Friday, July 31, 2009

Saturday August 1 Housing and Economic stories


Big wave of Pa. jobless exhausts benefits checks - ( Pa. braces for economic impact as 1st big wave of jobless exhausts benefits checks. Thousands of jobless Pennsylvanians are joining the growing ranks of people around the country who are exhausting unemployment benefits, as some experts worry about another blow to a stumbling economy. Gov. Ed Rendell said 17,800 Pennsylvanians exhausted their jobless benefits in the week that ended Saturday, the first big wave of Pennsylvanians to do so. He urged legislators to pass a bill to extend the benefits. Around the country, the number of people exhausting their benefits is piling up. By the end of September, more than 500,000 people will exhaust their benefits checks, with the biggest groups in Pennsylvania, California and Texas, according to estimates by the National Employment Law Project, an advocacy group for low-wage workers based in New York City. That number will nearly triple by the end of the year, the group said. Economist Mark Price, of the Harrisburg-based Keystone Research Center, which is affiliated with organized labor, said the loss of that spending money in such a large quantity is likely to force businesses to lay off employees, deepening the economic doldrums. "As those people stop spending, it will mean businesses have less income and they'll start cutting back workers or hours," Price said. "We're still in a situation that it's not clear we've hit bottom, and this is going to push us further down." As part of the federal stimulus law, states can offer an extra 20 weeks in federally funded benefits. Most states have accepted the offer, although the extended benefit is triggered when a state's unemployment rate reaches certain benchmarks and not all states have met the criteria to offer it. Many unemployed Pennsylvanians currently are eligible for up to 72 weeks of benefits, including 13 from the stimulus law. The state unemployment rate just reached the three-month average of 8 percent, qualifying residents for another seven weeks once legislation pending in the state Senate is approved.

Orwellian Comments - Vice President Biden: ‘We Have to Go Spend Money to Keep From Going Bankrupt’ - (Mish at Inquiring minds are flabbergasted over the latest comments from Vice President Joe Biden: ‘We Have to Go Spend Money to Keep From Going Bankrupt’ Vice President Joe Biden told people attending an AARP town hall meeting that unless the Democrat-supported health care plan becomes law the nation will go bankrupt and that the only way to avoid that fate is for the government to spend more money. “And folks look, AARP knows and the people with me here today know, the president knows, and I know, that the status quo is simply not acceptable,” Biden said at the event on Thursday in Alexandria, Va. “It’s totally unacceptable. And it’s completely unsustainable. Even if we wanted to keep it the way we have it now. It can’t do it financially.” “We’re going to go bankrupt as a nation,” Biden said. “Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, that's what I’m telling you.” This is reminiscent of the My Lai massacre and the destruction of various Vietnamese villages in the Vietnam War. An American major after the destruction of the Vietnamese Village Ben Tre: "It became necessary to destroy the village in order to save it." On March 16, 1968, a company of U.S. soldiers went into the village of My Lai 4, in Vietnam. A soldier later testified, "The order we were given was to kill and destroy everything that was in the village. It was clearly explained that there were to be no prisoners." "We met no resistance and I only saw three captured weapons. We had no casualties. It was just like any other Vietnamese village-old papa-sans, women and kids," a soldier said describing what they found on entering My Lai. "As a matter of fact, I don't remember seeing one military-age male in the entire place, dead or alive." The U.S. soldiers started killing everyone in sight. A U.S. soldier later testified: "There was an old lady in a bed and I believe there was a priest in white praying over her... [U.S. Lt.] Calley pulled the old man outside. He said a few more words to the monk. It looked like the monk was pleading for his life. Lt. Calley then took his rifle and pushed the monk into a rice paddy and shot him point-blank." Lt. Calley was the only soldier convicted of any of the atrocities that took place at My Lai. Despite being convicted of killing over 100 unarmed Vietnamese, Calley served only two days in jail! Nixon then ordered him put under house arrest at Fort Benning, where he could live in a nice apartment, cook his own food, receive guests, watch TV and go to town for supplies (accompanied by MPs). Calley was released from house arrest in just over three years and was able to make large amounts of money speaking to right-wing groups. Biden's comments are also right up there with President Bush who abandoned free-market principles to save the economy. Please consider Bush says sacrificed free-market principles to save economy. US President George W. Bush said in an interview Tuesday he was forced to sacrifice free market principles to save the economy from "collapse." "I've abandoned free-market principles to save the free-market system," Bush told CNN television, saying he had made the decision "to make sure the economy doesn't collapse." "I am sorry we're having to do it," Bush said. Here is an audio clip of Biden.

Apple Computer company making a move to Northern Nevada - Channel ... - ( Apple Computer Company is moving to Nevada. The California-based computer maker has set up ties with a Reno-based company that will manage it's cash and short term investments. Apple is following a number of companies who are picking up and leaving California and moving to Nevada. Apple has incorporated Braeburn Capital, an Asset-Management Company already in Reno to manage its finances. By moving to Reno, the company will keep it from certain California taxes. The advantage for a company moving to Nevada is that the state has no corporate income tax and no capital gains tax.

Commercial brokers are swimming in empty space - ( In a distressed market, the stakes are higher and deals are more elusive. Real estate broker Carl Muhlstein maneuvered his silver BMW convertible through downtown Los Angeles traffic, one hand steering the car and the other pressing a cellphone to his ear. "Come on," he teased. "Insult me with an offer." While some who swim the deep and often lucrative waters of commercial real estate have retreated to the golf course, Muhlstein is among those pushing on -- joking, nudging and networking in hopes of making deals in a time of no deals. "The conversations are tougher, the challenges are greater, the stakes are higher," Muhlstein said, as odds grow that a multimillion-dollar transaction may end badly for somebody. "Will the landlord lose the building? Will the tenants stay in business?" Among his tasks is finding a buyer for Park Fifth, a stalled $1-billion high-rise condominium and hotel development proposed for a block next to Pershing Square downtown. At Playa Vista, he advised the owners of the enormous Spruce Goose hangar -- built by famed aviator Howard Hughes -- to take it off the block because prices are depressed. Muhlstein tries to use humor to cope with hard times in the commercial real estate industry, a business in such pronounced distress that some experts predict its problems will thwart the nation's hopes for an economic recovery. Nearly 16% of office space in Los Angeles County is sitting vacant as tenants close up shop or move out of expensive properties. Nearly a third of the space around up-market Playa Vista sits empty; office buildings in the Inland Empire and parts of Orange County are completely vacant. It all adds up to less work for brokers like Muhlstein, who make their living facilitating the sale and leasing of these properties. Commercial brokerages such as CB Richard Ellis, Grubb & Ellis, Jones Lang LaSalle, and Cushman & Wakefield, where Muhlstein works, have contracted during the recession, collectively shedding thousands of workers as profits plummeted in the slow market. Many brokers, who survive on commissions, are among the departed. Still, brokers are a persistent lot, drawn to the business by the opportunity to earn lots of money. When the market is good, top producers can earn $100,000 to more than $1 million a year on commissions of 2% to 5% on the value of a deal. The risky, competitive field is still made up almost exclusively of men, a disproportionately high number of whom learned to battle at the top levels of collegiate sports. Although brokers sometimes dress casually to woo laid-back clients in creative fields, the default uniform is a dark, well-tailored traditional suit, starched shirt with French cuffs and perhaps a pocket square to complement an expensive tie.

