Big Banks Predict Recession, Fed Pivot in 2023

Hmm.

Let's see if these predictions hit gold.

At the Wall Street Journal, "More than two-thirds of economists at 23 major financial institutions expect the U.S. to have a downturn this year."

Escape From C.A.? Los Angeles and San Francisco Lead the Way (VIDEO)

I love my state but Democrats have destroyed it. It's tragic.

I can't leave. I'm locked down career-wise at my college, teaching until I retire. In a decade or so I'll be able to, though. I'll have plenty of time to consider my options. Nevada or Wyoming? Idaho or Tennessee? Florida or Texas?

Who knows? 

Maybe California will be red state by then, with California's plurality Hispanic population following South Texas's lead? Never say never. Stranger things have happened. 

But as you can see, people who are free to flee, leave. It's a thing and getting bigger.

At the Los Angeles Times, "California exodus continues, with L.A., San Francisco leading the way: ‘Why are we here?’":

After living in the Bay Area for nearly seven years, Hari Raghavan and his wife decided to leave for the East Coast late last year.

They were both working remotely and wanted to leave California because of the high cost of living and urban crime. So they made a list of potential relocation cities before choosing Miami for its sunny weather and what they perceived was a better sense of safety.

Raghavan said that their Oakland house had been broken into four times and that prior to the pandemic, his wife called him every day during her seven-minute walk home from the BART station because she felt safer with someone on the phone. After moving to Miami, Raghavan said they accidentally left their garage door open one day and were floored when they returned home and found nothing had been stolen.

“We moved to the Bay Area because we had to be there if you want to work in tech and start-ups, and now that that’s no longer a tether, we took a long hard look and said, ‘Wait, why are we here again?’ ” Raghavan said.

He said there wasn’t much draw in California’s quality of life, local or social policies, or cost of living. “That forced us to question where we actually wanted to live,” he said.

An acceleration of people leaving coastal California began during the first year of the pandemic. But new data show it continued even after lockdowns and other COVID restrictions eased.

California ranks second in the country for outbound moves — a phenomenon that has snowballed during the pandemic, according to a report from the Federal Reserve Bank of Chicago, which tracked data from moving company United Van Lines. Between 2018 and 2019, California had an outbound move rate of 56%. That rate rose to nearly 60% in 2020-21.

Citing changes in work-life balance, opportunities for remote work and more people deciding to quit their jobs, the report found that droves of Californians are leaving for states like Texas, Virginia, Washington and Florida. California lost more than 352,000 residents between April 2020 and January 2022, according to California Department of Finance statistics.

San Francisco and Los Angeles rank first and second in the country, respectively, for outbound moves as the cost of living and housing prices continue to balloon and homeowners flee to less expensive cities, according to a report from Redfin released this month.

Angelenos, in particular, are flocking to places like Phoenix, Las Vegas, San Diego, San Antonio and Dallas. The number of Los Angeles residents leaving the city jumped from around 33,000 in the second quarter of 2021 to nearly 41,000 in the same span of 2022, according to the report.

California has grappled with extremely high housing prices compared with other states, according to USC economics professor Matthew Kahn. Combined with the pandemic and the rise in remote work, privileged households relocated when they had the opportunity.

“People want to live here, but an unintended consequence of the state’s environmentalism is we’re not building enough housing in desirable downtown areas,” Kahn said. “That prices out middle-class people to the suburbs [and creates] long commutes. We don’t have road pricing to help the traffic congestion, and these headaches add up. So when you create the possibility of work from home, many of these people ... they say ‘enough’ and they move to a cheaper metropolitan area.”

Kahn also pointed out that urban crime, a growing unhoused population, public school quality and overall quality of life are driving out residents.

“In New York City, but also in San Francisco, there are all these fights about which kids get into which elite public schools,” he said. “The rich are always able to hide in their bubble, but if the middle class looks at this quality of life declining, that’s a push factor to leave.”

Redfin chief economist Daryl Fairweather cited a June report that tracked the change in spending power of a homebuyer on a $2,500 monthly budget. While 11.2% of homes in Los Angeles were affordable on that budget, using a 3% interest rate, that amount swelled to about 72% in Houston and about 50% in Phoenix.

“It’s really an affordability problem,” Fairweather said. “California for the longest time has prioritized single-family zoning, which makes it so people stay in their homes longer because their property taxes don’t reflect the true value. California is the epicenter of where the housing shortage is so people have no choice but to move elsewhere.”

While California experienced a major population boom in the late 20th century — reaching 37 million people by 2000 — it’s been losing residents since, with new growth lagging behind the rest of the country, according to the Public Policy Institute of California. The state’s population increased by 5.8% from 2010 to 2020, below the national growth rate of 6.8%, and resulting in the loss of a congressional seat in 2021 for the first time in the state’s history.

Although California has relied on immigration to offset its population decline for the past two decades, that flow has also shrunk, according to UCLA economics professor Lee Ohanian.

Delays in processing migration requests to the U.S. were compounded during the pandemic, resulting in the lowest levels of immigration in decades, according to U.S. Census Bureau data.

Estimates showed a net increase of 244,000 new immigrants between 2020 and 2021 — roughly half the 477,000 new immigrant residents recorded between 2019 and 2020 and a drastic reduction from more than 1 million reported from 2015 to 2016.

