Thursday September 18 Housing and Economic stories

TOP STORIES:

Fed running out of Money? US Treasury raises Fed funding - (www.ft.com) The US Treasury is selling $40bn of bills to allow the Federal Reserve to expand its balance sheet The US Treasury announced it was creating a supplemental funding programme to ensure that the Federal Reserve has the cash it needs and its ability to provide emergency liquidity support for the markets is not constrained by the size of its own balance sheet. The move was intended to deal with fears that the US central bank’s balance sheet was overstretched following its loan to AIG.

US to take control of AIG - (www.ft.com) The US Federal Reserve announced that it will lend AIG up to $85bn in emergency funds in return for a government stake of 79.9 per cent and effective control of the company - an extraordinary step meant to stave off a collapse of the giant insurer that plays a crucial role in the global financial system. Under the plan, the existing management of the company will be replaced and new executives will be appointed. It also gives the US government veto power over major decisions at the company

Fed Repaid JPMorgan $87 Billion for Lehman Financing - (www.cnbc.com) The New York Federal Reserve intervened aggressively to shore up the U.S. financial system this week, providing at least $87 billion to help underpin trades with bankrupt Lehman Brothers, court documents show. The Fed's action is the latest sign of how U.S. authorities have been seeking to prop up financial markets following the failure of Lehman and as big insurer American International Group [AIG ) ] fights for survival. While the government had pledged not to fund a rescue of Lehman [LEH ) ] , the disclosure Tuesday showed authorities that were taking other financial steps to prevent markets from descending into chaos. JPMorgan Chase [JPM ) ] advanced $87 billion to Lehman on Monday to help clear and facilitate securities transactions with customers and clients of Lehman "to avoid disruption of financial markets," according to documents filed in the U.S. Bankruptcy Court for the Southern District of New York. Lehman and the New York Fed had requested the advance, known as a "commencement date advance" and the New York Fed repaid it, according to filings. In effect, the New York Fed lent Lehman the funds.

Reserve Primary Fund Drops Below $1 a Share - (www.cnbc.com) Reserve Primary Fund, a money-market mutual fund whose assets have tumbled 65 percent in recent weeks, fell below $1 a share in net asset value, because of its losses on debt issued by Lehman Brothers Holdings. In the industry, money money funds whose net assets drop below $1 a share are said to have "broken the buck". The Reserve Primary Fund had about $23 billion in assets on Tuesday, down from about $65 billion in assets as of Aug. 31, said fund spokesman Ming Lee Hatch. Investor redemptions will be delayed as long as seven days, the fund's owner, New York-based Reserve Management Corp., said Tuesday in a statement. The fund's chairman, Bruce Bent, is known as the "father" of money funds, after creating the first money market mutual fund in 1970 with a partner.

AIG Has Friends At The Fed, Public Be Damned - (www.nytimes.com) Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group. The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history. With time running out after A.I.G. failed to get a bank loan to avoid bankruptcy, Treasury Secretary Henry M. Paulson Jr. and the Fed chairman, Ben S. Bernanke, convened a meeting with House and Senate leaders on Capitol Hill about 6:30 p.m. Tuesday to explain the rescue plan. They emerged just after 7:30 p.m. with Mr. Paulson and Mr. Bernanke looking grim, but with top lawmakers initially expressing support for the plan. But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with. What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but A.I.G.’s role as an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required A.I.G. to cover losses suffered by the buyers in the event the securities defaulted. It meant A.I.G. was potentially on the hook for billions of dollars’ worth of risky securities that were once considered safe.

