Thursday, May 29, 2008

Debt Rattle, May 29 2008: The surest sign

Carl Mydans Rural Mother 1936
The mother in a family of nine holds her baby.
The family lives in a field on U.S. Route 70 in Tennessee, near the Tennessee River

Ilargi: The view from where I’m sitting, looking out over the landscape, is that the euphoria over the hundreds of billions of credit injections is fading. You may pretend otherwise, but liquidity is still not the same as solvency, and never will be.

It’s not so much that there are new events, or new warnings, it’s more that they are picking up where they left off before central banks starting handing out the money of the people whose interests they purport to serve.

The ratings agencies and their Siamese twin nemeses, the monolines, are back on the ground after spilling the credit they swallowed earlier this year, and their next move will be towards openness, in one form or another.

I like the idea that the whole plethora of calls for new regulation, and against speculation, is the surest sign of all that whatever those calls were aimed at is about to end.

PS: A TV blaring in the background just showed the empty headed US show The View, prompting people to not get a private student debt, ever, to pay off their debt as soon as possible, and to sell their homes if and when they possibly can. It doesn't get more mainstream than that, and even if it's Suzy 'Moron' Orman doing the talking, that is the surest sign we've come a long way, haven't we?

US and European debt markets flash new warning signals
The debt markets in the US and Europe have begun to flash warning signals yet again, raising fears that the global credit crisis could be entering another turbulent phase.

The cost of insuring against default on the bonds of Lehman Brothers, Merrill Lynch and other big banks and brokerages has surged over the last two weeks, threatening to reach the stress levels seen before the Bear Stearns debacle. Spreads on inter-bank Libor and Euribor rates in Europe are back near record levels.

Credit default swaps (CDS) on Lehman debt have risen from around 130 in late April to 247, while Merrill debt has spiked to 196. Most analysts had thought the coast was clear for such broker dealers after the US Federal Reserve invoked an emergency clause in March to let them borrow directly from its lending window.

But there are now concerns that the Fed itself may be exhausting its $800bn (£399bn) stock of assets. It has swapped almost $300bn of 10-year Treasuries for questionable mortgage debt, and provided Term Auction Credit of $130bn.

"The steep rise in swap spreads this week is ominous," said John Hussman, head of the Hussman Funds. "The deterioration is in stark contrast to what investors have come to hope since March." Lehman Brothers took writedowns of just $200m on its $6.5bn portfolio of sub-prime debt in the first quarter even though a quarter of the securities had "junk" ratings, typically worth a fraction of face value.

Willem Sels, a credit analyst at Dresdner Kleinwort, said the banks are beginning to face waves of defaults on credit cards, car loans, and now corporate loans. "We believe we're entering Phase II. The liquidity crisis has eased a little, but the real credit losses are accelerating. The worst is yet to come," he said.

The jump in corporate bankruptcies has not yet been picked up by the usual indicators, which tend to lag the market, lulling investors into a false sense of security. The true losses are already known to specialists in the business, said Mr Sels.

Alt-A Problems Grow, While Subprime Takes Turn for the Worse
Despite an absolute dearth of ARM resets, the number of severely delinquent Alt-A borrowers continues to grow, according to a report released late last week by Clayton Holdings, Inc. The number of troubled Alt-A borrowers in the 2007 vintage rose an eye-popping 26.5 percent from March to April alone, nearly reaching 17 percent of loan volume.

The 2007 vintage isn’t the only Alt-A vintage facing problems, of course: 19.3 percent of borrowers with loans originated in 2006 were more than 60 days delinquent at the end of April, a jump of nearly 10 percent from March. Cumulative losses percentages for 2006 vintage Alt-A first liens continued what Clayton analysts called a “concerning upward trend,” with losses for 2006 issues running at more than three times the pace set by the 2004 and 2005 issues.

The troubles in Alt-A are appearing despite the fact that very few borrowers in any vintage are yet to face a strong wave of rate-reset activity. The graph below shows that, if anything, lenders and policymakers should be concerned about a wave of pending Alt-A resets that are looming in the back half of 2009.

Click to enlarge

That looming wave of resets may be particularly troubling, given the current U.S. interest rate and LIBOR outlook held by most economists and bank officials; most see interest rates flat to increasing over that time frame, both within the U.S. and abroad, a pattern that could bode poorly for borrowers facing rate adjustments.

The good news is that one-month roll rates — which measure the transition of loans from one stage to the next (i.e., performing to delinquent, delinquent to severely delinquent, etc.) — for nearly every Alt-A vintage decreased for the month, with only the 2003 vintage showing an increase. That sort of respite may end up being short lived, however, given the sharp increase in deliqnuencies and continued downward trending of cure rates for troubled borrowers.

Subprime mortgages aren’t sexy to most financial media any more, and numerous reports lately have suggested that the problem in subprime mortgages has largely been mitigated by lower interest rates that have limited payment shock for the most vulnerable borrowers.

Click to enlarge

All of which is true; but that shouldn’t hide the fact that 60 day delinquencies in the 2006 subprime vintage rose 5.4 percent in April and now stand at 34.6 percent of remaining collateral; in the 2007 vintage, 23.1 percent of collateral is more than 60 days in arrears, as well. While resets aren’t an immediate problem, there are yet a good number of resets that need to work their way out of the financial system (see graph above).

Perhaps more telling, toll rates increased in April on both subprime first and second liens after sharp declines in recent months, marking perhaps a renewed cycle for troubled subprime borrowers. Many media pundits have pointed to declining roll rates as evidence that the worst of the subprime crisis is behind us; the jump in rolls might suggest otherwise.

Investors Press Lenders on Bad Loans
Already burned by bad mortgages on their books, lenders now are feeling rising heat from loans they sold to investors. Unhappy buyers of subprime mortgages, home-equity loans and other real-estate loans are trying to force banks and mortgage companies to repurchase a growing pile of troubled loans.

The pressure is the result of provisions in many loan sales that require lenders to take back loans that default unusually fast or contained mistakes or fraud. The potential liability from the growing number of disputed loans could reach billions of dollars, says Paul J. Miller Jr., an analyst with Friedman, Billings, Ramsey & Co. Some major lenders are setting aside large reserves to cover potential repurchases.

Countrywide Financial Corp., the largest mortgage lender in the U.S., said in a securities filing this month that its estimated liability for such claims climbed to $935 million as of March 31 from $365 million a year earlier. Countrywide also took a first-quarter charge of $133 million for claims that already have been paid.

The fight over mortgages that lenders thought they had largely offloaded is another reminder of the deterioration of lending standards that helped contribute to the worst housing bust in decades. Such disputes began to emerge publicly in 2006 as large numbers of subprime mortgages began going bad shortly after origination.

