and respected Gen. Powell. We’re longtime friends. This doesn’t come as a surprise,” he said on “Fox News Sunday.”

Asked whether Powell’s endorsement would undercut his campaign’s assertion that Obama is not ready to lead, McCain said: “Well, again, we have a very, we have a respectful disagreement, and I think the American people will pay close attention to our message for the future and keeping America secure.”

Obama called Powell to thank him for the endorsement, Obama spokesman Robert Gibbs said.

“I am beyond honored and deeply humbled to have the support of Gen. Colin Powell,” Obama said in remarks prepared for a rally in Fayetteville, N.C. “Gen. Powell has defended this nation bravely, and he has embodied our highest ideals through his long and distinguished public service. …And he knows, as we do, that this is a moment where we all need to come together as one nation — young and old, rich and poor, black and white, Republican and Democrat.”

Powell said he remains a Republican, even though he sees the party moving too far to the right. Powell supports abortion rights and affirmative action, and said McCain and Palin, both opponents of abortion, could put two more conservative justices on the Supreme Court.

“I would have difficulty with two more conservative appointments to the Supreme Court, but that’s what we’d be looking at in a McCain administration,” Powell said.

Powell, 71, gained popularity while serving as chairman of the Joint Chiefs of Staff, the nation’s top military commander, during the first Gulf war under President George H.W. Bush. After retiring from the military, speculation mounted that he would run for president in 1996 — perhaps becoming the nation’s first black president — but Powell opted against it.

As secretary of state, he helped make the case before the United Nations for the U.S.-led invasion of Iraq, launched in March 2003.

Powell said the nation’s economic crisis provided a “final exam” of sorts for both Obama and McCain.

“In the case of Mr. McCain I found that he was a little unsure as to how to deal with the economic problems that we were having,” Powell said. “Almost everyday there was a different approach to the problem and that concerned me, sensing that he doesn’t have a complete grasp of the economic problems that we had.”

In contrast, Powell said Obama “displayed a steadiness, an intellectual curiosity, a depth of knowledge and an approach to looking at problems like this. …”

“I think that he has a definitive way of doing business that would serve us well,” Powell said.

Powell said he does not plan to campaign for Obama.

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ELYAC Realty- The Bank Bailout’s Side Effect: Rising Mortgage Costs

The government’s effort to boost bank lending to end the credit crisis is hurting one of the areas critical to the nation’s recovery: mortgage rates. In the past week, the average mortgage rate on a 30-year fixed home loan has jumped more than one half a percentage point to 6.74%, according to Bankrate.com. That might not sound like much, but it is the biggest one-week rise in the normally stable lending rate in 21 years. Some economists say mortgage rates could soon top 7%, a level they have not seen in more than six years.

“Certainly the moves the administration have made so far are not directly attacking the financial issues that affect American homeowners,” says John Vogel, a finance professor at Dartmouth’s Tuck School of Business. “We need to refinance million of homeowners into affordable mortgages, and if rates go up that makes that job just much harder to do.”

Rising mortgage rates could also put downward pressure on housing prices, which have already dropped 20% since their peak in July of 2006, according to the S&P/Case-Shiller Home Price index. The increase in mortgage rates means that the average borrower will pay $1,296 a month in mortgage payment for a $200,000 loan. That’s $100 more a month, and $1,200 more a year, than the same loan would have cost them a few weeks ago. For buyers on a budget, that means they can afford less house for the same amount of money. Conversely, sellers would have to drop their prices to attract that same buyer.

What’s more, a new “Adverse Market Fee” recently instituted by lenders for borrowers with less than perfect credit (regardless of the market) could raise the cost of a loan another half a percentage point – or an additional $70 a month on that same $200,000 loan – for nearly 20% of Americans. “For individuals looking to buy a home this is going to be just one more obstacle in their way,” says Barry Ziggus, who tracks housing issues for the Consumer Federation of America.

The story is worse for people in areas of the country, such as Scottsdale, AZ, or Glen Ellyn in suburban Chicago, where even modest houses can be in the $500,000 range. A $600,000 mortgage will now cost $4,319 a month, or nearly $500 more a month, and $6,000 more a year, than it did six months ago.

Last month, when the government took control of mortgage giants Fannie Mae and Freddie Mac and pledged to inject $200 billion in capital into the home loan guarantors, administration officials said the moves would make it easier and cheaper for people to get home loans. Unfortunately, it hasn’t worked that way. Mortgage rates fell sharply after the move, but soon reversed quickly, and are now higher than they were before the Fannie/Freddie rescue plan was launched.

The problem is that other moves the government has made to render bank debt safer has had the unintended consequence of making Fannie and Freddie’s bonds less safe by comparison. So Fannie and Freddie’s investors have to be compensated for the increased risk. In particular, traders say, the move in the past week by the Federal Deposit Insurance Corp. to temporary offer unlimited deposit insurance for non-interest bearing accounts and guarantee roughly $1.4 trillion in new unsecured bank debt has caused a rush of selling of the bonds of Fannie and Freddie. That’s because the FDIC’s move makes bank debt more attractive at a time when traders are looking for safety. Sheila Bair, the head of the FDIC, was initially against backing this new bank debt, but eventually went along with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson.

Lower prices (and thus higher interest rates) for Fannie and Freddie bonds make it more expensive for the government mortgage guarantors to borrow, and that means that Fannie and Freddie have less money to purchase home loans. Which means a lower supply of capital available for mortgage issuers. The result is higher mortgage rates for the average American. The higher mortgage rates have left some people wondering just what the government can do next. “Just what would you do differently,” says John Weicher, a director at the Hudson Institute and a former assistant security at the U.S. Department of Housing and Urban Development. “I’m inclined to believe that the efforts we have made to help homeowners have been successful, they just haven’t been enough.”

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ELYAC Realty- Home starts crawl to slowest pace since 1991

Construction of new homes plunged by a bigger-than-expected amount in September as builders slashed production yet again, putting the country on track to build the fewest homes this year in more than six decades.

Friday’s housing report was yet another piece of evidence that the nation is struggling with a weak economy that, if the financial crisis is not solved, could dive into a sustained downturn.

A barometer of future building also dropped, falling to the weakest level in more than 25 years. Analysts blamed the renewed swoon on the financial crisis which erupted with force this fall, raising new anxieties among potential home buyers and making it harder for builders to get construction loans.

The Commerce Department reported Friday that construction of new homes and apartments dropped by 6.3 percent last month, a much bigger decline than the 1.6 percent decrease that had been expected. It pushed total production to a seasonally adjusted annual rate of 817,000 units. That’s the slowest pace since January 1991, when the U.S. was in a recession and going through a similar painful housing correction.

“This is pretty bleak. The home building market continues to slide away and it is not over yet,” said Mark Zandi, chief economist at Moody’s Economy.com. “Demand is now weakening as a result of the financial panic and the hit to the job market.”

President Bush on Friday defended the government’s extraordinary interventions to rescue the financial system as a “last resort” that would work eventually to stabilize the economy.

The construction declines last month reflected weakness in many parts of the country. It was led by a 20.9 percent drop in the Northeast, where construction of single-family units fell to the lowest level on record.

Construction slipped by 16.8 percent in the West with single-family building hitting a record low there, too. The Midwest saw a gain of 5.6 percent, although that came from strength in apartment construction as single-family building also hit a record low in that region. Construction activity in the South was up a slight 0.5 percent.

Applications for building permits, considered a good sign for future activity, also fell sharply in September, dropping by 8.3 percent to an annual rate of 786,000 units, the weakest level since November 1981.

The housing industry, which enjoyed a five-year boom, is suffering its worst downturn in decades.

The weakness in housing, where prices have been falling sharply in many parts of the country, has triggered severe economic problems. The government has been forced to rush through a $700 billion rescue package for banks which have been hit with billions of dollars in losses from soaring defaults on mortgages.

Banks, worried about their cash reserves and the health of other banks and businesses, have tightened lending, causing credit markets around the world to freeze, stock markets to tumble and anxiety about a global recession to rise.

Builder sentiment dropped to a record low in October, according to the latest survey from the National Association of Home Builders which said builder confidence had been shaken by the recent financial market troubles. Builders have been facing tighter lending standards as they try to get financing for new projects.

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ELYAC Realty- Oil Prices Slip Below $70 a Barrel

By JAD MOUAWAD

Oil prices dropped below $70 a barrel for the first time in 14 months Thursday, prompting the OPEC cartel to call for an emergency meeting next week to establish some stability in prices that have plummeted recently after rising for months.

Oil prices have tumbled by nearly $40 a barrel in just three weeks as indications grow that demand for energy will slow along with weakening economies around the world. As recently as July, oil was trading at a record of $145 a barrel.

The decline in oil prices could provide a form of stimulus to the economy as consumers pay less to fill up their tanks. If oil prices stay at current levels, consumers would have $250 billion more, over a year, to save or spend elsewhere, according to Lawrence Goldstein, an energy economist. Some analysts expect oil prices to keep declining, perhaps to as low as $50 a barrel in coming months.

Americans will probably see lower energy bills this winter, as gasoline and heating oil futures also dropped sharply on Thursday. Gasoline prices now average $3.08 a gallon, down from a summer peak of $4.11 a gallon, according to AAA.

The decline in oil prices came after a government report showed domestic crude oil stockpiles rose more than expected as Americans use less oil, in part because they are driving less. In the last month, domestic oil demand has fallen to its lowest level since June 1999, at 18.6 million barrels a day, according to the Energy Department.

Oil settled down $4.69 a barrel, at $69.85. The drop, along with other promising signs on the inflation front, was among the reasons investors bid stocks higher, with the Dow Jones industrial average closing up 401.35 points at 8,979.26.

Natural gas prices have also tumbled since their summer peak of $13.58 per thousand cubic feet. On Thursday, natural gas futures rose 19 cents, to $6.81, after a report showed that stockpiles rose less than expected.

While consumers may have reason to cheer the falling oil prices after such a sharp run-up, the wild roller coaster of volatility is a nightmare for oil producers and petroleum executives who say they need more stability to plan long-term projects to develop new sources of oil.

If they cannot be confident that they will get a stable return on their investment, they may hold back. That in turn could set the stage for possible shortages of oil and higher prices when global demand picks up again.

The sharp drop-off has forced OPEC’s hand. The cartel said just last week that it would meet in mid-November, after the United States elections. But on Thursday, it rescheduled its emergency session for next Friday, Oct. 24.

The cartel’s producers, which control 40 percent of global exports, could curb their output by about a million barrels a day to try to stem the drop in prices, according to analysts.

It is unclear what price range for oil the cartel wants to establish. But the meeting “sends a clear signal that OPEC is concerned about the speed with which oil prices are slipping away from a preferred price of around $80 a barrel,” said Lawrence Eagles, an oil analyst at JPMorgan.

Iran’s oil minister, Gholamhossein Nozari, told reporters in Tehran on Tuesday, “I think the low price is a real damage to the future of production.”

From its inception, the oil industry has gone through countless cycles, with oil companies cutting investments when prices fell. The price collapse of the 1980s forced companies to slash investments and prompted a wave of large mergers through the industry. But this retrenchment left the world scrambling for oil when demand from Asian and Latin American economies soared.

Concerns that this pattern might be repeated were mentioned frequently during an industry conference in Venice last weekend, where oil executives said they worried that a prolonged recession, tighter credit and lower energy consumption would mean slower growth in energy supplies in coming years.

The credit freeze has already forced some projects to be scaled back, some energy analysts and executives said. “This is a real test,” said Jeroen van der Veer, the chief executive of Royal Dutch Shell, in an interview at the conference. “Some people will be overstretched, and there will be some delays in some projects.”

Over the last decade, growth in oil consumption has outpaced the ability of producers to meet that demand with more production. Many experts have predicted a new squeeze within the next five years that could once again propel oil prices over $100 a barrel.

The drop in prices has already created problems for oil producers. Iran and Venezuela both need oil prices at $95 a barrel to balance their national budgets, Russia needs $70 and Saudi Arabia needs $55 a barrel, according to Deutsche Bank estimates. Algeria’s oil minister, Chakib Khelil, said on Thursday that the “ideal” price for crude oil was $70 to $90 a barrel.

In Russia, which is not part of OPEC, the drop in prices is threatening the country’s ability to increase production. The Russian government has reportedly agreed to allocate $9 billion to its four major producers — Lukoil, Gazprom, Rosneft and TNK-BP — to help them cope with investment needs amid the credit crisis.

In the United States, Chesapeake Energy, a gas producer, has recently indicated it will reduce its capital investments over the next few years in response to falling prices.

Global oil demand is undeniably slowing down, particularly in developed nations. Japanese oil consumption tumbled by 12 percent in August over the same month a year ago, while in the United States, demand fell by 8 percent in September.

Consumption is still growing in developing nations, but at a slower pace than in recent years. The International Energy Agency expects global oil demand to grow by just 400,000 barrels a day this year, to 86.5 million barrels a day. The agency, which had been revising downward its predictions all year, forecast growth of 2 million barrels a day for 2008 when the year started.

The two-day energy meetings last week were held in private in the baroque setting of the island of San Giorgio Maggiore, home to a 10th-century Benedictine monastery. In many conversations with senior executives outside of the conference meetings, they voiced concerns about their industry becoming increasingly vulnerable to a slowing economy.

“We pretty much know where supplies are going to come from in future years, but today the biggest uncertainty is demand,” said Christophe de Margerie, chief executive of Total, the French oil company.

Some executives, though, are still holding out hope that Asian economies may weather the economic storm and help the global economy recover faster. Lower oil prices could also make it harder for some companies to survive on their own, leading to a new wave of mergers and acquisitions.

“This new environment is not all doom and gloom,” said Mr. van der Veer, of Shell. “It can also provide some opportunities. Certain assets may become available.”

______________________________________

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California, california homes for sale, Fannie Mae, FHA loans, Florida and Arizona, Freddie Mac, home loans, home prices, homes for sale, mortgage, real estate, real estate broker, recession, Southern California

Home Prices Seem Far From Bottom

By VIKAS BAJAJ

The American housing market, where the global economic crisis began, is far from hitting bottom.

Home prices across much of the country are likely to fall through late 2009, economists say, and in some markets the trend could last even longer depending on the severity of the anticipated recession.

In hard-hit areas like California, Florida and Arizona, the grim calculus is the same: More and more homes are going up for sale, but fewer and fewer people are willing or able to buy them.

Adding to the worries nationwide are rising unemployment, falling wages and escalating mortgage rates — all of which will reduce the already diminished pool of would-be buyers.

“The No. 1 thing that drives housing values is incomes,” said Todd Sinai, an associate professor of real estate at the Wharton School at the University of Pennsylvania. “When incomes fall, demand for housing falls.”

Despite the government’s move to bolster the banking industry, home loan rates rose again on Tuesday, reflecting concern that the Treasury will borrow heavily to finance the rescue.

On Wednesday, the average rate for 30-year fixed rate mortgages was 6.75 percent, up from 6.06 percent last week. While banks are moving aggressively to sell foreclosed properties, the number of empty homes is hovering near its highest level in more than half a century.

As of June, 2.8 percent of homes previously occupied by an owner were vacant. Nearly 1 in 10 rentals was without a tenant. Both numbers are near their highest levels since 1956, the earliest year for which the Census Bureau has such data.

At the same time, the number of people who are losing jobs or seeing their incomes decline is rising. The unemployment rate has climbed to 6.1 percent, from 4.4 percent at the end of 2007, and wages for those who still have a job have barely kept up with inflation.

In New York and other cities that rely heavily on the financial sector, economists expect that job losses will increase and that pay heavily tied to year-end bonuses will decline significantly.

One reliable proxy of housing values — the ratio of home prices to rents — indicates that in many cities prices are still too high relative to historical norms.

In Miami, for instance, home prices are about 22 times annual rents, according to analysis by Moody’s Economy.com. The average figure for the last 20 years is just 15 times annual rents. The difference between those two numbers suggests that a home valued at $500,000 today might be worth only $341,000 based on the long-term relationship between prices and rents.

