Oil prices leaped more than $25 (U.S.) a barrel Monday — the biggest one-day price jump ever

Oil leaps to $130

STEVENSON JACOBS
Monday, September 22, 2008
NEW YORK — Oil prices leaped more than $25 (U.S.) a barrel Monday — the biggest one-day price jump ever — as anxiety over the U.S. government's $700-billion bailout plan battered the dollar and touched off frenzied buying of safe-haven investments including crude.
Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back somewhat to trade at $123.77, up $19.22. The contract was set to expire at the end of the day, adding to the volatility; the October price began accelerating sharply in the last hour of regular trading.
Crude has gained about $40 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.
The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased.
The huge rally was poised to shatter crude's previous one-day price jump of $10.75, set June 6.
Oil's sharp gains came as energy traders grappled with the implications of the government's proposed initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities. Anxiety over the plan also sent stocks sharply lower Monday; the credit markets were calmer than they were last week, but still showing the effects of investors' nervousness.
“They're going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer,” said Matt Zeman, head trader at LaSalle Futures in Chicago. “Right now it's fear and anxiety driving people who want tangible assets.
© Copyright The Globe and Mail

A Wall Street Week Of Biblical Proportions
Sept. 21, 2008
(CBS) We're taking stock this morning of the economic whirlwind that swept from Wall Street across the world this past week. Our Cover Story is reported by Martha Teichner:
At least the Dow ended the week up … 410 points Thursday, 366 points Friday, a glimmer of optimism that the economy might not be allowed to implode after all.From the moment word reached Wall Street Thursday afternoon that Treasury Secretary Henry Paulson was about to meet with congressional leaders about a massive bailout plan, stocks soared.

The photo op after the meeting was a picture of cooperation and bipartisan unity. Then there was Paulson, looking like a man in a hurry, announcing his plan: "We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses."And President Bush, speaking to an audience larger than Wall Street, on

Friday morning: "Investors should know that the United States government is taking action to restore confidence in America's financial markets so they can thrive again."Confidence … there is no more ephemeral, or essential, component in what amounts to a huge gamble that our leaders can pull our economy (perhaps even the global economy) back from the brink of collapse. Yes, that's apparently how bad things had gotten."

These are the most difficult times I think our markets have faced in the last 200 years," former Securities and Exchange Commissioner Harvey Pitt told Martha Teichner. Pitt spent a dozen years at the SEC and was its head from 2001-2003."Certainly it's been historical; it could've been Biblical," said Mark Zandi, chief economist of Moody's Economy.com and author of the book "Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis" (FT press). "I mean, I was waiting for the locusts to fly through my office at one point."


"This could be comparable to the Great Depression in terms of just its effect on financial markets," said Robert Reich. Now a professor at Berkeley, Reich was Labor Secretary under Bill Clinton.

We asked him what lots of Americans are asking: How did it come to this?"The people who were issuing warnings were not listened to," he said, "partly because Wall Street is very powerful in Washington. Wall Street kept on saying, 'Well, don't worry about anything, we have everything under control, we don't need more regulation.'"Regulatory firewalls were put in place to prevent the financial excesses that led to the Great Depression. By the 1970s, banks and securities firms, caught up in major turf wars, lobbied for deregulation … and got it."We had over-leveraging in many of these firms," said Pitt, "and the net result was that people were leveraged, in some cases, as high as 100 to one."People were also making piles of money by trading in packages of questionable mortgages and complicated, unregulated securities, called derivatives."Derivatives, essentially, are bets on how stocks or how bonds are going to move, and they're called derivatives because they are derived from those movement," said Reich.But what if you bet wrong?

That, say, the housing market will just keep going up but instead, the subprime mortgage meltdown happens?

The whole house of cards collapses, taking Bear Stearns, Fannie Mae and Freddie Mac, Lehman Brothers, Merrill Lynch and AIG with it."We're scared, we're panicked, we don't even trust our money market mutual funds, which we all thought was one step removed from the mattress," said Zandi.How's this for scared: Last Wednesday, after problems emerged in several funds, investors pulled nearly $90 billion out of others. "

Confidence, or the lack thereof, is what's driving this mess that we're in," Zandi said.Which is why the U.S. government felt it had to intervene … fast. "I am convinced that this bold approach will cost American families far less than the alternative: a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," Paulson said this week, in announcing the government's bid to bail out struggling financial institutions by purchasing their bad debt, at the cost of hundreds of billions of dollars.We know a little more today about the proposal Paulson took to Congress: it would give the Treasury two years and $700 billion of taxpayer money to buy up distressed mortgages.And then there's this scary number: $11,315,000,000,000, to which the federal debt ceiling would have to be raised, from the current $10.6 trillion dollars.