In recent months, these skirmishes have expanded to include home-equity loans and mortgages made to borrowers with relatively good credit, as well as subprime loans that went bad after borrowers made several payments. Many recent loan disputes involve allegations of bogus appraisals, inflated borrower incomes and other misrepresentations made at the time the loans were originated.

Some of the disputes are spilling into the courtroom, and the potential liability is likely to hang over lenders for years.
Repurchase demands are coming from a wide variety of loan buyers. In a recent conference call with analysts, Fannie Mae said it is reviewing every loan that defaults -- and seeking to force lenders to buy back loans that failed to meet promised quality standards. Freddie Mac also has seen an increase in such claims.

Additional pressure is coming from bond insurers such as Ambac Financial Group Inc. and MBIA Inc., which guaranteed investment-grade securities backed by pools of home-equity loans and lines of credit. In January, Armonk, N.Y.-based MBIA began working with forensic experts to scrutinize pools it insured that contained home-equity loans and credit lines to borrowers with good credit.

"There are a significant number of loans that should not have been in these pools to begin with," says Mitch Sonkin, MBIA's head of insured portfolio management. Ambac is analyzing 17 home-equity-loan deals to see whether it has grounds to demand that banks repurchase loans in those pools, according to an Ambac spokeswoman.

Investors Putting Bad Loans Back To Lenders - This Is Only The Beginning.
A phenomenon not yet discussed in any great degree is the forced buybacks of defaulted loans by the original lender or investor due to early payment defaults, fraud and lender ‘negligence’. In the past, it was industry standard for a lender to ‘rep and warrant’ loans they sold to a particular investor for up to six months against default, commonly known as an ‘early payment default’ (EPD).

Loans that defaulted at the first payment, known as ‘first payment defaults’ (FPD), and have always been a buyback. However, over the past couple of years, many mortgage investors/purchasers have pushed their lender clients into longer ‘EPD’ provisions, with many running up to a year. This, of course, significantly increases the percentage of defaulted loans for which the original lender/investor is liable. 
The auditing of defaulted loans looking for fraud or lender negligence is escalating at a feverish pace. This is being spearheaded in many cases by the mortgage and bond insurers, but even Fannie, Freddie, banks and the investment banks are picking up the pace. At this point in time considering the damage that has been done to the bond and mortgage insurers, they have nothing and everything to lose.

Perhaps soon they will release detailed reports on the amount of fraud and negligence on the defaulted prime, ALT-A, subprime and home equity loans that they insure. When this news breaks it will shock the world. Everything thinks they have a handle on how pervasive outright fraud was.

But nobody has a handle on ‘white-lie’ fraud and broader negligence, such as increasing income and/or asset levels on stated income/asset loans and making investor guideline exceptions on large percentages of their loans. If any sign of fraud is found on a defaulted loan, in most cases the originating or selling lender/investor is liable.

If the originating entity is no longer in business, as is the case with most middle market mortgage bankers and brokers, then the original ‘investor’ or loan purchaser carries the burden in many cases. Most likely, these are your big named banks and Wall Street banks.
Recent research reports have found that on limited documentation loans, income was inaccurate to the high-side in 90% of the cases studied.A recent report by the NY Fed showed that 83.2% of the ALT-A universe in CA and 73.1% nationally was limited income documentation. The same report found that limited documentation subprime loans accounted for 47.5% of the CA and 33.8% of the national universe.

Home equity lines/loans were mostly limited documentation, including limited appraisal requirements. Pay option ARM limited doc numbers are tougher to find but being in the industry for years, my guess is that they mirror the ALT-A stats fairly closely.

Will AIG Need Even More Capital?
The $20 billion in capital raised by American International Group may not be enough for both itself and its troubled subsidiaries, an analyst told clients Wednesday. AIG shares were recently faring worst among the Dow industrials, falling 4.7%.

Citigroup analyst Joshua Shanker said the giant insurance holding company may have to funnel the capital it’s already raised into its AIG Financial Products Corp. subsidiary, the unit that has racked up heavy losses in the value of insurance written on complicated debt securities. If that’s the case, rating agencies may push AIG itself to raise even more capital to replace what it gives to its subsidiaries, Shanker said.

AIG Spokesman Chris Winans declined to comment on Shanker’s report, but said AIG has no current plans to raise more equity capital. AIG said May 22 that it had raised $20 billion in fresh capital, more than the $12.5 billion the company said it would raise following the release of its first-quarter results earlier this month, when it reported a loss of nearly $8 billion.

“We didn’t raise the capital because we needed it,” Winans said. “The demand in the market was so strong, we took the opportunity to create the extra cushion.” Because AIG’s total shareholder’s equity has declined by $24.4 billion, or 23%, since the end of the third quarter, Shanker said the $20 billion equity raise only seemed to replaced the capital lost so far. “Despite AIG’s statements to the contrary, we do not believe the company is or was in an excess capital position,” he said.

Shanker estimated that AIG’s Financial Products subsidiary, which took a $9.1 billion pre-tax charge during the first quarter tied to unrealized losses on credit default swaps, is significantly undercapitalized at under $2 billion in capital and leveraged at nearly three times the level of its peers while insuring risker forms of debt.

Shanker believes that the credit rating agencies, under fire themselves for by those who say they rated risky debt too highly, will take a stricter view of credit guarantors like AIG. They may push AIG to shift more capital to shore up Financial Products’ balance sheet, and then have to replace it with another capital raise.

Investment banks split over Fed loan facility
A rift is developing among large US investment banks over whether continued access to a special Federal Reserve borrowing facility is worth the expected trade-off in further regulation by the central bank.

Investment banks such as Goldman Sachs that have been less affected by the credit crisis are said to be leaning against accepting any significant new limits by the Fed, while those that have been somewhat more affected, such as Lehman Brothers, are seen as more eager to maintain access to the Fed facility even if it means new limits on risk-taking.

“You have people like Goldman on the one end and people like Lehman on the other,” said a senior executive at one of the banks involved. “Then you have people like Morgan Stanley in the middle saying everyone should just wait and see what the Fed comes up with” in terms of new regulation.

None of the banks would comment officially, given the sensitivities and differences of opinion on what should be done.
The issue is about to hit a critical stage because the Fed has said it will curtail the ability of investment banks to borrow from the primary dealer credit facility, which is similar to the so-called discount window available to commercial banks, in mid-September.

Executives at the investment banks believe that date will be pushed back because of continued turmoil in the credit markets but acknowledge that the facility will not be open indefinitely without new regulation. Resolution of the matter will have an enormous impact on the business model of the investment banks in the future and their competitive position relative to big commercial banks such as JPMorgan Chase and Citigroup.

The Fed initiative, spurred by the collapse of Bear Stearns, allows investment banks to pledge investment-grade securities, including mortgage-backed securities, in return for low-interest cash loans. The rationale for the facility was to ensure that none of the other banks would suffer the same kind of evaporation of short-term liquidity that sank Bear Stearns. At the time it was announced, Dick Fuld, Lehman Brothers chief executive, said the facility took the issue of a liquidity crisis “off the table”.

