KeNo's Housing and Economic Portal: Monday July 6 Housing and Economic stories

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TOP STORIES:

Yes, we were foolish enough to bail out the banks through TARP funds, buy their toxic assets, provide them with FDIC-backed bonds, allow them to borrow money at Fed Funds rate of zero (or .25%) while they loan out the money at much higher rates, etc. Now they are returning the funds after dumping the bad debt on taxpayers, and increasing their salaries across the board:

· Citigroup Is Said to Be Raising Salaries for Workers - (www.cnbc.com) Citigroup, which to many, symbolizes the troubles of the financial industry, intends to raise workers’ base salaries by as much as 50% this year to offset smaller annual bonuses, the New York Times reports. fter all those losses and bailouts, rank-and-file employees of Citigroup are getting some good news: their salaries are going up. The troubled banking giant, which to many symbolizes the troubles in the nation’s financial industry, intends to raise workers’ base salaries by as much as 50 percent this year to offset smaller annual bonuses, according to people with direct knowledge of the plan. The shift means that most Citigroup employees will make as much money as they did in 2008, although some might earn more and others less. The company also plans to award millions of new stock options to employees in an effort to retain workers and neutralize a precipitous drop in the value of their stock holdings. Like Citigroup, financial companies like Bank of America and Morgan Stanley are raising employees’ base salaries in an attempt to shift attention away from bonuses. So are banks like UBS and other European competitors. The Citigroup proposals, discussed internally this week, present a crucial test for the Obama administration, which has vowed to rein in runaway compensation at companies that have received large taxpayer-financed bailouts. Citigroup has gotten not one but two rescues from Washington. This month, the government assumed a 34 percent stake in the company, whose share price has plunged nearly 84 percent in the last year. Despite Washington’s new role at Citigroup, and public anger over big paydays on Wall Street, administration officials have little power to prevent the company and others in the industry from raising salaries for rank-and-file employees. Kenneth R. Feinberg, the administration’s new “pay czar,” has the authority to set compensation for only the top 100 employees at troubled companies. The rest — which at Citigroup, means fewer than 300,000 people — can be paid as executives see fit, provided any increase does not rank them among the 100 most highly paid workers. Outsize pay on Wall Street, particularly the industry’s bonus culture, is widely seen as having encouraged the risk-taking that led to the gravest financial crisis since the Depression. But industrywide, total compensation is expected to rise 20 to 30 percent this year, approximately to the levels of 2005, before the crisis broke out, according to Johnson Associates, a compensation consulting firm. Total industry pay would still be below the record levels of 2007, but only a bit.

· How To Rob The Treasury For Bonuses - (www.market-ticker.org) You have to love Goldman Sachs: Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms. A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm. Nothing like a little taxpayer money funneled through AIG to add to the pool, right? In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London. Let's remember that Goldman got roughly $10 billion in AIG-funneled money to "settle" CDS that their CEO said was a fully-hedged position and which would have had no material impact if AIG had gone down, mostly because they had collected nearly all of the hedge before AIG got in serious trouble. That is, they got paid twice - once with their hedge (good move guys) and again by government fiat, directed by Henry Paulson who coincidentally used to run Goldman. Also note the size of the first-quarter profit, multiply by four (assuming equally good results) and then compare against the "extra" payout through AIG to figure out whether there would be any bonus pool absent that payment. Looks to me like the US Taxpayer is funding all of Goldman's bonuses, never mind this ditty: Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds. Nice, eh? Do Treasury's bidding, get paid for it, get an extra $10 billion from the taxpayer as a gift to cover a bet you had already hedged against default, and pocket it all. Change we can believe in - yep, we'll steal even more than we did under The Bush Administration!

· Union Asks Morgan Stanley to Reverse Pay Hikes - (www.cnbc.com) major union this week called on Morgan Stanley to reverse recent salary hikes for senior executives and other top earners, the Wall Street Journal said citing a letter from the union. The raises "weakened the link between top executive pay and performance," wrote Gerald McEntee, international president of the American Federation of State, County, and Municipal Employees (AFSCME) in a letter to Morgan Stanley, provided to the paper. "We urge you to return base salaries to their previous levels and reward executives for long-term value creation, not just showing up for work." AFSCME members' pension funds have more than $1 trillion in assets and hold roughly 3 percent of Morgan Stanley's outstanding shares, according to the paper. Last month, Morgan Stanley raised the base salaries of certain senior officers to $800,000, but said it does not plan to raise total compensation. Morgan Stanley, which became a bank-holding company last year, raised the base salaries for five of its senior officers, including its chief financial officer but said Chief Executive John Mack's base salary will not change.

Faber Report: Welcome to the Bankruptcy Inn - (www.cnbc.com) It looks like we’ll have another bankruptcy of a former LBO in the hospitality space. The WSJ is reporting that Red Roof Inns has defaulted on $332 million of mortgage debt. It was only last week that Extended Stay filed for bankruptcy after the crushing debt from its $8 billion LBO in the spring of 2007. Of course, it’s not just that business is bad for these companies. It is largely because they were saddled with debt loads that were many multiples of the cash flow the businesses produced that they are now going or about to go bankrupt. Back in the spring of 2007, even with the mortgage market about to implode, banks were still willing to dole out loans like the ones Red Roof’s buyers received. The buyers, the Global Special Situations Group of Citigroup (need I say more) and Westbridge Hospitality Fund, spent $1.3 billion to buy Red Roof from Accor. The purchase, financed almost entirely with debt, represented more than 11 years worth of Red Roof’s adjusted cash flow. Don’t you miss the good old days? Extended Stay and Red Roof (it’s currently in “restructuring” discussions with its lenders) will not be alone in seeking protection in bankruptcy court. Despite the generous capital markets, bankers tell me there are still plenty of former LBO’s with declining businesses and too much debt to try and support from declining cash flows. Interestingly, Red Roof’s debt, which came in the form of commercial real estate loans, was partially securitized, shining a light on yet another worrisome area for the market. While plenty of REITs have raised capital to cope with expected losses, the loans underlying many of the properties they manage are still in deep trouble as leases come up and are either not renewed or renewed at far lower rates.

