Wall Street Gags on SEC Ruling for Investment Bank Capital Disclosures

SEC to Make Wall Street Banks Reveal Capital, Liquidity Levels
By Jesse Westbrook

May 7 (Bloomberg) -- The U.S. Securities and Exchange Commission will require Wall Street investment banks to disclose their capital and liquidity levels, after speculation about a cash shortage at Bear Stearns Cos. triggered a run on the firm, SEC Chairman Christopher Cox said.

The disclosures will be ``in terms that the market can readily understand and digest,'' Cox said today during a speech in Washington. The SEC will require the disclosures ``later this year,'' he said.

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

Last Updated: May 7, 2008 14:05 EDT

Housing Slumps in the US - Half of 2006 Buys Now Underwater

We are far from an end to the bursting of the housing bubble. The declines in home prices are NOT particular to a few areas like California and Florida either.

The predictions of a bottom in housing and the financial crisis in the US are a mix of hope, government jawboning, and traders trying to pump the market while they unload losing positions in collateralized debt obligations and equities which are functionally insolvent despite the best efforts of the Fed to cushion the impact of massive defaults and debt failures with a rain of paper money.

The Recession in the US is just gaining momentum.

The Credit Bubble leverage will amplify and spread what should be a reasonable price adjustment in housing into a major banking crisis.


More Than Half of 2006 Vintage Now Underwater, Zillow Says
By PAUL JACKSON
Published: May 6, 2008

Home prices posted their worst quarterly performance in over a decade during the first quarter, according to a report released Tuesday morning by real estate information Web site Zillow.com. More than half of those who purchased a home in 2006 now owe more on their mortgage than their home is worth, the company said — surely ominous news for mortgage execs fretting over the potential for so-called borrower “walk-aways.”

Home values in the first quarter of 2008 fell 1.6 percent from the fourth quarter and 7.7 percent from the year-ago quarter, marking the most significant year-over-year decline in the past 12 years, Zillow said.

The company’s own index of median housing values fell to $213,000 during the quarter, the lowest median price estimate recorded by the firm since the second quarter of 2005. Zillow’s home value report is based on data from 160 metropolitan statistical areas.

With the exception of Dallas, which returned a one percent year-over-year gain, 30 major markets tracked by Zillow declined from a year ago, with the majority falling back to the median values of three to four years ago. For example, first quarter home values in the Boston area were the equivalent to levels last seen in the second quarter of 2003, down 16 percent from the peak, which occurred in the third quarter of 2005. Values in the Los Angeles MSA have declined to 2004 levels, down 19 percent from the market high recorded in the second quarter of 2006. The Detroit area has been hardest hit, retreating to value levels of 1998, down 24 percent from the market peak in the fourth quarter of 2005.

Stunning numbers, but perhaps more troublesome is what these sort of price declines in key housing markets mean for millions of borrowers.

Of homeowners nationwide who purchased when U.S. home values peaked in 2006, one out of every two (51.6%) now owes more on their mortgage than their home is currently worth, Zillow said. For those who purchased in 2005 and 2007, the situation is only modestly better with nearly 42 percent and 45 percent, respectively, facing negative equity. By comparison, 16 percent of those who purchased in 2004 have negative equity, as do 7 percent of those who purchased in 2003.

“While the high rate of negative equity has little consequence to owners staying in their homes, it can be devastating to those who need to sell immediately or refinance to avoid ARM resets,” said Dr. Stan Humphries, Zillow’s vice president of data and analytics. “The inability to secure refinancing is ultimately contributing to the growing rates of foreclosure in many parts of the country.”

For homeowners who purchased in some of the most volatile markets, such as many parts of California and Florida, as well as Phoenix and Las Vegas, rates of negative equity can be twice the national median and, in some cases, as high as 95 percent. For example, in the first quarter, Zillow said that Las Vegas home values fell 25 percent year-over-year and nine out of 10 (89.9%) homeowners who purchased in 2006, when the median down payment was 2 percent, now owe more than their home is worth.

Despite the incredible price drops in many key markets, Zillow also said Tuesday that nearly 3 in 4 borrowers believe their home has increased in value over the past 12 months — yes, really — which means that many homeowners clearly have not yet come to terms with market reality.

Housing-Wire

Playing the Contra Trade on the US $

SP 500 and Gold: Indications of a Carry Trade

This chart compares the recent performance of Gold and the SP 500 in their twelve week moving averages of year over year change.

We use positions in gold to hedge movements in the SP 500. The nature of their inversion could be attributed to a 'flight to safety' position for gold, or the use of gold as an instrument of the carry trade as are the yen and the swiss franc.

The flight to safety notion is easy to understand and relatively well established.

The idea of the carry trade is that gold, like the yen and the swiss franc, can be borrowed for a nominally low interest rate and then sold, with the proceeds being invested in other instruments. In the case of the yen and the swiss franc their government bonds have notoriously low interest rates. In the case of gold, the central banks lease their gold to private parties at very low interest rates and then those parties sell the gold, and use the proceeds.

It will be interesting to see the strains that occur in this end of the carry trade since the largest supply of readily available gold is being held by the central banks themselves. Where will the large traders go when they need to 'pay back' the gold which they borrowed and sold?

This is the czse one can make that the central bank gold sales, including those of the IMF, are really being conducted to allow the large trading banks to cover their short gold positions to the central banks themselves!