Chicago Home Prices Fall Less than US

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(Reuters) — Prices of single-family homes plunged a record 16.35 percent in July from a year earlier, according to the Standard & Poor's/Case-Shiller Home Price Indices.

The Chicago area didn’t do as badly, with prices down 10 percent in July compared with July 2007, according to the S&P/Case-Shiller numbers. The S&P/Case-Shiller composite index of 20 metropolitan areas fell 0.9 percent in July from June, S&P said in a statement Tuesday. Since the peak of the housing boom in July 2006, the index has dropped 19.5 percent, it said.

In the Chicago area, prices were down 0.35 percent in July compared with June. S&P said its composite index of 10 metropolitan areas declined 1.1 percent in July for a 17.5 percent year-over-year drop. From two years ago, the index is down 21.1 percent. However, the pace of home price declines has slowed in the past three months, S&P said.

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House and Senate Contact Information

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Hello, everyone. There has been much talk about the $700 billion bailout package. One cannot turn on the television or radio or connect to the Internet without hearing about it. The decisions that will be made will have an effect on us all.

Whether you agree with the decisions that will be made or not is an issue that should be taken up with your local Congressmen and/or Senators. The contact links for these politicians can be found at www.house.gov and www.senate.gov respectively.

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Transcript - President Bush's address to the nation about the $700 billion bailout

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Below is a transcript of President Bush's address to the nation about the $700 billion bailout:

WASHINGTON -- "Good evening. This is an extraordinary period for America's economy.

Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration.

We've seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending, credit markets have frozen, and families and businesses have found it harder to borrow money.

We're in the midst of a serious financial crisis, and the federal government is responding with decisive action.

We boosted confidence in money market mutual funds and acted to prevent major investors from intentionally driving down stocks for their own personal gain.

Most importantly, my administration is working with Congress to address the root cause behind much of the instability in our markets.

Financial assets related to home mortgages have lost value during the house decline, and the banks holding these assets have restricted credit. As a result, our entire economy is in danger.
So I propose that the federal government reduce the risk posed by these troubled assets and supply urgently needed money so banks and other financial institutions can avoid collapse and resume lending.

This rescue effort is not aimed at preserving any individual company or industry. It is aimed at preserving America's overall economy.

It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America's financial system is back on track.

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I know many Americans have questions tonight: How did we reach this point in our economy? How will the solution I propose work? And what does this mean for your financial future?
These are good questions, and they deserve clear answers.

First, how did our economy reach this point? Well, most economists agree that the problems we're witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad because our country is an attractive and secure place to do business.

This large influx of money to U.S. banks and financial institutions, along with low interest rates, made it easier for Americans to get credit. These developments allowed more families to borrow money for cars, and homes, and college tuition, some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.

Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions.

Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.

Optimism about housing values also led to a boom in home construction. Eventually, the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell, and this created a problem.

Borrowers with adjustable-rate mortgages, who had been planning to sell or refinance their homes at a higher price, were stuck with homes worth less than expected, along with mortgage payments they could not afford.

As a result, many mortgage-holders began to default. These widespread defaults had effects far beyond the housing market.

See, in today's mortgage industry, home loans are often packaged together and converted into financial products called mortgage-backed securities. These securities were sold to investors around the world.

Many investors assumed these securities were trustworthy and purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac.

Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.

The decline in the housing market set off a domino effect across our economy. When home values declined, borrowers defaulted on their mortgages, and investors holding mortgage-backed securities began to incur serious losses.

Before long, these securities became so unreliable that they were not being bought or sold. Investment banks, such as Bear Stearns and they could not sell. They ran out of money needed to meet their immediate obligations, and they faced imminent collapse.

Other banks found themselves in severe financial trouble. These banks began holding on to their money, and lending dried up, and the gears of the American financial system began grinding to a halt.

With the situation becoming more precarious by the day, I faced a choice, to step in with dramatic government action or to stand back and allow the irresponsible actions of some to undermine the financial security of all.

