Monday September 15 Housing and Economic stories

TOP STORIES:

Crisis on Wall Street as Lehman Totters - (www.nytimes.com) U.S. Opts to Avoid Rescue; Momentous Weekend for American Finance Lehman's liquidation prospects and Merrill's push to sell itself to Bank of America sparked concern across Wall Street. The federal government's refusal to provide support to potential Lehman buyers prompted Barclays and Bank of America to walk away from talks.

Lehman Brothers Plans to File for Bankruptcy Shortly - (www.cnbc.com) CNBC has confirmed press reports that Lehman Brothers is likely to file for bankruptcy protection as soon as Sunday evening.

Rush Is On to Prevent A.I.G. From Failing - (www.nytimes.com) State regulators and executives of the insurance company rushed Sunday to arrange a capital infusion in the face of possible credit downgrades.

Bank of America Reaches Deal for Merrill - (www.nytimes.com) In a rushed bid to ride out the storm sweeping American finance, Merrill Lynch reached a deal to sell itself to Bank of America for roughly $44 billion.

Plenty of Lehman crisis stories:
· Treasury Said to Call on Wall Street to Back Lehman - (www.bloomberg.com) Geithner and Paulson presented two scenarios at last night's meeting, people briefed on the talks told Bloomberg News. The first was a forced liquidation of New York-based Lehman, which they said could spread turmoil in the markets and lead investors to flee other investment banks. The scenario preferred by Geithner and Paulson was for other companies to contribute money to a so-called bad bank to assume Lehman's devalued real-estate assets. That approach is similar to one Lehman presented to investors this week, which the company said would cost $5 billion to $7 billion. By assuming the ``bad'' assets, firms would help ease a sale of the rest of Lehman to Barclays Plc or Bank of America Corp., the people said.
· New York Fed Holds Emergency Meeting On Lehman's Future - (online.wsj.com) Treasury Secretary Henry Paulson has made it clear to participants that no government bailout should be expected, this person said. Representatives of the banks plan to continue meeting to try and forestall a collapse of Lehman, which could hurt their firms and Wall Street in general. I DON’T BELIEVE THIS INDUSTRY-INSIDER CROOK (PAULSON). If no government (or taxpayer) money is used to bailout Lehman, I will be shocked.
· Lehman Races Clock; Crisis Spreads - (online.wsj.com)
· U.S. Gives Banks Urgent Warning to Solve Crisis - (www.nytimes.com)

Senators Schumer and Menendez Unqualified for Office - (Mish at globaleconomicanalysis.blogspot.com) U.S. Senate Banking Committee members urged Fannie Mae and Freddie Mac, the mortgage companies placed under federal control this week, to freeze foreclosures on loans in their portfolios for at least 90 days. "This action would provide immediate relief to many homeowners" and let the companies "turn these non-performing loans into performing assets to minimize losses," Senators Charles Schumer, Robert Menendez and other panel Democrats said today in a letter to the companies and the Federal Housing Finance Agency, which is overseeing them under the government conservatorship. may be proven wrong but the economic asininity of those statements is unlikely to be topped, ever. If one could turn non-performing loans into performing assets by halting payments, why not just stop collecting mortgage payments everyone in the county? Every loan would be current and think of all the money consumers would have to buy things. Of course taxpayers would be immediately on the hook for a mere $5 trillion, but who cares about small details like that? Senators Charles Schumer, Robert Menendez, and any other fool who signed that letter is unqualified to be in Congress. It is as simple as that. I urge everyone to vote against Senators Charles Schumer and Robert Menendez the next time they are up for reelection. They are an economic disgrace to the country and unqualified for public office.

AIG: Stock Falls 30%, Bonds and Credit Default Swaps Trading at Distressed Levels - (www.ml-implode.com) - "Even though all eyes have been on Lehman, the potentially more troubling slow-motion train wreck is AIG. The insurer is a large credit default swaps protection writer and provides a host of financing products. Not only is AIG a larger firm than Lehman and could trigger a systemic event in the CDS market alone, but it isn't clear how it could be bailed out if it continues to unravel. Insurers are state regulated; the Fed and Treasury have no relevant expertise and no regulatory authority."

