Wednesday August 6 Housing and Economic stories

Top Stories:

Default Risk on GM, Ford, Chrysler Hits 95%; Automakers Ask For Taxpayer Handout - (globaleconomicanalysis.blogspot.com) - One of America's three biggest automakers is almost certain to default within the next five years, according to UniCredit SpA analysis of the market for credit-default swaps. Contracts to insure $10 million of General Motors Corp. debt cost a record $4.7 million upfront plus $500,000 a year, indicating an 84 percent chance of default, while Ford Motor Co. has at least a 75 percent risk, according to UniCredit data. Combined with Chrysler LLC, the probability that one of the three will be unable to fund its business is more than 95 percent. "There might be a default at any time," said Jochen Felsenheimer, the Munich-based head of credit strategy at UniCredit, Europe's fourth-biggest bank. "The costs imply there is close to 100 percent probability that one of the big three will file for Chapter 11 bankruptcy." There is no way GM or Ford can raise money in this market. The "solution" of course is to ask for a taxpayer bailout just as Fannie Mae received. Indeed, the Detroit 3 ask up to $40 billion in loans. Detroit's three automakers are urging Congress to make as much as $35 billion to $40 billion in low-cost loans available during the next two to three years to assure that the companies survive long enough to retool and build a new generation of fuel-efficient vehicles. Chief executives Rick Wagoner, Alan Mulally and Robert Nardelli -- of General Motors Corp., Ford Motor Co. and Chrysler LLC, respectively -- talked Friday and agreed that access to capital is their most critical short-term need during this volatile period of high fuel prices and slumping SUV and truck sales, sources told the Free Press.

A Slow-Mo Meltdown - (www.nytimes.com) And there’s no end to the pain in sight. Ben Bernanke and his colleagues at the Federal Reserve have cut the interest rates they control repeatedly since last September. But they haven’t managed to reduce borrowing costs for the private sector. Mortgage rates are about the same as they were last summer, and the interest rates many corporations have to pay have actually gone up. So Fed policy hasn’t done anything to encourage private investment. The problem is fear: private-sector finance has dried up because investors, burned by their losses on securities that were supposed to be safe, are now reluctant to buy anything that isn’t guaranteed by the U.S. government. And the proliferation of special rescue packages — the TAF, the TSLF, the Bear Stearns deal, the Fannie-Freddie thing — may have staved off blind panic, but has fallen far short of restoring confidence. Oh, and those tax rebates Congress and the White House agreed to mail out have already done whatever good they’re going to do. Looking forward, it’s hard to see how consumers can keep spending even at their current rate — which means that things will probably get considerably worse before they get better.

Midwest elevators exhaust credit limits - (www.agweekly.com) Scott Dubbelde has told himself, time and again, that there is no use fretting about things over which he has no control. Even so, the general manager of a grain elevator cooperative in Hanley Falls lies awake at night, worrying about the ballooning debt his elevator has incurred to finance its inventory. “I’d be lying to you if I said I wasn’t worried,” Dubbelde said. “This is about our survival.” These may be boom times for farmers, but the sharp rise in commodities prices is putting unprecedented financial pressure on country grain elevators - the first point of sale for most crops. Just as families have borrowed more to meet rising costs, grain elevators have dramatically increased their debt burden as the prices of corn, soybeans and wheat have soared. Borrowing levels at some grain elevators have more than quadrupled since February. And with little cash on hand, many elevators have stopped buying grain from farmers that won’t be delivered within a few months, depriving farmers of a key hedge against falling grain prices.

