Wednesday July 1 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Slump Dashes Oregon Dreams of Californians - (www.nytimes.com) Susan and Mike Telford had a plan back in the boom years in California. They would sell their house outside Fresno at a solid profit and take their equity to this sunny mountain city to build a better life, a fresh-air future in Oregon. “We wanted to lose the commute, to lose the smog,” Mrs. Telford said. “We wanted to lose California.” They moved here in 2006, when Bend was one of the fastest-growing places in the West and money and migration from California fueled that growth. Now the Bend area’s unemployment rate, at almost 16 percent, is one of the highest of any metropolitan area in the nation. “For sale” signs dot desert-toned, unfinished subdivisions. Luxury furniture stores downtown are going out of business. San Francisco chefs have fled. The freefall has made Bend a succinct symbol for the economic perils of “lifestyle destinations” in the so-called New West, recreation-heavy communities where jobs have been heavily tilted toward construction and services and where many of the new residents were self-made exiles from California cashing in on their overpriced real estate. Bend, a former timber town that now has 80,000 residents, was particularly popular among those drawn to the often rainy Northwest because it is located on the sunny side of the Cascade Range. Now the Californians who contributed to Oregon’s growth are in some cases adding to its economic struggle. As of May, Oregon had the second-highest unemployment rate in the nation, at 12.4 percent, behind Michigan. California, which has not released its May figures, ranked fifth in April. While some other states with high unemployment, including Michigan, have seen their labor forces shrink, Oregon’s labor force has grown. Economists say some of the growth appears to be driven by people who moved here with money they made in California, whether from real estate or stock market investments, and expected to get by but now must look for work. “It’s just so depressing to hear them because they thought they had life handled and they don’t,” said Bobbie Faust, an employment counselor who works for the state in Bend. The Telfords are among those facing trouble. They had presumed they would be able to sell their house in Fresno for more than $300,000 to help pay the mortgage on the new house they bought near the Deschutes River in Bend for $475,000. But the Fresno house has yet to sell, and Mrs. Telford, an accountant, has lost a series of jobs at small firms here that she said had downsized. The couple’s only income now comes from her unemployment checks and her husband’s salary as a high school teacher. “The cash flow is negative,” Mrs. Telford said. “This will be the first time we’ve had to go into savings.”

Housing inventory increase expected - (www.lvrj.com) Lifted ban means wave of Las Vegas foreclosures is likely. A wave of foreclosures is expected to hit Las Vegas as banks lift a voluntary moratorium that was extended from March to the end of May, though nobody has an accurate estimate of how many bank-owned homes will be added to an already bulging inventory. The total number of homes for sale in Las Vegas declined to 16,202 in April, compared with 21,338 in the same month a year ago, Las Vegas-based SalesTraq reported. Real estate-owned, or bank-owned inventory stood at 14,722, up from 11,628 a year ago, but down from the previous two months. Housing analyst Larry Murphy of SalesTraq said he's heard there could be an inventory of unreleased bank-owned homes ranging from 20,000 to 30,000. It's an impossible number for anyone to "get their arms around," he said. "This thing is like a cloud of mystery out there. We can all hypothesize," Murphy said. Bank-owned inventory came down in March and April, and Murphy said he's waiting to see May's data to draw any conclusions. The country is still in the "middle innings" of the bursting of the great housing bubble, said Whitney Tilson, principal of New York investment firm T2 Partners. He recently published a 75-page report that said there's more pain to come. It takes an average of 15 months from the first missed mortgage payment to a trustee sale of the home, usually by auction, he said. The subprime loans that defaulted in early 2007 led to the wave of foreclosures in 2008. "We predicted in early 2008 that it would get so bad that it would require large-scale government intervention, which has occurred, and we're not finished yet," Tilson said. Given that other types of loans with longer reset dates are now starting to default at catastrophic rates, the "sober implications" are for foreclosures and auctions to extend into 2009 and beyond, driving home prices down further, he said. More than $200 billion in option ARMs are still outstanding, including $29 billion that will reset by the end of this year and another $67 billion that will reset in 2010, according to Washington, D.C.-based Zuckerman Spaeder. The average borrower's mortgage payment of $1,672 will increase by $1,053. Alexis McGee of Sacramento, Calif.-based Foreclosures.com said there's a "phantom" inventory of repossessed properties not showing up for sale on the Multiple Listing Service. Only about 30 percent of them are listed on the market, McGee said. Foreclosures.com counted 18,505 real estate-owned homes in Clark County through April, compared with 7,251 a year ago. Preforeclosures rose to 33,917 in the first four months, up from 20,363 a year ago. The foreclosure inventory in Las Vegas has dried up for now, Earl Crouse of Better Homes Realty said. He expects it to stay that way until the fourth quarter. Banks are "stepping up" to comply with the Obama administration's guidelines to keep people in their homes, Crouse said. Some banks are renting homes back to previous owners. "They know they're stabilizing the market by pulling back (on bank-owned inventory) and getting multiple cash offers for anything $125,000 to $200,000," he said. "Banks are going to lose anyway, but it's less they're going to lose." Tim Kelly Kiernan of ReMax Brodkin Group said the current foreclosure inventory is "being picked over pretty good" with lots of cash deals. Lenders are being more flexible in negotiations, he said. His research indicates that banks are indeed holding back hundreds of thousands of properties nationwide. There were nearly 500 notices of default filed in Las Vegas on June 8, he said. "That is just one day, so if we just do the math, more foreclosures are coming and fast," Kiernan said. "Unless the Obama administration does something to stop this, home values will continue to fall."

Pavlov's Dog and Jim Cramer's Call of the Bottom in Housing - (Charles Hugh Smith at www.oftwominds.com) Like Pavlov's dog, Jim Cramer announces "the bottom is in" every time he sees a housing chart. Sadly, this is a conditioned response, not reality. In Pavlov's famous experiment, a dog hearing a ringing bell began drooling as if food was present. In a bizarre parallel to the classic experiment, Jim Cramer announces "the bottom is in" every time he sees a housing chart. Pavlov began his experiment by showing his dog a bowl of food (powdered meat). The dog naturally salivated, what Pavlov termed an unconditioned response. Then Pavlov rang a bell when food was presented; the bell was a neutral stimulus. Finally, he rang the bell without any food present; the dog began salivating. This salivation is called a conditioned response, and the process is called classical conditioning. Sadly, we can observe this behavior now in Jim Cramer, who nonsensically called a bottom as housing starts leaped. Here's Jim's call, dated 6/16/09: Cramer: Housing Has Officially Bottomed: According to the Commerce Department, there were 47,000 more housing starts in May than the 485,000 expected, a number 17% higher than the month before. The two regions seemingly in the biggest hole, the South and West, jumped about 17% and 29%, respectively. Building permits, which can predict the market’s future to a certain extent, showed significant growth as well. Now Cramer – and probably the homebuilders, too – sense an end the morass that weighed so heavily on the markets. What does a bottom look like? It’s the combination of ramping sales, and sales in certain areas are up ten times those of last year, and an end to falling prices. That’s exactly what we’ve seen for the past three months, Cramer said. Uh, Jim, we hate to tell you, but building more housing when there's a huge inventory of unsold houses and condos as interest rates are leaping up is not exactly bullish. (Psychotic disassociation from reality would be the official diagnosis.) We know this chart is just going to trigger more of your copious bottom-calling, but look at this and tell us what's so bullish: This recent "improvement" in sales is a tiny blip up within a massive collapse. To call a bottom based on such a modest increase is truly psychotic disassociation; statistically, both the increase in sales and housing starts are minor enough to qualify as statistical irrelevancies, a.k.a. "noise." Then there's the little matter of rising mortgage rates. Sales are announced when they're signed, not when they close, so oops, a whole passel of buyers might get bumped or simply bail when they calculate what the half-point rise in rates will do to their monthly nut. So in other words, the glowing sales numbers are highly likely to be revised downward once actual escrow closings are tabulated.

Connecticut AG Targets Servicing Practices at Fannie, Freddie - (www.housingwire.com) The Attorney General of Connecticut, Richard Blumenthal, is asking Fannie Mae and Freddie Mac to turn over documents regarding the foreclosure and default servicing practices of the GSEs in the state, according to letters he sent to the firms earlier this month. The letters are dated June 4 and give a deadline of compliance by June 19. Other than that, at this moment, none of the parties involved are commenting on the requests for information. Assistant Attorney General Jon Blake, who is working the case, could only acknowledge and validate the inquiry at this point, but would not say if the firms were expected to meet the deadline. In the letters, Blumenthal notes that his office is receiving complaints that “consumers are not receiving proper foreclosure notices and are being charged excessive fees in connection with foreclosure actions.” Blumenthal states these complaints may reveal a system of favoritism, where only a few select law firms and state troopers are assigned to deal with actions the GSEs are taking on the borrowers. A source for HousingWire however, states that this “concentration of resources” is a common practice in default and foreclosure servicing and not unique to GSEs. Fannie, Freddie, and the Federal Housing Finance Agency (which regulates the GSEs, and is currently their conservator) are not commenting on the state AG’s inquiry at this time.

Think $134 Billion Bond Smuggling Is Big? Try $2.5 Trillion - (www.deathby1000papercuts.com) It’s been over a week since two “Japanese” men were detained on an Italian train near the Swiss border after Italian customs police discovered 134 billion in US Federal Reserve bonds. So far, according to the international press the men have yet to be positively identified as to whether they’re from Japan (they were purportedly carrying Japanese passports) or if Italian prosecutors have ascertained as to whether the bonds are real or counterfeit. Here’s the link to the Times Online giving more of the scant details of the story….. As for the MSM, CNN’s blog IReport had a poster named “SuperMax” in Milan post the story about the Italian train mystery. No questions asked and no followup. Must be CNN’s way of “cutting costs” in the newsroom while Asia News had these points to ponder: 1. When it comes to Italy the world press has tended to focus on Italian Prime Minister Berlusconi’s personal problems rather than on stories like the bonds smuggling affair which has been front page on Italian newspapers. 2. The fear of counterfeit bonds and securities has spread across Asia with the result that real securities are also considered with suspicion. 3. During the Second World War several countries at war printed and put in circulation perfectly counterfeit enemy money. It is also historically established that some central banks, like the Bank of Italy 65 years ago, issued the same securities twice (identical registered number and code). This way they could print more money with legal tender than they officially declared. The main difference though is that 65 years ago the world was involved in a bloody war, which is not the case today.

GSEs Hold $345 Billion in Multifamily Mortgage Debt - (www.housingwire.com) The volume of commercial and multifamily mortgage debt outstanding remained largely unchanged throughout the first quarter of 2009 at $3.48trn. Multifamily mortgage debt outstanding grew 0.6% from Q408 to $908bn in Q109, according to data analyzed by the Mortgage Bankers Association. Government-sponsored enterprises and mortgage giants Freddie Mac (FRE: 0.72 +5.88%) and Fannie Mae (FNM: 0.65 +3.17%) hold the largest chunk of outstanding multifamily, with $191bn in federally-regulated mortgage pools and $154bn in their own portfolios. “Banks, thrifts, Fannie Mae and Freddie Mac all increased their holdings of commercial and multifamily mortgages during the first quarter, while run-off among CMBS and life company loans decreased those investors’ holdings,” said Jamie Woodwell, MBA’s vice president of Commercial Real Estate Research, in a media statement. “The relatively long-term nature of commercial real estate finance,” Woodwell adds, “has meant greater stability in the levels of commercial and multifamily mortgage debt outstanding than is seen among many other types of credit.” Commercial banks hold the largest chunk — $1.56trn or 45% — of commercial and multifamily mortgages, while issuers of commercial mortgage-backed securities (CMBS) and other asset-backed securities hold the second-largest chunk — $763bn or 21%, according to the MBA’s findings. Between Q408 and Q109, the number of loans at least 30 days delinquent held in CMBS rose 0.68 percentage points to 1.85%, according to the MBA’s Commerical/Multifamily Delinquency Report. The delinquencies must have continued in the months since, as one ratings agency noted an alarming rate as recently as May. Fitch Ratings this week warned on rising delinquencies among CMBS as the retail and multifamily loans collateralizing them continue to perform poorly and ultimately default. CMBS experienced a 2.07% delinquency rate in May, the highest ever recorded by the ratings agency since beginning its loan delinquency index in 2001.

OTHER STORIES:

California's Millionaire Clearinghouse Problem - (www.paul.kedrosky.com)

Foreclosure Sales Steadily Climbing in California - (www.rismedia.com)

No 'significant recovery' in house prices as lending falls - (www.telegraph.co.uk)

Houses Still Cost Too Much - (www.alternet.org)

Senator Shelby Calls Fed's Expertise "Grossly Inflated" - (www.Mish)

Obama's Financial Regulatory Reform - (www.market-ticker.denninger.net)

The regulation problem: lack of accountability - (www.politico.com)

Overhaul Would Give the Fed Powers Over Wall Street - (www.moneymorning.com)

Builders conference has a gloomy mood - (www.sfgate.com)

Why housing and finance can't fix their mess - (www.slate.com)

The American Empire Is Bankrupt - (www.truthdig.com)

Debt pushes millions below poverty line - (www.sfgate.com)

40 ways to lose your future - (www.theautomaticearth.blogspot.com)

The Unfortunate Location - (www.nytimes.com)

Adding For Sale Signs To Empty Houses - (www.patrick.net)

Treasuries Decline Before Record $104 Billion Sales Next Week - (www.bloomberg.com)

Geithner on defensive over reforms - (www.ft.com)

Senators Skeptical of Financial Regulation Plan - (www.nytimes.com)

Demand for FHA Loans Is Overtaxing Agency, HUD Official Says - (www.bloomberg.com)

‘Swine’ Bankers Shun Jet Loans, Leave $36 Billion Gap - (www.bloomberg.com)

SEC to turn spotlight on ‘dark pools’ - (www.ft.com)

EU Sees ‘Sustainable’ Recovery Signs, Rules Out More Stimulus - (www.bloomberg.com)

Swiss Weigh Tougher Rules on Banks - (www.nytimes.com)

China resuming IPOs after 9-month suspension - (finace.yahoo.com)

Lawmakers Balk As Administration Tries to Redefine Central Bank's Role - (www.washingtonpost.com)

'Cash-for-Clunkers' Bill Passes in Bid To Revive Car Sales - (www.washingtonpost.com)

Cutting Off Mom & Pop Credit - (www.nytimes.com)

‘Council of regulators’ has no power over Fed - (www.ft.com)

Democrats Scramble to Cut Costs From Health Plan - (www.nytimes.com)

Tuesday June 30 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Suitcase With $134 Billion Puts Dollar on Edge: William Pesek - (www.bloomberg.com) It’s a plot better suited for a John Le Carre novel. Two Japanese men are detained in Italy after allegedly attempting to take $134 billion worth of U.S. bonds over the border into Switzerland. Details are maddeningly sketchy, so naturally the global rumor mill is kicking into high gear. Are these would-be smugglers agents of Kim Jong Il stashing North Korea’s cash in a Swiss vault? Bagmen for Nigerian Internet scammers? Was the money meant for terrorists looking to buy nuclear warheads? Is Japan dumping its dollars secretly? Are the bonds real or counterfeit? The implications of the securities being legitimate would be bigger than investors may realize. At a minimum, it would suggest that the U.S. risks losing control over its monetary supply on a massive scale. The trillions of dollars of debt the U.S. will issue in the next couple of years needs buyers. Attracting them will require making sure that existing ones aren’t losing faith in the U.S.’s ability to control the dollar. The dollar is, for better or worse, the core of our world economy and it’s best to keep it stable. News that’s more fitting for international spy novels than the financial pages won’t help that effort. It is incumbent upon the U.S. Treasury to get to the bottom of this tale and keep markets informed. GDP Carriers: Think about it: These two guys were carrying the gross domestic product of New Zealand or enough for three Beijing Olympics. If economies were for sale, the men could buy Slovakia and Croatia and have plenty left over for Mongolia or Cambodia. Yes, they could have built vacation homes amidst Genghis Khan’s Gobi Desert or the famed Temples of Angkor. Bernard Madoff who? These men carrying bonds concealed in the bottom of their luggage also would be the fourth-largest U.S. creditors. It makes you wonder if some of the time Treasury Secretary Timothy Geithner spends keeping the Chinese and Japanese invested in dollars should be devoted to well-financed men crossing the Italian-Swiss border. This tale has gotten little attention in markets, perhaps because of the absurdity of our times. The last year has been a decidedly disorienting one for capitalists who once knew up from down, red from black and risk from reward. It almost fits with the surreal nature of today that a couple of travelers have more U.S. debt than Brazil in a suitcase and, well, that’s life. Clancy Bestseller: You can almost picture Tom Clancy sitting in his study thinking: “Damn! Why didn’t I think of this yarn and novelize it years ago?” He could have sprinkled in a Chinese angle, a pinch of Russian intrigue, a dose of Pyongyang and a bit of Taiwan-Strait tension into the mix. Presto, a sure bestseller. Daniel Craig may be thinking this is a great story on which to base the next James Bond flick. Perhaps Don Johnson could buy the rights to this tale. In 2002, the “Miami Vice” star was stopped by German customs officers as he was traveling in a car carrying credit notes and other securities worth as much as $8 billion. Now he could claim it was all, uh, research. When I first heard of the $134 billion story, I was tempted to glance at my calendar to make sure it didn’t read April 1. Let’s assume for a moment that these U.S. bonds are real. That would make a mockery of Japanese Finance Minister Kaoru Yosano’s “absolutely unshakable” confidence in the credibility of the U.S. dollar. Yosano would have some explaining to do about Japan’s $686 billion of U.S. debt if more of these suitcase capers come to light.

Loan Redos Get Tangled in Thicket of Red Tape - (online.wsj.com) Kellina Lawrie used to be a mortgage broker, pitching loans to borrowers who in the end couldn't afford them. Her current job is working through the wreckage. Ms. Lawrie is one of thousands of J.P. Morgan Chase & Co. employees trying to modify mortgages for Americans who are in danger of losing their homes. "I feel badly for them, but I also have a responsibility to the bank," says the 30-year-old Ms. Lawrie, who was forced to sell her own home and trade in her Mercedes for a Toyota when the housing market went bust. Clobbered by the recession, millions of homeowners are asking for help from mortgage lenders like J.P. Morgan's Chase unit, the nation's third-largest servicer of mortgages behind Bank of America Corp. andWells Fargo & Co. Large and small banks have responded with programs that reduce interest rates, stretch out payments and provide other assistance. These efforts are getting a boost from the Obama administration's housing-rescue plan, which gives lenders financial incentives to modify as many as nine million mortgages. But the competing interests, red tape and raw emotions that collide in Ms. Lawrie's cubicle and in the loan-counseling center where she works show how hard it will be to overhaul those troubled loans. More than 9% of 45 million U.S. mortgages, or about four million loans, were delinquent in the first quarter of 2009, according to the Mortgage Bankers Association. That is the highest level since the group started tracking such data in 1972. As of the end of April, though, just 518,155 home loans had been modified, says Hope Now, a coalition of mortgage companies, investors and housing counselors. Getting a mortgage modified can take months, slowed by thin staffing and mountains of paperwork. With so many loans bundled and sold to investors, it's sometimes hard to figure out who even owns them. The new federal program requires borrowers to meet slightly different requirements than bank programs do, meaning banks need to navigate two procedures….. Bill Campbell, a self-employed electrician in Covington, Ky., recently got a new 20-year mortgage from Chase with an interest rate of 2.75% that will rise no higher than 4.75%, compared with his previous rate of 5.375%. Mr. Campbell, 60, fell three months behind last year on the loan for his 114-year-old house when his business began to slow. "This is absolutely wonderful for me, and I can tell that I will start having more money coming in because I'm starting to get more work," he says. Joe Figueroa, a 42-year-old county worker in Cleveland, hasn't been so lucky. He says he fell behind on his $133,000 mortgage after an illness that forced him to take unpaid medical leave several years ago. Once he went back to work, he tacked additional money onto his monthly $1,300 payments for a while, but remains behind. Mr. Figueroa says he can't persuade Chase to halt foreclosure proceedings on his 150-year-old Victorian house, though he filed modification paperwork five months ago. "I didn't borrow more than I could afford and I'm not asking to keep the house for free," says Mr. Figueroa.

Woman To Be Foreclosed On For Previous Owner’s Debt - (www.housingdoom.com) Good video. It’s tough enough when a homeowner can’t pay their debts and loses a home to foreclosure. It’s even more mind-boggling though when they are notified that it will happen for a previous owner’s debt:

Indictment: Man posed as dead mom for 6 years - (www.cnn.com) A 49-year-old man impersonated his dead 77-year-old mother in paperwork -- and sometimes in person -- for six years, collecting more than $100,000 in her name, according to the Brooklyn district attorney. The man sometimes dressed as his mother and, with an accomplice, collected more than $52,000 in Social Security benefits and another $65,000 in city rent subsidies, prosecutors said. Thomas Parkin and a man accused of being his accomplice, Mhilton Rimolo, 47, pleaded not guilty Wednesday to a sweeping 47-count grand jury indictment that includes charges of perjury, grand larceny, conspiracy, forgery and criminal impersonation, Brooklyn District Attorney Charles J. Hynes told reporters. Their bail was set at $1 million each. If convicted, they could each face up to 25 years in prison. "These defendants ran a multiyear campaign of fraud that was unparalleled in its scope and brazenness," Hynes said. Authorities allege Parkin impersonated his late mother, Irene Prusik, after her death in September 2003. On April 29, surveillance video captured Parkin posing as his mother to renew her driver's license at a state Department of Motor Vehicles office in Brooklyn, authorities said. Parkin was wearing a blonde wig, a red sweater, sunglasses and a scarf around the neck, authorities said. Next to him was Rimolo, who was pretending to be her nephew, authorities said. "[Parkin] did a pretty good job of covering himself up so that those that didn't know what to look for wouldn't be able to see anything," said Michael Vecchione, chief of the Brooklyn district attorney's rackets division. According to the indictment against him, the source of the fraud dates as far back as 1996, when Prusik ceded the deed of a building she owned in the Park Slope section of Brooklyn to her son. By 2000, he had gotten into debt after purchasing properties with business partner Rimolo, "presumably for speculation," Hynes said.

Germany's Subprime Crisis Blamed On US - (www.us1.institutionalriskanalytics.com) The United States is solely to be blamed for the financial crisis. They are the cause for the crisis, and it is not Europe and it is not the Federal Republic of Germany.": Peer Steinbrück, German Finance Minister, September 25, 2008

"Excessively cheap money in the U.S. was a driver of today's crisis… "I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the U.S. and elsewhere and whether we could find ourselves in five years facing the exact same crisis.":, Angela Merkel, German Chancellor, November 27, 2008

"Greenspan needs to create a housing bubble" from 2002! - (www.nytimes.com) If the story of the current U.S. economy were made into a movie, it would look something like ''55 Days at Peking.'' A ragtag group of ordinary people -- America's consumers -- is besieged by a rampaging horde, the forces of recession. To everyone's surprise, they have held their ground. But they can't hold out forever. Will the rescue force -- resurgent business investment -- get there in time? The screenplay for that kind of movie always ratchets up the tension. The besieged citadel fends off assault after assault, but again and again rescue is delayed. And so it has played out in practice. Consumers kept spending as the Internet bubble collapsed; they kept spending despite terrorist attacks. Taking advantage of low interest rates, they refinanced their houses and took the proceeds to the shopping malls. But predictions of an imminent recovery in business investment keep turning out to be premature. Most businesses are in no hurry to go on another spending spree. And those that might have started to invest again have been deterred by sliding stock prices, widening bond spreads and revelations about corporate scandal. Will the rescuers arrive in the nick of time? Not necessarily. This movie may not be ''55 Days at Peking'' after all. It may be ''A Bridge Too Far.'' A few months ago the vast majority of business economists mocked concerns about a ''double dip,'' a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I've repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever. The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging. On the surface, the sharp drop in the economy's growth, from 5 percent in the first quarter to 1 percent in the second, is disheartening. Under the surface, it's quite a lot worse. Even in the first quarter, investment and consumer spending were sluggish; most of the growth came as businesses stopped running down their inventories. In the second quarter, inventories were the whole story: final demand actually fell. And lately straws in the wind that often give advance warning of changes in official statistics, like mall traffic, have been blowing the wrong way. Despite the bad news, most commentators, like Mr. Greenspan, remain optimistic. Should you be reassured? Bear in mind that business forecasters are under enormous pressure to be cheerleaders: ''I must confess to being amazed at the venom my double dip call still elicits,'' Mr. Roach wrote yesterday at cbsmarketwatch.com. We should never forget that Wall Street basically represents the sell side. Bear in mind also that government officials have a stake in accentuating the positive. The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed. Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble. But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.