Fannie, Freddie to Be Kept Off Federal Budget - (www.washingtonpost.com) – The Bush/Cheney administration proving they are the most crooked and corrupt administration in the history of the US. The White House budget office said yesterday that it has decided not to incorporate mortgage-finance giants Fannie Mae and Freddie Mac into the federal budget, citing the temporary nature of the Treasury Department's takeover and "the level of federal ownership" of the firms. The decision affects the way public expenditures on the two companies will be reflected in official budget projections. Treasury Secretary Henry M. Paulson Jr. has pledged to invest as much as $200 billion to keep the firms solvent. On Tuesday, two days after the takeover, officials at the Congressional Budget Office announced that the deal had bound the government so tightly to the firms that their business operations, assets and liabilities should be included in the government's balance sheets. Yesterday, Office of Management and Budget director Jim Nussle said he had decided differently, but may "reevaluate their budgetary status in the future, should conditions change."

Foreign Bondholders Drove Fannie/Freddie Bailout - (www.blacklistednews.com) For anyone who still doubted the growing global influence of such emerging powerhouses as China, consider this: The U.S. government’s decision to take control of foundering mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) was driven not by worries about the fading U.S. housing market, but by concerns that foreign central banks in China, Japan, Europe, the Middle East and Russia might stop buying our bonds. As the bailout announced Sunday is currently structured, more than $1.3 trillion worth of Fannie Mae and Freddie Mac debt currently held by the central banks and other investors in those regions will be guaranteed by the U.S. government - even if one or both of the two government-sponsored enterprises (GSEs) were to fail. That means that U.S. taxpayers - government parlance for you and me - will ultimately foot a big part of the bill for making sure those foreign bondholders are “made whole.”

U.S. Treasury reassures Japanese investors - (www.marketwatch.com) Seeking to head off any unloading of Fannie Mae and Freddie Mac bonds by Japanese investors, the U.S. Treasury Department is taking the unusual step of directly contacting Japanese financial institutions about the plan to rescue the mortgage giants, according to a published report. Because a massive unloading of Fannie Mae (FNM) and Freddie Mac (FRE) holdings could hamper the U.S. government's efforts to shore up the mortgage firms' finances, the Treasury Department is effectively asking investors to refrain from doing so, Japanese business daily Nikkei said on its Website in a report dated Friday. According to sources familiar with the matter, Treasury Undersecretary for International Affairs David McCormick on Thursday phoned senior executives at major Japanese banks as well as the Life Insurance Association of Japan to explain Washington's plans for Fannie Mae and Freddie Mac, the report said.

Fannie to pay preferred stock dividend to friends of Paulson - (www.marketwatch.com) Fannie Mae (FNM) said late Wednesday it has received the consent of the Federal Housing Finance Agency and the U.S. Treasury to pay previously announced but unpaid third-quarter dividends on its preferred shares. Fannie Mae reiterated that future common and preferred stock dividends will be eliminated

Bailouts Will Push US into Depression - (www.cnbc.com) The end result of the global economic slowdown may be the U.S. announcing national bankruptcy as the government cannot afford the bailouts that it promised and the market will not bail out the government, Martin Hennecke, senior manager of private clients at Tyche, told CNBC on Thursday. "We expect a depression in the United States. We expect a depression, very possibly, also in Europe," Hennecke said on "Worldwide Exchange." The estimated $300 billion cost of the Fannie/Freddie bailout will probably be considered as a loss that the government will have to take, therefore passing it on to taxpayers, he explained. "We already have $3 trillion of debt, as far as the U.S. government is concerned. These debt figures across the U.S. economy are rising very sharply." When the government can no longer pass the United States' "immense debt" on to taxpayers, it will turn to the holders of U.S. dollars, leading to the eventual downfall of the currency, Hennecke said.

U.S. Holds the Whip Hand in Modifying Mortgages - (www.nytimes.com) - For much of the last year, Washington officials have been pressing the mortgage industry to modify home loans and avoid foreclosures. Now, the extraordinary government intervention in Fannie Mae, Freddie Mac and a growing number of banks puts federal agencies in the powerful, and awkward, position of deciding which borrowers will receive help and who will lose their home. And while the Bush administration is leaving it to the next president to decide how the mortgage finance companies will operate further out, the actions taken by their conservators now will have an immediate influence on the cost to taxpayers — and to the economy — of stabilizing the nation’s fragile housing market. Regulators are walking a fine line between protecting the government from losses and helping struggling homeowners and the broader economy, according to financial and political analysts. If officials modify too many home loans or the companies suffer high defaults on modified loans, taxpayers will be stuck with an inflated bill. But doing too little might prolong housing market problems.