The state is also seeing a dwindling middle class...

The "middle class"? Ha! 

How about the Medieval class? The so-called middle class in California is now our postmodern neo-feudal peerage for the metaversal-future.

See Joel Kotkin, at City Journal (interview), "California’s Neo-Feudal Future."

Conor Dougherty, Golden Gates

At Amazon, Conor Dougherty, Golden Gates: The Housing Crisis and a Reckoning for the American Dream.

Tony Dokoupil Covers Government Housing Policies Discriminating Against Black Americans (VIDEO)

I was discussing previous my news watching habits, and one of the great recent stories, from CBS Evening News, it turns out, is the tale of the man who adopted a "rescue dog" who was apparently afraid of men, but the guy adopted the dog anyway, and it turns out the dog returned the favor, and saved his life by dragging the man over to the phone, so he could call 911 as he was suffering from a stroke. This was a really heartwarming, down to earth report. Here, "Rescue dog that nobody wanted saves life of new owner."

And a few weeks back, Tony Dokoupil, at CBS This Morning, did a really good personal-story-style report on racial segregation in the neighborhood where his grandparents bought a home, in Linwood, New Jersey. 

This report, which is interesting to me because this kind of "redlining" was (and to some extent still is) a real example of insidious racism against black Americans. And I also liked the way Dokoupil handled the story, and the interviews he conducted, as he doesn't make it all about himself, but puts it in the context of how folks at the time felt, and what can be done now. 

And I didn't know it until this morning, but Dokoupil is married to Katy Tur, who is the super left-wing news anchor at MSNBC, who's biggest claim to fame is that she was once called out by Donald Trump while covering his campaign back in the day, and she published a best-seller out of it. Well, she and Dokoupil have three kids (two from Dokoupil's previous relationships), and they're expecting another baby in April, in contrast to the "baby bust" that is happening of late, especially because of the lockdowns, and the terrible life chances for young people nowadays, who really do have it worse than their parents and grandparents generations. Now good for Dokoupil, because Ms. Tur is actually pretty hot, but I'm surprised he comes off nothing like her in his reporting, and is more of a "straight news man," which I like, a lot. 

In any case, here's the segment on housing discrimination against blacks in New Jersey. Very well done:

Can California Save Itself?

I hope we see lots more articles like this in national publications.

The news is getting out that the Dems' one-party dictatorship is destroying the once-Golden State.

At the Atlantic, "California Is Becoming Unlivable":

"California’s housing crisis has exacerbated its wildfire crisis, and its wildfire crisis has exacerbated its housing crisis," writes @AnnieLowrey. "And that vicious cycle is nowhere near ending." https://t.co/L3lhzZHocm

— The Atlantic (@TheAtlantic) October 30, 2019

Right now, wildfires are scorching tens of thousands of acres in California, choking the air with smoke, spurring widespread prophylactic blackouts, and forcing the evacuation of hundreds of thousands of people. Right now, roughly 130,000 Californians are homeless, and millions more are shelling out far more in rent than they can afford, commuting into expensive cities from faraway suburbs and towns, or doubling up in houses and apartments.

Wildfires and lack of affordable housing—these are two of the most visible and urgent crises facing California, raising the question of whether the country’s dreamiest, most optimistic state is fast becoming unlivable. Climate change is turning it into a tinderbox; the soaring cost of living is forcing even wealthy families into financial precarity. And, in some ways, the two crises are one: The housing crunch in urban centers has pushed construction to cheaper, more peripheral areas, where wildfire risk is greater.

California’s housing crisis and its fire crisis often collide in what’s known as the wildland-urban interface, or WUI, where trailer parks and exurban culs-de-sac and cabins have sprung up amid the state’s scrublands and pine forests and grassy ridges. Roughly half of the housing units built in California between 1990 and 2010 are in the WUI, which has expanded by roughly 1,000 square miles. As a result, 2 million homes, or one in seven in the state, are at high or extreme risk for wildfire, according to one estimate from the Center for Insurance Policy and Research. That’s three times as many as in any other state.

The bulk of wildfire destruction in California happens in the WUI. The Kincade Fire has burned more than 75,000 acres—roughly five times the size of Manhattan—in rural areas and the WUI north of Santa Rosa. Last year’s Camp Fire killed 85 people and eliminated more than 10,000 homes in Paradise, a town situated in the WUI. The year before that, the Tubbs Fire killed 22 people and destroyed more than 5,000 structures, some in Santa Rosa proper and some in the WUI around it.

Although much of the WUI is naturally vulnerable to fire, human behavior is primarily to blame for the destruction. People start more than nine in 10 fires, according to reliable estimates. Dry trees and dry brush in the WUI might act as natural kindling, but built structures—houses, cars, hospitals, utility poles, barns—act as the most potent fuel, researchers have found. A house burns a lot hotter than a bush does; a propane tank is far more combustible than a patch of grass.

If building in the WUI is so dangerous, why do it? In part because building new housing is so very difficult in many urban regions in California, due to opposition from existing homeowners and strict building codes. The number of people living on the streets in San Francisco and Los Angeles is related to the extreme cost of rent in those cities is related to the statewide housing shortage is related to the pressure to sprawl into the periphery.

