Wednesday January 14 Housing and Economic stories

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TOP STORIES:

Fairfield Greenwich sued over $1 billion in Madoff-related fees ... - (www.marketwatch.com) An investor has sued Fairfield Greenwich Group to try to recoup more than $1 billion the investment firm collected for funneling client money into funds run by Bernard Madoff. Madoff was arrested last month and accused of running a Ponzi scheme that could result in investor losses of as much as $50 billion. Fairfield Greenwich, founded by Walter Noel, ran some of the largest so-called feeder funds that gave investors access to Madoff for more than a decade. The firm had almost $7 billion invested with Bernard L. Madoff Investment Securities at the start of November, out of a total of $14.1 billion in assets under management. Pacific West Health Medical Center Inc. Employees Retirement Trust sued Fairfield this week after investing in Fairfield Sentry Ltd., a Fairfield fund that put all its money with Madoff. The suit claims Los Angeles-based Pacific West Health Medical Center paid fees to Fairfield to do due diligence on Madoff, but says that the firm failed to do enough homework to spot warning signs. "As we've said from the outset, Fairfield Greenwich Group engaged in extensive due diligence," a Fairfield spokesman said Friday. Fairfield also has said that it's a victim of Madoff's alleged fraud. However, the fee arrangement between the two raises questions, according to Robert Finkel, the lawyer who's representing Pacific West. One red flag was that Madoff didn't charge any fees to feeder funds like Fairfield Sentry. Instead, his market-making unit earned commissions from doing all the trades for his investment operations. Read more about Madoff's fee arrangements.

Kuwait's Global Investment House says it is in default on debt - (www.google.com/hostednews/canadianpress) Kuwait's largest investment bank says it is in default on the majority of its debt. The announcement by Global Investment House on Thursday marks another blow for the firm, which had been meeting with creditors about restructuring almost US$3 billion in loans. Global said as a result of a capital repayment default in December, it was "in default on the majority of its financial indebtedness." In December, two international agencies had downgraded its credit rating on default worries after Global missed the Dec. 15 repayment of a maturing $200 million loan. Global had retained CBK Capital and HSBC Holdings as financial advisers.
It says it "continues to service all its interest and coupon payments in a timely basis."

Madoff Losses at Municipal Pensions Spur Investment Warning - (www.bloomberg.com) Municipal-pension managers shouldn’t give money to advisers who invest it in funds run by others, a practice that sparked $14 million of losses tied to Bernard Madoff, labor union investment official Richard Ferlauto said. “We generally recommend that investors be very careful when using a fund-of-funds strategy,” Ferlauto, director of pension- investment policy at the American Federation of State, County and Municipal Employees, said in an interview today. “They can’t be sure that the investment manager is doing the due diligence necessary on every asset manager they use.” Municipal workers from New Orleans to New Mexico lost money after their pensions gave funds to advisers who invested with Madoff. The 70-year-old New Yorker was charged last month with directing a $50 billion Ponzi scheme in which returns came from money collected from new participants rather than from investments. The City of New Orleans Employees’ Retirement System, which has $300 million of assets, had about $400,000 with Madoff through three so-called funds of funds, according to Jerry Davis, chairman of the trustee board. Davis said in an interview today that the system had $175,000 invested with Union Bancaire Privee, a Swiss private bank that invested with Madoff through Ascot Partners LP and the same amount with Meridian Capital Partners through Tremont. He said he had a “tiny” amount with Silver Creek Partners, another fund that fed money to Madoff’s firm. “We expect the funds of funds to take aggressive action to recover the losses,” said Davis. “It’s extremely unlikely we would take direct legal action. It’s too small an issue for us. It’s aggravating to be stolen from, but sometimes you just have to depend on the law.” The $1.5 billion Baltimore Police and Fire Pension Fund lost $3.5 million on Madoff investments, said Stephan Fugate, its chairman. New York-based UBP Asset Management invested about 5 percent of the $73 million it held for the pension fund with Madoff, Fugate told the Associated Press last month. The town of Fairfield, Connecticut, said last month that its pension fund had about $42 million invested with Madoff through the Maxam Absolute Return Fund.

Audit of California Avocado Commission uncovers at least $1.5 million in questionable spending - (www.latimes.com) Reporting from Sacramento -- Something has been rotten at the state agency behind a splashy $7-million annual marketing blitz on television, billboards and in food magazines to promote California-grown avocados, a new state audit indicates. Employees and board members at the obscure, Irvine-based California Avocado Commission enjoyed lavish perks and benefited from as much as $2 million in questionable spending in the last three years, the audit concluded. Among the benefits to staff members cited by the auditors were home remodeling projects, tickets to sporting events, gym memberships and vitamins, regularly delivered restaurant meals, clothing from high-end retailers described as uniforms, generous auto allowances and $850 hotel rooms at four-star resorts. During the three-year audit period, the commission's 18 employees used commission credit cards to run up more than $1.5 million in charges for "a significant amount of discretionary expenses that appeared questionable at best and even personal at times," the report said. About $17,000 was spent on gifts, meals and flowers to celebrate employees' birthdays, employment anniversaries and other special occasions, the report said. An additional $39,000 purchased clothes at Nordstrom, Talbots, Ann Taylor and other stores that the commission dubbed "uniforms" after spending $8,700 to embroider the commission's name and logo onto them.

