Oh I Think I Get It Now...

Recall: my generation grew up in a world where deals chased money.  Since, oh, say, 1980, we've lived in a world where money chased deals.  Like, for example, Continental Illinois, which shoveled all its (our) cash down an array of ratholes.  Like Henry Kravis and the mother of all LBOs  (on which, it seems, he in the end also lost money).  Like Robert Campeau (boy, does anybody remember him?) who was somehow able to finance "The Biggest, Looniest Deal Ever," (and wound back in his mother's spare bedroom).  

Like the mortgage brokers.  Well no, wait.  Go back a bit in time.  Remember the early mortgage brokers from, say, the 80s?  Here was a guy who found a prospect who could use a loan.  He'd check the credit, he'd set some terms. Then he'd go looking for an investor who could put some money into the deal.   The investor would get his deal with his note.  Some of these brokers were crooks and a fair number of them wound up in bankruptcy.  For others, it was a living--a tough one, but a living.  But that's the thing: they were constrained by the amount of capital they could lay their  hands on.  Always looking for new money.  

Always, that is, until they were "discovered" by Wall Street and its pent-up sluice of cash.  These were the guys who transmogrified the loan brokering business--who found that anybody with a pulse and a laptop could be a broker; who ginned up Alt-A-minus, the sub-640 FICO and the whole cafeteria full of devices designed to get the borrower in through the window and the product out the door.  

You may remember: it all worked find until it didn't work any more and we are still picking up the pieces.  We've sloshed whole barge loads of money into the banks on the premise that if we All Believe in Fairies then Tinkerbell will Get Well Again.

Now this: here's Wolfgang Richter explaining how the new housing "bubble" is driven not by prospective homeowners but by Wall Street investors with more money than they know what to do with.  And  here is Sam Zell buying trailer parks.

There is a common theme here, yes?  I mean, in both cases, the trick is to capture the income stream of the poor schlepps who keep the fat cats juiced and comfy, yes?  In the old days you did it with mortgage payments.  Now you do it with rents.  Haveta live somewhere, they say, although "somewhere" can also include a corrugated refrigerator box under the expressway.  Meanwhile, folks, let's party.  Looks like the money will continue to flow.

Annals of Real Estate: This Old House

Taxmom points out that my old house is for sale in Davis (CA) at $579k..  My then-wife and I bought it in 1969 for $26k, which pencils out to a return of a shade under 10 percent per year--not too shabby once you factor in rental income, implicit or otherwise, and even granting taxes and inflation.  Taxmom actually did a walk-through and says she thought it "seriously overpriced," but I'm not so sure: this is (still) a nice enough neighborhood and it seems that any old pile of sticks can fetch an eyebrow-raising return (but Zillow pegs it at $404k).

Still, the question remains: why would anyone pay even $404k for what is, after all, a pile of sticks, and 43-year-old sticks at that?  It can't be the vintage Bristol board, so what is it?  I suppose I gave a hint of an answer when I said "nice enough neighborhood," but that is question-begging: why do all these undistinguished tract homes prop each other up this way?

I suppose the next guess would be: replacement cost, which would include the notion that you just couldn't rebuild it today with the cheap stuff in the original pile--not and satisfy the market, saying nothing of the building inspector.  And permits: as it happens it was the last vacant lot in the neighborhood when we bought it and built on it back in the Pleistocene, and it might well be that this is one of those places for which the best thing the buyer could do is just bulldoze it and start over (So, the real cost is more like 800-900k?  Sounds like a stretch).

They're not making any more of them?  Well, but they are, kind of: during the nineties and the aughties, new development sprang up around Davis like mushrooms after a spring rain.  But they are all farther away from the epicenter, a lot of them are even more charmless and undistinguished and who knows, maybe there is a certain aura...)

...In short, I really don't have the least idea. 

Real Estate Watch

Pretty much by chance, I came upon the Zillow page for the first house I ever bought, back in St. Matthews (i.e., suburban Louisville) KY in 1965.  I paid $13,900 (and felt the realities of adulthood crashing down on my shoulders, believe you me).  An inflation calculator translates that to $99,693 in today-dollars.  The Zillow estimated price is $163,600.  That pencils out to a real-dollar return of just a shade over one percent a year.

No moral, just reporting.

