"Recession is just entering its most difficult phase.” Standard & Poor’s - 4/15/2009

[ByLoSellHi]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aI2HJjlab9aQ&refer=home

Life Insurers Face ‘Unprecedented Stress,’ S&P Says (Update2)
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By Andrew Frye

April 15 (Bloomberg) -- U.S. life insurers, a group led by MetLife Inc. and Prudential Financial Inc., face “unprecedented stress” on holdings in bonds and commercial mortgages in the next 18 months, Standard & Poor’s said.

“The U.S. is in the midst of perhaps its longest recession in a generation, and our economists believe it is just entering its most difficult phase,” the ratings firm said today in a statement.

Life insurance stocks have lost more than half their market value in the past 12 months as declines in fixed-income holdings drained capital. Losses and profit declines have discouraged investors in the industry’s stocks and bonds and left life insurers waiting for a response from the Treasury on requests for federal bailout funds.

MetLife, the biggest U.S. life insurer, has dropped 55 percent in the last 12 months of New York Stock Exchange composite trading, while No. 2 Prudential is down 66 percent over the same period. The 11-company S&P Supercomposite Life & Health Insurance Index has fallen 62 percent.

“Insurers have been prevented from accessing the debt markets for additional liquidity,” S&P said.

North American insurers posted more than $190 billion of writedowns and unrealized losses tied to the collapse of the housing market since the beginning of 2007. The industry lost $32 billion in surplus last year, according to Moody’s Investors Service. This year, carriers including New York-based MetLife, Prudential and Hartford Financial Services Group Inc. have been buffeted by ratings downgrades.

MetLife Losses

MetLife’s unrealized losses on corporate debt surged 71 percent to $14 billion in the last three months of 2008 as the recession hurt firms’ ability to repay or refinance their bonds. Corporate defaults are poised for a “significant” increase this year and may end up costing life insurers more than losses on securities linked to subprime, Alt-A and commercial mortgages, according to Barclays Plc.

Christopher Breslin, a spokesman for MetLife, had no immediate comment on the report. MetLife said on April 13 its capital position was “strong” and the company won’t seek aid from the government’s Troubled Asset Relief Program.

Prudential posted a net loss of $1.57 billion in the fourth quarter amid investment declines and costs to prop up minimum- return guarantees on slumping retirement products called variable annuities. Bob DeFillippo, a spokesman for the Newark, New Jersey-based insurer, had no immediate comment.

 

[RiceRocket]

Things are about to get much worse. I personally know quite a few people that are about to go bankrupt and will not be able to pay their payments on anything by the end of the month.

May is going to be the beginning of a summer from hell for the US economy. All that bailout money should have been going to re-capitalize small businesses, not the banks.

If the government thinks the banks are too big to fail, just wait until they find out what happens when small businesses go under en mass. It was the small and medium sized business community that was really too big to fail.

 

[ByLoSellHi]

Quote from RiceRocket:

Things are about to get much worse. I personally know quite a few people that are about to go bankrupt and will not be able to pay their payments on anything by the end of the month.

May is going to be the beginning of a summer from hell for the US economy. All that bailout money should have been going to re-capitalize small businesses, not the banks.

If the government thinks the banks are too big to fail, just wait until they find out what happens when small businesses go under en mass. It was the small and medium sized business community that was really too big to fail.

I just got back from lunch with a friend who used to work for a well known bank, that shall remain unnamed, doing nothing but mortgages. He was a rising superstar there for four years.

They fired him recently, and he's struck out on his own now, with three kids and a wife.

He was making close to 7 figures three years ago, had 18 people working under him running a literal mortgage mill, 6 days a week, and is on the verge of bankruptcy at this point.

He wants to fly me down to Florida and show me a pool of properties he's been documenting, hoping to raise capital from investors to purchase them via contacts he still has at the bank he used to work for.

The only problem is the carrying costs. I've seen the properties on his computer, and they are quite nice and in nice areas, but the taxes and maintenance/association fees make it a no-go for me unless I thought the market would pick up within the next 4 to 6 months, and I just don't see it because of all the new foreclosed properties that will be hitting the market beginning in May.

 

[gsrddi]

The Bank of America has joined other financial institutions in raising interest rates on its four million customers who hold credit card balances. According to the Stock Research Portal, this "obviously is not conducive to increasing consumer spending in the near term – which in my view is in turn not supportive of economic recovery, all other things being equal."

Today's Results

 

[S2007S]

commercial mortgages

and

credit card delinquencies

These 2 are the next wave of problems to enter wallstreet, new lows on all indexes will surely be the case.

 

[S2007S]

Quote from ByLoSellHi:


The only problem is the carrying costs. I've seen the properties on his computer, and they are quite nice and in nice areas, but the taxes and maintenance/association fees

Maintenance on some of those condos in Florida are skyrocketing due to the fact people who cant afford to make payment are moving out keeping the remaining homeowners with an ever so increasing maintenance fee.

 

[trendy]

Quote from ByLoSellHi:

I just got back from lunch with a friend who used to work for a well known bank... He was a rising superstar there for four years.