Such direct borrowing from the Fed has typically been reserved for commercial banks. The trade-off has been that those banks must operate with stricter risk controls. The big commercial banks have told regulators that the investment firms should be subject to the same tight requirements on debt and leverage and that no compromise should be allowed.

They argue that if the Fed is to act as the lender of last resort to brokerage firms, they should be on the same regulatory playing field. “There is no way that you can have [Fed borrowing] for investment banks and not demand they comply with the same leverage requirements as we do,” a senior executive at a commercial bank said.

The price of a loan from the Fed
An investment bank may help out a client in financial trouble – but it will usually exact a price. Earlier this year the big US investment banks needed help themselves – from the Federal Reserve – but they have begun to fret about the price in terms of regulation. Tougher rules cannot be avoided, but it is important that those rules reflect the difference between taking customer deposits and raising finance in the repo and money markets.

Since the near-panic in financial markets in March that culminated in the rescue of Bear Stearns, the Fed has allowed investment banks to borrow from it directly, something that was previously not possible. But now that the immediate crisis has passed, some of those investment banks fear that the price of continued access to Fed borrowing may be severe restrictions on the amount of leverage they can employ and the amount of risk they can take. Such limits would reduce their profits.

What happened at Bear Stearns shows beyond any doubt that brokers are systemically important institutions. Had Bear been allowed to fail, with its $387bn in liabilities to other banks, brokers and investors, it would have been a disaster for financial markets already suffering a crisis of confidence.

If Bear Stearns could not be allowed to fail, then it follows that the other large investment banks – Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman Brothers, all of which are larger than Bear – cannot be allowed to fail, and must have ongoing, explicit access to Fed support. If the brokers have access to Fed support then they must be subject to Fed rules to ensure that the lender of last resort facility is used responsibly.

Wall Street will have to accept new limits from the Fed and it is too late to argue otherwise. Where there can be a worthwhile argument is on the nature of the rules. Almost all financial institutions are subject to some sort of minimum capital requirement related to their risk, but taking deposits and making long-term loans to companies and individuals, the main business of commercial banks, is different from trading in and borrowing against securities, the main business of investment banks.

Securities can, on average, be sold faster than loans. Secured lenders in the money markets behave differently to retail depositors. It is possible and desirable to include all kinds of business within a unified, flexible framework but it must be done carefully. Simply to dump commercial banking regulations on to Wall Street might do more harm than good.

Temblor Thursday - Challenge To Richard Fisher
Oh, and look what The Cat dragged in last night? The following speech by Dallas Fed President Richard Fisher:
"I am also not going to engage in a discussion of present monetary policy tonight, except to say that if inflationary developments and, more important, inflation expectations, continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic economic scenario. Inflation is the most insidious enemy of capitalism. No central banker can countenance it, not least the men and women of the Federal Reserve.

Tonight, I want to talk about a different matter. In keeping with Bill Martin’s advice, I have been scanning the horizon for danger signals even as we continue working to recover from the recent turmoil. In the distance, I see a frightful storm brewing in the form of untethered government debt. I choose the words—“frightful storm”—deliberately to avoid hyperbole. Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets that we are now working so hard to correct."

Really Richard? Readers really ought to click that link up above and read the entire treatise. Its good, and lays on the table, without BS or games, exactly what America faces if we don't cut the crap out with entitlement spending - and deficits in general.
To be blunt, he points out that we could cut all discretionary spending (including the military), increase tax revenues (not rates, revenues!) by nearly 70%, or cut benefits by a net aggregate of nearly $100 trillion dollars.

That's right, we're in the hole as Americans to the tune of one hundred trillion dollars. But see, Richard Fisher also talks about how "we (the Fed) are working so hard to correct" the recent debauching of the credit markets in that speech, and I'm going to focus there first.

Either Mr. Fisher suddenly had a "come to Jesus" moment, or he's lying. I intend to find out which is the case.
See, Mr. Fisher is well-aware that these credit markets were "debauched" as a direct and proximate consequence of the policies of The Federal Reserve and he is a Fed President (The Dallas Fed, to be precise.)

Ilargi: US government policy was already based on false definitions of inflation, as well as doctored numbers oozing from cooked books. Now the Fed adopts all of it as well, or so we are to believe, taking Wall Street with it into la la land.

“Any data that shows the economy is growing calls into question the idea that inflation will moderate...” No, any data that shows that is bogus.

Investors increase bets on US rate rise
A sell-off in the US bond market pushed the yield on 10-year Treasuries above 4 per cent on Wednesday for the first time since January, as investors bet that pressure from record oil prices would force the Federal Reserve to raise interest rates this year. The futures market priced in a 60 per cent likelihood of a rate rise in October, up from less than 50 per cent the day before. As recently as May 8 investors saw virtually no chance of an October rate rise.

The move came as durable goods orders came in stronger than expected, and Dow Chemicals, the largest US chemicals producer, said it was raising the price of all its products by up to 20 per cent to offset the rising cost of energy and raw materials. Andrew Liveris, Dow’s chairman and chief executive, said that the rising cost of fuel was “putting a strain on the entire value chain”.

He blamed the US government’s failure to address rising energy costs for causing a “true energy crisis, one that is causing serious harm to America’s manufacturing sector and all consumers of energy”. “Any data that shows the economy is growing calls into question the idea that inflation will moderate due to weak growth,” said Rick Klingman, a managing director at BNP Paribas. “If growth picks up, the Fed will act sooner in raising rates as inflation is currently above their comfort level.”

The 10-year yield has risen by about 70 basis points since March, indicating growing confidence in the medium-term outlook for the US economy, but putting additional pressure on mortgage rates at a time when the housing market downturn shows no sign of abating. Importantly, the break-even inflation rate on Treasuries indexed against inflation remains range-bound, suggesting that investors are confident that the Fed will do what it has to do in time to prevent a sustained increase in price trends.

“The rise in nominal yields is less about inflation itself and more about what the Fed will do because of inflation,” said Michael Pond, inflation strategist at Barclays Capital.

US Thrifts Report Loss, Set Aside Record Loan Loss Provisions
The ongoing turmoil in the housing market continued to hurt the U.S. thrift industry during the first quarter, as institutions set aside a record amount to cover expected loan losses. The Office of Thrift Supervision said thrifts lost $617 million during the first three months of 2008, down from net income of $3.61 billion in the first quarter of 2007 but much better than the record $8.75 billion loss in the final three months of 2008.

The agency said that thrifts set aside an industry-record $7.6 billion in loan loss provisions during the first quarter, up from $5.5 billion and $3.5 billion in the prior two quarters. "I have been urging managers for OTS-regulated thrift institutions to be aggressive in setting aside provisions for expected loan losses," OTS Director John Reich said in a statement.

