KeNo's Housing and Economic Portal: Friday February 26 Housing and Economic stories

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Menendez Prodded Fed to Aid Lender - (online.wsj.com) Sen. Robert Menendez of New Jersey urged the Federal Reserve last July to approve an acquisition to save a struggling bank in his state. He didn't mention that the bank's chairman and vice chairman were big contributors to his political campaign. If the acquisition had been approved, it would have prevented the two executives from losing what was left of their investments in the bank. In his letter to the Fed July 21, Mr. Menendez said there was a strong likelihood that First BankAmericano, of Elizabeth, N.J., would fail in three days, which would "send yet another negative message to consumers and investors and further impact our fragile economy." The one-page letter, obtained by The Wall Street Journal under the Freedom of Information Act, urged Fed Chairman Ben Bernanke to approve a sale of the bank to JJR Bank Holding Co. of Brick, N.J. The Fed didn't act on the request from Mr. Menendez, a Democrat, and First BankAmericano, which was closely held, failed July 31. While lawmakers routinely forward requests from constituents to government agencies, it is rare for them to make specific requests along the lines of this letter asking specific actions, bank attorneys and congressional aides said. One reason is to avoid any appearance of trying to influence the regulatory process for political ends. The chairman of First BankAmericano at the time of the letter, Joseph Ginarte, is a high-profile attorney with offices in New York and New Jersey. He has given a total of about $30,000 to Mr. Menendez and his political-action committee since 1999, according to federal records.

No Exit in Sight for U.S. As Fannie, Freddie Flail - (online.wsj.com) When Charles E. Haldeman Jr. became Freddie Mac's chief executive officer in August, the ailing housing-finance giant had already consumed $51 billion of government money to stay afloat. It's likely to need even more. Freddie's federal overseers nevertheless have instructed Mr. Haldeman to focus on something that isn't likely to make the bleak balance sheet look any better: carrying out the Obama administration plan to allow defaulted borrowers to hang onto their homes. On a recent afternoon, employees at Freddie's headquarters here peppered Mr. Haldeman with concerns about the company's future. He responded that they were "fortunate" to have such a clear mission—the government's foreclosure-prevention drive. "We're doing what's best for the country," he told them. Freddie and its larger rival, Fannie Mae, were among the first big financial institutions to receive massive federal bailouts after the financial crisis hit in 2008. Government officials have been racing to fix bailed-out car makers and banks and are pushing to reshape the financial-services industry. But Fannie and Freddie remain troubled wards of the state, with no blueprints for the future and no clear exit strategy for the government.

End of TALF Means Bond Spreads Fivefold Wider: Credit Markets - (www.bloomberg.com) The end of a Federal Reserve program that helped unlock credit markets is spurring sales of asset- backed bonds with relative yields five times wider than on debt secured by car loans. The expiration of the Fed’s Term Asset-Backed Securities Loan Facility is driving companies to sell bonds tied to loans that would otherwise require higher yields. Borrowers are offering bonds backed by subprime auto loans, mortgage-servicing payments and assets that have proved hard to sell after the worst credit seizure since the Great Depression. “What we are seeing in the last couple of rounds are issuers in non-traditional asset classes and weaker issuers looking to fund as much as they can before the window closes,” said James Grady, a managing director at Deutsche Asset Management in New York. The firm has $240 billion in assets under management, including asset-backed securities.

Californians Push Budget Reform - (online.wsj.com) The prospect of more California-statehouse dysfunction this year is adding momentum to two efforts to overhaul California's budget process—including one that could rewrite much of the state's constitution. California legislators are heading this month into what promises to be another season of bickering over the state's big budget shortfall for the current fiscal year, ending June 30, and the next. Last year, they passed two austere budgets after impasses that forced California to delay payments and issue IOUs to creditors. Credit agencies cut the state's rating to the lowest in the nation, and the California statehouse became the butt of jokes nationwide. Two groups are pushing ballot initiatives they say would purge that chaos from Sacramento's budget process. A bipartisan group, California Forward, is pushing a reform to let legislators pass budgets by a simple majority instead of the current two-thirds threshold. Repair California, which is affiliated with a pro-business group, is gathering support to hold a constitutional convention to rewrite state laws. Such a convention could alter the budget process and other facets of governance in California.

Massive tax hike about to hit - (money.cnn.com) Employers are getting hit with a massive tax hike at a time when they can least afford it. Companies in at least 35 states will have to fork over more in unemployment insurance taxes this year, according to the National Association of State Workforce Agencies. The median increase will be 27.5%. And employers in places such as Hawaii and Florida could see levies skyrocket more than ten-fold. Many of these hikes happened automatically as prolonged joblessness triggered state laws governing their unemployment insurance systems. But at least seven states voted to raise their taxable wage bases, the level of income subject to unemployment tax. And another 10 are looking at upping the wage bases or tax rates. The states are scrambling to restore their unemployment insurance trust funds, which cover claims. State trust funds have been decimated by the Great Recession, forcing a record 26 states to borrow a total of more than $30 billion from the federal government. The numbers are expected to grow to 40 states borrowing $90 billion by 2012, said George Wentworth, policy analyst at the National Employment Law Project.

Scarlett Johansson selling her L.A. pad - at a loss - (money.cnn.com) Even starlets are subject to the faltering real estate market. Just three years after buying her Los Angeles home, Johansson is selling it for $2 million less than she paid.

Scarlett Johansson bought this Hollywood Hills villa in 2007, about nine years after the "The Horse Whisperer" launched her career. At the time, she paid $7 million, according to data from Zillow. Now the 1931 home is priced to go at $4.59 million.