OTHER STORIES:

New CA Foreclosure freeze - (www.sfgate.com)

California's New House Tax Credit Running Out - (blogs.wsj.com)

Millionaire Houses May Lose Value Until 2012 - (www.bloomberg.com)

New York House Prices Forecast To Drop 40% More - (www.time.com)

KB, Countrywide sued over inflated house prices - (www.sfgate.com)

Housing starts "soared" in May? Hardly! - (themessthatgreenspanmade.blogspot.com)

High Housing Starts Don't Reflect Reality - (www.finance.yahoo.com)

Worst Housing Number in Decades: What Is Media Smoking? - (www.seekingalpha.com)

Thoughts On Walking Away From Upside Down Mortgage - (www.housingcrashhub.com)

Banks accept 66% of debt value at foreclosure auctions - (mortgage.freedombloggingcom)

Inconsistencies in the $134 billion bearer bond mystery - (www.seekingalpha.com)

Unemployment sharply increasing - (theautomaticearth.blogspot.com)

Health Care Rationing Rhetoric Overlooks Reality - (www.nytimes.com)

Senator Sanders Single-Payer Health Care Petition - (www.sanders.senate.gov)

How I Became an Accidental Slumlord - (www.newsweek.com)

$134B Bond Smuggers are US's 4th Largest Creditors If Real - (www.dailykos.com)

Women who rent weigh 12 lbs less - (www.canada.com)

Core Reforms Held Firm As Much Else Fell Away - (www.washingtonpost.com)

Obama Financial Plan Gets Wary Reception From Banks, Lawmakers - (www.bloomberg.com)

Obama Lays Out ‘Sweeping Overhaul’ of Financial Rules - (www.bloomberg.com)

New capital rules for US financial companies - (www.ft.com)

White paper sets out skilful compromises - (www.ft.com)

Keeping America safe from financial excess - (www.ft.com)

Federal regulator is blamed in bank failures - (www.latimes.com)

Iran watchdog calls emergency meeting - (www.ft.com)

Europe Offers Glimpse at Difficulties of Financial Reform - (www.nytimes.com)

Russia Pins Comeback Hope on Superjet - (www.nytimes.com)

U.K. Retail Sales Dropped in May for First Time in Three Months - (www.bloomberg.com)

U.S. Unemployment Benefit Rolls Fall; Claims Rise - (www.bloomberg.com)

Some Lawmakers Question Expanded Reach for the Fed - (www.nytimes.com)

California's Economy: Too Big to Fail? - (www.businessweek.com)

Report: Health care costs to rise 9% in 2010 - (www.usatoday.com)

JPMorgan, 3 Banks Repay $44.7 Billion in Treasury Rescue Funds - (www.bloomberg.com)

Banks Brace for Fight Over an Agency Meant to Bolster Consumer Protection - (www.nytimes.com)

Visa Clashes With Wal-Mart on $48 Billion Card Fee - (www.bloomberg.com)

FedEx Falls as Forecast Trails Estimates on ‘Difficult’ Economy - (www.bloomberg.com)

Overhaul Leaves Rating Agencies Largely Untouched - (www.nytimes.com)

Eddie Bauer Files for Bankruptcy - (www.nytimes.com)

Divided posse trails off in confusion - (www.ft.com)

America should also look to its fiscal health - (www.ft.com)

Band-Aids Won’t Fix Bank Ailments Fit for Surgery: Mark Gilbert - (www.bloomberg.com)

Only a Hint of Roosevelt in Financial Overhaul - (www.nytimes.com)

Monday June 29 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Europe Fears End of Incentives Will Dent Car Sales - (www.nytimes.com) Cash-for-clunkerprograms end up being like crack cocaine or like taxes. Once you implement on a temporary basis, industry will fight every attempt to end the program. As a cash-for-clunkers program is considered by Congress, European carmakers say they are worried about the impact of weaning themselves off similar incentives when they expire this year. The payments have proved to be a huge success among consumers across Europe since they were introduced in late 2008. In Germany, they have helped increase sales by about 40 percent from a year ago. But for car companies, living without them will not be easy, said Carlos Ghosn, the chief executive of Renault and Nissan and chairman of the European Automobile Manufacturers’ Association. “The incentives have given us some breathing room and obviously we are worried about what happens when they end,” Mr. Ghosn said in an interview in Brussels. “We are worried because we know it will have a negative impact. Hopefully, the economy will have improved enough by then so that the impact will not be too dramatic.” Halting the incentives is proving much more complicated than introducing them. Germany has already extended the deadline of its program once, and French automakers want them to continue beyond their scheduled elimination at the end of 2009. The demand for new cars, however, is not expected to improve by then, leaving automakers wondering how they can tempt consumers to buy cars. While Mr. Ghosn said that the American market could begin recovering by the end of 2009, he asserted that an upswing in Europe would take much longer. “I don’t see any improvement before 2011,” he said. “It would take a miracle for the car industry to see growth in Europe before 2011.”

Obama's Blueprint for Reform Concentrates Still More Power in Hands of the Fed - (Mish at globaleconomicanalysis.blogspot.com) The Washington Post has released a "near final" draft of Obama's financial reform proposals. As expected, the paper whitewashes the role of the Fed and Fractional Reserve Lending as well as the role of unfunded Congressional spending in creating the mess. Instead, Obama's plan gives more power to those responsible for creating the mess. Please consider Obama Blueprint Deepens Federal Role in Markets. The plan seeks to overhaul the nation's outdated system of financial regulations. Senior officials debated using a bulldozer to clear the way for fundamental reforms but decided instead to build within the shell of the existing system, offering what amounts to an architect's blueprint for modernizing a creaky old building. The plan is built around five key points, according to a briefing last night by senior administration officials and a copy of the white paper obtained by The Washington Post. The proposals would greatly increase the power of the Federal Reserve, creating stronger and more consistent oversight of the largest financial firms. It also asks Congress to authorize the government for the first time to dismantle large firms that fall into trouble, avoiding a chaotic collapse that could disrupt the economy. Federal oversight would be extended to dark corners of the financial markets, imposing new rules on trading in complex derivatives and securities built from mortgage loans. The government would create a new agency to protect consumers of mortgages, credit cards and other financial products. And the administration would increase its coordination with other nations to prevent businesses from migrating to less regulated venues. "Speed is important," Obama said yesterday in an interview aired by CNBC. "We want to do it right. My Comment: Speed is always important when you are attempting to to set yourself up as prosecutor, judge, and jury. Should anyone actually have the time to dig into the details, the odds are they would find many reasons to not go along.

State tries to reassure bondholders after S&P sounds alarm - (www.latimes.com) California Treasurer Bill Lockyer has insisted all through Sacramento's latest budget crisis that he would never allow the state to renege on what it owes bondholders. Yet when credit-rating firm Standard & Poor’s on Tuesday warned that it might cut California’s credit grade -- which already is the lowest of the 50 states -- S&P flagged at least the possibility of default. In the first paragraph of its statement, S&P says that "although we continue to believe the state retains a fundamental capacity to meet its debt service, insufficient or untimely adoption of budget reforms serve to increase the risk of missed payments in our view." S&P’s language incensed Lockyer’s spokesman, Tom Dresslar. "S&P raises undue alarm about the potential for missed bond payments," he said. "There is zero chance of that happening." Worries about the state’s fiscal fate, combined with an early-June jump in U.S. Treasury bond yields, have driven market prices of the state’s bonds sharply lower since mid-May, sending yields soaring. Tax-free yields on 10-year California general obligation bonds were between 5% and 5.1% on Tuesday, according to several traders. The yield was under 4.4% in mid-May. Despite the market’s jitters, Lockyer has noted many times that payment of interest and principal on the state’s $59 billion in general obligation bond debt is mandated by the state Constitution. Only "thermonuclear war" could interrupt debt repayment, the treasurer has said. In the Constitution, bondholders come second, after education funding. S&P, in its statement Tuesday, estimated that constitutionally required spending on education would be $36 billion in fiscal 2010 (beginning July 1). Principal and interest payments of $5.7 billion in fiscal 2010 then would have to be funded before the state could divert money to other expenses. S&P estimated that, after funding education, the state would have $53 billion in resources to cover the year's debt service. Isn’t that a big-enough chunk of change to make bondholders feel secure? S&P said that although the revenue coverage of the debt service for the year appeared to be significant, the firm was concerned about cash flow -- whether week to week or month to month the state would have the cash needed to make debt payments. "Even if revenue for the year is sufficient to meet high-priority payments for education and debt service, we believe the timing of cash inflows and outflows could cause acute liquidity shortages with the potential to present relatively serious credit concerns," the firm said. Dresslar said that was nonsense, because the state knows when debt payments are coming due and will husband cash accordingly for creditors. "We are not going to miss any payments," he said.

Foreclosure freeze prods banks to modify loans - (www.sfgate.com) California implemented a new foreclosure moratorium on Monday to goad banks into modifying mortgages for struggling homeowners. The California Foreclosure Prevention Act, signed by Gov. Schwarzenegger in February, adds 90 days onto the time period between when homeowners default on a loan and when their home can be repossessed in foreclosure. Banks can avoid the 90-day holdup by having a comprehensive program in place to make mortgages more affordable by reducing the interest rate, extending the loan term, or reducing or deferring some of the principal. Such programs must be approved by regulators. "The goal is to compel banks to do systematic loan modifications across California to reduce our foreclosure rate, which is the highest in the nation," said Assemblyman Ted Lieu, D-Torrance, who wrote the bill. "Until we slow that down, the California economy cannot recover." Experts said the California initiative should complement the Obama administration's foreclosure prevention plan, which offers financial incentives to servicers who complete loan modifications. "This law is most useful as a stick to supplement the Obama administration's carrots to get loan servicers to adopt a much more systematic framework for doing loan modifications," said Paul Leonard, director of the California office in Oakland for the Center for Responsible Lending. "It is a useful nudge to get more servicers to sign contracts to adopt the Obama modification plan." In the past few months, 15 servicers have agreed to implement the Obama plan, according to the Web site MakingHomeAffordable.gov. Government spokesmen have said that about 100,000 homeowners nationwide have been sent offers for trial modifications, a relatively modest number compared with the administration's goal of helping 3 million to 4 million homeowners avoid foreclosure.

‘Buy China’ policy set to raise tensions - (www.ft.com) China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world. In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms. The government also said it was launching an investigation in response to complaints from domestic industry associations which accuse local governments of favouring foreign suppliers in procurement related to the country’s Rmb4,000bn ($585bn, €421bn, £356bn) economic stimulus package. “From a domestic political perspective this makes some sense because local governments do tend to favour foreign products in some categories,” Dong Tao, chief China economist for Credit Suisse, said. “But given how important free trade is for China’s economy this is not the right message for them to be sending to the rest of the world right now.” Just a few months ago Beijing was raging against a proposed “Buy American”clause included in the US economic rescue package. “Some countries raised clauses to prioritise the purchase of products of their own countries in their economic stimulus packages,” Yao Jian, a Chinese commerce ministry spokesman, told reporters in February. “We express deep concern about these [measures] ... under the current financial crisis, measures issued by all countries should not cause negative impacts, and especially they should not send out wrong messages.”

For Boomers, recession is redefining retirement - (www.usatoday.com) The “laziest” generation follows the “greatest” generation. They grew up during a time of cultural change, and now are being forced to redefine retirement at midlife. The 77 million Americans in the Baby Boom generation face an economic storm: The Wall Street meltdown trampled their retirement nest eggs more than any other group. After losing jobs during what they thought would be some of their peak earning years, many are struggling to get back into the workforce. Health care costs are rising, and declining home values mean they might not be able to count on home equity to guarantee an easier retirement. "This generation will be sobered by their experience," says John Coyne, president of Brinker Capital, an investment management firm. "They may not have as extravagant a vision of retirement as they did last July." The confluence of events has an even bigger impact on a subset of the Baby Boomers known to analysts as the Sandwich Generation. Those Boomers are putting money toward their children's college education and their aging parents' long-term care, as well as their own retirement savings. The reality is sinking in: Baby Boomers, born from 1946 to 1964, are planning to work longer, save more money and spend less, to reach any semblance of the retirement they once envisioned. According to AARP: •35% of those ages 45 to 54 have stopped putting money into their 401(k), IRA or other retirement accounts. •25% said they have prematurely withdrawn funds from their retirement accounts. •56% have postponed a major purchase. •24% have postponed plans to retire. "Today, I see myself working until I drop," says Kyril Wickenberg, 59, of Savannah, Ga.

California's credit rating may get cut further - (www.latimes.com) California's credit rating, already the lowest of the 50 states, may be cut again, Standard & Poor's warned Tuesday. As the debate over budget cuts drags on in Sacramento, S&P put its "A" grade on the state's $59 billion in general obligation bonds on "negative credit watch," meaning the rating is at risk of a downgrade. Using language that could further spook bond investors, S&P said, "Although we continue to believe the state retains a fundamental capacity to meet its debt service, insufficient or untimely adoption of budget reforms serve to increase the risk of missed payments." The Legislature and Gov. Arnold Schwarzenegger are facing a $24.3-billion budget shortfall, and Controller John Chiang has warned that the state could run short of cash beginning July 28, just one month into fiscal 2010. The Obama administration repeated Tuesday that it wouldn't offer special financial assistance to California. "We'll continue to monitor the challenges that they have, but this budgetary problem unfortunately is one that they're going to have to solve," White House Press Secretary Robert Gibbs said in Washington. Worries about the state's fiscal fate, combined with an early-June jump in U.S. Treasury bond yields, have pushed market interest rates on the state's outstanding bonds sharply higher since mid-May. Yields on bonds rise as their prices fall. Tax-free yields on 10-year California general obligation bonds were 5% to 5.1% on Tuesday, according to several traders. The yield was under 4.4% in mid-May. A further credit downgrade could spur investors to force the state to pay even higher interest rates when it borrows. Still, California Treasurer Bill Lockyer has insisted all through Sacramento's deepening budget woes that he would never allow the state to renege on what it owes bondholders. S&P's language Tuesday incensed Lockyer's spokesman, Tom Dresslar. "S&P raises undue alarm about the potential for missed bond payments," he said. "There is zero chance of that happening." Payment of interest and principal on the state's general obligation debt is mandated by the state Constitution. S&P, in its statement Tuesday, estimated that constitutionally required spending on education would be $36 billion in fiscal 2010. Under the law, bond principal and interest payments of $5.7 billion for the year then would have to be funded before the state could pay other expenses.

British Airways Asks Staff To Work For Free - (Mish at globaleconomicanalysis.blogspot.com) Inflation is roaring back. Employment is soaring. Businesses are expanding, wage pressures are mounting, and pricing power is so great that British Airways asks staff to work for free. British Airways is asking thousands of its staff to work for free for up to four weeks, spokeswoman Kirsten Millard said Tuesday. In an e-mail to all its staff, the airline offered workers between one and four weeks of unpaid leave -- but with the option to work during this period. British Airways employs just more than 40,000 people in the United Kingdom. Last month, the company posted a record annual loss of £400 million ($656 million). Its chief executive declared at the time there were "absolutely no signs of recovery" in the industry. "I'm 30 years in this business and I've never seen anything like this. This is by far the biggest crisis the industry has ever faced," said Willie Walsh, British Airways' chief executive. A spokesman for one of Britain's biggest unions said its workers could not afford to work for free for a month. In these trying times it's best to be appreciative you have a job, even if you're not paid for it 4 weeks out of the year.

OTHER STORIES:

Obama Blueprint Deepens Federal Role in Markets - (www.washingtonpost.com)

SEC Said to Back Money Funds on Changes to Protect Investors - (www.bloomberg.com)

Obama Sought to Enlist a Wide Consensus on Finance Rules - (www.nytimes.com)

Hedge Fund Assets Rise for First Time in 11 Months - (www.bloomberg.com)

Fund of Hedge Fund Liquidations Rose to Record in First Quarter - (www.bloomberg.com)

Norges Bank Cuts Key Rate to 1.25% to Fight Recession - (www.bloomberg.com)

IMF, EU to Assess Latvia Loan as Lawmakers Pass Cuts - (www.bloomberg.com)

Chile Central Bank Lowers Rate to Record 0.75 Percent - (www.bloomberg.com)

China Small Caps Spark ‘Bubble’ Concerns on Valuation - (www.bloomberg.com)

U.S. Consumer Prices Rose Less Than Forecast in May - (www.bloomberg.com)

Fed Weighs Using FOMC Statement to Damp Rate-Rise Speculation - (www.bloomberg.com)

New rules to expand Fed powers - (www.ft.com)

Lower rates fail to lure mortgage applicants, MBA says - (www.marketwatch.com)

Obama Sees 10% Unemployment Rate, Chides Wall Street Critics - (www.bloomberg.com)

Biggest Shift in U.S. Health Care May Emerge in 45-Day Sprint - (www.bloomberg.com)

Stalking A Weaker Wall Street - (www.nytimes.com)

Goldman Sachs to repay $10B in government funds - (finance.yahoo.com)

Four firms expected to split nuclear financing: WSJ - (www.marketwatch.com)

FDA says Zicam nasal spray can cause loss of smell - (news.yahoo.com/s/ap)

The three steps to financial reform - (www.ft.com)

The recession tracks the Great Depression - (www.ft.com)

Deep reform below surface of Geithner blueprint - (www.ft.com)

Wells Fargo, PNC Among 22 Banks Downgraded by S&P - (www.cnbc.com)

Morgan Stanley, US Bancorp, BB&T First to Repay TARP - (www.cnbc.com)

Consumer Prices Up on Gas Rise; Trade Deficit Drops - (www.cnbc.com)

FedEx Outlook Disappoints, Says Worst May Be Over - (www.cnbc.com)

Obama: There's No Danger of Overregulating - (www.cnbc.com)

Mortgage Applications Plunge to Near 7-Month Low - (www.cnbc.com)

Bernanke Says Community Finance Hit by Recession - (www.cnbc.com)

Sunday June 28 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

New Hampshire Revenue chief airs tax ideas - Mortgage refinance, LLC loopholes are hot topics - (www.concordmonitor.com) With days to go before lawmakers are supposed to finish the state budget, New Hampshire Revenue Commissioner Kevin Clougherty yesterday presented lawmakers with a smorgasbord of tax ideas that could help close a $150 million budget gap. The biggest-ticket items: taxing mortgage refinancing and closing loopholes on limited liability corporations. For weeks, lawmakers working to finalize the state's next budget have extolled the idea of a "third way," new ideas for fees, fines and taxes that don't involve two lightning-rod plans: the Senate plan to permit - and tax at a 49 percent rate - 13,000 video slot machines in the state and the House plan to implement a new 5 percent tax on capital gains. The House-Senate panel negotiating the 2010 and 2011 state budget is supposed to finish Thursday. Clougherty's refinance tax presentation, however, quickly attracted lightning bolts, with senators asking whether the tax would hurt those who are already struggling, whether it would increase the cost of home ownership and whether the revenue in the proposal could be relied upon. Gov. John Lynch's office has quietly vetted the refinance idea for a couple of weeks; the state Mortgage Bankers and Brokers Association came out against it Thursday. "This has been floated for a couple of weeks now in the media, and I don't think I've talked to anyone anywhere" who likes the idea, said Berlin Republican Sen. John Gallus, who said he sees many people refinancing properties to keep their homes, send a child to college or pay for emergency home repairs. Manchester Democrat Lou D'Allesandro panned the refinance tax idea after the hearing. "That's the one I don't see. . . . I don't see it as an alternative when we have other alternatives that are better," said D'Allesandro, pointing to the plan he sponsored to allow a total of 13,000 video slot machines spread between the state's three horse and dog tracks and two North Country slot parlors. D'Allesandro estimates the plan would bring in $205 million for the state's two-year budget, which will total about $11.5 billion.

Report: Durbin Cashed Out During Big Stock Collapse‎ - (www.newsroomamerica.com) Senior U.S. Sen. Dick Durbin, a Democrat from Illinois, cashed out most of his stock during the huge market collapse last fall, after meeting with then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, Bloomberg News reported. Durbin, the Senate's No. 2 Democrat, sold about $115,000 worth of stocks and mutual fund shares and invested much of the money in Warren Buffett's Berkshire Hathaway Inc., the financial newswire service said. Durbin's stock sale came a day after meeting with Paulson and Bernanke, who had "urged congressional leaders in a closed meeting to craft legislation to help financially troubled banks," Bloomberg reported. The same day, according to Durbin's 2008 financial disclosure form, he bought more than $42,000 worth of Berkshire Hathaway's Class B stock. Durbin's sale took place as U.S. stock markets plummeted last September. "The Standard & Poor's 500 index plunged 4.7 percent last Sept. 15 after the bankruptcy of Lehman Brothers Holdings Inc. and Bank of America Corp.'s government-engineered takeover of Merrill Lynch & Co. By the end of October, the index had fallen 22.6 percent," Bloomberg said. Durbin spokesman Joe Shoemaker said his boss "was doing what a lot of other people were doing, taking a look at their savings" and seeing it "start to tank and trying to preserve some level of wealth by getting out of the market." Critics counter, however, that most Americans didn't have access to Treasury and Fed chiefs to help them make their decision to sell before markets completely plunged.

Senate’s No. 2 Democrat, Dick Durbin, Dumped His Stock After Closed Meeting with Treasury Secretary in September - (doctorbulldog.wordpress.com) Alright, here’s the scenario: You have lots of money invested in stocks and mutual funds. You are privy to a closed meeting with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. In that meeting, you learn that the bottom has dropped out on the Fannie and Freddie scam. Not only that, but the Treasury is going to declare a financial emergency and steal about 700 billion in tax-payer dollars to try and salvage the financial train-wreck. The news is sure to cause the Stock Market to fall hundreds, if not thousands of points. What do you do? Well, you could wait until news of this becomes public, or, you could use this key bit of insider information and sell off all of your stocks and mutual funds the moment the Stock Market opens up in the morning—hours ahead of when the grim financial news is officially released to the public by the government—and, then re-invest that money in a less risky company; like Warren Buffett’s Berkshire Hathaway Inc., for instance. Which is, of course, exactly what Senator Dick Durbin seems to have done: Durbin cashed out during big stock collapse. Asset sales came after meeting with Fed, Treasury chiefs. As U.S. stock markets plummeted last September, the Senate’s No. 2 Democrat, Dick Durbin, sold more than $115,000 worth of stocks and mutual-fund shares and used much of the money to invest in Warren Buffett’s Berkshire Hathaway Inc.

The Illinois senator’s 2008 financial disclosure statement shows he sold mutual-fund shares worth $42,696 on Sept. 19, the day after then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke urged congressional leaders in a closed meeting to craft legislation to help financially troubled banks. The same day, he bought $43,562 worth of Berkshire Hathaway’s Class B stock, the disclosure shows.

Proposed Legislation in Oregon Seeks to Stem Foreclosures - (www.oregonlive.com) Another state-backed hair-brained scheme to delay foreclosures with unintended consequences of locking homeowners into long-term unsustainable debt. When Kelly Holmes stepped into the kitchen of a house for sale in Eugene three years ago, she knew she had found her dream home. With plenty of storage space and an island in the middle, the kitchen suited Holmes' family of six and was perfect for her hobby of cooking and baking. The new subdivision was close to the house the family had been renting, enabling her children to stay at the same school. But two years and two layoffs later, Kelly and Ivan Holmes lost their home to foreclosure. They didn't make mortgage payments and risked being sued for thousands of dollars. "It was one of, if not the worst, time of my life," Kelly Holmes said. The Holmes family is one of many who have lost their homes in Oregon's turbulent economy, and two bills alive in Salem are aimed at helping those facing foreclosure. "Who's to say they don't track you down a year later and still sue you for the $50,000?" Ivan Holmes asked. House Bill 3004 would prevent lenders from suing borrowers long after the foreclosure sale, which currently is allowed under Oregon's Trust Deed Act. Senate Bill 628 would attempt to prevent foreclosures by offering free home counseling and by obligating the lender and borrower to discuss an alternative payment plan before foreclosing on the home. When real estate was booming, mortgage loans were virtually unregulated and accessible to people with poor credit histories. Borrowers such as the Holmes family, who had a shaky credit background and a past bankruptcy, were told they could secure a loan with no money down -- and were even offered $1,000 for signing the trust deed. A combined loan consisting of two mortgage notes called an 80/20 loan became common, which is how the Holmeses financed their house. Under that arrangement, the two notes make it appear as if borrowers were able to afford a 20 percent down payment so they can qualify to finance the remaining 80 percent. Because such borrowers often had a low income or shaky finances, they could easily fall into debt and risk foreclosure. Stacey Howard, a foreclosure counselor at the nonprofit Neighborhood Economic Development Corporation, said about 70 percent of borrowers who come to her facing foreclosure have combination loans. "People can get into them with almost no down payment, and when they did that, they didn't have to pay mortgage insurance," she said. Howard said while the combination loan may work for a savvy borrower, "for the average person, they're not a good option." The credit crunch and tighter lending rules have made two-note loans rare. Foreclosures, though, have only increased as more people lose their jobs. A report from the Mortgage Bankers Association at the end of May showed that 2.2 percent of Oregon's 636,000 outstanding mortgages were in the process of foreclosure in the first three months of 2009, the highest rate since 1985.

Latvian Lawmakers Will Vote Today on Budget Cuts to Unlock Loan - (www.bloomberg.com) Latvia’s lawmakers will approve cuts in government spending as early as today, enabling bailout payments to resume and allaying concern about a currency devaluation. The Riga-based parliament is poised to vote on cuts of $1 billion, equal to 10 percent of budget spending, in an effort to unlock a 1.7 billion-euro ($2.4 billion) tranche from a group led by the European Commission and the International Monetary Fund. The funds will probably be transferred at the end of June or in early July, Prime Minister Valdis Dombrovskis has said. Latvia, the European Union’s fastest growing economy in 2006, is suffering the bloc’s severest recession and relying on a 7.5 billion-euro international bailout to avoid bankruptcy. The loan’s terms assume Latvia will keep its euro peg and curtail the budget deficit, exacerbating the slump. “The government gets to buy some time” with the loan, said Martins Kazaks, chief economist at Swedbank AB’s Latvian unit. “It seems they will do what is necessary.” Lawmakers will vote on measures including 10 percent pension reductions and 20 percent state pay cuts, with the proposal also entailing the closure of some state agencies and advisory councils for state-owned companies. “We are preparing for a late night,” said Lelde Rafelde, a spokeswoman for the parliament, in a telephone interview. Parliament will begin an extraordinary session, in which 16 bills will be discussed starting at about 3 p.m. local time. After that, lawmakers will return to a standard session to look at legislation including the budget amendments, she said.