California lost 66,500 jobs in June - ( he recession continued to punish California as employers cut 66,500 jobs in June to put the state at an unemployment rate of 11.6 percent, the nation's sixth highest. A report issued Friday by the Employment Development Department in Sacramento also hints at how the state budget deficit will affect California, which lost 6,700 government jobs in June. "That's the tip of the iceberg," said Stephen Levy with the Center for the Continuing Study of the California Economy in Palo Alto. Levy said layoffs and furloughs of state workers will worsen the state economy, which has already been hit harder than the nation as a whole by the collapse of the housing bubble. The U.S. unemployment rate is 9.5 percent. Michigan has the nation's highest rate of 15.2 percent. The state's unemployment rate in May was 11.6 percent, officials said Friday, correcting the 11.5 percent figure they had reported last month. Friday's report held no good news for the Bay Area's three major metropolitan regions. Unemployment now stands at 11.8 percent in metropolitan San Jose, which consists of Santa Clara and San Benito counties. The two counties have lost more than 15,000 manufacturing jobs in the last year. Metropolitan San Francisco, which includes Marin and San Mateo counties, continued to have the best showing in bad times with a June unemployment rate of 9.2 percent. But the West Bay has been losing jobs in retail and professional and business services. In metropolitan Oakland, which encompasses Alameda and Contra Costa counties, job cuts in construction contributed to a June unemployment rate of 11.1 percent. Chris Thornberg, a California analyst with Beacon Economics, said job losses in the state seem to be slowing, but he does not expect hiring to come back strongly. "Jobless recovery is a term you're going to be hearing a lot," he said.


Windfalls for Bankers, Resentments for the Rest - (

Hedge funds up, but all is not rosy - (

Median pay for top execs of Northwest companies goes down for first time in several years - (

Economy Spells Trouble for Leading Party in Japan - (

The Pre-election Blues in Japan - (

China Should Ease Restrictions to Spur Investment, Zhou Says - (

CIT Group Said to Weigh $3 Billion Financing Offer - (

Two California banks join the FDIC closure list - (

Zions Unit Buys Vineyard Deposits as Four Lenders are Shuttered - (

In Washington, One Bank Chief Still Holds Sway - (

JPMorgan, U.S. Lenders Lean on Investment Banking for Profits - (

CIT in talks with JPMorgan, Goldman: source - (

Alabama Hardware Distributor Blames CIT Woes for Its Bankruptcy - (

Bank profits not as impressive as they seem - (

Bank of America credit losses soar, profit falls - (

Looking Back in Anger at the Crisis - (

Tomato fungus threatens northern crop - (

Thursday, July 30, 2009

Friday July 31 Housing and Economic stories


Corrupt California Pension fund (CalPERS) trying to deflect blame for their massive $60B in losses on credit rating agencies. Largely due to their own lack of due-diligence, paying friends and politically connected Obama officials.

· CalPERS sues credit-rating firms over $1 billion in investment losses - ( California's giant public pension fund is suing the nation's three top bond credit-rating companies for issuing "wildly inaccurate" rankings on investments that it said cost pensioners "perhaps more than $1 billion." The California Public Employees' Retirement System on Wednesday drew plaudits and skepticism for raising legal questions about the firms' gold-plated AAA rankings for investment funds that collapsed in 2007 and 2008. "It's very exciting when someone has the fortitude and the capital to pursue these kind of claims," said Paul Lapides, director of the Corporate Governance Center at Kennesaw State University in Georgia. "If in fact there's a pattern and practice of bad behavior that they knew or should have known about, then the rating agencies should be held accountable in state court." But critics wondered whether CalPERS, the nation's largest pension fund, might be trying to evade responsibility for failing to perform enough of its own diligence before sinking $1.6 billion into so-called structured investment vehicles that held mainly mortgage-backed securities. Spokesmen for the rating firms -- Standard & Poor's, Moody's Investors Service and Fitch Ratings -- called the allegations in the lawsuit filed last week in San Francisco Superior Court meritless and said they would seek a dismissal as quickly as possible. The CalPERS suit alleges that the rating firms negligently misrepresented the financial strength of three structured investment vehicles the companies oversaw. The rating firms, which were compensated by the investment funds they rated, gave the vehicles -- Cheyne Finance, Stanfield Victoria Funding and Sigma Finance Inc. -- top scores that "ultimately proved to be wildly inaccurate and unreasonably high," the lawsuit said. The ratings relied on "flawed assumptions" and failed to note the potential danger that "the underlying assets consisted in large part of risky subprime mortgages," the lawsuit said. What's more, the rating firms played important roles in "the creation and ongoing operation" of the investment funds and commanded steep fees for giving them high marks, the lawsuit said. A Moody's executive, Anthony Mirenda, countered that his firm does not "engage in designing, structuring or marketing securities of any type," and that its "role in the market is simply to offer reasoned, forward-looking opinions on credit risk." Markets are paying attention to the suit because CalPERS is "a 600-pound gorilla" with a $178-billion portfolio, said John Jay, senior analyst for Aite Group, a Boston-based independent financial research and accounting firm. But the pension fund's complaint about "misrepresentation comes way after the fact," Jay said. "There should have been some sort of validation along the way" to make sure that the triple A rating was deserved. CalPERS' lawsuit, if it survives early dismissal efforts, could face an uphill battle. Litigants have had a poor record of collecting losses from rating firms after investments have soured. "The whole rating industry has gotten off pretty much scot-free, but they are under so much scrutiny right now that the courts may be rougher on them," said Alan Bromberg, a securities law professor at Southern Methodist University. CalPERS' chances of collecting any money would improve if it could get the case to a jury trial, Bromberg said. Jurors, influenced by the poor economy and public angst over Wall Street's role in the financial collapse, might be a sympathetic audience, he said. The pension fund also was smart to file the lawsuit in a state court, which "may be more skeptical" of the rating firms than federal courts would be, Bromberg said.

· CalPers losing 103% on its housing bets - Lansner on Real Estate ... - ( Yes, 103% No typo! Yes, 3% more than the government-employee pension giant invested! Officials at Calpers confirm that it currently expects to report paper losses of 103% on its housing investments in the fiscal year ended June 30. The Wall Street Journal has a gripping story today detailing CalPers bad bets on real estate. In part, it says … Calpers is now warning California’s cities, towns and schools that they may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers. Some towns are already cutting municipal services, and at least one is partly blaming the Calpers fees. Calpers in recent weeks said it expects to report paper losses of 103% on its housing investments in the fiscal year ended June 30. That’s because Calpers invested not only its own money, but billions of dollars of borrowed money that must be repaid even if the investment fails. In some deals, as much as 80% of the money invested by Calpers was borrowed. In the latest wrinkle: To generate sorely needed cash, a troubled Calpers venture known as LandSource recently started the process of selling land during the worst property market in a generation. Calpers could potentially lose nearly $1 billion on LandSource, a $2.5 billion deal completed early last year, and one of the priciest U.S. residential-land transactions ever. LandSource is now under bankruptcy-court protection.

· CalPERS invested more than $110 million with Obama 'car czar ... - ( CalPERS has invested more than $110 million with financier Steven Rattner, who resigned as President Barack Obama's "car czar" this week amid an investigation into his dealings with New York's public employee pension fund. Rattner, founder of a New York private equity firm called the Quadrangle Group, has been linked to the corruption investigation that started in New York and has spread to California and other states. While he gave no reason for his resignation as the head of Obama's auto-industry task force, the New York Times and Associated Press reported that New York Attorney General Andrew Cuomo is stepping up his investigation into Quadrangle's practices. Although it hasn't been charged with any crime, Quadrangle paid fees to a pair of New Yorkpolitical operatives who've been indicted for selling access to the state's big public pension fund, according to the indictment. A spokesman for Quadrangle couldn't be reached for comment. The indictment has spawned an investigation into the role of placement agents – highly paid middlemen who help private equity firms and others secure investments from public pension funds. The Quadrangle firm used two placement-agent firms to obtain a $100 million investment commitment in 2005 from the California Public Employees' Retirement System, according to CalPERS records. Of the $100 million, CalPERS has invested $71 million so far. The two placement agents, Monument Group and Helix Associates, haven't been charged with any wrongdoing. CalPERS and the California State Teachers' Retirement System have said placement agents are little more than door openers who have no influence on the pension funds' investment decisions. Still, the work can be lucrative; a $100 million investment will typically earn the placement agent a $2 million fee from the private equity firm. CalPERS records show the 2005 investment with Quadrangle Capital Partners II, an investment fund established by Rattner's firm, had broken even as of Dec. 31. CalPERS also invested in an earlier Quadrangle fund, in 2000. That $42 million investment generated a 10 percent return through Dec. 31. It wasn't known if Quadrangle employed a placement agent on that investment. Pat Macht, a CalPERS spokeswoman, wouldn't comment on Quadrangle's relationship with placement agents.