The price-to-rent ratio, which provides one measure of how much of a premium home buyers place on owning rather than renting, spiked across the country earlier this decade.

It increased the most on the coasts and somewhat less in the middle of the country. Economy.com’s calculations show that while it remains elevated in many places, the ratio has fallen sharply to more normal levels in places like Sacramento, Dallas and Riverside, Calif.

The current housing downturn is much more national in scope and severe than any other in the postwar period, partly because of the proliferation of risky lending practices. Today, foreclosures are running ahead of the downturn in the economy, a reversal of previous housing slumps.

“We are in uncharted waters,” said Brian A. Bethune, an economist at Global Insight, a research firm.

Colleen Pestana, a real estate agent in Orange County in California, said many people losing their homes in Southern California used to work at mortgage and real estate companies. Many of them bet heavily on real estate by upgrading to bigger houses every few years. Now, many are losing their homes.

At the same time, Ms. Pestana said, her clients who are looking to buy are having a harder time lining up financing. One of her clients recently had to give up on a home after the lender that had offered a pre-approved loan changed its mind — a frequent occurrence, according to real estate agents and mortgage brokers.

“I am working harder than I have ever had to work to get a deal together and keep it together,” said Ms. Pestana, who has been a real estate agent for seven years.

To cushion themselves from potential losses if homes lose value, Fannie Mae and Freddie Mac, the mortgage finance companies that the government took over in September, have increased fees on loans made to borrowers who have good but not excellent credit records, even those who are making down payments as big as 30 percent.

Those higher fees are generally invisible to borrowers because banks factor them into mortgage interest rates. While the national average rate for a 30-year fixed-rate mortgage is now 6.75 percent, according to HSH Associates, mortgage brokers say the rates for many borrowers in the Southwest or Florida can be as high as 8 percent, especially for so-called jumbo loans that are too big to be sold to Fannie Mae and Freddie Mac. (Those loan limits vary by area from $417,000 to roughly $650,000.)

Higher interest rates result in bigger monthly payments, pricing some potential buyers out of the market. For example, monthly payments are $2,700 on a 6 percent 30-year, fixed-rate loan of $450,000. If the interest rate rises to 7 percent, those monthly payments jump to $3,000. All things being equal, when rates rise prices generally fall.

This month, Fannie and Freddie canceled a fee increase that would have applied to markets where home prices are falling, but the companies still have many other fees in place. In an effort to help drive down rates, the Treasury Department has announced plans to buy mortgage-backed securities issued by Fannie and Freddie. The government also recently increased the amount of loans the companies can buy and hold.

Still, those efforts will take time to have an impact and it is not clear whether they will be sufficient to get banks to lend more freely, especially in areas where jumbo loans make up a bigger percentage of lending, like New York and parts of California and Florida. Economists say that prices in those places will probably fall further.

In some of those places, price declines are being driven by a sharp increase in sales of foreclosed homes.

Hudson & Marshall, a Dallas-based auctioneer that holds sales for lenders, reports that banks are accepting prices that they refused to consider just 12 months earlier. In a recent auction of 110 foreclosed homes in the Las Vegas area, for instance, the auctioneer’s clients accepted 90 percent of the bids submitted by buyers, up from 60 percent a year earlier, said David T. Webb, a co-owner of the company.

Single-family home prices in Las Vegas have already fallen 34 percent from their peak in the summer of 2006, according to the Standard & Poor’s Case-Shiller home price index. Prices in San Diego have fallen 31 percent since late 2005.

While those declines have been painful to homeowners in those cities, economists said the quick decline might help the markets reach bottom faster than in previous housing cycles, said Edward E. Leamer, an economist at the University of California, Los Angeles. In a previous boom, home prices peaked in the Los Angeles area in 1990 but did not hit bottom until 1996. Prices remained near that low for more than a year before starting to climb again.

“In some areas of California, we are really at appropriate levels,” Mr. Leamer said of current home prices. But he added: “The risk is that we are going to get some overshooting, meaning that prices will be lower than they ought to be.”

In Florida, Jack McCabe, a real estate consultant, said that while some cities, like Fort Myers, are showing tentative signs of a rebound, others like Miami and Fort Lauderdale are still under pressure. Two homes on his street in Fort Lauderdale that sold for about $730,000 apiece in 2005 recently sold for $400,000 — a 44 percent decline.

“The rocket has run out of fuel, and now it’s plunged back down to earth,” he said.

______________________________________

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Elyac realty, Fannie Mae, Freddie Mac, home sales, jumbo loans Los Angeles, Las Vegas, Los Angeles, Los Angeles Homes For Sale, mortgage, mortgages, real estate, Reatlors, San Diego California, Southern California, University of California

ELYAC Realty- Home Prices Seem Far From Bottom

By VIKAS BAJAJ

Published: October 16, 2008

The American housing market, where the global economic crisis began, is far from hitting bottom.

In hard-hit areas like California, Florida and Arizona, the grim calculus is the same: More and more homes are going up for sale, but fewer and fewer people are willing or able to buy them.

Adding to the worries nationwide are rising unemployment, falling wages and escalating mortgage rates – all of which will reduce the already diminished pool of would-be buyers.

Despite the government’s move to bolster the banking industry, home loan rates rose again on Tuesday, reflecting concern that the Treasury will borrow heavily to finance the rescue.

In New York and other cities that rely heavily on the financial sector, economists expect that job losses will increase and that pay heavily tied to year-end bonuses will decline significantly.

One reliable proxy of housing values – the ratio of home prices to rents – indicates that in many cities prices are still too high relative to historical norms.

The price-to-rent ratio, which provides one measure of how much of a premium home buyers place on owning rather than renting, spiked across the country earlier this decade.

“We are in uncharted waters,” said Brian A. Bethune, an economist at Global Insight, a research firm.

At the same time, Ms. Pestana said, her clients who are looking to buy are having a harder time lining up financing. One of her clients recently had to give up on a home after the lender that had offered a pre-approved loan changed its mind – a frequent occurrence, according to real estate agents and mortgage brokers.

“I am working harder than I have ever had to work to get a deal together and keep it together,” said Ms. Pestana, who has been a real estate agent for seven years.

In some of those places, price declines are being driven by a sharp increase in sales of foreclosed homes.

“The rocket has run out of fuel, and now it’s plunged back down to earth,” he said.

______________________________________

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Dow Jones, Dow Jones Industrial Average, Dow Jones Stock Average, Federal Reserve System, FHA loans, financial crisis of 2008, mortgages, Nasdaq Composite Index, S&P 500, Stock market, Stocks and Bonds

ELYAC Realty- Dow drops 733 as fear drives stocks lower

In California Real Estate, Dubai, ELYAC Realty Los Angeles Mortgage Broker- 310.562.0572, ELYAC Realty: Real Estate Agents Salary, Economy, FSBO MLS services, For Sale, Homes, Houses, How to fina a foreclosure in Southern California, How to find a Forclosure in Southern California, Islam, Kuwait, Los Angeles Home Loans, Marketing, Mortgage Broker Newport Beach, Mortgage Brokers Laguna Beach, Muslim, Politics Life News Music Family Travel Personal Sports, Ramadan, Real Estate Agents Laguna Beach, Real Estate Agents Los Angeles, Real Estate Agents Newport Beach, Real Estate News, Realtor, SEO for Real Estate, Saudi Arabia, Shari'a compliant financing, investment, mortgage, mortgage broker Los Angeles, seo on October 16, 2008 at 12:34 am

Fear returned to Wall Street today, driving the Dow Jones industrials down 733 points as the stock market gave up nearly all the gains from Monday’s rally.

The percentages losses for the Dow and the Standard & Poor’s 500 Index – 7.9% and 9%, respectively — were their worst since the Oct. 19, 1987 market crash.

The cause was a combination of weak economic reports in the morning, a gloomy outlook on the economy from Federal Reserve Chairman Ben Bernanke and then heavy late-day selling, apparently from hedge funds and others scrambling to meet margin calls.

Today’s sell-off was pushing futures prices for stock indexes lower, suggesting a weak open for U.S. stocks on Thursday.

Get free, real-time stock quotes on MSN Money

The blue chips finished at 8,578, down 7.9% on the day. The S&P 500 fell 90 points to 908. The Nasdaq Composite Index was off 151 points, or 8.5%, to 1,628.

The point losses for the Dow and the S&P 500 were their second-largest. The biggest came only on Sept. 29 — 778 points for the Dow and 107 points for the S&P 500.

In two days, the Dow has given back 86% of its 936-point gain on Monday. The S&P’s retracement: 92%.

The Nasdaq, the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, and the Russell 2000 Index, ($RUT.X), which tracks small-cap stocks, have given up all of their Monday gains.

The Nasdaq-100 fell 120 points, or 8.8%, to 1,244. The Russell 2000 fell 52 points, or 9.5%, to 502.11.

The market “is absolutely trading on fear right now,” John Wilson, co-director of equity strategy at Morgan Keegan in Memphis, told Bloomberg News, because “nobody knows yet how bad the economy is going to get.”

About the only solace an investor can take from the close is this: All the indexes are still 8% or so above the lows they saw in panic selling right after Friday’s open.

In addition, crude oil fell under $75 a barrel for the first time since Aug. 31, 2007. Crude is now down 49% from its peaks in July and down 21% on the year.

Prices at the pump have declined as well. AAA’s Fuel Gauge Report put the national average price of gas at $3.125 a gallon today, down 24% from the $4.114 peak on July 17.

Gasoline prices tend to fall more slowly than crude as refiners work off higher-cost inventories.

Energy shares were battered all day and were the market’s weakest link. ExxonMobil (XOM, news, msgs) and Chevron (CVX, news, msgs) both fell more than 12% and contributed nearly 149 points of the Dow’s loss. The Select Sector SPDR-Energy (XLE, news, msgs) exchange-traded fund, which tracks the energy sector of the S&P 500, was down 14.4% to $43.30.

Financial stocks overall moved lower after Oppenheimer & Co. analyst Meredith Whitney said the government’s plan to stabilize key U.S. banks by injecting $250 billion is not a “panacea solution.” The Select Sector SPDR-Financial (XLF, news, msgs) ETF, which tracks the financial sector of the S&P 500, was down 10.9% to $15.45. The ETF 46.6% this year.

As stocks fell, many investors looked for safety, driving interest rates lower. The yield on a 1-month Treasury bill dropped to 0.03% today, which means investors were basically paying the government for safety. The dollar moved higher as a result.

In addition, many investors piled into put options to protect against more losses. The CBOE Volatility Index ($VIX.X), which rises with increasing fear, closed up 26% to 69.25 today.

Several fears drove the market:

The economic slowdown hasn’t hit bottom, and it will take longer than anyone expected to rebound. That hit consumer stocks such as McDonald’s (MCD, news, msgs), down 8% to $51.55; Starbucks (SBUX, news, msgs), down 10.4% to $10.12; and Apple (AAPL, news, msgs), down 5.9% to $104.08.

Moves by the Fed, the Treasury and central banks around the world won’t be enough to turn the financial system around quickly.

Economic growth in emerging nations, particularly China, Russia and Brazil, is slowing rapidly, if not stalling entirely

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Ben Bernanke, California real estate agents, credit crisis, Dow Jones Industrial Average, Federal Deposit Insurance Corporation, Federal Reserve, Federal Reserve System, Los Angeles Home Loans, Los Angeles Realtors, M. Paulson Jr, United States, United States Economy

Treasury Chief Says Banks Must Deploy New Capital

By MARK LANDLER

WASHINGTON — Describing the government’s financial bailout plan as “extensive, powerful and transformative,” Treasury Secretary Henry M. Paulson Jr. said on Tuesday that the injection of $250 billion into the nation’s banks was needed to restore confidence and avoid a collapse of the financial system.

Speaking shortly after President Bush used similar terms to describe the proposal, Mr. Paulson said the Treasury would make $250 billion available to banks to help recapitalize those banks and to get them lending again, among themselves and to businesses and consumers.

“The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it,” Mr. Paulson said, who offered some details of the plan along with the Federal Reserve chairman, Ben S. Bernanke, and the chairman of the Federal Deposit Insurance Corporation, Sheila C. Bair.

With the proposal, the United States follows similar plans announced Monday across Europe — almost all intended to inject money into the banks and unfreeze the credit markets. Markets around the world have rebounded on news of the coordinated efforts. The Dow Jones industrial average gained 936 points, or 11 percent on Monday, the largest single-day gain in the American stock market since the 1930s, and gained more than 300 points more in the opening minutes of trading on Tuesday. European markets were up at least 5 percent on Tuesday after rising nearing 10 percent Monday.

In addition to injecting money into the banks, according to the plan, the United States would also guarantee new debt issued by banks for three years — a measure meant to encourage the banks to resume lending to one another and to customers.

The F.D.I.C. would also offer an unlimited guarantee on bank deposits in accounts that do not bear interest — typically those of businesses — bringing the United States in line with several European countries, which have adopted such blanket guarantees.

And the Federal Reserve would start a program to become the buyer of last resort for commercial paper, a move intended to help businesses get the money they need for day-to-day operations.

Calling the need to inject money into banks regrettable, Mr. Paulson said it was nevertheless necessary.

“The alternative of leaving businesses and consumers without access to financing is totally unacceptable,” Mr. Paulson said. “When financing isn’t available, consumers and businesses shrink their spending, which leads to businesses cutting jobs and even closing up shop.”

Mr. Bernanke, echoing Mr. Paulson’s comments, said, “Americans can be confident that every resource is being brought to bear,” including political leadership.

“I strongly believe” that the application of the measures together with resilience of American economy “will help restore confidence,” Mr. Bernanke said.

As the White House has done since the House of Representatives rejected the initial bailout legislation, Mr. Bush sought to assure Americans that the efforts were necessary to protect their savings and retirement.

Each of the programs protects taxpayers, Mr. Bush said, and is “limited and temporary.”

“I recognize that the action leaders are taking here in Washington and in European capitals can seem distant from those concerns,” he said. “But these efforts are designed to directly benefit the American people by stabilizing our overall financial system and helping our economy recover.”

Mr. Paulson outlined the plan to eight of the nation’s leading bankers at a meeting Monday afternoon. He essentially told the participants that they would have to accept government investment for the good of the American financial system, according to officials.

On Monday, big banks agreed to take investments totaling about $125 billion. Citigroup and JPMorgan Chase will receive $25 billion each. Bank of America, which is acquiring Merrill Lynch, and Wells Fargo, which is acquiring the Wachovia Corporation, will receive $25 billion. Goldman Sachs and Morgan Stanley will receive $10 billion each. And Bank of New York Mellon and State Street will get $2 billion to $3 billion.

Another $125 billion is allocated for thousands of small and midsize banks. They will be eligible for government investments reflecting a similar proportion of their assets.

On Tuesday, Mr. Paulson said that in return for the investment, the government would receive preferred shares and warrants for common stock. In addition, he said, the government would expect a reasonable return.

And he said, “Institutions that sell shares to the government will accept restrictions on executive compensation, including a clawback provision and a ban on golden parachutes during the period that Treasury holds equity issued through this program.”

Under the plan, the government will receive an annual dividend of 5 percent for the first five years and 9 percent after that, the Treasury said. The government’s stake in the company would be non-voting.

Over the weekend, central banks flooded the system with billions of dollars in liquidity, throwing out the traditional financial playbook in favor of a series of moves that officials hoped would get banks lending again.

European countries — including Britain, France, Germany and Spain — announced aggressive plans to guarantee bank debt, take ownership stakes in banks or prop up ailing companies with billions in taxpayer funds.

The Treasury’s plan would help the United States catch up to Europe in what has become a footrace between countries to reassure investors that their banks will not default or that other countries will not one-up their rescue plans and, in so doing, siphon off bank deposits or investment capital.