Policyholders mob AIG office in Singapore - (www.financialweek.com) Hundreds of anxious investors thronged the Singapore office of a unit of American International Group to redeem their policies on Tuesday, on fears the U.S. insurance giant could be the next financial firm to tumble. American International Assurance, a wholly owned subsidiary of AIG, pinned up an article from a local paper headlined “AIA policy holders get assurance” at its entrance, but that did not deter wary investors who are facing a deluge of bad news after Lehman Brothers filed for bankruptcy protection on Monday

US Considers Aiding AIG; Private Bailout Unlikely – (www.cnbc.com) Fed now playing GOD and determining which companies to save and which to let fail. With a private sector solution looking increasingly unlikely, the government is once again considering providing AIG with financial support,.

Gross's Fund Guaranteed $760 Million of AIG Debt Through Swaps - (www.bloomberg.com) Bill Gross, manager of the world's largest bond fund, guaranteed $760 million of debt issued by American International Group Inc. as of June 30, obligations that may prove costly if the insurer fails to stay afloat. Pimco Total Return Fund, which oversees $132 billion in assets, backed the bonds by selling credit default swaps to investors that pay off if AIG defaults, according to a filing with the U.S. Securities and Exchange Commission last month. The fund had sold insurance on $7.7 billion of bonds, including $4.8 billion issued by financial-services companies, as of the end of June. The swaps are part of a larger bet by Gross that some beaten-down corporate bonds will recover because they are too important for the U.S. government to let them fail, analysts said. That theory was tested yesterday as Lehman Brothers Holdings Inc. filed for bankruptcy protection and AIG's request for $40 billion in loans was rebuffed by the Federal Reserve.

Record low for 30-year T-bond yield - (www.latimes.com) While most investors were focused on the stock market, the Treasury bond market had a historic moment on Monday: The yield on the 30-year T-bond fell to its lowest level since the government began issuing the securities on a regular basis in 1977. In other words, we have the lowest 30-year T-bond yield in more than 30 years. What drove the Dow Jones industrial average down 504 points for the day -- fear of calamity in the financial system -- was high-energy fodder for Treasury bond bulls.

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.

Lehmans Failure Is Another Blow for Hedge Funds - (www.nytimes.com) The bankruptcy filing of Lehman Brothers is another blow for the hedge fund industry, though the writing has been on the wall long enough for many to have reduced their exposure to the U.S. investment bank, according to Reuters. Legendary fund manager George Soros, who runs around $18 billion in assets, looks likely to have had his fingers burned after raising his stake in Lehman to 9.5 million shares in the second quarter, according to the news service. British activist hedge fund Algebris will also probably have taken a hit from the fall in the share price of what was the fourth-largest U.S. investment bank, Reuters said. The hedge fund firm owned just over 4.45 million shares at end-June, Thomson Reuters data show. Algebris sold its stake this year, a spokesman told Reuters, declining to give further details.
Dealings through Lehman’s prime brokerage business were also suspended on Monday, which will have caused problems for some hedge funds, though the industry has been seeking to increase the number of banks they deal with to spread risk.

Shocked City braced for more hits - (www.ft.com) Lehman Brothers’ travails sent shockwaves through Britain’s banking sector on Monday as investors braced for the possibility of further bank collapses. Barclays and Royal Bank of Scotland, two of the UK’s biggest banks, fell by 10 per cent. The worst-hit stock was HBOS, the UK’s fifth-largest bank, which at one point saw its shares plummet by 36 per cent before recovering to close 17.5 per cent down at 232.5p. One concern was the scale of banks’ direct exposure to Lehman. The Financial Services Authority, the regulator, is thought to have scrutinised the situation and concluded the exposures were “manageable”. On Monday, some banks disclosed their position – notably Lloyds TSB, whose exposure stands at less than $75m (£42m). A much bigger concern is what happens if Lehman is forced to sell some of its complex assets – rooted in US subprime assets – at rock-bottom prices. This would force down the market price and cause UK banks to mark down the value of similar assets, triggering further writedowns and potential losses.