At Freddie Mac, Chief Discarded Warning Signs - (www.nytimes.com) My opinion is that if there is a public bailout, the stockholders, bondholders, and execs of the company should be let go, left with nothing, etc. The current execs should not be left intact. The chief executive of the mortgage giant Freddie Mac rejected internal warnings that could have protected the company from some of the financial crises now engulfing it, according to more than two dozen current and former high-ranking executives and others. Skip to next paragraphThat chief executive, Richard F. Syron, in 2004 received a memo from Freddie Mac’s chief risk officer warning him that the firm was financing questionable loans that threatened its financial health. Today, Freddie Mac and the nation’s other major mortgage finance company, Fannie Mae, are in such perilous condition that the federal government has readied a taxpayer-financed bailout that could cost billions. Though the current housing crisis would have undoubtedly caused problems at both companies, Freddie Mac insiders say Mr. Syron heightened those perils by ignoring repeated recommendations.

The fiction of corporate transparency - (articles.moneycentral.msn.com) The Securities and Exchange Commission has made a big fuss about changing the rules for shorting stocks, but that's like shooting the messenger. The commission ought to spend its time making sure companies tell the real story and file financial forms that are accurate. Eminently deserving of the SEC's focus, for example, is the flurry of headlines surrounding Merrill Lynch (MER, news, msgs). Last week, just two weeks after reporting earnings, the company said it would take a $5.7 billion write-off in the third quarter. Yet in a conference call at the time of the earnings report, when CEO John Thain was pressed about why Merrill wouldn't liquidate assets in need of liquidation, he assured folks that it wasn't something the company needed to do. He also repeated a familiar refrain: that Merrill didn't need any new capital to support its business. "Right now we believe that we are in a very comfortable spot in terms of our capital," he said.

JetBlue to charge for pillows, blankets - (www.bizhjournals.com) Note the marketing BS on this one. The good news is you usually have a few customers on each flight that are a pain in the butt, and constantly nag the flight attendants for these. This should nip this problem in the bud (just kidding). The airline says it will replace its old in-flight pillows and blankets with an “eco-friendly” kit that can be purchased on flights of longer than two hours. Passengers will have to shell out $7 for the pillow-and-blanket kit, though they’ll get a $5 coupon to any item at retailer Bed, Bath & Beyond with the purchase. “Replacing our old, recycled pillows and blankets with this state-of-the-art, high-quality take home kit is an eco-conscious, health-conscious and customer-conscious decision,” Brett Muney, general manager of product development for JetBlue, said in a statement. “We are constantly seeking ways to enhance the in-flight experience for our customers, and providing them the option to purchase The World’s Cleanest travel pillow and a fleece blanket at an affordable price delivers on that promise.”



Other Stories:

Holding Back the Flood - (www.time.com)
Housing Lenders Fear Bigger Wave of Loan Defaults - (www.nytimes.com)
After the Bubble, Ghost Towns Across America - (online.wsj.com)
Bad News Keeps Coming for the European Economy - (www.spiegel.de)
Three Strikes Against Consumers - (www.nytimes.com)
GM's $15.5 Billion Loss Is Third-Biggest in a Century - (www.bloomberg.com)

Credit crunch far from over - (money.cnn.com)
US housing bill will not save economy - (www.business24-7.ae)
Goldman Downgrades Economic Outlook - (www.cnbc.com)
Fannie faces glut of unsold houses - (www.chicagotribune.com)
The Bigger Bubble Still Has Yet To Pop - (www.huffingtonpost.com)
Time For Next Wave Of Loan Defaults And Bank Failures - (www.nuwireinvestor.com)
Homedebtors rent out property as they wait for a better market - (www.latimes.com)
Credit Crunch Anniversary and Mega Trends Investing - (www.marketoracle.co.uk)
Builder CEO says housing bill 'no silver bullet' - (www.marketwatch.com)
Should I Buy or Sell? Seven Considerations - (Charles Hugh Smith at www.oftwominds.com)
Delinquent US property loans rise in June - (www.reuters.com)
Yes, That's $2 Trillion of Debt-Related Losses - (www.rgemonitor.com)
Has suburbia turned onto a dead-end street? - (www.timesunion.com)
Glenn Beck: Realtors are LIARS - (www.youtube.com)
What Goes Up Must Come Down - (PDF - patrick.net)
Bank Robbery 2008 Style - (www.jsmineset.com)

