As Inventories Shrink, So Do Seller Concessions, by RisMedia

With inventories down and prices up, sellers are ending the costly incentives they have been forced to offer buyers during the six-year long buyers’ market. Concession-free transactions make deal-making simple on both sides of the table.

There’s no better gauge of the onset of a seller’s market than the demise of concessions that were considered essential to attract buyer interest just a few months ago. The National Association of REALTORS®’ December REALTOR® Confidence Outlook reported that the market has steadily moved towards a seller’s market with buyers more willing to bear closing costs, in some cases paying for half or more of the closing cost. Tight inventories of homes for sale are making markets increasingly competitive.

NAR reports that last year 60 percent of all sellers offered incentives to attract buyers. The most popular was a free home warranty policy, which costs about $500, offered by 22 percent of sellers, but 17 percent upped the ante by paying a portion of buyers’ closing costs and 7 percent contributed to remodeling or repairs.

Concessions linger where inventories are still adequate and sales slow, but in tight markets like Washington D.C., the times when buyers can expect concessions are already over.

“Buyers are discovering, to their dismay that homes they wanted to see or possibly buy have already been snatched up before they even get a chance to see or make an offer on the property. This area’s unprecedented low inventory levels are slowly driving up home prices and making sellers reluctant to cede little if any concessions to buyers. Realtors are warning (or should in some cases) buyers to be prepared to act that day if they are interested in a property,” reporters a local broker.

In Albuquerque, supply is dwindling and sales are moving to a more balanced market. “Buyers can expect sellers to offer less concessions and sales prices will be close to list price,” reports broker Archie Saiz.

In Seattle, not only are concessions a thing of the past, desperate buyers are even resorting to writing “love letters” to win over sellers in competitive situations. Lena Maul, a broker/owner in Lynnwood, reports a successful letter-writing effort last month by one of her office’s clients. Those buyers, who were using FHA financing, wrote a letter introducing themselves to the seller and explaining why they liked the home so much. After reviewing 13 offers, including one from an all-cash investor, the seller chose the letter-writer’s offer.

New regulations enacted last year by the Federal Housing Administration to limit its exposure to risk forced many sellers to cut back on the amount of assistance on buyers’ closing costs. Sellers are now limited to no more than six percent of the loan amount.

Underwriting standards on conventional mortgages also have the effect of limiting the amount sellers can contribute.

In recent years many lenders have disallowed seller paid closing costs on 100 percent financed home loans because of the high foreclosure rate.

However, seller paid closing costs are typically limited to 6 percent of the loan amount at 90 percent loan-to-value or lower, 3 percent between 90-95 percent, and then usually 3 percent for 100 percent loan-to-value.

Some sellers bump up the home sales price to pay for concessions. However the buyer will need to get the higher amount he will need to borrow covered by the appraisal and he will have to meet increased debt-to-income ratio in order to close his loan.

The demise of concessions will make buying and selling a little simpler and more rational. As one observed asked, “Why would anyone selling a home pay the home buyer to buy it?”

For more information, visit

Nearly Half of U.S. Families Teetering on Edge of Ruin. by MANDI WOODRUFF, Business Insider

In the past few years, Americans have certainly learned a thing or two about how quickly disaster can strike.

And with each Hurricane Sandy, housing crisis, and stock market crash that rocks our world, we’re faced with the harsh realization that many of us simply aren’t prepared for the worst. A sobering new report by the Corporation for Enterprise Development shows nearly half of U.S. households (132.1 million people) don’t have enough savings to weather emergencies or finance long-term needs like college tuition, health care and housing.


According to the Assets & Opportunity Scorecard, these people wouldn’t last three months if their income was suddenly depleted. More than 30 percent don’t even have a savings account, and another 8 percent don’t bank at all.

We’re not just talking about people who living people the poverty line, either. Plenty of the middle class have joined the ranks of the “working poor,” struggling right alongside families scraping by on food stamps and other forms of public assistance.

More than one-quarter of households earning $55,465 to $90,000 annually have less than three months of savings. And another quarter of households are considered net worth asset poor, meaning “the few assets they have, such as a savings account or durable assets like a home, business or car, are overwhelmed by their debts,” the study says.

One of the prolonging reasons consumers have consistently struggled to make ends meet has more to do with larger economic issues than whether or not they can balance a checkbook. According to the report, household median net worth declined by over $27,000 from its peak in 2006 to $68,948 in 2010, and at the same time, the cost of basic necessities like housing, food, and education have soared.

It’s a dichotomy that is hammered home in a new book by finance expert Helaine Olen. In Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, Olen knocks down much of the commonly-spread advice that is sold by the personal finance industry –– the idea that if you’re not making ends meet in America, you’re doing something wrong.

“The problem was fixed cost, the things that are difficult to ‘cut back’ on. Housing, health care, and education cost the average family 75 percent of their discretionary income in the 2000s. The comparable figure in 1973: 50 percent,” Olen writes.

“And even as the cost of buying a house plunged in many areas of the country in the latter half of the 2000s (causing, needless to say, its own set of problems) the price of other necessary expenditures kept rising.”

And wherever consumers can’t cope with costs, they continue to rely on plastic. The average borrower carries more than $10,700 in credit card debt, one in five households still rely on high-risk financial services that target low-income and under-banked consumers.

Declining Home Inventory Affecting Sales, by Mortgage Implode Blog



This past week, several reports were released, all of which showed that declining home inventory is affecting sales. This decline is creating a seller’s market in which multiple bids are being made to purchase homes. According to the National Association of Realtors, existing home sales fell 1% in December, but were still at the second highest level since November, 2009. Inventory of homes for sale fell 8.5 from November, the lowest level since January of 2001, and are down 21.6% from December of 2011.

Following that lead, pending home sales dropped 4.34% in December to 101.7 from 106.3 in November, yet was 6.9% higher than December, 2011, according to the National Association of Realtors. The Chief Economist at NAR stated that “supplies of homes costing less than $100,000 are tight in much of the country, especially in the West, so first time buyers have fewer options”. Mortgage ratesare still low, affordability is still there, but the available homes are dwindling. In the meantime, home prices are increasing at a faster pace. According to the latest S&P/Case-Shiller index for November, property values rose 5.5% from November of 2011 which was the highest year over year increase since August of 2006.

The cause of the low inventory can be attributed to several factors. For the week ending January 18th, loan applications increased 7.0% on a seasonally adjusted basis, according to the Mortgage Banker’s Association. The Refinance Index rose 8% with refinances representing 82% of all applications. The seasonally adjusted Purchase Index rose 3%, the highest level since May, 2010. Many homeowners have chosen a mortgage refinance instead of moving to another home which is one reason that inventory is down. In addition, many underwater homeowners have refinanced through the HARP program which is available for loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009. These homeowners may not yet be in a position to sell their homes until they have gained back enough equity. As home prices increase, this will eventually happen. The same can be said for those who refinanced through the FHA streamline program which is offering reduced fees for loans that were endorsed prior to June 1, 2009. Refinancing through these two government programs, both available until the end of 2013, hit all time highs in 2012.