Real Estate Deregulation: No Accident

The Subprime Virus is the kind of book you might read for Lent, not so much for enjoyment.  It's good for you: it flushes out some toxims and recombines some DNA.  But it's professor-boring: a steady slog down the long trail of recent financial memory with little by way of provocative analytical insight and nary an F-bomb in the whole meander.
So, why read it at all?  The answer is that it--okay, it's a slog, but actually a pretty good slog: maybe more of an aide-memoir if you will, effective at walking you through the particulars of the housing crisis qua housing crisis.  Housing, that is, as seen from the dark and bloody frontier between regulators and regulated as they lob stink bombs at each other over issues of control.  A companion piece, then, to Alyssa Katz' superb Our Lot, still umatched as an account of housing-on-the-ground, or Michael Hudson's uneven but insightful The Monster on predatory lending from the inside.   In a different sense, it's a bit like the Financial Crisis Inquiry Report--a just-the-facts bowl of nutrition with lots of roughage.

But I guess I can think of at least one takeaway soundbite.  Specifically, The Subprime Virus makes it clear that lunatic or dodgy regulation over real estate lending is not something that just happened: it was the result of a protracted and sometimes better campaign pitting (often exhausted and always outgunnned) regulators against the anarchic merry pranksters in the private sector.  And say what you like about regulation (I often say I don't like it): a narrative like the one in this book--like the three books together, actually--makes it clear that there simply are not sufficient market incentives to keep things on an even keel in this realm.  The very definition of housing is professional versus amateur and the very definition of banking is Other People's Money.  These are the very essence of victimization no amount of chatter about reputational interests blah blah will ever make people behave well enough on their own.

I've described the book as bland and colorless.  Actually, there is one remarkable human story here: that would be Darrel Dochow, who appears to have been asleep at the switch point man in charge of regulation at the collapse of IndyMac Bank. Turns out that Dochow was also on  scene 20 years ago when Federal regulators took a dive before Lincoln Savings and Loan, the most conspicuous and egregious of the S&L failures.  He seems to belong to a niche in history also occupied by Confederate General George E. Pickett, commander of Confederate forces on the disastrous third day of the Battle of Gettysburg, and also a devastating no-show two years later at the Battle of Five Forks.  

On Fannie/Freddie as an "Accounting Control Fraud"

William K. Black offers what is, to me, an entirely new spin  on the question  as to the role of Fannie/Freddie in the mortgage meltdown:  they were an "accounting control fraud."  Allow me to explain.

For those of you not paying attention, up to now we have observed two camps.  In one corner we have Peter J. Wallison, FCIC commissioner, and long the King Pellinore in campaign against Fannie/Freddie as questing beast.  Wallison's life-mission, only lightly caricatured, is to prove that our housing woes are the direct consequence of misguided liberals in Congress and their lunatic impulse to try to improve the lot of the poor, deploying Fannie/Freddie as their helpless tool in the inevitable destruction of the free market.

The conventional counter view is--okay, okay, Fannie/Freddie have a lot to answer for, but their problem is not that they tried to serve a suicidal policy; rather, their problem is that they acted too much like a bloated, greedy, grasping, private bank.

Comes now Professor Black with an essay-length blog post declaring that "Wallison is Far Too Kind to Fannie and Freddie."   For starters, he basically accepts the conventional defense view; Fannie/Freddie came too late to the party to be the primary culprit.  He marshals an impressive array of essential but MEGO-to-the-layman data to support his position; all worthwhile but not my immediate point.

But I want to spotlight Black's argument that it wasn't mere greedy banking.  Rather it was "accounting control fraud"--deliberately hyping the data, well understanding that it was shot through with fantasy, but trusting that it wouldn't fall down until the lucky managers had taken their winnings off the table and walked away.

His killer argument: if Fannie/Freddie knew the mortgages on offer were toxic, then why by them?  To increase market share?  But this makes no sense.  If the mortgage is bound to fail, then the best way to increase market share is to let your competitor buy it--and let it implode on his watch, while you reap the profits of the smaller, surer pool of good stuff.

It's a longish and meticulous piece, but it's resounding proof that Black is the go-to-guy on the Fannie/Freddie issue.  If you care about this stuff, go read it now.   