"This forceful response to the housing market crisis continues to depress industry earnings, but it also strengthens institutions to withstand future challenges." The agency said troubled assets as a portion of all assets in the industry increased to 2.06% in the first quarter, from 1.66% in the fourth quarter.

Commodity speculators caught in the line of political fire
As is well known, speculators are clearly responsible for high commodities prices. All of them are using the high profits from their market manipulation to buy yet more gold chains and magnums of champagne, though not for their long-divorced, betrayed spouses.

Fortunately, the tribunes of the people are out to stop them. Of course, neither the public's representatives nor we are attacking the innocent hedgers, who, unlike the speculators, are only seeking to protect themselves against volatility and risk of loss. They have done no wrong.

Senator Joe Lieberman, the Connecticut Democrat, last week expressed public sentiment after hearings on commodities speculation when he said he and his colleagues were "impressed with testimony that speculation, particularly so-called index speculators and institutional investors are having a significant effect on dramatic increases in commodities prices . . . creating a lot of stress among average families and terrible suffering among people who are poorer".

Well. That is a powerful statement of conviction. So powerful it apparently cannot be affected by the US government's own economic studies of the market effects of commodities index investors, hedgers, and speculators. The political reaction to high prices is most likely to lead to legislated changes in commodities markets regulation in the US and elsewhere. I am fairly certain that the changes will take effect after the coming decline in commodities prices.

I say decline because there always is one, and the late-stage political reaction suggests it is coming soon

Asian countries begin to burst the oil bubble
One by one, countries across Asia and the Middle East are being forced to abandon price controls on fuel and energy, bringing hundreds of millions of consumers face to face with the true market cost of oil. The effect has already begun to chip away at world demand and may ultimately trigger a slide in crude prices.

Egypt - the most populous Arab state - has raised petrol prices by 40pc, despite protests in Cairo. Sri Lanka lifted diesel and petrol prices by 25pc over the weekend. India may have to follow soon to prevent its trade and budget deficits climbing to dangerous levels. "The situation is alarming. We need to stem the rot," said India's energy secretary, MS Srinivasan.

Indonesia has raised petrol prices by 33pc in order to restore fiscal discipline (subsidies are 3pc of GDP). Taiwan has mooted a 20pc rise, and Malaysia is to peel back controls. While China has so far resisted calls for price freedom, the policy is becoming unsustainable. Analysts predict a change in tack after the finish of the Beijing Olympics at the end of August.

The fast-changing politics of the emerging world has started to chill enthusiasm in New York and London for oil futures contracts. West Texas Intermediate has so far slipped $5 a barrel from its all-time high of $135 last week as hedge funds lock in profits, although analysts warn that it is too early to tell whether the 30pc spike in oil prices since March has burned itself out.

Gold, industrial metals and corn (a biofuel substitute for oil) have all fallen hard in recent days as investor sentiment turns cautious towards the whole nexus of commodities.

The drip-drip effect of grim data from the United States, Britain and parts of Europe has sapped confidence, causing many investors to question the whole assumption of a rapid "V" recovery powered by low interest rates in the US. The number of miles driven by Americans fell in March at the steepest rate ever recorded. Oil use in the OECD club of rich states has been falling for more than two years.

Stephen Jen, currency chief at Morgan Stanley, says half the world's population now enjoys fuel subsidies of one sort or another. Petrol costs 5 cents a litre in Venezuela, 12c in Saudi Arabia, 64c in China, $1 in the US, and $2.16 (£1.10) in Britain. It is heavily subsidised in Mexico, Iran, central Asia and the Gulf states.

The result has been to encourage promiscuous use of fuel. It has masked the underlying rate of inflation in emerging markets, and flattered the economic growth rate. Mr Jen says the game is largely over. "The subsidies will need to be rolled back, especially for governments with fragile fiscal positions. They face a stagflationary shock," he said.

Rating Agencies Face New Standards
Standard & Poor’s Ratings Services, Moody’s Investors Service, and Fitch Ratings will need to make some strong adjustments covering how their structured finance ratings businesses operate, according to new standards published by regulators today.

The new rules include provisions that will prohibit analysts from “making proposals or recommendations regarding the design of structured finance products” that the agency rates, according to a new code of conduct for credit rating agencies published Wednesday by the International Organization of Securities Commissions, an international conglomerate representing more than 100 securities regulators.

Among other rules in the code of conduct, rating agencies must also differentiate their ratings of structured financial products — such as residential mortgage-backed securities and CDOs — from other rated debt, a proposal that has been hotly-debated in the States and largely supported by internal proposals from both Moody’s and Fitch.

“IOSCO’s Code of Conduct aims to improve investor protection, improve the fairness, efficiency and transparency of securities markets and to reduce systemic risk,” said Michel Prada, Chairman of IOSCO’s technical committee. “We have engaged in a frank and constructive dialogue with the CRA industry, issuers and investors and have taken a broad range of views into account in finalizing the changes to our code.”

IOSCO first proposed a code of conduct for rating agencies in December 2004, and although not binding on U.S. operations of each major rating agency, the organization has seen support for coordinating global financial regulations grow amidst the current financial crisis.

The guidance from international authorities comes ahead of expected support for the IOSCO code of conduct by U.S. Securities and Exchange Commission chairman Christopher Cox, who has said the SEC will likely roll out its own changes to rating agency regulations on June 11. HW’s key sources suggested Wednesday morning that much of the new regulation will be tied to IOSCO’s proposal, and that Cox will push for stronger international oversight of the debt ratings business as a result.

Watchdog backs plans for global body to oversee rating agencies
Proposals to set up an international body to oversee credit rating agencies have won a powerful endorsement from a leading European regulator. Michel Prada, the French financial regulator and head of an influential international committee, backed proposals for a global body that could name and shame agencies for breach of best practice but that stop short of calling for direct regulation.

The proposals were put forward by a group of European regulators this month. Mr Prada's support comes as the International Organization of Securities Commissions, a group of leading market regulators, prepares to publish its recommendations for the agencies. Mr Prada is head of IOSCO's standard-setting "technical" committee. "I'm personally very supportive of it," he told the Financial Times.

"When I proposed such a concept a couple of years ago, I felt lonely. Now it appears we are converging." National regulators that oversee auditors have co-operated to develop international standards that influence country-level controls since the Enron and WorldCom accounting scandals showed the need for a global structure in monitoring a global business.

IOSCO issued an international "code of conduct" for credit rating agencies in December 2004. But there have been calls for closer supervision and a stronger code because of the increasing importance of the agencies' opinions to financial regulation and their role in rating complex debt and mortgage-related products at the heart of the credit crisis.

"There is a very special kind of relationship between these very independent bodies and the important role they play in the market and we should clarify this relationship," said Mr Prada. IOSCO will this week present its own recommendations to improve its code of conduct for the industry, but there is a feeling among senior regulators that more solid action is needed.