Home builders are busy, but not currently building new homes at the rate that was seen during the housing boom. According to the Census Bureau and the Department of Housing and Urban Development, total new homes sales in 2012 hit the highest level seen since 2009 and were up 19.9% from 2011. There was much progress made in 2012, but sales for new homes fell 7.3% in December.

On the down side, the Census Bureau reported that homeownership fell 0.6% to 65.4% during December, down from 65.5% at the end of October and 66% at the end of 2011. Homeownership reached a peak of 69.2% in 2004 and has been falling since that time. The latest Consumer Confidence index dropped to 58.6 which is the weakest since November of 2011. It was previously at a revised 66.7 in December. This fell more than expected and is due to the higher payroll tax that is taking more out of the pockets of consumers.

The housing market, which is still in recovery, remains fragile. The lack of inventory and the rise of home prices may affect its progress this year. As home prices increase, fewer consumers will be able to qualify for a home loan. Existing homeowners may choose to refinance remain where they are instead of purchasing another home. While jobless claims have fallen, there are still many consumers who are out of work or are working lower paid jobs. The housing market is dependent on jobs, not just for salaries, but for consumer movement from one area to another. surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at about a 1 point origination fee. Updated with New Notice of Default Lists

Visit for the notice of default lists (Homes in Foreclosure) for Multnomah County and other Oregon counties.

Multnomah Country Foreclosures

Fred Stewart
Stewart Group Realty Inc.

When a quality check can ruin a short sale, by Chris Diaz, The Orange County Register

Chris Diaz is the founder of Charis Financial, Inc. He has over 15 years experience in helping homeowners with their mortgages and has closed hundreds of short sales over the last 4 years. His website is Send questions to; reference ³Short Sales² in the subject line. 
I was recently approved for a short sale by (my bank).  The loan was in escrow and ready to close within a few days.  I then got a letter from (the bank) denying my short sale due to “quality review”.  My approval letter wasn’t set to expire for another two weeks and nobody in (the bank) could give me a valid reason as to why I received this denial.  Have you seen this scenario before and do you have any suggestions for me as I really don’t want to lose my home to foreclosure?

Yes, the out of the blue “QA Review” denial.  This one is a difficult one because of the lack of explanation from your bank.  It’s difficult to accept that one can have an approval in hand, with an expiration date that hasn’t yet expired, and still get a denial for a reason that is unexplained.  However, this is a reality and it does happen, albeit somewhat infrequently.

Even though your lender has accepted responsibility for their part in one of the largest instances of mortgage fraud on record with the robo-signing incident, they have a QA team that dedicates a great deal of time and effort in making sure that their company is free from other purveyors of fraud.  As well they should because there are lots of unscrupulous people trying to steal a buck instead of earn one.

One recent incident, in which a bank was victimized, was where short sale negotiators were doctoring up fake approval letters along with a fake bank account to have funds wired to, and stealing money that way.  The FBI said that three California men probably netted $10 million doing that.

Here are two of the main reasons that we’ve been told as to why a QA department would deny your file and what you can do to reverse or overturn the decision:

1. Buyer information is incorrect. Sometimes QA will deny a deal if the buyer’s preapproval has inaccuracies like the wrong NMLS number, broker number, or property address.  This can also happen if the buyer’s “proof of funds” is determined to be fraudulent or doctored in any way.  We have also seen it happen where the buyer is getting a loan but has enough money in the bank to pay for a property in cash.  Even though they could’ve bought the house in cash, because there was no preapproval letter for a loan, QA denied the short sale until we provided that letter.  This has happened even if we weren’t specifically asked for the letter.

2. The Equator account being used to process the short sale has been flagged. Some banks use an automated processing system called Equator to handle their short sales.  Equator centralizes all communication for all files that a real estate licensee is working on with them.  Sometimes, a licensee can involve themselves in schemes like I described above, or can just be guilty of shoddy work and upload documents from files incorrectly.  If the QA team catches either of these two things they may flag that file or all of the files of that particular agent.  Once that happens they would contact the agent for an explanation.  However, if they feel that there are deliberate inaccuracies in the file an agent can be suspended from doing any further deals with that bank.  If that happened your deal could be denied even if there was nothing fraudulent done on yours.

If a QA team has denied your short sale, have your agent address these two situations first as they are the most common.  So long as you’re dealing with someone who is ethical, there is probably just a minor oversight of buyer info that the bank needs to have satisfied.  Have your agent submit the complete buyer info first and then call to have the decision reversed.