I'm a strong believer in free enterprise, so my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business.

Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There has been a widespread loss of confidence, and major sectors of America's financial system are at risk of shutting down.

The government's top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold.

More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically.

And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs.

Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And, ultimately, our country could experience a long and painful recession.

Fellow citizens, we must not let this happen. I appreciate the work of leaders from both parties in both houses of Congress to address this problem and to make improvements to the proposal my administration sent to them.

There is a spirit of cooperation between Democrats and Republicans and between Congress and this administration. In that spirit, I've invited Senators McCain and Obama to join congressional leaders of both parties at the White House tomorrow to help speed our discussions toward a bipartisan bill.

I know that an economic rescue package will present a tough vote for many members of Congress. It is difficult to pass a bill that commits so much of the taxpayers' hard-earned money.
I also understand the frustration of responsible Americans who pay their mortgages on time, file their tax returns every April 15th, and are reluctant to pay the cost of excesses on Wall Street.
But given the situation we are facing, not passing a bill now would cost these Americans much more later.

Many Americans are asking, how would a rescue plan work? After much discussion, there's now widespread agreement on the principles such a plan would include.

It would remove the risk posed by the troubled assets, including mortgage-backed securities, now clogging the financial system. This would free banks to resume the flow of credit to American families and businesses.

Any rescue plan should also be designed to ensure that taxpayers are protected. It should welcome the participation of financial institutions, large and small. It should make certain that failed executives do not receive a windfall from your tax dollars.

It should establish a bipartisan board to oversee the plan's implementation, and it should be enacted as soon as possible.

In close consultation with Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox, I announced a plan on Friday.

First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system.

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In the short term, this will free up banks to resume the flow of credit to American families and businesses, and this will help our economy grow.

Second, as markets have lost confidence in mortgage-backed securities, their prices have dropped sharply, yet the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages.

The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal.

And when that happens, money will flow back to the Treasury as these assets are sold, and we expect that much, if not all, of the tax dollars we invest will be paid back.

The final question is, what does this mean for your economic future? Well, the primary steps -- purpose of the steps I've outlined tonight is to safeguard the financial security of American workers, and families, and small businesses. The federal government also continues to enforce laws and regulations protecting your money.

The Treasury Department recently offered government insurance for money market mutual funds. And through the FDIC, every savings account, checking account, and certificate of deposit is insured by the federal government for up to $100,000.

The FDIC has been in existence for 75 years, and no one has ever lost a penny on an insured deposit, and this will not change.

Once this crisis is resolved, there will be time to update our financial regulatory structures. Our 21st-century global economy remains regulated largely by outdated 20th-century laws.
Recently, we've seen how one company can grow so large that its failure jeopardizes the entire financial system.

Earlier this year, Secretary Paulson proposed a blueprint that would modernize our financial regulations. For example, the Federal Reserve would be authorized to take a closer look at the operations of companies across the financial spectrum and ensure that their practices do not threaten overall financial stability.

There are other good ideas, and members of Congress should consider them. As they do, they must ensure that efforts to regulate Wall Street do not end up hampering our economy's ability to grow.

In the long run, Americans have good reason to be confident in our economic strength. Despite corrections in the marketplace and instances of abuse, democratic capitalism is the best system ever devised.

It has unleashed the talents and the productivity and entrepreneurial spirit of our citizens. It has made this country the best place in the world to invest and do business. And it gives our economy the flexibility and resilience to absorb shocks, adjust, and bounce back.

Our economy is facing a moment of great challenge, but we've overcome tough challenges before, and we will overcome this one.

I know that Americans sometimes get discouraged by the tone in Washington and the seemingly endless partisan struggles, yet history has shown that, in times of real trial, elected officials rise to the occasion.

And together we will show the world once again what kind of country America is: a nation that tackles problems head on, where leaders come together to meet great tests, and where people of every background can work hard, develop their talents, and realize their dreams.