· CalPERS suit follows $60 billion in market losses - Sacramento ... – ( CalPERS' lawsuit over a $1 billion investment loss represents its latest attempt to deal with market chaos that shrank its portfolio by 25 percent in the past year and will translate into higher pension contributions from the state and municipalities. The lawsuit blames the three big Wall Street credit rating agencies – Moody's Investors Service, Standard & Poor's and Fitch Ratings – for effectively luring CalPERS into a series of disastrous 2006 deals by giving the investments "wildly inaccurate and unreasonably high" grades. The investments have gone bust at a cost of "perhaps more than $1 billion," said the California Public Employees' Retirement System in the suit, filed last Thursday in San Francisco Superior Court. The losses represent a small portion of the roughly $60 billion CalPERS has lost in the past year due to declines in its stocks, real estate and other holdings. The losses are so steep that CalPERS has served notice that it will demand higher contributions from the state and the local governments that rely on the fund for pensions. The exact amount of the increases won't be known until late October or early November, said CalPERS spokeswoman Pat Macht. The CalPERS board voted in June to "smooth" out the investment losses so the higher rates will phase in more slowly for the local governments. It will decide in September whether to do the same for the state. In any event, the higher rates will kick in next July for the state and a year later for the local governments, Macht said. Seeking to regroup in the wake of heavy losses, CalPERS is tweaking its investment strategy. In June, it agreed to shift money out of stocks and into private equity – investments in companies that aren't publicly traded. It has been working to overhaul some of its real estate partnerships.

Unemployment "main cause" of foreclosures - (www.What about foolish debt?) - ( The number of U.S. households on the verge of losing their homes soared by nearly 15 percent in the first half of the year as more people lost their jobs and were unable to pay their monthly mortgage bills. The mushrooming foreclosure crisis affected more than 1.5 million homes in the first six months of the year, according to a report released Thursday by foreclosure listing service RealtyTrac Inc. The data show that, despite the Obama administration's plan to encourage the lending industry to prevent foreclosures by handing out $50 billion in subsidies, the nation's housing woes continue to spread. Experts don't expect foreclosures to peak until the middle of next year. Foreclosure filings rose more than 33 percent in June compared with the same month last year and were up nearly 5 percent from May, RealtyTrac said. "Despite all the efforts to date, we clearly haven't got a handle on how to address the situation," said Rick Sharga, RealtyTrac's senior vice president for marketing. More than 336,000 households received at least one foreclosure-related notice in June, according to the foreclosure listing firm's report. That works out to one in every 380 U.S. homes. It was the fourth-straight month in which more than 300,000 households receiving a foreclosure filing, which includes default notices and several other legal notices that homeowners receive before they finally lose their homes. Banks repossessed more than 79,000 homes in June, up from about 65,000 a month earlier. On a state-by-state basis, Nevada had the nation's highest foreclosure rate in the first half of the year, with more than 6 percent of all households receiving a filing. Arizona was No. 2, followed by Florida, California and Utah. Rounding out the top 10 were Georgia, Michigan, Illinois, Idaho and Colorado. The Obama administration in March launched a $50 billion plan to give the lending industry financial incentives to modify mortgages to lower payments, but it's off to a slow start. As of early July, about 130,000 borrowers were enrolled in three-month trial modifications under the plan, and 25 mortgage companies have signed up to receive potential payments of up to $18.6 billion, according to theTreasury Department. But analysts and housing counselors say it isn't having much of an impact. "The plan isn't going well, at least not yet," said Mark Zandi, chief economist at Moody's "It's a creative plan with lots of incentives, but it's very complex." In testimony prepared for delivery at a Senate hearing on Thursday, Bank of America executive Allen Jones said the company has about 80,000 loan modifications in the works under the new government guidelines, including some that aren't in the three-month trial phase yet.

Global Economic Meltdown, Political Unrest - ( Political unrest occurs when a people's rising expectations — about how much money they can make, what they can buy, whether they have enough food or medicine — are suddenly dashed by, let's say, a global economic crisis that follows the longest expansion in decades. Here's how professor Davies put it, in that special language of academia: "Revolutions are most likely to occur when a prolonged period of objective economic and social development is followed by a short period of sharp reversal. People then subjectively fear that ground gained with great effort will be quite lost; their mood becomes revolutionary." Since those dark days of winter, the global meltdown — while moving out of the panic stages — has shown very few signs of recovery. Meanwhile political violence and turmoil has blossomed in nearly every corner of the world. In many places, the mood has become quite revolutionary. First, the economics: The U.S. unemployment rate — the key figure underlying confidence in the world's largest economy — is at a 26-year high of 9.5 percent, and President Barack Obama this week warned it's still rising. Larry Summers, the director of the president's National Economic Council, was even gloomier, telling the Financial Times: “I don’t think the worst is over. It would not be surprising if GDP has not yet reached its low." As for the global economy, World Bank President Robert Zoellick has warned 2009 remains a "dangerous year." Recent gains could be reversed easily, Zoellick said, and the pace of recovery in 2010 is "far from certain." So much for economic cheer. As for the unrest part, it's been even worse. Here's a quick rundown of some of the trouble we've been following at GlobalPost the past few days, weeks and months. And this list of woes is by no means complete:

· China this month suffered its worst political violence since the Tiananmen Square crackdown, as tensions between Muslim Uighurs and ethnic Han Chinese exploded in the northwestern province of Xinjiang, killing nearly 200 people. A reported 1,400 people have been arrested in China, and Al Qaeda is now threatening to target Chinese working in North Africa and the Middle East in retaliation for the deaths of 46 Uighurs. At the heart of these escalating ethnic and religious tensions? A battle over money and resources.

· The bloody uprising in Iran has been about a lot of things — the limits of political expression, underlying tension between conservative and more liberal values, the role of Shia Islam in Iran's political process, charges of official corruption, the legitimacy of a ruling political elite in the face of changing demographics, and plenty more. Buteconomic insecurity has played perhaps the biggest role. A faltering economy was the key issue in the June 12 election, with Iran's unemployment rate estimated to be above 20 percent and inflation hovering near 25 percent. Declining oil prices, too, are hurting the government's budget. The International Monetary Fund says Tehran needs oil prices of $90 to stay in the black; light sweet crude this week fell below $60 a barrel. This economic unease became clear during the uprising when street protesters openly mocked President Mahmoud Amadinejad's (mis)handling of Iran's economy.

· On June 28, Honduran soldiers stormed the bedroom of President Manuel Zelaya and — at gunpoint, with Zalaya still in his pajamas — forced him to flee to Costa Rica. While the coup was largely a power play over constitutional reform, Honduras is one of the poorest countries in Latin America. Many of its 8 million citizens, particularly the Zelaya supporters who subsist on shrinking banana, coffee, apparel and other low-value exports, are growing increasingly restless.