Triad Posts Q2 Loss of $198.8 Million - (www.ml-implode.com) - "Now in portfolio run-off, mortgage insurer Triad Guaranty Inc. said late Monday that it lost $198.8 million during the second ...
Take a Ride on the Magic Omnibus: Impact of H.R. 3221 on the FHA Program - (www.ml-implode.com) - "On July 30, 2008, President Bush signed H.R. 3221, otherwise known as the Housing and Recovery Act, making it Public Law # 110-...
If you wondered who the Fannie bail out was for, wonder no longer… - (www.ml-implode.com) - "I’ve said numerous times that the main reason for bailing out the mortgage giants Fannie Mae and Freddie Mac was not for the US...
Syron's Song - (www.ml-implode.com) - allegations have surfaced that Dick Syron, the now-embattled boss of Freddie Mac, ignored warnings from risk managers and underl...
U.S. housing market changes drastically as new help arrives - (www.ml-implode.com) - The dice have been rolled for the fate of 300 million Americans. Congress recently enacted legislation to resolve the worst ...
US housing bill will not save the economy - (www.ml-implode.com)
IndyMac Unit Eyed For Fraud - (www.ml-implode.com)
Suit blames loan servicer for pending foreclosure - (www.ml-implode.com)
Time for a Second Stimulus Package? - (www.ml-implode.com)
Fannie and Freddie Own 44% Of Foreclosed Homes - (www.ml-implode.com)
Freddie Mac chief disregarded warning signs - (www.ml-implode.com)
Truce Time in the Fan-Fred Wars - (www.ml-implode.com)
Moody’s & Fitch Join S&P in Massive Alt-A RMBS Downgrade Avalanche - (www.ml-implode.com)
How much worse can “It” get? - (www.ml-implode.com)

Oil falls as low as $118 on demand concerns - (www.ap.com)
Wall Street holds on to gains after Fed decision - (www.ap.com)
Fed Keeps Rate at 2% as Inflation Accelerates, Growth Stagnates - (www.bloomberg.com)
Federal Reserve statement on interest rates - (www.ap.com)
Higher Prices Outpace June Spending by Consumers - (www.nytimes.com)
Rising prices stifle impact of stimulus payments - (www.signonsandiego.com)
Service Industries in U.S. Contracted Again in July - (www.bloomberg.com)
Fed seen holding rates steady as growth stumbles - (www.reuters.com)
Hard times creep up the socio-economic ladder - (www.chicagotribune.com)
Price Increases Ramp Up, Sounding Inflation Alarm - (online.wsj.com)
No Fun for Six Flags As Parks Face Slump - (online.wsj.com)
Consumer Price Index may not reflect your family's reality - (www.dallasnews.com)

Analysis: The cost of a wrong turn – The Big Freeze part 2 - (www.ft.com)
Defaults Hurt Credit-Card Bonds - (online.wsj.com)
Credit-Card Bonds Fight A Tougher Debt Market - (online.wsj.com)
Efforts to bring credit ratings into clearer focus - (www.ft.com)

Chrysler refinancing falls short by $6bn - (www.ft.com)
At Freddie Mac, Chief Discarded Warning Signs - (www.nytimes.com)
Holders Hungry for Profit Will Find Slim Pickings at Merrill Lynch - (online.wsj.com)
Online advertising growth slows - (www.latimes.com)
Walgreens offers 90-days of generics for $12 - (www.chicagotribune.com)
After a Franchisor Files for Bankruptcy - (www.businessweek.com)

European June Retail Sales Decline by Most Since at Least 1995 - (www.bloomberg.com)
Booming China Suddenly Worries That a Slowdown Is Taking Hold - (www.nytimes.com)
Northern Rock Gets 3 Billion-Pound British Government Injection - (www.bloomberg.com)
European governments hesitate on pension cuts - (www.iht.com)
Asia's Policy Makers Clash Over Inflation Strategies - (online.wsj.com)
Hard Times for Argentina - (www.businessweek.com)