So will the bailout end the crisis?"I think we're in the sixth inning of a nine-inning game," Zandi said, "and I don't think this is a double-header. So I think we're closer to the end than the beginning.""Until we know for certain we've reached the bottom, that up-and-down motion is just going to continue," Reich said.

"I think that there will be a certain amount of continued difficulty through the end of the year," Pitt predicted.But first there's tomorrow, when markets around the world take their next vote of confidence on the American economy as it prepares for emergency shock treatment.Source

House Of Cards: The Mortgage Mess

House Of Cards: The Mortgage Mess
May 25, 2008


One hundred of the world's biggest financial institutions now are on the hook for a reported total of $379 billion in bad debt - and counting. As for Stockton, it remains the nation's foreclosure capital, with more than 6,000 homes currently in default or foreclosure.

(CBS) This story was originally broadcast on Jan. 27, 2008. It was updated on May 23, 2008. Since last summer, Americans have seen their investments shrink and their property values plummet. At the heart of the problem is something called the subprime mortgage crisis, which began back then and continues to ricochet through the economy. It sounds complicated, but it's really fairly simple: banks lent hundreds of billions of dollars to homebuyers who can't pay them back. Wall Street took the risky debt, dressed it up as fancy securities, and sold it around the world as safe investments. If it sounds like a shell game or Ponzi scheme, in some ways it was a house of cards rife with corruption, greed, and negligence. And as correspondent Steve Kroft first reported in January, it started in places like Stockton, Calif.
Real estate agent Kevin Moran gave Kroft a tour of the wreckage in one subdivision called "Weston Ranch," with block after block of vacant and abandoned houses. "If you see a 'for sale' sign in this neighborhood that probably is a sign of distress, right?" Kroft asks. "I would say that, yeah. Two out of three of all the sales are probably foreclosed properties, and/or people who are in distress," Moran explains. The "for sale" signs and the overgrown lawns in Weston Ranch only show part of the picture. To get a real overview, you need to look at a map from Sean O’Toole's Web site, foreclosureradar.com, which tracks distressed properties in Stockton and other California communities. "The light blue circles are folks that have gone into default. And that means that's the first step of the foreclosure process," O'Toole says, explaining how his maps color-code properties. "The dark blue is auction properties. And the red icons are properties that were sold at auction, had no bid, and therefore went back to the lender." As of last week, there were 4,200 Stockton homes either in default or foreclosure; $1.4 billion in bad loans in just one California community, and it is far from over. "Two months from now, what's this map gonna look like? How many of those light blues are gonna be red?" Kroft asks O'Toole. "We'll probably see at least 60, 70 percent of these light blues turn red. And we'll see at least this many light blues again," O'Toole predicts. Banks are auctioning off houses all over California and in South Florida, in Nevada, and in parts of Ohio and Texas, the result of a huge real estate bubble that began forming in Stockton back in 2003, when people priced out of the Bay Area and Silicon Valley discovered that you could buy a four-bedroom home there for just $230,000. Developers started turning asparagus fields into subdivisions, and lenders handed out free money to anyone who wanted to buy. "What do you mean by free money?" Kroft asks Jim Grant, the editor of "Grant's Interest Rate Observer" and one the country's foremost experts on credit markets. "I mean free money. I mean you had to apply not to get a loan, almost. Sometimes you have to apply to get a loan, you almost had to apply not to get one," Grant says. "When you opened your mailbox in 2004, 2005, you could barely -- people were pressing on you, if you were not institutionalized, all matters of schemes in which to expand your personal debt and mortgage debt. You could, and people did, borrow more than 100 percent of the price of a house with the most fragile of financial bonafides," Grant explains. Most of the mortgages issued in Stockton, and half of those now in default or foreclosure, were something called subprime loans, meaning less than prime quality. The borrowers often had sketchy credit, were financially strapped or lacked sufficient income to qualify for a standard mortgage. After a year of artificially low payments, the interest rates on subprime loans jumped all the way to ten or 11 percent. But Jerry Abbott, who runs the Coldwell Banker office in Stockton, says it didn’t concern the