So housing sprawls into the periphery...

More.

Boyle Heights Coffee Shop Targeted by 'Anti-Gentrification' Activists

It's a small minority in the community, and they're going to hurt the neighborhood if successful.

This is really bad.

At the Los Angeles Times, "A community in flux: Will Boyle Heights be ruined by one coffee shop?":

As dusk settled over a mostly industrial landscape of warehouses covered with graffiti murals, Fernando Ramirez stood in front of the lone art gallery late Saturday afternoon and urged fashionably dressed visitors not to go inside.

“Don’t contribute to the displacement of the people in the community right here in Boyle Heights. Our rents are going up because of the art galleries,” he said. “Please do not cross the picket line!”

Ramirez, 38, had come to this desolate stretch of Boyle Heights with other protesters to once again declare war against a growing number of neighborhood art galleries and what he and other activists fear they foreshadow: a wave of gentrification.

On Sunday, a few miles east, a smaller group of protesters gathered outside a white storefront on Cesar Chavez Avenue with the word “COFFEE” painted in black.

Months after the activists won an apparent victory by pressuring an art gallery to close down amid what the owners called “constant attacks,” the protests against the galleries — and now Weird Wave Coffee — have illustrated both the demonstrators’ knack for annoying their targets as well as the limits of their tactics.

Along the gray desolation of Anderson Street, they have contended with sometimes well-financed galleries that can largely weather the disruptions. And on the busy stretch of Boyle Heights that houses Weird Wave Coffee, they have confronted residents who don’t take kindly to being told what to do or buy.

Anti-gentrification forces spent weeks trolling the coffee house on Instagram before and after it opened June 15. They held protest rallies outside the business, holding posters, including one that read “… White Coffee” and included an expletive, and another that said “AmeriKKKano to go.” They passed out fliers with a parody logo that read “White Wave.”

Some Latino residents who defended Weird Wave Coffee said they were called “coconuts” by activists. Brown on the outside, white on the inside.

“It makes us look bad,” Koda Torres said of the confrontational tactics used against the cafe. “The way they handle the situation of gentrification wasn’t appropriate. They were almost vandalizing their windows, harassing the customers, calling people sellouts and racists.”

But for the protesters, the stakes are too high for niceties. As they see it, if Boyle Heights is taken over by the forces of gentrification, then no other neighborhood is safe.

“It’s a threat to local businesses and it’s one more sign of gentrification that we need to defeat,” Leonardo Vilchis, director of Union de Vecinos, said of Weird Wave Coffee. “Otherwise this neighborhood is going to end up just like Highland Park.”

Early on in the battle against the galleries, protesters stormed into shows and threw detergent on patrons as well as the food they were being served, according to witnesses and news reports. The Los Angeles Police Department investigated the graffiti of one gallery that included an expletive and said “… White Art.”

The Eastside has long been a center of Los Angeles’ protest movements, whether it was residents marching against the Vietnam War in the 1970s or more recently demonstrating for immigrant rights.

But the activists who have fought against gentrification have so far failed to rally a large number of residents to their cause.

Some longtime residents like the rising property values and increased retail choices. Others are concerned about people being pushed out of the neighborhood. They also struggle to connect the dots, like the activists, between widespread gentrification and a cafe or art galleries in an isolated part of Boyle Heights.

“I don’t know the word ‘gentrification,’” said Nancy Garcia, 31, a Boyle Heights resident. “I know the word ‘displacement.’”

About 100 people, including Garcia, showed up at a separate rally activists organized last month at Mariachi Plaza to support mariachis and other tenants facing eviction from homes that will be converted into luxury apartments. The atmosphere was spirited but peaceful, with musicians playing in the background...

More.

I guess one consolation is that these protests pit leftists against leftists, heh.

(Overall, though, I just see "anti-gentrification" as anti-progress. You've got bad people who want to bring down everybody else, rather than lift everyone up. Resist them).

And Remember, Tiny House Hunters...

Heh.

My wife and I have watched this show a few times, and it's fascinating. Of course, I'd never even consider one of these tiny houses, but it's still pretty cool how the builders can get so much stuff in an extremely small space. And hey, maybe it will work for some people (although the family of five or six we watched once had to be insane, but whatever).

In any case, you gotta read this hilarious essay from Chuck Wendig at Terrible Minds, "An Open Letter to Tiny House Hunters."

It's getting Instalanched and SDA-alanched, so I had to toggle back and forth and arrow-browser buttons before it would load, but what a hoot:

Second, the toilet. Nobody has brought this up on the show, but I’m going to now: if you live with other humans, eventually one of you is going to take the kind of deuce-evacuation that could conceivably destroy a marriage. Normally you’d be fine, because normally you’d be living in a normal-sized human house where you have a door to close and a fan and several rooms or even floors of separation. But now you dwell in an elf-house and now you and all the other elves are going to share in that dump you just took. You’re going to live with it for a while. Everyone is going to become intimately familiar with one another’s bathroom peccadilloes, okay?

Heh.

He goes on about "those aforementioned Herculean/Sisyphean dumps" again, but you get the picture.

Over 300 comments there as well. It's like the old days of blogging.

Tarek and Christina El Moussa, Stars of HGTV's 'Flip or Flop', Cancel Events in Portland After Protests by Far-Left Rent Control Alliance

Big mistake.

