Monday, May 28, 2012

Tuesday May 29 Housing and Economic stories



TOP STORIES:

Ally’s Residential Capital Files for Bankruptcy - (www.bloomberg.com) Residential Capital LLC, the unprofitable mortgage company whose parent Ally Financial Inc. (ALLY) is trying to repay a U.S. government bailout, filed for bankruptcy and plans to sell most of its assets to Fortress Investment Group LLC. (FIG) ResCap listed assets of $15.7 billion and debt of $15.3 billion in a petition filed today in U.S. Bankruptcy Court in Manhattan. ResCap’s Chapter 11 filing is the biggest so far this year, based on liabilities, according to data compiled by Bloomberg. “The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us,” Ally Chief Executive Officer Michael A. Carpenter said today in a statement. Ally said it also may sell its international auto-finance and insurance operations to help repay a $17.2 billion U.S. bailout.

GARY SHILLING: Home Prices Will Plummet 20% From Here - (www.businessinsider.com)  Despite growing consensus that it is now cheaper to buy a home than rent one, Gary Shilling, president of A. Gary Shilling & Co. says by previous standards home prices are still high relative to rents. In his latest editorial in The Wall Street Journal, Shilling writes while home prices have fallen 34 percent since their peak in early 2006, they are not cheap if prices continue to fall: "But even if homeownership was cheaper than renting, as some claim, buying a house now would be a disastrous investment if prices fall another 20% or more." Shilling says homes are going to lose market value in coming years because of excess inventories. He says there are an excess of 2 million inventories and that it will take at least four years to work off this excess and quite some time for those surplus homes to bring down prices:

European austerity bites deep into Spain - (www.washingtonpost.com) When officials in Madrid slashed support for alternative-energy programs this year as part of the campaign of government austerity sweeping Europe, ripples quickly hit this rural town with the cancellation of plans for a solar energy plant. The decision forced several dozen layoffs at the company that would have built and run the project, adding to an unemployment rate that is running at 30 percent in the region. The move also undercut hopes at local firms that had expected to provide heavy equipment and fencing for the plant. At a cement company that was to supply material for the project, mixers now sit idle and the fear of further layoffs looms. Hours after police in Madrid arrested 18 people, thousands of demonstrators reassembled to protest the government's harsh austerity measures. Police say the protests drew more than 70-thousand people nationwide this past weekend. The economic debate consuming Europe comes down to the question of whether struggling countries should choose austerity by clamping down on government spending to rein in unsustainable deficits or pursue growth stimulated by more spending.

Credit-Default Swaps in U.S. Rise on Talk Greece May Exit Euro - (www.bloomberg.com) A gauge of corporate credit risk increased for an eighth day, the longest streak since January 2010, on concern that Greece will exit the single European currency. The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 3.6 basis points to a mid-price of 112.2 basis points at 8:25 a.m. in New York, according to prices compiled by Bloomberg. The swaps index rose as Greek leaders struggled to form a government following inconclusive elections May 6. The nation’s exit from the euro “is not necessarily fatal, but it is not attractive,” European Central Bank Governing Council member Patrick Honohan said May 12.

Dimon Fortress Breached as Push From Hedging to Betting Blows Up - (www.bloomberg.com) David Olson, a former head of credit trading in JPMorgan Chase & Co. (JPM)’s chief investment office, learned about risk as a U.S. Navy nuclear submarine pilot. When he joined the bank in 2006, his new commander, Chief Executive Officer Jamie Dimon, was transforming the once- conservative unit from a risk manager to a profit center.  “We want to ramp up the ability to generate profit for the firm,” Olson, 43, recalled being told by two executives. “This is Jamie’s new vision for the company.” That drive has now shattered JPMorgan’s cultivated reputation for policing risk and undermined Dimon’s authority as a critic of regulatory efforts to curb speculation by too-big- to-fail banks. It also cost Chief Investment Officer Ina R. Drew, one of the most powerful women on Wall Street, her job. As U.S. and U.K. investigators descend on the firm following Dimon’s announcement last week of a $2 billion trading loss, lawmakers are pointing to the breakdown at the largest U.S. bank as evidence that tougher rules are needed.






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