Thank you for listening. May God bless you."

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After the Fall -- What Happened, What's Next

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I read this article recently on Yahoo! Finance. Enjoy!

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by Gregory Zuckerman and Karen DamatoTuesday, September 23, 2008

Back from the brink.

The U.S. financial system last week was rocked by the biggest crisis since the 1930s -- and the federal government responded with a multi-pronged intervention that is the most sweeping since the New Deal.

Over the course of just three days, Americans were shaken to see venerable investment bank Lehman Brothers Holdings file for bankruptcy protection, Merrill Lynch abruptly sell itself to Bank of America and the U.S. hurriedly launch an $85 billion bailout of American International Group, one of the world's largest insurers. Just one week earlier, the government had bailed out mortgage giants Fannie Mae and Freddie Mac.

The turmoil has people worrying about the safety of their brokerage accounts, their insurance policies and even their "safe" stashes of cash -- as the problems at Lehman produced losses for investors in at least one money-market mutual fund.

In the midst of the financial-industry carnage, the Dow Jones Industrial Average was down more than 8% for the week at one point midweek.

But stocks soared Thursday and Friday as the government announced a massive effort to try to keep the financial system from unraveling. Key components: a plan to help financial institutions unload toxic mortgage assets and new federal insurance for money funds.

How did all this happen and where do we go from here? We tackle those questions and others below:

Q: What's behind the financial crisis?

A: The latest woes are a continuation of the housing meltdown and the resulting "credit crisis" that have been bedeviling the U.S. Home prices have been tumbling and foreclosures soaring since the bursting of the housing bubble just over a year ago -- and the effects extend throughout the economy.

Banks have taken huge write-downs on bad mortgages and become stingier with new loans. Moreover, many problem loans were sliced up and resold to investors as mortgage-backed securities and other products, producing losses for a host of banks, securities firms and insurance companies.

Other companies, including AIG, have suffered big losses on contracts they sold providing insurance against losses on mortgage-related investments.

Q: How could conditions deteriorate so quickly that companies rushed to sell themselves or couldn't survive without U.S. help?

A: Part of the problem has been a crisis of confidence. Lending markets that form the backbone of the capital markets froze up. Many financial firms had become so big and their holdings so complex that no one was sure what their exposure was to the mortgage market. In recent weeks, fear that housing-related losses would sink even large firms made it impossible for some companies to raise the cash needed to support their operations.

In recent years, many companies, like many families, loaded up on debt -- which magnifies profits when times are good but also increases losses when things go sour.

Recently, giant financial firms have tried to get their houses in order by "deleveraging" -- selling off assets, reducing debt and building up capital. But widespread efforts to sell distressed securities only push prices down further, leading to further write-downs that leave companies desperate for even more capital.

Q: What does this financial-industry meltdown mean for the broader economy?

A: "Companies and consumers alike are finding it more difficult to borrow," which likely will crimp business activity, says Jeff Fishman, who runs JSF Financial, a Los Angeles-based financial-advisory firm. "This could lead to an uptick in bankruptcies, which we've already seen, and the attendant job losses, cuts in consumer spending and confidence."
And remember that the recent crisis on Wall Street follows months of debate among economists on whether the U.S. economy is already in a recession or on the verge of entering one.

Q: How would the government's new plan stem the crisis?

A: The plan likely will involve spending hundreds of billions of dollars to buy distressed mortgage investments from financial institutions at deeply discounted prices. That should add a dose of confidence to frozen lending markets by assuring participants that at least one large investor -- the U.S. government -- stands ready to buy these assets. Congress has signaled that it is open to working with the administration; approval could come this week.

Q: Will that intervention turn things around?

A: The hope is that it will prevent the crisis from spinning out of control and will thus buoy the economy.

A revival of the credit markets and a bottoming of the housing market are keys to a revival. The government's debt plan may reduce the level of fear in the market, enabling the credit markets to operate properly. But such a plan wouldn't do anything about the excess supply of homes and the large number of mortgage borrowers in dire straits.

