More unsurprising but worsening data

Bankruptcy Filings Surge Among US Consumers

American consumers’ bankruptcy filings jumped 15 percent in February from the previous month and a steeper rise is looming because of the subprime mortgage crisis, the American Bankruptcy Institute said.

Consumer bankruptcy filings in February totaled 76,120, up from 66,050 recorded in January, the non-partisan bankruptcy research group said.

The February number was 37 percent higher than in the same month a year ago, according to the institute

This is unsurprising for those of us paying attention, although it is troubling nonetheless. Via NYTimes: In Parts of U.S., Foreclosures Top Sales

During January, it was reported this week by RealtyTrac, there were 153,745 initial foreclosure notices sent out in the United States. That dwarfed the 43,000 total sales of newly built single-family homes and amounted to nearly half the total sales figure, which includes sales of existing homes and condominiums.

The pace of this mess appears to continue to increase.

According to this video from a dude at the Harvard Center for Joint Housing Studies, he sees a bottom at no later than December 2009. Many others are thinking late 2010. I heard that billionaire Sam Zell was on CNBC saying we will have a bottom in a few months…he must have been talking about megacap value equities or something.

Just spent some time reading this interview with Warren Buffett, and I remembered some of the best financial advice in the world is available in his newsletters for free:
Berkshire Hathaway Annual Shareholder Letters

My favorites from the post:

“Success is getting what you want, happiness is wanting what you get.” I won the ovarian lottery the day I was born and so did all of you. We’re all successful, intelligent, educated. To focus on what you don’t have is a terrible mistake.

Why do I come in at 7 every morning, can’t wait to get to work? because I get to paint my own painting and I like applause.

If I had been born earlier, I would’ve been some animal’s lunch. I can’t run, I can’t climb. I’d be talking about allocating capital and the animal would think, “Those are the kind that taste the best.””

Almost always good things come from good behavior. Don’t keep score in life.

After a talk at Harvard, I told them to work for who they admired the most, so they all become self-employed.

Have you ever heard Twelve Tone classical music? In undergrad I overly ambitiously signed up for an advanced “set theory” class which met once a week at a famous professor’s house, where he served us giant bowls of ice cream and we played “guess this song” with this 12 tone classical music. I guess partly because the squiggles on the board and Cantor arithmetic were over my head, I strained to hear the “good” in this weird sounding mess.

The optimism I have sought in the recent week or two in the markets brings this idea back – and I realize that the music is just plain bad…then and today.

More directly: my optimistic hope that the downside is somehow already priced in, or that maybe we will somehow collectively wave our hands and be OK is almost certainly mistaken.

The simple fact is that although the headlines today are resonating with the doom first expressed here in June and elsewhere much before, they nevertheless are just hinting at the potential for far deeper losses caused by things like further unwinding in the CDO market, the consolidation of failing SIV’s on bank balance sheets, and the failure of financial institutions.
I spoke last night with a fairly well statured hedge fund manager who suggested that a bank failure was unlikely. However the more these writedowns continue to mount, the less room regulators have to act.

This article surely is not a coincidence: FDIC to Add Staff as Bank Failures Loom

Maybe that 12 tone stuff was really good and Aleph Naught to the Aleph Naught really matters. Or maybe the music is just really bad and people are finally beginning to notice. Keep listening.

The government has finally acted to address the increasingly bloody residential real estate markets.

In a plan that includes a refund check to taxpayers, the government also agreed to lift the loan limit that Freddie Mac and Fannie Mae can purchase, which basically has the effect of lowering interest rates for loans above the previous cap of $419k up to the new cap which approaches $700k.

BUT

There is a catch: this does not apply to evenly across the board. In a sick twist that will have the effect of basically giving a government guarantee to help prop up those with more wealth in real estate, the loan caps are only lifted for communities where the average house price is greater than the previous cap.

The details are discussed in this article:

Stimulus Plan Aids Buyers of High-Priced Homes

The article suggests rightly that the markets feeling the most pain in the crash are are those in California and elsewhere where the median home does not currently qualify for federal mortgages.

However, the value of these homes also represents the relative wealth in these communities. Sure they are getting hurt now, but they also likely had a greater rate of appreciation in the bubble. They benefited from the excesses of Wall Street originated mortgages, but rather than letting the market correct these excesses with a reversion in prices, the Government is basically using taxpayer dollars (in the form of an implicit backstop for Freddie and Frannie) to bail out these overpriced assets.

Perhaps I am being a bit harsh, but a more equitable solution would have been to increase the cap across the board so that communities that have not yet realized the “American Dream” of ridiculous home values could have any chance to compete with the inflated values seen in the markets that will benefit from this rule.

Or better yet, the government could leave its too-late overly-simplified solutions on the sidelines until it came up with a more comprehensive rescue package like one suggested by Bank of America this week which envisioned the government buying mortgages and renegotiating with current occupants to prevent unnecessary foreclosures and wasted resources. Such direct social service seems to better represent the role of government in trying times like this rather than trying to play master of a market that is badly broken and clearly deeply misunderstood by most.