Credit Bubble Bulletin,

The S&P 500 recorded a total return for the quarter of 12.59%, the best quarterly performance since 1998.  The S&P 400 Mid-caps returned 13.50%.  Apple gained 48%.  The Morgan Stanley High Tech index jumped 21.7%.  The Morgan Stanley Retail index (trading to a new all-time record high) rose 15.5%.  The S&P 500 Homebuilding index jumped 31.6%.  The German DAX increased 17.8%, Japan’s Nikkei 19.3%, and Brazil’s Bovespa 13.7%.
For the quarter, total global corporate debt issuance of $1.16 TN just surpassed 2009’s first-quarter record.  According to Bloomberg, the $190bn issuance of developing nation debt was a new first quarter record – and was up about 50% from the year ago quarter.  At $433bn, U.S. corporate debt issuance posted a new first-quarter record.
Today’s Bloomberg Headline:  “Corporates Beat Governments in Best Start Ever.”  According to Bank of America indices, global corporate bonds returned 3.85% for the quarter.  Investment grade corporate debt earned 3.36%, while junk bonds returned 7.04%.  European corporates returned 12.9%, led by an eye-catching 22% gain on Europe’s lowest rated corporate debt.  U.S. municipal debt returned about 2.0% for the quarter.  The benchmark Markit North American Investment Grade Credit defaults swap index posted its largest quarterly decline (28.6 bps, according to Bloomberg).
Watching it all, I struggle even more with the notion of “financial repression.”  “Saver repression” and “bear suppression” make sense to me.  Returns for the rationally risk averse investor are being depressed, no doubt about that.  Yet it is an altogether different story for the financial speculator:  Instead of repression, it’s Financial Liberation.  Never has the investment landscape been so stacked against the saver and investor in favor of the speculator community.
Over the years I’ve enjoyed Bill Gross’s monthly writings.  At times I’ve taken exception with his (and his colleagues’) macro analysis – and I’ve as well tipped my hat.  I look forward to his insights – plus there’s always the intrigue:  Will he don the hat of the savvy analyst, the yearning statesman or the master poker player?  No matter what, Mr. Gross sits enviably in the catbird’s seat overseeing history’s greatest Credit Bubble and financial mania.  These days I read with keen interest.
Mr. Gross’s latest is cogent and insightful.  Our analytical frameworks share important commonalities, although this month he takes one giant leap of faith that I imagine most readers would easily gloss right over:  From Mr. Gross:  “On the whole, however, because of massive QEs and LTROs in the trillions of dollars, our credit based, leverage dependent financial system is actually leverage expanding, although only mildly andsystemically less threatening than before, as least from the standpoint of a growth rate.”  Systematically less threatening than before?  The $64 Trillion question.
Along the lines of Mr. Gross’s view, I’ve held that notions of systemic deleveraging are largely urban myth.  Here in the U.S., household debt has been contracting mildly (from a historically extreme level).  The corporate balance sheet keeps expanding, although nothing compared to ballooning federal obligations.  For three years now I’ve posited the “global government finance Bubble” thesis.  There is overwhelming evidence supporting the “granddaddy of all Bubbles” view, not the least of which is that federal liabilities have doubled in only four years.
I have posited the profound role played by “moneyness of Credit.”  Moneyness, in concert with Federal Reserve and global central bank policymaking, has allowed the U.S. Treasury to issue Trillions of (nonproductive) debt at the most meager of risk premiums.  Unprecedented federal debt issuance has been instrumental in ensuring ongoing total system Credit expansion, in the process inflating incomes, corporate cash flows, local government receipts, and asset prices generally.  The Greek government and economy also enjoyed moneyness for years as it accumulated hundreds of billions of unmanageable debt.  I would argue strongly that nothing could be more threatening to system stability than a massive issuance of public sector debt in response to a bursting private sector Credit Bubble.  Especially when government debt comprises the foundation of a frail mountain of system Credit, one cannot overstate the systemic risks associated with government Credit losing the perception of moneyness in the marketplace.
This week was loaded plum full of fascinating central bank commentary.  Chairman Bernanke continued with his four-part college lecture series, “The Federal Reserve and the Financial Crisis.”  Defending extraordinary policy measures, Chairman Bernanke commented:  “We did stop the meltdown.  We avoided what would have been, I think, a collapse of the global financial system.”  Monday, Dr. Bernanke’s surprisingly dovish comments regarding labor market and economic weaknesses helped stoke U.S. equities and global risk markets (while pressuring our currency).  His comments emboldened those believing the Chairman is determined to go forward with additional quantitative easing come hell or high water.
Noted Stanford professor (the “Taylor Rule”) and former Undersecretary of the Treasury, John Taylor, upped the pressure on the Fed a notch with his Wall Street Journal op-ed, “The Dangers of an Interventionist Fed.”  An economist after my own analytical heart, Dr. Taylor argues persuasively against the Fed’s interventionist approach, while reintroducing the old “rules versus discretion” central bank policymaking debate.  “For all these reasons, the Federal Reserve should move to a less interventionist and more rules-based policy of the kind that has worked in the past.”  Yes, sir.  Dr. Taylor also argues for the end to the Fed’s dual mandate, replacing it with a single goal of “long-term price stability.”  His provocative piece is worthy of a future CBB, but for now I’ll simply interject that a singular, although necessarily complex, goal of “long-term monetary stability” would be superior.
And while we’re on the subject of monetary stability, Bundesbank President and ECB Governing Council member Jens Weidmann Wednesday presented provocative analysis in his “Rebalancing Europe” speech.  “Just like the ‘Tower of Babel,’ the ‘Wall of Money’ will never reach heaven.  If we continue to make it higher and higher, we will, in fact, run into more worldly constraints” that may include “incentives that lead to new problems in the future.”  “In any case, we must realise that all the money we put on the table will not buy us a lasting solution.”  The Germans/“Austrians” just have a very different way at looking at monetary and economic affairs.  They make sense.
And yesterday from Market News International:  “Addressing the root causes of the ongoing crisis, Weidmann stressed that ‘Europe has to be rebalanced.’ While some have argued that both countries with persistent current account deficits and surpluses have to make changes, Weidmann stressed that it is the deficit states that need to adjust.  ‘It is true that surplus countries have benefited through higher exports.  But ultimately, it was the deficit countries that operated an unsustainable model defined by a credit-fuelled boom in domestic demand, and this model has to be reformed… And we must acknowledge that surplus countries are already helping to ease the burden of adjustment…  What are the rescue packages other than publicly guaranteed interim loans to facilitate the adjustment?’   …Turning to the ‘central fear’ of deflation, Weidmann conceded that prices and wages would fall as fiscal and other economic adjustments take place. ‘But we must not confuse such a one-time adjustment with full-fledged deflation.’”
Between Taylor and Weidmann, it’s tempting to proclaim that the focus of monetary analysis this week took a dramatic turn for the better.  And even Chairman Bernanke seemed, at least momentarily, to be a party to more grounded analysis.
March 29 – Bloomberg (Craig Torres and Jeff Kearns):  “Federal Reserve Chairman Ben S. Bernanke said financial stability is no longer a ‘junior partner’ to monetary policy and central banks should try to defuse threats in the future.   ‘The crisis underscored that maintaining financial stability is an equally critical responsibility,’ Bernanke said… ‘As much as possible, central banks and other regulators should try to anticipate and defuse threats to financial stability and mitigate the effects when a crisis occurs…’ Bernanke’s comments align him with German central bankers such as Otmar Issing, the former chief economist for the European Central Bank, who have long argued that leaning against credit-fueled financial bubbles was a core responsibility of central banks.”
Well, it’s a start, but I highly doubt Mr. Issing would today believe that Dr. Bernanke and the Fed are even remotely aligned with the German view of things.  To venture a guess, I’d even state that Issing (and fellow German statesmen) likely views U.S. policymaking as more preposterous than ever.  There is, after all, a long-running rivalry between Federal Reserve and Bundesbank doctrines.  And when Bundesbank President Weidman points his finger at “deficit countries” in Europe as primary instigators of system imbalances and fragilities, appreciate that from the German perspective the blame for global imbalances and instabilities rests predominantly with the big, perpetual deficit country in which we live.  European imbalances are a microcosm of international imbalances, and the European crisis is but a harbinger of a much more serious global debt crisis.  The U.S. has “operated an unsustainable model defined by a credit-fuelled boom in domestic demand, and this model has to be reformed.”
As I’ve argued over the years (in the “Austrian” tradition), it is indeed the deficit countries that, in the process of borrowing to finance consumption above their capacity to produce, create/inject new monetary claims into the system.  Persistent Current Account Deficits matter tremendously.  For one, they disturb monetary stability and nurture disorder.  Attendant monetary inflation fuels self-reinforcing dynamics, including asset inflation (and only more consumption!), a massive accumulation of global financial claims, and attendant economic maladjustment and imbalances.  The German/“Austrian” view holds that real economic wealth is created by an economy producing more than it consumes.  Credit excess leads to little more than financial, economic and policymaking trouble.  And I fully expect the Germans, more confident in their framework than ever, to be increasingly forceful in defending their position now that they have become a lightning rod for global pressure and ridicule.
I would prefer to take Bernanke at his word:  “Central banks and other regulators should try to anticipate and defuse threats to financial stability…”  To begin with, there’s his important qualification “as much as possible.”  And today he shows nothing but dogged determination to move forward with his “activist” (inflationist) monetary experiment.
Somehow, he’s yet to be convinced of the merits of preempting Bubbles.   If he or other members of the Fed are really interested in defusing threats, I would first and foremost point them to the massive federal deficits that their policymaking is complicit in fostering (both through slashing rates and enormous Treasury and security purchases).  Second, they might want to take a look at the tripling of FHA insurance over the past few years (to surpass $1.0 TN).  And then they might consider trying to defuse the unprecedented expansion of student loans that poses risk to millions of borrowers as well as the American taxpayer.  They might ponder the underlying issue of rampant inflation in the cost of higher education.  I would also suggest taking a deep dive into “derivatives,” although I am confident they don’t want to go there.  How about the hedge funds and speculative leveraging in the Treasury and agency securities markets?
And, in the final analysis, if the Federal Reserve ever gets serious about promoting financial stability they’ll want to rethink their proclivity for pegging interest rates at low levels, intervening in the marketplace and grossly distorting the financial markets.