The original proposal from the Committee of European Securities Regulators called for an global standard-setting body for the agencies. CESR said the European Union should act alone if there were no rapid international agreement. Standard & Poor's said the actions it had announced to strengthen its ratings process and improve transparency were consistent with CESR's goals. Moody's said "We are currently reviewing CESR's proposals."

Ilargi: Home prices in Britain were 210% higher in 2007 than in 1997 (the increase was more than twice the US one). They’ll have to plunge over 67% to get back to that level. And they will.

UK house prices 'to suffer double digit falls'
Prices fell by 2.5 per cent this month - the biggest monthly slide since records began 17 years ago, according to Nationwide figures. The fall was far greater than economists had predicted, as the housing market showed no signs of recovering.

Howard Archer, chief economist at Global Insight, said: "It now looks more likely than not that house prices will suffer double-digit falls both this year and in 2009." The lack of affordable housing, the credit crunch causing lenders to pull their best mortgage deals and the gloomy economic situation are all contributing to the predicted fall he warned.

The drop in prices during May also represented a seventh successive month of falls, the longest consecutive period of decline since 1992 when Britain was emerging from recession. The typical house lost almost £5,000 in value, falling to £173,583, over the month, leaving average prices 4.4 per cent lower than a year ago.
The slump was more than four times the rate of decline forecast by analysts after a 0.9 per cent fall in April.

"The pace of house price falls accelerated in May as more weak economic news added to the gathering momentum of negative sentiment in the housing market," said Fionnuala Earley, chief economist at the Nationwide, Britain's second largest mortgage lender.

May's fall was the largest monthly decline since Nationwide began compiling data in January 1991 and shows the housing market slump is gathering momentum. The annual decline is also the biggest since December 1992 when house prices were falling at an annual rate of 6.3 per cent. The downturn will put more pressure on the beleaguered Gordon Brown, the Prime Minister.

The building society said gloomy data from the Bank of England and the Royal Institution of Chartered Surveyors had hit market confidence. The UK mortgage market will remain restricted for as long as 18 months because of the crisis in credit markets, Andy Hornby, chief executive of HBOS Plc, Britain's largest mortgage lender, said. Nationwide's figures deal a blow to tentative hopes of a recovery.

The lights may be going out but power cuts provide an ugly vision of Britain's future
Half a million people hit by power cuts on Tuesday may just have had a sneak preview of what the future holds. Environmentalists yesterday seized on the blackouts as evidence of Britain's over-dependence on a handful of ageing power plants, while electricity producers claimed a series of unfortunate coincidences were to blame.

Either way, if you got stuck in a lift in Cheshire, lost power at home in South London, or had an operation cancelled at a hospital in High Wycombe, you were the victim of an energy gap, a failure of supply to meet demand. This shortfall was a one-off, but the UK continues to sail towards a moment, seven or eight years from now, when the energy gap becomes a much more permanent reality.

Despite more than 15 years of warnings that Britain must replace its ageing power stations within the next decade in order to bridge this gap, little has been achieved. Gordon Brown is now more convinced than ever that nuclear energy is the answer to the UK's power problem, indicating yesterday that he now expects to see the construction of new plants over the next 15 years as well as replacements for existing facilities, all but one of which will be decommissioned by 2023.

However, leaving aside the small matter of the huge political and environmental controversy that surrounds betting on nuclear, the Prime Minister has yet to explain how these new nuclear power stations will come into existence, having ruled out any public subsidy for their substantial construction costs.

The good news for would-be builders of the next generation of power stations is that planning laws have been streamlined to make it easier to get permission for construction. Even so, the 14 sites, owned by British Energy, where nuclear power stations are currently in operation, clearly hold the key.

That makes the question marks still dogging the future ownership of the company all the more a cause for concern. Three bidders, all foreign-controlled, are still thought to be in the running to buy up the company. If one of them is allowed to walk off with the prize, the UK's nuclear future would hang on the whims of a single power giant – not even a British company.

Talks over its future are continuing, British Energy said yesterday, but Centrica, the only British company with an interest in the deal, is currently pinning its hopes on some sort of agreement with one of the foreign buyers.

Credit crunch sends property prices falling worldwide
The housing slump is going global, with the adverse effects of the credit crunch on property values spreading from Europe and the US to the rest of the world. Financial turmoil has sent demand for retail and industrial sites almost everywhere into decline, according to the first global commercial property survey by the Royal Institution of Chartered Surveyors (Rics).

The number of transactions is down in eastern Europe and South America, while the pace of growth has stagnated in emerging Asian markets, even China, as investors "reassess their appetite for risk", the Rics warned in a report yesterday. Demand from commercial tenants, while also falling, has not been so badly affected.

Oliver Gilmartin, the chief economist at the Rics, said: "Few markets have escaped the credit malaise which has engulfed commercial property activity since last summer. What started in the developed world has spilt into investment activity across several emerging markets."

"In Britain, the outlook for the coming quarter remains subdued, with 23 per cent more surveyors expecting rents to fall than rise." The Rics predictions were borne out yesterday when Shaftesbury became the latest British property company to report difficulties, blaming a fall in the value of its portfolio.

The group, which owns shops and restaurants in and around London's Carnaby Street, posted a net loss of £91.2m for the six months to March 31 – its first since 1992. Shaftesbury made net earnings of £212m during the same period a year ago. The net value of its assets has fallen by almost 11 per cent this year.

Mr Gilmartin said that demand for rental property had fallen globally for the first time in four years, with an especially marked fall in capital values in Japan and Australasia. Commercial offices in Japan had the worst rental expectations, followed closely by retail outlets in North America. While China and other emerging Asian economies were a "beacon of resilience" during the second half of 2007, the Rics said, "investors are now less sure of the potential higher returns on offer".

The most serious collapse in confidence had occurred in western nations, it added. More than half the property companies contacted by the Rics in western Europe said industrial property prices had fallen, while the downturn in the US residential market was likely to be strongly reflected in the shops and malls sector.
However, Rics analysts found some parts of the world where commercial property was still doing well. They expect values to continue to rise in parts of Africa and the Middle East.

Britain's ageing population 'as big a threat as climate change'
Ivan Lewis, the health minister, claimed elderly care would become "the new child care" for families in the 21st century as they are forced to cope with looking after their parents long after they have retired.

And he said doctors must start to treat dementia as seriously as they do cancer and heart disease, with a million Britons expect to suffer from the debilitating condition within a generation. His comments come just days after the respected King's Fund think-tank said the cost of caring for people with mental illness will double to £47 billion within 20 years.

By then, one in four adults in Britain will be pensioners, increasing the burden on the benefits system and health care as well as their families and carers. Mr Lewis spoke at the launch of a new campaign by the Alzheimer's Society and the NHS to raise awareness of dementia, to highlight the fact that as few as one in three sufferers are ever diagnosed with the condition.