Bay Area prices plummet 29% in year, but seasonal blip gets headline! - (

Upward blip in Inland area housing prices draws mixed reactions - (

No media bias here... - (

First half foreclosures break records - (

Foreclosures at record high in first half 2009 despite aid - (

Rising unemployment accelerates foreclosure crisis - (

Cisco cutting 700 employees at HQ - (

House Ownership Was Never a Road to Riches - (

'Unknown' bank CIT could go bust - making the US recession worse - (

Gov't is not going to rescue CIT again - (

Taxes pay Goldman bonuses: Ain't life grand? - (

Unlocking the Apartment 'Warehouse' in NY - (

This isn't a recession, it's a collapse - (

The Seigniorage Curse - (

Berkshire Hathaway Rallies for Best Week Since March - (

CIT Talks: Financing in Bankruptcy Now a Possibility - (

Think the Best Earnings Are Yet to Come? Think Again! - (

Obama Discovers Pitfalls of Healthcare Reform - (

Banks' Red Ink Shows US Consumers Still Bruised - (

Unemployment Rates Hit Record Highs In Several States - (

Ford May Turn to Equity Sale to Repay Debt: Analyst - (

Fortress to Name Former Fannie Boss Mudd CEO: WSJ - (

Wednesday, July 29, 2009

Thursday July 30 Housing and Economic stories


Harry Schultz Letter predicting FDR-style bank holiday and says US Embassies and State Departments preparing through foreign currency purchases - ( A leading newsletter paints a grim picture of the future. The top-performing letter that predicted the Crash of 2008 now predicts a confiscatory Franklin D. Roosevelt-style "bank holiday." But it's surprisingly sanguine about stocks -- in the (very) short term. The Harry Schultz Letter (HSL) was my pick for Letter of the Year in 2008 because it really did predict what it rightly called a coming "financial tsunami." But its performance in 2008 was still terrible, albeit arguably for technical reasons. ( See Dec. 28, 2008, column.). Now HSL has bounced back big-time. ( See April 13 column.) Over the year to date through May, it's up a remarkable 81.7% by Hulbert Financial Digest count, compared to 4.1% for the dividend-reinvested Wilshire 5000 Total Stock Market Index. Of course, simple arithmetic dictates that doesn't make up for 2008 -- over the past 12 months, HSL is still down 48.19% versus negative 32.63% for the total return Wilshire 5000. In fact, the damage inflicted by 2008 was so great that HSL is also under water over the past three years, down an annualized 14.89% against a drop of 8.18% annualized for the total return Wilshire 5000. Still, over the past five years, the letter has achieved an annualized gain of 9.19%, compared to negative 1.26% annualized for the total return Wilshire 5000. This reflects its success in catching the post-millennium hard-asset bull market that caused me to name it Letter of the Year, for more conventional reasons, in 2005. ( See Dec. 29, 2005, column.) And over the past 10 years, the letter still shows an annualized gain of 3.65%, against negative 0.86% annualized for the total return Wilshire. In its current issue, HSL reports rumors that "Some U.S. embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly. But not pound sterling. Inside the State Dept., there is a sense of sadness and foreboding that 'something' is about to happen .... within 180 days, but could be 120-150 days." Yes, yes, it's paranoid. But paranoids have enemies -- and the Crash of 2008 really did happen. HSL's suspicion: "Another FDR-style 'bank holiday' of indefinite length, perhaps soon, to let the insiders sort out the bank mess, which (despite their rosy propaganda campaign) is getting more out of their control every day. Insiders want to impose new bank rules. Widespread nationalization could result, already underway. It could also lead to a formal U.S. dollar devaluation, as FDR did by revaluing gold (and then confiscating it)." HSL is still sticking with its 20-year "V" formation forecast, but emphasizes that within the current 10-year downtrend phase there will be rallies that will "last 1-2 years." It attributes its current success to "successfully trading almost daily, especially in commodity stocks (coal/potash/energy/ fertilizer/gold). Take profits constantly and rebuy on mini pullbacks. Prefer non-U.S. dollar companies; many such companies are listed in U.S. & Canada or Australia." HSL says: "The world is staggering today between stagflation and net deflation right now; it varies widely around globe. Net deflation is a maybe 35% risk, due to toxics and/or deepening depression. Bit more likely, we'll slowly creep up to a dangerous 4.5% inflation on average, medium-term. But the wild card is the currency risk, which has a 50% (?) chance of boiling over and causing literally overnight (i.e. 24 hours) mega inflation in the asset markets." Nevertheless, in the very short term, HSL's charting leads it to say: "we MAY not get a new bear market decline that many bears are predicting. Likewise, DJIA & S&P500 may build a Head-and Shoulders right shoulder."

Pennsylvania stiffs 69,000 state workers - ( State freezes workers' pay for July as budget impasse continues. Two other states have yet to approve budgets, while California closes in on deal to close $26 billion deficit. Pennsylvania state workers' paychecks are a little light these days. Struggling to resolve a 17-day-old budget impasse, Pennsylvania is withholding pay for 69,000 state employees for time worked after July 1. Workers Friday received only 70% of their salary, covering days worked in June. Starting two weeks from now, they'll get nothing on payday until a state budget is approved. Pennsylvania is one of three states that have yet to pass budgets for fiscal 2010, which began July 1. The other two -- Connecticut and North Carolina -- are operating under temporary spending measures. Still two others, Illinois and Ohio approved their 2010 budgets this week. In California, which passed a budget in February, Gov. Arnold Schwarzenegger and lawmakers are moving closer to resolving a $26 billion budget shortfall that has forced the state to send out nearly 150,000 IOUs to residents, contractors and small businesses. When Pennsylvania state workers open their paychecks, they'll see the words "Budget Impasse Leave without Pay" for the time worked in July. Even after a budget is signed, employees won't see the money for several days. And they won't get interest on the money owed, said a governor's spokeswoman. Some 29 financial institutions, primarily credit unions, are offering workers no-interest or low-interest loans. Several food banks are also providing emergency supplies to employees in need. They can also check with the state to see if they are temporarily eligible for food stamps or welfare. Republicans and Democrats are battling over how to close a $2 billion budget gap. The former don't want to raise taxes, while the latter don't want to cut too deeply into state services. Lawmakers may take up the budget issue soon if the House passes its version Friday. It would then have to pass muster with the governor. California's furlough Fridays: Meanwhile, California residents are still reeling from their state's budget stalemate. The impasse has affected residents, businesses and the state's credit rating. Controller John Chiang has issued 147,000 IOUs totaling $662 million since July 2 in an effort to close a nearly $3 billion cash shortfall for the month. They are going to county social service agencies, those owed state income tax refunds and state vendors. Holders won't get the funds until the budget is passed or until Oct. 2, whichever comes first. They will receive an interest rate of 3.75%. Several dozen credit unions are accepting the IOUs, and Citibank said Friday it will do so until July 24. But Wells Fargo, Bank of America and JPMorgan Chase, stopped taking the paper after July 10. This has left some residents struggling.