Yesterday from Bloomberg (Craig Torres and Jeff Kearns):  “Today’s lecture focused on the Fed’s response, the regulatory response, and the long-term implications of both. The students gave Bernanke a gift today: a framed front page from The New York Times’ April 20, 1933 edition which featured a four-column headline announcing: ‘Gold Standard Dropped Temporarily To Aid Prices and Our World Position; Bill Ready for Controlled Inflation.’”


For The Week:

The S&P 500 gained 0.8% (up 12.0% y-t-d), and the Dow increased 1.0% (up 8.1%).  The S&P 400 Mid-Caps added 0.3% (up 13.1%), while the small cap Russell 2000 was little changed (up 12.1%).  The Banks were up 0.4% (up 26.3%), while the Broker/Dealers were down 2.2% (up 26.6%).  The Morgan Stanley Cyclicals slipped 0.3% (up 16.3%), while the Transports added 0.7% (up 4.7%).  The Morgan Stanley Consumer index increased 1.2% (up 5.6%), and the Utilities gained 1.3% (down 2.6%).  The Nasdaq100 was 1.0% higher (up 21%), and the Morgan Stanley High Tech index jumped 1.4% (up 21.7%).  The Semiconductors increased 0.7% (up 20.4%).  The InteractiveWeek Internet index rose 1.3% (up 17.9%).  The Biotechs surged 5.4% (up 29.5%).  Although bullion increased $6, the HUI gold index slipped 0.1% (down 5.2%).

One-month Treasury bill rates ended the week at 3 bps and three-month bills closed at 7 bps.  Two-year government yields were down 2 bps to 0.3%. Five-year T-note yields ended the week down 4 bps to 1.04%. Ten-year yields dipped 2 bps to 2.21%.  Long bond yields rose 3 bps to 3.34%.  Benchmark Fannie MBS yields declined 7 bps to 3.06%.  The spread between 10-year Treasury yields and benchmark MBS yields narrowed 5 bps to 85 bps.  The implied yield on December 2013 eurodollar futures declined 6 bps to 0.78%.  The two-year dollar swap spread was down slightly to 25 bps. The 10-year dollar swap spread was little changed at 8 bps. Corporate bond spreads were mixed.  An index of investment grade bond risk was unchanged at 91 bps.  An index of junk bond risk increased 22 to 574 bps.

A week that concluded record first quarter debt issuance.  Investment grade issuers included Metlife $1.5bn, Prudential $1.0bn, Health Care REIT $600 million, Massmutual $500 million, Flowers Foods $400 million, Lincoln National $300 million, University of Pennsylvania $300 million, Vessel Management Services $230 million, and Potomac Electric Power $200 million.

Junk bond funds saw inflows slow to $456 million (from Lipper). Junk issuers Lawson Software $1.0bn, Hercules Offshore $500 million, Vanguard Health $375 million, Meritage Homes $300 million, USG Corp $250 million, Harron Communications $225 million, Avis Budget Rental Car $125 million, and Kemet Corp $125 million.

I saw no convertible debt issuance.

International dollar bond issuers included Russia $7.0bn, Lyondellbasell $3.0bn, Vale Overseas $2.25bn, UBS $2.0bn, HSBC $2.0bn, DNB Bank $2.0bn, Barrick Gold $2.0bn, Boligkreditt $1.25bn, Svenska Handelsbanken $1.25bn, Korea National Oil $1.0bn, OGX Austria $1.0bn, CEZ AS $1.0bn, Heineken $750 million, China Resources Gas Group $750 million, Canada Oil Sands Trust $700 million, Anglo American $600 million, Zoomlion $400 million, Banco Latinoamericano $400 million, and Kommunalbanken $300 million.

In a volatile week, Spain’s 10-year yields ended the week down 2 bps to 5.33% (up 29bps y-t-d). Ten-year Portuguese yields sank 98 bps to 11.25% (down 152bps). The new Greek 10-year note yield surged 99 bps to 20.54%.  Italian 10-yr yields ended the week up 7 bps to 5.10% (down 193bps).  German bund yields fell 7 bps to 1.79% (down 3bps), and French yields declined 6 bps to 2.88% (down 26bps).  The French to German 10-year bond spread narrowed one to 109 bps. U.K. 10-year gilt yields dropped 7 bps to 2.20% (up 23bps).  Irish yields were up 3 bps to 6.74% (down 152bps).

The German DAX equities index declined 0.7% (up 17.8% y-t-d).  Japanese 10-year “JGB” yields fell 4 bps to 0.98% (unchanged).  Japan’s Nikkei added 0.7% (up 19.3%). Emerging markets were mixed.  For the week, Brazil’s Bovespa equities index fell 2.0% (up 13.7%), while Mexico’s Bolsa jumped 3.1% (up 6.6%). South Korea’s Kospi index declined 0.6% (up 10.3%).  India’s Sensex equities index added 0.2% (up 12.6%).  China’s Shanghai Exchange sank 3.7% (up 2.9%). Brazil’s benchmark dollar bond yields rose 6 bps to 3.17%.

Freddie Mac 30-year fixed mortgage rates dropped 9 bps to 3.99% (down 87bps y-o-y). Fifteen-year fixed rates declined 7 bps to 3.23% (down 86bps).  One-year ARMs fell 6 bps to 2.78% (down 48bps).  Bankrate’s survey of jumbo mortgage borrowing costs had 30-yr fixed rates unchanged at 4.61% (down 78bps).

Federal Reserve Credit increased $1.5bn to $2.873 TN.  Fed Credit was up $275bn from a year ago, or 10.6%.  Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 3/28) declined $3.1bn to $3.474 TN. “Custody holdings” were up $54.0bn y-t-d and $66.5bn year-over-year, or 2.0%.

Global central bank “international reserve assets” (excluding gold) – as tallied by Bloomberg – were up $912bn y-o-y, or 9.7% to $10.295 TN.  Over two years, reserves were $2.455 TN higher, for 31% growth.

M2 (narrow) “money” supply fell $22.6bn to $9.788 TN.  “Narrow money” has expanded 6.8% annualized year-to-date and was up 9.3% from a year ago.  For the week, Currency increased $2.1bn.  Demand and Checkable Deposits dropped $21.8bn, while Savings Deposits increased $2.3bn.  Small Denominated Deposits declined $3.5bn.  Retail Money Funds slipped $2.0bn.