If there was ever a cool inspiration for entrepreneur ship and business hustle, it's Tarek and Christina. They're really cool.

At Instapundit, "BLUE STATE IDIOCY: Stars of HGTV house-flipping series cancel events in Portland after angry residents claim seminars will only worsen the city’s ‘rental crisis’."

The Challenges of Selling a Hollywood Home

The owners of these early 20th century Hollywood homes think they've got a treasure trove of history, imparting tremendous value to their properties. But prospective buyers just want to tear down the structures and rebuild at more than twice the size.

Heh, this is pretty good.

At WSJ, "In Los Angeles, an abode that has housed generations of Hollywood legends can be the ultimate status symbol, but there are complications when it is time to sell":

It is a classic Hollywood story: In 1909, a broadcasting impresario commissioned noted architects Greene & Greene to design a craftsman-style manse near Los Angeles’s Wilshire Boulevard. Fourteen years later, Norman Kerry, a silent-film star, bought the house and paid to have it moved to Beverly Hills. In 1931, Mr. Kerry rented it to Lorenz Hart, the legendary lyricist of the Rodgers & Hart musical writing team.

Last year, the owners, screenwriter Leslie Dixon and filmmaker Tom Ropelewski, decided to put this 4,600-square-foot piece of Hollywood history on the market for just under $9 million. A crowd of 300 came to the first open house, said their listing agent, Bret Parsons of the architectural division of Coldwell Banker in Beverly Hills, and they all had one idea in mind.

“You could overhear them: ‘Tear down, tear down, tear down,’” Mr. Parsons said.

In Los Angeles, a home that bears the pedigree of generations of Hollywood A-listers can be the ultimate status symbol. Studio heads and film producers love to boast that Katharine Hepburn or Clark Gable roamed the halls.

But homes haunted by the ghosts of Hollywood past can also create challenges when it is time to sell. “Celebrity owned” shows up as frequently in Los Angeles real estate listings as granite countertops, but claims don’t always match the public record. And in today’s market, the well-heeled Los Angles buyer frequently wants something bigger—much bigger—than a Hollywood mansion from the 1930s...

Keep reading.

Element Capital Buys Billions of Dollars of Treasury Securities

Hmm... This is pretty interesting.

At WSJ, "An Obscure Hedge Fund Is Buying Tens of Billions of Dollars of U.S. Treasurys":

A little-known New York hedge fund run by a former Yale University math whiz has been buying tens of billions of dollars of U.S. Treasury debt at recent auctions, drawing attention from the Treasury Department and Wall Street.

Element Capital Management LLC, led by trader Jeffrey Talpins, has been the largest purchaser in dozens of government-bond auctions over the past 10 months, people familiar with the matter said. The buying is part of an apparent effort by the fund to use borrowed money to exploit small inefficiencies in the world’s most liquid securities market, a strategy that is delivering sizable profits, said people close to the matter.

Mr. Talpins is an intense and reserved trader formerly at Citigroup Inc. and Goldman Sachs Group Inc. He is known for a tenacious style that can grate on rivals and once tested the patience of former Federal Reserve Chairman Ben Bernanke.

Element has been the largest bidder in many of the 62 Treasury note and bond auctions between last November and July, these people said. At many recent auctions, some of which involved sales of more than $30 billion of debt, Element purchased about 10% of the issue, these people said. That is an unusually large figure, analysts said.

Element’s activity has raised questions because the cumulative purchases far exceed the hedge fund’s $6 billion in assets under management. Treasury officials, who frequently meet with large auction participants, have asked Element about its activity, said someone close to the matter.

“Their buying is eyebrow-raising,” said a trader who once worked for a firm that deals in government securities and witnessed Element’s bidding. These primary dealers often know the identity of other auction bidders. Element “never shared its strategy, but we often asked,” the trader said.

Treasury likes to know who is buying its bonds and why, partly because it prefers long-term holders such as pension funds, insurance companies and central banks. Treasury officials fear purchases by trading-oriented funds could result in sales that increase market swings and potentially drive up borrowing costs.

“If you’re issuing debt, your preference is those ‘sticky investors,’” said Scott Skyrm, a managing director at Wedbush Securities.

“Consistent with our policy, Treasury does not comment on individual investors in Treasury auctions or conversations with market participants,” a Treasury representative said.

Element is a “macro” fund, or one that wagers on global macroeconomic trends in bond, stock and currency markets. The firm uses a “unique probabilistic approach,” according to a presentation the firm made last year at the University of Pennsylvania’s Wharton School.

Element had been shorting, or betting against, bonds in anticipation of higher interest rates but has been exiting from that wager, according to someone close to the matter. That is one reason the fund has been a big buyer of Treasurys lately.

But people who have worked with the firm or are close to Mr. Talpins said there is another reason: Element is among the last to embrace “bond-auction strategies,” trading maneuvers that have become less popular since the financial crisis.

These trades aim to take advantage of the effects of supply and demand in the $12.8 trillion Treasury market. Demand for these bonds often fluctuates based on factors including investor perceptions of economic growth and market risk, while supply can be affected by regular auctions of different-maturity Treasury securities. A burst of new supply tends to slightly depress prices for short periods, sometimes for less than an hour...