borrowers, many of whom were getting mortgages for more than their houses were actually worth. "They were getting loans in excess of 100 percent of the value of the property," Abbott says. "That type of thing. So, most of 'em were actually putting a little bit of money in their pocket at close of escrow." "So, they were getting paid to buy a house?" Kroft asks. "They were getting paid to buy a house. Yes. Yeah," Abbott says. And strangely enough, it didn't seem to bother the lenders either, who were collecting huge fees just for landing the loans. "Whatever they wanted to state for their income. The bank accepted that at face value and made the loan based on that income," Abbott says. Abbott says borrowers got the money, without a down payment. Jim Grant calls it an invitation to fraud. "You apply to a bank, or a mortgage broker for a loan. And you would fill out a form. And you would say, 'I have an income of, oh, $400,000 a year.' They say, 'You do? Fine. Just sign right there.' And they would nod, and because they were being paid, not by the veracity of the information, but by the consummation of the deal. The lending office would say, 'Ah. You have verified this?' 'Why, yes, we have.' And the lending officer would say, 'Great. So do I.' And he'd pass it on to Wall Street," Grant says. "And he got a cut, too?" Kroft asks. "Yes, oh, yes. Everyone gets a cut," Grant says. Almost all of the people involved in the transactions made huge amounts of money, then passed the risk on to somebody else. Instead of keeping the dicey loans in their own portfolios, the big banks and giant mortgage companies that originally underwrote them resold the mortgages to big New York investment houses. Firms like Bear Stearns and Merrill Lynch sliced the loans into little pieces and packaged them up with other investments, then sold them to their best customers around the world as high-yield mortgage-backed securities, turning sows' ears into silk purses, all with the blessing of rating agencies like Standard & Poor’s. "At every step in the way, somebody has his or her hand out, getting paid. And everyone, for the time, is happy. The broker got paid. He or she was happy. The lending officer, ditto. The rating agencies got paid for passing judgment on these securities. They, too, were pleased, and their stockholders were happy. And on and on. And it would never end, except that it did," Grant says. It was all predicated on the idea that real estate prices would keep going up, and up and up, and for a long time they did. But by the summer of 2005, speculators flipping houses in Stockton had helped drive the price of that four-bedroom house to more than $400,000 and the market began to soften, then to tumble. All of a sudden those subprime borrowers who had taken the free money found themselves upside down, owing more on their new house than it was worth. It’s not exactly clear how a mortgage broker was able to qualify Phil Fontenot and his wife Kim Monroe for their $436,000 house, from which they run a small day care center. They say they wanted to move to a better neighborhood. A mortgage broker approached the Fontenots and offered to get them a loan. They told her the most they could afford, at most, was $2,500 a month. But the monthly payment on the adjustable rate mortgage she gave them quickly jumped to $4,200. "Did you understand any of this?" Kroft asks. "No, not really. Not much of it," says Phil Fontentot, who also says he didn't have a lawyer look over the paperwork. "But you knew this was a big decision, right? You were borrowing hundreds of thousands of dollars," Kroft remarks. "I didn't really look at it like that," Fontenot says. "How did you look at it?" Kroft asks. "I looked at it as far as my family. I can get my family off of this block," he replies. "And that we could pay the payments that she said that we could pay," Fontenot's wife Kim adds. "But after it was all said and done, and the paperwork was drawn up, it was something different." But Matt and Stephanie Valdez say they knew exactly what they were doing when they bought a small two-bedroom for $355,000. They could afford the initial payments and planned to refinance the mortgage before the interest rate jumped to 11 percent. But they couldn't do it because the value of the house had fallen below what they owed on the mortgage. They say they can afford the higher payments, but see no point in making them. "You're saying, essentially, that you're going to stop making payments on it? You're just gonna let it go into foreclosure?" Kroft asks. "You know, that's the only advice we've gotten so far is walk away from the home. We don't want to do that to our credit. Why can't our mortgage company work with us?" Stephanie Valdez says. There is a certain cold logic to just walking away. Kevin Moran, the real estate agent who gave Kroft the tour of foreclosed houses in the Weston Ranch