California Budget Talks Falter as Treasurer Warns of Junk Debt - ( California GovernorArnold Schwarzenegger and lawmakers failed to resume talks last night over how to solve a $26 billion deficit, even after the state’s Treasurer said crippling penalties from Wall Street loom. Negotiations between Schwarzenegger and legislative leaders stalled late July 15, mostly over proposed cuts to school funding. That prompted Treasurer Bill Lockyer yesterday to warn that the impasse could leave the state with a junk rating on its debt and unable to borrow money. “With every passing day, the state’s credit rating moves closer and closer to the junk pile,” Lockyer said in a statement. “If the Governor and Legislature dump us on that pile, they will end indefinitely the state’s financial ability to build schools, highways, levees - all the critical public works we need to rebuild California. If our credit rating sinks to junk status, the state will find the door to the infrastructure bond market locked shut.” The deficit in the $100 billion annual budget brought on by the longest recession since the 1930s and a political stalemate over how to fix it has drained California of cash, forced it to pay some bills with IOUs and caused credit assessment companies to cut their ratings on the state’s bonds. Schwarzenegger told reporters yesterday he thought they might be able to “close the outstanding issues very quickly.” A meeting of the so called “Big 5,” consisting of the Governor and top Democrat and Republican lawmakers from both the Senate and the Assembly, never materialized by day’s end. School Funding. At issue is the Governor’s proposal to suspend a constitutional amendment that sets a minimum level of funding for schools, which absorb more than 40 percent of the state’s general fund. Democrats want legislation to ensure that schools are repaid all the money that is cut, as well as guarantees spending would be increased when the economy recovers. “We are close, but until Democrats find a way to fund education without constitutional changes that lock the state into future spending, we will remain stalled,” said Schwarzenegger spokesman Aaron McLear. Controller John Chiang this month began issuing IOUs to businesses and others set to receive state payments to ensure enough cash remains to meet bond payments and others given high priority under the constitution.

Tax rates on track to soar as proposals form - ( American Idiots do not care as long as they are getting the money or subsidies and another group is paying. Well eventually, it will be the bottom 51% taxing the top 49% and then many Americans will care: Three tax increases proposed by President Obama and House Democrats on the richest Americans could produce the highest tax rates in a quarter-century. The latest is this week's proposal by House Ways and Means Committee Chairman Charles Rangel, D-N.Y., and others to impose a surtax of up to 5.4% on annual incomes of $350,000 or more to help pay for overhauling the health care system. About 500,000 taxpayers earning $1 million or more would pay the full surtax. Obama's budget, released in February, calls for letting tax cuts for top earners enacted at the beginning of the decade expire in 2011. That would raise the top rate from 35% to 39.6% on incomes above $373,000. During the presidential campaign, Obama favored bolstering Social Security by subjecting family income above $250,000 to the 12.4% payroll tax, paid equally by employees and employers. The tax currently is levied on income up to $102,000. All told, shifting the cost of health care, Social Security and other budget priorities toward high-income Americans would mean an actual tax rate above 45% for the wealthiest — "levels never seen," says Clint Stretch, a tax expert at Deloitte Tax LLP. When top rates were higher, tax shelters helped reduce the percentage of income paid. White House press secretary Robert Gibbs said this week that Obama "believes that the richest 1% of this country has had a pretty good run of it for many, many, many years." The top 1% had income of $557,000 or more, according to the non-partisan Tax Policy Center. Relying on top earners to pay for benefit programs risks reversal if Republicans return to power, says William Gale of the Brookings Institution, a think tank. "We cannot do this on the backs of the rich," he says. Robert McIntyre of the liberal Citizens for Tax Justice says Obama eventually must look beyond the 6.4 million taxpayers earning $200,000 or more. "At some point, you just can't squeeze them anymore," he says.

CBO Chief Criticizes Democrats' Health Reform Measures - ( Congress's chief budget analyst delivered a devastating assessment yesterday of the health-care proposals drafted by congressional Democrats, fueling an insurrection among fiscal conservatives in the House and pushing negotiators in the Senate to redouble efforts to draw up a new plan that more effectively restrains federal spending. Under questioning by members of the Senate Budget Committee, Douglas Elmendorf, director of the nonpartisan Congressional Budget Office, said bills crafted by House leaders and the Senate health committee do not propose "the sort of fundamental changes" necessary to rein in the skyrocketing cost of government health programs, particularly Medicare. On the contrary, Elmendorf said, the measures would pile on an expensive new program to cover the uninsured. Though President Obama and Democratic leaders have repeatedly pledged to alter the soaring trajectory -- or cost curve -- of federal health spending, the proposals so far would not meet that goal, Elmendorf said, noting, "The curve is being raised." His remarks suggested that rather than averting a looming fiscal crisis, the measures could make the nation's bleak budget outlook even worse. Elmendorf's blunt language startled lawmakers racing to meet Obama's deadline for approving a bill by the August break. The CBO is the official arbiter of the cost of legislation. Fiscal conservatives in the House said Elmendorf's testimony would galvanize the growing number of Democrats agitating for changes in the more than $1.2 trillion House bill, which aims to cover 97 percent of Americans by 2015. A lot of Democrats want to see more savings, said Rep. Mike Ross (D-Ark.), who is leading an effort to amend the bill before next week's vote in the Energy and Commerce Committee. "There's no way they can pass this bill on the House floor. Not even close." Republicans also seized on Elmendorf's remarks, with House Minority Leader John A. Boehner(R-Ohio) saying they prove "that one of the Democrats' chief talking points is pure fiction." Senate Minority Leader Mitch McConnell (R-Ky.) said Elmendorf's testimony should serve as a "wake-up call" to Obama and Democratic leaders to heed requests from lawmakers in both parties to slow down the process.


Bank of America Profit Drops Less Than Expected on Fee Income - (

Citi reports profit after gain from Smith Barney - (

Stock futures extend losses after GE, BofA results - (

Gold off for 2nd day, mirroring crude losses as dollar rises - (

International Demand for Long-Term U.S. Assets Falls - (

Administration Weighs More Foreclosure Aid - (

Two Jakarta hotels rocked by explosions - (

China Debt Auction Demand Falls Short for Third Time - (

European Subsidies Stray From the Farm - (

China's detention of an Australian mining exec threatens the countries' trade relationship - (

China First-Half Steel Production Rises to a Record - (

Housing Starts in U.S. Climb to Seven-Month High - (

U.S. Economy: Philadelphia Factory Gauge Falls, Claims Drop - (

Recession Lesson: Share and Swap Replaces Grab and Buy - (

Bernanke Is Said to Plan Assuring China at Summit - (

Citigroup Posts $4.28 Billion Profit on Smith Barney - (

Bank of America Posts Lower Profit, Sees Weak Economy Into 2010 - (

GE Second-Quarter Profit Falls on Finance, Health - (

CIT Seeks Lenders After U.S. Balks at Guaranteeing Its Bonds - (

CIT Group May Need $6 Billion to Avoid Bankruptcy, Analysts Say - (

Retailers Fear Impact of a CIT Bankruptcy - (

Two Giants Emerge From Wall Street Ruins - (

AIG Swaps May Take Decades to Expire Leaving a ‘Toxic Pool’ - (

Keynes Arouses Fed as ECB Looks for Monetary Exit: Mark Gilbert - (

With Power, the Risk of Abuse - (

Tuesday, July 28, 2009

Wednesday July 29 Housing and Economic stories


The Mystery of the Missing Unemployed Man - ( For the book I'm writing about unemployed Americans, I had no trouble findingaccountants, brokers, cashiers, or die casters. Admittedly, I had to go out of town to interview the die casters. But when I arrived, alphabetically, at unemployed editors, I had only to look in my address book. Financiers were further from my life experience than either die casters or editors. Yet the "do you know anyone who...?" method still proved an effective way of turning up unemployed hedge-fund analysts and bank loan officers -- and within a week at that. It was only when I refined my search to ferret out unemployed financiers who had actually handled those infamous "toxic assets" that I hit the proverbial brick wall. Since mortgage-backed securities and the swaps that insure them had been the downfall of Lehman Brothers, Bear Stearns, Merrill Lynch, and the giant insurance company AIG, packs of bankers who worked on them must, I assumed, be roaming free on the streets of Manhattan. Yet I couldn't find a single one. Finally, I phoned a law firm representing Lehman Brothers employees in a suit for the pay they were owed when the company shut down without notice. I asked the lawyer if he could possibly inquire among his unemployed clients for someone, anyone, who used to work with mortgage-backed securities and might be willing to talk about how he or she was getting by today. "I don't have to use real names," I assured him. Many of the unemployed people I'd already interviewed felt so lost and ashamed that I had decided not to use their real names. Unemployed bankers deserve anonymity, too. But the lawyer made it clear that that wasn't the problem. "Most of them were snapped up immediately by Barclays," he said. He represents other financial plaintiffs as well, and he seemed to think that the kind of person I was looking for hadn't remained unemployed very long.

