The Daily Soak - September 30

$700 Billion Financial Bailout Fails; Dow Plummets 777 Points

And you thought Florida housing prices were dropping like a rock. The failure of Congress to reach an agreement on the proposed $700 billion financial bailout package pushed the Dow Jones Industrial Average over the cliff on Monday. The DJIA dropped 777 points (almost 7% of its total value) from Friday's close of 11,143 to 10,365. With only 38 days remaining until the presidential election, the finger-pointing and partisan-bickering reached a crescendo on Capitol Hill. And with the House of Representatives adjourned until Thursday, expect more market volatility in the coming days. With markets reeling and bailout opposition growing, desperate Florida homeowners should not hold out hope for a reversal of fortune (or home prices) anytime soon.


Curtains for Wachovia: Major Florida Home Lender Collapses

Charlotte-based banking giant Wachovia was one of Florida's most important mortgage lenders during the boom years. Once the industry standard for credit quality and low loan losses, Wachovia became one of the nation's most aggressive purveyors of high-risk mortgages. After acquiring Golden West Financial in 2006, Wachovia adopted GWF's now-notorious option ARM program called Pick-A-Pay and decided to roll it out nationwide. Bad idea. After dropping 73% in 2008, Wachovia's stock price closed last Friday around $10/share...by Monday morning it was a penny stock. Citigroup and the FDIC cobbled together a bailout of Wachovia over the weekend, and details were made public after the opening bell. Citigroup will assume the first $42 billion (yes, billion) of Wachovia's losses; the FDIC will assume losses in excess of the first $42 billion.


"They're Going to Shut Down Real Estate Completely!"

That's the sentiment from one Orlando realtor interviewed by the AP on Monday, as the bad news drifted down from Washington to Wall Street and finally to Main Street Florida where real people are losing their jobs, growing numbers of homeowners are facing foreclosure and consumer confidence is fading fast. The AP article summed it up like this,"Without a broad government response to the credit crisis, the economy, which many believe to be in recession or near it, would certainly worsen, analysts say. Unemployment, currently at a five-year high of 6.1 percent, could rise to double-digit levels as credit dries up." Mark Zandi, chief economist with Moody's agrees with that bleak assessment, "Businesses are going to begin shuttering operations and laying off workers. That will hammer all consumer spending and housing demand." In the words of Green Day, "Wake me up when September ends."