He said: "As a society we've got to reflect on the fact that elderly care is the new child care, and that demographic change is every bit as much of a challenge as climate change. "Dementia belongs with cancer, heart disease and stroke care in terms of importance, and bringing dementia out of the shadows is not simply a strategy but a moral imperative.

"There's an increasing number of people, especially women, who are balancing jobs with bringing up children and caring for their elderly parents. Some people are discovering their partner has got dementia but still have to be at the school gates every afternoon to pick up their grandchildren, because the parents are working."

The incredible vanishing British mortgage
Move fast if you're on the look-out for a new mortgage and you spot a decent deal – blink and there's a good chance you'll miss it. Take Abbey, which just a fortnight ago cut the cost of its fixed-rate mortgages. Yesterday, in an abrupt change of heart, those price cuts were reversed.

Not only are mortgage borrowers facing a shortage of funds from lenders – the Council for Mortgage Lenders expects total advances to be 40 per cent down on 2007 this year – but market uncertainty makes it tough to keep track of who offers what.

This time last year, according to personal finance data monitor Moneyfacts, there were 15,000 different mortgage products available, with the typical deal remaining on the market for 30 days. In a post-credit crunch world, Moneyfacts reckons there are now less than 3,900 mortgage products on offer, with the terms of each loan changing every 11 days on average.

This volatility poses a particular challenge for hundreds of thousands of borrowers whose fixed-rate mortgages come to an end over the next few months. It is currently impossible to say what sort of rates might be on offer in the short window when such borrowers must source a replacement deal.

The Bank of England insists its special liquidity scheme, through which mortgage lenders can tap around £50bn of short-term funding for mortgage lending, is not intended to push the market back towards last year's lending levels, but simply to stabilise the sector. On the evidence so far, the package has not even achieved this goal.

Bush 'plans Iran air strike by August'
The George W Bush administration plans to launch an air strike against Iran within the next two months, an informed source tells Asia Times Online, echoing other reports that have surfaced in the media in the United States recently. Two key US senators briefed on the attack planned to go public with their opposition to the move, according to the source, but their projected New York Times op-ed piece has yet to appear.

The source, a retired US career diplomat and former assistant secretary of state still active in the foreign affairs community, speaking anonymously, said last week that the US plans an air strike against the Iranian Revolutionary Guards Corps (IRGC). The air strike would target the headquarters of the IRGC's elite Quds force. With an estimated strength of up to 90,000 fighters, the Quds' stated mission is to spread Iran's revolution of 1979 throughout the region.

Targets could include IRGC garrisons in southern and southwestern Iran, near the border with Iraq. US officials have repeatedly claimed Iran is aiding Iraqi insurgents. In January 2007, US forces raided the Iranian consulate general in Erbil, Iraq, arresting five staff members, including two Iranian diplomats it held until November.

Last September, the US Senate approved a resolution by a vote of 76-22 urging President George W Bush to declare the IRGC a terrorist organization. Following this non-binding "sense of the senate" resolution, the White House declared sanctions against the Quds Force as a terrorist group in October. The Bush administration has also accused Iran of pursuing a nuclear weapons program, though most intelligence analysts say the program has been abandoned.

Senators and the Bush administration denied the resolution and terrorist declaration were preludes to an attack on Iran. However, attacking Iran rarely seems far from some American leaders' minds. Arizona senator and presumptive Republican presidential nominee John McCain recast the classic Beach Boys tune Barbara Ann as "Bomb Iran". Democratic candidate Hillary Clinton promised "total obliteration" for Iran if it attacked Israel.

The US and Iran have a long and troubled history, even without the proposed air strike. US and British intelligence were behind attempts to unseat prime minister Mohammed Mossadeq, who nationalized Britain's Anglo-Iranian Petroleum Company, and returned Shah Mohammad Reza Pahlavi to power in 1953. President Jimmy Carter's pressure on the Shah to improve his dismal human-rights record and loosen political control helped the 1979 Islamic revolution unseat the Shah.

But the new government under Ayatollah Ruhollah Khomeini condemned the US as "the Great Satan" for its decades of support for the Shah and its reluctant admission into the US of the fallen monarch for cancer treatment. Students occupied the US Embassy in Teheran, holding 52 diplomats hostage for 444 days. Eight American commandos died in a failed rescue mission in 1980. The US broke diplomatic relations with Iran during the hostage holding and has yet to restore them. Iranian President Mahmud Ahmadinejad's rhetoric often sounds lifted from the Khomeini era.

The source said the White House views the proposed air strike as a limited action to punish Iran for its involvement in Iraq. The source, an ambassador during the administration of president H W Bush, did not provide details on the types of weapons to be used in the attack, nor on the precise stage of planning at this time. It is not known whether the White House has already consulted with allies about the air strike, or if it plans to do so.

Security chief decries ‘war on terror’
The west needs a more comprehensive strategy to counter al-Qaeda propaganda and the US should stop using the term “war on terror”, according to a top intelligence official. Charles Allen, the senior intelligence official at the Department of Homeland Security, says the phrase is counter-productive because it creates “animus” in Islamic countries.

“[It] has nothing to do with political correctness,” Mr Allen said in an interview. “It is interpreted in the Muslim world as a war on Islam and we don’t need this.” President George W. Bush made “war on terror” one of his stock phrases in the wake of the September 11 attacks in 2001. But there is disagreement in Washington, including among his own administration, over whether officials should use the term.

Michael Chertoff, the Homeland Security secretary, does not agree with suggestions that the phrase is equated with a war on Islam, says Russ Knocke, his spokesman. “We are at war with terrorism, and its underlying ideology – not Islam – and we’ve gone out of our way to make that point,” says Mr Knocke. “In truth, war has been declared upon us.”

Peter Hoekstra, the top Republican on the House intelligence committee, in an interview said the phrase ”war on terror” was the “dumbest term…you could use”. The Michigan lawmaker, who criticises the Bush administration for using an overly aggressive tone, says he has urged Stephen Hadley, the national security adviser, not to use the expression.

Gordon Johndroe, spokesman for Mr Hadley, said the White House recognises that “the use of the word ‘Islamic’ before the word terrorist can be heard by Muslims…as lacking nuance, which may incorrectly suggest that all Muslims are terrorists or that we are at war with Islam”. “While we want to be mindful to the way our messages are heard by Muslim audiences, we also think war on terror accurately describes the fight we are in,” he added.

While the military in general tends to echo the langauge of the president, Admiral Mike Mullen, the chairman of the joint chiefs who recently met with moderate Muslim leaders to hear their concerns, tries to ensure his language does not create the perception of a war against Islam, Captain John Kirby, his spokesman, said.

Global food prices will fall back
World food prices are set to fall from current peaks in the coming years but will remain “substantially above” average levels from the past decade, a report said Thursday.