More at the link.

This is so slick it reminds of "Bonfire of the Vanities."

Bidding Wars Become the Norm as Orange County Rental Market Goes Off the Chain

Bidding wars for rentals?

No wonder my lease keeps going up.

At CBS News 2 Los Angeles, "It is not uncommon in the rental frenzy for renters to offer a year's rent up front."

Chinese Beverly Hills

At LAT, "HOW ARCADIA IS REMAKING ITSELF AS A MAGNET FOR CHINESE MONEY":

Most Los Angeles architects are lucky if they complete two or three houses by their early 30s.

Thirty-one-year-old Philip Chan, who runs a firm in Arcadia called PDS Studio, has already seen more than 75 of his residential designs built across the San Gabriel Valley.

He's still not the best-known designer in Arcadia. That title belongs to Robert Tong, 54, founder of the equally prolific firm Sanyao International.

A growing architectural rivalry between the two men is a key part of a construction wave that is radically remaking Arcadia. Blocks that were once sleepy, with single-story ranch houses from the 1940s set comfortably back from the street, are now lined with bloated villas pushed near the front of their lots as if clamoring for attention.

Chan and Tong, whose names are featured in San Gabriel Valley real estate listings as prominently as Frank Gehry's is on the Westside, tailor their showy Mediterranean-style houses to appeal to wealthy Chinese buyers, many looking to park some of their money here or to enroll their children in American schools.

In the last year alone, more than 90 houses have sold for more than $2.5 million in Arcadia, a city of 56,000 that sits just east of Pasadena at the base of the San Gabriel Mountains.

Prices in Arcadia are up more than 39% from their peak in 2007 before the housing downturn. The city, now 60% Asian, has become more expensive than Calabasas, the suburban enclave that is home to Justin Bieber and the Kardashians. It's become known as the "Chinese Beverly Hills."

What's happening in Arcadia is less about big new houses and startling sales figures than how new patterns of immigration are transforming the architecture of Southern California. New arrivals from China are not victims of change, as they were when Southern California's original Chinatown was razed in the 1930s to make way for Union Station.

This time around they're the ones with the economic power. The architectural landscape is being remade not to displace them but as a magnet for their money...

Interesting.

Keep reading.

Bank of America Agrees to Pay Record $16.65 Billion in Obama-Holder Housing Settlement Shakedown

Look, we know what happened.

Many analysts, including Gretchen Morgenson of the New York Times, in Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon, indicated that Democrat-leftist policies pushed government-backed financial institutions, such Fannie Mae, to issue sub-prime home loans to unqualified minorities. This dates back to the Clinton years. Democrats called for "partnerships" between government and the private sector, which ultimately removed all limits on mortgage lending, feeding an unchecked real-estate bubble and ultimately the worst financial collapse since the Great Depression.

But now here comes Barack Obama's shakedown Attorney General, who strong-armed B of A into this record shakedown payout.

The announcement is at the corrupt DOJ website, "Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis" (via Memeorandum).

And at the Wall Street Journal, "Record Bank of America Settlement Latest in Government CrusadeBank Agrees to Pay $16.65 Billion in Cash and Consumer Aid":

On Thursday, the bank agreed to pay $16.65 billion to settle the government's accusations it sold flawed mortgage securities in the run up to the 2008 crisis, the largest settlement ever reached between the U.S. and a single company.

For the U.S. government, the deal is a chance to put an exclamation point on a string of crisis-era enforcement actions and lawsuits that have cost big U.S. banks tens of billions of dollars. The Charlotte, N.C. lender will have to pay $9.65 billion in cash to the Justice Department, six states and other government agencies. The bank also will provide $7 billion in consumer aid by modifying mortgages for borrowers who owe more than their homes are worth, demolishing derelict properties or other relief.

For Bank of America, the settlement is a bitter coda to its decision in 2008 to buy two companies, Countrywide Financial Corp. and Merrill Lynch & Co., as they teetered during the housing crisis. Bank of America Chief Executive Officer Brian Moynihan, who has spent his 41/2 years as CEO wading through litigation, has told investors this is the last of the big crisis-era problems. His next challenge: proving the bank has the mettle to make money in an era of weak loan demand and low interest rates.

In a statement, Mr. Moynihan said the settlement "is in the best interests of our shareholders, and allows us to continue to focus on the future." Giant legal charges have depressed the bank's earnings for years, frustrating some investors. The bank said the settlement will cut third-quarter pretax earnings by $5.3 billion, or 43 cents a share after tax.

Shares in the company rocketed more than 4%, to close at $16.16, as investors welcomed the resolution of a long-running legal headache.

The Justice Department's case against Bank of America provides perhaps the clearest window yet into the behavior that fueled the 2008 financial crisis: Lenders knowingly providing credit to borrowers who couldn't afford the loans and selling those mortgages to unwitting investors. Borrowers ultimately defaulted, sending them into foreclosure and saddling investors with hefty losses.

Many of the mortgage securities in question were made by Countrywide and Merrill Lynch. But the government found problems with Bank of America's own mortgage securities as well, including efforts to circumvent underwriting standards by changing applicants' financial information.

