• Shoplifting arrests are 10 percent to 20 percent higher this year than last. The problem is probably even greater than arrest records indicate since shoplifters are often banned from stores rather than arrested.
• Many people are finding it’s cheaper to stay together, even when they can’t stand each other. Divorced couples have to establish two separate households with current funds. This is very tough in this economy condition.
• Lehman Brothers, a 158-year-old investment bank went bankrupt. In 2008, Lehman faced an unprecedented loss to the continuing subprime mortgage crisis. Lehman’s loss was a result of having held on to large positions in subprime and other lower-rated mortgage tranches. In the first half of 2008 alone, Lehman stock lost 73% of its value. And finaly on September 15, 2008, the firm filed for Chapter 11 bankruptcy protection; the filing marked the largest bankruptcy in U.S. history.

• US employers cut 533,000 jobs in November 2008, the largest cut for more than 34 years. November’s job losses were the steepest since December 1974, when 602,000 jobs were shed. This means the US has lost 2 million jobs since the start of the year.
• The MSCI World Stock Markets Index, starts at 1351.912 on 01-Jan-08. It reach the bottom at 771.523 on 20-Nov-08, which reflected 42.93% decrease from the start of the year. But on 19-Dec-08 it has rebound to 906.92, a 32.92% decrease from the start of the year.
• Investors have been pulling money out of the hedge fund in an effort to reduce risk in their portfolios as the global economy weakens. Around the first week of December, Madoff told a senior employee that hedge fund clients had requested about $7 billion of their money back, and that he was struggling to pay them. Madoff eventually turned himself to the police. Finally the giant Ponzi scheme was revealed, with estimated investor losses of about $50 billion.
  One of Madoff investor, Rene-Thierry Magon de la Villehuchet, killed him self after losing more than $1 billion of his clients’ money to Bernard Madoff. He locked the door of his Madison Avenue office and apparently swallowed sleeping pills and slashed his wrists with a box cutter.
  Investors who lost their fortunes in Madoff’s alleged Ponzi scheme will end up paying far less in taxes and may even be eligible for refunds. By some estimates, the Internal Revenue Service could be out as much as $17 billion in lost tax revenue. Madoff’s fund was previously has about $50 billions.

Tags: lehman brothers, Madoff

The global market is having serious problem because of mortgage crisis. Watch your investment carefully. There are many bad news in the US market and around the world:

• On March 14 2008, JPMorgan Chase, in conjunction with the Federal Reserve Bank of New York, provided a 28-day emergency loan to Bear Stearns in order to prevent the potential market crash that would result from Bear Stearns becoming insolvent. Two days later, Bear Stearns signed a merger agreement with JP Morgan Chase in a stock swap worth $2 a share or less than 10 percent of Bear Stearns’ market value.
• The federal takeover of Fannie Mae and Freddie Mac refers to the placing into conservatorship of government sponsored enterprises Fannie Mae and Freddie Mac by the US Treasury in September 2008.
• Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday.
• Bank of America Corp., the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co. for about $50 billion as the credit crisis claimed another of America’s oldest financial companies. This news is good for the market. But this also tells us that current subprime mortgage crisis is far from over.
• On the evening of September 16, 2008, the Federal Reserve Bank’s Board of Governors announced that the Federal Reserve Bank of New York had been authorized to create a 24-month credit-liquidity facility from which AIG may draw up to $85 billion. The loan is collateralized by the assets of AIG.
• Washington Mutual Inc. became the nation’s biggest bank to collapse after U.S. government regulators seized the Seattle- based bank on Sept. 25. JPMorgan Chase & Co. agreed to acquire WaMu’s deposits and branches for $1.9 billion.
• Fortis, the largest Belgian financial-services firm, received an 11.2 billion-euro ($16.3 billion) rescue from Belgium, the Netherlands and Luxembourg after investor confidence in the bank evaporated.
• Citigroup Inc., the biggest U.S. bank by assets, will acquire the banking operations of Wachovia Corp., rescuing the Charlotte, North Carolina-based lender beset by mortgage losses for more than $2 billion in stock.

Stocks tumbled worldwide, the dollar fell and U.S. Treasuries surged after the bankruptcy of Lehman Brothers Holdings Inc. drove investors to the safety of government debt.

Tags: AIG, Bear Stearns, Fannie Mae, Fortis, freddie mac, lehman brothers, Merrill Lynch, Wachovia, Washington Mutual

It starts with mortgage. Many Americans borrowed money to buy their own house. After the crash of the dotcom bubble in 2000s many countries including US were facing economic recession. To spur growth, they lowered interest rates. Everybody were lending much money to buy house because it is cheap (low interest rate), making real estate property sky rocketed during this period.

The lenders (example: Washington Mutual) did not have to worry very much about the risk of default, because they created a bond from bundling these mortgages called Mortgage-Backed Securities (MBS), which they then sold to hedge fund, pension funds, and other financial institution (example: Fannie Mae, Freddie Mac, Lehman Brothers). This is a called securitization – conversion of mortgages or loans into bonds. The idea was to reduce risk exposure and raising new fund. The man behind securitization was an Investment Banker of ‘Salomon Brothers’ - Lewis S. Ranieri. In 1980s Salomon launched MBS.

It is hard to sell MBS because of it’s high risk. So they slice the MBS into smaller bond called ‘tranches’ with various risk level from high risk, middle risk, and low risk. Of course higher risk will have higher returns, but if something went wrong, it will be lost first. Salomon used a special purpose vehicle known as Collateralized Mortgage Obligation (CMO). Legally, a CMO is a special purpose entity that is wholly separate from the institution(s) that create it. Monthly instalment from mortgage was used to pay the interest on these bonds. Lender can also minimize risk by insuring the mortgage to other companies like AIG.

When the Fed raise it’s rate until 5.25% in June 2006, people will pay more for monthly instalment. The rate stays there for a long time, making many people unable to pay the instalment. When these people fail, they will also drag financial institution into trouble. That’s why we have seen many troubled institution like Washington Mutual, Fannie Mae, Freddie Mac, and Lehman Brothers. Every institution buying these MBS and it’s derivative around the world will get into trouble.

Tags: CMO, Collateralized Mortgage Obligation, Fannie Mae, freddie mac, lehman brothers, Lewis S. Ranieri, MBS, Mortgage, mortgage crisis, Mortgage-Backed Securities, Salomon Brothers, securitization, Washington Mutual