Total Money Fund assets declined $17.2bn to $2.605 TN (low since August).  Money Fund assets were down $90bn y-t-d and $131bn over the past year, or 4.8%.

Total Commercial Paper outstanding increased $6.3bn to $938bn.  CP was down $22bn y-t-d and $144bn from one year ago, or down 13.3%.

Global Credit Watch:

March 30 – Bloomberg (Angeline Benoit):  “Spain will raise corporate taxes and slash public spending as it seeks to make good on a pledge to trim the deficit by more than a third this year to prevent the country from falling victim to the region’s debt crisis.  The 2012 budget plan unveiled after a Cabinet meeting in Madrid… seeks to avoid making consumers fund the cuts to reduce the budget gap to 5.3% of gross domestic product from 8.5% last year. The plan won’t raise value-added tax, cut pension payments or reduce civil-servants wages, Deputy Prime Minister Soraya Saenz de Santamaria said.  ‘We are in a critical situation that has forced us to respond with the most austere budget of the Spanish democracy,’ said Budget Minister Cristobol Montoro.”

March 29 – Financial Times (Victor Mallet):  “Millions of Spaniards joined a one-day general strike on Thursday in a protest called by trade unions against the labour reforms and austerity plans of the centre-right government.  Mariano Rajoy, the Popular party prime minister elected in November with a mandate to reform the Spanish economy and avert the need for a bailout by the European Union and the International Monetary Fund, said there was ‘total’ normality despite the strike when he arrived at parliament in Madrid.”

March 27 – Bloomberg (Charles Penty):  “Spanish banks are using loans from the European Central Bank to buy domestic government debt in a recycling exercise that hasn’t stopped 10-year yields from climbing back above 5% in recent weeks.  Investments in government debt by Spanish banks climbed to a record 230 billion euros ($307bn) in January from 178 billion euros in November, a jump of 29%… ‘The increase in debt purchases by the Spanish banks has been massive and it’s clear it’s coming from the LTRO,’ said Tobias Blattner, an economist at Daiwa Capital Markets… ‘The key point is that Spanish banks can’t keep up the pace because the situation is still so volatile and prone to changes of sentiment.’”

March 29 – Bloomberg (Lucy Meakin and Keith Jenkins):  “Spanish bonds fell the most in a week as a general strike by the nation’s unions highlighted the challenges facing the government as it seeks to cut costs and reduce the deficit… Spain’s Budget Minister Cristobal Montoro presents the 2012 budget tomorrow, which aims to reduce the deficit even as the economy contracts. Greece may have to restructure its debt again, Moritz Kraemer, head of sovereign ratings at Standard & Poor’s, said… ‘The economic situation in Spain is gloomy,’ said Sercan Eraslan, a fixed-income strategist at WestLB AG… ‘There’s speculation about Spain and Portugal, and that’s the main driver today for Spanish and Italian debt. S&P’s warning on Greece, that it may need a second restructuring, provided uncertainty of new contagion fears.’”

March 27 – Bloomberg (Sharon Smyth):  “Prices for Spanish homes fell 3.4% in the first quarter from the previous three months as the euro area’s fourth-largest economy shrank and reduced mortgage lending crimped demand… ‘Prices have continued to fall due to difficulty in obtaining mortgage financing,’ said Fernando Encinar, co-founder of Idealista. ‘Legislation passed by the government in February to push banks to provision for real estate will result in similar declines over the remaining quarters of the year.’”

March 28 – Bloomberg (Jana Randow):  “Growth in loans to households and companies in the 17-nation euro area slowed in February… Loans to the private sector grew 0.7% from a year earlier after gaining an annual 1.1% in January, the ECB said… The rate of growth in M3 money supply… increased to 2.8% from 2.5%.”

March 29 – Bloomberg (Lorenzo Totaro):  “Investors are facing the return of political risk in Italy as Prime Minister Mario Monti’s plan to make it easier to fire workers divides his ruling coalition.  Unless Italy is ‘ready for what we think is a good job, we may not seek to continue,’ Monti said… prompting concern the government won’t last until elections due by May 2013. He made the comments after leaders of the Democratic Party, which has backed his unelected government, said they would seek to reverse the change in Parliament.”

March 28 – Dow Jones:   “Moody’s… downgraded its ratings on five Portuguese banks, pointing to mounting pressure from their home country’s weakening economy… A prolonged economic downturn had made it harder for Portugal to tame its budget gap, suggesting the country will face an uphill battle to regain investors’ confidence. Government-bond yields have improved this week, though they remain at elevated levels that suggest distress.”

March 28 – Bloomberg (Maria Petrakis):  “Greek voters are unlikely to give any party a workable majority in elections as soon as next month, jeopardizing austerity policies on which bailout funds depend.  Opinion surveys show as many as eight parties may win seats in the 300-member legislature…  ‘All polls suggest the Greek elections won’t lead to a majority one-party government,’ said Athanasios Vamvakidis, head European currency strategist at Bank of America Merrill Lynch… ‘Without a strong government in Greece that can implement the program, a disorderly default that could lead to euro exit remains a possibility.’”

March 29 – New York Times (Peter Eavis):  “If Nicolas Sarkozy loses France’s presidential election, he may want to set up a hedge fund.  Last year, the French president suggested that European banks could make profits by taking out cheap loans from the European Central Bank and investing that money in the region’s government bonds. Central bank data… underscored just how popular that trade had become, particularly in Italy and Spain, both of which were struggling to sell bonds at reasonable interest rates at the start of this year.  The data show a huge revival of demand among Italian and Spanish banks for government bonds after the central bank made cheap three-year loans available in December last year, and again in February… ‘It is very clear supporting evidence for the Sarkozy trade,’ said Julian Callow, an analyst with Barclays in London.”

Global Bubble Watch:

March 30 – Bloomberg (Sridhar Natarajan):  “Bond sales globally have exceeded a record $1.16 trillion in the first three months of 2012 as moves by global central banks along with reduced risk from Europe’s sovereign debt crisis drive credit-market optimism.  Offerings by companies from Europe to Asia and the U.S. have surpassed the previous record of $1.155 trillion reached in the first quarter of 2009…  Yields on global corporate bonds fell to 4.12% on March 29, within 15 basis points of the lowest yield in records going back to 1997…”

March 27 – New York Times (Binyamin Appelbaum):  “In a speech that sought by turns to deflate optimism and pessimism about the labor market, the Federal Reserve chairman, Ben S. Bernanke, said Monday that the Fed’s efforts to stimulate growth were gradually reducing unemployment, but that the scale and duration of the problem could leave lasting scars on the economy.  ‘Recent improvements are encouraging,’ he said. However, he continued, ‘millions of families continue to suffer the day-to-day hardships associated with not being able to find suitable employment… Because of its negative effects on workers’ skills and attachment to the labor force, long-term unemployment may ultimately reduce the productive capacity of our economy…’”

March 27 – Bloomberg (Joshua Zumbrun):  “Federal Reserve Chairman Ben S. Bernanke said the central bank’s aggressive response to the 2007-2009 financial crisis and recession helped prevent a worldwide catastrophe.  ‘We did stop the meltdown,’ Bernanke said today in the third of four lectures to undergraduates at George Washington University. ‘We avoided what would have been, I think, a collapse of the global financial system.’”