Q: So what's the outlook for the economy and the stock market over the next few months?

A: Housing could take many months to bottom, and then rebound, analysts say. Meanwhile, economies around the globe could weaken dramatically, something many investors aren't counting on.

Still, investors shouldn't get too gloomy.

The stock market's decline of about 20% from last fall's peak is close to the average fall for the market in periods of recession, notes Citigroup strategist Tobias Levkovich. "One can suggest that a bottom is near," he says.

Adds Peter Brodie, director of investments at a unit of Bryn Mawr Trust: "History has shown that it is crises such as these that create the extreme pessimism required to set the stage for meaningful market recoveries -- and we feel that the resiliency of our economy will again be exhibited as we enter '09."

Q: Is there any other good news out there?

A: Yes. The recent collapse of energy and commodity prices will make it easier for consumers to fill up their gas tanks and heat their homes. It also will reduce pressures on many companies.
At the same time, inflation fears are subsiding, as the consumer price index fell 0.1% in August, the first monthly fall in almost two years. That all makes it virtually certain that the Federal Reserve won't raise interest rates any time soon, and might even cut them.
Moreover, hard as it is, investors should work to see the bright side of low stock prices. "Only those who will be sellers of equities in the near future should be happy at seeing stocks rise," famed investor Warren Buffett noted in 1997. "Prospective purchasers should much prefer sinking prices."

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Handyman Special - Won't Last Long

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Location: Chicago, IL (South Side)
Asking: $48,000 or best offer
After Repaired Value: $110,000
Square Footage: 755
Special Note: Owner financing available with $5,000 down!

For more information, go right now to www.therealestatedealer.com/wb16

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Government may soon back troubled mortgage giants

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By ALAN ZIBEL, AP Business Writer

WASHINGTON - The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.

The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.

The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.

Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments.
While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.
Many in Washington and on Wall Street hadn't expected Paulson to intervene unless the companies had trouble issuing debt to fund their operations.

This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed.

Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.

Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages — almost half the nation's total.
Representatives of Fannie and Freddie declined to comment on the government assistance plan.
Treasury spokeswoman Brookly McLaughlin said officials "have been in regular communications" with Fannie and Freddie, but refused to comment saying, "We are not going to comment on rumors."

Concern has been growing that a government rescue of Fannie and Freddie could not only wipe out common stockholders, but also be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.

Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal. Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities.

He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange and was president of the Federal Reserve Bank of Boston in the early 1990s.

Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.
A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.

But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.

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U.S. House Price Decline Could Be Worse than Great Depression, Economist Shiller Says

Posted Sep 04, 2008 01:36pm EDT by Henry Blodget in Newsmakers, Recession

Eight years ago, Yale superstar professor and MacroMarkets chief economist Robert Shiller famously called the top of the stock market in his book Irrational Exuberance. Then, a year before the housing bubble peaked, he predicted the colossal bust we are now experiencing.If you recognize Shiller's name, it’s because the Standard & Poor's/Case-Shiller home price indexes, which he developed with Wellesley College economist Karl Case, have become the nation's most authoritative source for home price trends. In part one of my one-on-one with Shiller, we discuss the grim outlook for U.S. housing, which he tackles in-depth in his new book The Subprime Solution. Highlights of our first discussion include:

*Home price declines are already approaching those in the Great Depression, when they plunged 30% during the 1930s. With prices already down almost 20%, it's not a stretch to think we might exceed that drop this time around.

*There are about 10 million homeowners whose debt is higher than their home value, which has broad implications for how Americans feel about their wealth and spending habits (read: more pressure on consumer spending).

*The current hopeful consensus -- that house prices will bottom soon and then begin to recover -- is most likely a dream. Housing markets don't usually have "V-shaped" recoveries. And even if house prices stabilize in nominal terms, after adjusting for inflation, most homeowners will continue to lose money.

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