Sacramento area misses move-up homebuyers -- they're staying put - (www.sacbee.com) Almost four years into the real estate crash, a once-thriving sector of the Sacramento-area housing market – the move-up buyer – has become a virtual dead zone that must revive itself for a true recovery to take hold, analysts say. Even as real estate rocks with enthusiastic first-time buyers and investors – accounting for up to two-thirds of area sales – one expert warns against being fooled by "the common belief that real estate is flying off the shelves." Momentum needed for a true recovery rests on the shoulders of those who traditionally dominate real estate markets: people who sell one house and buy another. And they aren't doing it. They can't. "Half to two-thirds of sales in the Sacramento region have not triggered a move-up," said Andrew LePage, an analyst for property researcher MDA DataQuick. "It was just some lender got its money back and then it ends. When that's been two-thirds of your market for months and months, ouch." Until the move-up sector of the market recovers, housing can't recover, analysts say. (Everything above $400,000 is almost at a standstill. DataQuick says sales in move-up neighborhoods such as Land Park, east Sacramento and Arden Park are half their 10-year average since early 2008.) And until housing recovers, many believe the economy will lag, and the state with it. The downturn prolongs the pain of layoffs, fuels the plunge in property taxes and deepens the local and state budget morass.

Golden State losing folks as old Dust Bowl beckons - (www.sacbee.com) Fleeing the Great Depression and a drought unprecedented in American history, a vast wave of Oklahomans and Texans dubbed "Okies" loaded everything they could onto crowded vehicles during the 1930s and headed west for California. Today, in huge numbers, their grandchildren are moving back. It doesn't take Loren O'Laughlin much time to come up with a reason why, in between bites of a burger at an Oklahoma City diner. "There aren't really people lined up on the streets here competing for a few scraps," said O'Laughlin, 23, who grew up in Sacramento but recently graduated from Oklahoma Christian University and opted to stay put. "Small businesses thrive here because networking is so easy." As California housing prices went wild in the middle of this decade, hundreds of thousands of residents scratched their heads and moved to places where homes were still affordable, state and federal statistics show. When prices started falling and unemployment started rising, many continued to leave California for healthier job markets. The result was five consecutive years when California saw more residents going to other states than coming. Although many stayed closer to home – Nevada, Oregon, Arizona – the mid-South saw a large influx. From 2004 through 2007, about 275,000 Californians left the Golden State for the old Dust Bowl states of Oklahoma and Texas, twice the number that left those two states for California, recent Internal Revenue Service figures show. In fact, the mid-South gained more residents from California during those four years than either Oregon, Nevada or Arizona. The trend continued into 2008.

Agent Refuses To Work By Hour - (www.patrick.net) Very funny email exchange between a buyer and an agent offering to have them work by the hour (like a lawyer or other profession).

Were Smugglers Trying To Dump Japan's US Bonds? - (www.turnerradionetwork.com) Two Japanese men arrested by Italian Police while trying to smuggle $134 Billion in U.S. Treasury Bonds concealed in suitcases, out of Italy into Switzerland, are employees of the Finance Ministry of Japan. Turner Radio Network has now confirmed the two men arrested by Italy were trying to secretly dump Bonds that were previously held by the nation of Japan. The men arrested have told Italian police they were ordered to move the Bonds by the government of Japan because the Japanese government has lost faith in the ability of the U.S. government to repay its debts. Despite assurances from Japanese Finance Minister Kaoru Yosano about Japan's "absolutely unshakable” confidence in the credibility of the U.S. dollar, it is now confirmed based upon the serial numbers of the Bonds, that the $134 Billion is part of the $686 billion of U.S. debt officially held by Japan. According to Italian Law Enforcement, authorities originally thought the men were part of the "Yakuza", a Japanese organized crime syndicate similar to the Italian Mafia, which lead officials to believe the Bonds were forgeries But after the men who were arrested were forced to remain in jail for more than a few days, they discarded their cover story and admitted to being employees of the Finance Ministry of Japan. Strangely, very few major media outlets have covered this story. Of the few media outlets that have covered it, one - Bloomberg Business News - reported the bonds were "fakes." But according to Italian authorities, that is a cover story developed by the U.S. government to avoid panic selling of U.S. Treasuries by other nations. Law enforcement sources in Rome claim the Italian government is ecstatic over the seizure because under Italian law, they get to keep forty percent (40%) of the smuggled bonds. The governments of both the US and Japan are trying to negotiate with Italy for return of the Bonds but because of the astonishing amount of money involved, Italy is refusing any negotiation at all. TRN has been told to expect to receive serial numbers from the bonds as proof they are real. In addition, our source claims he can obtain scanned images of some of those bonds as well. If we are given such information or images, we will report them publicly. COMMENTARY: The implications of this situation are monstrous: An ally of the United States has been caught trying to secretly unload U.S. government debt. This is unmistakable proof that the United States government is headed into economic collapse because nations around the world have now officially lost faith in its ability to repay. The fact that $134 Billion in Bonds was intercepted by Italian Police was confirmed two days ago by Bloomberg Business news (here). Today's revelation by TRN that the men arrested were employees of the Japan Finance Ministry is a huge development which will cause sudden and dramatic reaction worldwide.