“NovaStar shares were down $1.15 to $5.96 in late-morning trade on the New York Stock Exchange after falling to as low as $5.91 earlier in the session.
As a result of the deal, FBR's Valentin said NovaStar common shareholders will see their dividend slashed to $2.67 a share from $4.21 a share. Valentin also said the $150 million injection is not enough to sustain NovaStar, a REIT, unless mortgage markets suddenly rebound."
Like other subprime lenders, which make home loans to people with weak credit, NovaStar has suffered rising defaults and has struggled to sell the loans it makes to investors. Quarterly results have suffered this year, while rivals were prompted to exit the business or forced into bankruptcy.”
This isn’t something new. I warned about the subprime implosion a few months ago including the challenges NovaStar would face. Although many pundits were echoing that $150 million dollars would keep the company solvent for a while longer, there is no way any amount of bad money would keep over inflated assets high forever. And the caveat in the above quote is “unless mortgage markets suddenly rebound.” Now do we really see that happening?
Big Ben Chimes in Again
Then we move on to Big Ben using his glorious Orwellian Doublespeak. First, Mr. Ben is frustrated that the Yuan is rising at a slow pace:
“"I share your frustration about the slow pace" of China's currency revaluation, Bernanke said in response to a question from the Senate Banking Committee following his twice-yearly Congressional testimony.”
Glad he shares the frustration of the American public. Well that can easily be remedied by raising the Fed interest rate. Of course this will pop the bubble. But why should housing pundits worry? They’ve mentioned that housing rose on its own merits without the crutch of easy credit. When asked if housing could face a hard fall, this is his response:
“"We think it remains a risk, we have an inventory problem,"
An inventory problem? Well isn’t that something! And here I was thinking that it was a pricing problem. The doublespeak gets better in this testimony. When asked about the overall state of the economy, Ben responded:
"The ongoing housing correction could prove larger than anticipated, and energy and commodity prices could continue to rise sharply" and that could "spread to other parts of the economy," said Bernanke. Therefore the "upside risks to inflation is [the Fed's] primary policy concern."
You’ll understand that political operatives love using the word “could.” Well I could make a million dollars tomorrow, or not. Well housing could correct, or not. And they keep calling it a “housing correction.” This is a bursting credit bubble! Call it what it is. All these convenient euphemisms make it seem like we are in a high school band class. So the primary concern is inflation. Excellent, at least we agree on one thing. Then what about the resounding housing inflation we have seen in the last few years? The Fed actually created this monster by lowering rates and creating excessive easy credit. This played perfectly into a society that has a very hard time saving for retirement or anything else. Not only that, it made everything you buy with credit cards easier. Even last year, it was incredibly easy to find 0 percent offers on credit card purchases. Try finding these deals now. Now they include a 3 percent transaction fee. Suddenly people can’t play the mortgage refinancing musical chairs game.
“"The most pressing issue facing the U.S. economy today is excessive and growing inequality,"Bernanke responded by pointing to other studies that show middle class Americans are generally much better off now than they were two decades ago.
But he also said better education training programs, as well as cheaper access to health care, are some things that could be done to lessen the income gap.”
Basically you are doing better if you aren’t buying your first home, eating food, don’t get sick, and avoid going to college. Aside, from that you are doing fantastic! Amazing double speak in face of the largest housing inventory in multiple decades.
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