The FDIC has been busy afterall!

Over the last 2 weeks there was only 1 bank failure. Well below the average over the last several months. Knowing that there are over 482 troubled banks, I for one was wondering what they heck they have been up to. Well now we know... they were preparing for the 7 bank failures today!

Check out the following list of banks that are considered under capitalized by regulatory standards. Capital ratios are a great predictor of bank failure. Failed banks are highlighted in red, with the failure date in the last column.

Data from SNL financial via The Street. Here is another great Troubled Bank List.

Apple releases cool new stuff!

Apple released a whole bunch of cool new tech today. I am personally most excited about the new 27" iMac:

Check out what Gizmodo has to say about the Mighty Mouse and New MacBook ! And all the Deals you can now get on old Apple Stuff!

Commodities - Untouchable by Retail Investors

Last year in when Oil was trading over $150 per barrel I had a novel idea. Short Oil. More recently I had another "ah ha" moment. This time I was loving the lowest prices for natural gas since 2002 due to extremely slow demand and over supply.

I started researching how to invest in natural gas. The first thing I came up with was an ETF called the United States Natural Gas Fund (UNG). This seemed perfect for my investment thesis, so I jumped in.

Then I started researching (wrong order... I know)...

It turns out that the massive popularity of commodity ETFs has been their downfall. I turn to Neil Collins and his article Here’s why commodity trackers lose you money:

Standard & Poors reckons that $100 billion is invested in commodity tracker funds, and it is only now that the problems are becoming clear. Unlike shares, commodities need space and insurance for storage, so the funds buy the commodities forward, selling them before having to take physical delivery and buying forward again. Because they have strict rules about how and when they roll the contracts, the traders can see the forced sellers (and buyers) coming a mile off, and move their prices accordingly.

This is, effectively, a tax on the fund, and the bigger the fund gets in any one market, the greater the tax the traders can demand to roll its contracts. The result is to guarantee underperformance against the relevant index, and the longer the investment is held, the greater the underperformance will be.

So... basically since I have been invested in UNG I have been providing the infamous "free lunch" to commodity traders. Oops! This is just one of many examples of how Wall Street's finest set up products for retail investors that are designed to make THEM money. What more should we expect?

Caveat Emptor!

Links - CRE Timebomb, Housing Tax Credit, Leverage Ratios... Oh My!

U.S. Office Vacancies Reach Five-Year High of 16.5%, Reis Says (Bloomberg via CalculatedRisk)

Fed Frets About Commercial Real Estate (WSJ via CalculatedRisk & NakedCapitalism)

Starwood Group Strikes Deal for Corus Assets (DealBook)

Manhattan Office Vacancies Reach Five-Year High (Bloomberg)

Apartment Glut Expands: Vacancy Rate Rises to 7.8% as Unemployment Dents Demand; Monthly Rents Slip (WSJ via Naked Capitalism)

US apartment vacancy rate hits 23-year high-report (Bloomberg via CalculatedRisk)

The Housing Tax Credit and the Consumer Price Index (CalculatedRisk) - Interesting take on how the housing tax credit is actually contributing to apartment vacancy and falling rents, and how that in turn could cause deflation... very interesting how all the parts fit together.

The Elusive Leverage Ratio (Reuters)  - There has to be a way to make the leverage ratio requirements at least remotely useful. As is in this country, they aren't worth much...

This wont happen again... right?

An article in Business Week titled Financial Reform: Lessons from 1929 brings up some interesting parallels between the regulatory efforts during the great depression and those going on today.

Now:

"Establish a "commission" of politicians and lawyers to investigate the problem. Check!"The Financial Crisis Inquiry Commission, set up by Congress to tell us who killed the banks and what to do about it, has just held its first meeting. Established by law in May, the 10-member panel gathered on Sept. 17 to appoint its executive director: Thomas Greene, a longtime California prosecutor."

Then:

"After Black Monday and Tuesday in October 1929, several senators called for new laws to prevent another crisis."

Here's what happened:

 "But over the next six months, stocks recovered 90% of their losses from the Crash. (President Herbert Hoover called it "the little bull market.") Appetite for reform waned, and bankers assured Congress that heavy-handed regulation was unnecessary—even counterproductive. They would reform themselves. Sound familiar?"

(Riholtz, you don't really think this is going to work?)

Oh, and don't feel bad for the 10 poor saps stuck on this commission-

"Congress appropriated $8 million to examine the causes of the recent crisis"

Only time will tell what we learn from, but I can't help but think that it won't be much.

For our visual learners: (via The Big Picture via Salon)

Random Links

Topple 2+ for iPhone free for a limited time - fun game, great price

Grumpy Bobby Bowden Interview - a big sigh for all my fellow FSU Alumni

The Canadians Are Coming - Deal Breaker - due to actually being regulated the Canadian banks are poised to take advantage of the US Banking Crisis.

Windows Mobile 6.5 Review: There's No Excuse For This - Gizmodo - While Windows 7 might have made you think there is still some life in MSFT, I might argue that the mobile market is more important for the future, and id doesn't look pretty for Gates and friends.

Comic Relief for the night:



This blogging sure is hard work, leave a comment if you are out there so I know if I should keep wasting my time! Thanks!