Calif. Aid Request Spurned By U.S. - (www.washingtonpost.com) The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy -- the state of California. Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching "fiscal meltdown" caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California's fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states. With an economy larger than Canada's or Brazil's, the state is too big to fail, California officials urge. "This matters for the U.S., not just for California," said U.S. Rep. Zoe Lofgren, who chairs the state's Democratic congressional delegation. "I can't speak for the president, but when you've got the 8th biggest economy in the world sitting as one of your 50 states, it's hard to see how the country recovers if that state does not." The administration is worried that California will enact massive cuts to close its deficit, estimated at $24 billion for the fiscal year that begins July 1, aggravating the state's recession and further dragging down the national economy. After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout. These policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions. California is among several states that have asked for a bailout from the Treasury Department. A few have gotten some traction, notably Michigan, whose economy is among the country's weakest and is struggling to deal with the fallout from the bankruptcies of General Motors and Chrysler. To stave off mass layoffs, Treasury officials are considering helping the state's auto suppliers stay afloat and convert their businesses to support other industries. California Controller John Chiang, a Democrat, warned last week that the state was "less than 50 days away from a meltdown of state government."

Record Corporate Bond Sales Fail to Ease Cash Gap, Moody’s Says - (www.bloomberg.com) s many as 14 percent of investment grade European companies will be unable to meet their cash requirements in the next 12 months even as bond issuance is at record levels, according to Moody’s Investors Service. For high-risk, high-yield companies the situation is worse, with as many as 20 percent failing to have sufficient cash to meet outflows, the New York-based ratings firm said in a report today. “Despite significant bond issuance volumes since the beginning of the year, liquidity remains fragile for corporate issuers,” said Jean-Michel Carayon, a corporate finance analyst at Moody’s in Paris. European companies have sold more than 640 billion euros ($886 billion) of bonds this year to meet refinancing needs as the credit crisis forces banks to crimp lending. Borrowers have about $650 billion of debt maturing in the next 12 months and Moody’s said that “as the global financial crisis continues, the availability of reliable external funding continues to be a question mark.” Almost half of sub-investment grade borrowers are in danger of breaching terms of their debt agreements, the report said, with 17 percent of investment grade companies at peril. “Economic prospects are expected to remain weak at least for the remainder of 2009,” said Moody’s analyst Sabine Renner. “While a continuation of recent bond market activity helps mitigate -- at least to some extent -- liquidity pressures stemming from bank market stress and cash flow shortfalls, uncertainty will remain elevated.” High-yield debt is graded below Baa3 by Moody’s and BBB- at Standard & Poor’s.

OTHER STORIES:

Crude rises above $72 as dollar falls - (www.marketwatch.com)

Weaker dollar boosts oil and gold - (www.ft.com)

Asian Stocks Drop Most in a Month on Resources, Growth Concerns - (www.bloomberg.com)

U.S. Stock Futures Extend Gains as Housing Starts Top Estimates - (www.bloomberg.com)

Regulatory Revamp Targets Securities at Heart of Crisis - (www.washingtonpost.com)

U.S. credit card defaults rise to record in May - (www.reuters.com)

BRICs May Buy Each Other’s Bonds in Shift From Dollar - (www.bloomberg.com)

Investors cool on US bonds and equities - (www.ft.com)

Treasury plans strict rules for securitisation - (www.ft.com)

Obama’s Bank Revamp May Stall as Congress Tackles Rival Issues - (www.bloomberg.com)

Hedge-Fund Startups Sprout as Roc Capital Gathers $1 Billion - (www.bloomberg.com)

Russia challenges dollar, China offers loans - (news.yahoo.com/s/ap)

Emerging Economic Powers Meet in Russia (www.nytimes.com)

China, Russia Woo Central Asian Countries With Bailout Cash - (www.bloomberg.com)

Latin countries, seeking more clout, vow to lend to IMF - (www.marketwatch.com)

Eurozone banks face $283bn writedowns - (www.ft.com)

Tens of thousands protest in Tehran - (www.ft.com)

Saudi Arabia Bank Cuts Reverse Repo Rate to 0.25% - (www.bloomberg.com)

German Investor Confidence Rises to Three-Year High - (www.bloomberg.com)

U.K. May Inflation Rate Drops by Less Than Economists Forecast - (www.bloomberg.com)

U.S. Housing Starts Soared in May; Permits Also Rose - (www.bloomberg.com)

U.S. Producer Prices Rose Less Than Forecast in May - (www.bloomberg.com)

A new role as 'risk regulator' could reshape Fed - (news.yahoo.com/s/ap)

Fisher Says Fed Can’t Offset Treasury-Borrowing Flood - (www.bloomberg.com)

Budget woes, building drop-off may prolong state's hardships - (www.latimes.com)

Bill Ford Says U.S. Must Calm ‘Gyrating’ Fuel Prices - (www.bloomberg.com)

U.S. homebuilder sentiment lower in June - (www.reuters.com)

State gasoline price passes $3 mark again - (www.sfgate.com)

Credit Issuers Slashing Card Balances - (www.nytimes.com)

Extended Stay Chain Files for Bankruptcy, Hit by Debt - (www.bloomberg.com)

Obama pushes for healthcare reform - (www.ft.com)

As Obama Pushes Health Issue, New Cost Concerns Arise - (www.nytimes.com)

Boeing shut out of orders race at Paris Air Show - (news.yahoo.com/s/ap)

Saturday June 27 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Congresswoman's abandoned house angers neighbors - (www.latimes.com) Laura Richardson's former home in Sacramento's upscale Curtis Park neighborhood is in disrepair. Residents say they have appealed to her and House Speaker Nancy Pelosi without success. Reporting from Sacramento -- John Bailey thought it was great when his neighbor was elected to the House of Representatives in 2007. "Not everyone lives next door to a congresswoman," he said. But two years later, he doesn't feel so lucky. The congresswoman's house is abandoned and in disrepair, "a blight on the neighborhood," Bailey said. He thinks the way that Rep. Laura Richardson (D-Long Beach) has treated her Sacramento home tells far more about her than her voting record. "I wouldn't want anyone that irresponsible to represent me," said Bailey, like Richardson a liberal Democrat. "What I don't get is how she has the time to visit with Fidel Castro but doesn't have time for her own house. If you can't manage your own household, you probably shouldn't get involved in international affairs." He's not alone. Neighbors have complained to the city, written letters and e-mails to Richardson and House Speaker Nancy Pelosi , but the three-bedroom house remains an eyesore. Neighbors just wish she would sell it or let it go into foreclosure, anything to get it into the hands of someone who would care. "She shows total disregard for everyone in the neighborhood," said Sean Padovan, a retired police sergeant. "She ought to be embarrassed and ashamed." Richardson did not return phone calls for this story. The problems with the house began shortly after Richardson was elected to the Assembly in 2006 from Long Beach and bought the two-story house in the leafy Curtis Park neighborhood. It wasn't long before Padovan, 62, angry that the lawn wasn't being mowed, knocked on Richardson's door, told her he was a neighbor and asked if she minded if he cut the grass. He hauled out his hand mower, and when Richardson still seemed to have no interest in taking care of her yard, he stuck a gardener's card in her door with a note saying that she should call him if she had questions. He never heard from Richardson, not a thank-you or a wave as she walked past. After Richardson was elected to Congress in 2007 in a special election, she moved out around Labor Day. She told Bailey that she planned to rent out the house. Later that year, he sent her an e-mail with a link to a real estate agent who could help. He never received a response.

Lake Las Vegas sees climbing foreclosures, falling values - (www.lvrj.com) Owner aims to 'reset and reposition' community. It was a symbol of Las Vegas largesse during the good times. Now it's an emblem of recession blues. With a man-made lake in the desert, an Italian-style village beyond the suburban sprawl and neighborhoods fit for diva Celine Dion, the Lake Las Vegas resort development flouted good sense and modesty in the tradition of all great Las Vegas dreams. But it has fast turned sour for some. Last year, the developer, Transcontinental Corp., lost the property in foreclosure after defaulting on $540 million in loans. The new owners of Lake Las Vegas filed for Chapter 11 bankruptcy last summer. One if its anchor hotels, a Ritz-Carlton owned by Village Hotel Investors LLC, also filed bankruptcy to stave off foreclosure and has been sold to new owners. One of three premier golf courses has been abandoned. New-home construction has slowed to a crawl, though the community is far from built out. Foreclosures have spread like a virus, and home values are falling. Even the sparking, blue lake -- the jewel of the luxury haven -- nearly sprung a leak, forcing engineers to rush to make repairs before it drained. Not surprisingly, residents are jumping ship. In May, nearly 10 percent of the homes on the market at Lake Las Vegas were either bank-owned or short sales, meaning they were priced so low a sale would not satisfy the owners' debt to the bank, according to Applied Analysis, a real estate research firm. Nearly 80 percent of the homes listed were vacant. "I thought it was a no-lose situation. It ruined me," said Ed Santacruz, a former mortgage broker and fortune seeker who let his Lake Las Vegas hotel-condominium go into foreclosure. He had planned to rent out the property to tourists, but couldn't get enough takers to cover the mortgage. "That's where I messed up, I believed enough in the product and in Las Vegas," Santacruz said. Lake Las Vegas' woes largely are due to now familiar problems. The community was designed as both a resort and residential destination -- leaving it heavily dependent on second-home buyers and tourism. Both faltered when the economy sputtered. "There was a point and time when the higher end of the market had been less impacted. But as the recession has run longer and deeper than initially expected. .." said Brian Gordon, a principal at Applied Analysis. The community that strove for seclusion wasn't as isolated as some thought. The palm trees and putting greens of Lake Las Vegas emerge out of the near empty desert off a dusty suburban highway 17 miles from the Strip. The homes are clustered around a 2-mile-long lake that defies the scorching heat and environmentalists, alike. A replica of Florence's Ponte Vecchio, a popular venue for weddings, crosses the water on the south end, near a tasteful, small casino. Two of the community's three golf courses were designed by Jack Nicklaus. Promotional materials boast a seven-minute commute to the Las Vegas casinos on the horizon -- by helicopter. The idea of exclusive desert resort living originally was the brainchild of J. Carlton Adair, an actor and businessman. Adair acquired the land in 1966 in a swap with the federal government that also included the rights for 10,000-acre feet of water. Creating what he planned to call Lake Adair would require damming water destined for Lake Mead, the Colorado River reservoir that provides water to Southern Nevada. But Adair went bankrupt before his dream was realized and a subsequent group of investors also failed to raise the necessary money. Transcontinental took up the cause in 1990, a year before the dam was completed. The city of Henderson, a bedroom community next to Las Vegas, was attracted by the promise of a new solid tax base. It agreed to sell the community the water it would need to replenish the evaporation under the scorching sun. The community pays a water bill of about $2 million a year. The decision was blasted by environmentalists, who now see a bit of karma in Lake Las Vegas' recent troubles.

DoD: Protests are "Low-Level Terrorism" - (open.salon.com) The Department of Defense is training all of its personnel in its current Antiterrorism and Force Protection Annual Refresher Training Course that political protest is "low-level terrorism." The Training introduction reads as follows: "Anti-terrorism (AT) and Force Protection (FP) are two facets of the Department of Defense (DoD) Mission Assurance Program. It is DoD policy, as found in DoDI 2000.16, that the DoD Components and the DoD elements and ersonnel shall be protected from terrorist acts through a high pirority, comprehensive, AT program. The DoD's AT program shall be all encompassing using an integrated systems approach." The first question of the Terrorism Threat Factors, "Knowledge Check 1" section reads as follows: Which of the following is an example of low-level terrorism activity? The "correct" answer is Protests. A copy of this can be found on the last two pages of this pdf. The ACLU learned of this training and on June 10, 2009 sent a letter to the Gail McGinn, Acting Under-Secretary of Defense for Personnel and Readiness, objecting to their training all DoD personnel that the exercise of First Amendment rights constitutes "low-level terrorism." For those who have worried about a trend - evident, for example, in the USA PATRIOT Act, the universal and ongoing government surveillance of all of Americans' electronic communications that began in February of 2001 (seven months before 9/11), the global war on a tactic (terrorism), therefore making this war unending, the unprecedented pre-emptive arrests of protestors at the 2008 Republican National Convention with those protesters being charged as "domestic terrorists," the justifications for torture, pre-emptive wars of aggression, ongoing occupations, American gulags such as Bagram, suspension of habeas corpus, and "prolonged detention" for acts omeone might commit, not what they have done, FBI et al infiltration of protest groups and the government's acknowledged use of undercover agents (agents provocateurs) in said infiltration, thus giving the government under the rubric of fighting domestic terrorism unrestrained and unsupervisable power to suppress legitimate political activities, the unleashing and justifications for Christian fascists to murder those they do not like (such as the assassination of Dr. George Tiller and the killing at the Holocaust Museum a few days ago) - this news adds further fuel to the fire. These are not items from some famously vilified, non-US dictatorial regime. These are items from the good ole USA, land of the free and home of the brave.

Proposal to bulldoze empty houses - (www.telegraph.co.uk) Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline. The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature. Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area. The radical experiment is the brainchild of Dan Kildee, treasurer of Genesee County, which includes Flint. Having outlined his strategy to Barack Obama during the election campaign, Mr Kildee has now been approached by the US government and a group of charities who want him to apply what he has learnt to the rest of the country. Mr Kildee said he will concentrate on 50 cities, identified in a recent study by the Brookings Institution, an influential Washington think-tank, as potentially needing to shrink substantially to cope with their declining fortunes. Most are former industrial cities in the "rust belt" of America's Mid-West and North East. They include Detroit, Philadelphia, Pittsburgh, Baltimore and Memphis. In Detroit, shattered by the woes of the US car industry, there are already plans to split it into a collection of small urban centres separated from each other by countryside. "The real question is not whether these cities shrink – we're all shrinking – but whether we let it happen in a destructive or sustainable way," said Mr Kildee. "Decline is a fact of life in Flint. Resisting it is like resisting gravity." Karina Pallagst, director of the Shrinking Cities in a Global Perspective programme at the University of California, Berkeley, said there was "both a cultural and political taboo" about admitting decline in America. "Places like Flint have hit rock bottom. They're at the point where it's better to start knocking a lot of buildings down," she said. Flint, sixty miles north of Detroit, was the original home of General Motors. The car giant once employed 79,000 local people but that figure has shrunk to around 8,000. Unemployment is now approaching 20 per cent and the total population has almost halved to 110,000. The exodus – particularly of young people – coupled with the consequent collapse in property prices, has left street after street in sections of the city almost entirely abandoned. In the city centre, the once grand Durant Hotel – named after William Durant, GM's founder – is a symbol of the city's decline, said Mr Kildee. The large building has been empty since 1973, roughly when Flint's decline began. Regarded as a model city in the motor industry's boom years, Flint may once again be emulated, though for very different reasons. But Mr Kildee, who has lived there nearly all his life, said he had first to overcome a deeply ingrained American cultural mindset that "big is good" and that cities should sprawl – Flint covers 34 square miles. He said: "The obsession with growth is sadly a very American thing. Across the US, there's an assumption that all development is good, that if communities are growing they are successful. If they're shrinking, they're failing." But some Flint dustcarts are collecting just one rubbish bag a week, roads are decaying, police are very understaffed and there were simply too few people to pay for services, he said.

If the city didn't downsize it will eventually go bankrupt, he added.

Gloom Over California House Prices Hard to Shake - (www.cnbc.com) Matt Bording doubts many in his financial bind would agree that home prices in California are near a bottom. And there are many in his predicament. Bording owes more on his mortgage than his Richmond, California house is worth so he is giving up on the loan. "We're walking away," Bording told Reuters, noting he will soon hand his lender the keys to the three-bedroom house he bought with his wife in 2005 because its value has plunged with his zip-code's median home price over the last year. "It's down about 60 percent," he said. "I don't see that rebounding in a realistic time frame." Brisk sales of foreclosures are leading optimistic analysts to forecast an end to the misery of falling home prices in California, a first step to recovery in a key housing market at the epicenter of the U.S. mortgage crisis. But Bording says his neighborhood is full of for-sale signs for known foreclosures and the disrepair of other houses suggest their owners share his view: "They may want to jump off a sinking ship." Bargain Hunters on the Hunt: Some analysts say the slide in home values in California has run its course thanks to buyers with government mortgages and investors snapping up foreclosed properties. "We're running out of foreclosed units in most places," said Alan Nevin of MarketPointe Realty Advisors in San Diego. "It looks like we're straightening things out." The state's median price for an existing, single-family home rose 1.4 percent in April from March to $256,700, marking two consecutive months of gains.

Tycoon has $21M house taken England's biggest repossession - (www.dailymail.co.uk) A property tycoon has had his multi-million pound home taken off him in what is thought to be Britain's biggest ever repossession. Cevdet Caner bought the seven-bedroom home in Mayfair, London two years ago for £16million and spent £5million refurbishing it. But last week bailiffs took the house after his Monaco-based property investment company Level One went into administration with debts of £1.2billion after it was badly hit in the economic slump. The firm, which acquires low-cost homes and social housing Germany, collapsed last year and the house was put on the market in December, but did not sell. However Mr Caner, who moved out of the house two weeks ago, claims he tried to prevent the repossession by offering to repay lenders Credit Suisse what he owed them but that they refused to accept his money. He said: 'The house was bought with a £16million mortgage. 'I have offered to repay this amount back - most recently, through my lawyers, three weeks ago, but the lenders refused. 'Instead they put the company into receivership, sent in bailiffs to repossess it and have not instructed agents to find a buyer. 'I can't understand why they are doing this, other than to humiliate me and damange my reputation.' Hamptons International, joint agent for the house with Sotheby's, will market the house this week for £20million. If the house sells for more than £16million, than the money will be refunded to Mr Caner.

OTHER STORIES:

The Bear Market Never Ended - (www.finance.yahoo.com)

The Debt Conundrum - (www.seekingalpha.com)

Two crash book reviews - (www.nytimes.com)

Another crash book review - (www.examiner.com)

Wealth of Baby Boom Cohorts After Collapse of Housing Bubble - (www.scribd.com)

Three Not-So-Optimistic Economists - (www.huffingtonpost.com)

Infill in US Urban Areas - (www.newgeography.com)

Recover, Bubble, Reform, Fumble - (www.theautomaticearth.blogspot.com)

Smuggling $134 billion in T Bills? Woah! - (www.bloomberg.com)

Senators Involved With Health Care "Reform" Have Industry Ties - (www.huffingtonpost.com)

In Denmark, they pursue your mortgage debt for rest of your life - (www.housingdoom.com)

Investors Rebuke Feds: Get Ready For Higher Interest Rates - (www.cbsnews.com)

The Fed Might Have Painted Itself into a Corner - (www.mises.org)

Painful months ahead for housing? - (www.mortgage.freedomblogging.com)

Graph of Prices In Westchester County, NY - (www.patrick.net)

Tampa Bay real estate still threatened by rising rates, unemployment - (www.tampabay.com)

San Francisco: Credit Squeeze Stalling Deals - (www.nuwireinvestor.com)

The California question: To tax or not to tax? - (www.contracostatimes.com)

Foreclosure problems still increasing in FL - (www.heraldtribune.com)

Foreclosure 3rd wave - (www.dailybusinessreview.com)

Is the housing bust about to take Manhattan? - (www.reuters.com)

High-end houseowners now feeling the pinch - (www.signonsandiego.com)

Beware of Neighbor's Foreclosure - (www.nytimes.com)

Buyers band together to negotiate with builders - (www.therealdeal.com)

And Now, It's Crunch Time for Timeshares - (www.nytimes.com)

Second mortgages: Lines of danger? - (www.ocregister.com)

How banks lose on a sure-fire bet - (www.econbrowser.com)

How Banks Are Gaming The Real Estate Market - (www.exiledonline.com)

Top House Members Disclose Investments in Bailed-Out Banks - (www.washingtonpost.com)

Friday June 26 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Peter Schiff: U.S. Political Risk a Reality - (www.wealthdaily.com) "Crony capitalism" is a term often applied to foreign nations where government interference circumvents market forces. The practice is widely associated with tin-pot dictators and second-rate economies. In such a system, support for the ruling regime is the best and only path to economic success. Who you know supersedes what you know, and favoritism trumps the rule of law. Unfortunately, last week's events demonstrate that the phrase now more aptly describes our own country. On Monday, the Supreme Court refused to hear an appeal from Chrysler's secured creditors based on the government's argument that the needs of other stakeholders outweighed those of a few creditors. In this case, the Administration concluded the interests of the United Auto Workers outweighed the interests of the Indiana teachers and firemen whose pension fund sued to block the restructuring. Given the enormous financial support that the UAW poured into the Obama campaign, such partiality is hardly surprising. When making their investment in Chrysler just a few months ago, the Indiana pension fund agreed to commit capital because of the specific assurances received from the company. In allowing this sham bankruptcy to be crammed through the courts, we have shredded the vital principal of the rule of law, and have become a nation of men, rather than one of laws. The risk that legal contracts can now be arbitrarily set aside will make investors think twice before committing capital to distressed corporations. Oftentimes enforcing contracts imposes hardships. That's precisely why we have contracts. Without absolute faith that deals will be honored, it will be extremely difficult for U.S. companies to borrow money. This will be particularly true for those companies already struggling with too much debt. Without the ability to issue secured debt, how will such companies access the necessary capital to turn around? If secured creditors cannot count on the courts to enforce their claims, they will not put their capital at risk. What good is being a secured creditor if courts can allow the assets securing your claim to be sold for the benefit of others? Another problem with the government imposing losses on secured Chrysler creditors is that in its bailouts of financial companies (like Citigroup and AIG), the government took steps to specifically pay back creditors, even when those creditors should have been wiped out. This inconsistency and lack of equal protection further undermines faith in our economy.

Insurance Giant A.I.G. Takes Ex-Chief (and crook who got them into their current predicament) to Court - (www.nytimes.com) The latest act in the drama of the American International Groupopens Monday when the ailing insurance giant takes its former chief executive to court, accusing him of plundering a trust that it says was set up to pay top performers. A.I.G. contends Maurice R. Greenberg, 84, who ran the company for decades, unlawfully took $4.3 billion in stock in 2005, the year he was forced out as chief executive. Mr. Greenberg and his lawyers say that those A.I.G. shares — owned by Starr International, a privately held company, of which he is chairman — were not held in a trust at all. As Starr’s chairman, they say, Mr. Greenberg had the authority to sell the shares and invest the proceeds in new offshore insurance businesses and in a new charitable arm. The government bailout of A.I.G. occurred after the main events in the case, which revolve around the intricacies of trust and securities law. But the trial may delve into the broader questions of who is responsible for A.I.G’s near collapse and whether, as chief executive of A.I.G., Mr. Greenberg was more preoccupied with financial maneuvers than with fostering sound risk management. For his part, he has accused the government of destroying a company that he nurtured. Though Mr. Greenberg sold the $4.3 billion block of stock in 2005, long before the price crashed, he kept much of his personal fortune in A.I.G. shares. When the government stepped in last fall, taking a 79.9 percent stake in the company, Mr. Greenberg and other shareholders were essentially wiped out. The dispute over the Starr International stock sale began with a complaint filed by Mr. Greenberg that A.I.G. was holding an art collection that belonged to Starr. A.I.G. countersued, denying Mr. Greenberg’s accusations and saying he had promised to pay its employees hundreds of millions of dollars and needed to make good.

Video: Government's Largesse Spreads - (online.wsj.com) As part of the government's intervention during the economic crisis, federal money has gone to a surprising number of unlikely candidates. Bob Davis reports.

Bankruptcy Filings Reach 6,000 A Day - (Mish at globaleconomicanalysis.blogspot.com) The USA Today is reporting Bankruptcy filings rise to 6,000 a day as job losses take toll. Consumer and commercial bankruptcy filings are on pace to reach a stunning 1.5 million this year, according to a report from Automated Access to Court Electronic Records. While well below the record 2 million filings in 2005, the number of filings is up sharply from last year's 1.1 million, says Robert Lawless, professor of law at the University of Illinois. Bankruptcy filings took a dramatic nose dive after a 2005 bankruptcy reform measure was signed into law to curb bankruptcy abuse and make it harder to erase debts. "People are coming to us in much worse shape than they used to be," says David Jones, president of the non-profit Association of Independent Consumer Credit Counseling Agencies. "We used to be able to help 20% to 25% of people who came to us, and now we can only help 7% to 8%." Last month, commercial filings hit 376 a day, up from 255 in May 2008. Hartmarx, which manufactures and markets apparel, and Silicon Graphics, a manufacturer of computer workstations and storage products, were among the filers. The wave of corporate bankruptcies will cause a secondary wave in consumer filings, says John Pottow, University of Michigan bankruptcy law professor. Bankruptcy filings are apt to exceed the 2005 number eventually, given data like Jobs Contract 17th Straight Month; Unemployment Rate Soars to 9.4%. What set 2005 apart was Hurricane Katrina filers rushing to beat the deadline of Bush's Debt Slave Act officially known as the Bankruptcy Reform Act of 2005. One of the consequences of that act was banks lent with impunity to the worst credit risks thinking that debts could not easily be discharged in bankruptcy. Those banks and other institutions that lent recklessly are now about to find out otherwise. Moreover, I expect walking away to start picking up steam as well. Please see Walking Away Revisited for the Moral Dilemma that many are facing.