March 27 – Wall Street Journal (Jon Hilsenrath and Kristina Peterson):  “Federal Reserve Chairman Ben Bernanke said the central bank’s easy-money policies are still needed to confront deep problems in the labor market, moving to reinforce his plan to keep interest rates low for years.  His comments… were striking after several months of improvement in the jobs market. The comments also ran counter to a view that has emerged in financial markets recently that the Fed could back away from its low-interest-rate policies by next year.”

March 26 – Bloomberg (Nikolaj Gammeltoft and Whitney Kisling):  “Hedge funds trailing the Standard & Poor’s 500 Index for the last five months are giving up on bearish bets and buying stocks at the fastest rate in two years.   A gauge of hedge-fund bullishness measuring the proportion of bets that shares will rise climbed to 48.6 last week from 42 at the end of November 2011, the biggest increase since April 2010… The Bloomberg aggregate hedge fund index gained 1.4% last month, lagging behind the Standard & Poor’s 500 Index by 2.65 percentage points.  Money managers struggling to catch up with the gains have contributed to the rally that pushed the S&P 500 up 27% since October…”

March 29 – Bloomberg (Sridhar Natarajan):  “Corporate bond sales in the U.S. soared to a record $427 billion in the first three months of 2012, beating a previous quarterly high set a year ago as companies tap the debt market at the lowest-ever borrowing costs.  Offerings by companies from the neediest to the most creditworthy surpassed the previous record of $397 billion reached in the first quarter of 2011…  Yields on investment-grade bonds fell to 3.4% on March 2, the lowest in records dating back to 1986…”

March 28 – Bloomberg (Sarah Mulholland):  “Sales of asset-backed bonds tied to U.S. consumer loans rose to pre-financial crisis levels as automakers led by Ford Motor Co. boosted offerings amid the fastest acceleration in the U.S. auto market since February 2008.  Firms… issued $33.7 billion of the securities in the three-month period ended March 23, the most since the first quarter of 2008…”

March 29 – Bloomberg (Jeffrey McCracken, Matthew Campbell and Cathy Chan):  “Global dealmaking slumped for a third straight quarter as chief executive officers funneled cash into share buybacks and new products…  Mergers and acquisitions so far this quarter fell 14% from the fourth quarter to $418 billion, making it the slowest three-month period in 2 1/2 years…”

Currency Watch:

The dollar index slipped 0.5% this week to 78.95 (down 1.5% y-t-d).  On the upside for the week, the Swedish krona increased 1.8%, the Norwegian krone 1.1%, the British pound 0.6%, the Swiss franc 0.6%, the euro 0.6%, the Danish krone 0.5%, the Singapore dollar 0.3%, the Taiwanese dollar 0.2%, the South Korean won 0.2%, the South African rand 0.1%, and the New Zealand dollar 0.1%.  On the downside, the Australian dollar declined 1.2%, the Brazilian real 0.9%, the Japanese yen 0.6%, the Mexican peso 0.5%, and the Canadian dollar 0.1%.

Commodities Watch:

The CRB index dropped 1.9% this week (up 1.0% y-t-d). The Goldman Sachs Commodities Index sank 2.1% (up 6.8%).  Spot Gold recovered 0.4% to $1,668 (up 6.7%).  Silver gained 0.7% to $32.48 (up 16%).  May Crude fell $3.85 to $103.02 (up 4%).  May Gasoline declined 1.8% (up 24%), while May Natural Gas sank 10.4% (down 29%). May Copper added 0.4% (up 11%).  In wildly volatile trading, May Wheat ended the week up 1.0% (up 1%) and May Corn slipped 0.4% (down 0.4%).

China Watch:

March 27 – Bloomberg:  “Chinese Premier Wen Jiabao  pledged to ban the use of public funds to buy cigarettes and ‘high- end’ alcohol, warning that corruption may endanger the ruling Communist Party’s survival.  Wen spoke at a State Council…  He also said state-owned enterprises and agencies must ‘strictly control’ funds used to renovate ‘luxury’ office buildings or buy artwork.  ‘Corruption is the biggest danger facing the ruling party,’ Wen said… ‘If not dealt with properly, the problem may change the nature of, or terminate, the political regime.’”

March 28 – Bloomberg (Katya Kazakina and Scott Reyburn):  “A Chinese Imperial jade seal and album of calligraphy are being re-offered for sale this week after their Asian bidders failed to pay.  The sales in France are the latest sign of auction houses clamping down on slow payments and nonpayments. Amid a growing appetite by wealthy Chinese for art, wine and other collectibles, sellers are demanding deposits by bidders on top lots and, in some cases, suing the non-payers.  Sotheby’s sales that were canceled on 19 lots between 2008 and 2011 amounted to about $22 million… The… auctioneer started nine lawsuits in Hong Kong, naming successful bidders for the first time.”

Asian Bubble Watch:

March 28 – Bloomberg (Shamim Adam):  “Asian policy makers are preparing to double a $120 billion reserve pool to defend the region against shocks, reducing their reliance on traditional backstops such as the International Monetary Fund as Europe saps resources.  Officials… will discuss boosting to $240 billion the so-called Chiang Mai Initiative Multilateralization agreement, a foreign- currency reserve pool created by Japan, China, South Korea and 10 Southeast Asian nations that took effect in 2010… The IMF, which bailed out South Korea, Indonesia and Thailand during the 1997-98 Asian financial crisis, estimates that the euro area will take up about 80% of its total credit in 2014.”

Latin America Watch:

March 27 – Bloomberg (Matthew Bristow and Andre Soliani):  “Brazil’s bank lending expanded last month at the slowest pace in two years…  Outstanding credit rose 17.3% in February from a year ago to 2.03 trillion reais ($1.1 trillion)… From a month ago credit rose 0.4% after declining a revised 0.1% in January.”

Europe Economy Watch:

March 30 – Financial Times (Ralph Atkins):  “Eurozone inflation has remained stubbornly high this month, dropping only slightly to 2.6%, complicating the European Central Bank’s task as the eurozone economy struggles to return to growth.  The modest fall in the annual inflation rate, from 2.7% in February, was less than expected…  It will increase resistance within the ECB’s governing council, which meets next Wednesday, to any further relaxation of monetary policy…”

March 29 – Bloomberg (Brian Parkin):  “German unemployment fell more than forecast in March, adding to evidence that growth in Europe’s biggest economy is gaining traction as the debt crisis recedes… The adjusted jobless rate slipped to 6.7%, a two-decade low.”