Social services see recession's toll - (www.latimes.com) Inglewood resident Michael Brown has a master's degree in counseling and has spent 20 years working as a mental health professional. He lost his job at Kedren Community Health Center last March because of a cutback in state funds.On Friday, Brown, 43, made his first visit to a food pantry. He and his 9-year-old daughter had nowhere else to turn. "The unemployment checks aren't enough to cover the rent, the food, the car insurance," Brown said while awaiting a bag of free groceries at St. Margaret's Center off Hawthorne Boulevard. "The money runs out every month." Government officials reported Friday that 2.6 million jobs were lost in 2008. The nation's unemployment rate is at a 16-year high of 7.2%. California's is 8.4%. But such statistics hardly do justice to what millions of people are now going through, many for the first time in their lives. "It's humbling," Brown said. "I'm doing whatever I can. I pick up cans and sell DVDs on the street corner." He acknowledged that after a long career providing help to troubled people -- many living on the streets -- he's now not far from their position. "I'm a spiritual person," Brown said after a moment's reflection. "I can only wonder why God has led me here."

Shilling: Housing Market Could Fall Another 20% - (finance.yahoo.com) The already crumbling housing market could plummet an additional 20%, says Gary Shilling, president of A. Gary Shilling & Co., and author of the popular INSIGHT newsletter. Although housing is already down 25% peak-to-trough based on the latest S&P/Case-Shiller numbers, there's no near-term bottom in sight, says Shilling, one economist who presciently saw the crash coming. Excess inventory - nearly a year's worth supply - is the "mortal enemy" of any recovery in housing, says Shilling, who does not believe the Fed's efforts to lower mortgage rates will resolve the crisis. Barring a prolonged period of weaker prices, Shilling believes only radical action - like bulldozing homes or letting immigrants into America to buy homes - can solve the crisis, as detailed here last month.

Paulson Recommends Nixing Freddie and Fannie - (www.washingtonpost.com) In his final speech scheduled as Treasury secretary, Henry M. Paulson Jr. yesterday proposed replacing mortgage-finance companies Fannie Mae and Freddie Mac with highly regulated utilities that would play a more limited role in making money available for home loans. Paulson, speaking at the Economic Club of Washington, explored ways to reshape the nation's housing finance system. With his tenure expiring, his opinions will carry little formal authority, but few officials have had as intimate a look at the two companies as Paulson. Top lawmakers are planning to revisit Fannie and Freddie as part of a broad regulatory revamp planned for this year. But officials in the incoming Obama administration have not spoken much about housing-finance policy -- and discussions over the future of Fannie and Freddie remain preliminary -- with key Congressional Democrats yet to solidify their positions.

Millionaires Say Advisers Failed Them in Crisis - (www.bloomberg.com) Millionaires blame government, wall street, and investment advisors for their losses. Nearly two-thirds of U.S. millionaires say their investment advisers have failed them during the global recession, a survey showed. Thirty-six percent of respondents said their advisers performed well last year, according to a November poll of 750 U.S. households with more than $1 million in net assets by Spectrem Group. Fourteen percent said they’ll increase their use of financial advisers, the Chicago-based consulting firm said in a statement today. “While they blame the government and Wall Street directly for the situation, many millionaires are not happy with their advisers’ performance,” Catherine McBreen, a managing director for Spectrum, said in the statement.



OTHER STORIES:

In India, Crisis Pairs With Fraud - (www.nytimes.com)
Jobless Rate Hits 7.2%, a 16-Year High - (www.nytimes.com)
A Plan to Jump-Start Economy With No Instruction Manual - (www.nytimes.com)
Morgan Stanley May Pay Citigroup $3 Billion in Merger - (www.bloomberg.com)
New Mortgage Bankruptcy Bill Does Not Address Real Problem - (www.seekingalpha.com)
WaMu's New $1 million 5-year 1% Balloon Loan mod - $878 Per Month! - (mrmortgage.ml-implode.com)
Watch the Dollar - (www.dailynews.lk)
Financiers checking out. 3 suicides this week - (optionarmageddon.ml-implode.com)
Rubin Leaving Citigroup; Smith Barney for Sale - (www.nytimes.com)

long downturn could take a toll on mutual funds - (www.latimes.com) Shrinking assets could lead to higher management fees, less choice and inferior research as staffs are cut back. >>
Job losses at highest level since 1945 - (www.latimes.com) The Labor Department says 524,000 jobs were lost in December, bringing the total for 2008 to 2.6 million. The 7.2% unemployment rate doesn't count many who are out of work. >>
This year is 'a bad time to buy a house,' analyst warns - (www.marketwatch.com)
Crisis Comparisons: How Bad Might It Get? - (economix.blogs.nytimes.com)
Fed sees longer economic decline than earlier forecasts - (money.cnn.com)
ADP data show 693,000 private-sector jobs lost in December - (www.marketwatch.com)
Lawmakers seek reform of bailout - (www.latimes.com) Officials work with Geithner to impose curbs on recipients and ensure some of the cash aids homeowners. >>
Bars and restaurants are getting toasted by happy hour - (www.latimes.com) Customers are gravitating to late afternoons, when drinks are cheaper. That's hurting overall alcohol sales. >>
KB Home reports eighth straight quarterly loss - (www.latimes.com) California's largest home builder loses $307 million in the fourth quarter of 2008, beating estimates, and says it will keep selling new, small homes at lower prices.. >>

The name is Bonds. Obama Bonds. - (theautomaticearth.blogspot.com)
Bear rally over, the great dying begins in corporate America - (www.marketwatch.com)
Seattle Housing Declines, NWMLS In Denial - (www.geldpress.com)
Rental housing stock soars in 2008 in Washington State - (www.sequimgazette.com)
December Sales Decimating Miami Condo Values - (www.miamicondoforum.com)
Banks seize record number of O.C. houses - (mortgage.freedomblogging.com)
California foreclosures, defaults up in 2008 - (www.sfgate.com)
Moving to Flyover Country - (www.newgeography.com)
Porn kings go begging for a bailout - (www.nydailynews.com)