The world's poorest nations are most vulnerable — particularly the urban poor in food-importing countries — and will require increased humanitarian aid to stave off hunger and undernourishment, a joint agricultural outlook by the Organization for Economic Cooperation and Development and the U.N. Food and Agriculture Organization said.

High oil prices, changing diets, urbanization, expanding populations, flawed trade policies, extreme weather, growth in biofuel production and speculation have sent food prices soaring worldwide, trigging protests from Africa to Asia and raising fears that millions more will suffer malnutrition. “There is a real need to foster growth and development in poor countries and to assist in developing their agricultural supply base,” the report said.

The report is based on a forecast of the cereals, oilseeds, sugar, meats, milk and dairy products markets for the period 2008 to 2017. It reflects agriculture and trade policies in place in early 2008 and includes an assessment of the biofuels markets for bioethanol and biodiesel. Despite the price hikes, general price levels have remained “remarkably stable,” suggesting that inflation in the coming decade will “remain low,” the report says.

Compared with the previous decade, the report said average prices over 2008-2017 for beef and pork should rise 20 per cent; sugar around 30 per cent; wheat, maize and skim milk powder 40 to 60 per cent; butter and oilseeds more than 60 per cent; and vegetable oils over 80 per cent. Besides investing in agriculture, the report recommends helping poorer countries diversify their economies and improve governance and administrative systems.

The two international bodies also urge governments to rethink trade restricting policies such as protecting domestic producers through high price support, export taxes and trade embargoes. The report says that demand for biofuels has boosted demand for grains, oilseed products and sugar at a time when stocks are lower.

Analysis “suggests that the energy, security, environmental and economic benefits of biofuels production ... are at best modest, and sometimes even negative,” the report said, urging “alternative approaches.” Internationally, overall food prices have risen 83 per cent in three years, according to the World Bank.

Part of the increase is the result of adverse weather in major grain-producing regions, with spillover effects on crops and livestock that compete for the same land. Once harvests improve, prices should come back down, the report said. Developing countries such as India and China will dominate production and consumption of most commodities by 2017, the report said.

The report assumes a strengthening of the U.S. dollar against most other currencies, which it said will increase incentives to boost domestic production in countries affected by this change. The report also recommends examining the link between climate change and water availability and the effect on production and yield shortfalls. The development of genetically modified organisms “offers potential that could be further exploited” to improve productivity, the report says.

Why the Global Housing Market Boom Bypassed Germany
By Mark Waffel in Berlin
In the last decade house prices have skyrocketed right across the Western world. But not in Germany, where the property market has been in a prolonged slump. Why is it that German house prices have stagnated while property markets in so many other countries seemed to defy gravity?

If you were to buy a house in Germany today, chances are you would pay the same amount as you might have 10 years ago. While house prices have shot up at staggering rates in many industrialized countries, Germany's housing market has been in the doldrums: An average detached house in Germany today costs virtually the same as it did a decade ago.

Not so in many other Western countries. There house prices have climbed to dizzying heights in the last 10 years and now threaten to -- and in some countries have already -- come crashing down. Right across the Western world, from Australia to Spain to the US, property prices more than doubled, but not in Germany. So why is Germany one of only a handful of economically developed countries to have completely missed out on the global property market boom?

And what does this mean for Germany's housing market in the future? For several years now some property experts have been touting Germany as the next hot housing market. Lured by remarkably low prices, property investors from the United Kingdom and Ireland have been snapping up real estate, especially in Berlin. But just because German property is relatively cheap, is it a safe bet that prices will rise?

Post-Reunification Exuberance
To understand why Germany's housing market has been in the doldrums for the last decade you have to go back to the early 1990s. In June 1991, eight months after reunification, a law designed to revive the economy of former East Germany, called the Fördergebietsgesetz, came into force. It offered incredibly generous tax incentives to property investors: Anyone who renovated or built real estate in the former East or Berlin, could write off the entire cost of the investment from their taxable income over 10 years.

Many wealthy West Germans leapt at this once-in-a-life-time opportunity, including some of Germany's biggest celebrities -- such as TV presenters Thomas Gottschalk and Günther Jauch -- to a former foreign minister Hans-Dietrich Genscher to lawyers, dentists and managers. They all poured money into real estate, ranging from single flats to giant office complexes and housing estates.

Buoyed by the generous tax breaks, Germany's property market boomed in the early and middle 1990s. Between 1990 and 1998 -- the year the tax incentives finally expired -- the price of buy-to-let properties rose by around 70 percent. But the policy also helped to create a real estate bubble.

"Effectively, the tax incentives were so generous that people over-invested and that meant there was a glut of supply in Berlin, for example," Julian Power, director of London-based Berlin Capital Investments, which advises individuals and companies on investing in German real estate, told SPIEGEL ONLINE. "People could renovate a property and they couldn't lose, as they could write off the whole cost against their tax bill. ... So people were doing it whether or not there was a demand for it."

Boom Turns to Bust
But in the rush to take advantage of the incredible tax break, many investors seemed to have forgotten to ask themselves whether there really was demand for the property they were building and renovating.

"After 1998 a sobering of the market set in," Jürgen Michael Schick, vice-president and spokesman of Germany's Real Estate Association (IVD), which represents property advisers, brokers, administrators and experts, told SPIEGEL ONLINE. "The tax incentives no longer existed and in the 1990s investors had built over and above market demand."

As the housing market bubble burst, investors' exuberance turned to gloom. While house prices at the end of the 1990s were rising -- and kept rising for the next decade -- in many industrialized countries, Germany's housing market entered a prolonged slump. According to the Economist's global house price league table, the average value of homes doubled or even tripled in many countries between 1997 and 2007. In Britain house prices rose 210 percent, 190 percent in Spain, 168 percent in Australia and 104 percent in the US.

Germany, however, is one of only a handful of economically advanced countries not to experience a housing market boom in the last 10 years -- prices there have stagnated. According to research by Germany's Real Estate Association, which was carried out in 150 German towns and cities, the price of a detached home in 2007 was virtually the same as 10 years earlier.

"What you had in the last one, two, three, four years in many other Western countries -- the kind of property bubble in England, in Ireland, in Spain and in the US -- that's, in principle, what we had in Germany in the 1990s," IVD's vice-president Schick said. "And because of this price correction, we were kind of immunized against the euphoria over house price rises that gripped many Western industrialized countries. That's why Germany was the real exception. ... Admittedly, on top of that came the economic difficulties around the millennium, which have only started to lessen in the last few years."

During the last 10 years Germany struggled with periods of sluggish economic growth -- actually going into recession in 2001 -- and record unemployment. The bursting of the Dot Com stock market bubble in 2000 also hit the country hard, sending the DAX-index, which tracks the Frankfurt stock exchange, crashing to the ground.

