Mortgage defaults are climbing

Kenneth Heebner, the manager of the top-performing real-estate mutual fund over the past 10 years, said the economic damage from high-risk mortgage defaults is going to get worse.

"We have a trillion dollars of subprime mortgages and we're going to have huge defaults," Heebner, 66, said in a telephone interview from his office in Boston. "If you're looking at the housing market, it's not the darkest before dawn, it's the darkest before pitch black," Heebner said.

Heebner, cofounder of Capital Growth Management LP, has been selling shares of real-estate investment trusts that buy apartments because they are no longer cheap. At the end of 2006, his CGM Realty Fund had 35 percent of its assets in REITs. He's made a "significant reduction," though he wouldn't be more specific.

Big Surge Expected In Offshore Outsourcing By Banks, Study Says

Offshore tech spending by banks will increase from the present 6% of the banking industry's $44 billion total annual IT budget to 30% by 2010, according to Deloitte.

"Among larger institutions in particular, offshoring is not one available cost-cutting strategy, it's become a basic necessity," says the study, which was released Wednesday. Banks are moving well beyond outsourcing low-level application maintenance work and are increasingly relying on offshore service providers for help with more sophisticated technology projects, the study says.

Offshoring tech work offers big savings as programmers in India, for example, are paid anywhere from 40% to 80% less than their U.S. counterparts.

Deloitte says banks can save 40% on most IT projects by moving them to an offshore service provider.

Business Economists See Riskier Mortgages as Biggest Danger, but ...

According to an article in USA Today, a report to be issued today indicates that, among business economists, "subprime mortgages" are considered the greatest risk to the financial markets. They are, however, in good company, as "hedge funds" and new forms of credit card lending without traditional credit history checking are raising concerns.

Riskier financial strategies have been making the news lately, as "hedge funds," described as "eclectic" in their strategy by an International Monetary Fund article, often located in tax havens and otherwise avoiding tax and regulatory issues, are causing concern. In the U.S., "subprime" mortgages have been enticing less-qualified borrowers with "teaser" rates and more recently an increasing foreclosure rate, and banks such as Bank of America are beginning to offer credit cards to anyone who has a "taxpayer ID number," which is a number issued to anyone who pays taxes in the U.S.

Economist article strikes positive note

A major new article in The Economist magazine, entitled, A Place in the Sun, explores the pros and cons of offshore financial centers, with specific references to the Cayman Islands.

The article, by Joanne Ramos, covers a wide range of themes, as it gives an overview of offshore financial centers, and the reasons for the expansion in their business in recent years.

The article argues that many of the concerns (especially in the present climate of concern over money laundering, and terrorism-financing operations) over offshore financial centers (OFCs) are often exaggerated. It also argues that well-run jurisdictions of all sorts, whether on- or off-shore, are good for the global financial system.

The article has won praise from Ted Bravakis, Director, Public Relations Unit, Portfolio of Finance & Economics, Cayman Islands Government.

Offshore debters welcomed

If offshore banks deal only with the big-time, at least one institution in The Bahamas has taken a really big risk on a really big spender.

Debts due Bahamian offshore banks had bounced erratically between $5 and $20 million from 1995 to 2005.

But last year, the secretive group reported a whopping $525 million in debts due Bahamian offshores. To reiterate, that's at least 2,500 percent larger than any one year over the past decade.

There's no telling which of the more than 240 licensed banks and trust companies made the move, as their balance sheets are not exactly available to the public.

The most reliable information comes through the Central Bank's Quarterly Statistical Digest, which reports the assets of offshore banks in conglomerated numbers.