On bailout, presidential debate was a disappointment

I watched last night's presidential debate hoping to learn whether either candidate favors the Bush administration's push for an immediate $700 billion bailout. To my disappointment, I didn't hear clear answers. Does either of these guys favor the Paulson plan? Got me.

The L.A. Times watched the debate and concluded: "Neither would commit without knowing the details."

The New York Times, watching the same debate, concluded: "Both expressed general support for the concept underlying Mr. Bush’s proposal, to buy as much as $700 billion in toxic securities as long as the program meets certain criteria of transparency and accountability."

I'm not sure that's true -- even though Sen. John McCain said last night he would likely vote for the bailout, I haven't heard him support the Paulson plan. He has given himself wiggle room to oppose a bailout deal built on the Paulson plan, and instead side with House Republicans in opposing the bailout.  This would allow him to campaign as the anti-bailout candidate in the final weeks of the campaign, a potentially potent appeal to ticked-off middle class voters.  Not wanting to be alone in his support of the bailout -- that is, not wanting to be the pro-bailout candidate -- Sen. Barack Obama has also hedged.

Last night was just more hedging. More dancing. Profiles in courage this was not.

I fully understand that both candidates have laid out various conditions and principles they believe are necessary in order for the Paulson the plan to be acceptable (protection for taxpayers, limts on CEO pay, oversight). For lack of a better word, I'll call these concerns "lipstick."

But what about the pig? The pig is the Paulson plan: $700 billion in taxpayer money for government purchases of distressed assets, a messy, historic, controversial, and risky use of government money. There is no question it is a big, fat, ugly pig in the eyes of many voters.

Are these guys for it or against it? And do they think it will work? And what is so special about $700 billion? Why not $525 billion? Why not $900 billion? Here's the debate transcript -- by all means, read it and let me know your thoughts.

Prior to the debate, Calculated Risk laid out its hopes for the bailout discussion, writing:

I'd like to see both Senators McCain and Obama explain the economic problem, why they see a need for the government to be involved (or not), what the purpose of the plan should be, and specifics on the plan they would propose or support.

I didn't hear either candidate address any of those questions.

As of Saturday afternoon, there is no indication the White House and the Democratic leadership are moving away from the core of the Paulson plan. This is from The New York Times' report Saturday afternoon indicating progress is being made in congressional negotiations:

Officials said the core of the proposal, put forward a week ago by Treasury Secretary Henry Paulson, remained intact: The government would purchase up to $700 billion in troubled assets from financial firms as a way to free their balance sheets of bad debts and to help restore a healthy flow of credit through the economy.

--Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles

Photo Credit: Getty Images

How low will housing prices fall?

This chart, from Calculated Risk, is worth bookmarking for future reference. It shows JPMorgan's thinking on where we are in the housing price cycle -- a bit more than halfway down from the peak, and still falling rapidly. The chart shows the ratio of housing prices to income, and makes clear two things:

1) We were in a price bubble of massive proportions

2) Prices remain well above historical levels

If you look closely, there are three possible paths for prices over the next two years, according to JPMorgan's models. Here are the paths:

JPMorgan presented three scenarios: a base case (with national prices falling 25% peak to trough), a deeper recession (28% decline), and a severe recession (37% decline).

And here's Calculated Risk's take on those projections:

I think the JPMorgan base case is too optimistic. My guess is that national house prices will decline somewhere between JPMorgan's "deeper recession" (28% peak to trough) and their "severe recession" (37% peak to trough) projections.

Your thoughts? Comments? E-mail story tips to Peter Viles

Tree of the Week: California Bay Tree

Good morning, Andre Ethier, and congratulations. I find that almost every Saturday morning lately, I'm writing that we've just come through a tumultuous week. I'll skip that part this week. Have a great weekend, and enjoy Pieter Severynen's Tree of the Week.

California Bay Tree – Umbellularia californica 

Southwestern Oregon through the California Coast Ranges and the lower reaches of the Sierra Nevada are home to the California Bay Tree, also known as California Laurel and Oregon Myrtle. A crushed leaf emits a strong, invigorating, lingering smell, too powerful for some people. In Northern California the plant is a host for ‘Sudden Oak Death’, but our climate here is too dry in summer for transmittal of that disease.