High-end homeowners now feeling the pinch: While cheaper houses sell, ‘market is terrible’ for multimillion-dollar properties in county - (www.signonsandiego.com) “Wealthy folks have taken huge hits that they haven't taken in a long time, if ever.” The real estate slump has arrived in La Jolla, Rancho Santa Fe and other high-end San Diego County neighborhoods. After holding their own in sales strength, sales of homes priced at $1 million or more started to fall a year after lower-priced homes hit the skids. Now, instead of selling their multimillion-dollar homes at multimillion-dollar profits, some sellers are taking a bath or renting their properties while they wait for a sunnier day. “The market is terrible,” said Jan Paulin, 58, who bought his 4,164-square-foot home on Hillside Drive in La Jolla for $2 million in 2000, put it on the market for $4.5 million last year and is now hoping to get $3.8 million. If Paulin doesn't get what he wants, he plans to rent it for $10,000 a month. Other high-end owners are following the same strategy, area agents say. “I'd rather hold on to it for a while and wait it out until the market turns, and we can get some revenue in the meantime and at least cover the carrying costs,” Paulin said. Yesterday in the Cielo project east of Rancho Santa Fe, Bill Menish, a former local TV anchor turned auctioneer, conducted an auction for a 5,000-square-foot home bought for $2.65 million in 2001. The highest bid was $1.965 million, which took 20 minutes to reach and was close to the seller's reserve. “The owners have a lot of equity in it, have moved into another house and would like to take their capital and move it into an alternative investment,” said listing agent Bill Taylor. Through the first four months of the year, 337 homes priced at $1 million or more closed escrow, down 52.4 percent from the same time last year, according to MDA DataQuick. Over the same period, sales of homes less than $1 million totaled 10,987, up 37.5 percent. The overall median price in April was $290,000, down 44 percent from the peak of $517,500 in November 2005. “The low end has been driving the county sales higher, while the luxury market has typically remained extremely sluggish,” said DataQuick analyst Andrew LePage, adding, “Wealthy folks have taken huge hits that they haven't taken in a long time, if ever.” At the current rate, it would take nearly four months to sell all homes listed for less than $1 million. For homes priced at $1 million or more, the backlog stands at about 30 months, according to the San Diego Association of Realtors. Obviously, the top end represents a small fraction of the local inventory. According to Zillow.com , 44,500, or 5.9 percent of the nearly 750,000 homes the online company tracks locally are worth $1 million or more. They are generally concentrated in coastal communities with a few scattered throughout the rest of the county. But of the 13,010 homes on the local multiple listing service last week, 2,537, or 19.5 percent, carry asking prices in the seven figures. The National Association of Realtors reports that the national share of sales above $750,000 is half of what it was two years ago. In San Diego County, the drop-off of sales of homes at $1 million or more is even more dramatic, down from 73 percent this year from 2006's peak rate. “I've been doing this since 1975 and never seen anything quite as volatile,” said Willis-Allen Real Estate agent Linda Daniels.

MBA Backs Proposal for $15,000 Homebuyer Credit Across the Board - (www.realestaterama.com) - David G. Kittle, CMB, Chairman of the Mortgage Bankers Association issued the following statement today in support of S. 1230, The Homebuyer Tax Credit Act of 2009.“Stimulating the housing market is one of the best ways Congress can help accelerate the recovery of our national economy. Offering $15,000 to potential homebuyers is a powerful incentive that I believe will jumpstart the housing market. “The current $8,000 credit for first-time buyers has had a positive effect on the housing market this year. Increasing the amount and expanding the benefit to include all homebuyers will have an even larger impact in spurring the housing market and stabilizing the economy.“As this bipartisan proposal moves forward, we hope that policy makers will make the tax credit refundable as a tax refund if the person’s tax liability is less than the amount of the credit, so borrowers can take full advantage of this benefit. In addition, we believe that the tax credit ought to be made available at the closing table. One of the greatest hurdles for many homebuyers is saving money for their down payment. If this money could be made available at the closing table, as FHA has done with the existing tax credit for first-time homebuyers, it will have the potential to help even more borrowers.” A letter to U.S. Senator Johnny Isakson (R-GA), who introduced S. 1230, can be found on www.mortgagebankers.org.

Foreign Direct Investment in China Tumbles on Crisis - (www.bloomberg.com) Foreign direct investment in China fell for an eighth month from a year earlier as companies cut spending to weather the worst economic slump since the Great Depression. Investment slid 17.8 percent in May to $6.38 billion, the commerce ministry said at a briefing in Beijing today, after falling 22.5 percent in April. China is relying on government-led spending under a 4 trillion yuan ($586 billion) stimulus plan to revive growth. Investment from abroad may increase when the global economy recovers from what the World Bank forecasts will be a contraction of almost 3 percent this year. “Companies have just been trying to survive the crisis, I don’t think they’re in the mood for aggressive overseas expansion,” said Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong. “It’s too soon to see a pick-up.” For the first five months of the year, foreign direct investment declined 20.4 percent. Premier Wen Jiabao cautioned during a tour of Hunan province on June 12 and 13 that the world economic outlook remains unclear, the government said in a statement on its Web site yesterday. China has yet to establish solid foundations for a recovery, he added. The Chinese economy expanded 6.1 percent in the first quarter from a year earlier, the slowest pace in almost a decade. Full-year growth may be 7.5 percent, according to a Bloomberg News survey of economists last month.

Europe Payrolls Contract by Record as Recession Forces Job Cuts - (www.bloomberg.com) Europe’s economy lost a record 1.22 million jobs in the first quarter as companies cut spending to survive the worst global economic slump in more than six decades. Employment payrolls in the 16-member euro region fell 0.8 percent from the fourth quarter, when they declined 0.4 percent, the European Union statistics office in Luxembourg said today. The first-quarter drop was the biggest decline since the data series started in 1995. From a year earlier, payrolls contracted1.2 percent, the first annual decline on record. The euro-area economy may struggle to gather strength after shrinking at the fastest pace in at least 15 years in the first quarter. Even as indications mount that the worst of the recession may be over, unemployment is near a 10-year high and forecast to rise more as industries from auto makers to airlines reduce output and staffing to weather the economic crisis. “Companies will continue to cut jobs well into 2010, pushing up unemployment across the region,” said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “While the economy may start to stabilize, the worst is still ahead in terms of the labor market.” Continental AG, the second-largest car-parts maker in Europe, said this month that it may fire as many as 2,600 workers in Germany. Air France-KLM Group, Europe’s biggest airline, last month said it will deepen job cuts after reporting its first annual loss since 1996.

States consider college aid cuts; student programs at risk - (www.usatoday.com) At a time when many students and parents are struggling to pay for college, several cash-starved states are considering reducing funds for grants and scholarships for thousands of low- and middle-income students. In California, Gov. Arnold Schwarzenegger's plan to close the state's $24 billion deficit includes sharp cuts in the state's Cal Grants program, which provides up to $9,700 a year for eligible college students. Schwarzenegger has proposed eliminating Cal Grants for new students and reducing grants for some existing students. The plan would have an impact on more than 200,000 students, according to the Institute for College Access and Success, an advocacy group. Democrats have vowed to fight the proposal, but for some prospective students, the damage has already been done, says acting institute Director Lauren Asher. "The risk of losing Cal Grants could easily lead some students to decide they can't afford" to go to college, she says. Other proposals to reduce or restructure state financial aid programs: •Ohio's education chancellor has proposed a new formula for its Ohio College Opportunity Grant program that would reduce financial aid for some community college students. Students wouldn't receive any OCOG money if federal Pell grants — which are provided to low-income students — covered the full cost of their tuition and a portion of other expenses. The change would reduce the amount of money community college students receive for living expenses, such as child care, says Ronald Abrams, president of the Ohio Association of Community Colleges. The state's Board of Regents estimates the change would reduce the average community college student's financial aid by $1,500 a year. The proposal would also eliminate OCOG grants for students who attend private colleges or for-profit career colleges.

OTHER STORIES:

U.S. Intervention Pits 'Gets' vs. 'Get-Nots' - (online.wsj.com) The government's massive intervention has shifted the way companies do business. Many are now are competing on the basis of their ability to tap government money, opening a divide between the gets and get-nots.

Citi and IFC in global trade funding alliance - (www.ft.com) Move part of $50bn World Bank initiative

Opposition grows to Ping An’s TPG deal - (www.ft.com) US group stands to earn hefty profit on bank stake sale

Buy-out investors at risk of default - (www.ft.com)

US broker in landmark Baghdad move - (www.ft.com) Auerbach Grayson to sell Iraqi securities

Novartis rejects call for vaccine donations - (www.ft.com) Rebuff to WHO call on swine flu

M Stanley and Citi venture keeps brokers waiting - (www.ft.com) Full integration to take up to two years

Hospital Industry Bristles at Cuts - (online.wsj.com)

Lawmaker Wants Expats Counted - (online.wsj.com)

States' Budget Gaps Test Washington - (online.wsj.com)

Auto Suppliers Attempt Reinvention - (online.wsj.com)

European, Asian Stocks Decline; U.S. Index Futures Retreat - (www.bloomberg.com)

Treasuries Climb After Russia Says It Has Confidence in Dollar - (www.bloomberg.com)

Euro falls vs US dollar - (finance.yahoo.com)

A New Financial Foundation - (www.washingtonpost.com)

Test awaits Obama this week on financial reforms - (www.reuters.com)

Academic and ‘the best writer in the world of finance’ - (www.ft.com)

Carlyle Sets Its Sights on Battered Banks - (www.washingtonpost.com)

BRIC seeks global voice at first summit - (www.reuters.com)

Fed faces key policy decisions - (www.ft.com)

New York Region Manufacturing Shrinks at Faster Pace - (www.bloomberg.com)

IMF says worst not over - (www.reuters.com)

Obama seeks remake of Fed's powers: WSJ - (www.marketwatch.com)

Washington cannot call all the shots - (www.ft.com)

Thursday June 25 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Neighbors are forcing neighbors into foreclosure over HOA dues - (www.sacbee.com) Thousands of Americans who have generally kept up with their mortgages are still in danger of losing their homes because they made a fateful trade-off in this shaky economy - they let their homeowner association dues slide. Many homeowners are learning to their surprise that condo and neighborhood associations that oversee security patrols, mow lawns, plant flowers and clean the community swimming pool may have the right to foreclose when dues aren't paid. That right is often written into the purchase agreement signed by the homeowner. Among those who have been threatened with foreclosure is Lacey Pilat, who lost her job catering lavish corporate parties and nearly lost her two-story house in this Dallas suburb. "Basically, our landscaper was foreclosing on the house," said Steve Pilat, her husband. "That's the way we looked at it." These foreclosure actions do not necessarily pit neighbor against neighbor. Many homeowner associations have turned the job of collecting member dues over to outside management companies. And to them, it's strictly business, not personal. Homeowner association boards and their management companies defend the practice, saying maintaining the neighborhood preserves everyone's property values. "We have compassion for those folks. At the same time, we feel for the rest of the homeowners who are paying their dues," said Andrew Schlegel, executive vice president for Merit Property Management, which manages more than 140,000 California homes in community associations. In California, associations can foreclose only after 12 months of missed fees or $1,800 in back dues. "No one wants to do this," Schlegel said. "It's only coming up when people are completely obstinate about it." In fact, most people end up saving their homes. Homeowner association boards - particularly those that have lost many of their dues-paying members to the housing collapse and the slumping economy - often work with down-on-their-luck neighbors to come up with some sort of compromise. That's what happened with the Pilats.

Mortgage Market Remains Solidly Frozen - (Mish at http://globaleconomicanalysis.blogspot.com) On May 28 I wrote Mortgage Market Locks Up. Ten year treasury yields started to soar and 30 year mortgages for good borrowers jumped a full point from 4.5% to 5.5%. The question on my mind at the time was whether or not the mortgage action was a brief outlier. It wasn't. Things are now worse. Two days ago Michael Becker, a Mortgage Consultant at Green Pastures Mortgage & Finance wrote: Mish, I’ve attached two rate sheets to this e-mail. One shows the rates from May 21st, and the other from today June 5th (after a re-price). You can see on May 21st 4.625% was paying .375 points, and today 5.625% is paying .25 points. So in a little over 2 weeks rates have jumped 1%. That is a huge jump. When you add in the effect of the new Home Valuation Code of Conduct (HVCC) appraisal process, many loans originations will never close. This is because it is taking 15-25 days to get an appraisal back, and often those appraisals are coming 10-25% low. So locks expire or appraisals kill the deal, the latter possibly on purpose. You are going to see the recovery in housing come to a complete halt. Trade up buying is already dead. Michael Becker

On Wednesday I called Jeff Bell a Certified Mortgage Planning Specialist at Cobalt Mortgage for his take on the situation. Jeff commented: "Mortgage rates jumped again to 5.75% and refis are frozen solid. The trade-up market is dead but some new houses are still moving .... for now. "

AIG's bailout bash resort faces foreclosure sale - (www.latimes.com) St. Regis resort in Dana Point faces foreclosure sale. The owners of the Orange County resort, known for being the site of a $440,000 AIG retreat after the federal bailout, default on a $70-million loan. Want to buy a five-star, down-on-its-luck resort? The St. Regis Monarch Beach, infamous as the hotel where American International Group sponsored a luxury retreat just days after accepting a federal bailout, has been scheduled for a foreclosure auction. The companies that own the resort are in default on a $70-million loan from Citigroup Global Markets Realty Group, people knowledgeable about the debt said Tuesday. Negotiations continue in an effort to avoid an auction, according to those sources. But unless something is worked out, the St. Regis will go on the block July 7, to be sold to the highest bidder, according to a "terms of public sale" document obtained by The Times. The resort's troubles come as the recession and credit crunch have hammered the hotel industry, depressing room rates and occupancy levels and making loans all but impossible for hotel owners to get. Resorts like the St. Regis, which cater to wealthy travelers and the high-end corporate retreat business, have seen some of the steepest declines in revenue. Business is so bad -- and funding so expensive -- that hardly any hotels are being sold these days, and most are now worth 50% to 80% less than at the peak, said hotel broker Alan X. Reay of Atlas Hospitality Group in Costa Mesa. Just this week, Sunstone Hotel Investors Inc. said it would turn the trendy W Hotel in downtown San Diego over to its lenders, part of a growing trend that Reay said was a "bloodbath." The St. Regis -- which has several restaurants, a golf course and a private beach club -- has been hit by a steep drop in bookings, according to the people with knowledge of the situation. Built by the Makarechian development family of Newport Beach, the property is current, for now, on two other mortgages totaling $230 million on the 400-room hotel and golf course, these people said, speaking on condition of anonymity because of the sensitivity of the situation. When the Makarechians and their partners, including San Francisco's Farralon Capital hedge fund, refinanced the property and incurred $300 million in debt in 2007, credit markets had not yet seized up and the hotel's revenues were high enough to support the payments. But that's no longer the case, these people said. Neither Citigroup nor representatives of the St. Regis would comment on the record. The St. Regis always aimed to satisfy the smallest whims of wealthy people and high-end corporate travelers. Before the hotel opened in 2001, Paul Makarechian, the 27-year-old scion overseeing non-residential projects for the family, took The Times on a tour, pointing out sweeping tapestries, elaborately stitched duvet covers matching fabric-draped headboards -- even motion sensors so employees would know without knocking if guests were present.

Marin County heading for castastrophic fall in upper end house prices - (www.examiner.com) While not faring as badly as some California Counties, Marin County, according to the 2000 census, has the highest per capita income in the country, is awash in supply in commercial and residential real estate. Vacancy rates in class A commercial real estate is cited as being over a stunning 41% in San Rafael by the Marin Independent Journal http://www.marinij.com/marinnews/ci_12531864?IADID=Search-www.marinij.com-www.marinij.com). The Examiner recently reviewed one of the most extensive reviews of current foreclosures throughout Marin County provided by Foreclosure Radar. Foreclosures almost doubled to over 800 residential properties from the 440 cited by the Marin Independent Journal for 2008 (http://www.marinij.com/data/ci_11564640) just five months ago. The 800 plus Marin households cited are currently in pre foreclosure, foreclosure or being auctioned off by banks. The entire housing supply in Marin County according to wikipedia totals 61,000 (http://en.wikipedia.org/wiki/Marin_County,_California) . Mortgage experts have often cited some localities in California as being relatively immune from harsh downturns in real estate due to a limited supply of new homes or office buildings due to stringent building codes, zoning and a anti growth stance among the local community. Estimated values for the distressed homes in Marin County ranged from $100k in Novato to a $3.6 mm home in Tiburon an $4mm home in Kentfield. Mark Hanson, Managing Director of the Fieldcheck Group thinks its going to get much worse before it gets better for the mid to high end of the residential market. " I don't think we have begun to see the beginning of this negative equity crisis yet. Its all about who can buy these homes at the higher end and with the home financing market tightening the way it is, the number of buyers that can put down $300k - $400 k cash in order to buy a $1mm plus home is getting smaller and smaller. Historically, 'move up buyers" would take up supply in the high end, but these potential buyers can't sell their homes at their desired prices and therefore can't move. I think we are heading for a castastrophic fall in home values in the upper end of the housing market. " According to the website: www.marinrealestatewiz.com/ , as of May 2009, 19 homes were listed for sale in Ross, with 0 being under contract. The economic impact of the distressed markets and high upturn in vacancy rates is not good for the County and City government budgets within Marin County as the tax rolls suffer from lower taxes bases when homes are finally sold to receiving little to no income from vacant commercial properties. The inventory of unsold homes continues to grow, actual sales (which triggers precious sales tax revenues for the cities and County) have stalled. Meanwhile the continuing increase in the velocity of foreclosure listings further deteriorates local markets as banks auction off homes for rock bottom prices creating a downward spiral on property values. Like many Counties around the state, the County of Marin has a large and growing unfunded pension liability with 14 recent retirees receiving over $100k for life from taxpayers. Estimates for unfunded public employee pensions and medical benefits range from $700mm to over $1 billion which means cuts in services and a "crowding out" effect for government services to taxpayers as all monies are used first to payoff cadillac pension and healthcare benefits. Recent statewide initiatives, backed by Governor Schwarznegger, leading Democrats and public employee unions, asked California voters to approve more taxes. Four out of five of these intiatives were soundedly rejected by voters, thus leaving policy makers and government leaders little room to manuever. The mandate and choices are few but one is clear: "cut spending....now." And local government leaders can no longer look to any budget relief from real estate sales as the economy continues its stall and with unemployment statewide at almost 10% and current and unfunded budget deficits soar.

California nears financial meltdown as revenues tumble - (www.reuters.com) California's government risks a financial "meltdown" within 50 days in light of its weakening May revenues unless Governor Arnold Schwarzenegger and lawmakers quickly plug a $24.3 billion budget gap, the state's controller said on Wednesday. Underscoring the severity of California's cash crisis, Controller John Chiang, who has previously warned the state's government risks running out of cash without a budget deal, said revenues in May fell by $1.14 billon, or 17.7 percent, from a year earlier. Additionally, the revenues of the government of the most populous U.S. state fell short of estimates in Schwarzenegger's budget plan by $827 million, Chiang said. He warned California's state government is speeding toward a financial disaster unless officials act urgently to balance its books. "Without immediate solutions from the governor and legislature, we are less than 50 days away from a meltdown of state government," Chiang said in a statement. California's revenues have been on a dramatic slide as a result of recession, rising unemployment and its lengthy housing downturn. The state's revenues from personal income taxes tumbled by 39.3 percent in May from a year earlier while revenues from corporate taxes fell by 52.1 percent and revenues from sales taxes sagged by 7.6 percent, according to a report released by Chiang's office. "A truly balanced budget is the only responsible way out of the worst cash crisis since the Great Depression," Chiang, a Democrat, said.

Fed Would Be Shut Down If It Were Audited - (finance.yahoo.com) The Federal Reserve's balance sheet is so out of whack that the central bank would be shut down if subjected to a conventional audit, Jim Grant, editor of Grant's Interest Rate Observer, told CNBC. With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions, Grant said in a live interview. "If the Fed examiners were set upon the Fed's own documents-unlabeled documents-to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down," he said. "The Fed is undercapitalized in a way that Citicorp is undercapitalized." Grant said he would support legislation currently making its way through Congress calling for an audit of the Fed. Moreover, he criticized the way the Fed has managed the financial crisis, saying the central bank's target rate should not be around zero. "I think zero is the wrong rate for almost any economy," Grant said, adding the Fed has "embarked on a vast experiment in moral hazard. Interest rates are the traffic signals in a market economy, and everything's green. ... You have to wonder whether these interest rates are the right clearing rate or rather they are the imposition of a central bank."

Homebuyers Crash Into Appraisal Roadblock - (www.minyanville.com) Mortgage guidelines have become increasingly strict -- not to mention regimented -- as the private secondary-mortgage market has all but disappeared in the past 24 months. But according to the Wall Street Journal, appraisals are increasingly becoming one of the biggest hurdles for new purchase and refinance transactions. In the wake of the recent collapse in home prices, appraisers have come under fire for bowing to lender demands during the boom, offering up property values more aligned with lenders' wishes than with reality. In 2007, the state of New York sued Washington Mutual -- now owned by JPMorgan -- for colluding with a subsidiary of First American Corporation to overinflate home values. Collusion between appraisers and mortgage brokers, real-estate agents, banks, and borrowers helped fuel runaway price appreciation. In response, Fannie Mae and Freddie Mac -- the 2 government-owned giants that control around two-thirds of the mortgage market -- issued new guidelines dictating how lenders can select and evaluate appraisals. The new policies went into effect May 1. To help facilitate the new, tighter rules, lenders are using appraisal management companies, or AMCs, which employ networks of appraisers around the country to provide what purport to be unbiased value analysis. All this, of course, comes at a cost which is ultimately borne by borrowers. And, in what could be considered ironic if it weren't so repellent, appraisers are crying foul.

Senators Want Taxpayer Gift To Future Foreclosees To Rise To $15,000 - (www.bloomberg.com) awmakers are pushing to revive legislation in the Senate that would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers. Senator Johnny Isakson, a Georgia Republican, introduced a bill today that would increase the tax credit to $15,000 and remove income and other restrictions on who can qualify, according to his spokeswoman, Sheridan Watson. The Treasury Department declined to comment on the proposal. The legislation, co-sponsored by Senate Banking Committee ChairmanChristopher Dodd, a Connecticut Democrat, would extend the homebuyer credit to multifamily properties used as the borrower’s primary residence. It would also eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit. “The housing market continues to be a drag on the economy, John Castellani, president of the Washington-based Business Roundtable, said in a telephone interview today. “We believe that if we don’t stabilize this vital sector, we can’t turn the tide on the recession.” The Business Roundtable represents more than 100 chief executive officers including General Electric Co.’s Jeffrey Immelt and Exxon Mobil Corp.’s Rex Tillerson. The group and the National Association of Realtors are pushing to expand the tax credit and to lower mortgage rates to revive the housing market. For All Borrowers: “One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can,” Isakson said in a statement. Isakson said his legislation would spur demand in the housing market by giving homeowners the incentive to trade up to a more expensive home. The bill would extend the tax credit, which now applies to homes purchased from Jan. 1 to Dec. 1, 2009, to one year after the new measure is signed into law, according to Watson. Isakson’s bill would make the credit available to all borrowers, not only borrowers who haven’t owned a home in the previous three years as is the case under current law. It would also let borrowers divide the credit over two years. The legislation wouldn’t be applied retroactively to purchases completed before the date of enactment, Watson said.

OTHER STORIES:

Economists disparage foreclosure bailouts - (mortgage.freedomblogging.com)

Impact of Falling Prices on Bubble Equity - (www.theaffordablemortgagedepression.com)

Mortgages: Now You Can Find Out Who Owns Yours - (www.cnbc.com)

May foreclosures third highest on record - (www.reuters.com)

Hawaii foreclosures set record - (www.starbulletin.com)

Bndholders Face Losses From Commercial Mortgages - (www.bloomberg.com)

Back to the future house prices - (www.contracostatimes.com)

Pros and Cons of Canadian Health Care - (www.nytimes.com)

The Smart Way to Save Amid Low Interest Rates - (www.smartmoney.com)

One simple four letter word - (theautomaticearth.blogspot.com)

The Economy on the Edge - (www.bbc.co.uk)

Jim Grant about the Fed - (optionarmageddon.ml-implode.com)
Median house prices drop below 1989 levels in some parts of So. Cal. - (www.latimes.com)

Baby Boomers: It's All Your Fault - (blog.newsweek.com)

Unemployment To Peak In 2010 - (finance.yahoo.com)

Fed's Mortgage Price-Fixing Failing - (www.businessweek.com)

Mortgage-Bond Yields Climb to New High Since Fed's Buying Plan - (www.bloomberg.com)

Investigators say the Fed threatened bank CEO - (finance.yahoo.com)

Vultures descend on mortgage market - (blogs.moneycentral.msn.com)

Could Net Equity Of All US Housing Fall To Zero? - (www.theaffordablemortgagedepression.com)

Option ARMs, Coming House To Roost - (thelastgoodidea.blogspot.com)

US Foreclosure Filings Top 300,000 as Bank Seizures Loom - (www.bloomberg.com)

Congressional Oversight Panel says stress tests not stress-y enough - (ftalphaville.ft.com)

Bank stress tests are bogus - (theautomaticearth.blogspot.com)

Response to the "Market Failure" Drones - (www.mises.org)

State of the Economy June 2009 - (www.newgeography.com)

More Accountants Behaving Badly - (www.nytimes.com)

PBS show coming soon: Breaking The Bank - (www.pbs.org)

Wednesday June 24 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Checkmate at the Yellowstone Club - (www.nytimes.com) NINE days after declaring personal bankruptcy — again — a barefoot Edra Blixseth pads excitedly around Porcupine Creek, her 30,000-square-foot estate here. Guests are coming, probably 125 in all. They’re due any minute. The zipper on her sternum-baring cocktail dress is jammed. Do you think it’s too tight? Can somebody help her? Porcupine Creek is lavish, with a 240-acre private golf course and a pool guarded by bronze lions. Many visitors have seen all that, plus the automated fountain that splashes at the end of her 1,700-foot driveway. But so far, only Ms. Blixseth’s good friends have wandered around the private space inside: the prayer room, the gym, the beauty parlor, the wet room, the cozy massage alcoves and the private theater adorned with murals; then there’s the 18th-century French furniture, the Italian stained glass, the bedroom suite from the Vatican, the ancient Tibetan Tankas. Until this day, she has never hosted a charity event inside her home. Given the circumstances, though, it’s the best she can do. “I can’t write a check this year,” she says, referring to her usual gift to a shelter for battered women. Her Gulfstream IV has been grounded. Her jewelry, mostly sold. To help pay the bills, her boyfriend even had to sell his Bentley. Edra Denise Blixseth, age 55, is tiny, barely 5 foot 3, but she is at the center of a huge financial mess. According to personal bankruptcy papers her lawyer filed in March, she owes $500 million to $1 billion and has assets of barely half that, almost none of them liquid. Earlier this month, the court approved the sale of one of her most prized possessions — the private ski resort in Big Sky, Mont., known as the Yellowstone Club — to the private equity firm of one of its members for $115 million. Just a year ago, that same buyer, CrossHarbor Capital Partners, had been willing to pay $400 million for the club. The Yellowstone Club, a 13,600-acre playground 20 miles north of Yellowstone National Park, may be the world’s lone members-only ski resort. Its pristine natural beauty and remote location have attracted wealthy skiers who prize their privacy, including Bill Gatesof Microsoft; Barry Sternlicht, the hotelier; and Peter Chernin, president of the News Corporation. In one of the signature, fin de siècle moments of our passing Gilded Age, the Yellowstone Club filed for Chapter 11 protection last November; four months later, Ms. Blixseth followed suit — a club and its doyenne, sucked into a financial downdraft that has wounded even once-untouchable elites.