In at least one instance, an underwriter at Bank of America made more than 40 attempts to win an "accept" rating from an internal Countrywide system—known as CLUES—that would allow Bank of America to make a loan, according to a statement of facts signed by the U.S. and Bank of America.

"One underwriter characterized what she was doing as trying to 'trick' the CLUES system into giving an 'accept' rating," according to the document.

The ramifications of originating weak loans was predicted by former Countrywide CEO Angelo Mozilo, who warned in an Aug. 1, 2005 email to other executives that real-estate developers were anticipating a condo-market collapse in areas like South Florida and Las Vegas, and said the firm should avoid putting certain loans on its own balance sheet. Mr. Mozilo was worried the large increase in monthly payments required by many of the Countrywide-issued mortgages ultimately would cause borrowers to default.

"The simple reason is that when the loan resets in five years there will be enormous payment shock and the borrower is not sufficiently sophisticated to truly understand the consequences then the bank will be dealing with foreclosure in potentially a deflated real estate market. This would be both a financial and reputational catastrophe," Mr. Mozilo wrote, according to Justice Department documents.

Prosecutors in Los Angeles are preparing to file civil charges against Mr. Mozilo and other former Countrywide executives, according to a person familiar with the situation. Mr. Mozilo's lawyer, David Siegel, said, "There is no sound or fair basis, in law or in fact, to pursue any claims against Angelo Mozilo."

Countrywide, in particular, has morphed from trophy to albatross for Bank of America. The bank had a history of gobbling up competitors when it bought Countrywide in 2008 and the deal launched it to the top of the mortgage world.

The purchase, though, has brought legal headaches and regulatory scrutiny, including a multistate settlement over alleged predatory lending practices just months after Bank of America bought the lender. The bank's mortgage unit hasn't turned a profit in years.

The settlement comes on the heels of similar, but smaller, deals over precrisis mortgage-related conduct with Citigroup Inc. C +2.55%  for $7 billion and J.P. Morgan Chase JPM +1.49%  & Co for $13 billion. The Justice Department is expected to turn its attention next to other banks accused of selling flawed mortgage securities, including Goldman Sachs Group Inc. GS +0.64%  and Wells Fargo& Co., according to people familiar with the matter. Those cases are expected to be smaller than the previous three settlements.

Ben Bernanke Struggled to Boost U.S. Economic Growth

Bernanke's stepping down at the end of the month, and the Fed's supposed to ease off its economic stimulus policies, but we'll see. A report at the New York Times, "Fed Scales Back Stimulus Campaign."

And see the Wall Street Journal, "Meltdown Averted, Bernanke Struggled to Stoke Growth: Fed Chairman Fails to Engineer Robust Recovery, Even With Extraordinary Measures" (via Google):

After a financial crisis he didn't see coming, Ben Bernanke steered the U.S. away from a potentially devastating panic. Yet five years later, the recovery he helped engineer with extraordinary policies remains frustratingly weak.

As Mr. Bernanke prepares for his final days as Federal Reserve chairman, that legacy—a mix of failings, boldness, persistence and frustration—is coming into sharper focus, and with it a clearer picture of the power and limitations of modern central banking.

Fed officials meeting in Washington on Wednesday face another consequential decision: a close call on whether to start winding down their $85 billion-a-month bond-buying program.

At the root of the issue is a long-running debate between Mr. Bernanke and other Fed officials about how much more a central bank can or should do to try to spur an economy that hasn't been wholly responsive to its efforts.

It could be the last big Fed decision before Mr. Bernanke ends his chairmanship next month, eight years after taking the helm in what he expected to be a far-more-placid era.

"I will make continuity with the policies and policy strategies of the Greenspan Fed a top priority," Mr. Bernanke said at his first confirmation hearing in November 2005, citing predecessor Alan Greenspan. He talked broadly of the need to ensure financial stability, but made no mention in his statement of the threat from a housing boom that by then had begun showing signs of cracking.

How would you rate Bernanke's performance? How will history remember him? Weigh in here.
Fans of Mr. Bernanke say history will mark him most as the courageous economic steward who, once crisis struck in 2008 and 2009, flooded the financial system with loans and averted another Great Depression.

"This is like saving you from nuclear war," said Ray Dalio, founder of the giant hedge fund Bridgewater Associates.

Mark Gertler, a New York University economics professor and friend of Mr. Bernanke, said that "like Roosevelt, he was the calming influence, the grown-up in the room, during the darkest days of the economic turmoil."

Before then, however, came calculations that haunt the Fed.

Mr. Bernanke's first steps in office were to continue a succession of small interest-rate increases that some economists say were too late, and too timid, to curb a badly swollen housing bubble.

Mr. Bernanke has disputed that analysis, but acknowledged that the Fed failed to adequately supervise banks before the crisis or to see danger to the broader financial system—mistakes that have since led Congress to revamp Washington's approach to financial supervision.

Early on, Mr. Bernanke embraced only reluctantly the interventionist stance that has come to define his stewardship.

In December 2007, for example, he said he was "quite conflicted" about whether to cut interest rates sharply, according to transcripts of Fed's meetings. That turned out the be the month the recession began. At other times, he talked about wanting to avoid bailing out financial markets, institutions or people.

Timothy Geithner, the former Treasury Secretary and New York Fed president, saw the reserved former professor's worldview change in early January 2008 as financial turmoil deepened and started to bite the economy.