In Southern California the bay tree usually is a slow growing, round headed, densely branched evergreen that eventually reaches 25 x 25 feet. In moist and shady canyons it may reach three times that height. Bark is thin and scaly. Leaves are aromatic, oval in shape, 2-5” long, glossy, medium green above, dull green below; they give the tree a fresh and moisture rich look. Tiny yellowish flowers, appearing between November and May, form an ‘umbel’, where all the flower stalks are of similar length and arise from the same point; hence the name ‘Umbellularia’, i.e. little umbel. The olive-size fruit is purplish and inedible. The tree will grow in full sun under arid conditions, but it performs best in shade with plenty of moisture and deep soil. Don’t position your favorite outdoor bench under the tree: aphids and scale may collect on the leaves. Fallen leaves and litter are able to suppress growth of other plants.

The freshly dried leaves of both California bay and Grecian laurel, Laurus nobilis, also of the Laurel family, are used to add spice to cooking.  Laurus nobilis has a centuries-old association with the Romans, but Indians have used our native bay for medicinal purposes and as an insect repellent for just as long. Some purists claim that the Mediterranean plant is more refined in taste. The California bay is more pungent, but I cook with both and think either one is absolutely great when reasonably fresh and used in moderation (as is called for with all strong culinary chemicals). ‘Myrtlewood’ is a beautiful, fine grained, hard wood, used for cabinetry and small objects such as bowls and spoons.

Thanks, Pieter.

-- Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles

Photo Credit: Pieter Severyenen

WaMu moolah: CEO Alan Fishman may make $19 million for 17 days' work

As Congress argues over limits on executive pay, the New York Times reports that the chief executive of Washington Mutual, who was on the job just 17 days, is eligible for $19.1 million in compensation.

For short-time CEO Alan H. Fishman -- named to run the failing bank less than three weeks ago -- that would work out to $1.12 million per day (assuming he worked weekends). If he worked eight-hour days, it works out to $140,000 per hour.

Here's the kicker: Fishman didn't even broker the deal to find a buyer when WaMu failed and was seized by the government; the federal government reportedly arranged the purchase by JPMorgan Chase & Co., and closed the deal while Fishman was in midair, flying from New York to Seattle.

The New York Times on Fishman's potential compensation:

Mr. Fishman, who has been on the job for less than three weeks, is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus, according to an analysis by James F. Reda and Associates. WaMu was not immediately available for comment.

--Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles, or follow L.A. Land on Twitter.

Photo credit: Los Angeles Times

Why WaMu failed

You can make these things complicated, or you can make them simple. I'll make this one simple. Washington Mutual failed not because of a credit squeeze or a crisis of confidence or because it participated in esoteric investment vehicles.

It failed because it made thousands -- tens of thousands, maybe hundreds of thousands -- of really stupid decisions. The weight of those boneheaded moves sunk the bank.

Let me highlight one, courtesy of Bubble Info, a San Diego real estate blog I like. The blog shows a small, poorly maintained house marked with graffiti inside and out. A couch sits on the front patio. From Bubble Info:

WaMu refinanced this 1,500sf house in City Heights just over a year ago -- when it was obvious that the market was in trouble, and the smarter banks should have been reeling in their lending practices.

The owner paid $83,000 when he bought it from Home Savings in 1995.

WaMu loaned him $449,000 in June 2007.

It's now being offered as a short sale -- for $140,000!

Two cents: The loan was made in June 2007, after the subprime collapse. Sorry folks, but this is a form of corporate suicide.

--Peter Viles

Hat tip: Calculated Risk originally highlighted this story.

Your thoughts? Comments? E-mail story tips to Peter Viles or follow L.A. Land on Twitter.

Photo credits: Los Angeles Times (above), Bubble Info (below).

Live chat on bailout

KB Home: Housing market 'unlikely to improve significantly' in near-term

News item from Bloomberg: "KB Home, the Los Angeles-based homebuilder that targets first-time buyers, reported a wider third-quarter loss after sales plummeted 56% and the company wrote down unsold homes."