The stock market crash, however, did not encourage investors to pour money into real estate, which generally is seen as a safe bet. Too many investors, who had got their fingers burned when the housing market bubble burst at the end of the 1990s, were reluctant to take that gamble again.

According to Power, of Berlin Capital Investments, many Germans had lost a lot of money when the housing market crashed. He said: "Dentists from Munich and Hanover who renovated five buildings and then refinanced and refinanced and borrowed far too much money, suddenly found that the rents were not coming in as expected. A lot of those people went bankrupt."

Foreign Investors Eye a Bargain
Against the international trend, house prices in Germany actually fell between 1998 and around 2003. As homes have become increasingly unaffordable in many industrialized countries, more and more people have struggled to get a foot on the property ladder. In Germany, however, because the international housing market boom bypassed the country, property has become relatively cheap -- which did not go unnoticed by large-scale property investors.

Since 2004, the year in which the German housing market hit rock bottom, institutional investors have snapped up hundreds of thousands of homes -- some at bargain prices. The companies were aided in their acquisitions by the fact that German companies and the federal and regional states -- which once owned much of Germany's housing stock -- were trying to unload the homes from their books.

In 2004, for example, US private equity firm Fortress bought 82,000 Berlin apartments from the federal government's social security and pension agency in a €3.5 billion ($4.3 billion) deal. The same year Morgan Stanley acquired 48,000 properties from Thyssen Krupp, an industrial group, for €2.1 billion ($2.8 billion). The following year UK private equity firm Terra Firma bought 150,000 flats from German energy firm E.ON for €7 billion.

According to IVD's Schick, the German property market in 2004 must have looked like a "dream opportunity" for foreign investors. Prices had fallen, but were now stable. Property was relatively cheap compared to many other European countries. And home ownership, at 43 percent, was -- and still is -- one of the lowest in the industrialized world. On top of that, investors could buy property in Germany and get a yield of 7 percent when borrowing costs were only 4 percent. It was "sensational," Schick said.

Will Prices Rise in Germany ?
As the German economy has recovered in the last few years, so too has the country's housing market. Since 2004 the price of buy-to-let flats in big cities has especially increased.

But even though some housing market experts predict price rises in the future, a property market boom in Germany is a long way off. According to the UK's Royal Institution of Chartered Surveyors' European Housing Review 2008, "a national house price upswing does not seem to be in the offing." It added: "However, in some places -- like Hamburg, Nuremburg and Munich -- local markets are much more active than the overall national pattern."

According to the review, Munich -- which has the highest property prices in Germany -- saw the highest price rises in the first half of 2007: a 6 percent increase. But, in other areas, especially east Germany, over-supply and weak local economies will keep the housing market flat or depressed, it said.

Schick, of the IVD, said house prices in Germany were not likely to rise in the near future, apart from in the big cities. "But even there," he said, "if you compare it to what has happened in the UK housing market, for example, were price went up by up to 200 percent, we're not talking about anything like that. We expect price rises of about three to four percent a year, which in the past were the monthly rises in the UK."

But some housing market experts are far more upbeat about the long-term prospects for the German property market. Power, who advises individuals and companies about buying real estate in Germany, said the current market presented a "very interesting opportunity." According to Power, Germany's very low home-ownership rate of 43 percent -- 12 percent in Berlin -- is likely to increase in the future. Rents, which have been kept artifically low by large public housing companies that once owned large swathes of housing, are likely to rise because state governments are forcing these companies to sell property in order to offload some of the states' debts, Power added. And as rents rise, more people will want to buy their own homes. On top of that, according to Power, too few new homes are being built to meet future demand.

"Basically, what that means over time is there's going to be a shortage of housing," Power said. "And if there's a shortage, then rents will have to rise. So, it becomes economical for people to invest in housing and so on and so on and that should mean rising rents and rising prices. But the point is that this is not going to happen tomorrow. It's going to take the next five years, probably, to follow through."


Anonymous said...


Talking about advertisements, I just received one here in France warning about a crash in the real-estate market. It was sent out by a political group that blames the U.S. "surprimes" and French banks. These guys are only ten months late…

In the FT article, I read:
"Importantly, the break-even inflation rate on Treasuries indexed against inflation remains range-bound, suggesting that investors are confident that the Fed will do what it has to do in time to prevent a sustained increase in price trends."

I have never really understood the break-even rate on TIPS. If people were not confident that the Fed will do what it has to, how would that be reflected in the break-even rate?


Ilargi said...

François et al,

Les ventes de logements neufs ont baissé de 27,9% sur un an en France

PARIS (AFP) - Les ventes de logements neufs sont tombées de 27,9% sur un an au premier trimestre 2008, pour s'établir à 26.700 unités, et le niveau des stocks n'a jamais été aussi élevé, ont annoncé mardi les services de l'Equipement du ministère de l'Ecologie.

Sur cette période, les ventes sont en recul dans 18 des 22 régions de France métropolitaine. La baisse est particulièrement forte en Limousin (-64,8%), Lorraine (-68,4%) et Auvergne (-67,9%), a précisé le ministère dans un communiqué.

Le nombre de logements neufs à vendre a également nettement reculé, au premier trimestre, de 28,3% sur un an à 28.800 logements. Le repli est de 19,3% par rapport au quatrième trimestre 2007.

Cette baisse dépasse même les 60%, en rythme annuel, dans trois régions (Lorraine, Midi-Pyrénés et Auvergne). "Les mises en vente de logements en immeubles collectifs ont reculé de 29,4% et celles de maisons de 21%", selon le communiqué.

Le niveau des ventes restant inférieur à celui des mises en ventes, le stock de logements neufs proposés à la vente "continue de progresser", selon le texte. Au 31 mars, ce stock est de "105.600 logements, chiffre qui n'avait jamais été atteint", a souligné le ministère.

Selon lui, le délai d'écoulement de logement reste stable à 11 mois pour le collectif mais passe à 12 mois pour l'individuel. Quant aux prix au mètre carré, ils ont poursuivi leur progression dans le collectif (+3,7%) mais à l'inverse, dans l'individuel, le prix d'un lot a reculé de 1,8%, selon le ministère.

Anonymous said...

ils ont poursuivi leur progression dans le collectif (+3,7%) mais à l'inverse, dans l'individuel, le prix d'un lot a reculé de 1,8%

Is this indicative of rising demand for urban (i.e. higher density) housing and away from single family (presumably suburban) housing?

Anonymous said...

Could someone 'splain what this means...


Anonymous said...


Check it out:

Looks like the Fed is going to take foreign crap too.

Now, as we all know, not much left on the ol' balance sheet at the Fed. So the Treasury will have to borrow more than needed to fund the government and leave the extra T-bills on retainer at the Fed.

I would think that to attract extra capital rates would have to go up.

Opinions from you guys?

Anonymous said...


In response to ftillier, that is certainly a possible analysis, but I am unfortunately not up enough on the housing market to confirm.