“The Europeans not only provided a blueprint, but forced our hand,” said Kenneth S. Rogoff, a professor of economics at Harvard and an adviser to John McCain, the Republican presidential nominee. “We’re trying to prevent wholesale carnage in the financial system.”

In the process, Mr. Rogoff and other experts said, the government is remaking the financial landscape in ways that would have been unimaginable a few weeks ago — taking stakes in the industry and making Washington the ultimate guarantor for banking in the United States.

But the pace of the crisis has driven events, and fissures in places as far-flung as Iceland, which suffered a wholesale collapse of its banks, persuaded officials to act far more decisively than they had previously.

“Over the weekend, I thought it could come out very badly,” said Simon Johnson, a former chief economist of the International Monetary Fund. “But we stepped back from the cliff.”

The guarantee on bank debt is similar to one announced by several European countries earlier on Monday, and is meant to unlock the lending market between banks. Banks have curtailed such lending — considered crucial to the smooth running of the financial system and the broader economy — because they fear they will not be repaid if a bank borrower runs into trouble.

But officials said they hoped the guarantee on new senior debt would have an even broader effect than an interbank lending guarantee because it should also stimulate lending to businesses.

Another part of the government’s remedy is to extend the federal deposit insurance to cover all small-business deposits. Federal regulators recently have been noticing that small-business customers, which tend to carry balances over the federal insurance limits, have been withdrawing their money from weaker banks and moving it to bigger, more stable banks.

Congress had already raised the F.D.I.C.’s deposit insurance limit to $250,000 earlier this month, extending coverage to roughly 68 percent of small-business deposits, according to estimates by Oliver Wyman, a financial services consulting firm. The new rules would cover the remaining 32 percent.

“Imposing unlimited deposit insurance doesn’t fix the underlying problem, but it does reduce the threat of overnight failures,” said Jaret Seiberg, a financial services policy analyst at the Stanford Group in Washington.

“If you reduce the threat of overnight failures,” Mr. Seiberg said, “you start to encourage lending to each other overnight, which starts to restore the normal functioning of the credit markets.”

Recapitalizing banks is not without its risks, experts warned, pointing to the example of Britain, which announced its program last week and injected its first capital into three banks on Monday.

Shares of the newly nationalized banks — Royal Bank of Scotland, HBOS and Lloyds — slumped on Monday, despite a surge in banks elsewhere, because shareholder value was diluted by the government.

The move, analysts said, makes the government Britain’s biggest banker. And it creates a two-tier banking system in which the nationalized banks are run like utilities and others are free to pursue profit growth. As part of the plan, the chief executives of the three banks stepped down.

Still, Mr. Paulson’s strategy was backed by lawmakers, including Senator Charles E. Schumer, Democrat of New York, who said he preferred capital injections to buying distressed mortgage-related assets — a proposal that Treasury pushed aggressively before its turnabout.

In a letter to Mr. Paulson on Monday, Mr. Schumer, chairman of the Joint Economic Committee, urged the Treasury to demand that banks receiving capital eliminate their dividends, restrict executive pay and stick to “safe and sustainable, rather than exotic, financial activities.”

“I don’t think making this as easy as possible for the financial institutions is the way to go,” Mr. Schumer said in a call with reporters. “You need some carrots but you also need some sticks.”

But officials said the banks would not be required to eliminate dividends, nor would the chief executives be asked to resign. They will, however, be held to strict restrictions on compensation, including a prohibition on golden parachutes and requirements to return any improper bonuses. Those rules were also part of the $700 billion bailout law passed by Congress.

The nine chief executives met in a conference room outside Mr. Paulson’s ornate office, people briefed on the meeting said. They were seated across the table from Mr. Paulson; Ben S. Bernanke, chairman of the Federal Reserve; Timothy F. Geithner, president of the Federal Reserve Bank of New York; Federal Reserve Governor Kevin M. Warsh; the chairman of the F.D.I.C., Sheila C. Bair; and the comptroller of the currency, John C. Dugan.

Among the bankers attending were Kenneth D. Lewis of Bank of America, Jamie Dimon of JPMorgan Chase, Lloyd C. Blankfein of Goldman Sachs, John J. Mack of Morgan Stanley, Vikram S. Pandit of Citigroup, Robert Kelly of Bank of New York Mellon and John A. Thain of Merrill Lynch.

Bringing together all nine executives and directing them to participate was a way to avoid stigmatizing any one bank that chose to accept the government investment.

The preferred stock that each bank will have to issue will pay special dividends, at a 5 percent interest rate that will be increased to 9 percent after five years. The government will also receive warrants worth 15 percent of the face value of the preferred stock. For instance, if the government makes a $10 billion investment, then the government will receive $1.5 billion in warrants. If the stock goes up, taxpayers will share the benefits. If the stock goes down, the warrants will be worthless.

As Treasury embarked on its recapitalization plan, it offered some details on the nuts-and-bolts of the broader bailout effort. The program’s interim head, Neel T. Kashkari, said Treasury had filled several senior posts and selected the Wall Street firm Simpson Thacher as a legal adviser.

It named an investment management consultant, Ennis Knupp, based in Chicago, to help it select asset management firms to buy distressed bank assets. And it plans to announce the firm that will serve as the program’s prime contractor, running auctions and holding assets, within the next day.

“We are working around the clock to make it happen,” said Mr. Kashkari, a former Goldman Sachs banker who has been entrusted with the job of building this operation within weeks.

As details of the American recapitalization plan emerged, fears grew over the impact on smaller countries. Iceland is discussing an aid package with the International Monetary Fund, a week after Reykjavik seized its three largest banks and shut down its stock market.

The fund also offered “technical and financial” aid to Hungary, which last week suffered a run on its currency. Prime Minister Ferenc Gyurcsany said the country would accept aid only as a last resort.

In a new report on capital flows, the Institute of International Finance projected that net capital in-flows to emerging markets would decline sharply, to $560 billion in 2009, from $900 billion last year.

In Asia, markets continued to rise on Tuesday, lifted further by the announcement that the Japanese government would inject 1 trillion yen ($9.7 billion) into the financial system.

Reporting was contributed by Graham Bowley, Eric Dash, Louise Story and Ben White in New York.

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This is by far the worst financial crisis since the Great Depression, not as severe as the Great Depression but second only to it.

This is by far the worst financial crisis since the Great Depression, not as severe as the Great Depression but second only to it.
by Nouriel Roubini

At the end of the day this financial crisis will imply credit losses of at least $1 trillion and more likely $2 trillion. The financial and banking crisis will be severe and last several years leading to a severe and persistent liquidity and credit crunch.

This is not just a subprime mortgage crisis; this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages including hundreds of billions of dollars of home equity loans that are worth little; to commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump from close to 0% to over 10%; to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds and where counterparty risk – and the collapse of many counterparties – will lead to a systemic collapse of this market.

Hundreds of small banks with massive exposure to real estate (the average small bank has 67% of its assets in real estate) will go bust.
Dozens of large regional/national banks (a’ la IndyMac) are also effectively insolvent given their extreme exposure to real estate and will also eventually go bust. Most of these regional banks – starting with Wachovia and Washington Mutual – look like walking zombies in the same way IndyMac was.

Even some major money center banks are also semi-insolvent and while they are deemed too big to fail their rescue with FDIC money will be extremely costly. In 1990-91 at the height of that recession and banking crisis many major banks – in addition to 1000 plus S&L’s that went bust – were effectively insolvent, including, as it was well known at that time, Citibank. At that time the Fed and regulators used instruments similar to those used today – easy money and steepening of the intermediation yield curve, aggressive forbearance, creative – i.e. liar – accounting, etc. – to rescue these major financial institutions from formal bankruptcy. But at that time the housing bust and the ensuing decline in home prices was much smaller than today: during that recession home prices – as measured by the Case-Shiller/S&P index – fell less than 5% from their peak. This time around instead such an index has already fallen 18% from its peak and it will most likely fall by a cumulative 30% before it bottoms sometime in 2010. If a 5% fall in home prices was enough to make Citi effectively insolvent in 1991 what will a 30% fall in home prices – and massive defaults on many other forms of credit (commercial real estate loans, credit cards, auto loans, student loans, home equity loans, leveraged loans, muni bonds, industrial and commercial loans, corporate bonds, CDS) – do to these financial institutions? It challenges the credulity of even spin masters to argue that financial firms are not in worse shape today than they were in 1990-91 when a significant number of major banks were technically insolvent. So, not only hundreds of small banks and a significant fraction of regional banks but also some major money center banks will become effectively insolvent during this crisis.

In a few years time there will be no major independent broker dealers as their business model (securitization, slice & dice and transfer of toxic credit risk and piling fees upon fees rather than earning income from holding credit risk) is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental flaw in their structure (i.e. the four remaining U.S. big brokers dealers will either go bust or will have to be merged with traditional commercial banks). Firms that borrow liquid and short, highly leverage themselves and lend in longer term and illiquid ways (i.e. most of the shadow banking system) cannot survive without formal deposit insurance and formal permanent lender of last resort support from the central bank.

The FDIC will for sure run out of money as hundreds of banks will go bust and their depositors will have to be made whole given deposit insurance. With funds of only $53 billion, already up to 15% of such funds will be used to rescue the depositors of IndyMac alone. Thus, the FDIC is already requesting to Congress that the deposit insurance premia should be raised to compensate for this shortfall of funding. Too bad that this increase in insurance premia – that should be high enough in advance (not ex-post) to ensure that deposit insurance is incentive-compatible and not leading to gambling for redemption via risky lending in banks – is now too little and too late and is requested when the damage is already done as the biggest credit bubble in U.S. history is now going bust. Also the FDIC has done a mediocre job at identifying which banks are at risk. So far there are only about 90 banks on its watch list; and IndyMac was not put on that list until last month! So if the FDIC did not even identify IndyMac as in trouble until it was too late, how many other IndyMacs are out there that that the FDIC has not identified yet? Certainly a few hundred but such honest analysis of banks at risk is nowhere to be found.

Fannie and Freddie are insolvent and the Treasury bailout plan (the mother of all moral hazard bailout) is socialism for the rich, the well connected and Wall Street; it is the continuation of a corrupt system where profits are privatized and losses are socialized. Instead of wiping out shareholders of the two GSEs, replacing corrupt and incompetent managers and forcing a haircut on the claims of the creditors/bondholders such a plan bails out shareholders, managers and creditors at a massive cost to U.S. taxpayers.

Massive amount of creative accounting and other forms of balance sheet window dressing is occurring to prevent banks from recognizing their true losses. First, most financial institutions are putting increasing numbers of assets in the illiquid buckets of Level 2 and Level 3 assets. While FASB 157 should prevent manipulation of the valuation of such illiquid assets, forbearance by the SEC, the Fed and other regulators allows a massive amount of fudging. An insider told me that in a major financial institution the approach is as follows now: top management decide in advance what the announced writedowns should be and folks dealing with the toxic/illiquid assets come up with totally ad hoc assumptions to make sure that such illiquid assets are valued consistently with the decided-in-advance amount of writedowns and losses. This is not earnings smoothing; this is active manipulation and falsification of financial results aimed at creating even more obfuscation of the true state of financial institutions. This obfuscation is actively abetted by the SEC, the Fed and all other regulators that are now in forbearance crisis management stage where the objective is to avoid at any cost anything that may trigger a financial meltdown. Thus, most of these earnings reports are not worth the paper they are written off.

Additional earnings manipulation occurs in a variety of ways. First, ad hoc assumptions still used to value and write down level 2 and level 3 assets. Second, banks are leaving aside less reserves for loan losses that are much less than necessary; they do that by using ad hoc assumptions about future losses on mortgages, credit cards, auto loans, student loans, home equity loans and other commercial real estate loans and industrial and commercial loans. Reserves for loan losses have been sharply lagging actual and expected losses, thus padding earnings as decided by the financial institutions’ managers. Third, there is disposal of illiquid and toxic assets in ways that misleadingly reduces the amount of actual writedowns. An example is as follows: suppose a bank wants to dump illiquid MBS or leveraged loans that are worth – mark to market – 70 cents on the dollar rather than 100 cents on the dollar. Then, instead of selling these at a price of 70 and showing a 30% writedown these are sold to hedge funds and other investors to a price closer to par – and thus showing in the balance sheet a smaller writedown – by providing a subsidy to the buyer of the security: so a hedge fund will buy such toxic securities at 80 or 90 cents and receive a loan to finance the transaction at an interest well below the borrowing costs for the funds. Thus, writedowns are then shown smaller than the true underlying loss on the asset and the bank finances that fudged transaction with earning less revenues than otherwise on its credit portfolio. This is an accounting scam that auditors and regulators are abetting on a regular basis. An example of such a scam is the recent Merrill Lynch transaction with Lone Start to “sell” its exposure to CDOs.

The bailout plan of Fannie and Freddie implies a direct bailout of financial institutions and helps them to report better than expected earnings in two ways. First, since these financial institutions hold massive amounts of agency debt the government bailout of the holders of such unsecured debt props the market price of the agency debt (reduces its spread relative to Treasuries) and thus allows financial institutions and investors to report less mark to market losses on the values of such assets. Second, after the bust of subprime, near prime and prime mortgage markets the market for private label MBS is dead with absolutely no origination of new MBS. Thus, today – as senior mortgage market participant put it – Fannie and Freddie are “THE mortgage market” as the only institutions that securitize and guarantee mortgages are Fannie and Freddie. Without the government bailout plan that last channel for mortgage securitization and insurance would be frozen and the ability of banks to originate even prime and conforming mortgages would be serious hampered and its cost sharply increased. Thus, the Fannie and Freddie bailout is actually a bailout of the mortgage market and of every institution that holds agency debt or the MBS issued by the two GSES and of every institution that is in the mortgage origination business. On top of this Fannie and Freddie have also been used as tools of public policy in order to further grease the mortgage market and the banks originating mortgages: their portfolio limits were increased; their capital requirement reduced; and the limit for what a conforming loan – the only ones that Fannie and Freddie can securitize – increased from about $420K to over $720K.

The Fed has been actively beefing up the earnings and balance sheet of financial institutions in four major ways. First, a 325bps reduction in the Fed Funds rate sharply reduced the cost of borrowing for banks and allowed them to enjoy a nice intermediation margin (the difference between longer terms interest rates at which they lend and the much lower short term interest rates at which they borrow). This steepening of the yield curve is a major subsidy to financial institutions. Second, the Fed has created a range of new liquidity facilities – the TAF, the TSLF, the PDCF – that allow banks and now non-bank primary dealers to swap their illiquid toxic asset backed securities for liquid Treasuries and that provide access for non-banks – and now also Fannie and Freddie – to the Fed’s discount window liquidity. Third, the bailout of Bear Stearns creditors – JP Morgan and many other counterparties of Bear – not only avoided a systemic meltdown and a certain run on the other broker dealers but it has led the Fed to take on a significant credit risk by taking off the balance sheet of Bear Stearns over $29 billion of toxic securities. So the Fed has directly and indirectly systemically subsidized and propped up the financial system and the earnings of bank and non-bank financial institutions. Fourth, a variety of forbearance regulatory actions – starting with the waiver of Regulation W for some major banks – have been used to beef up the profits and earnings of financial institutions and reduce their reported writedowns.

The entire Federal Home Loan Bank system – another GSE system that is another effective arm of the government – has been used to prop hundreds of mortgage lenders. The insolvent Countrywide alone received more than $51 billion of funds from this semi-public system. This is a system that has increased its lending in the last 18 months by hundreds of billions of dollars: Citigroup, Bank of America and most other US mortgage lenders have also been beneficiaries of this public subsidy to the tune of dozens of billions of dollars each.

The ability of US financial institutions to recapitalize themselves is constrained by financial protectionism: the only large players that have funds to put at work are sovereign wealth funds, especially from countries that are strategic rivals – not allies – of the US or from unstable petro-states. Thus, the backlash against such SWF will seriously limit the ability of banks and other financial institutions to recapitalize themselves.