They fired him recently, and he's struck out on his own now...He was making close to 7 figures three years ago... and is on the verge of bankruptcy at this point.

Well, if he was making close to 7 figures, and is now on the verge of bankruptcy, my thought is if he can't manage his own money, I sure as hell wouldn't want him managing mine.

 

[GCSICLRBC]

Quote from ByLoSellHi:

I just got back from lunch with a friend who used to work for a well known bank, that shall remain unnamed, doing nothing but mortgages. He was a rising superstar there for four years.

They fired him recently, and he's struck out on his own now, with three kids and a wife.

He was making close to 7 figures three years ago, had 18 people working under him running a literal mortgage mill, 6 days a week, and is on the verge of bankruptcy at this point.

He wants to fly me down to Florida and show me a pool of properties he's been documenting, hoping to raise capital from investors to purchase them via contacts he still has at the bank he used to work for.

The only problem is the carrying costs. I've seen the properties on his computer, and they are quite nice and in nice areas, but the taxes and maintenance/association fees make it a no-go for me unless I thought the market would pick up within the next 4 to 6 months, and I just don't see it because of all the new foreclosed properties that will be hitting the market beginning in May.

Hey ByLo,

Thanks for sharing the story of your buddy.

He made a high income but evidently didn't know the diff. between an asset (pays you) & a liability (you pay for it).

He prob. owns a lot of negative cash flow RE, & not enough money in gold, silver, margin accounts (futures), CTA mgd. futures & the like.

Best lesson from RICH DAD, POOR DAD is the difference between the two.

Anyhow, thanks again for sharing

 

[ByLoSellHi]

He was a classic UAW (under accumulator of wealth), guys.

Spend, spend, spend. Mr. Bigshot.

He's a super nice guy, but never knew how to save money, even back in college.

Anyways, the moratorium on foreclosures is now lifted:

http://www.contracostatimes.com/columns/ci_12141305

Second wave of foreclosures bearing down
Drew Voros, Business editor
Posted: 04/14/2009 03:01:32 PM PDT
Updated: 04/14/2009 05:27:12 PM PDT

While the term tsunami generally refers to one gigantic tidal wave, there is an expectation that subsequent destructive waves will follow the Big One.

That is the scenario shaping up in the rough seas of our housing market. Just when we thought stabilization was taking root in residential real estate, a second powerful wave of foreclosures, called the shadow market, is poised to come crashing down on our housing shores.

For the past two months or so, and in some cases longer, the country's biggest banks, mortgage giants Fannie Mae and Freddie Mac, and others have been honoring voluntary moratoriums on foreclosures for different reasons and time periods.

Most were giving President Barack Obama time to air his war strategy for the reeling housing market, which we now know unfortunately favors refinancing over foreclosure prevention. Safe for the long term, but dangerously weak in stemming the next tide of foreclosures.

The beginning of April marked the end of the timeout, and you can expect the business of foreclosures to commence in earnest.

With a two-month respite in a year that should see more foreclosures than last year's 3 million, lost time will have to be made up. Instead of having those new foreclosure listings hitting the market over 12 months, it will be spread in two-thirds of the time. Five million foreclosed homes in 2009 is highly likely.

Another factor that will push more foreclosures onto the market is a sweet plan for banks that will see the federal government subsidizing private equity in buying their toxic assets, which generally are related to residential real estate. When that happens, there will be defaulted mortgages, mortgage-backed securities and even hard assets such as homes that banks have been sitting on suddenly being sold and resold.

The end of the moratoriums coupled with the buying of mortgage-related assets by taxpayers could easily flood housing markets like the Bay Area with more foreclosures in a shorter amount of time than anything we have seen before.

But we allowed two presidential administrations and Congress to take their eye off the foreclosure ball, the one that former Treasury Secretary "Hank" Paulson teed up for us.

Remember how we were told that Congress had to pass that first round of $700 billion in bailout money as Wall Street melted at our feet? The primary reason was the same foreclosure problem we're talking about now, but Paulson quickly took earmarked-bailout money from it like Lucy snatching away the football as Charlie Brown attempts a kick.

We traded dealing with toxic mortgage-related assets in exchange for things like $200 billion in pirate's ransom to pay for the sins of AIG, BofA, Citigroup.

The housing recovery is primed with a bevy of tax credits, low financing, great prices and a sense that we may be at the bottom of this fall. But because the mounting foreclosure problem has been fumbled by our elected leaders in Washington, D.C., it is poised to come back and haunt us.

With some 600,000 people losing their jobs every month, the shadow supply of potential foreclosures will be reloaded monthly for some time to come. Until we tackle this straight on, the economy will remain grounded.

 

[1flyfisher]

My thoughts exactly when I read this....you beat me to it.

Quote from trendy:

Quote from ByLoSellHi:

I just got back from lunch with a friend who used to work for a well known bank... He was a rising superstar there for four years.

They fired him recently, and he's struck out on his own now...He was making close to 7 figures three years ago... and is on the verge of bankruptcy at this point.

Well, if he was making close to 7 figures, and is now on the verge of bankruptcy, my thought is if he can't manage his own money, I sure as hell wouldn't want him managing mine.