Obama Considers New Mortgage Solution: Own-To-Rent - ( Is The Atlantic now the most influential magazine in America? The most recent issue is pretentiously self-styled as “The Ideas Issue: How To Fix The World.” It contains a brief piece by Felix Salmon making the clever argument that the mortgage defaulters should be turned into renters. The idea does have an attractive symmetry: if one of our problems is that too many people who should be renters wound up taking out mortgages they couldn’t afford to become ersatz homeowners, why not just make them renters? It's a brilliant reversal of the old idea of rent-to-own homes. But just because it's brilliant doesn't mean it would work. Now Reuters reports that U.S. government officials are weighing a plan to do just that. The plan would let borrowers who have fallen behind on their mortgage payments avoid eviction by renting their homes. They’d give up all their equity—if they have any—and future claims on the equity, in exchange for getting to keep their homes. There are lots of problems with this idea, including havoc it would create in securitized mortgages, that it would make the housing market even more illiquid than it is, and that it would create a huge incentive on the part of even more borrowers to default. Think about it: now you don’t even have to walk away. Reuters also reports that officials are creating a “housing stipend” that would attach to unemployment, hoping to reduce the role in job losses in driving mortgage defaults. This would be either hugely costly or ineffective. (And it would really anger unemployed renters.)

California foreclosure sales increase 24.7 percent - ( Foreclosure sales jumped significantly in June for the third consecutive month as lenders came off a foreclosure moratorium, according to ForeclosureRadar Inc., of Discovery Bay, a firm that tracks foreclosures in California on a daily basis. Foreclosure sales increased by 24.7 percent year-over-year following a 31.9 percent increase in May, and a 35 percent April increase. But “Notices of Trustee Sale” dropped by an unexpected 28.7 percent, with the timing of the drop indicating that it was in response to the California Foreclosure Prevention Act, the report says. This law was widely believed to have little or no impact on foreclosure filings, as it exempted the majority of large lenders that operate in the state, says ForeclosureRadar’s CEO, Sean O’Toole. In terms of foreclosure sales per population, counties in the Central Valley lead the state and make up six of the “top ten.” They are: • (1st) Merced County, 422 sales in June or one for every 605 residents; • (2nd) Stanislaus County, 748 sales or one per 702 residents; • (3rd) Yuba County, 99 sales or one for every 727 residents; • (4th) San Joaquin County, 934 sales or one for every 734 residents; • (7th) Madera County, 179 sales or one per 843; • (10th) Kern County, 887 sales or one for every 922 residents.

FHA/Ginnie Mae mortgage bonds enjoy boom at taxpayer risk - ( The Government National Mortgage Assn., which unlike Fannie Mae and Freddie Mac was never publicly traded, says it issued a record amount in mortgage-backed securities in June -- $43.5 billion. Want to buy some nice mortgage-backed securities? Probably not, these days, unless you're a speculator bottom-fishing for discount deals. But what if the mortgage bonds were backed by the government, as U.S. Treasury bonds are? What if Uncle Sam stepped in to pay the principal and interest to investors if one of the home loans backing the security went into default? That would create -- and has created -- a boom time at the Government National Mortgage Assn. The agency, better known as Ginnie Mae, generates mortgage-backed securities from loans insured or guaranteed by the Federal Housing Administration and the Department of Veterans Affairs. Ginnie Mae said Monday that it issued $43.5 billion in mortgage-backed securities in June, the first time the $40-billion barrier was broken. For the first six months of 2009, Ginnie Mae securities topped $206 billion, nearly double the amount in the same period last year. In a news release, Ginnie Mae President Joseph Murin said: "Ginnie Mae's ability to provide a safe security for investors and critical liquidity for issuers is why the corporation was created more than 40 years ago." The Mortgage Bankers Assn. reported last week that FHA and VA loans represented 35.9% of new mortgage applications in June, the highest level since November 1990. In August 2005, just 6.8% of mortgage applications were for these federally backed loans. Ginnie Mae, which is part of the Department of Housing and Urban Development, was set up to bolster the housing market. That role is similar to the ones played by Freddie Mac and Fannie Mae -- except, unlike those wobbly mortgage giants, which have been taken over by the government, Ginnie Mae was never publicly traded.

Talks fail to break California budget impasse - ( California Governor Arnold Schwarzenegger and lawmakers failed on Wednesday night to agree to balance the state's budget by closing a $26.3 billion deficit, but officials said talks would continue. The budget talks, which have lasted weeks, have stalled over a part of the governor's plan to suspend a law on school funding, Karen Bass, the speaker of the state assembly, and California Senate President Darrell Steinberg told reporters. The legislature's two top Democrats said budget talks would resume on Thursday. Schwarzenegger, a Republican, had said earlier on Wednesday he was hopeful a deal to resolve the lengthy budget crisis was near and might be reached by the end of the day. "There's no nastiness in the discussions, no blowups," he said at a press conference. "There's none of that, so I think we have a good shot of getting the budget done today." The state government began its fiscal year on July 1 facing a historic budget gap and a severe cash crisis. California, which would be the world's eighth largest economy if it were an independent nation, has issued IOUs to vendors as well as taxpayers owed refunds to save cash for servicing of state bonds and other priorities payments. Among sticking points in negotiations are Schwarzenegger's demands for a budget deal including

changes to rules he says will prevent fraud in welfare programs. He has also proposed paring education spending by suspending a voter-approved measure that locks in funding levels for public schools. Democrats oppose both ideas and are especially concerned about education spending cuts. The size of a budget reserve also is being discussed. A cash cushion may help the state sell short-term debt after a budget agreement is reached. "It's all about being able to go out to the market after this is done," Steinberg said.

CIT Group May Need $6 Billion to Avoid Bankruptcy, Analysts Say - ( CIT Group Inc., the 101-year-old lender running short of cash, may need as much as $6 billion to avoid seeking bankruptcy protection after the U.S. wouldn’t give the firm another bailout, CreditSights Inc. analysts said. “CIT indicated that it needs at least $2 billion of rescue financing in the next 24 hours or it would likely file,” said CreditSights analysts including Adam Steer. “We believe the figure is in the range of $4 to $6 billion plus, making outside capital sources shy away.” CIT’s debt tumbled, the shares plunged and the risk of default soared to a record today. The lender is trying to raise $2 billion from debt holders and gave them 24 hours to put up the money, the Wall Street Journal reported today, citing unidentified people familiar with the matter. New York-based CIT told investors that without the cash, it will probably file for bankruptcy, the Journal said. CIT Chief Executive Officer Jeffrey Peek failed to convince regulators that fallout from a collapse would threaten the rest of the financial system. Officials at the Treasury, Federal Reserve and Federal Deposit Insurance Corp. have resisted putting additional taxpayer funds at risk, on top of $2.33 billion granted to CIT in December, to keep the lender afloat. “While it is possible that CIT could receive rescue financing, we believe the prudent course for bondholders is to brace for bankruptcy,” CreditSights wrote.