subdivision, says it is happening every day. They were never really invested. Most of the people who lost the houses didn’t lose any money because they never put any money down. Though their credit is damaged, and they could face legal action in some circumstances, they got to live in a new house for a couple of years, and some of them even managed to get some money with home equity loans or by refinancing. "Nobody seems to be saying, 'Look, I made a contract with you. I borrowed money from you. I'm gonna do everything I can to pay off that obligation.' People just seem to be saying, 'Look, take the house. Good-bye. I'm leaving,'" Kroft says. "There was a time, I think, when people felt really bad about not paying off a debt." "Yeah, I think in those days, loans were made by your local banker or building and loan associations or savings and loan. They were guys you saw in the grocery store. They were on the little league team with you, the PTA, the school. And I think as mortgages became securitized and Wall Street became involved, they became very transactional and there was no relationship built with the borrower and the lender. And I think that makes it easier for someone to see it as an anonymous party at the other end of the transaction and just walk away from it," Moran says. "Just a business decision," Kroft says. "A business decision that has to be made," Moran agrees. "It turns out that if you give people free money, they will take it without really worrying too much about giving it back. Because after all, it was free," Jim Grant says. Asked if it's a case of greed, Grant says, "Greed, sure. Greed on both sides of the table." "What do you mean?" Kroft asks. "Lenders and borrowers," Grant says. "Everyone was gaming the system." That is not to suggest that there aren’t huge losers in all this and much suffering and particularly hard-working people who have lost their dream. Home values are plummeting, and the housing sector - one of the largest and most vital parts of the American economy - has ground to a standstill, pushing the country towards recession. The Wall Street and foreign investors are now stuck with the millions of distressed properties on Sean O’Toole's map, the unsold condos in Miami, the unfinished apartments on the Vegas Strip, the developments in Atlanta that are sitting idle and the thousand stucco houses in Stockton. Not even Kevin Moran, who has copies of the foreclosed mortgages, can figure out who exactly owns them. "That’s the fascinating part of this whole debacle we’re in. Mortgages are sold in mortgage backed securities, so they’re pooled. I’ve seen everything from some of the largest financial institutions in the country, and you see 'Deutsche Bank' in a series and a series of numbers and letters to a mortgage pool," he says. The pools are part and parcel of those high-yield mortgage backed securities everyone gobbled up a few years ago, and are now stuck in the windpipe of the world's financial system. No one wants to buy them, so no one can sell them. "Bonds marked triple-A are now quoted at 50 cents to the dollar, 40 cents on the dollar. Some of them, much less," Grant says. "How much on the dollar, do ya think?" Kroft asks. "Some of them are worth nothing on the dollar. Nothing on the dollar. This is the worst thing that has happened to Wall Street in a long time," Grant says. Asked how many of these securities are out there, Grant says, "A trillion with a T-plus." Asked who bought them and owns them, Grant says, "You know, state pension funds, the hedge funds bought them. Foreign central banks own some of these things, if you please. So the ownership is very widely dispersed, which accounts for the general anxiety, and the persistence of anxiety." There’s already a two-year supply of properties on the market in Stockton and so many foreclosures that real estate agent Cesar Diaz decided to start the "Repo Bus" to take bargain hunters and bottom feeders on a weekly tour to see some of them. He got the idea from the Hollywood tour of the stars' homes. The day Kroft went along, there were two busloads checking out houses that are now 70 percent cheaper than they were when the crisis began. The consensus seemed to be prices are going to drop still further. Not particularly encouraging news for the past two chairmen of the Federal Reserve Board. "Alan Greenspan and his successor, Ben Bernanke, would say over and over that it's contained. The problem's contained. It turns out, it is contained only on planet Earth," Grant says, laughing. "That's it."
One hundred of the world's biggest financial institutions now are on the hook for a reported total of $379 billion in bad debt - and counting. As for Stockton, it remains the nation's foreclosure capital, with more than 6,000 homes currently in default or foreclosure. Produced By L. Franklin Devine and Jennifer MacDonald

TSX Makes History