Fake Home Ownership and the "Other Greenspan Put"

Brad DeLong likes to offer ten good economics stories every day. From today's lot, I pick one: fake home ownership:

I saw an ad on craigslist (though most story that starts with that line are shady, this one is not especially so) for apartment rental opportunities in Sacramento, CA. The rent was very cheap, but you had to post a gigantic security deposit, sign away rights related to eviction and give proof that you’ve never been convicted of a crime. Digging a bit deeper, it was clear that the owner was an out of state company that was buying up sections of foreclosed homes in abandoned neighborhoods. And what they needed was less a “renter” but a controlled “squatter.” If left alone, these buildings would become homes for the homeless, gang activity, looters and pranksters, etc. So what the investment company wanted to do, since they wanted to sell the properties as homes in the long run but couldn’t in the short run, was get someone to squat in these buildings for them; they were looking to hire a respectable squatter, get him on the payroll through really cheap rent, and he or she who could do whatever in the building as long as it wasn’t destructive of value. I think that’s a good metaphor for what homeownership is like with a regime of subprime loans. I like discussing this because it blurs the line of the ideals of homeownership of the late 20th century – a yeoman ownership society where nobody ever washes a rented car – with something more feudal. We’ve had this discussion before, but it only focused on the way up – what’s interesting now is we can begin to play with a theory of fake homeownership on the way down. ....

There's more; go read the whole thing. This is great but there's an underlying issue here that deserves more general consideration than it receives. So: Rortybomb's core point here seems to be the idea of asymmetric risk--the heads-I-win, tails-you-lose nature of mortgage debt, such that (vastly oversimplified) a Californian who owes more on its home than it is worth can simply throw the keys on the table and walk away (you could call it a "Greenspan put," but that term is already taken.

Fine so far. But let me suggest that this asymmetry is hardly limited to home ownership: it's shot through the whole realm of commerce. The same asymmetry is the very stuff of the option market: indeed many (=I) have remarked on the fact that the underwater mortgage can be thought of as a kind of out-of-the-money call option, where the option holder may hold or fold as the numbers dictate.

And of course. there's limited liability corporate debt. The finance types long ago figured out that the equity claim on the leveraged balance sheet of a limited liability corporation is another option--a call option the assets, with the strike price being the debt.

And there is the whole universe of "contract" non-recourse debt, where the creditor agrees to look only to the asset for satisfaction of his claim, and not to the deeper pockets of the residuary owner.

And don't get me started on the bankruptcy discharge...

I admit I don't really have a clue as to how these basic components fit together. But it does seem there are some underlying similiarities and we might gain some insight by comparing them.

Why It Is So Hard to Make Sense out of Housing: One Reason

One of he reasons it is so hard to make sense out of the housing bubble: "housing," so-called, is so many different issues. Consider:

• The campaign, so popular with Democrats and Republicans alike, to extend home ownership to non-owners.

• Houses as piggy banks, or ATM machines--the second mortgage equity access program.

• The slow and painful--and sometimes rapid and painful--decline of once-great cities.

• The campaign of looting, undertaken by organized marauders who succeeded in transferring loan proceeds to themselves by systematic fraud.

• The clueless and luckless "investors" from Nowheresville who stumped up hard cash hoping to share in the transformation of a former alligator farm into the Next Great Sunbelt metropolis.

Behind all these, we have:

• The revolution in finance, including the creation of new devices to "rationalize" (he he) the mortgage market.

• The tsunami of new capital, seeking protection against the dismal returns and the seemingly astronomic risks of Asian investing.

• The grey monster, still porrly defined and worse understood, that we choose, for lack of a better name, to characterize as "the bubble."

Bullet points inspired (although not supplied) by the best thing I've read on housing policy in years. That would be Alyssa Katz' Our Lot. The subtitle is "How Real Estate Came to Own Us," but that's way too facile for a presentation fo subtle and nuanced. Katz covers a daunting range of material: the early community action groups in the 70s; the invention of mortgate securitization in the 80s; the full-court press for expanded ownership in the 90s, and that unspeakable phase when everything when kablooie in the naughts. And she brings off the trick almost unheard of in this kind of semi-journalism: she couples a gift for personalized narrative with a commendable skill at sketching the technical background.

There is nothing here by way of an agenda for reform. And she presents it all with an air of hip detachment which suggests that she knows that life is bound to be like this under capitalism, and we can't expect much to change until the revolution or the next ice age. Yet the details of her own message deny the larger aroma: she makes it clear that the story is far too rich and nuanced for for detachment of any sort, hip or otherwise.

One more substantial drawback: she ends with a chapter, overlong and not nearly so well organized, on New York City, specifically the New York of rent control and condo conversions. As a topic in an overview of this sort, New York is certainly fair game. But the trouble is that she's too close to it: she's been burned by rent control and burned by the market, and she still doesn't have a good fix on exactly what went wrong and how.

But that's not much of a problem. It's the end of the book; you can skip it if you like. For the rest, as a means to get your mind around real estate issues, I can't think of a better place to start.