This will be the most severe U.S. recession in decades with the U.S. consumer being on the ropes and faltering big time as soon as the temporary effect of the tax rebates will fade out by mid-summer (August). This U.S. consumer is shopped out, saving less, debt burdened and being hammered by falling home prices, falling equity prices, falling jobs and incomes, rising inflation and rising oil and energy prices.

This will be a long, ugly and nasty U-shaped recession lasting at least 12 months and more likely 18 months, not the mild 6 month V-shaped recession that the delusional consensus expects. While an L-shaped decade long economic stagnation is unlikely the recovery of the economy from this recession will be weak as the financial crisis and serious macro imbalances will lead to sub-par (below trend) economic growth for years to come.

The US recession has already started in Q1 of 2008 based on the five indicators tracked by the NBER. The Q2 rebound is only driven by the temporary tax rebates and GDP growth will slip into negative territory from Q3 2008 until at least Q2 of 2009.

Equity prices in the US and abroad will go much deeper in bear territory. In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. gThus, equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of US and global stock markets.

The rest of the world will not decouple from the US recession and from the US financial meltdown; it will re-couple big time. Already 12 major economies are on the way to a recessionary hard landing. Indeed all of the G7 economies are now entering a recession. While the rest of the world will experience a severe growth slowdown only one step removed from a global recession. Given this sharp global economic slowdown oil, energy and commodity prices will fall 20 to 30% from their recent bubbly peaks.

The current U.S recession and sharp global economic slowdown is combining the worst of the oil shocks of the 1970s with the worst of the asset/credit bust shocks (and ensuing credit crunch and investment busts) of 1990-91 and 2001: like in 1973 and 1979 we are facing a stagflationary shock to oil, energy and other commodity prices that by itself may tip many oil importing countries into a sharp slowdown or an outright recession. Also, like 1990-91 and 2001 we are now facing another asset bubble and credit bubble gone bust big time: the housing and overall household credit boom of the last seven years has now gone bust in the same way as the 1980s housing bubble and 1990s tech bubble went bust in 1990 and in 2000 triggering recessions. And a similar housing/asset/credit bubble is going bust in other countries – U.K., Spain, Ireland, Italy, Portugal, etc. – leading to a risk of a hard landing in these economies.

But over time inflation will be the last problem that the Fed will have to face as a severe US recession and global slowdown will lead to a sharp reduction in inflationary pressures in the U.S.: slack in goods markets with demand falling below supply will reduce pricing power of firms; slack in labor markets with unemployment rising will reduce wage pressures and labor costs pressures; a fall in commodity prices of the order of 30% will further reduce inflationary pressure.

The Fed will have to cut the Fed Funds rate much more as severe downside risks to growth and to financial stability will dominate any short-term upward inflationary pressures. Leaving aside the risk of a collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end of this financial crisis and severe recession cycle.
The Bretton Woods 2 regime of fixed exchange rates to the US dollar and/or heavily managed exchange will unravel – as the first Bretton Woods regimes did in the early 1970s – as US twin deficits, recession, financial crisis and rising commodity and goods inflation in emerging market economies will destroy the basis for its existence.

Thus, the scenario of 12 steps to a financial disaster that I outlined in my February 2008 paper is unfolding as predicted. If anything financial conditions are now much worse than they were at the previous peak of this financial crisis, i.e. in mid-march of 2008.

This financial crisis signals the beginning of the decline of the American Empire; over time the relative economic, financial, military, geostrategic power of the US and reserve role of the US dollar will significantly decline.

This crisis also represents a Crisis of the Suburbian (“McMansions and Gas-Guzzling SUVs”) American Way of Life. The sharp rise in gasoline and energy prices and transportation costs, together with the sharp fall in home prices, will radically change the pattern of living of the typical American household.
Some of my views are fleshed out in more detail in my recent interview on Barron’s and in the profile article about me recently published by the New York Times magazine.
Since I wrote those words in August financial and economic conditions are severely deteriorated; we are now closer to the financial meltdown that I described in my February paper in my “12 Steps to a Financial Disaster” . Stock prices are sharply down and there is a risk of a market crack; interbank spreads and credit spreads are wider than ever since the beginning of this crisis; Lehman and Merrill are gone and soon enough Morgan Stanley and Goldman Sachs will also need to find a larger partner with deep pocket or risk getting in severe trouble; the biggest insurer in the world – AIG – is teetering near bankruptcy; the biggest US S&L – WaMu – is effectively insolvent and close to going bust; dozens of other banks are near bankruptcy; there is a beginning of a silent bank run as depositors are nervous about their assets; the panic is mounting in financial market; the CDS market is frozen because of the collapse of Lehman and the soon collapse of AIG, WaMu and other financial institutions; many hedge funds are now teetering as their losses are mounting; investors in fixed income – including preferred stocks – have experienced massive losses; overnight LIBOR spiked over 300bps to over 6% as panicky investors seek the safety of cash while the Fed lost control of the Fed Funds rate yesterday as the liquidity demand push such rate from the target of 2% to over 6%; the financial turmoil is becoming global with stock markets all over the world plunging.

Worst of all policy authorities are now running out of bullet and going towards desperate measures that will end up being counterproductive.

Now that the collapse of Lehman is leading to the risk of the generalized run on the shadow banking system (the other independent broker dealers, the broker dealers that are part of larger commercial banks such as Citi and JPMorgan, hedge funds, private equity funds, the remaining SIVs and conduits, money market funds, other smaller broker dealers) the policy reaction is to try to build a new set of levies while the financial perfect storm of the century has destroyed the first sets of levies. This reaction includes the following steps.

First, the Fed is accepting even more toxic collateral for the TSLF and PDCF, including even equities; so now after having nationalized the mortgage market via the takeover of Fannie and Freddie the government is also starting to manipulate directly the stock market (a step that started with the SEC restrictions on naked short sales of the primary dealers; so the process of turning the US market system in a socialist system controlled by the government is now in full swing. And the Fed takes massive credit and now market risks by its effective purchase of equities.

Second, the Fed is waving Section 23A of the Federal Reserve Act that restricts how much commercial banks can relend liquidity to their investment banking affiliates; these restrictions are sensible prudential rules aimed at avoiding banks to subsidize their broker dealer affiliates with deposit-insured deposit. Now these sensible prudential regulations are thrown to the wind; so Citi, JPMorgan and Bank of America can happily use or raid their FDIC-insured deposit to support their bankrupt broker dealer operations. This is reckless as abuse of this new form of subsidization of near insolvent broker dealers with commercial banking deposits may eventually impair the viability and solvency of their commercial banking regulation. This is a form of connected lending that eventually led to the Japanese financial crisis and their severe banking crisis. This process of raiding FDIC insured deposits already started in 2007 when the Fed waived Regulation W for Citigroup and Bank of America when the unraveling of their toxic SIVs and conduits occurred with the roll-off of the ABCP paper. So, now all banks – not just two – can happily raid their deposits to save their broker dealers operations where funding mostly occurs with unstable reckless overnight repos. This desperate policy action shows that even the broker dealers arms of non-independent broker dealers (Citi, JPM, BofA) are now at the risk of a run on their overnight liabilities.

Third, an attempt to bail-in the private sector and provide a private lender of last resort support of the financial system is at work: ten major global banks will each fork $7 billion to create a $70 billion fund; each of these firms could borrow up to a third of such fund or $23 billion. But this private lender of last resort (LOLR) facility will not work since if any firm were to access this facility in case of a run on its liabilities panic will ensue – as the use of it will signal severe trouble – and the run will continue. The IMF created a similar facility to deal with liquidity runs on sound and solvent but illiquid countries; but no country ever used or even signed up for such facility as it would have been associated with “stigma”. Also such private LOLR facilities need to come with rules on their use (“conditionality”); otherwise an illiquid and insolvent broker dealer could access the facility with no restrictions and bankrupt the fund and the other members of the fund. But the new facility apparently does not come with any conditionality; so it is flawed in its design.

Fourth, since Lehman is bust the new line of defense was the takeover of Merrill by BofA. After taking over the insolvent Countrywide now Ken Lewis is making another reckless gamble by taking over at a vastly inflated price another distressed broker dealer. This is dangerous behavior for BofA. The lesson for Mack of Morgan Stanley and Blankfein of Goldman is that they should find a buyer today. After the collapse in six months of three major broker dealers Morgan Stanley and Goldman will be next unless they find a large financial institution with a large commercial bank that provides stable FDIC-insured deposits. As predicted here months ago no independent broker dealer will survive.

Fifth, the Fed may cut the Fed Funds rate and discount rate today. But this policy rate cut will make no difference to the fundamental solvency and credit problems of the economy. The economy does not suffer only of illiquidity; more seriously it suffers of severe credit and solvency problems that the Fed cannot address in any way.

Therefore any rally from Fed actions today will be short lived. When Bear was rescued the financial market rally lasted two months; when in July the Fannie and Freddie legislation was proposed the rally lasted a few weeks; when the actual nationalization of Fannie and Freddie occurred a week ago the rally lasted only one day. The ability of policy authorities to prop financial markets is rapidly eroding as market participants perceive that policy makers are desperate and running out of options. At this point the perfect financial storm of the century cannot be contained. The only light at the end of the tunnel is the one of the coming financial and economic train wreck.

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ELYAC Realty is a full service residential and commercial real estate company that offers:

Southern California (Los Angles to Newport Beach to Laguna Beach to San Diego)
Residential homes for sale
Residential home financing (home loans)
Residential mortgage financing
Residential homes for rent/lease FSBO marketing and MLS service
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ELYAC Realty: Los Angeles Realtors and Mortage Brokers- Understanding Shari’ah Compliant Finance Structures

In California Real Estate, Dubai, Islam, Kuwait, Muslim, Ramadan, Saudi Arabia, Shari'a compliant financing, investment on October 13, 2008 at 5:29 pm

Shari’ah Compliant Finance Structures
Ciderle Muntaha Capital Alliance “CMCA”
www.cmcapitalalliance.com

• What kind of model is this financing based on?

The “ideal” loan structure employs a Musharakah Mutanaqisa (Diminishing Partnership) model for its Declining Balance commercial real estate finance program. More technically, this financing program is based on the Shirkat al-Milk model, which means that the bank shares ownership of the property.

The bank invests and co-owns the property through a real passive equity stake and agreement allowing the consumer to buy back a full stake in the property over a predetermined term. As long as the bank owns a stake in the property it is entitled to monthly return on investments or profit. This amount is agreed upon in the contract.

Difference: Unlike a conventional loan this is a contractual partnership where the property is co-owned with the consumer (who will consume and ultimately fully own the property while the bank only has an equity investment right.

• How expensive is this type of financing?

Most Banks that have such a product are committed to being competitive with market pricing and service standards. They price a profit rate (similar to but not interest) so that it is competitive with conventional financing. Commercial mortgage rates are often priced as a spread above the US Treasuries which is a standard benchmark for 5 yr and 10 yr commercial real estate financings in the United States.

In order to offer borrowers competitive financing alternatives, banks have purposely benched a profit return to market bench marks used to value risk in conventional financing. The UST rate is one such commonly used bench allowing us to be very competitive.

• What makes a bank product Shari’ah Compliant?

Most Banks rely on an independent Shari’ah Supervisory Board for all Shari’ah compliance matters. The scholars who sit on the Shari’ah Board are recognized experts in the fields of Shari’ah, economics, and finance and serve on the Shari’ah Boards of many of the world’s leading banks and financial institutions. Some reputable board members include;

• Dr. Abdul Sattar Abu Ghuddah, Chairman, holds a PhD in Islamic Law from Al Azhar University in Cairo, Egypt, one of the world’s most respected institutions of Islamic learning. Dr. Abu Ghuddah is also a member of the Shari’ah Board of the Accounting & Auditing Standards Board of Islamic Financial Institutions (AAOIFI). Dr. Abu Ghuddah teaches Islamic Law (Fiqh), Islamic studies and Arabic in Riyadh, Saudi Arabia. In addition, he contributed to the compilation of the Fiqh Encyclopedia at the Ministry of ‘Awqaf’ (Endowments) and Islamic Affairs in Kuwait and was a member of its prestigious ‘Fatwa’ Board from 1982 to 1990.
His other positions currently include:
o Member, Shari’ah Board, Dow Jones Islamic Market Indexes, USA
o Member, Shari’ah Board, Union Bank of Switzerland (UBS), Switzerland
o Member, Shari’ah Board, Saudi American Bank, Saudi Arabia
o Member, Shari’ah Board, Guidance Financial Group, USA
o Member, Shari’ah Board, Accounting and Auditing Organization of
Islamic Financial Institutions (AAOIFI), Bahrain
o Member, Shari’ah Supervisory Board, First Islamic Investment Bank, Bahrain
o Member, Shari’ah Board, Meezan Bank, Pakistan

• Dr. Muhammad Imran Ashraf Usmani holds M. Phil and PhD degrees in Islamic Finance and graduated as a scholar from Jamia Darul Uloom in Karachi, Pakistan. Dr. Usmani’s book, Meezan Bank’s Guide to Islamic Banking, has become a standard text in understanding Islamic Banking. He is the son of the renowned Justice (Retired) Taqi Usmani, a pioneer in the field of Islamic Finance. His other positions currently include:
o Member, Shari’ah Supervisory Board, Credit Suisse Bank, Switzerland
o Member, Shari’ah Board, Lloyds TSB Bank, UK
o Member, Central Shari’ah Committee, HSBC Amanah, Global
o Shari’ah Advisor, ABN AMRO Bank, Global
o Member, Shari’ah Supervisory Board, AIG Insurance Company, USA
o Shari’ah Advisor / Member of Shari’ah Supervisory Board, Japan Bank for International Cooperation, Japan
o Shari’ah Advisor, DCD Financial Group, UK
o Shari’ah Advisor and Shari’ah Board Secretary, Guidance Financial Group, USA
o Member, Shari’ah Board, State Bank of Pakistan
o Shari’ah Advisor, Meezan Bank, Pakistan
o Member, Shari’ah Supervisory Board, Pak Kuwait Takaful Company Ltd., Pakistan
o Member, Shari’ah Board, Future Growth Equity Fund, South Africa
o Executive Director, Jamia Darul Uloom Karachi, Pakistan

• Shaikh Esam Ishaq holds a degree in Political Science from McGill University, Canada. He is currently teaching Islamic Law and Theology in Bahrain and is recognized as an emerging leader in the discipline of Islamic Finance. Shaikh Ishaq serves on the Boards of major Islamic financial institutions including Arcapita Bank, AAOIFI, and Al Baraka Islamic Bank. His other positions currently include:
o Member, Technical Committee for Interpretation and Application of Standards, Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI), Bahrain
o Member, Shari’ah Board, Arcapita Bank, USA
o Member, Shari’ah Board, Al Baraka Islamic Bank, Bahrain
o Shari’ah Advisor, Bahrain Development Bank, Bahrain
o Member, Shari’ah Board, Meezan Bank, Pakistan
o Member, Consultative Council, Kingdom of Bahrain (First Legislative turn)
o Director, Middle East Traders, Bahrain
o Director, Zawaya Property Development, Bahrain

The scholars who are on the Shari’ah Supervisory Board act as customer advocates and ensure that Bank contracts adhere to industry Shari’ah standards that have been set by multilateral standards bodies such as Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI), Bahrain and the Islamic Financial Services Board (IFSB), Bahrain.

• Do Shari’ah Compliant Banks give loans?

They don’t give loans. They co-invest in properties and become a co-owner in real property in every transaction. A conventional bank or financial institution loans you money and charges you interest on that money. In a Shari’ah Compliant Structure the bank actually acquires a portion of the property. Their profit is based on profit rate.

• Banks will price financing on the US Treasury? How is that Shari’ah Compliant?

The US Treasury yield is a standard index utilized to measure risk in the US mortgage market. A Shari’ah Compliant structure in the U.S. will be a US based financier, and will price return on investment using the US Treasury yield as a benchmark. They will use the UST to calculate the profit their borrowers will pay for the use of the portion of the property the bank owns (use fee). They will not charge interest (riba) because they don’t loan money.