Daily Show on HFT...Funny

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Cash Cow - High-Frequency Trading
www.thedailyshow.com
Daily Show Full Episodes Political Humor Ron Paul Interview

Capitalism: A Love Story

Does anyone else see the irony? Michael Moore CAPITALIZING on an opportunity to MAKE MONEY!

 Also interesting from The Miami New Times: The Villain in Michael Moore's New Flick Is Miami's Condo Vultures Founder. The whole article is worth a read, but here is my synopsis:

Well, Zalewski has officially taken his shtick to the next level. It seems the king of confrontational liberal filmmaking, Michael Moore, has made Zalewski one of the chief villains in his new film, Capitalism: A Love Story, which opens in Miami today.

If you watch the embedded preview above, you can see King Vulture at the 1:25 mark, with a seriously bad-ass quote: "This is straight-up capitalism," Zalewski says, miming his hands cocking a shotgun. "Chck-chk, BOOM."

...

"A lot of people are going to see this movie and hate us," Zalewski says. "But from the beginning, we've been upfront about what our company does. We are not warm and fuzzy. That's why we're called Condo Vultures."

...

"This is going to mean off-the-charts publicity for our company," he says. "I couldn't be happier."

At least the Condo Vulture knows what he is. I think Micheal Moore is just confused about the definition of the word Capitalism.

Disclaimer: I haven't seen the movie... so maybe it isn't what it seems in the preview...

Ocean Bank lays off 78

From the South Florida Business Journal:

Ocean Bank notified 78 employees Friday that they had been laid off.

...

The bank’s expenses will be reduced by about $4.3 million a year after the workforce reductions, Macedo said.

I suppose this is a step in the right direction, but it is way too little way too late. Back to the article:

With 19.5 percent of its loans noncurrent on June 30, Ocean Bank is among the most financially troubled South Florida banks. After losing $204.7 million in 2008, the bank lost $89.5 million in the first six months of this year. The bank has been under a cease and desist order from regulators since 2004.

 ...

Its shareholders in Venezuela supported the bank, which has $4.4 billion in assets, with a $40 million capital injection last year. Capital levels exceeded regulatory requirements in the second quarter.

According to Carson Medlin's Q2 2009 Florida Asset Quality Review Ocean Bank had a Texas Ratio of 160.8% due to the extremely high level of NPAs. Making it a high risk for failure. The way the CRE market appears to be headed it will need another capital injection soon to avoid a meeting with the FDIC on Friday.

Update:
A perfect quote from a WSJ article titled Banks With 20% Unpaid Loans at 18-Year High Amid Recovery Doubt via Calculated Risk (both worth a read)

For banks with 20 percent of loans overdue, “either they’ve got a massive amount of capital, or the FDIC just hasn’t gotten around to them,” said Jeff Davis, an analyst with FTN Equity Capital Markets in Nashville.

I wouldn't say that Ocean qualifies as having a massive amount of capital...

The spoils of Subprice & C&D lending

So far in 2009 95 Banks have failed in the US due to various types of Irresponsible lending. You might be wondering why this is a good thing for local economies. Just imagine the value added by enterprising college students (and unemployed mortgage brokers) when they discover the mysterious and shockingly crappy auctioneer websites that are being used by the FDIC to auction off the spoils, buy them from the FDIC for almost nothing, and then flip them on ebay / craigslist!

Is it possible that the FDIC is worse at liquidaton than it is at regulation?!?!

For your browsing pleasure:

http://www.tranzon.com/OnLineAuctions.aspx

https://ricklevin.nextlot.com/public

http://www.worleyauctioneers.com/index.php


Disclaimer: I realize that a few exotic cars and desk chairs are completely insignificant when compared to the Billions in bad (loan) assets, but it is interesting none the less.

South Florida mortgage fraud... more to come?

On South Florida mortgage fraud, from Paul Quinlan at the Palm Beach Post: How one household picked up nearly $5 million in mortgages for mansions

...two seniors and a 37-year-old woman secured millions of dollars in home loans for three ritzy properties in Versailles, as well as two in Palm Beach Gardens' Osprey Isles and two condos in Wellington.

...

The bill for the trio's home-buying spree: $5.1 million.

...

Castells got $1.375 million in first and second mortgages to purchase his $1.25 million home, according to court records, an excess of $125,000. Similarly, Richardson borrowed $327,500 above the recorded sales price.

...

Two Versailles mortgage deals were among indictments handed down last year by a multi-agency task force created by the FBI. Asked if Versailles transactions were still being examined, a spokeswoman for the FBI said, "The investigation continues".

This house, for (short) sale for $395K is in the neighborhood that the article talks about. It sold for $2.1M in 2007. With a mortgage of only $1.47M this buyer may have only been a victim of all the fraud, but JP Morgan (or the poor saps that invested in its MBS) is still going to take a much larger hit.

It blows my mind, these scenarios are endless in the poorly planned sprawl of McMansions found in newly developed regions of South Florida. Entire neighborhoods that are nothing but fraudulent purchases with fraudulent appraisers, mortgage brokers, buyers, sellers... the whole thing was a giant sham! I wonder where they all are today? Perhaps they have moved on up...

To make things worse, it can, and will happen again. Planning is already in the works: 1,590 homes on the way? Palm Beach county developers want to build on six rural tracts, again from Paul Quinlan at the Palm Beach Post.