Fridson Investment Advisors was founded by Martin Fridson who says, “that new issues of junk bonds are healthier and more default-resistant than in recent years. This shift in what has been a challenged market is happening because weaker borrowers are being shut out, in Mr. Fridson’s estimation. With fewer really risky borrowers able to sell debt, the default rate will decrease after the current toxic debt left over from the leveraged buyout boom clears out after two years”.

“This shift in what has been a challenged market is happening because weaker borrowers are being shut out, in Mr. Fridson’s estimation. With fewer really risky borrowers able to sell debt, the default rate will decrease after the current toxic debt left over from the leveraged buyout boom clears out after two years”. The S&P reported on Wednesday that “as of mid May, corporate borrowers had defaulted on almost $19 billion of debt-more than double last year’s total.”

.......

“... statistics from Advantage Data show that default rates on speculative-grade debt will decline after in the next two years. He concludes that this is because there will be fewer debt issues rated below BB-minus, which is the higher end of the speculative spectrum. The addendum is that any company that will default on its debt likely will do so within three to four years of a buyout or big debt sale.”

Here is the link to the full article:
http://blogs.wsj.com/deals/2008/06/26/breaking-news-from-2010-junk-bond-default-rates-fall/?mod=hpp_europe_blogs

Michelle

The latest in the trend for foreign governments to use their "sovereign funds" to buy stakes in US Banks is Kuwait which just invested 3 billion more in Citi Bank during January. Likewise, it invested 2 billion in Merrill Lynch.

Here is a link to one article on this subject:
http://biz.yahoo.com/ap/080624/kuwait_fund_us_banks.html?.v=1

Here is a favorable quote from a longer, more in depth article on the general subject of sovereign funds:

"One hyperventilating observer of these developments even bemoaned the onset of a “sharecropper economy” in the United States.

In truth, such funds are nothing for Americans or Europeans to fear. If anyone should worry about them, it’s the people whose governments are amassing them. That’s because governments tend to be terrible at managing money that is best left in the hands of private citizens. And locking away billions of dollars in wealth can have pernicious economic side effects. Maybe that’s why sovereign wealth funds are popular with dictators and semi-authoritarian regimes, which don’t have to answer for the consequences when they make poor economic gambles.

Sovereign wealth funds are nothing new, but they are growing larger. They emerged in the 1970s in oil-producing emirates, such as Kuwait and Abu Dhabi, as a way to accumulate current account and budget surpluses during the oil boom. Now, Abu Dhabi boasts the largest fund, sized at $600-700 billion, and other countries have followed its lead.

Norway established a fund for its excess oil incomes in 1990. Singapore has accumulated two large funds that, unusually, are not based on oil income. And more recently, China and Russia have instituted large sovereign wealth funds of their own. Today, such funds hold as much as $2.5 trillion in assets, according to Ted Truman, a senior fellow at the Peterson Institute for International Economics. Some economists forecast they will grow to $12 trillion by 2015, an amount that roughly corresponds to the size of the entire U.S. economy.

The motives of the funds vary, and they don’t always make sense. Consider Abu Dhabi and Kuwait, which wanted to save their oil endowment for future generations, an admirable goal. But today these two bureaucratized emirates look like poor cousins in comparison with freewheeling Dubai, which has much less oil. Because the rulers of Abu Dhabi and Kuwait centralized their nations’ wealth in the hands of the state, their state sectors stifled their economies. Abu Dhabi’s fund may be impressive, but the entrepreneurial emir of Dubai has done a far better job of putting sustainable wealth in the hands of his citizens."

And here is the link to that article:
http://www.foreignpolicy.com/story/cms.php?story_id=4056

Michael

The FBI said that "it has arrested more than 400 real estate brokers since March in a crackdown on incidents of mortgage fraud that have contributed to the country's housing crises." Apprehensions were made all over the country including Chicago, Atlanta, Miami and suburban Maryland.

"Operation Malicious Mortgage resulted in 144 mortgage fraud cases in which 406 defendants were charged." A law enforcement officer stated that the losses to the victims in these schemes totals more than $1 billion.

The Justice Department and FBI announced the arrests at a news conference in Washington. On Wednesday alone, "60 arrests were made in mortgage fraud-related cases in 15 districts."

A news station also reported that the indictment of two former Bear Sterns managers in New York was also a part of Operation Malicious Mortgage. "They are the first executives to face criminal charges related to the collapse of the subprime mortgage market."

Houston Arrests

In Houston, six people are suspected of defrauding banks and stealing $24 million dollars in fraudulent mortgage scams.

The indictment alleges, "phony buyers were recruited to apply for loans to buy pricey condominiums in Houston and surrounding suburbs." "The loan applications allegedly used fraudulent information to obtain millions of dollars that the defendants then pocketed," the indictment said.

The defendants were charged with conspiracy, fraud and money laundering.

Here is a link to the article:
http://www.kctv5.com/money/16652452/detail.html

Yameena

According to a new study, “the rate of bankruptcy filings among those 65 and older has more than doubled since 1991.”

The study found that “Americans age 55 or older have experienced the largest increase in bankruptcy filings, going from 8.2 percent in 1991 to 22.3 percent in 2007.” Americans 34 or younger experienced the opposite effect. In 1991 they comprised nearly half of all bankrupt debtors, in 2007 they were just over a quarter of all bankrupt debtors.

This research by Elizabeth Warren, a Professor at the Harvard Law School, found that the median age for bankruptcy filers had increased from 36.5 years old in 1991 to 43 years old by 2007.

It is believed that the declining economy and increasing healthcare costs, coupled with the 2005 amendments to the bankruptcy law are the reasons for older Americans being at risk for bankruptcy.

Here is a link to this article:
http://www.consumeraffairs.com/news04/2008/06/bankruptcy_seniors.html

Yameena

Bloomberg reports that Fifth Third Bancorp, Ohio’s second largest bank, “stock fell 19 percent, after slashing its dividend and forecasting much lower profit.” This is reportedly the largest decrease in at least 23 years.

“Fifth Third joins the list of banks and securities firms that have raised more than $300 billion to shore up their balance sheets after losses tied to mortgage and debt markets,” reported Bloomberg. The company stated that it will sell subsidiaries and preferred convertible stock in an effort to raise $2 billion.

A Goldman Sachs analyst said, “U.S. banks may need an additional $65 billion as losses and writedowns extend into 2009's first quarter.” Another analyst claimed “Fifth Third is particularly vulnerable because it operates in states where borrowers are having the hardest time keeping up with payments.”

Fifth Third is the last of Ohio's three largest banks to raise capital.

Here is a link to this article:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2gYPg3wFdr0&refer=home

Yameena