Upscale house sales lag as jumbo loans are hard to get - (
Foreclosures in Silicon Valley continue to climb - (

Subprime debt's new threat to housing - (

Option-ARMs worse than subprime - (

South LA apartment rents fall in 2nd quarter - (

Struggling Landlords Leaving Repairs Undone - (

No one puts down 20% anymore. It's all FHA with 3% down. - (

Middle-class couple posed as buyers, move in as squatters, refuse to pay - (

Banks Resist Regulation: Chutzpah on Steroids - (

The bank was saved, but the people were ruined - (

Michael Shedlock on Alex Jones Show - Bernanke's Big Scam - (

Federal Reserve is the black hole in democracy - (

$1 Trillion Deficit Complicates Obama's Agenda - (

Great pits of the world - (

Squashed - (

How to Sort of Predict Housing Prices - (

Mansion Glut in Pelosi's San Francisco Neighborhood Slows Sales - (

Landlords' new weapon: financial education - (

Hawaii might not have reached bottom yet - (

Investing short term funds for higher returns - (

US budget deficit at $1 trillion - (

April Showers Bring No Spring Flowers in NY - (

Remember The 40-Hour Work Week? - (

U.S. mulling mortgage aid for unemployed - (

Silicon Valley Job Listings Way Down - (

10 Reasons Employment Is Worse Than You Think - (

Average length of unemployment highest since 1948 - (

Flood of money buoys Beijing property bubble - (

Econophysicist Predicts Date of Chinese Stock Market Collapse - (

Time to tackle the real evil: too much debt - (

Meth lab houses harm new owners - (

Meth Lab Houses - (

Monday, July 27, 2009

Tuesday July 28 Housing and Economic stories


Does Goldman Owe the Taxpayers? - ( Goldman Sachs Group Inc. announced record earnings Tuesday of $3.44 billion for the second quarter of 2009. Goldman's stock price leapt 77 percent for the first half of 2009, and closed Tuesday at $149.66 a share. Without an ongoing series of front- and backdoor bailouts financed by U.S. taxpayers, most of Goldman's record profits would not have been possible. In April 2009, Goldman Sachs' CEO, Lloyd Blankfein, who received record salary and bonus compensation of $68.5 million in 2007, said that bonus decisions made before the credit crisis looked "self-serving and greedy in hindsight." Now, they look self-serving and greedy with foresight. Goldman set aside $11.4 billion for employee compensation and benefits, up 33 percent from last year. That's enough to pay each employee more than $390,000, just for the first six months of this year. In June, Goldman bought back its preferred shares, repaying $10 billion it received from the government's Troubled Asset Relief Program, or TARP, and setting it free of limits on executive compensation and dividends. But pay is not the key issue. U.S. taxpayers deserve a large cut of the profits, not the chump change -- less than a half-billion dollars -- they got from preferred shares in the company and the relatively small amount they could get from warrants in its stock. U.S. taxpayers should insist that a large part of Goldman's revenues and profits belong to the American public. TARP money was just part of a series of bailouts and concessions that allowed Goldman to prosper at the expense of a flawed regulatory system. In March 2008, Goldman, a primary dealer in Treasury securities, was among the beneficiaries of a massive backdoor bailout by the Federal Reserve Bank. At the time, Henry Paulson, former CEO of Goldman Sachs, was treasury secretary. In an unprecedented move, the Fed created a Term Securities Lending Facility, or TSLF, that allowed primary dealers like Goldman to give non-government-guaranteed "triple-A" rated assets to the Fed in exchange for loans. The trouble was that everyone knew the triple-A assets were not the safe securities they were advertised to be. Many were backed by mortgage loans that were failing at super speed. The bailout of American International Group, or AIG, ballooned from $85 billion in September 2008 to $182.5 billion. Of that money, $90 billion was funneled as collateral payments to banks that traded with AIG. American taxpayers may never see a dime of their bailout money again, but Goldman saw plenty. Goldman may be the largest indirect beneficiary of AIG's bailout, receiving $12.9 billion in collateral, including securities lending transactions, from AIG after the government bailed out the insurance company. The key question is whether Goldman asked AIG to insure products that were as dodgy as the doomed deal from Goldman Sachs Alternative Mortgage Products exposed by Fortune's Allan Sloan in his October 16, 2007, Loeb Award-winning article: "Junk Mortgages Under the Microscope." If the federal government had not intervened and if AIG had gone into bankruptcy, Goldman probably would not have received its $12.9 billion from AIG. U.S. taxpayers and the American economy are owed some of the bailout money passed directly through AIG to Goldman. Wall Street firms also reaped trading windfalls when AIG needed to close out its derivative transactions. This was the most lucrative windfall business in the history of the derivatives markets. When AIG left money on the table, it was U.S. taxpayer money. Goldman Sachs was granted bank holding company status in the fall of 2008. It already had the temporary ability to borrow from the Fed through the TSLF, which would have expired in January 2009. Now it has permanent access to lending from the Fed. Goldman can now compete with the largest U.S. banks and borrow money at interest rates pushed as close to zero as possible by the Fed. Goldman gets a further benefit: favorable accounting rule changes. In addition, Goldman issued $30 billion of debt with a valuable government guarantee that remains outstanding. Meanwhile, the American public faces a rising unemployment rate, falling housing prices, rising unemployment, higher local taxes and a dismal economic outlook. Interested men with reputations and fortunes at stake rode roughshod over public interest. The American public is owed part of the profits Goldman was able to make because of the largesse of our Congress. Wall Street's "financial meth labs," including Goldman's, massively pumped out bad bonds and credit derivatives that have melted down savings accounts, pension funds, the municipal bond market and the American economy. Risky assets, leverage and fraud led to acute distress in the global financial markets.

California IOUs set for trade - ( A market is set to emerge this week in Californian IOUs as the persistence of the state’s budget crisis is making it increasingly difficult to exchange these emergency instruments for cash. California is printing $3bn of IOUs for businesses, individual taxpayers and local counties in lieu of cash. It has sent more than $450m of them to court-appointed attorneys, county-run health schemes and taxpayers awaiting rebates, among others. IOUs will continue to be issued until Arnold Schwarzenegger, California governor, and the state legislature agree a deal to close a $26bn budget deficit. The state began issuing the IOUs early this month. SecondMarket, a New York firm that trades illiquid assets, launched a platform for trading the IOUs on Wednesday. A decision last week by large banks, such as Wells Fargo and Bank of America, to stop accepting the IOUs has paved the way for some initial trading, although volumes are expected to be very thin. Citigroup, Bank of the West, credit unions and some community banks still are accepting the IOUs for their customers. “With several major banks no longer redeeming Californian IOUs, and with some citizens, businesses and municipalities needing liquidity, we felt it was important to launch this market promptly,” said Barry Silbert, SecondMarket chief executive. Buyers and sellers can list their interest, and SecondMarket expects bids to emerge later in the week. It first needs to verify the listed IOUs with the state. Hedge funds and municipal bond investors are among the interested buyers. Trading in the IOUs is controversial and drew the eye of regulators after offers from opportunistic individuals popped up on websites such as Craigslist. “The [California] Treasury is concerned about the potential for IOU holders in a vulnerable position being victimised by con artists,” said a spokesman for the state treasurer. The Securities and Exchange Commission last week ruled the notes were tradeable securities, but only by banks or broker-dealers that comply with recommendations by the Municipal Securities Rulemaking Board. Individuals involved in more than single, one-off private transactions risk violating securities law. Assuming California can repay the IOUs as promised on or before October 2, their 3.75 per cent annual rate is attractive for a short-term obligation.