California Foreclosure Moratoriums An Exercise Of Stupidity - (Mish at http://globaleconomicanalysis.blogspot.com) Except for bankruptcy attorneys, most want the massive spike in foreclosures to end. However, it is impossible to wish foreclosures away or for that matter legislate them away. Unfortunately, economic illiterates do not understand the dynamics. Please consider CA Lawmakers Impose 90-Day Foreclosure Moratorium. California is imposing a 90-day moratorium on housing foreclosures under a new law that takes effect Monday. The law is expected to make lenders try harder to keep borrowers in their homes. Loan companies must prove they tried to modify the delinquent loans before they can begin foreclosing. But supporters acknowledge the California Foreclosure Prevention Act won't stop thousands of foreclosures from eventually happening. There have been more than 365,000 foreclosures in California since early 2007, with many more already scheduled. This bill is no more likely to work than a bill declaring poverty to be illegal or the sky to be green. Home prices will bottom when they bottom, unemployment will bottom when it bottoms, and foreclosures will stop when they stop. Those are simple economic facts. The 90 day extension gives anyone sitting on the edge of walking away as well as those wanting a reduction in principle an incentive to stop paying their mortgage, safe and secure in the fact they cannot be thrown out of their house for another 90 days. This bill is pure idiocy and will not stop a single foreclosure. Instead, the bill will increase late pays and foreclosures. It's an exercise of sheer stupidity.

Median Home Prices In Detroit Fall To $6,000 - (Mish at http://globaleconomicanalysis.blogspot.com) A few years ago, after my dad passed away, we sold his Danville, Illinois house for the grand total of $14,000 which was then split among 4 siblings. Friends where I live now cannot ,fathom a house selling for $14,000. Moreover, it was a livable house. When I grew up I never thought much about it. In fact, I thought we were solidly middle class. The house had 3 bedrooms and one very tiny bathroom. I have 2 sisters and one brother. We must have learned to share because I recall no significant fights over the bathroom or for that matter anything else. However, Danville (then a city of 44,000 now 32,000) is one thing, andDetroit is another. In 2008 Detroit ranked as the United States's eleventh most populous city, with 916,952 residents. At its peak in 1950 the city was the fourth largest in America. The name Detroit sometimes refers to the Metro Detroit area, a sprawling region with a population of 4,425,110. Although I am a deflationist, I must admit surprise that the median home price in Detroit has fallen to a stunningly low $6,000. Please consider a Detroit Free Press article Home sales rise as prices keep falling. Metro Detroit home sales rose by 12.6% in May as compared with last year, yet home prices continued their fall -- an indication that the market hasn't hit bottom yet. Overall, 5,955 homes were sold in May, compared with 5,288 sold in May 2008, according to Realcomp, a Farmington Hills-based multiple listing service. The median sales price for homes sold in May was $50,000, a 44.3% drop from $89,700 in May 2008.

Smuggling Or Counterfeit-Printing? - (www.market-ticker.org) Ok, this was rumored several days ago, but now I can find actual news reports - at least, outside the US: Milan (AsiaNews) – Italy’s financial police (Guardia italiana di Finanza) has seized US bonds worth US 134.5 billion from two Japanese nationals at Chiasso (40 km from Milan) on the border between Italy and Switzerland. They include 249 US Federal Reserve bonds worth US$ 500 million each, plus ten Kennedy bonds and other US government securities worth a billion dollar each. Those sound like Bearer Bonds - at least the Kennedy ones do. We no longer issue those (nor does pretty much anyone else) for obvious reasons - they're essentially money and can be had in VERY large size, making them great vehicles for various illegal enterprises. But folks: This is $134.5 billion dollars worth. If they're real, what government (the only entity that would have such a cache) is trying to unload them? If they're fake, this is arguably the biggest counterfeiting operation ever, by a factor of many times. I've seen news about various counterfeiting operations over the years that have made me chuckle, but this one, if that's what it is, is absolutely jaw-dropping. The cute part of this is that if the certificates are real Italy just got a hell of a bonanza - their money laundering laws provide for a statutory 40% penalty for failure to declare instruments and cash in excess of $10,000 Euros, which means they'd garner a close-to-$40 billion dollar windfall. That ought to help their budget problems! Notice, by the way, that the US Media has totally ignored this story - even though the securities in question are allegedly US instruments. Gee, I wonder why? Might the authorities know they're real and be just a wee bit nervous that disclosure of a sovereign attempting to covertly dump nearly $140 billion in debt could cause a wee bit of panic, given that we're running nearly $200 billion a month in deficits? Inquiring minds want to know what's really going on here.

Deep in Debt, Six Flags Is Bankrupt - (www.nytimes.com) ix Flags, the theme park operator, filed for bankruptcy early Saturday in Delaware after failing to reach an agreement with lenders to reorganize its debt. Six Flags is the latest company to prove unable to cope with its debt load at a time when previous solutions like refinancing are largely unavailable. The theme park operator, which had $2.4 billion in debt, faced nearly $300 million in payments to preferred stockholders due in August. In a statement, Six Flags said it was seeking court approval for a restructuring plan it had already negotiated, which has the unanimous approval of its lenders. That proposal would eliminate $1.8 billion in debt and slice off the $300 million in preferred stock payments. “The current management team inherited a $2.4 billion debt load that cannot be sustained, particularly in these challenging financial markets,” Mark Shapiro, the chief executive of Six Flags, said in a statement. The filing is a blow to Dan Snyder, the owner of the Washington Redskins, who took control of Six Flags in 2005 after waging a proxy fight and holds about a 6 percent stake in the company. He sought to turn around the company by installing new management, led by Mr. Shapiro, and selling underperforming parks. They improved the remaining parks by banning smoking, increasing security and having more costumed characters like Tweety on the grounds. Other major investors include Cascade Investment, controlled by Bill Gates, which held an 11.1 percent stake, and the hedge fund Renaissance Technologies, with a 5.5 percent stake.

Regulators Feud as Banking System Overhauled - (www.nytimes.com) Two of the nation’s most powerful bank regulators were once again at each other’s throats. At a public meeting three weeks ago, John C. Dugan, the comptroller of the currency, blasted a proposal to impose stiff new insurance fees on banks as unfair to the largest banks, which he regulates. The financial crisis stemmed in part from problems at small banks, he insisted. Sheila C. Bair, chairwoman of theFederal Deposit Insurance Corporationand the regulator for many smaller, community banks, could barely hide her contempt. The large banks, she said, had wreaked havoc on the system, only to be bailed out by “hundreds of billions, if not trillions, in government assistance.” She added, “Fairness is always an issue.” Behind the scenes, the two regulators have been clashing over a host of issues, officials said, be it the administration’s coming regulatory overhaul or Ms. Bair’s campaign to shake up the top management at Citigroup. The long-running and deeply personal feud between Mr. Dugan and Ms. Bair, two Republican holdovers with similar career paths in Washington, is now helping to shape President Obama’s attempt to revamp financial regulation aimed at preventing the regulatory lapses that contributed to the economic crisis. Some of Mr. Obama’s advisers and some senior Democratic lawmakers have suggested creating a single bank regulator. But the administration’s current version, which could be announced as early as this week, would not combine the regulatory agencies. Instead, it would give Mr. Dugan and Ms. Bair significant new powers — and could intensify their turf battles. Ms. Bair and Mr. Dugan declined to comment for this article. The Treasury secretary, Timothy F. Geithner, the main author of the administration’s plan, in recent weeks has refereed among the competing views of Ms. Bair, Mr. Dugan and Ben S. Bernanke, the Federal Reserve chairman. The four generally agree that, if starting from scratch, they would not create the cumbersome system that has evolved piecemeal over the last 150 years. But with the administration and crucial lawmakers rejecting a single agency, the four officials have often disagreed on just how to streamline and strengthen regulation. Some points of contention include views on which agencies should play central roles in overseeing financial companies whose troubles could pose problems for the overall system, and whether to create a new agency to protect consumers from abusive mortgages or credit cards. Officials say the latest version of the plan, in large part, is a compromise of various viewpoints.

OTHER STORIES:

US moves to spur bank buy-outs - (www.ft.com)

U.S. Corporate Bond Issuance Tumbles as Treasury Rates Rise - (www.bloomberg.com)

Politics Puts Insurance Regulators in a Bind - (www.washingtonpost.com)

Treasury faces pressure on price of TARP exit - (www.reuters.com)

Soros Says Default Swaps Should Be Outlawed - (www.nytimes.com)

Hedge fund fervour fizzles - (www.ft.com)

Early On, Europe Is Out Front in Overhaul of Global Financial System - (www.washingtonpost.com)

Reformers arrested in Iran clampdown - (www.ft.com)

Ahmadinejad Heads for Win in Iran Presidential Vote - (www.bloomberg.com)

Lender’s Role for Fed Makes Some Uneasy - (www.nytimes.com)

At Group of 8 Talks, Geithner Defends Stimulus - (www.nytimes.com)

G-8 Divided on Stimulus Exit Strategies, Bank Tests - (www.bloomberg.com)

Summers Defends U.S. Interventions - (www.washingtonpost.com)

Instead of Zen Dens, Starwood Builds an Espionage Case Against Hilton - (www.washingtonpost.com)

Debts Coming Due at Just the Wrong Time - (www.nytimes.com)

A tale of two markets divided by the conforming-loan limit - (www.latimes.com) Mortgage rates are low and sales are booming for cheaper homes. But sales are at a virtual standstill for...

Blue Shield hits health insurance policyholder with 54% rate hike (www.latimes.com) The increase raises questions about how costs would be controlled if a national mandate is approved...

Sell the time share -- and limit impulse buys from now on (www.latimes.com) Also: Credit card accounts that close due to inactivity, and follow-up advice on refinancing a 30-year...

Consumer lawyer chose a road less traveled (www.latimes.com) In 1965, after three years with the Army, William Shernoff had two jobs lined up in different states....

Tax credit legislation seeks to broaden program's reach (www.latimes.com) Two Dallas-area congressmen have introduced bills that would extend the $8,000 credit for first-time...

Tuesday June 23 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Fed Hit by Subpoena: Fasten Your Seatbelt - (www.financialsense.com) The Federal Reserve was served a subpoena from a Congressional committee Tuesday, as lawmakers demanded documents related to Bank of America’s acquisition of Merrill Lynch. In our view, this is a precursor of more trouble to come for the Fed. We have argued for some time that Fed Chairman Bernanke completely underestimates the political dimensions of the policies he pursues. The various "credit easing" programs have little to do with monetary policy, the domain of the Fed. Monetary policy ought to be concerned with money supply or the level of interest rates, thereby allowing the markets to decide where the money flows. Instead, the Fed has been targeting specific sectors of the economy, such as helping the housing market or enabling car loans. The motivation is understandable, as the Fed is well aware that it may not be powerful enough to support the housing market otherwise, and sees it as crucial in its plan to prop up the economy. However, allocating money to specific sectors of the economy is fiscal policy and, as such, should be authorized and supervised by Congress. This facet is perilous for the Fed to ignore, as it invites political backlash. Last week, Bernanke was grilled by the House Budget Committee, giving him a taste of more to come; the subpoena is a further step. The ‘unconventional’ policies jeopardize the credibility and independence of the Fed. This takes its toll on the effectiveness of monetary policy, making any policy more expensive. Remember: the cheapest monetary policy is one where a Fed official simply utters a few words and the market reacts. Ever since the fall of 2007, monetary policy has become increasingly more expensive as the Fed’s effectiveness has been eroding. When Fed talk was no longer sufficient, the Fed had to enact an emergency rate cut in early 2008; since then, the Fed had to escalate its policies further, printing trillions of dollars. Unfortunately, this trend may accelerate rather than reverse. Fasten your seatbelts.

Bernanke e-mail claim in Merrill sale saga - (www.ft.com) Ken Lewis, chief executive of Bank of America, used the threat of invoking a “material adverse change” clause to break off his agreement to buy Merrill Lynch last December because he wanted to negotiate a lower price, Federal Reserve chairman Ben Bernanke claimed in an e-mail. Mr Lewis, who is scheduled to testify about the matter on Thursday at a congressional hearing, only dropped his threat after being told by former US Treasury secretary Hank Paulson that regulators, including Mr Bernanke, would remove him and his board if BofA tried to invoke the “MAC” clause. The House committee on oversight and government reform has been investigating whether federal regulators put undue pressure on Mr Lewis to complete an agreed deal last year to buy Merrill Lynch. After the Fed initially refused to comply with the committee’s request for documents and e-mails in the matter, the committee took the extraordinary step of issuing a subpoena on Tuesday to obtain material from the Fed that concerned the deal. One person familiar with the Fed’s history could remember only one previous occasion when it had been served with a subpoena. The Financial Times has learned that Mr Bernanke, in an e-mail, described Mr Lewis’s threat to invoke the “MAC” clause as a “bargaining chip”, and a “foolish move”, before concluding that “the regulators will not condone it”. A staffer at the Federal Reserve bank in Richmond, Virginia, said in an e-mail that top executives at BofA, including the bank’s chief financial officer, Joe Price, “want the transaction to go through but have to protect their shareholders”. Since January, when BofA revealed that it only completed the Merrill transaction following a promise of $20bn in taxpayer support from Mr Paulson, BofA shareholders have complained that Mr Lewis kept them in the dark about mounting losses at Merrill. Several have filed suit, and the Securities and Exchange Commission, as well as the government watchdog responsible for tracking funds paid out of the troubled asset relief programme (Tarp), are also investigating the matter. In January, following the disclosure that Merrill had payed $3.6bn in bonuses in late December, a month ahead of schedule and days before BofA completed is purchase of the firm, the New York state attorney-general, Andrew Cuomo, began an investigation. While conducting his probe into the bonuses paid out at Merrill Lynch, Mr Cuomo has investigated the interactions between Mr Lewis and his federal overseers. Mr Cuomo published his findings in a letter to Congress in April.

Bondholders Face Commercial Mortgage Losses as Principal Is Due - (www.bloomberg.com) Investors in bonds that packaged $62 billion of debt for U.S. offices, hotels and shopping malls are bracing for more loan defaults through 2010 as Bank of America Merrill Lynch says landlords’ monthly payments may jump 20 percent or more. Principal is coming due on the so-called partial interest- only loans as an 18-month-old recession saps demand for commercial real estate. About $179 billion of such loans were written between 2005 and 2007 and bundled into bonds, according to data from Bank of America Merrill Lynch. With soaring vacancies and falling rents, some cash- strapped borrowers will fail to cover the higher costs, said Andy Day, a commercial mortgage-backed securities analyst at Morgan Stanley in New York. About 87 percent of mortgages sold as securities in 2007 allowed owners to put off paying principal for several years or until maturity, compared with 48 percent in 2004, Morgan Stanley data show. “The worst is yet to come,” MetLife Inc. Chief Investment Officer Steven Kandarian said yesterday in a Bloomberg Television interview. “Typically there’s a lag between when the economy softens and when the defaults actually occur.” Investors have already seen prices on top-rated senior debt drop below 70 cents on the dollar from 95 cents a year ago, according to Aaron Bryson, a commercial mortgage-backed securities analyst at Barclays Capital in New York. Just a Stopgap: Interest-only mortgages were designed as a stopgap to allow owners to do renovations and absorb other costs. Owners delay paying principal for the first several years, lowering their initial monthly expenses. Partial interest-only loans allow for postponement of principal payments for a portion of the term. Full-term interest-only deals require the principal at maturity. Loans that postpone principal payments had become the norm by the time the commercial-mortgage bond market peaked two years ago, said Frank Innaurato, managing director of analytical services at Realpoint LLC, a Horsham, Pennsylvania-based credit- rating service. “The proliferation of interest-only loans was symptomatic of the loose underwriting standards of that time,” Innaurato said. “Borrowers were taking advantage of the best terms possible.” Property owners turned to Wall Street to finance office towers, apartment complexes and hotels as banks bundled the debt and sold it to investors. A record $230 billion in commercial mortgage-backed securities were sold in 2007, up from $93.3 billion in 2004, according to Morgan Stanley data. About $750 billion of such debt is outstanding, bank data show.

Geithner’s OTC plans alarm exchanges - (www.ft.com) The word “standardised” sounds innocuous enough. But its use in a US policy document on the future of over-the-counter derivatives has set alarm bells ringing at derivatives exchanges. Tim Geithner, US Treasury secretary, has said that to contain systemic risks he wants US laws to be changed to require clearing of “all standardised OTC derivatives through regulated central counterparties [CCPs]”. This marks a sweeping change to the way OTC derivatives are handled, implying a shift away from the dealers at banks who brokered such contracts to the formal exchanges that have long jealously eyed the huge OTC markets. But what does “standardised” mean? How much of the OTC markets can and should be shifted on-exchange, whether cleared or – as Mr Geithner also wants – traded? Nobody has a clear answer, since OTC derivatives come in many shapes and sizes, ranging from straightforward interest rate swaps to more tailored products such as “average price options” used by grain processors to hedge against movements in crop prices. Exchanges, many of which own their own clearing houses, might be expected wholeheartedly to welcome the Geithner proposals. But they are warning against a strict definition of “standardisation”. Craig Donohue, chief executive of CME Group, the largest US futures exchange, which owns a clearing house, says: “Standardised is not the right way to do it.” He and others are concerned that lawmakers in the US Congress may come up with a strict definition that would force a shift of OTC contracts into clearing houses that are ill-equipped for the task. They warn that such a move could expose clearing houses to unnecessary risks that could even damage the financial system at a time when regulators are looking at ways to protect it against future crises. Kim Taylor, president of CME clearing, says: “There is a danger in having regulatory mandates that are too broad, that would require clearing of products that clearing houses don’t feel comfortable risk managing.”

Muni bond market roiled as investors demand higher yields - (www.latimes.com) The municipal bond market is stumbling as investors turn more cautious while states and local governments ramp up borrowing. Tax-free yields on muni bonds rose Wednesday, continuing a reversal that began about two weeks ago. California state bonds were hit particularly hard. And Los Angeles Countypaid double what it expected as it raised more than $1 billion by selling short-term notes. The market’s demand for higher yields is pushing down prices of older fixed-rate bonds. That’s depressing share values of muni bond mutual funds. Case in point: The share price of the Franklin California Tax-Free Income fund slipped 3 cents, or 0.5%, to $6.54 Wednesday. The fund is down 2.7% since May 22 -- a relatively modest decline so far. In Wednesday’s trading, the annualized yield on the Bond Buyer index of 40 long-term muni bonds nationwide rose to 5.54% from 5.51% on Tuesday. The yield has risen from 5.22% on May 21. The muni market’s sudden troubles, after a strong rally for much of the spring, in part reflect the surge in U.S. Treasury bond rates: As Treasury yields rise they’re putting upward pressure on other interest rates. A heavy supply of new muni bonds also is weighing on the market, giving buyers the upper hand in setting interest rates. About $12 billion in new muni issues are expected to be sold this week, the most since the end of April, according to Bloomberg News data. For the California muni market there’s another issue, as most investors ought to know by now: As the state’s budget woes have deepened in recent weeks the market has begun to focus more intently on the potential fallout. Although Wall Street doesn’t believe the state could renege on its debts, investors have begun to demand much higher yields on California’s general obligation bonds to reflect the greater perceived risk of financial calamity. The yield on 10-year California general obligation bonds soared to 4.89% on Wednesday from 4.76% on Tuesday, according to Bloomberg data. The yield was 4.37% four weeks ago. "The whole muni market has gotten hurt, but California is leading the parade," said Stephen Kelleher, manager of the muni bond unit at brokerage Wedbush Morgan Securities in San Francisco. Of course, higher yields also mean opportunity for investors -- if they can stomach the risks. The state’s budget mess forced Los Angeles County to pay much more than it had planned on a sale of $1.3 billion in so-called tax and revenue anticipation notes, a normally routine borrowing counties undertake at this time of year.

U.S. Foreclosure Filings Top 300,000 as Bank Seizures Loom - (www.bloomberg.com) kmann, chief economist of the Washington- based Mortgage Bankers Association, said in an interview. “It will continue through next quarter at least.” Job losses and falling property prices are delaying the housing recovery as more homeowners are unable to pay the mortgage or have difficulty selling or refinancing. The unemployment rate climbed to 9.4 percent in May, the highest since 1983, the Labor Department said last week. Prices in 20 U.S. cities dropped 18.7 percent in March, according to the S&P/Case-Shiller home-price index. More home loans originated in 2005 or before are likely to default as unemployment climbs, said Rick Sharga, executive vice president for marketing at RealtyTrac. A record 1.37 percent of all loans entered the foreclosure process in the first quarter, with 29 percent tied to borrowers with prime, fixed-rate mortgages, the MBA reported May 28. Homes in foreclosure totaled 3.85 percent of all loans in the quarter, up from 2.47 percent a year earlier, MBA said. Balance Sheets Worsen: “The numbers are getting bigger and that’s what is bothering me,” said Patrick Newport, economist at IHS Global Insight in Lexington, Massachusetts. “You have banks holding these toxic loans, which means bank balance sheets are in even worse shape with the increase in delinquencies.” Additional U.S. home foreclosures will probably total 6.4 million by mid-2011, and inventories of foreclosed homes awaiting sale will probably peak in mid-2010 at about 2 million properties, JPMorgan Chase & Co. analysts led by John Sim wrote in a June 5 report. U.S. prices will likely drop 39 percent on average, they said. The May total was the third-highest in RealtyTrac records dating to January 2005.

Hartford To Take TARP Funds, To Sell Stock - (www.cnbc.com) Hartford Financial said Friday it will take $3.4 billion of federal bailout money and plans to sell as much as $750 million of common stock. The 199-year-old life and property insurer announced its plans eight days after saying Chairman and Chief Executive Ramani Ayer will retire by the end of the year, following big losses tied to investments and variable annuity sales. Citing a "continued uncertain economic environment," Ayer said taking part in the Troubled Asset Relief Program and selling stock represent important steps in building financial strength and remaining well-capitalized over the long term. The Hartford, Connecticut-based company received preliminary approval to participate in TARP on May 14. TARP was originally intended to help banks, but eligibility has expanded to a handful of insurers. Hartford said it plans to sell its common stock over time. It intends to use net proceeds for general corporate purposes, including possible debt buybacks.

OTHER STORIES:

Household Wealth in U.S. Decreased by $1.3 Trillion - (www.bloomberg.com)

U.S. Targets Excessive Pay for Top Executives - (www.nytimes.com)

Treasury to Set Executives’ Pay at 7 Ailing Firms - (www.nytimes.com)

Option ARMs Threaten U.S. Housing Rebound as 2011 Resets Peak - (www.bloomberg.com)

Canyon, Citadel Ride Convertibles Resurgence to Recoup Losses- (www.bloomberg.com)

BRICs Buy IMF Debt to Join Big Leagues, Goldman Says - (www.bloomberg.com)

Chinese Investment Surges, Countering Record Export Slump - (www.bloomberg.com)

Moody's sees Latvia avoiding devaluation - (www.marketwatch.com)

China’s Exports Fall by Record After Global Demand Dries Up - (www.bloomberg.com)

Data Shows China Relies More on Growth at Home - (www.nytimes.com)

China’s Commodity Buying Spree - (www.nytimes.com)

Japan Economy Shrank 14.2% Last Quarter on Exports - (www.bloomberg.com)

U.S. Initial Jobless Claims Decreased Last Week - (www.bloomberg.com)

U.S. Retail Sales Gain for First Time in Three Months - (www.bloomberg.com)

Fed lost $5.3B on Bear Stearns, AIG holdings in 1Q - (www.latimes.com)

IEA Increases Oil Demand Forecast for First Time in Ten Months - (www.bloomberg.com)

U.S. Pushes a Troubled Citigroup to Heal Itself - (www.nytimes.com)

U.S. Saw Problems on the Way at Merrill - (www.nytimes.com)

Post-Lehman World Will Mean W-Shaped Recoveries: William Pesek - (www.bloomberg.com)

Soros Says CDS are Destructive, Should be Outlawed - (www.cnbc.com)

PIMCO Wants To Buy Toxic Loans: Report - (www.cnbc.com)

Three Potential Buyers Emerge For Boston Globe - (www.cnbc.com)

Big Increases in Fed Bond Purchases Unlikely: Report - (www.cnbc.com)

In Recovery Race, US Looks to Outstrip Europe - (www.cnbc.com)

How a Country Got Away with Defaulting on Its Debt - (www.cnbc.com)

Monday June 22 Housing and Economic stories

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Amid budget woes, some question Dublin-San Ramon water district bonuses - (www.insidebayarea.com) Proposals for cutbacks and higher rates have some upset with the Dublin San Ramon Services District for considering layoffs and price increases but keeping employee bonuses. The district's "Pay for Performance" program has given out over $2.2 million in bonuses over the past 10 years to the chagrin of some employees and board President Dan Scannell, who has been a critic of the program for the past five years. The district could vote on possible rate hikes and employee layoffs at its June 23 meeting, six months after approving the latest round of bonuses. For the last fiscal year, the district awarded $369,574 in bonuses to 37 employees, including a combined $102,263 to its five senior managers. The bonuses come on the heels of a $1.2 to $1.3 million budget deficit the district is facing for the 2009-2010 fiscal year. To make up for the shortfall, partly blamed on a slowdown in development and associated connection fees, the district is set to vote on increasing water consumption rates, which have yet to be decided, and the flat service charge for the size of meters customers have. Under three different options being considered by the board, the meter rate alone could rise between $17 and $20 for most customers. The district serves 16,235 metered customers, of those, 14,498 have a 5/8" meter connection and pay a current rate of $16 every other month. The district is also considering laying off between two to three full-time positions. "Six months after approving pay bonuses, you now come and asked for a rate hike?" said Scannell. "Something just doesn't look right." n October, the board of directors approved "Pay for Performance" bonuses by a 4-1 vote for senior management that ranged between 10 to 12.5 percent of their base salary. Scannell was the dissenting vote. Based on the district's salary schedule, the five senior managers earn from $147,372 to $260,964 per year depending on where they fall on the pay scale. The annual bonuses approved for senior managers ranged from $14,737 to $32,620.50 each. The program awards employees based on three different evaluation areas, individual, department and district. DSRSD officials defend the program saying the money does not come from operating expenses, but instead is a surplus for coming in under budget for that particular year. Bert Michalczyk, the district general manager since 2001, said the program encourages employees to do well, which translates into coming in under budget and passing on lower rates to customers. In 1997, the average customer paid $45.52 every two months — which does not include any fees for water from the Zone 7 Water District or power charges. Since 1997, the rates have stayed below the $45.52, including a low of $26.76 in 2001, and averaged $33.10 during the current fiscal year.

