KeNo's Housing and Economic Portal: Saturday March 13 Housing and Economic stories

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TOP STORIES:

Volcker Fooled - (www.nypost.com) Obama is poised to drop prop-trading ban. The Obama administration is backing off a plan to bar commercial banks from engaging in proprietary trading, favoring instead a watered-down version of a key tenet of the proposed "Volcker rule" governing how banks operate, according to people familiar with the situation. Sources told The Post that instead of issuing an outright ban on prop trading -- or trading done on behalf of only the bank itself -- the White House will propose that federally insured banks keep higher cash reserves if they want to run such trading desks. The about-face comes amid signs the administration faced an uphill battle selling lawmakers and Treasury officials on an outright ban. President Obama on Jan. 21 proposed sweeping banking industry reform, outlining plans that would bar a bank from owning, investing or sponsoring hedge funds or private equity funds, and running trading operations that did not specifically serve customers. The proposals went by the shorthand name "the Volcker rule," as they were championed by former Federal Reserve Chairman Paul Volcker. However, in the month since the announcement stunned Wall Street, sources said Volcker's ideas have been "marginalized" and are not expected to figure prominently in whatever the Senate formulates in the coming days. "My understanding is the White House really does believe in it, but Treasury and the Hill do not, so it's not going very far," said one person close to the Treasury Department.

Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs - (www.bloomberg.com) When a congressional panel convened a hearing on the government rescue of American International Group Inc. in January, the public scolding of Treasury Secretary Timothy F. Geithner got the most attention. Lawmakers said the former head of the New York Federal Reserve Bank had presided over a backdoor bailout of Wall Street firms and a coverup. Geithner countered that he had acted properly to avert the collapse of the financial system. A potentially more important development slipped by with less notice, Bloomberg Markets reports in its April issue. Representative Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.

FDIC Readies Sales of Bonds of Failed Banks Assets - (www.bloomberg.com) The Federal Deposit Insurance Corporation is bracing for a new wave of bank failures that could cost the agency many billions of dollars and further strain its finances. With bank failures running at their highest level in nearly two decades, the F.D.I.C. is racing to keep up with rising losses to its insurance fund, which safeguards savers’ deposits. On Tuesday, the agency announced that it had placed 702 lenders on its list of “problem” banks, the highest number since 1993. Not all of those banks are destined to founder, and F.D.I.C. officials said Tuesday that they expected failures to peak this year. But they also warned that the fund might have to cover $20 billion in additional losses by 2013 — a bill that could be even greater if the economy worsens. F.D.I.C. officials say the fund has ample resources to cope with its projected losses.

US housing market hit by ‘walkaways’ - (www.ft.com) Wayne B, a 62-year-old executive who works at an airport, and his wife Orapin, a dental assistant, are about to do something odd. The couple, with a pristine credit history, have decided to default on their $500,000 (£325,000, €370,000) mortgage on a townhouse in Livermore, a respectable city in California’s San Francisco Bay area. It is not that they are unable to afford the $4,600 monthly mortgage outgoings: they have never missed a payment. But the house they bought for $582,000 in May 2006 – at the peak of the US housing boom – is now not likely to be worth more than $315,000. “The process towards a default has started,” says Wayne, whose lender does not yet know it will soon be left nursing losses on yet another foreclosed house – and one whose owner, among the top-rated in terms of creditworthiness, is an implausible-sounding default risk. “We plan to retire in four years and will not be able to afford the mortgage payments then,” he explains. “The loss if we sell will be so large that, after doing a lot of research, we have made a business decision to walk away.” The high level of foreclosures in the US – the handing over of homes to banks that lent people money to buy them – has been a huge burden on the economy, has kept house prices on a downward spiral and has resulted in misery and anxiety for millions of people. In some areas so many homes have been abandoned that the entire community has fallen apart as schools close, public services are cut and homes are ransacked for fittings or taken over by criminals. That has also sent property values plunging for those people still in their homes and paying mortgages. Stemming foreclosures is a key policy objective of President Barack Obama’s administration. Various programmes are being worked on to modify people’s mortgages in an attempt to reduce payments so that the mortgages are not defaulted on, but so far with only limited success.

Inspired Reader Stands Up To Union Mobs - (Mish at http://globaleconomicanalysis.blogspot.com) I am pleased to report that an inspired reader had the courage to address the Albany city council over outrageous comments made by the Albany New York Police union.
Reader "Justin" put his neck on the line by his actions. To understand what "Justin" is riled about please see What Union Leaders Really Think. Today’s NY Post reveals a moment of honesty from a NY union official. Albany Police Officers Union President Chris Mesley says that, regardless of the faltering economy, a no-raise new contract is unacceptable. And to hell with the public. "I'm not running a popularity contest here," Mesley said. "If I'm the bad guy to the average citizen . . . and their taxes have go up to cover my raise, I'm very sorry about that, but I have to look out for myself and my membership." Mesley added: "As the president of the local, I will not accept 'zeroes.' If that means . . . ticking off some taxpayers, then so be it."

China New Village Makes Chanos See Dubai 1,000 Times - (www.bloomberg.com) The township of Huaxi in the Yangtze River Delta is a proud symbol of how Chinese communists embraced capitalism to lift 300 million people out of poverty during the past three decades. Its leaders took a farm community with bamboo huts and ox carts in the 1970s and transformed it into an industrial and commercial powerhouse where today many of its 30,000 residents live in mansions and most have a car. Per-capita income of 80,000 yuan ($11,700) -- almost four times the national average -- allows Huaxi to claim it’s China’s richest village. Huaxi is also emblematic of the country’s construction and real estate boom. Communist Party officials there are building one of the world’s 30 tallest buildings, a 2.5 billion yuan, 328-meter (1,076-foot) tower. The revolving restaurant atop the so-called New Village in the Sky offers sweeping views of paddy fields, fish ponds and orchards, Bloomberg Markets reports in its April issue. Marc Faber, publisher of the Gloom, Boom & Doom Report, says China is overdoing it. “It does not make sense for China to build more empty buildings and add to capacities in industries where you already have overcapacity,” Faber told Bloomberg Television on Feb. 11. “I think the Chinese economy will decelerate very substantially in 2010 and could even crash.”

OTHER STORIES:

20 Reasons Why The U.S. Economy Is Dying And Is Simply Not Going To Recover - (www.businessinsider.com)

List of Troubled Banks at 16-Year Peak, F.D.I.C. Says - (www.nytimes.com)

U.S. ‘Problem’ Banks Soar 27%, Fund Deficit Widens, FDIC Says - (www.bloomberg.com)

Harvard’s Rogoff Sees ‘Bunch’ of Sovereign Defaults - (www.bloomberg.com)

Concern about FDIC’s proposals - (www.ft.com)

PIGS trade 'crowded,' Brevan Howard says - (www.marketwatch.com)

Wall Street Bonuses Rise 17%, N.Y. Comptroller DiNapoli Says - (www.bloomberg.com)

China Politburo Signals No Policy ‘U-turn,’ Merrill Lynch Says - (www.bloomberg.com)

Europe's Recovery Shows Signs of Stalling - (www.nytimes.com)

Volcker: Running the rule over speculation - (www.ft.com)

U.K. Economy Faces ‘Grave Stage’ on Deflation Risk, Bootle Says - (www.bloomberg.com)