Explaining Southern California's economy

The Fed's solution to the housing crisis: Rent!

Real Estate Brokers Lead Bus Tour Of Foreclosed Homes In Vegas Area

Ethan Miller/Getty Images

Well, this is interesting. The Federal Reserve has produced a white paper that tackles the Very Big Problem of the ongoing housing crisis and submitted it to Congress. It's a veritable treasure trove of clear-eyed analysis about why the housing market is still in such rotten shape. But beyond that, it offers a suite of equally clear-eyed ways to fix the problem.

One of these is particularly intriguing: taking foreclosed properties and, instead of trying to sell them to new homeowners — which requires mortgage financing which isn't now widely available to any but the most creditworthy borrowers — turning them into rentals. And who will do the renting? Real estate investors are the secret sauce (just a bit of translation: "REO" means "real estate owned," i.e. foreclosures):

To date, REO holders have avoided selling properties in bulk to third-party investors because the recoveries that REO holders receive on such sales are generally lower than the corresponding recoveries on sales to owner occupants. Investors considering such bulk-sale transactions tend to demand a higher risk premium than owner occupants and thus will purchase only at lower prices. Investors in such transactions also might have more difficulty obtaining debt financing than owner occupants.  Although mortgage products are available for individual one- to four-family houses and for multifamily properties (albeit currently at tight terms), no mortgage products currently exist for a portfolio of single-family homes. [My emphasis] In addition, REO holders must absorb the costs of assembling inventory for bulk sale — that is, holding properties off the market until enough properties have been assembled to cover the fixed costs of a rental program. Until the inventory is assembled, the REO holder receives no revenue from the property but incurs direct financing costs; carrying costs such as taxes, utilities, and maintenance expenses; and the continued depreciation of the property.

An REO-to-rental program that relies on sales to third-party investors will be more viable if this cost-pricing differential can be narrowed. REO holders will likely get better pricing on these sales if the program is designed to be attractive to a wide variety of investors. Selling to third-party investors via competitive auction processes may also improve the loss recoveries.

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How I became a Bitcoin trader

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Mark Scott

Readers of DeBord Report will know that I've become embroiled in a controversy/experiment involving Bitcoin, the cyber- or crypto-currency that's captured the hearts and minds of some passionate supporters in the technology world. In response to some commenters on the posts I've written so far, I decided to buy and trade some Bitcoin, just to see how it would go.

I suppose I could call this "Bitcoin Challenge" to parallel the "Bike Challenge" I'm also currently engaged in. 

There are some superficial similarities. I haven't ridden a bike anywhere in more than a decade. I've also never traded currencies — or much of anything else.

However, my sideline career trading BTC is off to a decent start. I don't know why, but the price of Bitcoin has been headed up of late. Because this is just an experiment and not an attempt to make real money, a few weeks back I purchased $10 of Bitcoin. I bought BTC at $3.90 and, a few minutes ago, sold it at $5.40. 

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Mark Cuban doesn't like smartphones

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Robyn Beck/AFP

Joel Anthony (R) of the Miami Heat defends against Dirk Nowitzki (L) of the Dallas Mavericks during Game 4 of the NBA Finals on June 7, 2011 at the AmericanAirlines Center in Dallas, Texas.

At Dallas Mavericks games, anyhow. The somewhat hyperactive Mavs owners and semi-regular blogger writes about how he's always getting pitched about ways to bring smartphones into the Mavs game experience — and why he wants no part of it:

We in the sports business don’t sell the game, we sell unique, emotional experiences.We are not in the business of selling basketball. We are in the business of selling fun. We are in the business of letting you escape. We are in the business of giving you a chance to create shared experiences. I say it to our people at the Mavs at all time, I want a Mavs game to be more like a great wedding than anything else.

Bottom line is that he wants you looking up, not down, at almost all times. And he goes on to describe a pretty wild wedding. You wouldn't have time to do some appy smartphone things at such a wedding...er, Mavs game even if you wanted to.

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Aurelius Capital Management: The hedge fund that's keeping Tribune in bankruptcy

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Jeremyiah/flickr/cc

Tribune Company, which owns the Los Angeles Times, has been in bankruptcy for...well, years. And according to recent reports, it won't be coming out of Chapter 11 any time soon. So what's the holdup?

Basically, it's two very large lenders versus an incredibly tenacious hedge fund. On one side, we have Oaktree Capital Management and JPMorgan Chase. Oaktree invests heavily in "distressed debt" — it has close to $30 billion of it's more than $80 billion under management tied up in defaulted or defaulting securities. According to Bloomberg, Oaktree along with Tribune's other "senior creditors" hold around $3.4 billion on a total of $8 billion that Sam Zell borrowed to buy Tribune in 2007.

For the record, Zell's buyout took Tribune's total debt to a staggering $13 billion.

When Tribune finally exits bankruptcy, Oaktree will exchange its debt for equity — an ownership stake — in the new company. To do this, they want Tribune's bondholders to effectively take a $500 million payoff, then fight it out in court over whatever is left of the "bad" company while a "good" company can emerge from Chapter 11.

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Where will new Yahoo CEO take the company?

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Justin Sullivan/Getty Images

A Yahoo! billboard is visible through trees in San Francisco, California.

Yahoo, the most confused company in media and technology — and more in a second on why "media" and "technology" are why Yahoo is so confused — has named a new CEO. He's Scott Thompson, who comes to Yahoo from PayPal. The big question is, after the disastrous reign of Carol Bartz, a tough-as-nails Silicon Valley leader, does Yahoo need yet another CEO from the land of tech?

Here's the New York Times:

Analysts said one of the first tasks for a new Yahoo C.E.O. would likely be to oversee the sale of its Asian assets.

"If a CEO who’s respected in the Internet industry takes control and gives it a unified vision, that will be very helpful," said Jordan Rohan, an analyst at Stifel Nicolaus. "The sale of the Asian assets is what happens first and what happens afterwards is just a question of how they deploy the cash they get from the sale."

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