California 50 Days From Financial Meltdown - (www.controller.ca.gov) State Controller John Chiang today released his monthly report detailing California’s cash balance, receipts and disbursements in May and through the first 11 months of the fiscal year. In May, revenue was $827 million below the latest projections found in the Governor’s May Budget Revision. "Without immediate solutions from the Governor and Legislature, we are less than 50 days away from a meltdown of State government. This presents a terrible threat to California’s economy and to the State’s delivery of basic public services,” said Chiang. “A truly balanced budget is the only responsible way out of the worst cash crisis since the Great depression.” Personal income taxes were $475 million below (-23.0%) estimates in the May Revision. Corporate taxes were down $84.4 million (-25.8%), and sales taxes fell by $109 million (-3.3%). The Controller has met with Governor Schwarzenegger and Legislators in the past week to brief them on the State’s immediate cash problem. He also sent a letter to State leaders this morning with new cash projections – updated to reflect May actuals and final May Revision numbers from the Department of Finance – that continue to show the State exhausting all available cash by late July. The State is now projected to run $2.78 billion into the red on July 31. The State started the fiscal year with a $1.45 billion cash deficit, which grew to $19.8 billion on May 31, 2009. That deficit is being covered by a combination of Revenue Anticipation Notes (RANs) and internal borrowing from special funds. Borrowing from special funds is expected to provide enough cash to fund State operations through the end of the fiscal year on June 30. May 2009’s financial statement and the summary analysis can be found on the Controller’s Web site at www.sco.ca.gov.

Median home prices drop below 1989 levels in some parts of Southland - (www.latimes.com) Properties in several areas are selling for less than they did 20 years ago, and that's not including inflation. Some first-time buyers are nabbing houses for less than what their parents paid. In parts of Southern California, the housing crash has upended a basic tenet of the American dream: that home values always increase over the long term. Properties in several areas are selling for less than they did 20 years ago, and that's not even counting the effects of inflation. The reversal is a bonanza for some first-time buyers. They're nabbing houses for less than what their parents paid in the late 1980s, jumping into a real estate market that has become a kind of economic time machine. To return to the past, take a stroll down Mulberry Avenue in Lancaster. John A. Beatrice, 55, bought his spacious two-story Spanish-style house there brand-new for $120,000 in 1989. It was a price he could comfortably afford, and he planned on staying through retirement, so he wasn't worried about price swings. "I always knew real estate goes like this," said the aerospace engineer, moving his hand in an undulating motion like bell curves on a graph. But he never imagined his neighborhood would drop off the charts. In April, a slightly larger home two doors away sold for $66,500. That's just over half the $130,000 it went for new in 1992. In 2005, that house sold for $330,000. Beatrice's 29-year-old daughter is now shopping for Lancaster houses priced lower than when she was a kid. Home prices across most of Southern California have not fallen nearly as far. The median price in the six-county area was $247,000 in April, about what it was in 2002. But in 14 Southland ZIP Codes, mainly desert communities in the Antelope Valley and Inland Empire, median prices have fallen below levels recorded in April 1989, according to MDA DataQuick, a San Diego real estate information service.

Tax on Health Benefits Weighed but would exempt unions and only apply to benefits more than what congress gets - (www.washingtonpost.com) These politicians proving they are corrupt as hell and bought by unions as they continue to kiss up to their union base. A Senate plan to overhaul the nation's health system is likely to include a new tax on some employer-provided health benefits that exceed the value of the basic plan offered to federal employees, currently about $13,000 a year for a family of four, the chairman of the Senate Finance Committee said yesterday. Sen. Max Baucus (D-Mont.) said he is drafting the health reform measure, which he expects to unveil next week. He told reporters that taxing employer-provided benefits is "perhaps the best way to raise money for an overhaul of the health-care system" and offered details about the form that tax is likely to take. Baucus said his proposal is likely to cap benefits at "a level higher than the actual benefit that members of Congress receive today." An employer-provided plan worth less than that level would remain tax-free, he said, while any benefit exceeding the cap would be taxed as ordinary income. Such a tax, if adopted, would be phased in over "several years," Baucus said. And it would be likely to "grandfather" in health benefits set as part of a collective-bargaining agreement, he said, allowing union plans to remain tax-free until new contracts can be negotiated. Baucus declined to say how much money the proposal would generate. The nonpartisan Joint Committee on Taxation estimates that taxing employer benefits above the value of the Federal Employees Health Benefit Plan, adjusted for inflation, would generate nearly $420 billion over the next 10 years -- a sizable chunk of the $1 trillion or more likely to be needed to expand coverage for the uninsured.

MetLife Says Commercial Mortgage Defaults Will Rise - (www.bloomberg.com) MetLife Inc. Chief Investment Officer Steven Kandarian said commercial mortgage defaults will rise in the next two to three years after the economic slump subsides. “The worst is to come,” Kandarian said in an interview today with Bloomberg Television in New York, where the biggest U.S. life insurer is based. “Typically there’s a lag between when the economy softens and when the defaults actually occur.” The default rate on commercial mortgages held by U.S. banks may rise to 4.1 percent, the highest in 17 years, by yearend as debt for refinancing remains scarce and the recession drags down rents, research firm Real Estate Econometrics LLC. said yesterday in a report. Kandarian, whose portfoliocontains about $36 billion in loans on commercial property, said he expects delinquencies for MetLife will be “relatively small.” “Like all firms that hold these kinds of mortgages, we’ll have some issues,” Kandarian said. The insurer, which is also a federally regulated bank, underwrote loans “very carefully” to minimize the risk of losing principal and expects to fund more mortgages as competitors retreat from the market, he said. Kandarian is seeking higher returns from MetLife’s $300 billion portfolio after a 23 percent slide in first-quarter investment income helped push the company into its first loss since 2001. He’s drawing down the insurer’s cash holdings to buy corporate debt and said in May he was considering adding securities backed by commercial mortgages that were selling below face value. PPIP: MetLife’s portfolio won U.S. endorsement in May when the Federal Reserve’s stress test revealed the company was adequately capitalized to withstand a prolonged recession. The insurer is considering whether to buy depressed assets tied to the housing market through Treasury’s Public-Private Investment Program for troubled assets.

Obama's Pay Czar and Other Mindless Meddling - (Mish at globaleconomicanalysis.blogspot.com) Will the Obama administration's meddling in the affairs of business ever end? That's what I am asking as I read Treasury to name pay czar on Wednesday. The Obama administration on Wednesday will name a 'pay czar' with power to reject compensation plans at companies receiving "exceptional" government aid, an administration official said on Wednesday. The administration will also call for "say-on-pay" legislation that would give the Securities and Exchange Commission authority to require public companies to hold nonbinding shareholder votes each year on executive pay, the official said. The pay czar, or "special master," will review compensation structures for the top 100 salaried employees of firms receiving exceptional assistance, the official said. Obama Tells American Businesses to Drop Dead: Kevin Hassett at Bloomberg writes Obama Tells American Businesses to Drop Dead. I’ve finally figured out the Obama economic strategy. President Barack Obama and his team have been having so much fun wielding dictatorial power while rescuing “failed” firms, that they have developed a scheme to gain the same power over every business. The plan is to enact policies that are so anticompetitive that every firm needs a bailout. Once that happens, their new pay czar Kenneth Feinberg can set the wage for everybody and Rahm Emanuel can stack the boards of all of our companies with his political cronies. Microsoft Chief Executive Officer Steve Ballmer came to Washington to announce what Microsoft would do if Obama’s multinational tax policy is enacted. “It makes U.S. jobs more expensive,” Ballmer said, “We’re better off taking lots of people and moving them out of the U.S.” If Microsoft, perhaps our most competitive company, has to abandon the U.S. in order to continue to thrive, who exactly is going to stay? Hassett is talking about Obama’s proposal to end the deferral of multinational taxation. I have a simple suggestion. Instead of taxing American businesses to death in the United States, why don't we eliminate corporate income taxes in the US altogether? That way, businesses would not have an incentive to hide profits, waste money inventing schemes to defer profits, and most importantly businesses would not leave the US to do it. Indeed, having the lowest taxes instead of the highest would encourage business to locate in the US. Wouldn't that be a good thing? Interestingly, I already wrote about the "Drop Dead" idea in relation to healthcare and Kennedy's plan to partially pay for it by raising taxes on businesses. Let's review Kennedy's Healthcare Bill Will Increase Expenses, Decrease Employment and Encourage Outsourcing.

Happy Hour: The New Day Job - (www.cnbc.com) As the unemployment rate ticks ever higher, there’s a new trend emerging: happy hours in the middle of the day. And, they’re increasingly being offered four or five days a week. So, why wait until Friday? Let’s go and get our happy on right now! In Manhattan’s theater district, the Mean Fiddler takes its turns at being nice to the unemployed, offering drink specials from noon to 7pm, including $3.50 domestics, $4.50 imported beer of the month and $5 cocktails including Cosmos, Margaritas and Mojitos. And, if you’re superstitious — or, y’know, just in case — here’s a good one for you: The Kitano hotel in New York offers a variety of appetizers, wine and beer from 2:30 to 5pm for $8 each because the number 8 is considered lucky and a sign of prosperity in the Japanese culture. (See correction below.) Among those taking advantage of the specials at New York bars is Jenn Tesch, an East Village resident who was laid off from her job in sales at a medium-sized marketing firm at the end of April. "It's kind of like this underground community," Tesch said of the legions of unemployed roaming New York streets during the daytime and the businesses she's discovered that she might not have otherwise, just because they're offering daytime specials and she's suddenly budget-conscious. “[B]usinesses are recognizing that they’re having a rough time, and also saying ‘hey, we know some of you are having a rough time, too — let’s bond and get through this together,” Tesch said. Tesch said she's never seen happy hours this early before and now finds herself mentally roaming her rolodex, wondering: "Who do I know that can meet me that early?!"

OTHER STORIES:

Lewis grilled over Merrill deal - (www.ft.com) BofA chief faces tough questions

Bernanke e-mail claim in Merrill sale saga - (www.ft.com)

BlackRock to buy BGI for $13.5bn - (www.ft.com) Plans $2.8bn share sale to SWFs

Rio Chinalco deal: China licks its wounds - (www.ft.com) Rejection will deter Beijing from making big offers abroad

Obama to Appoint Overseer For Executive Pay: Source - (www.cnbc.com)

Swedish Banks Can Handle Baltic Losses of $20 Billion - (www.bloomberg.com)

Kudlow: Bernanke Put a Gun to Lewis's Head - (www.cnbc.com)

Latvia May Get IMF Tranche This Month, President Says - (www.bloomberg.com)

Japan Machine Orders, Producer Prices Fall as Firms Cut Costs - (www.bloomberg.com)

In Asia, Hints of a Distant and Fragile Recovery - (www.nytimes.com)

China’s Property Sales Surge, Add to Recovery Signs - (www.bloomberg.com)

For U.S., a Sea of Perilous Red Ink, Years in the Making - (www.nytimes.com)

'Pay Czar': No 'Edicts' Coming on Compensation - (www.cnbc.com)

Pelosi, Other Politicians Suffered Big Losses in Markets - (www.cnbc.com)

Cramer: Bank of America’s Big News - (www.cnbc.com)

Bank of America’s Chief Says Fed Pushed for Merrill Purchase - (www.bloomberg.com)

Fontainebleau Las Vegas Files for Chapter 11 - (www.nytimes.com)

Citi Makes $58 Billion Swap Deal With Government - (www.cnbc.com)

Deficit Breakdown: How the US Got Into This Mess - (www.cnbc.com)

BlackRock to Buy BGI, Becomes World Leader - (www.cnbc.com)

Treasury Prices Rally - (www.cnbc.com)

Faber Report: The Question Ken Lewis Never Gets - (www.cnbc.com)

Prospect of Jobless Recovery Makes Investors Nervous - (www.cnbc.com)

Sunday June 21 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Fed Would Be Shut Down If It Were Audited, Expert Says - (www.cnbc.com) The Federal Reserve's balance sheet is so out of whack that the central bank would be shut down if subjected to a conventional audit, Jim Grant, editor of Grant's Interest Rate Observer, told CNBC. With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions, Grant said in a live interview. "If the Fed examiners were set upon the Fed's own documents—unlabeled documents—to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down," he said. "The Fed is undercapitalized in a way that Citicorp is undercapitalized." Grant said he would support legislation currently making its way through Congress calling for an audit of the Fed. Moreover, he criticized the way the Fed has managed the financial crisis, saying the central bank's target rate should not be around zero. "I think zero is the wrong rate for almost any economy," Grant said, adding the Fed has "embarked on a vast experiment in moral hazard. Interest rates are the traffic signals in a market economy, and everything's green. ... You have to wonder whether these interest rates are the right clearing rate or rather they are the imposition of a central bank." Amid a disparity between analysts predicting there will be no rate hikes soon and the fed funds futures indicating tightening by the end of the year, Grant said he thinks the Fed indeed will begin raising rates as inflation creeps into the picture. Fed funds futures have fully priced in as much as a half-point rise in the target rate from its current range of zero to 0.25 percent. "If the hairs on the back of your neck stand up when there's too much unanimity of opinion, then one begins to worry about this," he said. "The Fed proverbially has been late."

Goldman Sachs CEO Sees Long Recession - (www.cnbc.com) Goldman Sachs CEO Lloyd Blankfein said on Wednesday he believed a current upturn in world markets was probably not a full recovery from crisis and said he expected a further long recession. "I think it's going to be a long proctracted recession," he told an international regulators conference in Tel Aviv. Addressing a current upturn in markets, he said: "There is no reason to think this is it ... So many things have to be sorted out. Why would this be the recovery? "The chances are it's not."

Sign of Times: College Closes Door to Needy Students - (www.cnbc.com) The admissions team at Reed College, known for its free-spirited students, learned in March that the prospective freshman class it had so carefully composed after weeks of reviewing essays, scores and recommendations was unworkable. Money was the problem. Too many of the students needed financial aid, and the college did not have enough. So the director of financial aid gave the team another task: drop more than 100 needy students before sending out acceptances, and substitute those who could pay full freight. The whole idea of excluding a student simply because of money clashed with the college’s ideals, Leslie Limper, the aid director, acknowledged. “None of us are very happy,” she said, adding that Reed did not strike anyone from its list last year and that never before had it needed to weed out so many worthy students. “Sometimes I wonder why I’m still doing this.” That decision was one of several agonizing ones for this small private college, celebrated for its combination of academic rigor and a laid-back approach to education that once attracted Steven P. Jobs, the chief executive of Apple, to study on its leafy campus minutes from downtown. With their endowments ravaged by the financial markets and more students clamoring for assistance, private colleges like Reed are making numerous changes this year in staff, students, tuition and classes that they hope will tide them over without harming their reputations or their educational goals. Reed and others have admitted more students to bolster revenue with larger classes. Many are cutting costs by freezing or reducing salaries, suspending hiring and postponing building maintenance and construction. And the cost of attendance is rising; in Reed’s case, by 3.8 percent, to nearly $50,000 a year for its 1,300 students. But Reed has put off drastic measures like spending more of its endowment, closing some departments or selling some real estate near campus. Instead, college officials are counting on the economy to turn around quickly, as became apparent when they allowed a New York Times reporter to sit in on budget discussions this spring. “Like everybody, we are trying to start by trying to cut the stuff that is least likely to inflict real pain on the program,” said Colin Diver, Reed’s president. When he talks about Reed’s short-term response to the recession, Mr. Diver concedes he is torn, wondering whether a broader reassessment would be in order. Perhaps it would be a good thing, he said, if the recession could refocus college administrators on the quality of higher education, rather than on investments in climbing walls (Reed does not have one) and other “country club” aspects of college life that have fueled an academic arms race reliant on tuition increases and fund-raising.

Las Vegas Hotel Project Files for Bankruptcy - (www.cnbc.com) Fontainebleau Las Vegas has filed for Chapter 11 bankruptcy protection to facilitate its debt restructuring after its lenders terminated their commitments to provide nearly $800 million in construction funding. The company, which had sued its lenders for $3 billion in April for terminating the loan commitment, said it withdrew its $3 billion lawsuit in Las Vegas and refiled the case in the U.S. Bankruptcy Court in the Southern District of Florida. Fontainebleau reached a provisional agreement with a group of its non-defaulting lenders for the use of cash for the bankruptcy case. The $800 million loan was in addition to more than $2 billion in debt and equity that Fontainebleau Las Vegas had already borrowed and invested in the 3,800-room resort, which was 70 percent completed. The company, which is in negotiations to obtain financing to recommence construction at the Las Vegas project, said Fontainebleau Miami Beach was not affected by the filing and would continue to operate as normal. The Las Vegas project is one of several new luxury resorts slated to open on the Strip, where most operators are already struggling, having dropped room rates and other prices in order to attract recession-wary consumers and businesses.

Europe Is Being Held Together With Duct Tape - (www.financial.sense) Among its many other sins, the greenback is a press hog. The world’s reserve currency, loved and loathed as it is, simply gets most of the ink these days. In that light many a U.S.-based commentator, not least your cynical Taipan Daily scribes, have repeatedly waxed eloquent on the long-run death of the dollar. But in our zeal we sometimes forget that, in order for the dollar to die, it has to die relative toother fiat currency offerings... and some of those others are looking pretty sick too. (The main exception, of course, being gold - the one and only “stateless currency” not subject to the whims of a printing press. As Grant’s Interest Rate Observer quips, “Show us a monetary asset whose value is not subject to governmental debasement and we will show you a Krugerrand.”) In short, the dollar is not the only basket case out there. Take the euro, for example. Now there’s a troubled currency if ever one existed. As pollyanna stock market bulls are finding out the hard way, rising interest rates (via falling bond prices) can have ugly consequences. The same is true of a rising currency when coupled with a weak economic backdrop. In this particular case, the stronger the euro gets, the more it cuts into European export sales. At a time when most all of Europe is sick, the economic pain of a too-strong currency becomes intense above a certain threshold. On top of that, various bits of Europe are in the process of blowing up... or falling apart... or both. There is deep trouble brewing in multiple corners of the continent. Let’s take a quick look on a country-by-country basis to see why Europe is being held together with duct tape.

Britain on the Brink: We’ll start with Britain - not an adopter of the euro, but a member of the EU (European Union) nonetheless. Britain has been hurled into political chaos, thanks to an unholy combo of deep financial crisis, explosive Labour Party scandals, and the hapless lame-duck status of embattled Prime Minister Gordon Brown. Cabinet Ministers are resigning left and right in protest as Brown’s popularity plummets, calling for the PM to step down. Election results tallied this week showed the Labour Party (Brown’s party) putting in its worst showing since 1918. Philip Stevens, chief political commentator for the Financial Times, sees an ominous chain of events now set in motion. “Everyone thought the [election] results would be bad,” Stephens reports. “But these [results] are calamitous... the Prime Minister was prepared, if you like, for very bad results. He’s now got to grapple with absolutely terrible results.” If the Brown government fails, Britain will be left rudderless in the midst of the worst fiscal storm in decades. In a worst-case scenario where bad events lead to worse decisions, opines Stephens, the domino chain could even lead to a British exit from the EU. This outbreak of chaos is awful and unsettling for the British economy - and by extension awful and unsettling for Europe. As of this writing, it is not yet clear whether Prime Minister Brown can survive a political coup... or even whether he would be better off resigning, Dick Nixon style, in the interest of sparing greater turmoil.

Latvian Pressure Cooker: Elsewhere in Europe, Latvia, a tiny country of 2.2 million, threatens to unleash havoc on the entire continent. Latvia’s currency, appropriately known as the lat, is officially pegged to the euro. Latvia set up the currency peg to speed up official entry into the EU. But now the fiscal discipline of maintaining the peg is crushing the Latvian economy. At one time, Latvia was an Eastern European tiger, growing by leaps and bounds. But, like many other countries, Latvia found itself badly caught out by the financial crisis. Just when credit lines were needed the most to shore up a cratering home front, Latvia found it suddenly impossible to borrow. Credit was desperately needed. An attempt to issue $100 million worth of lat-denominated bonds resulted in no takers. Normally, a small country with an imploding economy would simply devalue the currency to make exports more competitive. But if Latvia devalues now, all kinds of ugly fallout will follow. For one, the Swedish and Austrian banks that lent heavily to Latvia would take huge, destabilizing losses. Worse, other Eastern European neighbors, like Lithuania and Estonia (and Bulgaria farther south), would see their own currency pegs threatened. And even worse still, a wholesale lat devaluation would crush many Latvian businesses (due to loads of foreign currency-denominated debt on the books) and kill Latvia’s shot at eventual EU acceptance. So, with the help of emergency financing from the IMF and European Union, Latvia has vowed to keep on keeping on. The currency peg will not go undefended. But in order to maintain that peg in the face of economic hardship, Latvia will need to cut wages and spending to the bone. This, too, is dire medicine for a small country struggling under the weight of great debt. Some believe Latvia will be forced to devalue, in spite of all the pain it would cause for both the tiny country itself and many surrounding neighbors. The pressure might just prove too great, as the pressure was too great in 1992 when Britain was forced to devalue the pound and drop out of the European Exchange Rate Mechanism (ERM). In a way, Latvia is damned if it does and damned if it doesn’t. Some argue that the peg must be defended at all costs, lest the whole of Eastern Europe be lost. If Lithuania and Estonia are sucked into a currency pain vortex, the EU could lose its political hold on the region - and Russia could rush in to fill the torment-filled vacuum. It would be so much easier (and simpler) if the value of the euro were to fall from current high levels. This would ease Latvia’s pain, as well as a number of other struggling countries. But there is a huge and intractable obstacle there - Germany.

Germany in a World of Its Own: As the global financial crisis has unfolded, Angela Merkel, the Chancellor of Germany, has been looked on with increasing amounts of admiration and horror, depending on the observer’s vantage point. Those who admire Merkel do so because Germany has appeared to completely go its own way in the midst of turmoil. As other countries have stimulated and relaxed and eased to fight the fires of slowdown, Germany has said “Nein!” to anything that smacks of lax fiscal policy. In a speech last week, Chancellor Merkel even went out of her way to slam the Federal Reserve and the Bank of England, stating plainly that “I view with great skepticism the powers of the Fed... and also how, within Europe, the Bank of England has carved out its own line.” Within the subtle context of diplomacy and statecraft, those are amazingly blunt words. Merkel has all but called the stimulators a bunch of out-of-control fools. Many admire Germany’s fiscal backbone. But others are horrified, and terrified, by Germany’s lack of willingness to show any type of bend or flex in monetary policy. Remember the Latvia problem? Many other rapidly imploding European economies, like those of Ireland and Spain, are also struggling with the weight of a too-strong euro hurting export prospects. But in its zeal for fiscal responsibility, Germany will probably remain steadfast in its opposition to any loosening of the purse strings. The stance is cultural and historical. Having lived through the horror of hyperinflation in the Weimar Republic in the 1920s, Germany emerged from its baptism by fire as a zealous hard-money advocate. Rigid fiscal discipline has been a political rallying cry in Germany ever since. So when Chancellor Merkel takes an especially hard line against the easy-money inflationists, she is doing so with an eye for public approval ratings at home. The trouble is, even Germany can barely afford its own righteousness. The German economy still depends heavily on exports... and so an overly strong euro hurts Deutschland too.

The Rise of the Far Right: Last but not least, a surprising new trend has arisen from the EU-wide elections held in the past few days. “Conservatives raced toward victory in some of Europe's largest economies Sunday,” the Associated Press reports, “as initial results and exit polls showed voters punishing left-leaning parties in European parliament elections in France, Germany and elsewhere.” The rise includes not just the right, but the far right. In Britain, the British National Party - an openly racist party that only admits whites - gained a seat for the first time. In various other countries, openly nationalist parties gained fresh power either for the first time also, or for the first time in quite a long while. “It is not clear why a chunk of the blue-collar working base has swung almost overnight from Left to Right,” says Ambrose Pritchard of the U.K. Telegraph. “But clearly we are seeing the delayed detonation of two political time-bombs: rising unemployment and the growth of immigrant enclaves that resist assimilation.”