OTHER STORIES:

Paulson: Congress Has No Authority Here - (bigpicture.typepad.com) Hank Paulson's God Complex just got bigger. The Director of Government Bailouts, and head of the Socialism Departmant at Treasury has informed Congress to back off his turf. "All your legislation belongs to us!" Now, last I checked, it was Congress that had the power of authorization disbursements, and that Treasury does not have the authority to spend 5.3 trillion dollars. Comrade Paulson does not seem to understand the way the different branches of government work in the United states, and is apparently unfamiliar with a little parchment called the Constitution. Perhaps we can get Ron Paul to explain how these things work to our friend from the People's Republic of Goldman. Bill King: "Hank is trying to euchre the market into believing that if Congress tries to change the law, the executive branch would then sue Congress for breach of contract. Good luck with that at the Supreme Court." Nice try, comrade, but no such luck.

Moody's Cuts WaMu Senior Debt to Junk; Bank May Sell Branches, Deposits - (www.nakedcapitalism.com) Washington Mutual, which has long looked wobbly, is moving beyond the point where it can survive in its current form (cynics might say in any form). Moody's lowered the bank's rating on its deteriorating financial condition and the difficulty of raising sufficient capital on viable terms

Lehman Deal Could Come Soon As High-Level Talks Continue - (www.ml-implode.com) - While the situation remains fluid, some sort of solution might be reached as soon as Saturday night, according to people familia...
U.S. Reassures Japanese - (www.ml-implode.com) - "In an effort to prevent an exodus of foreign investors from the two struggling mortgage titans, a senior U.S. Treasury official...
Fannie, Freddie may cause big credit headache - (www.reuters.com) An argument is emerging over Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) credit derivatives contracts, and the losers could end up facing billions of dollars of unexpected losses.
Participants in the $62 trillion credit derivative market held conference calls on Friday to discuss a thorny question for credit derivatives: what debt can be used to settle the contracts. The International Swaps and Derivatives Association (ISDA), a trade group, said it plans to offer guidance on the matter shortly.
Settling credit default swaps may seem like an abstruse matter, but billions are at stake. Any previously unexpected losses that participants suffer could be a tough blow to financial markets already rattled by the U.S. government's rescue of Fannie and Freddie.

Lehman Deal Possible Without FED Money - (www.ml-implode.com)
Builder News: Comstock defaults, NVR pulls offering - (www.ml-implode.com)
Vanguard M & T, Inc. "has become insolvent" - (www.ml-implode.com)
JPMorgan in advanced talks to acquire WaMu: source - (www.ml-implode.com)
Credit Crisis Strains Government's Options - (www.ml-implode.com)

Quebrado - (www.ml-implode.com)
Slope Of Bailouts Is Slippery And Expensive - (Mish at globaleconomicanalysis.blogspot.com)
Economy: Best- and Worst-Case Scenarios - (www.businessweek.com)

Where is the garbage debt? - (greatdepression2006.blogspot.com)
Mortgage Problems Move Up the Chain - (www.seekingalpha.com)
Total California Housing Inventory 159,898. Or is it Higher? - (www.mybudget360.com)
Real Estate Woes Spread to China - (www.nytimes.com)
Let's Get Real about Real Estate - (www.safehaven.com)
Seattle Prices Plunge - (www.seattletimes.nwsource.com)
Seattle Housing Flops - (www.seattlebubble.com)
The American McDream - (www.sfgate.com)
A History of Renting in a Country of Owners - (www.fanniemaefoundation.org)
Tiny Houses: The Next Little Thing? - (www.nytimes.com)
Internet Bots: Anatomy of UAL Stock Selling Frenzy - (www.hothardware.com)
Emergency talks on Lehman resume - (www.reuters.com)

Lehman, AIG, WaMu Drag Down Investment-Grade Debt - (online.wsj.com)
The Lehman Lesson - (www.fortune.com)