Whatever It Takes...

From the NYT Sunday morning story about Norm Radow the Workout Guy who steps in to make what he can out of failed real estate projects:

In 2003, Lehman sent him to Boston to rescue a failed condo tower. ... Ceilings in the tower were seven and a half feet high, about a foot and a half less than typically found in luxury condos. "He tried to squeeze an extra floor into the building," Mr. Radow says of the project's developer ... To help solve the height problem, Mr. Radow hired only sales people who weren't much taller than 5 feet. he sold all the units, and Lehman Brothers was thrilled.

Link.

Update: John says: short sellers. Oh tee hee.

Heh

Calpers has always atttempted to learn from downturns.

--Ted Eliopoulos, head of Calpers' real estate portfolio, attempting to find consolation for the fact the giant pension fund bought in at the top. The Wall Street Journal, December 17, "Risky, Ill-Timed Land Deals Hit CalPers."

The Wichita BureauOn the McCain Real Estate Bailout

Wichita recycles an old favorite:

The efficiency of the post oiffice. The compassion of the IRS.

Wichita offers assorted additional insights on the proposal no one seems to love:

Aside from the tax consequences to the debtor (here comes the IRS to take away the house for nonpayment of taxes on debt forgiveness income), how would it work?

We could assign FEMA to do it –

Anyone who had to deal with the former federal farm agencies in trying to negotiate debt settlements has some clue as to how hard that is.

First they would have to write about a million regulations.

Then (or perhaps while writing the regs) they’d have to staff up (although that may be the easy part; going to be a lot of realtors, brokers and bankers looking for work).

Then they would have to send everyone to some educational seminars.

Then they could start negotiating.

Meantime, there is no incentive to the borrower to insure or maintain the house, pay the taxes and try to make payments.

The efficiency of FEMA, the compassion of the IRS and the practical good sense of a rock.

I know – make it a rehab effort and farm it out to the prison system. Going to have a lot of brokers and folks with the right backgrounds in prison.side from the tax consequences to the debtor (here comes the IRS to take away the house for nonpayment of taxes on debt forgiveness income), how would it work?

We could assign FEMA to do it –

Anyone who had to deal with the former federal farm agencies in trying to negotiate debt settlements has some clue as to how hard that is.

First they would have to write about a million regulations.

Then (or perhaps while writing the regs) they’d have to staff up (although that may be the easy part; going to be a lot of realtors, brokers and bankers looking for work).

Then they would have to send everyone to some educational seminars.

Then they could start negotiating.

Meantime, there is no incentive to the borrower to insure or maintain the house, pay the taxes and try to make payments.

The efficiency of FEMA, the compassion of the IRS and the practical good sense of a rock.

I know – make it a rehab effort and farm it out to the prison system. Going to have a lot of brokers and folks with the right backgrounds in prison.

The McCain Housing Plan--What's Different?

I'm trying to make sense out of the "McCain HOME Plan" wherein, as I understand it, the government (we) will buy up toxic mortgages and write them down to the market value of the property. Will we be buying those mortgages at face value? If so, isn't this primarily another bailout for bad lending practices? If we will be buying them at market--isn't that exactly what is happening now, when secondary market bottom fishers buy up the toxic debt at distress prices and undertake to do the workout themselves?

[For clarification: I think "secondary market bottom fishing" is an honorable profession, and I hope we are seeing lot of it--would go a long way to putting this problem behind us, and without more taxpayer frontloading.]

Update: DeLong says it's a full frontal, and he is not impressed.

One and a Half Reasons Why I am Wrong On Homeowner Mortgage Relief

I've been channeling Mr. Scrooge on government-sponsored homeowner mortgage relief: most of these people took knowable risks that turned out badly: too bad, but that's life. Here are one and a half reasons why I may be wrong.

One reaason: in a sane market, the lenders would be providing a lot of relief. The reason is straightfoward. The debtor owes you $100. He can pay you only $70. But the next-best buyer can pay only $60. Smart bankers understand this; smart debtor lawyers negotiate in the white space between $60 and $70.

That's always been the way. What's different this time is that nobody owns the problem, so there is nobody to do the deal. In default of a deal, government sponsored relief may be a case of doing what lenders in enlightened self-interest should be doing for themselves.

Now the half reason: bankruptcy courts have rewritten loan contracts before, and the system survived. Back in the 80s, bankruptcy judges used persuasion and compulsion to restructure a whole slew of failed limited partnerships. Back in the 30s, the Supreme Court invalidated a debt-relief system for farmers; debtors howled, and a year or two later the same court blessed a statute identical except for a few commas and semicolons.