OTHER STORIES:

Fiat Closes Chrysler Deal, Names Marchionne CEO - (www.cnbc.com)

Authorities 'Will Fail Us Again:' Black Swan - (www.cnbc.com)

Citi Makes $58 Billion Swap Deal With Government - (www.cnbc.com)

Deficit Breakdown: How the US Got Into This Mess - (www.cnbc.com)

Obama to Appoint Overseer For Executive Pay: Source - (www.cnbc.com)

Rising Mortgage Rates Sap Loan Applications - (www.cnbc.com)

Happy Hour: The New Day Job - (www.cnbc.com)

One Couple, Two Views of Retirement - (www.cnbc.com)

Crude Oil Rises Over $71 on API Stockpile Drop, Weaker Dollar - (www.bloomberg.com)

Gold Advances a Second Day on Weaker Dollar, Inflation Concern - (www.bloomberg.com)

Crude stockpiles plunge as summer driving gears up - (finance.yahoo.com)

U.S. Stocks Fall on Concern About Rising Fuel Costs, Rates - (www.bloomberg.com)

Goals Shift For Reform Of Financial Regulation - (www.washingtonpost.com)

U.S. to unveil TARP pay rules by week's end: official - (www.reuters.com)

MetLife Says Commercial Mortgage Defaults Will Rise - (www.bloomberg.com)

Waving Goodbye to the TARP - (www.nytimes.com)

China Car Sales Jump ‘Beyond Imagination,’ Bring Two-Month Wait - (www.bloomberg.com)

Swedish Banks Can Handle Baltic Losses of $20 Billion - (www.bloomberg.com)

Latvia May Get IMF Tranche This Month, President Says - (www.bloomberg.com)

Japan Machine Orders, Producer Prices Fall as Firms Cut Costs - (www.bloomberg.com)

In Asia, Hints of a Distant and Fragile Recovery - (www.nytimes.com)

China’s Property Sales Surge, Add to Recovery Signs - (www.bloomberg.com)

U.S. Trade Gap Widened in April as Exports Slumped - (www.bloomberg.com)

U.S. MBA Mortgage Applications Index Fell 7.2 Percent Last Week - (www.bloomberg.com)

World Oil Reserves Fell for First Time in 10 Years, BP Says - (www.bloomberg.com)

Tax on Health Benefits Weighed - (www.washingtonpost.com)

Median home prices drop below 1989 levels in some parts of Southland - (www.latimes.com)

Fiat Said to Buy Chrysler Assets Today to Form New Automaker - (www.bloomberg.com)

As Court Clears Path, Chrysler Is Set to Exit Bankruptcy - (www.nytimes.com)

Bank of America’s Chief Says Fed Pushed for Merrill Purchase - (www.bloomberg.com)

Fontainebleau Las Vegas Files for Chapter 11 - (www.nytimes.com)

For U.S., a Sea of Perilous Red Ink, Years in the Making - (www.nytimes.com)

Saturday June 20 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Fed hiring veteran lobbyist to keep secrecy - (www.reuters.com) The U.S. Federal Reserve is on track to hire a veteran lobbyist to help manage its relations with Congress at a time of heightened attention to its role in national affairs, a source familiar with the situation said on Friday. The Fed plans to hire Linda Robertson, who previously worked for now-defunct energy company Enron, as well as the Clinton administration. She is currently head of government, community and public relations at The Johns Hopkins University in Baltimore, said the source, who spoke on condition of anonymity because the hiring process was not complete. The Fed believes it will be useful to add to its resources at a time when there is great public and congressional interest in the institution, the source said. The U.S. central bank has been at the forefront of government actions to limit damage from the financial crisis that began in August 2007 and the impact of the deep recession that began in December of that year. Members of Congress have chafed at the Fed's bold use of its emergency powers and in particular its multibillion-dollar bailouts of investment bank Bear Stearns and insurer American International Group. Critics also bristle at the Fed's practice of maintaining the confidentiality of the companies that borrow directly from the central bank on the grounds that divulging their names would risk runs on those institutions. Many lawmakers and private analysts also fault the Fed for failing to stop risky lending and flawed market practices that laid the groundwork for the crisis. A non-binding budget bill approved by Congress in April opened the door for lawmakers to seek disclosure of the names of firms that receive emergency Fed loans and paves the way for a possible study of the Federal Reserve System's structure of 12 regional banks and a Washington-based board. Some officials believe lawmakers would like to go so far as to demand that the presidents of these regional banks -- or at least the head of the powerful New York Fed -- be subject to congressional approval. Currently, directors at these regional banks pick their presidents, subject to the approval of the Fed's Washington board.

Fed Trying to Combat Those Trying to Audit Them: Forbes Story: Fed policies are undermining its independence - (www.forbes.com) Extraordinary times require extraordinary actions. Nowhere is that more apparent than in the bold policy moves undertaken by the Federal Reserve over the past two years. The financial crisis forced the Fed to be aggressive and creative in its attempts to provide liquidity to credit markets that had frozen up. These were necessary steps, and mostly applauded. But the very boldness of its actions has put the independence of the Fed at risk. Congress is now clamoring to audit the Fed, and some of the policy proposals currently under discussion at the Federal Reserve will only increase the threat to its independence. Before we deconstruct these issues, let's focus on why it is important to have an independent central bank. The answer is quite obvious. An independent central bank can focus on monetary policies for the long term--that is, policies targeting low and stable inflation and a monetary climate that promotes long-term economic growth. Political cycles, alas, are considerably shorter. Without independence, the political cycle would subject the central bank to political pressures that, in turn, would impart an inflationary bias to monetary policy. On this view, politicians in a democratic society are short-sighted because they are driven by the need to win their next election. This is borne out by empirical evidence. A politically insulated central bank is more likely to be concerned with long-run objectives. A variant of the argument for central bank independence is that control of monetary policy is far too important to put in the hands of politicians. As a group, they have repeatedly demonstrated the lack of political will power to make difficult economic decisions. But now they want to assert control over the Fed. Bills H.R.1207 and S.604, introduced, respectively, by Rep. Ron Paul and Sen. Bernie Sanders (who brought you the "Employ Americans First Act"), would assert greater control over the Fed. As Ron Paul writes on his Web site: "Auditing the Fed is only the first step towards exposing this antiquated insider-run creature to the powerful forces of free-market competition. Once there are viable alternatives to the monopolistic fiat dollar, the Federal Reserve will have to become honest and transparent if it wants to remain in business." Great! Obviously, monetary policy is so falling-off-a-log simple that your elected representatives can insert themselves via the demand for transparency into decisions of true complexity and subtlety. Why am I not feeling reassured? To a large extent, the Fed backed itself into this problem, and it has to find its way out. In the heat of the financial crisis, the Fed created a number of additional lending facilities and took a wider variety of non-Treasury assets onto its balance sheet. The goal was to provide liquidity for the financial system. At first it sterilized these transactions by selling Treasury assets, but since September 2008 it has expanded its balance sheet dramatically from roughly $900 billion to over $2 trillion, as of May 6. This has had the effect of increasing the reserves in the system that are available for lending. The current plan is to continue to expand the balance sheet with the Term Asset-Backed Securities Loan Facility (TALF), the program designed to buy securities backed by credit card debt, auto loans, student loans, small-business loans and real estate loans.

If you cashed out all your equity, do you deserve help? - (mortgage.freedombloggingcom) Homeowners who treated their houses like cash machines, tapping the equity as home values rose, are among the most likely to end in foreclosure, even more than those who bought at housing’s peak, a new study finds. Often homeowners have had second, third and even fourth mortgages at time of foreclosure — a trend not adequately addressed by any of the federal or state foreclosure avoidance progams, said Michael LaCour-Little, a finance professor at Cal State Fullerton who authored the study. LaCour-Little tracked all houses and condos set for foreclosure auctions, known as trustee’s sales, in the first two weeks of November 2006, 2007 and 2008 in Orange, Los Angeles, Riverside, San Bernardino and San Diego counties. He is presenting his study today in Washington, D.C. at the mid-year conference of the American Real Estate and Urban Economics Association. I plan a bigger story on his findings, but wanted to share a few results now. For example, for the early November 2008 data sample, he tracked 2,358 properties. Here’s what he found: They were purchased at an average price of $354,000 and average year of 2002 (long before the housing peak of 2005). Total debt on the properties averaged $551,000 at time of foreclosure. That’s 56% more than the properties were worth when purchased, meaning at least that much was cashed out! An automatic valuation model estimated average value at time of foreclosure was $317,000, which suggests a combined loan-to-value at foreclosure of more than 170% ($551,000/$317,000). And that is a conservative estimate. Properties that banks later sold had an average resale price of $271,000! LaCour-Little is, well, diplomatic in his conclusion that “borrower behavior, rather than housing market forces, seems to be the predominant factor affecting outcomes.”

Oakland California Ponders Bankruptcy - (globaleconomicanalysis.blogspot.com) Oakland California has serious budget troubles. In a closed door city council session, Oakland Mulls Bankruptcy. "We have asked the (bankruptcy) question because we wanted to know the impact," said District 5 council member Ignacio De La Fuente. "In closed session, the question has been asked, and an answer was given." He would not elaborate. "It's a possibility," he acknowledged. "Things are that bad." Council President Jane Brunner was equally aloof. She ably acknowledged the city's dire financial problem while managing to avoid the b-word altogether. "We're going to try to avoid it, but am I going to say it would never happen? I can't say that," Brunner said. Consider the city's cash position: Out of next year's general fund of approximately $415 million, police costs are estimated at $212 million, fire protection service $103 million and $41 million in debt service payments. That leaves about $60 million to pay for everything else, from library services to recreation centers to public works. And that calculation doesn't include $50 million more in deferred debt service in a budget proposal presented to the council last month by Mayor Ron Dellums. Alameda County Assessor Ron Thomsen said tax assessments fell $13.6 billion in the fiscal year that will end June 30. "Our assessment roll will go down 2 percent, and we've never had a year-to-year drop ever in stats going back to 1958," he said. [The city council] is faced with three choices: drastic pay reductions across the board, including police and fire services; massive layoffs; or bankruptcy. It has been a great run for municipal employees in Oakland and across the state, who have been the beneficiaries of one of the most generous civil service systems in the nation. Since the late 1940s, California municipal governments traditionally have employed fewer employees, who have been paid substantially more than other civil servants, Ellwood said. Indeed it has been a "great run for municipal employees" who worked less for more pay and received more benefits than anywhere else in the nation. Oakland should do itself a favor and beat the rush by declaring bankruptcy now unless the unions come forth and voluntarily agree to lower benefits and stop all defined benefit plans going forward. The structural damage caused by ridiculous pension plans is staggering. A point of no return has been reached. Cities can no longer put off the problem and the public is not willing to put up with higher taxes. So what's it going to be? The article mentioned three choices. I have it at four.

RALPH NADER and ROBERT WEISSMAN: Obama's GM Plan Looks Like a Raw Deal - (online.wsj.com) Congress, not a secret task force, should decide the company's fate. Millions of people in communities across the country depend on the government getting the GM rescue right. That's why it is startling -- and mistaken -- for the future of GM to rest with a small, largely unaccountable, ad hoc task force made up of a handful of Wall Street expats. A congressional abdication of authority of historic proportions has left the executive branch with nearly complete discretion over how to handle GM and Chrysler's restructuring. President Barack Obama has further delegated authority, giving effective control to this task force, which operates under the titular authority of a top-level interagency group headed by National Economic Council Director Larry Summers and Treasury Secretary Tim Geithner. In the days before an avoidable June 1 bankruptcy filing, it is imperative that Congress honor its constitutional duties and demand that the GM restructuring deal be sent to it for deliberative review -- before any irreversible measures, such as a voluntary bankruptcy declaration, are taken. This means delaying any precipitous decisions until after Congress returns from its Memorial Day recess. The case for congressional involvement would be solid enough on constitutional and procedural grounds alone. But the secretive task force's plan raises red flags and requires Congressional examination in open hearings. With the government set to take a 70% ownership stake in GM, there are too many unanswered, troubling questions to proceed with a risky bankruptcy declaration. Here are 10 pressing issues among many: 1) Has the task force conducted any kind of formal or informal cost-benefit analysis on the costs of a GM bankruptcy and excessive closures? These may include the social effects of lost jobs (including more than 100,000 dealership jobs alone), more housing foreclosures, the government expense of providing unemployment and social relief, lost tax revenues, supplier companies that will be forced to close, damaged consumer confidence in the GM brand, and impacts on GM's industrial creditors. 2) Do GM and Chrysler really need to close as many dealerships -- which do not cost manufacturers -- as have been announced? Is the logic of closing dealerships to enable the remaining dealers to charge higher prices? If so, why is the government facilitating such a move? 3) Is the task force asking for too many plants to close and the elimination of too many brands? 4) Why is the task force permitting GM to increase manufacturing overseas for export back into the U.S.? Under the GM reorganization plan, the company will rely increasingly on overseas plants to make cars for sale in the U.S., with cars made in low-wage countries like Mexico rising from 15% to 23% of GM sales here. For the first time, GM plans to export cars from China to the U.S. in what is a harbinger of the company's future business model. What is the conceivable rationale for permitting GM to increase manufacturing overseas -- especially in dictatorships, for export back into the U.S. -- when preserving jobs and industry is the avowed goal of this immense taxpayer bailout? 5) Why is the task force supporting GM's efforts to devise a two-tier wage structure, whereby new auto jobs no longer provide a ticket to the middle class?

One owner's tale of mortgage-modification hell - (www.marketwatch.com) Trying to get a mortgage modified is a long and arduous process, leaving tens of thousands of borrowers in the same baffling position -- frustrated and concerned they're not being heard. This story, from a reader named Jim, is typical: "I currently have a first mortgage with one lender and a second mortgage with another. I meet the criteria for a loan modification per the Treasury Department's guidelines, which state that the payment on the first mortgage, plus taxes and insurance, must be greater than 31% of gross income. Housing coming out of the woods: "I applied for a loan mod with Lender A on March 17, stating specifically that I was doing so in accordance with the new rules. Eight weeks later, I was notified that I am being turned down because my payments vs. my ability to pay (income) were not acceptable. But that's exactly the reason I qualify. "I pushed the issue and after speaking with the branch manager, he elevated my calls to what I believe was a national customer service group in "Mortgage Mitigation." The first customer service rep I spoke with verified that the reason for my denial was as the branch manager told me. I pushed the issue again, indicating that I thought they were obligated to help me. His response was that they still did not fully understand the program and that I should try again in three to six months. "I was not happy with the answer, so I asked to speak someone more senior. I spoke to another individual who researched my case and said that in addition to the previously stated reasons, I was being turned down because I did not have a hardship (my mortgage is current). She said I needed to speak to my other creditors. I indicated that I had never been asked to substantiate a hardship at anytime in the process. She didn't seem to care about that, and said my file had been reviewed by senior management, which made the decision to reject my request for help. "I am in contact with a local organization referred by the Department of Housing and Urban Development, called Better Neighborhoods, and while that group has been helpful, the process is moving slowly because of the backlog. I really would like to get further legal council but don't know where to turn and am fearful of getting scammed.

OTHER STORIES:

Foreclosure: Now an Upscale Blight - (www.businessweek.com)

Coming: A 3rd wave of foreclosures - (articles.moneycentral.msn.com)

Foreclosure crisis spreads from subprime to prime mortgages - (www.usatoday.com)

Rising interest rates start to worry investors - (www.sfgate.com)

Economy Shows Cracks in European Union - (www.nytimes.com)

The Economy Is Still at the Brink - (www.nytimes.com)

Number of problem US banks soars - (news.bbc.co.uk)

Latvia Budget Cuts May Trigger IMF Tranche, Help Lats - (www.bloomberg.com)

Saudi Arabia set to launch new bond market - (finance.yahoo.com)

Bank "Profits" From Accounting Changes Mask Looming Loan Losses - (www.bloomberg.com)

Costly San Francisco area neighborhoods seeing biggest price cuts - (www.sfgate.com)

Key West High End Real Estate Equity Vanishes - (rocktrueblood.blogspot.com)

Increasing Numbers of Houseowners Withholding Mortgage Payments? - (www.rismedia.com)

Owner Of Upscale San Deigo W Hotel Walks Away From Mortgage - (www.dailybail.com)

Housing Recovery: Not So Fast - (www.businessweek.com)

Housing bubble caused Great Depression, too - (www.bellinghamherald.com)

Chase Mortgage Ad From 2005 - (www.businessinsider.com)

Fed Said to Retreat From Seeking Power to Sell Its Own Bills - (www.bloomberg.com)

Geithner Brings the Laughs In China - (www.realclearmarkets.com)

A Small College Struggles With Economics - (www.nytimes.com)

It won't stop where you would like it to - (theautomaticearth.blogspot.com)

House Prices Likely To Crash Through Fair Value - (www.businessinsider.com)

Parents Pulling Plug On Trust-Funders - (www.nytimes.com)

Good News Of Rising Rates Completely Ignored By Yahoo News - (www.finance.yahoo.com)

The Committee to Reinflate the Bubble Owns Your Senator - (nrd.nationalreview.com)

U.S. Lets 10 Banks Repay $68 Billion of TARP Funds - (www.bloomberg.com)

US warns on Chrysler liquidation risk - (www.ft.com)

Renting Is Not Throwing Money Away - (www.messymatters.com)

Amazing Debt Graph - (www.cotohousingblog.com)

Taxpayers gift of cash at closing to future foreclosees - (www.latimes.com)

Thought Experiment: Governing by Prediction Markets - (www.miller-mccune.com)

Rewriting The Oil Stock Story - (www.newgeography.com)

Vehicle fraud cases "heat up" amid economic downturn - (www.latimes.com)

The Learjet repo man - (www.salon.com)

Realtor Meets Reality - (www.images.ucomics.com)

Friday June 19 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Sympathy for the Car Dealers? - (angrybear.blogspot.com) A Washington Post article suggests that car dealers may be getting a bit more sympathy than other stakeholders in the GM and Chrysler bankruptcy adventures: The dealer complaints have resonated in a way that the objections of bondholders and others have not. Many are leaders in their local communities, where they are a source of jobs and philanthropic dollars, and they are a potential political force for disrupting the Obama administration's effort to quickly restructure the nation's ailing auto giants. (It also notes that it takes in substantial advertising revenues from Jack Fitzgerald, a Washington-area dealer profiled in the article.) As Gail Collins says in a different context, "Hell hath no fury like a middleman scorned." I probably shouldn't underestimate Congress's inclination to protect those undeserving of protection, but remember these are car salesmen, fer goodness sakes. If you wouldn't bail Joe Carsalesman out from the jaws of the Ravenous Bugblatter Beast of Traal, then with respect to John Cardealer, keep in mind that the Cossacks work for the Czar. While Fitzgerald suggests he's been targeted for criticizing GM and Chrysler for weak product, it's worth remembering that dealers have played their own role in the decline of the Domestic Three. And a central irony is that the terminated dealers' biggest problems stem in no small part from dealer-friendly state franchise laws that among other things helped shield these dealers from certain forms of competition. More below the jump. For instance, terminated dealers in Wisconsin are subject to state laws which prohibit them from selling "new" cars without a franchise agreement; absent an ad hoc reprieve from the state, they'd be forced to hold onto unsold inventory until the model-year turnover when they could legally sell the cars as "used." This is a particularly pressing issue for Chrysler dealers as their termination date is June 9. Now who do you suppose would (ordinarily) want to keep non-franchisees from selling "new" cars? Pick a state and you can almost certainly find franchise laws intended to insulate car dealers from competition but which may boomerang on dealers ejected from the club. Dealers also shoulder some of the blame for the current market's coolness to the Detroit automakers. Those of us of an age to remember family loyalties to particular domestic makes may also remember that their automotive nadir was also a dealer-service nadir. GM, in particular, implicitly acknowledged this through the Saturn dealership model, with its customer service aspirations styled on Japanese makes and low-pressure sales approach. That must have done a pretty good job of reforming widely detested sales practices and lousy after-sales service, since it's hard to pin Saturn's goodwill and modest early success on its cars. (My receptiveness to "oh but early Saturns really were wonderful" arguments is tempered by 2-1/2 years of living with my wife's late '96 SL1, which admittedly wasn't remotely as bad as my mother's long-deceased '85 Buick [the car which drove her to Hondas].) It's been a measure of how screwed-up GM is that Saturn now has a sensible lineup of decent cars (which could be further improved by reference to GM's latest European models) and the closest thing to a rationalized dealer network in the GM brand family, yet seems never to had the chance afforded GM's more damaged traditional brands that had, pre-crisis, much lower sales to boot. We're encouraged to feel a little sympathy for small businessmen whose lots were stuffed with cars using what sound like high-pressure sales tactics. Some of the reported sales methods sound like they're somewhere between 'bullshit promises' and mild deception. Then again, it's car dealers on the other end of the transactions. Should they not be able to resist pitches of the "I gotta meet my quota and we'll remember you for helping" form? My problem with "travesty" theories of the Chrysler and GM bankruptcies is that they tend to lose sight of the basic situation that the automakers are well and truly busted, and that the next best alternative to the "travesty" is liquidation in a highly unfavorable market. There's especially little reason to believe that New Chrysler has a future with all of its legacy franchise agreements dragged along.

Brain Dead Union Leaders - (Mish at globaleconomicanalysis.blogspot.com) Unions just don't get it. People are fed up with paying higher taxes to support their wages and their ridiculous pension plans. Amazingly, unions are even biting the Democrats' hands that feed them. Please consider State's budget crisis opens rift between unions and Democrats. The relationship between Democratic leaders and some of their labor benefactors has turned particularly frosty: Many of the programs union members rely on for paychecks -- and the unions rely on for dues -- have been slated for deep cuts. For example, there are pledge forms being passed around to lawmakers by a major labor union that might have attracted takers in budget battles past. The union, the American Federation of State, County and Municipal Employees, wants the legislators to sign statements of support for up to $44 billion in new or higher taxes on the wealthy, oil companies, tobacco and other industries, products and people. But so far the drive hasn't produced a single signed form, even from the Democrats who normally march into California's budget fights in lock-step with organized labor. "Many public employee unions, teacher unions [are] thinking that they were thrown under the bus in the last budget," said Assemblyman Charles Calderon (D-Montebello). "So now they're asking themselves: If these Democrats are not going to stand up for us, then what good is it to have them there?" The union leaders say they are appalled that Democratic leaders are talking openly now about decimating government programs without first making a stand for bigger, broader tax hikes that could substantially offset budget cuts. "Democrats came to Sacramento to help people," said Marty Hittleman, president of the California Federation of Teachers. "I know they did not go there to destroy government. For some reason, they are unwilling to stand up and say 'This is not what I was elected for.' " The next step for unions could be going directly to voters…..

California Governor Schwarzenegger Slashes Spending - (www.cnbc.com) As California faces a $24.3 billion deficit, Governor Arnold Schwarzenegger has ordered state agencies under his control to stop paying contracts signed since March 1st.It's unclear how much the effort will save. There are plenty of exemptions. Goods and services already delivered will be paid for. Contracts considered necessary for public safety will continue. Also exempt are "projects funded by the American Recovery and Reinvestment Act, or projects funded by bonds, grants or projects specifically mandated by court orders, or public-private partnerships that require no direct state expenditures." There will also be a process to test if other contracts should be saved, because exempting them would mean "avoiding significant revenue loss; achieving significant net cost savings; maintaining multi-year IT system and service contracts approved by the Office of the Chief Information Officer; or providing critical services and functions." The Governor is also asking state agencies not under his control, such as the legislative and judicial branches, and the state college/university systems, to implement similar cost-saving measures. Governor Schwarzenegger has also ordered all state departments to submit plans to reducefuture spending by 15 percent within 30 days of California adopting a revised budget which closes the $24.3 billion gap. The State Controller wants it done by Monday of next week, to give him enough time to sell investors on the idea of buying short-term warrants before the state runs out of cash July 29.

Vehicle fraud cases heat up amid economic downturn - (www.latimes.com) Suspicious car fires or arson rise 27% in the first quarter compared with a year... Reporting from Sacramento -- Motorists unable to afford payments on pricey cars and gas-guzzling sport utility vehicles in this recession are turning to a time-tested financing solution: matches. Insurance cheats are torching their vehicles in remote deserts. They're pushing them off cliffs. They're sinking them in lakes or ditching them in Mexico in the hopes of getting their policies to pay off, fraud investigators say. Nationwide, suspicious vehicle fires or arson increased 27% in the first quarter of this year compared with a year earlier, according to the National Insurance Crime Bureau, an industry-supported agency that investigates all types of insurance fraud. So-called owner give-ups -- cars intentionally destroyed or abandoned -- jumped 24%. Barbecuing a Beamer is one of the more dramatic types of suspected insurance fraud that's increasing in this economic downturn, the deepest in more than half a century. But it's not the only one. Suspicious personal injury slip-and-fall claims increased 60% in the first quarter; staged car accident cases were up 34% and commercial property fire/arson cases jumped 76%. Some consumers figure that they've paid premiums year after year, experts said, and that their insurers might not closely check every single claim. In fact, investigators say they tend to be particularly busy during tough economic times when an increasing number of policyholders are caught in financial crunches. "When the economy goes south, crime goes up," said Frank Scafidi, a crime bureau spokesman in Sacramento. Investigators say the number of suspected give-ups, which are often hard to prove, is minuscule compared with the more than 1 million vehicles reported stolen each year. They acknowledge that suspected fraud may be underreported because insurers can't meticulously investigate every vehicle fire or disappearance. Nevertheless, they said, the trend is clearly accelerating with 757 suspected vehicle fires nationwide in the first quarter of 2009, up from 596 in the same period last year. Crime bureau investigators found a direct correlation between owners missing multiple car payments and the filing of false insurance claims. Rising gasoline prices also appear to be linked to suspected fraud cases involving fuel-sucking SUVs. A soft used-car market also has consumers looking to their insurers for relief -- albeit illegally.