• The bank is charging a Profit Rate (fixed rate) – that’s interest!

The bank uses a Profit Rate to establish the amount the consumer will pay for use of the banks share of the property. This is not interest. Interest is an increased return of money for money. The fact that they have a fixed profit avoids the incursion of gharar (undue uncertainty) into the contract. This allows the customer to know exactly what the payments will be in advance. This benefits both the customer and the bank by allowing clear forecasting of future cash flows.

• Can funds come from non Islamic sources?

Just as in any normal business transaction a partner can be from any religion, or no religion, at all. As long as the Islamic rules of contract are observed and all terms are agreed to by all the concerned parties there is no bar on funding coming from non-Islamic sources. The more important issue is making sure that there is no riba in the transaction. A Shari’ah Board will review the bank’s contract to make sure this is not the case.

• Can profit rates be variable?

A profit rate can be variable provided that the parties agree to rate adjustments in advance or agree to make rate adjustments based on an identifiable index with a floor and ceiling (in order to avoid gharar or undue uncertainty).

• What happens if a borrower/consumer sells the property before the financing is paid off?

If a customer wishes to sell the property before the term of the financing is complete, the bank will agree to release its ownership in the property provided that an early buyout consideration (similar to yield maintenance in conventional financings) is paid to the bank. This is due as a result of the early termination of the contract. After paying the acquisition balance and early buyout consideration (yield maintenance) the bank no longer has any ownership interest in the property. As a result any amount remaining from the sale of the property to a third party is kept by the client.

• What type of properties can be financed using this structure?

Most Shari’ah Compliant banks will finance income producing properties. Currently, the programs in the U.S. focus on the following property types:

Eligible Property Types

Multi-Family
Hotels and Motels

Distribution
Office

Mixed Use
Retail

Light Industrial
Single Tenant/Owner-Occupied (case-by-case basis)

• How long can the term of financing be?

The term of the financing can be 10 yrs or 5 yrs

• Can the borrower/consumer repay the financing early?

Yes, they can repay their financing early. However, the repayment will have to be in full and there will be a charge for the early termination of the contract.

• How long will the approval process take?

Base on Banks active in the U.S. and in England, the process usually takes between 24-72 hours to prescreen a property and a customer’s credit score. Once they receive all the required information such as:

o Property rent rolls
o Historical operating statements
o Detailed property description
o Consumer’s Personal Financial Statement

They can typically give approval within a week’s time.

• Does the bank share in loss/appreciation?

No, the intention of this type of financing structure is to facilitate the customer’s ownership of the property. Accordingly appreciation of the property is intended to be for the customer’s benefit. At the same time any depreciation will be borne by the customer.

______________________________________

Brought to you by:

ELYAC Realty Los Angeles Real Estate Agents Specializing in Foreclosure Homes for Sale, Home Loans, and Mortgage Brokers

310.562.0572

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ELYAC Realty: Los Angeles Realtors and Mortgage Brokers- Dow jumps almost 600 as US pledges bank aid

NEW YORK – The Dow Jones industrial average rebounded almost 600 points today as Wall Street snapped back from last week’s devastating losses after major governments announced further steps to support the global banking system, including plans by the U.S. Treasury to buy stocks of some banks. All the major indexes rose well over 7 percent.

The hope on the Street was that the market was finding a bottom after eight sessions of devastating losses that sent the Dow down nearly 2,400 points. But while a rebound had been expected at some point, Wall Street can expect to see volatile, back-and-forth trading in the coming days and weeks as investors work through their concerns about the banking sector, the stagnant credit markets and the overall economy.

But the market did appear to take heart when the Bush administration said it is moving quickly to implement its $700 billion rescue program, including consulting with law firms about the mechanics of buying ownership shares in a broad number of banks to help revive the stagnant credit markets and in turn get the economy moving again.

Neel Kashkari, the assistant Treasury secretary who is interim head of the program, said in a speech Monday officials were also developing guidelines to govern the purchase of soured mortgage-related assets. However, he gave few details about how the program will actually buy bad assets and bank stock.

Jim King, chief investment officer at National Penn Investors Trust Co., said the fear that took hold of the markets was overwrought.

“Our position is that the fundamental values never went away in the first place and that we have exceptional companies at fire sale prices,” he said.

Still, King cautioned that any market rebound likely will be choppy.

“Even if this is the beginning of a recovery we’re not just going to have up markets from here on in,” he said. “We’re not through the woods. We think there is collateral damage from this debacle.” King pointed to an increase in unemployment and nervousness among consumers that could, for example, hurt retailers and in turn, take stocks lower.

In late morning trading, the Dow Jones industrial average rose 525.68, or 6.22 percent, to 8,976.87.

Broader stock indicators also jumped. The Standard & Poor’s 500 index advanced 55.89, or 6.22 percent, to 955.11, and the Nasdaq composite index rose 104.57, or 6.34 percent, to 1,754.08.

Investors also reacted to word from the Bank of England that it would use up to $63 billion to help the three largest British banks strengthen their balance sheets.

The Bank of England, the European Central Bank and the Swiss National Bank also jointly announced plans to work together to provide as much short-term funding as necessary to help revive lending.

After a series of weekend meetings in Washington of heads of the Group of Seven nations, the gains in global markets signaled that investors found comfort from the actions and pledges coming from government officials.

The surge in stocks comes after a dismal week on Wall Street that erased an estimated $2.4 trillion in shareholder wealth. The Dow, after eight consecutive daily losses that totaled just under 2,400, or 22.1 percent, finished at its lowest level since April 2003, and also suffered its worst weekly percentage loss ever, a fall of 18.2 percent.

Meanwhile, the S&P 500 and the Nasdaq each lost 15.3 percent last week.

Investors have worried that banks’ reluctance to lend to one another would imperil economic activity by making it harder and more expensive for businesses and consumers to get a loan.

“Everybody is basically waiting on the decision on where they’re going to inject cash,” Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York. He said with the bond markets closed for the Columbus Day holiday, U.S. government officials are likely holding off on announcement of details about where it might invest money until all major global markets are open.

Rovelli said that a sustainable advance on Wall Street could prove elusive.

“Everybody knew that we were going to have an up day eventually,” he said, warning that the rally doesn’t necessarily signal an end of the market’s troubles.

Early Monday, Wall Street found some relief from Mitsubishi UFJ Financial Group’s announcement that it closed on its $9 billion investment in Morgan Stanley a day earlier than expected. Morgan Stanley lost nearly 60 percent of its value last week as investors worried that the deal would fall apart. The agreement gives Morgan a much-needed injection of cash.

Morgan Stanley rose $5.44, or 56 percent, to $15.12.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude rose $3.06 to $80.76 on the New York Mercantile Exchange after oil fell to its lowest level in 13 months last week.

Advancing issues outnumbered decliners by about 10 to 1 on the New York Stock Exchange, where volume came to 624.4 million shares.

The Russell 2000 index of smaller companies rose 25.78, or 4.94 percent, to 548.30.

Investors in Asia and Europe also grabbed stocks after last week’s rout and the weekend moves by governments to bolster investor confidence.

In Asia, Hong Kong’s Hang Seng index surged 10.2 percent. Markets in Japan were closed for a holiday. In Europe, Britain’s FTSE 100 jumped 5.41 percent, Germany’s DAX index rose 9.93 percent, and France’s CAC-40 jumped 8.54 percent.

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ELYAC Realty: US to buy stake in banks; first since Depression

WASHINGTON – The government will buy an ownership stake in a broad array of American banks for the first time since the Great Depression, Treasury Secretary Henry Paulson said late Friday, announcing the historic step after stock markets jolted still lower around the world despite all efforts to slow the selling stampede.

Separately, the U.S. and the globe’s other industrial powers pledged to take “decisive action and use all available tools” to prevent a worldwide economic catastrophe.

“This is a period like none of us has ever seen before,” declared Paulson at a rare Friday night news conference. He said the government program to purchase stock in private U.S. financial firms will be open to a broad array of institutions, including banks, in an effort to help them raise desperately needed money.

The administration received the authority to take such direct action in the $700 billion economic rescue bill that Congress passed and President Bush signed last week.

Earlier Friday, stock prices hurtled downward in the United States, Europe and Asia, even as President Bush tried to reassure Americans and the world that the U.S. and other governments were aggressively addressing what has become a near panic.

A sign of how bad things have gotten: A drop of 128 points in the Dow Jones industrials was greeted with sighs of relief after the index had plummeted much further on previous days. The week ended as the Dow’s worst ever, with the index down an incredible 40.3 percent since its record close almost exactly one year earlier, on Oct. 9. 2007.

Investors suffered a paper loss of $2.4 trillion for the week, as measured by the Dow Jones Wilshire 5000 index, and for the past year the losses have totaled $8.4 trillion.

It was even worse overseas on Friday. Britain’s FTSE index ended below the 4,000 level for the first time in five years; Germany’s DAX fell 7 percent and France’s CAC-40 finished down 7.7 percent. Japan’s benchmark Nikkei 225 index fell 9.6 percent, also hitting a five-year low. For the week, the Nikkei lost nearly a quarter of its value. Russia’s market never even opened.

Paulson announced the administration’s new effort to prop up banks at the conclusion of discussions among finance officials of the Group of Seven major industrialized countries. That group endorsed the outlines of a sweeping program to combat the worst global credit crisis in decades.

Earlier this week, Britain had moved to pour cash into its troubled banks in exchange for stakes in them — a partial nationalization.

Paulson said the U.S. program would be designed to complement banks’ own efforts to raise fresh capital from private sources. The government’s stock purchases will be of nonvoting shares so it will not have power to run the companies.

The purchase of stakes in companies would be in addition to the main thrust of the $700 billion rescue effort, which is to buy bad mortgages and other distressed assets from financial institutions. The aim is to unthaw frozen credit, get banks to resume more normal lending operations and stave off severe problems for businesses and everyday Americans alike.

It would mark the first time the government has taken equity ownership in banks in this manner since a similar program was employed during the Depression.

In 1989, the government created the Resolution Trust Corp. to deal with the aftermath of the savings and loan crisis. It disposed of the assets of failed savings and loans.

Paulson and Federal Reserve Chairman Ben Bernanke met with their counterparts from the world’s six other richest countries late in the day as the rout of financial markets sped ahead despite earlier dramatic rescue efforts in the U.S. and abroad.

In a statement at the end of that meeting, the G7 officials vowed to protect major banks and to prevent their failure. They also committed to working to get credit flowing more freely again, to support the efforts of banks to raise money from both public and private sources, to bolster deposit insurance and to revive the battered mortgage financing market.

They did not provide specifics beyond that five-point framework.

At the White House earlier in the day, Bush said, “We’re in this together and we’ll come through this together.” He added, “Anxiety can feed anxiety, and that can make it hard to see all that’s being done to solve the problem.”

He made it clear the United States must work with other countries to battle the worst financial crisis that has jolted the world economy in more than a half-century.

“We’ve seen that problems in the financial system are not isolated to the United States,” he said. “So we’re working closely with partners around the world to ensure that our actions are coordinated and effective.”

The Dow dropped a little over 100 points while he was speaking.

Fear has tightened its grip on investors worldwide even as the United States and other countries have taken a series of radical actions including an unprecedented, coordinated interest rate cuts by the Federal Reserve and other major central banks.

Besides the United States, the other members of the G7 meeting in Washington are Japan, Germany, Britain, France, Italy and Canada. Finance officials also planned to meet with Bush Saturday at the White House.

“We are in a development where the downward spiral is picking up speed,” said Germany’s Finance Minister Peer Steinbrueck, who wanted to see an orchestrated response among the G7.

So did French Finance Minister Christine Lagarde, who said a “coordinated, synchronized and rightly timed approach” was needed.

An even larger group of nations — called the G20 — will meet with Paulson on Saturday evening. How the world’s finance officials and central bank presidents can better contain the spreading financial crisis also will dominate discussions at the weekend meetings of the 185-nation International Monetary Fund and the World Bank in Washington.

The British, who recently announced a plan to guarantee billions of dollar worth of debt held by major banks, have been pitching that idea to the rest of the G7 members.

The idea behind all these ideas — as well as bold steps previously announced in recent weeks — is to get credit flowing more freely again.

In the United States, hard-pressed banks and investment firms are drawing emergency loans from the Federal Reserve because they can’t get money elsewhere. Skittish investors have cut them off, moving their money into safer Treasury securities. Financial institutions are hoarding whatever cash they have, rather than lending it to each other or customers.

The lending lockup — which is making it harder and more expensive for businesses and ordinary people to borrow money — is threatening to push the United States and the world economy as a whole into a deep and painful recession.

In Europe, governments have moved to protect nervous bank depositors. Germany pledged to guarantee all private bank savings and CDs in the country, and Iceland and Denmark followed suit. Ireland went even further by also guaranteeing Irish banks’ debts. The United States will temporarily boost deposit insurance from $100,000 to $250,000 in cases where its banks or savings and loans fail.

The Fed, meanwhile, has repeatedly tapped its Depression-era authority to be a lender of last resort, not only to financial institutions but also to other types of companies. Earlier this week, the Fed said it would buy massive amounts of companies’ debts, in another unprecedented effort to break through the credit clog.

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Brought to you by:

ELYAC Realty Los Angeles Real Estate Agents Specializing in Foreclosure Homes for Sale, Home Loans, and Mortgage Brokers

310.562.0572

Paulson: U.S. will buy stock in banks

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ELYAC Realty: How much does a real estate agent make? Real Estate Agent Salary?

About ELYAC Realty:

ELYAC Realty is a full service residential & commercial real estate broker, mortgage financing, & insurance company serving the greater Southern California area. ELYAC Realty established itself through honesty, integrity, great customer services and always putting clients first.

We are looking to expand our business and seeking to bring on hardworking Real Estate Agents and Mortgage Loan Officers who have a passion for making money.

Why you should join ELYAC Realty:

One of the top pages on Google and Yahoo Directories for both “Real Estate Agents Los Angeles” and “Mortgage Brokers Los Angeles”. It took us one year of heavily investing in SEO to get these positions
We actively invest in our company: advertisements, sponsorships, newspapers, online banners, etc. all to get leads for our agents
We have an email list serve of more than 50,000 emails that we actively send: agent listing blasts, news blasts, rate discount blasts, new agent hire blast, market info blasts, etc
Depending on your closings ability and experience level, you should get 1-2 qualified leads a month.
The agents who generate business through personal referrals get more company leads
We are in this business for the long haul and we understand that in order for us to be successful our agents have to be successful
We provide every real estate agent or loan officer an opportunity to succeed even if it means we have to hold their hand through their first few transactions
We have a hands on approach to help every agent with any problems he or she may have
When you join ELYAC Realty, you are joining a family and we are always here to answer any inquires and to help with any situation

What you receive when you join ELYAC Realty:

Experienced agents receive: 85% commission on self generated Real Estates/Loans with a flat fee of $150 per file. 50% commission on company generated Real Estate/Loans with a flat fee of $150 per file.
New agents with little or no experience get: 75% commission on self generated Real Estates/Loans with a flat fee of $150 per file. 50% commission on company generated Real Estate/Loans with a flat fee of $150 per file.
Professional brochures made to market your listings and to market yourself (see attached)
Professionally made flyers with your pictures on them so you can send out to your own email list
We also have a staff of highly trained & qualified professionals, to process your Loans or coordinate your Real Estate Transactions at no extra charge to you.
Help with writing contracts and contract negotiations
A real estate transaction checklist for buying and selling
No sign up fees & No monthly fees only a flat $150 per files to cover E&O and other charges
We pay out same day as close of escrow
Flexibility to work from home or your self-provided office
If you do commercial real estate, get help with underwriting, financial analysis, due diligence, investment book preparation, discounted cash flow modeling, pro-forma projects, etc.
Although this is much easier than selling real estate on your own because we provide some clients for you to work with, you still have to work hard to follow up with clients and to close them.
Approved with 70+ major lenders (Sub-prime, A-paper, Alt A, Commercial, Hard Money)

For more information please contact us direct at 408-898-4650 or email Jake at jake@elyacrealty.com

ELYAC Realty

Brokerage | Financing | Insurance

Tel: 310.562.0572 | Toll: 877.44.ELYAC | Fax: 310.882.6848

Email: info@elyacrealty.com | Web: ww.elyacrealty.com

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Stocks tumble: DOW Jones 9000- lowest its been in 5 years

In California Real Estate, Dubai, ELYAC Realty Los Angeles Mortgage Broker- 310.562.0572, Economy, FSBO MLS services, For Sale, Foreclosure, Homes, Houses, How to fina a foreclosure in Southern California, How to find a Forclosure in Southern California, Islam, Kuwait, Los Angeles Home Loans, Marketing, Mortgage Broker Newport Beach, Mortgage Brokers Laguna Beach, Muslim, Politics Life News Music Family Travel Personal Sports, Ramadan, Real Estate Agents Laguna Beach, Real Estate Agents Los Angeles, Real Estate Agents Newport Beach, Real Estate News, Realtor, SEO for Real Estate, Saudi Arabia, Shari'a compliant financing, investment, mortgage, mortgage broker Los Angeles, seo on October 10, 2008 at 2:04 am

NEW YORK – Stocks plunged Thursday, sending the Dow Jones industrial average down 679 points — more than 7 percent — to its lowest level in five years. Stocks took a nosedive after a major credit-rating agency said it might cut its rating on General Motors and Ford, further rattling investors already fretting over the impact of tight credit on the economy.