"That's when he decided that the risks were so great and he was going to have to be much more aggressive," Mr. Geithner said. "He kept at it."

It is widely accepted that the landmark policies Mr. Bernanke championed during and after the crisis—rock-bottom interest rates, loans to banks and controversial bond buying—averted an economic calamity. Their failure to spur a vigorous recovery, however, has created perhaps the biggest unanswered question about Mr. Bernanke's legacy.

"I wish I was leaving with the unemployment rate at 5% instead of 7%," he said wistfully during a November discussion with high-school teachers.

The Fed has promised to hold short-term interest rates near zero at least until the unemployment rate, currently 7%, falls to 6.5%. And in an effort to drive long-term rates down, the central bank has accumulated more than $3 trillion in Treasury bonds and mortgage securities.

In the process, it has flooded the U.S. banking system with money, funds available for banks to lend. These cheap-credit policies, in theory, should spur job-creating growth.

There's a fabulous graphic here, "Imperfect Tools, Imperfect Economy." Pay attention to the radical growth and scale of quantitative easing after 2009. The Fed flooded the economy with money, deflating the currency while staving off a collapse in growth. Seriously. Just take a look at the scale of the monetary stimulus. That's gotta be unprecedented.

See that New York Times piece at top for more.

Escena in Palm Springs is First Tract House Development Since the 'Mad Men' Era

Interesting.

At the Los Angeles Times, "Escena Palm Springs: SoCal's first modern tract houses in decades":

Escena is believed to be the first single-family tract house development in Southern California built in a modern architectural style since the actual “Mad Men” era, when builders such as Joseph Eichler and the Alexander Construction Co. brought Midcentury Modern to the masses. The bet driving this development: that a new generation raised with smartphones, Ikea stores and hybrid cars understands that modern design is built into every object of their lives.

When it comes to home, the prevailing, post-recession sensibility is simple but cool. It’s smart and efficient. It’s comfort without excess. Escena houses, Poon says, are designed for the modern person who thinks, “I don’t want to be the guy driving the Hummer.”

So here on the north side of Palm Springs, where Gene Autry Trail meets Vista Chino, you will see no faux Italian villas striving for “Under a Tuscan Sun” romantic rusticity. No Spanish tile, no Moroccan arches, no board-and-batten ranch-house siding with a Western accent. These houses speak in the architectural language of flat roofs, open floor plans and maximum connection to the outdoors. Imagine floor tile that emulates the look of polished concrete. Or sleek, high-gloss kitchen cabinets imported from Italy and unencumbered by hardware. Or biofuel fireplaces that deliver ambience without pollution.

“There is a lot of beautiful, modern design in mixed-use projects, condos and apartments, but not in single-family housing,” says Poon, principal at Poon Design, a Beverly Hills firm whose portfolio includes Chaya, Saffron and Mendocino Farms restaurants. Any developer can crank out “Taco Bell” houses and make money, the architect says, “but I think it’s time — time to start offering high design to a mainstream marketplace."

Pretty nice, if you're into Ikea. Lots of photos at the article, in any case.

More on Yesterday's Federal Reserve Fallout

At WSJ, "Turmoil Exposes Global Risks":

Worries about China and the Federal Reserve's plans rattled global markets for a second day, sending U.S. stocks to their biggest loss this year and hammering bonds and many commodities.

The Dow Jones Industrial Average dropped 353.87 points, or 2.34%, to 14758.32, on big volume, marking its first back-to-back decline of 200 points or more since Nov. 1, 2011. Yields on Treasurys hit their highest since August 2011 as bond prices fell.

he turmoil exposed vulnerabilities in the financial markets and the world economy that had been mostly ignored because central banks were willing to ride to the rescue with huge amounts of money.

Investors said Thursday they were buffeted by two distinct forces: worries about the health of China's economy and financial sector, and the prospect that the beginning of the end of the Fed's extraordinary stimulus could reverse the huge rally in assets ranging from "junk" bonds to dividend-paying stocks. Gains in many of those assets had been fueled by ultralow interest rates and expectations that the Fed would continue to pump money into financial markets.

The rout underscored persistent worry about the health of the global economy at a time when the U.S. and Europe are struggling with high unemployment. Adding to the wrenching action is a cash squeeze in China, which is trying to tighten the spigot on credit without causing problems, and a report that financing for cash-strapped Greece could be in danger.

The declines came a day after Fed Chairman Ben Bernanke said that the central bank expects to begin to pare its huge bond-buying program later this year and that it could end sometime next year, provided the economy unfolds as the Fed expects. The prospect of the Fed weaning the economy off unusually easy credit at a time when the pace of U.S. economic growth is modest and inflation is below the Fed's target jolted markets around the world.

At the same time, many investors believe the shakeout heralds a shift toward higher interest rates and sustained, healthier U.S. growth, following a long period of superlow rates that helped feed investor funds into higher-yielding investments. Those investments have declined sharply in recent weeks as the market has begun preparing for more-normal rates.

The action showed investors continue to grapple with the impact of an eventual reduction of the Fed's $85 billion in monthly bond purchases. U.S. bonds and stocks have broadly risen this year, with few sizable declines until the past month.