OTHER STORIES:

House prices to fall on liquidity concerns - (biz.yahoo.com)
U.S. Mortgage Rates May Wreak Havoc After Libor Gain - (www.bloomberg.com)
Banks Finally Dumping Forclosures At Decent Discounts - (housing-kaboom)
Pimco real estate fund tanks - (lansner.freedomblogging.com)
Tilt: Game Over - (market-ticker.denninger.net)
Possibly a Thousand Banks Will Close - (www.cnbc.com)
Americans Should Worry About Bank Deposits - (finance.yahoo.com)

HBOS shares plunge 48% in 24 hours (and LIBOR doubles!) - (www.ml-implode.com) - Shares in the Halifax banking group, HBOS, plunged sharply for the second day running amid fears that it could be a major victim...
JP Morgan back in the hunt for WaMu - (www.ml-implode.com) - Shares of WaMu on the rise again as JP Morgan appears to be back in the hunt.
And What Will They Do With Them? - (www.ml-implode.com) - "... nomination for "Strangest Housing ‘Recovery’ Plan" I’ve heard recently goes to Irwin Kellner, chief economist for MarketWat...
Thornburg hit with surprise margin calls - (www.ml-implode.com) - Reuters is reporting Thornburg Mortgage (TMA) "may run short of cash after getting surprise margin calls that threaten a restruc...

Income Taxes Will Go Up Regardless Who Is Next President - (dadtalk.typepad.com)
Fed statement On Holding Rates Too Low - (www.federalreserve.gov)
Lehman's fall reflects Wall Street's flaws - (money.cnn.com)
A New Architecture For the Financial World - (www.washingtonpost.com)
Lehman's Actual Bankruptcy Filing - (PDF - patrick.net)
Roubini: “No Bottom To The Losses” - (www.ml-implode.com) - "Yesterday was quite a ride for the stock market, and today might not be much better. Here’s Dr. Nouriel Roubini discussing the...
The WhistleBlower: What the SFDPA Administrators Don't Want You To Know: Part 1, The Penobscot Indian Tribe Down Payment Grant Program - (www.ml-implode.com)
Congress Should Protect Taxpayers and Retain the Ban on 'Charity' Downpayment Schemes - (www.ml-implode.com)
ALTA President Testifies on RESPA Reform - (www.ml-implode.com)
Shareholders Run, Much Like Depositors Once Did - (blogs.wsj.com)
What Lehman will mean for the world - (english.aljazeera.net)
The Meaning of the Lehman Collapse - (www.reochronicle.com)
WaMu lowered to junk - (www.ml-implode.com)
The Other Shoe: AIG Needs $75B Infusion After Downgrade - (www.ml-implode.com)
The Crime In Buying AIG Time - (www.ml-implode.com)
How Good Are Online Financial Services at Marketing? - (www.ml-implode.com)
National City to raise $7 billion - (www.ml-implode.com)
Market Votes "No Confidence" In Merrill, Bank of America Merger - (www.ml-implode.com)
Fed Funds spread signals crash - (www.ml-implode.com)

AIG Plunges as Downgrades Threaten Quest for Capital - (www.bloomberg.com)
U.S. Stocks Rise on Rate-Cut Expectations; AIG Pares Tumble - (www.bloomberg.com)
Money-Market Rates Double Amid Global Credit Seizure - (www.bloomberg.com)
Foundations of CDS industry shaken - (www.ft.com) Lehman, the first major market-maker to go bankrupt in the decade-long history of the privately negotiated, unregulated business, may leave behind billions of dollars in potential losses for trading partners, according to Barclays Plc of London. No one knows exactly how much because there's no central exchange or system for recording trades. ``The fact that I can't tell you the notional value of derivatives contracts Lehman has written the day after a bankruptcy is a scary thing,'' Brian Yelvington, a strategist at New York-based bond research firm CreditSights Inc., said yesterday.