CIT Presses U.S. Regulators for Aid to Forestall Cash Crunch - ( CIT Group Inc., the small-business lender with $1 billion in bonds maturing next month, pressed for more aid from regulators who are reluctant to use taxpayer funds for a company that may not be a risk to the financial system, people familiar with the matter said. Treasury officials have indicated in talks that they are reluctant to deploy funds from the $700 billion bank-rescue program, and the Federal Deposit Insurance Corp. continues to balk at debt guarantees, the people said. As of late yesterday, the Federal Reserve was considering granting permission to shift some CIT parent assets to its bank, two people said. That could boost the amount New York-based CIT could borrow from the Fed’s discount window, affording more time to restructure its debt. The course of the talks may still change, and analysts have pointed to the potential political implications of letting a lender to thousands of borrowers at smaller businesses go bust after bailouts for some of the biggest Wall Street firms. CIT’s case underscores calls for new federal powers to allow an orderly wind-down of a bank holding company. “CIT represents a difficult policy issue for Washington as there is sentiment to punish the fat cats and greed matched by what potential damage could be done against an economy struggling to regain momentum with all of its possible political fallout,” said Scott MacDonald, head of research at Stamford, Connecticut-based Aladdin Capital Management LLC. Fed spokeswoman Michelle Smith declined to comment. Meg Reilly, a Treasury spokeswoman in Washington, also declined to comment. Stock Advances: CIT advanced 26 cents, or 19 percent, to $1.61 at 4:03 p.m. yesterday in New York Stock Exchange composite trading as the company pushed for aid. The lender counts 1 million firms among its customers, including the parent of Dunkin’ Donuts and 300,000 retailers. Standard & Poor’s said this week the company, once the biggest independent commercial lender in the U.S., may face bankruptcy without federal aid. Todd McCracken, chief executive officer of the National Small Business Association, said in an interview regulators shouldn’t underestimate the importance of CIT to smaller businesses, which account for about half the private sector U.S. workforce. The U.S. jobless rate rose to 9.5 percent in June, the highest in almost 26 years.

SEC Upsets Some as It Tries to Sharpen Teeth - ( The Securities and Exchange Commission has begun moving far faster to stop financial scams and open investigations into potential wrongdoing than in the past, according to agency data, adopting an aggressive posture after it was sharply criticized about its oversight of Wall Street and failure to uncover Bernard Madoff's massive fraud. Since Mary Schapiro became chairman in January, for instance, the SEC has launched nearly as many formal investigations as it did in any of the past five years. At the same time, Schapiro and her enforcement director, Robert Khuzami, have undertaken a series of personnel changes that employees say are causing turmoil within the enforcement division and posing a distraction from its work investigating financial crime. Khuzami has two meetings scheduled today with employees to discuss these moves. The enforcement division -- the largest at the SEC -- is at center stage as the agency prepares to gain new responsibilities under the Obama administration's proposed reworking of financial regulations. In testimony before Congress yesterday, Schapiro said the agency was keenly aware of its obligations. "There is an invigorating sense of urgency among the staff of the agency to demonstrate that we are up to the job," she said. "Khuzami is reducing bureaucracy by streamlining management within the enforcement division, putting many more talented investigators directly to work on cases."

How much health care for $1 trillion? - ( The White House and Democratic congressional leaders, scrambling to pass health care bills within the next few weeks, are trying to keep the cost of legislation that expands coverage and controls costs to about $1 trillion over 10 years — a benchmark for moderates in both parties. So what can you buy for $1 trillion? Although the eye-popping price tag would help boost insurance coverage to 95% or more of the public, it's not enough to do everything advocates initially want. The proposals being shaped in Congress — including the $1.042 trillion bill unveiled by House Democratic leaders Tuesday — offer subsidies to fewer moderate-income families than originally intended, bar most workers from choosing to leave their employer-provided plans and likely drive up Medicaid costs for states. THE PLAN: House Dems' health bill would tax rich. At the end of a decade, 15 million to 20 million would remain uninsured, according to assessments by the non-partisan Congressional Budget Office— a sticking point for critics who argue the whole enterprise doesn't get enough bang for the buck. Nearly 50 million now lack coverage. "One of the major concerns that Americans have about health care reform is the price tag," Senate GOP leader Mitch McConnell said Monday on the Senate floor. "Every proposal we've seen would cost a fortune by any standard." President Obama defends the overhaul as a critical investment to fix a dysfunctional system he says is hobbling many families and threatening the nation's fiscal future. "This is no longer a problem we can wait to fix," he said Monday at the White House. "Inaction is not an option." Here's the squeeze for policymakers: Allow the price tag to grow much past $1 trillion and you risk losing the support of fiscal hawks in Congress and voters alarmed by the costs of stimulus spending and corporate bailouts. Because the president has promised the health care plan won't increase the deficit, a bigger bottom line means more taxes would have to be raised, or spending cut, to offset it. On the other hand, cut back too far and you imperil the legislation's fundamental goal of giving everyone access to health insurance they can afford. That could undermine support from the strongest advocates for change. The battles roiling the negotiations — and threatening Obama's call for votes in the House and Senate before their August recess — center on which taxes should be raised to finance the bill and whether the plan should include a public, government-run option to compete with private insurers.

Coalition to attack plan for Fed powers - ( Barack Obama’s plan to give the Federal Reserve extensive powers over all large US financial groups will be attacked on Wednesday by a coalition of investors, analysts and ex-regulators who say the Fed’s credibility has been “tarnished” by its role in contributing to the crisis. The strong stance by the investor community will fuel the heated debate over financial regulation and strengthen Congressional opposition to the administration’s push for the Fed to monitor any company whose failure would endanger the banking system. Wednesday’s report, by an alliance including two former heads of the Securities and Exchange Commission, a group of investors with a total $3,000bn in assets and the investment analysts’ trade body, will break the investment industry’s silence on regulatory reform. The 39-page document, seen by the Financial Times, calls for the creation of an independent body to police risks across the financial sector. In contrast, last month’s government proposals envisage turning the Fed into a “systemic regulator” with powers to oversee large banks and insurers, such companies as General Electric, and possibly hedge funds and private equity firms. A body proposed by the investors – the Systemic Risk Oversight Regulator – would have a full-time staff led by a chairman and four members appointed by the president and confirmed by the Senate, and would be accountable to Congress. William Donaldson, a co-chair with fellow former SEC head Arthur Levitt of the Investors’ Working Group, told the FT the new agency should have “carte blanche to go everywhere it find systemically weak areas within the system”. Letting the Fed regulate all large financial groups would detract from its focus on monetary policy and could have “serious drawbacks” given its poor record in the run-up to the crisis, the report says. It criticised the central bank for lax bank supervision and the role its low interest rate policy played in inflating the housing bubble earlier this decade.


U.S. toxic asset plan draws criticism - (

Mobius Says Derivatives, Stimulus to Spark New Crisis - (

Derivatives Are Focus of Antitrust Investigators - (

California Credit Rating Lowered Again as Budget Talks Progress - (

Ranks of US primary dealers grow once more - (

Mortgages Are Now a Bank’s Best Friend - (

China’s Foreign-Exchange Reserves Top $2 Trillion - (

Chinese Expand Rio Tinto Allegations - (

BOJ Extends Credit Policies, Cuts Economic Forecasts - (

Germany Has Been Slow to Fix Its Banks - (

Bean Says Darling Can Lift BOE Bond-Buying Limit - (

China Regulator Relaxes Curbs on Overseas Investment - (

Rudd warns China on Rio detention - (

China Money-Market Rates Rise for 3rd Day on Bill Sale Report - (

Fed Saw Economy as ‘Vulnerable’ at June FOMC Meeting - (

U.S. Consumer Prices Gain 0.7%; Core Rate Rises 0.2% - (

Fed sees end to US downturn - (

Manufacturing in New York Area Shrank at Slower Pace - (

U.S. MBA Mortgage Applications Index Rose 4.3 Percent Last Week - (

Health-Care Plan Would Add Surtax On Wealthy - (

Upscale home sales lag as jumbo loans are hard to get - (

Goldman Sachs' massive profit creates a stir - (

Bair, Bernanke Push to Toughen Plan to Curb Biggest U.S. Banks - (

The Trickle-Down Effect - (