Obama confronts doubts on stimulus - (www.latimes.com) His assertions -- that 150,000 jobs have been saved or created already, and that the summer goal is 600,000 more -- appear to be elastic and are hard to verify. President Obama billed it as an adrenaline jolt -- a $787-billion stimulus package that not only would put people back to work, but also underwrite construction and energy projects the country had long neglected. But with the economy still sputtering and some experts doubting the program was meeting its goals, Obama vowed Monday to accelerate stimulus spending with the goal of creating or saving 600,000 jobs by summer's end. Opening a meeting with Cabinet members and Vice President Joe Biden, Obama sought to claim substantial progress while holding down expectations. "We've done more than ever, faster than ever, more responsibly than ever, to get the gears of the economy moving again," Obama said, and "we're in a position to really accelerate." Still, he acknowledged that job losses -- while lower than expected in May -- remained high. "We're still in the middle of a very deep recession," he said, and "it's going to take a considerable amount of time for us to pull out." Results of the stimulus spending are difficult to measure, and so far the promised federal money has been slow in coming. As of May 29, just over 100 days since Obama signed the bill into law, only about 6% of the funds had been spent. And on the jobs front, an early target was missed: Two of the president's top economic advisors put out a report Jan. 9 predicting that with the stimulus spending, the U.S. unemployment rate this year would not exceed 8%. It now stands at 9.4%. That figure is higher than Christina Romer and Jared Bernstein had said it would be even if the stimulus package had not been adopted.

OTHER STORIES:

U.S. Stocks Retreat, Led by Industrial, Consumer Companies - (www.bloomberg.com)

Dollar slides as traders question recent rise - (www.marketwatch.com)

Oil rises to above $69 as investors weigh outlook - (finance.yahoo.com)

Why House Prices May Keep Falling - Shiller - (www.nytimes.com)

Coming: A 3rd wave of foreclosures - (articles.moneycentral.msn.com)

Foreclosure: Now an Upscale Blight - (www.businessweek.com)

How much underwater could you live with? - (housing-kaboom.blogspot.com)

Big Isle, Kauai house prices drop - (www.honoluluadvertiser.com)

Foreclosure crisis spreads from subprime to prime mortgages - (www.usatoday.com)

Banks May Need New Stress Tests, Panel Says - (www.washingtonpost.com)

Rising interest rates start to worry investors - (www.sfgate.com)

Economy Shows Cracks in European Union - (www.nytimes.com)

How To Balance The California Budget - (www.Mish)

Real estate roller coaster in Canada - (www.financialpost.com)

House Prices: Sellers Need to Lower Expectations - (www.cnbc.com)

The Economy Is Still at the Brink - (www.nytimes.com)

If you cashed out all your equity, do you deserve help? - (mortgage.freedombloggingcom)

Number of problem US banks soars - (news.bbc.co.uk)

China Sees $30 Billion Overseas Lending on New Rules - (www.bloomberg.com)

Rising deficits threaten Asian ratings - (www.ft.com)

Latvia Budget Cuts May Trigger IMF Tranche, Help Lats - (www.bloomberg.com)

China’s May Vehicle Sales Surge 34% on Subsidies, Tax - (www.bloomberg.com)

Saudi Arabia set to launch new bond market - (finance.yahoo.com)

High Gas Prices Could Slow Recovery - (www.nytimes.com)

Bank "Profits" From Accounting Changes Mask Looming Loan Losses - (www.bloomberg.com)

One owner's tale of mortgage-modification hell - (www.marketwatch.com)

Can science reinvent the economy? - (www.newscientist.com)

Fed hiring veteran lobbyist to keep secrecy - (www.reuters.com)

Housing bubble caused Great Depression, too - (www.bellinghamherald.com)

World economy is doing worse than during Great Depression? - (www.voxeu.org)

Chase Mortgage Ad From 2005 - (www.businessinsider.com)

NAR Membership - (www.patrick.net)

Fed seeks ways to stop banks from taking too much risk - (www.usatoday.com)

Fed Said to Retreat From Seeking Power to Sell Its Own Bills - (www.bloomberg.com)

Inventories at U.S. Wholesalers Fall for Eighth Straight Month - (www.bloomberg.com)

U.S. Lets 10 Banks Repay $68 Billion of TARP Funds - (www.bloomberg.com)

U.S. Said to Plan Approval Today for 10 Banks to Repay TARP - (www.bloomberg.com)

Chrysler dealers' time almost up - (www.latimes.com)

Geithner Brings the Laughs In China - (www.realclearmarkets.com)

Thursday June 18 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

From PRAVDA (pravda.ru) American capitalism gone with a whimper, Translated from Russian - (www.safehaven.com) It must be said, that like the breaking of a great dam, the American decent into Marxism is happening with breath taking speed, against the back drop of a passive, hapless sheeple, excuse me dear reader, I meant people. True, the situation has been well prepared on and off for the past century, especially the past twenty years. The initial testing grounds was conducted upon our Holy Russia and a bloody test it was. But we Russians would not just roll over and give up our freedoms and our souls, no matter how much money Wall Street poured into the fists of the Marxists. Those lessons were taken and used to properly prepare the American populace for the surrender of their freedoms and souls, to the whims of their elites and betters. First, the population was dumbed down through a politicized and substandard education system based on pop culture, rather than the classics. Americans know more about their favorite TV dramas then the drama in DC that directly affects their lives. They care more for their "right" to choke down a McDonalds burger or a BurgerKing burger than for their constitutional rights. Then they turn around and lecture us about our rights and about our "democracy". Pride blind the foolish. Then their faith in God was destroyed, until their churches, all tens of thousands of different "branches and denominations" were for the most part little more than Sunday circuses and their televangelists and top protestant mega preachers were more than happy to sell out their souls and flocks to be on the "winning" side of one pseudo Marxist politician or another. Their flocks may complain, but when explained that they would be on the "winning" side, their flocks were ever so quick to reject Christ in hopes for earthly power. Even our Holy Orthodox churches are scandalously liberalized in America. The final collapse has come with the election of Barack Obama. His speed in the past three months has been truly impressive. His spending and money printing has been a record setting, not just in America's short history but in the world. If this keeps up for more than another year, and there is no sign that it will not, America at best will resemble the Wiemar Republic and at worst Zimbabwe. These past two weeks have been the most breath taking of all. First came the announcement of a planned redesign of the American Byzantine tax system, by the very thieves who used it to bankroll their thefts, loses and swindles of hundreds of billions of dollars. These make our Russian oligarchs look little more than ordinary street thugs, in comparison. Yes, the Americans have beat our own thieves in the shear volumes. Should we congratulate them? These men, of course, are not an elected panel but made up of appointees picked from the very financial oligarchs and their henchmen who are now gorging themselves on trillions of American dollars, in one bailout after another. They are also usurping the rights, duties and powers of the American congress (parliament). Again, congress has put up little more than a whimper to their masters. Then came Barack Obama's command that GM's (General Motor) president step down from leadership of his company. That is correct, dear reader, in the land of "pure" free markets, the American president now has the power, the self given power, to fire CEOs and we can assume other employees of private companies, at will. Come hither, go dither, the centurion commands his minions. So it should be no surprise, that the American president has followed this up with a "bold" move of declaring that he and another group of unelected, chosen stooges will now redesign the entire automotive industry and will even be the guarantee of automobile policies. I am sure that if given the chance, they would happily try and redesign it for the whole of the world, too. Prime Minister Putin, less than two months ago, warned Obama and UK's Blair, not to follow the path to Marxism, it only leads to disaster. Apparently, even though we suffered 70 years of this Western sponsored horror show, we know nothing, as foolish, drunken Russians, so let our "wise" Anglo-Saxon fools find out the folly of their own pride. Again, the American public has taken this with barely a whimper...but a "freeman" whimper. So, should it be any surprise to discover that the Democratically controlled Congress of America is working on passing a new regulation that would give the American Treasury department the power to set "fair" maximum salaries, evaluate performance and control how private companies give out pay raises and bonuses? Senator Barney Franks, a social pervert basking in his homosexuality (of course, amongst the modern, enlightened American societal norm, as well as that of the general West, homosexuality is not only not a looked down upon life choice, but is often praised as a virtue) and his Marxist enlightenment, has led this effort. He stresses that this only affects companies that receive government monies, but it is retroactive and taken to a logical extreme, this would include any company or industry that has ever received a tax break or incentive. The Russian owners of American companies and industries should look thoughtfully at this and the option of closing their facilities down and fleeing the land of the Red as fast as possible. In other words, divest while there is still value left. The proud American will go down into his slavery without a fight, beating his chest and proclaiming to the world, how free he really is. The world will only snicker.

Why Rookie Lawyers Get $60,000 Paid Vacations - (www.time.com) Volunteering at church. Working part-time at a bookstore. Selling real estate. All are worthwhile pursuits, but not exactly what Peter Marshall thought he'd be doing after he graduated from Vanderbilt Law School this spring. Particularly since he received a coveted offer last September to join a white-shoe Chicago firm, Kirkland & Ellis. Then the economic crisis set in, and as legal work across the country has dried up, many large and mid-sized firms have turned to a surprising cost-cutting strategy: paying incoming first-year associates — whose starting annual salaries at Manhattan firms is $160,000 — not to show up. So far this year, Marshall and hundreds of other third-year law students at prestigious schools have seen their job start dates pushed back anywhere from just a few months to a full year, leaving those affected scrambling to find other options to fill the time off. "To get my stipend from Kirkland, I can't take on any other paid legal work," says Marshall, whose job is now set to begin Nov. 30. "So I'm just going to take advantage of a little extra freedom this fall." At first blush, receiving a generous stipend — sometimes as much as $75,000 — to do whatever your heart desires might not sound so bad. But for young lawyers facing upwards of $200,000 in law school debt, the outlook is less rosy. For starters, there's the very real possibility that that the deferred job may never materialize — nearly 5,000 veteran attorneys have been laid-off since last September, according to industry website Lawshucks.com. "I'd love to take the money and go backpack around Thailand," says David Kirchblum, who graduates from Boston College's law school next week and had the start date for his job at New York firm Milbank Tweed pushed back to January 2010. "But if I suddenly have to find a new position, that gap is going to be difficult to explain." Some firms are forcing deferrals on incoming associates while others are taking a choose-your-own-adventure approach. Stroock & Stroock & Lavan in New York has offered incoming associates three options: start in January 2010 and get a $10,000 stipend, start in January 2011 and get $50,000 or agree not to come at all and get $75,000. Which sounds great until you remember that finding another firm job or any post-graduate work at all at this point will be next to impossible in this economy. For associates who start their jobs a year late, the delay could have consequences in terms of earning potential and making partner, which is generally an eight-year war of attrition among the group of lawyers who start working the same year. "This will definitely be a setback for the classes of 2009 and 2010, who are now on a collision course," says James Leipold, executive director of the Washington-based National Association for Law Placement. "They'll find themselves competing for jobs and money the rest of their careers."

Former escrow officer guilty of extensive fraud - (www.sfgate.com) An Alameda County jury has convicted a former escrow officer of two counts each of felony grand theft and felony identity theft in an "equity stripping" case that highlights a widespread type of fraud that artificially inflated prices during the housing boom. Wonda Kidd, 58, was convicted Tuesday of aiding and abetting an extensive real estate fraud that took place from April 2005 through August 2006. The scam involved real estate agents who either personally purchased or used "straw buyers" to buy properties in Oakland. Kidd, acting as the escrow officer, falsified documents to deceive lenders into thinking the purchase price was $100,000 above the actual sales price, said David Lim, an Alameda County deputy district attorney. When the transactions closed, Kidd would disburse the extra $100,000 to her cohorts and various shell companies. The buyers would default on the mortgages, often not making a single payment, leaving the lenders to foreclose on properties worth much less than the loans they had made. "This was the hallmark of the real estate fraud that was going on during the subprime boom," Lim said. The district attorney's office spent three years investigating and prosecuting the case. Its first break came when it was approached by lender New Century Mortgage, which had begun to suspect irregularities on some of the loans. "We started looking through the loan applications for Alameda County," Lim said. That's when he noticed problems with loans originated by Hiddenbrooke Mortgage, a Vallejo company. "There were five different houses and five different buyers, but each buyer had the exact same bank account," Lim said. Wilson Berry, who runs a handyman company in the East Bay, was a victim of the fraud; his identity was stolen for some of the deals. "I haven't wanted to look at real estate the same way since then," he said. "I have been severely depressed off and on over this whole thing. I was at the top of my game, then all of a sudden I was laying on my back. I felt like that lady in the ad, she's fallen and she can't get up." Berry said the verdict, following on the heels of sentences for other participants in the scam, "gives me a little closure, some sense of justice, some sense that people do have moral values these days." The scheme's mastermind, Karim Akil, 42, pleaded guilty to charges of grand theft in 2008 and is serving a three-year sentence in state prison. His assistant, Michelle McGuire, also pleaded guilty in 2008 to grand theft and is serving a year in Alameda County jail.

What the Golden State's bleak future means for America - (www.reason.com) California is famously considered abellwether state for social and political trends, from the positive (hot rod andsurf culture, the human potential movement, tax revolts, digital culture) to the regrettable (murderous cults, carbon reduction mandates). With that in mind, a simple—yet terribly difficult for our political class—contemplation of the state's current cash crisis is both instructive and scary for the future of our nation as a whole. California now confronts a roughly $24 billion deficit. Recent attempts to get voters to approve various fiscal shenanigans and cost-shifts got smacked down at the polls. Gov. Arnold Schwarzenegger is now making a big show of proposing heavy spending cuts that will, we are told by the state’s journalistic and political mavens, destroy the state, beggar its sick and young, and leave just enough cash to forcibly keep people out of various state parks, though not to “operate” them.
Of course, nowhere among the “serious options” under consideration is legalizing pot and other controlled substances, which would likely give the state an extra billion dollars a year in tax revenue. That simple act of political sanity would also save the state the $43,000 a year per inmate now spent incarcerating drug criminals, of whom a fresh nearly 19,000 were added in 2008 alone. Finding places to cut costs without reducing the state to post-apocalyptic squalor shouldn’t be such a big deal, of course. As explained in California’s political newspaper Capital Weekly last week: [N]ew revenue estimates released by the Department of Finance this week place the state’s general fund revenues at $85.9 billion—nearly $4 billion higher than they were just five years ago. Even with the depleted funds caused by plunging home prices and a global economic slowdown, Gov. Schwarzenegger’s budget is still larger than his first budget in the 2004-05 budget year. But in that first budget year, state spending was at $79.8 billion. Over the next two years, state spending jumped by more than 21 percent, to more than $101.4 billion in the 2006-07 budget year.

Government jobs shield workers from the recession - (news.yahoo.com/s/ap) An AP analysis of economic data from around the country shows that economic pain in a county decreases as the percentage of government workers in its work force rises. Facts and figures about some of the counties around the country enjoying relative prosperity because of heavy concentrations of government jobs: Leon County, Fla. — Home to the state capital, Tallahassee. Population 264,000. Percentage of government workers 20. 6.2 percent March unemployment and an AP Stress Index Score of 7.26 (4th lowest in Florida). Champaign County, Illinois — Location of the University of Illinois. Population 193,600. Percentage of government workers 18.5. 7.1 percent unemployment in March and an AP Stress Index Score of 7.87 (ninth lowest in Illinois). Johnson County, Iowa — Location of the University of Iowa. Population 128,000. Percentage of government workers 25.6. 3.6 percent March unemployment and an AP Stress Index Score of 3.89 (lowest in Iowa). Riley County, Kansas — Home to U.S. Army's Fort Riley and Kansas State University. Population: 71,000. Percentage of government workers 17.4. 3.4 percent March unemployment and an AP Stress Index Score of 3.71 (12th lowest in Kansas). Washtenaw County, Mich. — Home to the University of Michigan. Population 347,000. Percentage of government workers 19.1. 7.4 percent March unemployment and an AP Stress Index Score of 9.25 (second lowest in Michigan). Los Alamos County, N.M. — Los Alamos National Laboratory location. Population 18,000. Percentage of government workers 30.7. 2.9 percent March unemployment and an AP Stress Index Score of 3.28 (second lowest in New Mexico). Albany County, N.Y. — Has both the state capital in Albany and a State University of New York campus. Population 298,000. Percentage of government workers 22.6. 7 percent March unemployment and an AP Stress Index Score of 8.4 (seventh lowest in New York). Orange County, N.C. — University of North Carolina located here. Population 126,000. Percentage of government workers 26.2. 6.5 percent March unemployment and an AP Stress Index Score of 7.13 (lowest inNorth Carolina).






OTHER STORIES:

SEC charging ex-Countrywide CEO Mozilo with fraud - (finance.yahoo.com)
Insider Trading - Mozilo, Angelo - (www.note graph at top) - (www.secform4.com)
Buffett Is Less Bullish on US Than You Think - (www.bloomberg.com)
Mortgage Rates Touch New 2009 High - (optionarmageddon.ml-implode.com)
The Fed Loses the Mortgage-Rate Battle? - (www.minyanville.com)
Bernanke's Monkey See Monkey Don't Policy - (Mish at globaleconomicanalysis.blogspot.com)
13 cities post unemployment higher than 15% - (money.cnn.com)
Medical bills cause more bankruptcies than mortgages do - (www.reuters.com)
FEMA May Use Foreclosed Houses As Shelters - (www.wkrg.com)
California's Day of Reckoning: What to Cut - (www.time.com)
Geithner's Poor Judgement In Real Estate - (www.patrick.net)
Pictures of Geithner House - (www.zillow.com)
Global house prices: Bottom fishing - (www.economist.com)Present Depression To Be Deeper than Great Crash of 1929 - (Charles Hugh Smith at www.oftwominds.com) The Next Big Thing: Neomedievalism - (www.foreignpolicy.com)

U.S. Stock Futures Decline; Freeport-McMoRan, Exxon Mobil Fall - (www.bloomberg.com)
Treasuries Fall as Traders Bet on Higher Fed Rate; Stocks Drop - (www.bloomberg.com)
Dollar maintains upside momentum - (www.marketwatch.com)
Gold Falls in London as Stronger Dollar Curbs Investment Demand - (www.bloomberg.com)
Doubts mount over US toxic asset plan - (www.ft.com)
U.S. to Propose Wider Oversight of Compensation - (www.nytimes.com)
Oil to ‘Spike’ Without New Investments, Shell Says - (www.bloomberg.com)
Ireland Debt Rating Downgraded Again by Standard & Poor’s - (www.bloomberg.com)
Crisis-hit Latvia contemplates deeper cuts - (finance.yahoo.com)
BRICs Add $60 Billion Reserves as Zhou Derides Dollar - (www.bloomberg.com)
Socialists across continent left licking wounds - (www.ft.com)
Bollard Says N.Z. Won’t Need Quantitative Easing, Scoop Says - (www.bloomberg.com)
Argentina’s Faster Inflation Puts Pressure on Peso: Week Ahead - (www.bloomberg.com)
European elections: results map - (www.ft.com)
Bernanke Conundrum Threatens Housing on Rising Mortgage Rates - (www.bloomberg.com)
Obama’s Economic Circle Keeps Tensions Simmering - (www.nytimes.com)
U.S. Will Let Some Banks Repay Aid - (www.washingtonpost.com)
World airlines seen losing $9 billion this year - (www.google.com/hostednews/ap)

Wednesday June 17 Housing and Economic stories

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Obama and Labor Secretary Manipulating Unemployment Numbers? Solis Says ‘Rumor’ of U.S. Job-Report Error ‘False’ - (www.bloomberg.com) U.S. Labor Secretary Hilda Solis dismissed speculation that the Bureau of Labor Statistics underestimated the drop in payrolls in May, helping spur a recovery in stocks. “The rumor was false,” Solis said today on a conference call with reporters after her department reported the economy lost the fewest jobs in eight months. Stock-index futures surged and Treasury securities slumped in the minutes after the report, released at 8:30 a.m. in Washington, showed the U.S. lost 345,000 jobs in May. The deceleration in job losses reinforced signs the recession was starting to abate. Concern among some traders the data might have been miscalculated erased the gains and pushed the Standard & Poor’s 500 Stock Index down 0.9 percent by 10:13 a.m. in New York. Shares recovered after Solis said the speculation was unfounded; the S&P index was up 0.2 percent at 1:46 p.m. “There’s no effort under way to change the data which was released this morning,” Gary Steinberg, spokesman for the Bureau of Labor Statistics, said in a telephone message. “There’s no problem with the BLS data that were released.” Labor’s estimate of the net jobs created by the formation of new companies and the demise of established firms, known as the birth/death model, fed the confusion. 220,000 Boost: The calculation added 220,000 jobs to payrolls before the figures were seasonally adjusted, 25 percent larger than the May 2008 estimate. The increase may have suggested to some observers that the government was trying to artificially boost total payrolls. “Please remain calm,” Michael Feroli, an economist at JPMorgan Chase & Co. in New York, wrote in a note to clients. “We’d caution against jumping to conclusions about the reported 220,000 ‘addition’ to payrolls from the birth/death” model. “This factor is always a large positive in May,” Feroli wrote in a second note. “We don’t agree with the notion that this is a distortion and we take the headline number at face value.” “The slowing in payroll losses over the last two months is a hopeful sign that the economy is on track for a second-half recovery,” he added.

Why Home Prices May Keep Falling - (www.nytimes.com) HOME prices in the United States have been falling for nearly three years, and the decline may well continue for some time. Even the federal government has projected price decreases through 2010. As a baseline, the stress testsrecently performed on big banks included a total fall in housing prices of 41 percent from 2006 through 2010. Their “more adverse” forecast projected a drop of 48 percent — suggesting that important housing ratios, like price to rent, and price to construction cost — would fall to their lowest levels in 20 years. Such long, steady housing price declines seem to defy both common sense and the traditional laws of economics, which assume that people act rationally and that markets are efficient. Why would a sensible person watch the value of his home fall for years, only to sell for a big loss? Why not sell early in the cycle? If people acted as the efficient-market theory says they should, prices would come down right away, not gradually over years, and these cycles would be much shorter. But something is definitely different about real estate. Long declines do happen with some regularity. And despite the uptick last week in pending home sales and recent improvement in consumer confidence, we still appear to be in a continuing price decline. There are many historical examples. After the bursting of the Japanese housing bubble in 1991, land prices in Japan’s major cities fell every single year for 15 consecutive years. Why does this happen? One could easily believe that people are a little slower to sell their homes than, say, their stocks. But years slower? Several factors can explain the snail-like behavior of the real estate market. An important one is that sales of existing homes are mainly by people who are planning to buy other homes. So even if sellers think that home prices are in decline, most have no reason to hurry because they are not really leaving the market. Furthermore, few homeowners consider exiting the housing market for purely speculative reasons. First, many owners don’t have a speculator’s sense of urgency. And they don’t like shifting from being owners to renters, a process entailing lifestyle changes that can take years to effect.

Countrywide exec often warned about mortgage risks - (www.reuters.com) John P. McMurray made it clear to his Countrywide Financial Corp bosses that they were playing a dangerous game with risk. But they didn't listen. Even so, he is being called a hero. Warnings from McMurray are cited often in a lawsuit filed by the U.S. Securities and Exchange Commission against Countrywide's co-founder Angelo Mozilo and two lieutenants. McMurray was chief risk officer of the lender that became a symbol of some of the worst excesses of the subprime mortgage crisis. Mozilo, now the most prominent defendant in investigations into the U.S. housing bust and subsequent financial crisis, was charged on Thursday with securities fraud and insider trading as he made profits of more than $139 million from share sales in 2006 and 2007. Countrywide's former president David Sambol and former chief financial officer Eric Sieracki were also charged with fraud. McMurray, who is mentioned 31 times in the complaint filed by the SEC, comes across as an internal watchdog who raised concerns that were ignored by company officers. It is a story that may have some echoes of the role played by internal whistleblowers in other corporate scandals like Enron and WorldCom, where executives were warned about financial problems but the messengers were shunned or ignored. "He is the classic whistleblower," said Stephen Kohn, president of the Washington, D.C.-based National Whistleblowers Center, who reviewed the 53-page complaint. "He reported significant issues that would impact investors, the public, and apparently the company did not listen to him, which really caused tremendous harm."

Consumer Credit in U.S. Falls Second-Most on Record - (www.bloomberg.com) Borrowing by U.S. consumers had the second-biggest drop on record in April as the jobless rate reached its highest in a quarter century and accessing loans remained difficult. Consumer credit fell $15.7 billion, or 7.4 percent at an annual rate, to $2.52 trillion, according to a Federal Reserve report released today in Washington. Credit decreased by a record $16.6 billion in March, more than previously estimated. Spending by consumers declined for a second consecutive month in April as the unemployment rate increased to 8.9 percent, a level not seen since 1983. The number of people collecting jobless benefits broke records for 17 weeks before the end of May, causing Americans to put off purchases out of fear they might lose their jobs or take longer to find new ones. “Consumers have retrenched in the face of rising unemployment and are paying down their debts and increasing their savings,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Those consumers who do want to spend are having their credit limits cut left and right by banks that are increasing their credit-risk checks.” Economists had forecast consumer credit would drop $6 billion in April, according to the median of 29 responses in a Bloomberg News survey. Projections ranged from a $9 billion drop to a gain of $1.5 billion. The Fed initially reported that consumer credit decreased by $11.1 billion in March.

Stuck at Unemployed: When A Layoff Becomes a Lifestyle - (www.washingtonpost.com) Whe