The Standard & Poor’s 500 index also fell more than 7 percent.

The declines came on the one-year anniversary of the closing highs of the Dow and the S&P. The Dow has lost 5,585 points, or 39.4 percent, since closing at 14,164.53 on Oct. 9, 2007. It’s the worst run for the Dow since the nearly two-year bear market that ended in December 1974 when the Dow lost 45 percent. The S&P 500, meanwhile, is off 655 points, or 41.9 percent, since recording its high of 1,565.15.

U.S. stock market paper losses totaled $872 billion Thursday and the value of shares over all has tumbled a stunning $8.33 trillion since last year’s high. That’s based on figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies’ stocks and represents almost all stocks traded in America.

Thursday’s sell-off came as Standard & Poor’s Ratings Services put General Motors Corp. and its finance affiliate GMAC LLC under review to see if its rating should be cut. The action means there is a 50 percent chance that S&P will lower GM’s and GMAC’s ratings in the next three months. GM has been struggling with weak car sales in North America.

S&P also put Ford Motor Co. on credit watch negative. The ratings agency said that GM and Ford have adequate liquidity now, but that could change in 2009.

GM, one of the 30 stocks that make up the Dow industrials, fell $2.15, or 31 percent, to $4.76, while Ford fell 58 cents, or 22 percent, to $2.08.

“The story is getting to be like that movie ‘Groundhog Day,’” said Arthur Hogan, chief market analyst at Jefferies & Co. He pointed to the still-frozen credit markets, and Libor, the bank-to-bank lending rate that remains stubbornly high despite interest rate cuts this week by the Federal Reserve and other major central banks.

“Until that starts coming down, you’ll be hard-pressed to find anyone getting excited about stocks,” Hogan said. “Everything we’re seeing is historic. The problem is historic, the solutions are historic, and unfortunately, the sell-off is historic. It’s not the kind of history you want to be making.”

The Dow ended the day at its lows, finishing down 678.91, or 7.3 percent, at 8,579.19. The blue chips hadn’t closed below 9,000 since June 30, 2003, and haven’t closed at this level since May 21, 2003.

The Dow’s 2,271-point tumble over the last seven sessions is its steepest seven-day point drop ever. Its seven-day percentage decline of 20.9 percent is the largest since the seven-day plunge ending Oct. 26, 1987, when the Dow lost 23.8 percent. That sell-off included Black Monday, the Oct. 19, 1987 market crash that saw the Dow fall nearly 23 percent in a single day.

Broader stock indicators also tumbled Thursday. The S&P 500 fell 75.02, or 7.6 percent, to 909.92, while the Nasdaq composite index fell 95.21, or 5.5 percent, to 1,645.12.

The Russell 2000 index of smaller companies fell 47.37, or 8.7 percent, to 499.20.

A wave of fear about the economy sent stocks lower in the final two hours of trading after a volatile morning in which major indicators like the Dow and the S&P 500 index bobbed up and down. The Nasdaq, with a bevy of tech stocks, spent much of the session higher but eventually declined as the sell-off intensified. Still, its losses were less severe because of the relatively modest drops in names like Intel Corp. and Microsoft Corp.

On the New York Stock Exchange, declining issues came to nearly 3,000, while fewer than 250 advanced.

The sluggishness in the credit markets that triggered much of the heavy selling in markets around the world since mid-September appeared little changed Thursday following days of efforts by the Federal Reserve and other central banks to resuscitate lending.

Libor, the bank lending benchmark, for three-month dollar loans rose to 4.75 percent from 4.52 percent on Wednesday. That signals that banks remain hesitant to make loans for fear they won’t be paid back.

The Fed and other leading central banks this week lowered key interest rates to help unclog the credit markets and promote lending to help the global economy. While a rate cut can take up to a year to work its way through the economy, the move was aimed as a boost to investor sentiment.

“We’re stuck in a morass and I think it’s going to take quite some time to come out of it,” said Stephen Carl, principal and head of equity trading at The Williams Capital Group.

Demand remained high for short-term Treasurys, a refuge for investors willing to trade modest returns to protect their money. The yield on the three-month Treasury bill, which moves opposite its price, fell to 0.58 percent from 0.63 percent late Wednesday. Longer-term debt prices fell, with the yield on the 10-year note rising to 3.79 percent from 3.65 percent late Wednesday.

Investors across markets were mulling a plan being considered by the Bush administration to invest in hobbled U.S. banks as a way to stabilize the financial sector. The $700 billion rescue package signed into law last week allows the Treasury Department to inject fresh capital into financial institutions and obtain ownership shares in return.

Britain rolled out a similar plan, though no U.K. bank has received any investments. In Iceland, the government now has control of the country’s three major banks as it struggles to contain the troubles there.

Wall Street is also looking for any effects of short selling now that a three-week ban imposed by regulators has expired. Short selling is a technique in which investors borrow shares in a company from a broker and sell them, hoping to buy them back later at a lower price. Essentially, it’s a bet that a stock’s price will fall. Short sellers can lose money if they have to repurchase the stock after it has risen.

Some analysts believe the unprecedented ban on short selling — an effort to bolster investor confidence — did more harm than good at a time of historic market volatility. They contend that short sellers help the market rally by covering their bets and creating demand for stocks.

“I think the market’s way oversold. But I can’t stand in the way of this falling knife — I’d get sliced open,” said Phil Orlando, chief equity market strategist at Federated Investors. “Investors are just saying, get me out at any price.”

He also said that with the short-selling rule back in play, hedge funds might be shorting again to make up for their forced liquidations.

Energy names were among the biggest decliners as the price of oil fell and investors worried about a slowing economy. Exxon Mobil Corp. fell $9, or 12 percent, to $68, while Chevron Corp. fell $9.10, or 12 percent, to $64.

Light, sweet crude fell $1.81 to settle at $86.62 a barrel on the New York Mercantile Exchange, the lowest closing price since October last year.

Health insurer WellPoint Inc. fell $3.94, or 9.7 percent, to $36.50, while insurer and investment manager Lincoln National Corp. fell $9.66, or 35 percent, to $18.31.

The tech sector saw less selling than other parts of the market after IBM Corp. affirmed its forecast.

IBM fell $1.55, or 1.7 percent, to $89. Meanwhile, Intel fell 65 cents, or 4 percent, to $15.60 and Microsoft fell 71 cents, or 3.1 percent, to $22.30.

Consolidated trading volume on the NYSE came to 8.14 billion consolidated shares compared with 8.54 billion traded Wednesday.

In Asia, Japan’s Nikkei 225 closed down 0.50 percent while the Hang Seng added 3.31 percent. In Europe, Britain’s FTSE-100 fell 1.21 percent, Germany’s DAX fell 2.53 percent, and France’s CAC-40 declined 1.55 percent.

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Brought to you by:

ELYAC Realty Los Angeles Real Estate Agents Specializing in Foreclosure Homes for Sale, Home Loans, and Mortgage Brokers

310.562.0572

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ELYAC Realty- Southern California’s most Honest and trustworthy Real Estate and Mortgage Broker

In California Real Estate, Dubai, Economy, FSBO MLS services, For Sale, Foreclosure, Homes, Houses, How to fina a foreclosure in Southern California, How to find a Forclosure in Southern California, Islam, Kuwait, Los Angeles Home Loans, Marketing, Mortgage Broker Newport Beach, Mortgage Brokers Laguna Beach, Muslim, Politics Life News Music Family Travel Personal Sports, Ramadan, Real Estate Agents Laguna Beach, Real Estate Agents Los Angeles, Real Estate Agents Newport Beach, Real Estate News, Realtor, SEO for Real Estate, Saudi Arabia, Shari'a compliant financing, investment, mortgage, mortgage broker Los Angeles, seo on October 9, 2008 at 8:16 am

ELYAC Realty is a Southern California based full-service residential (Realtor) & commercial real estate company servicing, Los Angeles, and, Orange County. Our real estate agents specialize in residential foreclosure homes for sale, mortgage financing, commercial leasing, commercial financing, and insurance.

ELYAC Realty is a full service residential and commercial real estate company that offers:

· Southern California (Los Angles to Newport Beach to Laguna Beach to San Diego)

· Residential homes for sale

· Residential home financing (home loans)

· Residential mortgage financing

· Residential homes for rent/lease FSBO marketing and MLS service

· Foreclosure homes for sale (REO’s for sale)

· Commercial property for sale

· Commercial financing (debt & equity financing)

· Commercial leasing

· Personal & Business insurance

Call us today! ELYAC Realty – 877-44-ELYAC (3-5922) or (310) 562-0572

www.elyacrealty.com

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Brought to you by:

ELYAC Realty Los Angeles Real Estate Agents Specializing in Foreclosure Homes for Sale, Home Loans, and Mortgage Brokers

310.562.0572

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Obama vs. McCain in Bailout program- Obama rejects McCain’s plan to buy mortgages

In California Real Estate, Dubai, Economy, FSBO MLS services, For Sale, Foreclosure, Homes, Houses, How to fina a foreclosure in Southern California, How to find a Forclosure in Southern California, Islam, Kuwait, Los Angeles Home Loans, Marketing, Muslim, Politics Life News Music Family Travel Personal Sports, Ramadan, Real Estate News, Realtor, SEO for Real Estate, Saudi Arabia, Shari'a compliant financing, investment, mortgage, seo on October 9, 2008 at 12:29 am

Obama rejects McCain’s plan to buy mortgages

By CHARLES BABINGTON, Associated Press Writer

INDIANAPOLIS – Democrat Barack Obama ’s campaign criticized John McCain’s mortgage bailout plan Wednesday, saying it would cause the government to lose money by paying too much for bad loans.

McCain’s proposal to spend $300 billion in federal funds to buy distressed mortgages was a highlight of Tuesday’s presidential debate, and it seemed to catch Obama off guard. At first, Obama’s campaign said he had made similar proposals and there was nothing new in McCain’s remarks.

But after McCain aides offered more details Wednesday, Obama’s campaign shifted gears.

The plan would cause the government “to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don’t recover,” Obama economic adviser Jason Furman said in a statement. “The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud.”

McCain’s proposal would devote nearly half the $700 billion from the recent financial rescue package to buying troubled mortgages directly, rather than indirectly aiding the nation’s financial markets. The government would buy distressed home loans at their face value, said campaign spokesman Brian Rogers. Then it would pay the difference between a mortgage’s original value and its renegotiated, lower value.

McCain adviser Doug Holtz-Eakin said Obama’s objections suggested he would rather “support a bailout of Wall Street than rescue Main Street America.”

Speaking to several thousand people in Indianapolis on Wednesday, Obama criticized McCain’s health care and economic positions, but did not mention the new mortgage proposal.

Obama urged people not to panic over the faltering economy, saying “there are better days ahead” — especially if he is elected president. He acknowledged public anxiety over the financial crisis in starker terms than usual.

“We meet at a moment of great uncertainty for America,” he said. “But this isn’t a time for fear or panic. This is a time for resolve and leadership. I know that we can steer ourselves out of this crisis.”

Obama ridiculed McCain for recently saying “the fundamentals of our economy are strong.” But in his 35-minute speech on a muddy harness-racing track, he made a similar argument.

“America still has the most talented, most productive workers of any country on Earth,” Obama said. “We’re still the home to innovation and technology, colleges and universities that are the envy of the world. Some of the biggest ideas in history have come from our small businesses and our research facilities.”

Obama repeated his claims that McCain’s proposals would cause many people to lose their employer-provided health insurance because the Republican would tax those benefits. He said the $5,000 tax credit that McCain promises would not be enough for them to buy private insurance, a claim McCain disputes.

“The American people can’t take four more years of John McCain’s George Bush policies,” Obama said to loud cheers.

Obama praised the Federal Reserve and other leading central banks for cutting interest rates Wednesday. “I support that action,” he said. “This is a global problem and it needs to be solved through a global effort.”

He again vowed that only those making more than $250,000 a year would see higher taxes under his administration, and 95 percent of Americans would receive tax cuts. He promised to spend $15 billion a year “in renewable sources of energy to create 5 million new, green jobs over the next decade.”

Obama read his speech from a teleprompter, his habit in recent weeks. He strayed from the prepared text, however, to mention GOP vice presidential nominee Sarah Palin, the Alaska governor who has led her ticket’s attacks on Obama.

McCain “and Gov. Palin are out there saying all kinds of stuff,” Obama said.

Indiana is normally a solidly Republican state at the presidential level, but polls here suggest a close race.

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ELYAC Realty Los Angeles Real Estate Agents Specializing in Foreclosure Homes for Sale, Home Loans, and Mortgage Brokers

310.562.0572

AIG, American International Group, bailout program, Bank of America, Business, credit crisis, fed grants, Federal Reserve System, Lehman Brothers, Merrill Lynch, United States

What happened to the $87B the goverment gave AIG, and why are they asking for $37B more?

In California Real Estate, Dubai, Economy, FSBO MLS services, For Sale, Foreclosure, Homes, Houses, How to fina a foreclosure in Southern California, How to find a Forclosure in Southern California, Islam, Kuwait, Los Angeles Home Loans, Marketing, Muslim, Politics Life News Music Family Travel Personal Sports, Ramadan, Real Estate News, Realtor, SEO for Real Estate, Saudi Arabia, Shari'a compliant financing, investment, mortgage, seo on October 9, 2008 at 12:19 am

Fed grants AIG $37.8 billion loan

CHARLOTTE, N.C. – The Federal Reserve on Wednesday agreed to provide insurance giant American International Group Inc. with a loan of up to $37.8 billion, on top of one made to the troubled company last month.

Under the new program, the Federal Reserve Bank of New York will borrow up to $37.8 billion in investment-grade, fixed income securities from AIG in return for cash collateral. These securities were previously lent by AIG’s insurance company subsidiaries to third parties.

The arrangement will help AIG secure funds on an as-needed basis, the New York-based insurer said in a statement.

As of Monday, about $37.2 billion of securities were available for loans under AIG’s securities lending program.

On the brink of failure last month, AIG was bailed out when the government offered it an $85 billion loan during the ongoing credit crisis that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and the sale of Merrill Lynch & Co. to Bank of America Corp. In return for the two-year loan, the government received warrants to purchase up to 79.9 percent of AIG.