March 30 – Bloomberg (Carol Matlack and Tommaso Ebhardt):  “Enrico Cioni, a 36-year-old high school teacher who lives near Venice, bought himself a red Alfa Romeo MiTo in 2010, figuring the sporty little hatchback would be fun to drive and save on gas. Instead, as Italy raised gas taxes 24% over the past year, his fuel spending soared to 200 euros ($267) a month…  Austerity measures introduced by Prime Minister Mario Monti’s government have pushed Italian gas prices to the highest in Europe, an average of 1.82 euros per liter, or $9.17 per gallon, with taxes accounting for about 54% of the total…”

March 29 – Bloomberg (Lorenzo Totaro):  “Italy’s underground economy last year amounted to 35% of the country’s gross domestic product, research institute Eurispes said.  Transactions in the so called ‘black economy’ reached as much as 540 billion euros ($717bn) in 2011… The figures show ‘a loss of purchasing power, salaries among the lowest in Europe, a sharp rise of goods’ prices, wider use of consumer credit as a way to integrate salaries, and a subsequent increase of poverty,’ according to the report.”

March 29 – Bloomberg (Joao Lima and Anabela Reis):  “Portugal’s central bank said the economy will contract more than previously forecast in 2012 and won’t grow next year as consumer spending drops and export growth eases.  Gross domestic product will fall 3.4% this year after declining 1.6% in 2011… In January, the bank forecast GDP would decrease 3.1% in 2012, also a bigger drop than previously estimated, and predicted that the economy would expand 0.3% in 2013.”

March 29 – Bloomberg (Josiane Kremer):  “Norway’s… jobless rate fell in March as record petroleum investments boost economic growth and demand for labor in the world’s seventh-largest oil exporter.  The unemployment rate dropped to 2.6% from 2.7% in February…”

Global Unbalanced Economy Watch:

March 29 – Financial Times (James Fontanella-Khan):  “Dilma Rousseff, Brazil’s president, has accused western countries of causing a ‘monetary tsunami’  by adopting aggressive expansionist policies such as low interest rates, which are making emerging economies less competitive globally.  Speaking at an emerging nations summit in New Delhi…, Ms Rousseff attacked developed countries for monetary policies that are helping the US and European economies at the cost of causing greater global trade imbalances.  ‘This (economic) crisis started in the developed world,’ Ms Rousseff said. ‘It will not be overcome simply through measures of austerity, fiscal consolidations and depreciation of the labour force, let alone through quantitative easing policies that have triggered what can only be described as a monetary tsunami, have led to a currency war and have introduced new and perverse forms of protectionism in the world.’”

March 28 – Bloomberg (Svenja O’Donnell):  “Britons suffered the biggest drop in disposable income in more than three decades last year in a squeeze that may continue this year as energy prices increase.  Real household disposable income fell 1.2%… That’s the biggest drop since 1977 when the then Labour government sought to cap incomes growth in an attempt to bring down inflation…  ‘We expect that real incomes will fall again this year, reflecting low nominal wage growth and little or no job growth,’ said Michael Saunders, an economist at Citigroup… ‘Consumer spending is likely to remain subdued for several years.’”

March 28 – Bloomberg (Mariam Fam and Alaa Shahine):  “Amir Mohammed has been sleeping outside the Libyan Embassy in Cairo awaiting a visa for a week… He has given up on finding a job in Egypt and is looking for a way out.  ‘I’m trying to just eke out an existence in my own country, but I can’t,’ the 30-year-old hairdresser said.  ‘There’s no work. Why did we have a revolution? We wanted better living standards, social justice and freedom. Instead, we’re suffering.’  The world’s highest youth jobless rate left the Middle East vulnerable to the uprisings that ousted Egypt’s Hosni Mubarak and three other leaders in the past year. It has got worse since then. About 1 million Egyptians lost their jobs in 2011… Unemployment in Tunisia, where the revolts began, climbed above 18%…”

U.S. Bubble Economy Watch:

March 30 – Associated Press (Noreen Gillespie and Paul Wiseman):  “Across the country, Americans plunked down an estimated $1.5 billion on the longest of long shots: an infinitesimally small chance to win what could end up being the single biggest lottery payout the world has ever seen.  But forget about how the $640 million Mega Millions jackpot could change the life of the winner. It’s a collective wager that could fund a presidential campaign several times over, make a dent in struggling state budgets or take away the gas worries and grocery bills for thousands of middle-class citizens.”

Central Bank Watch:

March 30 – Bloomberg (David Tweed and Jana Randow):  “Former European Central Bank Chief Economist Juergen Stark said policy makers didn’t expect banks to borrow so much in their three-year loan operations.  ‘Nobody had expected the dimensions of this program,’ Stark said… While it was appropriate to consider these operations, the ECB is now on the hook for three years and it will take time to shrink its balance sheet, he said.”

March 30 – Dow Jones (Christopher Lawton):  “The German central bank will no longer accept government or other bank bonds from Ireland, Greece and Portugal as collateral, becoming the first euro-zone central bank to exercise a new privilege to protect their balance sheets from the region’s debt crisis.  The decision signals the determination of the Deutsche Bundesbank to limit risks from the non-standard measures the European Central Bank has taken to combat market stress during the crisis.  More broadly, it reflects concerns that the ECB’s crisis-fighting measures may be encouraging banks to shift debt of dubious value to central bank balance sheets, ultimately exposing taxpayers to what may wind up being toxic assets.”

March 26 – Bloomberg (Caroline Salas Gage and Rich Miller):  “Federal Reserve Chairman Ben S. Bernanke may be hesitating to extol the improving economy — in part to preserve the central bank’s own reputation.  While Fed policy makers upgraded their assessment of the outlook at their March 13 meeting after the most-robust six- month period of job growth since 2006, they reiterated their plan to keep interest rates near zero until at least late 2014, citing still ‘elevated’ unemployment and ‘significant downside risks.’ Bernanke also told Congress last week that higher energy costs may curb growth by sapping consumer spending.”

Muni Watch:

March 27 – Bloomberg (Michelle Kaske):  “Municipal bonds rated near speculative grade are headed for their best rally in seven months as top-grade interest rates around 21-year lows drive investors to riskier debt.  Tax-exempt securities rated BBB and due in 10 years yielded 145 bps more than similar-maturity AAA munis yesterday, near the narrowest gap since Aug. 3…”

Real Estate Watch:

March 27 – Bloomberg (Prashant Gopal and John Gittelsohn):  “Matthew and Carina Hensley offered $10,000 more than the asking price for a three-bedroom house in suburban Seattle, then lost out to one of seven other bidders.  Their $270,000 proposal last month came with a family portrait and a letter introducing the couple, their eight-month- old daughter, Harper, and their desire to build a family in the Renton, Washington, house… Bidding wars, absent from most parts of the U.S. residential market since its peak in 2006, are erupting from Seattle and Silicon Valley to Miami and Washington, D.C. The inventory of homes hovers close to a six-year low, while an increase in jobs and record affordability are tempting more buyers. The number of contracts to buy previously owned homes jumped 14% in February from a year earlier…

America’s Credit and Housing Crisis: New State Bank Bills,

Seventeen states have now introduced bills for state-owned banks, and others are in the works.  Hawaii’s innovative state bank bill addresses the foreclosure mess.  County-owned banks are being proposed that would tackle the housing crisis by exercising the right of eminent domain on abandoned and foreclosed properties.  Arizona has a bill that would do this for homeowners who are current in their payments but underwater, allowing them to refinance at fair market value.