Sell-off spreads to insurers - (www.ft.com)
Lehman Collapse Spurs Call for Credit Derivatives Clearinghouse - (www.bloomberg.com)
Congress weighs new regulations amid crisis - (www.washingtonpost.com)
Hedge funds reassess prime broker risk - (www.ft.com)
Short-sellers increase positions - (www.ft.com)
European, Japan Central Banks Pump Money to Soothe Markets - (www.bloomberg.com)
Russia's Micex Index Falls Most Ever; Exchanges Suspend Trading - (www.bloomberg.com)
Japan Banking Stocks Post Worst Fall Since 1987 - (www.nytimes.com)
U.K. Inflation Rate Rises to 4.7% as Recession Looms - (www.bloomberg.com)
‘World’s biggest game of poker’ ended at the weekend for financiers called to gloomy room – (business.timesonline.co.uk)
U.S. Consumer Prices Drop as Energy Costs Retreat - (www.bloomberg.com)
Fed pumps $50B into nation's financial system - (www.ap.com) Urgently trying to keep cash flowing amid a Wall Street meltdown, the Federal Reserve on Tuesday pumped another $70 billion into the nation's financial system to help ease credit stresses. The Federal Reserve Bank of New York's action came in two operations in which $50 billion and then another regularly scheduled $20 billion were injected in temporary reserves. The maneuver takes place as Federal Reserve Chairman Ben Bernanke and his central bank colleagues prepare to meet to decide their next move on interest rates and conduct a fresh assessment of the country's financial and economic troubles. Some believe the financial system turmoil raises the odds the Fed will cut rates. Others still predict the Fed will hold its key rate steady at 2 percent. In the last few days, the American financial system has been badly shaken as bad bets on dodgy mortgage-backed securities claimed more Wall Street giants.
Regulatory Revamp Expected to Grow - (online.wsj.com)
Fed Takes Steps to Aid A.I.G. - (www.nytimes.com)
Fed Adds Most Reserves Since 9/11 as Banks Hoard Cash - (www.bloomberg.com)
NY governor sees Wall St losing up to 30,000 jobs - (www.boston.com)
Rate cut by Fed not inconceivable - (www.ft.com)
U.S. Consumer Prices Fell for First Time in Almost Two Years - (www.bloomberg.com)
London, New York Stand to Suffer - (online.wsj.com)
Geithner Cajoled Banks to Help Each Other, Too Late for Lehman - (www.bloomberg.com)
Mortgage Seekers Find Rates Are Down, Credit Standards Tighter - (www.bloomberg.com)

Sour economy hits paper mills, small-town workers - (www.ap.com)
Home prices to fall on liquidity concerns: analyst - (www.reuters.com)
Goldman Profit Drops 70%, Says It's `Well-Positioned' - (www.bloomberg.com)
Dell Predicts `Further Softening' in Computer Demand - (www.bloomberg.com)
AIG Credit Rating Cut Threatens Quest for Funds, Roils Markets - (www.bloomberg.com)
Hewlett-Packard to Cut 24,600 Jobs in EDS Integration - (www.bloomberg.com)
AIG Seeks Loan From Goldman, JPMorgan as Fed Resists - (www.bloomberg.com)
Best Best Buy Profit Declines After Retailer Spends More to Enhance U.S. Stores - (www.bloomberg.com)
The Unraveling of AIG - (www.businessweek.com)
Businesses could face tighter credit after Lehman bankruptcy - (www.latimes.com)
A Fight for a Piece of What’s Left - (www.nytimes.com)
AIG forms keystone of financial system - (www.ft.com)
Credit crunch hits small businesses - (money.cnn.com)
Survey shows shoppers more willing to trade down on medication than on pet food, cosmetics - (www.chicagotribune.com)
United raises fee for 2nd bag to $50 - (www.chicagotribune.com)
Crisis Prompts Calls for Federal Rescue Entity - (www.washingtonpost.com)
Wall Street’s Next Big Problem - (www.nytimes.com)
Bankers from '80s Texas bust see deep trouble - (www.dallasnews.com)