As of Sept. 30, AIG had drawn $61 billion on the credit facility, of which about $54 billion has gone toward its securities lending and AIG’s financial products area. The rest of the money has been for other liquidity needs amid an “unprecedented” freezing of credit markets, Chief Executive Edward Liddy said last week.

Last week, AIG said it would sell off a number of business units to pay off its massive government loan. The company didn’t specifically disclose all the assets it would sell or the expected prices from the sales. However, the New York-based insurer said it plans to retain its U.S. property and casualty and foreign general insurance businesses, and also plans to retain an ownership interest in its foreign life insurance operations.

The deal for the additional Fed loan comes as AIG has been castigated by lawmakers and the White House for spending hundreds of thousands of dollars on a posh California retreat just days after getting the federal bailout.

Lawmakers investigating AIG’s meltdown said they were enraged that executives of AIG’s main U.S. life insurance subsidiary spent $440,000 on the retreat, complete with spa treatments, banquets and golf outings. White House press secretary Dana Perino on Wednesday called the event “despicable.”

AIG issued a statement Wednesday saying that the “business event” was planned months before the Sept. 16 bailout and that it was held for top-producing independent life insurance agents, not AIG employees. Of the 100 attendees, only 10 worked for the AIG unit hosting the event, it said.

The insurer said its Chief Executive Edward Liddy sent a letter to Treasury Secretary Henry Paulson “clarifying the circumstances” of the event. In the letter Liddy assured Paulson that AIG is “reevaluating the costs of all aspects of our operations in light of the new circumstances in which we are all operating.”

Shares of AIG closed down 32 cents, or 9.1 percent, to $3.19 in trading Wednesday.

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Associated Press writers Jeannine Aversa and Deb Riechmann contributed to this story from Washington.

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Bank of England, banks, Ben Bernanke, Central bank, credit crisis, European Central Bank, Federal Reserve System, fha, FHA loans, FHA mortgage, home loans, IMF, International Monetary Fund, lending, loans, United States

ELYAC Realty Financial Articles: Forecasters see U.S. leading global downturn

In California Real Estate, Dubai, Economy, FSBO MLS services, For Sale, Foreclosure, Homes, Houses, How to fina a foreclosure in Southern California, How to find a Forclosure in Southern California, Islam, Kuwait, Los Angeles Home Loans, Marketing, Muslim, Politics Life News Music Family Travel Personal Sports, Ramadan, Real Estate News, Realtor, SEO for Real Estate, Saudi Arabia, Shari'a compliant financing, investment, mortgage, seo on October 8, 2008 at 8:42 pm

Forecasters see U.S. leading global downturn

IMF predicts credit crisis will cut world economic output sharply

WASHINGTON – The world economy will slow sharply this year and next, with the United States likely sliding into recession reflecting mounting damage from the most dangerous financial jolt in more than a half-century.

The International Monetary Fund, in a World Economic Outlook released Wednesday, slashed growth projections for the global economy and predicted the United States — the epicenter of the financial meltdown — will continue to lose traction.

“The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s,” the IMF said in its report.

The IMF now projects that the global economy, which grew by a hardy 5 percent last year, will lose considerable speed, slowing to 3.9 percent this year. It is forecast to weaken even more — to just 3 percent — next year, marking the worst showing since 2002. In the past, the IMF has called global growth of 3 percent or less the equivalent to a global recession.

The IMF’s projection was made before the Federal Reserve and six other major central banks from around the world slashed interest rates Wednesday in an attempt to prevent a financial crisis from becoming a global economic meltdown.

The Fed reduced its key rate from 2 percent to 1.5 percent. In Europe, which also has been hard hit by the financial crisis, the Bank of England cut its rate by half a point to 4.5 percent, while the European Central Bank sliced its rate to 3.75 percent.

Also taking part were the central banks of China, Canada, Sweden, and Switzerland. The Bank of Japan said it strongly supported the actions.

The financial crisis, which erupted in the United States in August 2007 and has quickly spread around the globe, entered a tumultuous new phase last month, badly shaking confidence in global financial institutions and markets, the IMF said. It has triggered a cascading series of bankruptcies, forced mergers and radical government interventions — such as the United States’ unprecedented $700 billion financial bailout — to stem the fallout.

The new projections come before a gathering of the world’s top economic powers on Friday and the weekend meetings of the IMF and the World Bank. The jarring financial crisis is likely to figure prominently in those discussions.

In the United States, the economy, which grew by 2 percent last year, is projected to slow to 1.6 percent this year. Growth would screech to a virtual halt in 2009, barely budging at just 0.1 percent. That would mark the worst showing since 1991, when the country was pulling out of a recession.

“With a recession now looking increasingly likely, the key questions are, how deep will the downturn be, when will a recovery get under way and how strong will it be?” the IMF asked. Much will hinge on how effective the United States’ steps to stabilize financial markets and get credit flowing more freely again turn out to be. Another important factor is whether these and other actions turn around U.S. consumers, whose retrenchment is hurting the economy.

Economic leaders battling weak growth, inflation
The IMF — and many private economists — believe the U.S. economy will probably contract in the final three months of this year and the first three months of next year, meeting a classic definition of a recession. The economy’s last recession was in 2001.

The government’s bailout package is aimed at thawing lending by buying bad mortgage-related debt from troubled financial institutions. The idea is that the banks’ books would then be cleaner, putting them in a better position to lend and get the economy moving.

The IMF said this effort should help to stabilize markets but even so “the process of balance-sheet repair will be long and arduous.” Credit availability is likely to remain constrained throughout 2009, the IMF said.

Fed Chairman Ben Bernanke warned in a speech Tuesday that the economy’s outlook for this year has darkened and the pain could last for some time. His remarks were seen as heralding the rate cut Tuesday.

Looking at other countries, Germany’s growth will slow to 1.8 percent this year, down from 2.5 percent last year. France’s growth will weaken to just 0.8 percent, compared with 2.2 percent in 2007. Britain’s economy will see growth taper to 1 percent, down from 3 percent last year. Canada’s growth will tail off to 0.7 percent this year, from 2.7 percent last year.

In Japan, growth will cool to just 0.7 percent, from 2.1 percent last year.

Global powerhouses China and India will see growth clock in this year at a robust 9.7 percent and 7.9 percent, respectively. Even if those projections prove correct, they would still mark downgrades from their blistering performances last year. Russia’s economy should grow by a brisk 7 percent this year, down from 8.1 percent last year.

Inflation around the world remains high, driven up by surging energy and food prices through much of this year.

It will be tricky for Bernanke and his counterparts in other countries to navigate weak growth and inflation pressures, the IMF said.

“The immediate policy challenge is to stabilize financial conditions, while nursing economies through a period of slow activity and keeping inflation under control,” it said.

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Bank of Tokyo-Mitsubishi UFJ, Ben Bernanke, credit crunch, European Central Bank, Federal Open Market Committee, Federal Reserve, Federal Reserve System, financial times, home loans, LA times, ny times, United States

ELYAC Realty- Central Banks Coordinate Cut in Rates

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By KEITH BRADSHER, DAVID JOLLY and EDMUND L. ANDREWS

Published: October 09, 2008

Central banks around the world cut short-term interest rates by up to half a percent on Wednesday after investors across Asia and Europe unleashed waves of sell orders onto already depressed stock exchanges.

The Federal Reserve, the European Central Bank and other central banks from Britain and Switzerland to Canada and China announced rate reductions within seconds of one another. The British government separately announced a plan to pump billions of pounds into the country’s leading banks as part of a plan that would result in considerably greater government influence over the financial sector there.

The Fed said in a statement that, because of weakening economic activity, it had cut the Federal funds target rate by half a percentage point, to 1.5 percent. It also cut its discount rate by the same amount. The vote was unanimous.

The European Central Bank cuts its benchmark rate to 3.75 percent, from 4.25 percent.

The moves had some initial effect on stock markets. European markets pared their heavy losses after the announcement, only to fall again. On Wall Street, investors showed little sense of direction.

The Dow Jones industrials lurched from a 200-point drop at the open to a 200-point increase just 45 minutes later. The Dow was slightly lower after 10:30 a.m., but continued to fluctuate widely.

Federal Reserve officials said Wednesday’s action was the first time ever that the Fed had coordinated a reduction in interest rates with other central banks, though the United States has periodically joined with other countries to intervene in currency markets to stabilize foreign exchange rates.

The closest thing to a precedent came in November 2001, when the Fed and the European Central Bank announced a rate reduction on the same day. But those actions were nominally independent, and they did not involve any additional foreign central banks.

The cut came despite what had been a divergence of views between the United States and Europe ever since the financial crisis erupted in August 2007. The European Central Bank had been much more reluctant to lower interest rates, because policy makers there tended to see the mortgage meltdown primarily as an American problem with secondary ripple effects in Europe.

But any lingering comfort outside the United States evaporated in the last week, as money markets froze up around the world and major corporations and banks across Europe began suffocating from their inability to do even routine financial transactions.

Making matters worse, none of the epic emergency measures taken in the United States – the passage of a $700 billion bailout plan to buy up distressed securities; a doubling and redoubling of emergency loan facilities at the Fed to $900 billion on Monday; and the Fed’s unprecedented decision on Tuesday to start buying up short-term commercial debt for businesses of all types – had prevented the stock markets from plunging at vertigo-inducing amounts day after day.

Some analysts responded positively to the news.

“At last, a coordinated show of force,” Ian Shepherdson, chief United States economist at High Frequency Economics, wrote in a note. “The move is to be applauded but there is more to come. The playbook to avoid depressions says rates need to be as close to zero as possible.”

Other economists were cautious about whether the various measures would be successful, after previous plans like the United States’ economic bailout have not halted steep declines in share prices.

“There’s no silver bullet for these problems,” said Derek Halpenny, a currency strategist at Bank of Tokyo-Mitsubishi UFJ in London. “But the actions by the Fed on Tuesday, the U.K. government’s bailout plan today and the bit-by-bit approach European governments are taking show the authorities are getting more proactive.”

Tumult in financial markets is starting to spill into Asian political systems. Japan’s prime minister, Taro Aso, promised a committee of Parliament on Wednesday that he would postpone national elections, which had been expected early next month, to focus on the unfolding financial crisis.

“Honestly, this for us is beyond our imagination,” Mr. Aso told the budget committee. “We have huge fears going ahead.”

Most Asian markets closed before the central banks acted, and share prices across the region suffered a drubbing.

In Tokyo, the Nikkei 225 index plunged 9.4 percent, shedding nearly a tenth of its value in its worst single-day loss in two decades. In Hong Kong, gloomy investors gathered at day trading offices and morosely checked their portfolios again and again as the Hang Seng index tumbled 8.2 percent. In Indonesia, the authorities simply shut down the stock exchange by late morning after it had tumbled 10.4 percent.

As demoralized traders and investors began heading home or to bars in Asia, the same frenzied selling was beginning again as markets opened in Europe. Share prices were down nearly 3.9 percent in London, nearly 4.6 percent in Frankfurt and 3.9 percent in Paris.

“I don’t think anyone has seen anything like this in a long time,” said Eugene Galbraith, president commissioner of the Bank Central Asia in Jakarta.

Stock analysts in Asia described the market as a rout, as foreign investors in particular appeared to dump indiscriminately everything they could.

“It’s a just a panic out there,” said Hajime Kitano, chief equity strategist in Tokyo for JPMorgan Securities. “People want to avoid anything that even looks like risk.”

Underlying much of the selling was a growing pessimism that the troubles of the world’s financial markets have spilled into the United States and European economies, and then into developing countries that depend on exports to the industrialized world.

In Washington, the chairman of the Federal Reserve, Ben S. Bernanke, had telegraphed a rate cut on Tuesday. In a speech, he said that the financial turmoil had forced the Fed to downgrade its already gloomy economic outlook and investors had all but assumed that it would lower the benchmark Federal funds rate no later than its next scheduled policy meeting on Oct. 28 and 29.

Until a few weeks ago, Fed officials had tried to separate its rescue efforts in the financial markets from problems of the underlying economy.

After a rushed series of rate reductions last fall and early this year, bringing the overnight Fed funds rate down to 2 percent in April, the central bank had concentrated its efforts on injecting hundreds of billions of dollars into the financial system to keep banks lending to one another and to their customers. But policy makers held back from further reducing interest rates, which reduce the overall cost of money, because they were worried about rising inflationary pressures.

Consumer prices have climbed sharply, largely because of huge increases in energy and commodity prices. As recently as the Fed’s policy meeting three weeks ago, the central bank’s official position was that its concerns about slowing economic growth were roughly equal to its concerns about rising prices. In reality, many policy makers were more worried about the onset of a recession – which many private economists say has already arrived. But there were still disagreements among members of the Federal Open Market Committee, which sets interest rates.

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Alistair Darling, bailout program, British Bankers' Association, credit crisis, Goldman Sachs, London Interbank Offered Rate, Prime minister, Royal Bank of Scotland, UK government, United Kingdom

ELYAC Realty- Recap of Todays Global Financial Markets

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ELYAC Realty- Recap of Todays Global Financial Markets

October 8, 2008

Maybe I shouldn’t have slept last night, with so much happening over night. The UK government may invest $79B in three of the country’s biggest banks, including RBS, to bolster capital reserves. Credit continues to tighten around the world as 3 month LIBOR again jumped overnight to 4.32%. The 3ML/OIS spread gapped wider to another high (it is typically 25bps in a “normal” functioning economy). The futures market is pricing a 100% chance of a cut at the October 29^th FOMC meeting—probability is split 54%/46% between a 50bps cut or a 75bps cut. Currently, the Ten Year yield is at 3.49% (3.56% yesterday) and the 2-10 yield spread is at 201bps, steepening 4bps since yesterday morning. More below…

Financial markets under even more severe pressure

AUD getting creamed after surprise rate cut from RBA. Money Markets more tight than ever. Stocks collapsing yesterday, but showing some buying interest overnight, in anticipation of rate cuts.

What’s going on?

The cost of borrowing in dollars overnight jumped more than a percentage point, the British Bankers’ Association said. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed 157 basis points to 3.94 percent, BBA data showed today.

Iceland sought a 4 billion-Euro ($5.43 billion) loan from Russia, pegged the slumping krona to a basket of currencies and took control of its second-biggest bank to stem a collapse of the financial system.

The U.K. government may invest at least 45 billion pounds ($79 billion) in three of the country’s biggest banks, including Royal Bank of Scotland Group Plc, to bolster capital depleted by mortgage-related losses

A release from Goldman Sachs that is worth putting here: With intense market stress continuing today even after the passage of the TARP, we summarize today a number of official and unofficial statements on policy choices available to the Fed, Treasury and other agencies:

1. Bank recapitalization. A statement by the President’s Working Group on Financial Markets released by the Treasury today noted the authority granted by Congress to “address capital raising” within the structure of the TARP. As noted in last Friday’s US Economics Analyst, the final version of the TARP legislation allows the Treasury to expand its purchases to “any financial instrument” deemed necessary, possibly giving the Treasury the authority to purchase common or preferred stock or debt, in addition to the originally envisioned “troubled assets.” How the Treasury intends to use this authority isn’t yet clear.

2. Bank guarantees. In comments today, FDIC Chair Sheila Bair noted the possibility of using the “systemic risk” exception to address bank failures in a manner other than “least cost”; the implication is that the FDIC could provide capital or otherwise assist troubled institutions, potentially reducing risk to bank creditors and uninsured depositors. Such action could be combined with the authority under TARP noted above.

3. More aggressive liquidity intervention. An article in the Financial Times today (http://www.ft.com/cms/s/0/ce6dca6c-93ce-11dd-9a63-0000779fd18c.html ) suggested that the Fed may be considering unsecured commercial lending as a way of providing even more liquidity to cash-starved firms. Under its current facilities, lending is over collateralized – a structure which protects the Fed but also limits the amount of aid that can be provided to institutions, particularly those with highly illiquid assets. Moving to an unsecured model – presumably with explicit backup from the Treasury for any losses – would represent an increase in liquidity provision, but one that would come at notably more risk to the taxpayer. Today’s Fed announcement on interest payments on reserves also noted that the Fed and Treasury are considering “ways to provide additional support for term unsecured funding markets.”