The long-awaited settlement between 49 state Attorneys General and the big five robo-signing banks is proving to be a majordisappointment before it has even been signed, sealed and court approved.  Critics maintain that the bankers responsible for the housing crisis and the jobs crisis will again be buying their way out of jail, and the curtain will again drop on the scene of the crime.

We may not be able to beat the banks, but we don’t have to play their game.  We can take our marbles and go home.  The Move Your Money campaign has already prompted more than 600,000 consumers to move their funds out of Wall Street banks into local banks, and there are much larger pools that could be pulled out in the form of state revenues.  States generally deposit their revenues and invest their capital with large Wall Street banks, which use those hefty sums to speculate, invest abroad, and buy up the local banks that service our communities and local economies.  The states receive a modest interest, and Wall Street lends the money back at much higher interest.

Rhode Island is a case in point.  In an article titled “Where Are R.I. Revenues Being Invested? Not Locally,” Kyle Hence wrote in ecoRI Newson January 26th:


According to a December Treasury report, only 10 percent of Rhode Island’s short-term investments reside in truly local in-state banks, namely Washington Trust and BankRI. Meanwhile, 40 percent of these investments were placed with foreign-owned banks, including a British-government owned bank under investigation by the European Union.

Further, millions have been invested by Rhode Island in a fund created by a global buyout firm . . . . From 2008 to mid-2010, the fund lost 10 percent of its value — more than $2 million. . . . Three of four of Rhode Island’s representatives in Washington, D.C., count [this fund] amongst their top 25 political campaign donors . . . .

Hence asks:

Are Rhode Islanders and the state economy being served well here? Is it not time for the state to more fully invest directly in Rhode Island, either through local banks more deeply rooted in the community or through the creation of a new state-owned bank?

Hence observes that state-owned banks are “[o]ne emerging solution being widely considered nationwide  . . . . Since the onset of the economic collapse about five years ago, 16 states have studied or explored creating state-owned banks, according to a recent Associated Press report.”

2012 Additions to the Public Bank Movement

Make that 17 states, including three joining the list of states introducing state bank bills in 2012: Idaho (a bill for a feasibility study), New Hampshire (a bill for a bank), and Vermont (introducing THREE bills—one for a state bank study, one for a state currency, and one for a state voucher/warrant system).  With North Dakota, which has had its own bank for nearly a century, that makes 18 states that have introduced bills in one form or another—36% of U.S. states.  For states and text of bills, see here.

Other recent state bank developments were in Virginia, Hawaii, Washington State, and California, all of which have upgraded from bills to study the feasibility of a state-owned bank to bills to actually establish a bank.  The most recent, California’s new bill, was introduced on Friday, February 24th.

All of these bills point to the Bank of North Dakota as their model.  Kyle Hence notes that North Dakota has maintained a thriving economy throughout the current recession:

One of the reasons, some say, is the Bank of North Dakota, which was formed in 1919 and is the only state-owned or public bank in the United States. All state revenues flow into the Bank of North Dakota and back out into the state in the form of loans.

Since 2008, while servicing student, agricultural and energy— including wind — sector loans within North Dakota, every dollar of profit by the bank, which has added up to tens of millions, flows back into state coffers and directly supports the needs of the state in ways private banks do not.

Publicly-owned Banks and the Housing Crisis

A novel approach is taken in the new Hawaii bill:  it proposes a program to deal with the housing crisis and the widespread problem of breaks in the chain of title due to robo-signing, faulty assignments, and MERS.  (For more on this problem, see here.)  According to a February 10th report on the bill from the Hawaii House Committees on Economic Revitalization and Business & Housing:

The purpose of this measure is to establish the bank of the State of Hawaii in order to develop a program to acquire residential property in situations where the mortgagor is an owner-occupant who has defaulted on a mortgage or been denied a mortgage loan modification and the mortgagee is a securitized trust that cannot adequately demonstrate that it is a holder in due course.

The bill provides that in cases of foreclosure in which the mortgagee cannot prove its right to foreclose or to collect on the mortgage, foreclosure shall be stayed and the bank of the State of Hawaii may offer to buy the property from the owner-occupant for a sum not exceeding 75% of the principal balance due on the mortgage loan.  The bank of the State of Hawaii can then rent or sell the property back to the owner-occupant at a fair price on reasonable terms.

Arizona Senate Bill 1451, which just passed the Senate Banking Committee 6 to 0, would do something similar for homeowners who are current on their payments but whose mortgages are underwater (exceeding the property’s current fair market value).  Martin Andelman callsthe bill a “revolutionary approach to revitalizing the state’s increasingly water-logged housing market, which has left over 500,000 ofArizona’s homeowners in a hopelessly immobile state.”

The bill would establish an Arizona Housing Finance Reform Authority to refinance the mortgages of Arizona homeowners who owe more than their homes are currently worth.  The existing mortgage would be replaced with a new mortgage from AHFRA in an amount up to 125% of the home’s current fair market value. The existing lender would get paid 101% of the home’s fair market value, and would get a non-interest-bearing note called a “loss recapture certificate” covering a portion of any underwater amounts, to be paid over time.  The capital to refinance the mortgages would come from floating revenue bonds, and payment on the bonds would come solely from monies paid by the homeowner-borrowers. An Arizona Home Insurance Fund would create a cash reserve of up to 20 percent of the bond and would be used to insure against losses. The bill would thus cost the state nothing.

Critics of the Arizona bill maintain that it shifts losses from collapsed property values onto banks and investors, violating the law of contracts; and critics of the Hawaii bill maintain that the state bank could wind up having paid more than market value for a slew of underwater homes. An option that would avoid both of these objections is one suggested by Michael Sauvante of the Commonwealth Group, discussed earlierhere: the state or county could exercise its right of eminent domain on blighted, foreclosed and abandoned properties.  It could offer to pay fair market value to anyone who could prove title (something that with today’s defective title records normally can’t be done), then dispose of the property through a publicly-owned land bank as equity and fairness dictates.  If a bank or trust could prove title, the claimant would get fair market value, which would be no less than it would have gotten at an auction; and if it could not prove title, it legally would have no claim to the property.  Investors who could prove actual monetary damages would still have an unsecured claim in equity against the mortgagors for any sums owed.


Rhode Island Next?

As the housing crisis lingers on with little sign of relief from the Feds, innovative state and local solutions like these are gaining adherents in other states; and one of them is Rhode Island, which is in serious need of relief.  According to The Pew Center on the States, “The country’s smallest state . . . was one of the first states to fall into the recession because of the housing crisis and may be one of the last to emerge.”

Rhode Islanders are proud of having been first in a number of more positive achievements, including being the first of the 13 original colonies to declare independence from British rule.  A state bank presentation was made to the president of the Rhode Island Senate and other key leaders earlier this month that was reportedly well received.  Proponents have ambitions of making Rhode Island the first state in this century to move its money out of Wall Street into its own state bank, one owned and operated by the people for the people.

Ellen Brown is an attorney and president of the Public Banking Institute,  In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back.  Her websites are and

Ellen Brown is a frequent contributor to Global Research.  Global Research Articles by Ellen Brown

© Copyright Ellen Brown 2012

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.