So nothing says it is structurally impossible, and it maybe doing some bankers a favor. Even if you don't like debtors, save your outrage for something else and let this one slide.

[Do I believe my own arguments? Sometimes, maybe, more or lesds.-ed.]

Buce Weighs In

Thank you all for coming to hear my opinion this evening. Let me try to be brief because I know we all have other things to do with my time.

If the big bank was a widget company, we'd just toss the keys on the table. Wipe out the old equity, reconstitute the old debt as new equity. I.e., equity dies and debt is wounded and life goes on. Except that if the business recovers, maybe debt gets rich.

In the current uproar, I hear a few mutterings about turning debt into equity but nothing fully formed. I admit, maybe banks are different. It's a trust and relationships business, and these can vanish in a heartbeat (remember Enron, Drexel). OTOH, I guess this is kind of what is happening to Lehman.

Short of stuffing it to debt, I think it is a no brainer to let the government take equity (hello, Bear Stearns). Sure the chances are the government will screw it up, but in the light of what has gone before, that's not a very forceful argument. Let em take equity, hire some unemployed bankers to run it at $165 thou a year, then sell it out when the dust settles.

Preferred is fine, doesn't have to be common, just as long as it is real preferred, not hocus pocus.

Thank you all for coming, I won't be taking any questions.

"You Idiot, That's Me!"

Joel finds this in the Washington Post:

Ocean, N.J.

While witnessing, but not participating in, the home real estate frenzy in 2005 and 2006, I kept asking: Who is the idiot buying up all these mortgages issued on inflated home prices to all these people who have neither the capacity nor the intention to repay the loans?

Now I learn it was me.

TED THACKER

Link.

Overheard at JFK

Per the guy at the next table, talking loudly on his cellphone:

In San Diego, we have the San Diego/Buffalo indicator: one home in San Diego will buy two homes in Buffalo.

But right now, one home in San Diego will buy six homes in Buffalo.

Wonky footnote: Web access here is free, courtesy of Jet Blue. But it is slo-o-o-w, like Central Asian slow. One site that won't load at all: Jet Blue flight info. So I am going to have to shut down to go find out if my flight is still on time.

Cool Map: Geography of the Mortgage Mess

Carpe Diem trolls for cool charts and maps so you and I don't have to. Here is some good stuff from the NY Fed on the mortgage mess. I'm not sure they've got the color thing nailed just yet, but you do see information that you might miss in a spreadsheet. Example: if I read the colors right, California and Florida are indeed the capital of the looneytunes loan market--but some other states in the old Confederacy may actually be doing worse on some measures of loan trouble.

The Fanny/Freddie Bailout: More Jam for Me, No Jam for Thee

Virtually all of my betters appear to be turning thumbs up (even if tepidly) to the Fanny/Freddy bailout, so I guess I do too. But it still seems to me that there's a fundamental issue here of "socialism for the rich" that shouldn't be dismissed quite so, well, quite so dismissively.

Yes, they tell us, it is true that we are (or may be) saving the owner's ass, but you have to do it save the economy. Well, who can argue with "save the economy"?--no thanks, not me. But phrasing the issue this way seems to conceal a rookie error.* That is: it is one thing to save the going concern and something quite different to save the equity. We may well need to save the business. But we can save the business even though equity doesn't get squat. Consider the crudest numerical example (I'm not deft enough with blogger to sketch a balance sheet, so bear with me): Liabilities $100. Assets, $50 in a simple liquidation, $80 if we preserve the going concern. Since $100>$80 and $100>$50, there is nothing for equity either way. But $80>$50, so creditors have a powerful motive to preserve the going concern even so. Tom Jackson used to call it "sellling the business to the creditor." Under Chapter 11 of the Bankruptcy Code, we do it all the time. There's no reason why we can't do it here, too.

A critic will object that I've made my life too simple by assuming I "know" the values--that equity owners deserve protection even when the balance sheet is upside down because they have a "lottery ticket value"--something might turn up--that deserves to be protected. I think there is a good deal of merit to this view (it would explain, for example, why Bear Stearns equity continued to trade even as the enterprise appeared to fall off the cliff. But this is an entirely separate issue: it's only a matter of how we parcel out the ownership stakes, not how we define them in the first place.