The main thing is that the investors and speculators expect interest rates to go up, and that could destabilize markets in all kinds of housing and mortgage-related sectors.

More at the link.

PREVIOUSLY: "Dow Jones Tanks."

Banks Now Favor Short Sales Over Foreclosures

Well, my wife and I did a short sale. We needed new financing if we were going to be able to stay in our home but the value had depreciated so much no bank was going to finance us. We were approached by a young realtor who was specializing in short sales and we signed up. It took about three months but it went through. The main bummer has been losing our mortgage interest deductions, and some other related tax issues, which drove up our tax bill last year when we filed. But overall it worked out well.

In any case, see the Los Angeles Times, "Short sales in California surpass sales of foreclosed homes."

Arizona Man Dies After Being Found Guilty of Burning Down His $3.5 Million Home

I saw this out of the corner of my eye yesterday, when Fox News ran a brief blurb. But it never occurred to me that he killed himself. People do die and collapse upon the incidence of extreme stress, so that's sad, I thought. But watch the clip. Clearly, it looks like he downs some medication. He appears to be swallowing. See the Independent UK, "A guilty verdict, a mouthful of poison – and minutes later he was dead." And at Telegraph UK, "Man appears to commit suicide after guilty verdict":

A former Wall Street trader who faced 16 years in prison for burning down his $3.5m mansion collapsed and died in an Arizona court minutes after appearing to take some sort of suicide pill following a guilty verdict.

East Against West in California's Economic Recovery?

As soon as I clicked the link, before scrolling down, I knew that was Newport Beach at the photo.

See: "In California, Economic Gap of East vs. West."

The Times overstates the economic recovery. The coastal areas are extremely affluent and less prone to the deep cycles of the economy, and the outer counties are perpetually underdeveloped. The housing boom naturally took off like wildfire in places like Riverside and San Bernardino counties, and so it's not surprising that the market crashes there pulled down the local economies like an anchor. And don't even get me going about the Central Valley. Drive an hour outside of Fresno and you'll think you're in the "Grapes of Wrath."

San Bernardino County, which with Riverside County makes up the Inland Empire, a sprawling area now scattered with vacant homes built in the last decade, posted an unemployment rate of 12.6 percent in March. Compared with Orange County, on the more prosperous, western side of California’s vertical divide with an unemployment rate of 8 percent, it can feel like another world.

The disparities have played out in all kinds of ways. The Inland Empire and the San Joaquin Valley, in the center of the state, have some of the highest rates of poverty in the country. El Centro, on the state’s southeast edge, has the highest unemployment rate for any metropolitan area in the country, nearly 27 percent. Stockton, 550 miles to the north and also on the eastern side of the divide, became the first city to test the state’s new process for possible bankruptcy.

At the same time, the gap between the per capita income in the San Francisco Bay Area compared with the Inland Empire grew to more than $40,000; it was $26,000 four decades ago. While suburbs in the eastern parts of the state were some of the fastest-growing areas in the nation in the last decade, that growth has slowed to a near halt.

Welcome to California.

China's State-Led Model Showing Signs of Trouble

ICYMI, you might want to skim former SIEU chief Andy Stern's op-ed at the Wall Street Journal from earlier this week, "China's Superior Economic Model." I don't begrudge China's economic success, but I've never been one to fall head over heels for China's model, especially as a replacement for the American free-enterprise ideal. Stern's piece reminded me of the "Japan as Number One" school from the late-1980s and early-1990s. Back then I thought more reliance on industrial policy and governmental intervention might be a good thing. Then Japan collapse and by the end of the Clinton years the American economy was booming. Hardly anyone was championing the Japanese "developmental state" by that time. And thus, I mostly yawned when reading Andy Stern, and that was after a little chuckle, considering the former union boss was throwing his lot in with one the most murderous regimes in modern times.

In any case, the editors at Wall Street Journal throw some cold water on the Chinese economic system. See, "China's Hard Landing":

China is a poster child for the Austrian school of economics' theory of the business cycle. After undertaking the biggest stimulus program the world has ever seen in response to the global financial crisis, the country is drowning in unproductive investments financed with credit.

The government spent 15% of GDP largely on public works projects in inland regions, financed with loans from the state-owned banks. Investment as a share of GDP soared to 48.5% in 2010, and the M2 measure of money supply ballooned to 140% that of the U.S.

Now comes the hangover. The public works projects are winding down, unleashing a wave of unemployment and an uptick in social unrest. The banks' nonperforming loans are rising, and local governments are insolvent. The country is littered with luxurious county government offices, ghost cities of empty apartment blocks, unsafe high-speed rail lines and crumbling highways to nowhere.

One effect of negative real interest rates was a nationwide bubble in private housing, with the average price of an urban apartment reaching eight times the average annual income. Real estate is the most popular investment for the wealthy, according to a central bank survey in September. Millions of luxury apartments are vacant, even as there is a shortage of affordable housing for the poor....

There is no easy way to avoid the bust that is coming. The silver lining is that China's increasingly state-led growth model will be discredited, and a debate will begin on restarting the reforms that stalled in the mid-2000s. A financial sector that allocates credit based on politics rather than price signals led China into this mess. Popular pressure to dismantle crony capitalism is building, and the Communist Party would be wise to get in front of it while it can.