KB Home C.E.O. Jeffrey Mezger said the proposed $700 billion bailout won't make much difference to the housing market: "The majority of the bill is focused on fixing Wall Street issues," he said on a conference call today. "I'm not hearing anything that will create housing demand or stabilize housing markets."

 

There's a bunch of other stuff worth noting from the company's assessment of the housing market today, including:

From CNN Money:

"KB Home Chief Executive Jeffrey Mezger was bleak: 'Market fundamentals appear unlikely to improve significantly in the near-term' amid competition from increased foreclosures, bloated inventory and tighter requirements for mortgage rates, even for potential buyers with good credit."

More from CNN Money:

"In California's Inland Empire, one of the nation's worst housing markets, KB Home has cut the size and prices of houses -- by more than half -- to make them competitive with resales and foreclosures, often bargain-priced to sell quickly. The change is working, Mezger said during the earnings conference call."

One analyst, Carl Reichardt of Wachovia, called KB Home's report "staggering" for its collection of gloomy numbers. The company's cancellation rate jumped to 51%, up from 27% in the second quarter.

--Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles, or follow L.A. Land on Twitter.

Photo credit: Associated Press

Live bailout chat at L.A. Land at 12:30 p.m. PDT today

A bird told me a few of you would like to be heard on the subject of a $700-billion bailout. Your chance is coming, in about two hours: L.A. Land will host its first live chat. It will be devoted mainly to the bailout debate, but I'm happy to let it spread to a broader discussion of the housing market.

Come back at 12:30 p.m. PDT.

-- Peter Viles

Lancaster paves over its singing freeway

If you missed it, you'll have to catch it on YouTube now. An unusual stretch of road in Lancaster has been repaved. 

The Associated Press reported: "Residents of northern Los Angeles County are not grooving to this music.

Lancaster city officials said this week that they're paving over a quarter-mile strip of asphalt grooved to play the William Tell Overture when auto tires speed over it.

The road was completed this month as part of an ad campaign for Honda. It's engineered to play the overture -- also known as the theme to "The Lone Ranger" -- at perfect pitch for motorists driving Honda Civics at 55 mph.

But neighbors aren't amused. One says the road music sounds like a high-pitched drone. Another says it keeps him and his wife up at night."

On the one hand, maybe Lancaster homeowners have enough problems, but you wonder why the beleaguered city couldn't have figured out a way to turn this to their advantage as a landmark or local attraction.

-- Lauren Beale

Your thoughts? Comments?

Photo: Alex Gallardo / Los Angeles Times

WaMu fails; bailout talks falter; USC loses shocker to Oregon State

A late-night attempt at levity in the headline. Quick links and headlines on the night's big developments:

First, the failure, seizure and sale of Washington Mutual:

Wall Street Journal: In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to JPMorgan Chase & Co.

Reuters, via CNBC, wraps both stories into one: A rescue for the U.S. financial system unraveled late Thursday amid accusations Republican presidential candidate John McCain scuppered the deal, and Washington Mutual was closed by U.S. authorities and its assets sold in America's biggest ever bank failure.

Los Angeles Times: Washington Mutual depositors won't lose access to any of their money, even if it wasn't fully insured, the Federal Deposit Insurance Corp. said.

At roughly the same time at the White House, bailout talks were, according to a New York Times headline, "imploding." The picture above shows downcast Democratic Sens. Harry Reid and Christopher J. Dodd leaving the talks. The scene that lingers in the mind is the image of Treasury Secretary Henry M. Paulson down on bended knee (I'm not making this up), pleading with House Speaker Nancy Pelosi to keep the deal alive.

Wall Street Journal: Wrangling among the nation's top political leaders threw the Bush administration's $700-billion bailout plan into disarray late Thursday, despite a dramatic day of negotiations on Capitol Hill that seemed to promise a deal.

New York Times: The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.

Los Angeles Times: What remained unclear was whether today's impasse marked the beginning of the end for the rescue effort, or merely a tumultuous interlude on the way to action that many in Congress consider unpalatable but unavoidable.

-- Peter Viles

Wild stuff. Your thoughts? Comments? E-mail story tips to Peter Viles

Photo: European Pressphoto Agency