I suppose this was what I had in mind a few weeks ago when I asked: why doesn't the government just buy Bear Stearns, rather than planting a big wet kiss on the chops of JP Morgan (link)? I got a bit of offline flack on that one from people who said no authority blah blah socialism blah blah, government can't be trusted to run a blank blah blah and blah. Well, of course the government can't be trusted to run a bank. But it can perfectly well enjoy the residual share if, as, and when (if ever) that stake has value. And let JPM run it in the meantime, as a private contractor.

I haven't noticed anybody giving any serious thought to this kind of proposition. I suppose one argument for staying away from this perspective is that it is unfamiliar and therefore risky: in times of great uncertainty, we don't want to play around with the tried and true--so pay off the equity and move on. It's hard to argue with that. But I do wish I could see the wise men giving these kinds of concerns just a bit more thought.

Afterthought: Just for perspective, I am not that nuts about giving a lot of relief to homeowners in trouble, either. I think it is fair to assume that most of them understood perfectly well the risks that they were running, and that if the risk came out badly, why, them's the breaks. And not incidentally, I sign on with those who point out that if we spend a lot of public resources puffing up the wealth of current homeowners, we make housing just so much more inaccessible to all those who have not yet had their chance.

*I see I discussed this same "rookie error" a while back in complaining about Gretchen Morgenson (link)--and even included a balance sheet. Well, fair enough. Hey, you didn't listen before, you gotta listen again.

Blackacre as an Out-of-the-Money Option

Just got through explaining to my students how equity is an option on the assets, where the exercise price is the payoff cost of the debt. Made the point that it might be rational to pay a positive sum for equity on an upside-down/underwater balance sheet (that would be you, BS) as lottery ticket value against the prospect that Something May Turn Up. (“Maybe I die! Maybe the king dies! Maybe a horse learns to talk!"). In the jargon, it’s not valueless, it is just “out of the money.” Out of the money options trade all the time.

I also make the point that in a place like here in California, where most of our mortgage debt is “nonrecourse”—the creditor can look to the property only, no deficiency right against the debtor—then the real estate is just another option play.

Then back to the aggregator, where I read more about default rates, foreclosure epidemics, blah blah, and this fascinating thread at Kevin Drum that leads from arson to cannibalism (link).

And it occurs to me—wait a minute, whoa. A lot of these owners are underwater now, in the respect that the loan value exceeds the market value. And a lot of them simply can never expect to get current on their obligations; might as well walk. But for some unknown percentage—but it can’t be that small—for some unknown percentage here, what we are talking about is an out-of-the-money option. Shouldn’t we/they be giving some value to the possibility that “something might turn up?”

For Extra Credit: Felix Salmon’s instructive piece on an effort by the Ohio attorney general to force workouts on lenders, against their will and for their own good (link).

The Other Shoe Drops with a Sickening Thud

Had dinner with a bunch of bankruptcy lawyers last night. They're talking to lots of airline pilots and (former) real estate professionals. And now Underbelly's London watcher weighs in with the financial equivalent of a polar ice cap melting (link):

Bloody day in the City: 1,300 jobs axed
Simon English and Nick Goodway
17.04.08

The City bloodbath began today as two financial giants axed 1,300 jobs.

Bankers suffering in the credit crunch were also prepared for the figure to double tomorrow.

UBS announced it would cut 900 staff at its Liverpool Street headquarters by June and Merrill Lynch said it would shed 4,000 jobs worldwide. Sources said that up to 400 of its 4,500 London staff would go.

Employees of Citigroup, the world's biggest bank, are now preparing for the axe as sources said it was likely to lay off 1,000 London staff when its first quarter results are published tomorrow. The cuts are the first confirmation of the scale of the job losses facing the City, estimated this week at 40,000 by JP Morgan - more than one in 10 of all workers.

It will fuel mounting fears of a recession, led by a City downturn. Commentator David Buik of BGC Partners said: "The job cuts were inevitable and more banks will follow suit, starting with Citigroup tomorrow.

"Merrill's figures were worse than expected. People are now immune to the numbers because they know there is worse to come." ...

Reader comments here and elsewhere in the London press. In a word, schadenfreude (for extra credit, count the number of "crash" metaphors in this posting.

Afterthought: My friend Holly points out that it isn't really fair to compare them to an iceberg falling off unless they all run into the ocean like lemmings and raise the world sea level.

What's Up with Athens, Ohio?

For anybody who cares about the housing meltdown, Calculated Risk is always a must-read--particularly today, with about 10 great posts, including this wonderful item about Athens, Ohio (link). Don't overlook the price graph at the end that looks like an extreme-sports ski slope.