According to Bloomberg, the mega quant fund AQR is down huge already this year:

AQR Hedge Fund Fell Almost 15% Through Mid-February

Why do these guys who have hired the most brilliant PHD’s and built the biggest model continue to fail?

The past is not indicative of the future…especially when you never had credit markets or personal balance sheets like the ones we are facing today.

Don’t need to get any more complicated than that in my mind.

This site has some ridiculously arcane sounding stuff on CD*’s. It seems like it is promoting open-source collaboration on what is obviously an important topic in risk management generally, but also for the future stability of the financial markets.

This site description is what got me…cool…now if only he would have developed this a few years ago!

DefaultRisk.com the web’s biggest credit risk modeling resource

This is not a vendor site. It is just my own. I have been excited by credit risk methodologies throughout my career (I work at Fitch Ratings with a crack quant team). Although I am the principal author of CreditMetrics® and LossCalc™ (and have a natural affinity for them), I am more of an advocate for the continued study of credit risk modeling. Wonderfully, there are over fourteen hundred researchers featured on this site (see full list)!

“I’m trying to make the world a less risky place;
one credit portfolio at a time!”

— Greg M. Gupton

What I want is to advance the state-of-the-art of credit risk management … through YOU. I hope to give you all the tools to understand the strengths and limits of credit value-at-risk models so you can take the best and … I trust … create better ones. This site has been under continual development since 2000 and will continue to grow. I’m trying to satisfy two audiences:

Practitioners have a no-nonsense need to address risk in a timely fashion. Institutions hire research people to develop internally (and adapt from external sources) risk measurement and pricing systems to address tangible needs.

Academics have the more strategic, but no less difficult, need to efficiently access the many disparate sources of prior research and to gain insight into current practitioner practice & demand.

For some reason the news is rife with people trying to shut down open dialogue lately.

I have never heard of this site, but the very idea that a Federal Judge ordered them to shut down because of their whistleblower status just strikes me as unAmerican.

Of course the Internet is the friend of liberty and apparently these guys have found a way around the block…

Whistleblower Website Ordered Shut Down

(02-19) 19:03 PST SAN FRANCISCO — A San Francisco federal judge has taken the highly unusual step of ordering the shutdown of a Web site devoted to anonymous allegations of high-level wrongdoing after it posted documents purporting to describe offshore activities of a Swiss bank.

U.S. District Judge Jeffrey White issued an injunction Friday ordering a Bay Area Internet host to disable the Wikileaks.org site and prevent the organization from transferring to any other server until further notice.

Wikileaks, founded in 2006, describes itself as an enabler of “principled leaking” by government and corporate insiders. Its site was the first to post the confidential Defense Department manual about operations of the U.S. detention camp at the Guantanamo Bay naval base in Cuba, and has also posted rules of engagement for U.S. forces in Iraq.

Despite the order aimed at its domain name, Wikileaks remained accessible Tuesday through its Internet Protocol or IP address, 88.80.13.160, and through so-called mirror sites in Europe that replicate its contents.

This story, which hit the front pages of SlashDot is absolutely staggering to me. As I discussed with my father last night, the lack of ethics in politics and society in general never ceases to amaze me, no matter how often I hear of stories like this:Mike Bloomberg Claims Vote Fraud.

However, the idea that a news station would fire one of its workers because he started a personal blog while dealing with the realization that he had a brain tumor is beyond the pale.

As he discusses here, on said blog,he started the blog

mostly to pass the time, hone my writing skills, resurrect my voice a little, and keep my mind sharp following the surgery.

Apparently having an independent voice and set of opinions is not within the job description of an employee of a news agency. The fact that such editorial domination is required only begs the question: what are they trying to hide?

Right before I hung up, I asked for the “official grounds” for my dismissal, figuring the information might be important later. At first they repeated the line about not writing anything outside of CNN without permission, but HR then made a surprising comment: “It’s also, you know, the nature of what you’ve been writing.”

If you still believe that the mainstream media is a reliable source of unbiased information please take a moment to think about the hypocrisy of such a decision…and please change the channel.

The next shoe to drop has to be bigger than the last…right?

At least that seems to be the sentiment lurking in the shadows around the financial markets…perhaps it is just my contrarian nature, but this irrational paranoia (yes, I am saying others may be becoming too paranoid) just seems to create the potential for a buying opportunity if disaster can be averted.

In other words, now that the extreme downside cases are clearly being articulated, as is discussed here (thx to WLH): CDS report: “Horrible” fall-out scenario preoccupies market, perhaps the risk of an unforeseen collapse is dissipating.

Last summer, when the powers and minds of the masses were looking forward under the guise of “containment” it seemed much more likely that they would be blindsided by the oncoming train of defaults and contraction. But now that contagion has become the theme of the day, perhaps those in the line of fire will be quicker to dodge the bullets.

That is, of course, assuming that the masses really have their eyes wide open and can move with at least some precision…or maybe I am just hoping beyond hope that the darkest scenarios can somehow be defeated by ingenuity.