4. Fed rate cuts. As the economic and financial situation has deteriorated significantly in recent weeks, the probability of additional Fed rate cuts has increased. A sign of how far Fed thinking has shifted came today in comments from Dallas Fed President Richard Fisher—who voted in favor of rate hikes or against cuts at several recent meetings–who suggested that he is less concerned about inflation and is more worried about “how dysfunctional the financial system has become” and what the Fed needs “to encourage the liquidity to flow.” If the sole dissenter—the one most willing to go on record as being “hawkish”—is now talking about the need for more liquidity, presumably the center of gravity on the FOMC is now firmly in the easing camp, or will be very soon.

Fed Chairman Bernanke’s lunchtime speech tomorrow offers a higher-profile vehicle for communicating any new thinking on the part of policymakers, as well as “marking to market” the Fed’s own forecast of the economic outlook. But the key point to take away from the news items above is that policymakers are far from being “out of ammunition” even if no new actions are immediately forthcoming.

So all of the above goes on overnight – again – and what does our Federal Reserve do just before the open of the Debt Markets this morning at 5:15am?? The Federal Reserve said it will purchase short-term corporate loans to help unlock credit markets. This should help and provide more “bang for the buck”.

Yesterday’s big move lower in the Equity market caused a good size rally in mortgages, however not as big as we’ve seen recently. But, as Equities moved back from being down 808pts to close down 369pts, mortgages went right back to where we priced. This is why you did not see anyone reprice yesterday. This morning, because of the Fed announcement mortgages are down around .250%, while people wait for the US Equity Markets to open.

I’m going to call for a range trade today: 116.10 to 117.19 in the 10Yr Futures Contract. 3.61% to 3.52% in the 10Yr Treasury Yield. I see a long grid lower in Equities and therefore, a prolonged rally in Treasuries. We’ll look back at Year-End.

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700b bail out, Bank of America, Ben Bernanke, Business, California real estate agents, Central bank, Dow Jones Industrial Average, European Union, Federal Reserve System, financial crises, Financial Services, Merrill Lynch, real estate

Markets Plunge Despite Hint of Rate Cut – Oct 8, 2008

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Markets Plunge Despite Hint of Rate Cut

(October 8, 2008)

On Wall Street, the fear refuses to go away. Stocks plunged on Tuesday afternoon — shedding 200 points in the final hour of trading alone — despite reassurances from the chairman of the Federal Reserve, Ben S. Bernanke, that the central bank was prepared to lower interest rates, words that many investors had said they were waiting to hear.

“You are getting all the things that you would think the equity markets would respond very favorably to,” Steve Sachs, director of trading at Rydex Investments, said. “But at this point it just doesn’t seem to be doing it. It’s the attitude of “Sell” — regardless of what the news is.”

The Dow Jones industrial average, which had lumbered downward from early in the session, accelerated its losses in the final hour and ended down 508.39 points, breaking below the 9,500 mark to close at 9,447.11.

The broader Standard & Poor’s 500-stock index fell by 5.7 percent, ending below 1,000 for the first time in five years.

Shares of banks and real estate firms shouldered the biggest losses, with Bank of America, Merrill Lynch and Morgan Stanley all losing about 25 percent.

Morgan Stanley was plagued by rumors on trading desks that a financing deal with a Japanese bank had fallen through; officials at Morgan quickly moved to reassure investors that the deal was in fact still on track.

But a disappointing earnings report from Bank of America, released Monday night, led to increased jitters about the health of Wall Street banks. Bank of America has been perceived as one of the few winners, having subsumed Merrill Lynch’s name-brand brokerage business and maintaining a relatively clean balance sheet. But the bank slashed its dividend on Monday and said its third-quarter profit fell. Those anxieties played into a broader fear of a deep recession that could stem from the current crisis.

Tuesday’s declines bring the losses of the last two weeks to staggering levels. The S.& P. has lost more than 17 percent in just two weeks.

The declines came even as Mr. Bernanke strongly hinted that the Fed would lower interest rates this month in the face of a worsening outlook for the economy and financial markets.

His remarks came as lending markets remained frozen and borrowing costs ticked up overnight, a day after cascading losses in stock exchanges around the world.

“Nobody trusts anybody right now,” said Ryan Detrick, an analyst at Schaeffer’s Investment Research. “No one’s lending to each other.”

Some progress was being made, however, in the market for commercial paper, a common form of short-term financing used by businesses to finance day-to-day operations. Before the opening bell in New York, the Fed announced that it would buy up billions of dollars worth of short-term debt, effectively trying to provide liquidity to a market that has all but shut down.

Investors warmed to the news and borrowing rates for overnight commercial paper loans dropped. Yields on Treasuries moved higher, suggesting that investors were willing to leave the safe haven of government notes.

The morning announcement was an unprecedented move by the Fed, but it came at an unprecedented time. The logjam in commercial paper has threatened the daily workings of the nation’s economy.

Evidence of these problems continued to emerge on Tuesday. The state of Massachusetts said it would delay the sale of municipal bonds for a second time. The bonds are used to finance everyday costs like payroll for public employees; usually, the state repays the bonds at a small rate of interest. But many would-be buyers, frightened of lending cash, are demanding higher interest rates, which Massachusetts would prefer not to pay. If the bonds go unsold, the state will be forced to find alternate sources for financing, like asking the federal government for a loan.

A similar situation has already arisen in California, where Gov. Arnold Schwarzenegger asked the Bush administration last week for a $7 billion loan.

Borrowing costs rose overnight, with a benchmark rate known as Libor moving higher. Shares in Europe ended the day modestly higher as European Union officials tried to develop a coordinated response to the credit turmoil.

Oil prices rose about $2.58 a barrel to $90.39.

Asian shares opened sharply lower after the 3.6 percent decline in the Dow Jones industrial average overnight, but moved off of their lows after the Australian central bank took the market by surprise with a full percentage point cut in its benchmark rate, leading investors to hope more cuts would be forthcoming.

The Federal Reserve, the Bank of England and the European Central Bank have all been warning that slowing growth is overtaking inflation as their primary cause for concern. In the absence of other policy tools, the banks could choose to ease rates to stimulate market liquidity.

Lorenzo Bini Smaghi, a member of the European Central Bank’s executive board, told Italian radio on Tuesday that policy makers were beginning to consider economic weakness a greater danger than inflation.

“The economic situation has got worse, the inflationary pressures are always there but they are less important than in the past and we will take decisions at the appropriate time,” Reuters quoted him as saying. Europe is “ready to do anything” to maintain stability.

In London, the FTSE 100 ended up 0.4 percent. The CAC-40 in Paris rose 0.6 percent, a day after losing more than 9 percent for its worst decline ever. The DAX in Frankfurt fell 1.1 percent on continuing concerns about the European economy.

Asian shares ended mixed, with the Nikkei stock average in Tokyo declining 3 percent. The benchmark index fell Tuesday below 10,000 points for the first time in five years, hit by worries about global growth prospects and the rapid surge in the yen. It recovered some of its losses after the move by the Australian central bank, but its closing level of 10,155.90 was the lowest since December 2003.

The Shanghai composite index slipped 0.7 percent, and stocks fell more sharply in Bangkok, Indonesia and Manila. But the S.& P./ASX 200 in Sydney posted a 1.7 percent gain after the Reserve Bank of Australia cut its main rate to 6 percent.

“The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected,” the Reserve Bank said in a statement accompanying the decision. “Economic activity in the major countries is also weakening, and evidence is accumulating of a significant moderation in growth in Australia’s trading partners in Asia.”

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Fed Announces Plan to Buy Short-Term Debt

David Geffen, DreamWorks, DreamWorks Animation, entertainment news, Jeffrey Katzenberg, Motion Pictures, news, Paramount Pictures, Steven Spielberg, Viacom

DreamWorks, Paramount finalize separation

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DreamWorks, Paramount finalize separation
Monday October 6 2:41 AM ET

The principals behind DreamWorks SKG and Paramount Pictures sealed their parting of ways on Sunday, allowing the DreamWorks studio to tie up with Reliance ADA Group of India to start a new film company.

As part of the agreement, the DreamWorks principals’ new company will take the lead on a number of development projects, which Paramount will have the option to co-finance and co-distribute, the studios said in a joint statement.

The separation agreement involved 200 DreamWorks-developed projects with DreamWorks taking the lead on 15 to 20, according to trade reports. Paramount will take the lead on about 15 to 20 projects, permitting the Reliance-backed venture to co-finance and co-distribute.

Paramount will keep in its fold the remainder of the 200 projects, but the two appeared on Sunday to have parted ways amicably, leaving open the possibility of further collaboration.

DreamWorks, co-founded by director Steven Spielberg, is also expected as early as this week to announce a new studio distribution partner, widely expected to be General Electric Co’s Universal, which will provide either domestic or international distribution on the shared Paramount projects, said a source familiar with the discussions.

Most DreamWorks staff are expected to be offered positions at the new company, DreamWorks and Paramount said. DreamWorks co-founder David Geffen will not join the new company.

In addition, Spielberg will continue to produce the Transformers franchise for Paramount and will also collaborate on three other Paramount films including, “When Worlds Collide.”

The Hollywood-Bollywood linkup of DreamWorks and the Mumbai-based entertainment, financial and telecommunications giant two weeks ago caps two years of speculation and feuding between the DreamWorks partners and executives from Paramount and its corporate parent, Viacom Inc.

“We have had a great run with the DreamWorks team both creatively and financially,” said Brad Gray, chairman and chief executive of Paramount Pictures. “In particular, it has been a true honor working closely with a storyteller of Steven’s talent and stature.”

Spielberg added: “Brad is a friend and I am pleased to be able to continue to work with him and his team with whom we have shared many successes.”

Despite their uneasy partnership, DreamWorks continued to churn out successful movies for Paramount, including last year’s hits “Transformers,” “Disturbia” and “Blades of Glory.”

DreamWorks Animation, a separate publicly held studio run by another DreamWorks co-founder, Jeffrey Katzenberg, has its own distribution deal with Paramount through 2012.

(Reporting by Mary Milliken and Sue Zeidler; Editing by Jon Loades-Carter)

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Countrywide to Set Aside $8.4 Billion in Loan Aid

In California Real Estate, Dubai, Economy, FSBO MLS services, For Sale, Foreclosure, Homes, Houses, How to fina a foreclosure in Southern California, How to find a Forclosure in Southern California, Islam, Kuwait, Los Angeles Home Loans, Marketing, Muslim, Politics Life News Music Family Travel Personal Sports, Ramadan, Real Estate News, Realtor, SEO for Real Estate, Saudi Arabia, Shari'a compliant financing, investment, mortgage, seo on October 6, 2008 at 10:33 pm

Countrywide to Set Aside $8.4 Billion in Loan Aid

By GRETCHEN MORGENSON

Published: October 06, 2008

Countrywide Financial has agreed to the largest program ever to modify home loans, as part of a settlement with officials in 11 states, just days after the federal government adopted a giant financial rescue package without any relief for distressed homeowners.

Countrywide, the nation’s largest lender and loan servicer, recently acquired by Bank of America, had been sued by the states over what they said were predatory lending practices. To settle the suits, it will provide $8.4 billion in direct loan relief, affecting an estimated 400,000 borrowers nationwide, while waiving certain fees and setting aside additional funds to help people in foreclosure and relocating.

“Countrywide’s greed turned the American dream into a nightmare for thousands of Californians who now face foreclosure,” said Jerry Brown, the attorney general of California. He led the negotiations for the states with Lisa Madigan, the Illinois attorney general. “Our goal here is to help as many people stay in their homes as possible and get some compensation for those who have already been pushed out of their homes,” he said.

Mr. Brown expects loans worth $3.4 billion to be modified in California, where homeowners have been hit hard in the housing bust. The Countrywide effort is the most comprehensive, mandatory loan workout program since the mortgage crisis began last year. Congress has proposed various programs, but those measures did not make it into the final $700 billion government bailout.

Since taking control of Fannie and Freddie Mac, the two housing giants, the Federal Housing Finance Agency has said it is looking at expanding modifications on the loans that Fannie and Freddie own or guarantee. After seizing IndyMac, the Federal Deposit Insurance Corporation began a loan modification program that it said could be a template in other takeovers.

The agency hopes to help tens of thousands of borrowers whose interest rates are being reset higher in the early stages of that program. It is encouraging people who have fallen severely behind on their payments or who have defaulted to switch into a fixed-rate mortgage at current rates of about 6 percent. Countrywide has made pledges before to modify large swaths of loans. Late last year, it vowed to help about 82,000 borrowers who were facing higher payments through 2008. But the new program will be mandatory and will be monitored by state officials.

Along with the direct relief, Countrywide will waive late fees of $79 million and prepayment penalties of $56 million and suspend foreclosures on delinquent borrowers with the riskiest loans. A foreclosure relief fund will be created with $150 million from Countrywide to help borrowers who are four months or more behind on their payments or whose homes have already been foreclosed on. The company will also provide $70 million to help troubled borrowers relocate to rental housing.

In all, Countrywide is setting aside $8.7 billion to help borrowers. A Bank of America spokesman, James E. Mahoney, said that the cost of the program had been anticipated by the company in its acquisition of Countrywide. “We have worked with attorneys general across the country to resolve the issues relating to Countrywide’s practices,” Mr. Mahoney said. “Bank of America has put our own leadership in charge of Countrywide and have committed to a very different set of business practices going forward.”

Countrywide settled with the states without admitting any wrongdoing. Under the terms of the settlement, Countrywide will reduce principal balances in some cases and cut interest rates in others. Rates could decline to 2.5 percent, depending upon a borrower’s ability to pay, and remain at that level for five years.

Then the rate will adjust to prevailing interest rates charged by Fannie Mae on its fixed-rate mortgages. The program will focus on borrowers who were placed in the riskiest loans, including adjustable-rate mortgages whose interest rates reset significantly several years after the loans were made. Pay-option mortgages, under which a borrower must pay only a small fraction of the interest and principal, thereby allowing the loan balance to increase, are also included in the modifications. Borrowers whose first payment was due between Jan. 1, 2004, and Dec. 31, 2007, can participate.

The loan balance must be at least 75 percent of the current value of the home, and the borrower must be able to afford the adjusted monthly payments. “We have created the first comprehensive, mandatory loan-modification program with the largest loan servicer in the country, and it is going to help homeowners stay in their homes,” Ms. Madigan said. “We will use this model when we work with other servicers as well.” She said that approximately $185 million worth of loans in Illinois would be modified under the settlement. Illinois had accused Countrywide of relaxing underwriting standards, structuring loans with risky features, and misleading consumers with hidden fees and fake marketing claims, like its “no closing costs loan.”

Countrywide also created incentives for its employees and brokers to sell questionable loans by paying them more on such sales, the complaint said. In reviewing one Illinois mortgage broker’s sales of Countrywide loans, the complaint said the “vast majority of the loans had inflated income, almost all without the borrower’s knowledge.” Other states in the settlement are Arizona, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas and Washington.

It is the largest predatory lending settlement in history, far exceeding the $484 million deal struck in 2002 with the Household Finance Corporation. “This agreement demonstrates the effectiveness of states in addressing predatory lending and other consumer protection matters, proving states should not be pre-empted by federal legislation,” said Mr. Brown. The program will be administered by state officials who will examine regular reports from Bank of America.

The program will begin Dec. 1 as Bank of America contacts borrowers. In the meantime, Bank of America said Countrywide customers can call 800-669-6607 to discuss their loans. The terms of the settlement do not address Angelo R. Mozilo, the former chief executive of Countrywide Financial, or David E. Sambol, the company’s former president. The states had included both as defendants. Mr. Brown said he would pursue litigation against both men. Neither could be reached for comment.

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