Tuesday September 2 Housing and Economic stories

Top Stories:

Deficit looms for California's unemployment benefit fund - (www.latimes.com) Yes, while politicians in CA worry more about national conventions, they can’t balance a budget. With joblessness at a 12-year high and expected to head higher, California's fund for paying unemployment benefits is about to go broke. The fund, sustained mainly by taxes on employers, is projected to be deeply in the red as soon as March. And the administration of Gov. Arnold Schwarzenegger is alarmed that it may have to keep the fund afloat by borrowing from the federal government and using state money to pay nearly $100 million in interest over two years. At stake is the stability of a 73-year-old program that began during the Depression. In July, California paid unemployment benefits worth $567.4 million and received 267,000 new claims for jobless benefits. Under the program, eligible workers can receive maximum benefits of $450 a week, depending on their previous earnings. Benefits last as long as 26 weeks, and many out-of-work people can qualify for a 13-week extension, recently approved by Congress.

California Budget Impasse Sets New Record - (www.cbs5.com) The California state legislature is a record 63 days late and nowhere close to announcing a budget agreement. Political consultant Leo McElroy said those Schwarzenneger pay cuts for state workers are a real possibility now. "In past years they have always managed to cobble a compromise together," he said. McElroy says the budget impasse -- Democrats arguing for tax hikes and Republicans for programs cuts -- could go on for weeks, or more. And the public will get angrier and angrier with little possibility they'll vote their representatives out of office.

Reset loans add to US home woes - (www.ft.com) As usual, our politicians were behind the wheel (asleep) when these were introduced but are now questioning these loans today. The stricken US mortgage market is set to suffer further setbacks in the next two years as $96bn of risky home loans sold with initial flexible payment options switch to more stringent terms. These will raise borrowers’ monthly payments by about 60 per cent. The changing terms could more than double the number of borrowers falling behind on so-called “option adjustable rate mortgages” issued between 2004 and 2007. This is according to research published Tuesday by Fitch Ratings. Option ARMs allow borrowers to choose a low minimum monthly payment that often falls short of the interest due on the loan, typically for five years. The difference between the minimum and the full payment is added to the mortgage balance.

Atticus hit hard by credit crunch - (www.ft.com) Atticus Capital, one of New York's most powerful hedge funds, has lost more than $5bn (€3.4bn) this year, as its record as one of the world's top performing money managers was damaged by the credit crunch. The firm's two flagship funds fell by a quarter and almost a third by the end of August, marking among the biggest losses in dollar terms ever recorded by a hedge fund. This was as a result of its strategy of taking large, concentrated bets and using few "short" positions betting on a fall in prices to lower risk. Atticus had $14bn under management at the end of July, according to letters to investors, down from a peak of more than $20bn last year.

Desperation at WaMu Puts Taxpayers at Risk - (Mish at globaleconomicanalysis.blogspot.com) Desperation is in the air at Washington Mutual (WM). That WaMu is offering 5% on CDs should be proof enough. From LastNightInVegas. If the 5% rate WaMu is offering on CDs isn't indication enough that there's trouble brewing, the fact that WaMu is promoting it with a hand drawn white board sign certainly clinches it. This is a different form of death spiral financing. WaMu is paying 5% on CDs at a time the Fed Funds Rate is 2.0% and the discount rate is 2.25%. Where can WaMu invest money safely and return 5%? The answer is nowhere. It is a moral hazard that WaMu can even offer CDs at 5% with FDIC guarantees. Money is increasingly flowing to such endeavors, at taxpayer risk. Supposedly FDIC is self insured. I say supposedly. And although I am certain that FDIC guarantees will be honored, I am increasingly suspicious of how those guarantees will be honored. LondonBanker has an excellent article on this subject called Is the FDIC another troubled monoline? It's a good read. Please take a look.

Saving up for a down payment on a home is the new reality - (www.heraldtribune.com) Hey, what a concept. The investment and lending banks must be brilliant for coming up with this idea!! One reason the down payment is so important is that it is the single most important factor affecting loss to the lender. The down payment is a buffer against lender loss in the event of a foreclosure. For example, if foreclosure costs are 20 percent of value and property value does not change, a 20 percent down payment fully protects a foreclosing lender against loss, but a 10 percent down payment provides only partial protection. Perhaps even more important, borrowers who get into payment difficulties but have equity in their properties usually will sell to avoid foreclosure. By selling, they realize the equity themselves, whereas if they allow the property to go to foreclosure, the equity will be partially or wholly depleted by foreclosure costs. Their selling avoids the foreclosure. There is still another reason why lenders attach so much importance to the down payment. Borrowers who have been able to save the funds for a down payment are less likely to get into payment troubles later on. Saving for a down payment requires budgetary discipline; repaying a mortgage also requires budgetary discipline, and the one carries over to the other. Of course, this assumes that the down payment is saved, not borrowed. Underwriters look for evidence that the funds committed to down payment are the borrower's own.

Georgia Bank Becomes 10th to Fail in US – (www.cnbc.com) Sheila Bair and the sneaky FDIC close another bank on Friday evening after financial news reporting becomes sparse. True to their normal game-plan, the FDIC shuts down another bank on Friday evening.

Ed McMahon -- S.O.L. Again - (www.tmz.com) - We've confirmed the guy who went into escrow to buy Ed McMahon's house has pulled out of the deal. We're told the buyer never came up with any cash ... which means the whole thing sounds phony. The escrow was opened without a deposit, but the buyer never put his money where his mouth was. So that leaves Ed with no place to live if the house does go into foreclosure ... which again leads to the doorstep of Donald Trump. Trump has said he'd step in again and buy the house and lease it back to Ed for life. Our sources say Donald has offered a low ball offer already, but that's it. We're told Trump has had discussions with Ed's realtor, Alex Davis, since the deal fell apart last Thursday. Will Donald save the day or is this a publicity stunt? We know the stumbling block with Trump is price -- he hasn't offered what Ed wants/needs to get the monkeys off his back.

Baghdad Bonds Safer Than KeyCorp and National City - (Mish at globaleconomicanalysis.blogspot.com) Iraq's bonds are delivering the biggest returns in emerging markets as oil export revenue bolsters government finances and violence declines. The country's $2.7 billion of 5.8 percent bonds due 2028 gained 45 percent since August 2007, according to Merrill Lynch & Co. indexes. Investors demand 4.84 percentage points more in yield to own the debt instead of Treasuries, down from 7.26 percentage points a year ago. The spread is narrower than for notes of Ohio banks National City Corp. and KeyCorp, suggesting Baghdad may be safer for bond investors than Cleveland.

Lehman Brothers Quick Fix Cash Injection TBA - (www.worldpress.com) - News from London today places Lehman Brothers in talks with Foreign Government backed Investment Funds in a desperate attempt to secure a quick-fix Capital Injection, this on the heels of the announcement that Lehman was implementing at least 1500 Layoffs.

Pakistan Sets Floor on Stock Prices - (Mish at globaleconomicanalysis.blogspot.com) Those looking for absurd government manipulation can find it here: Pakistan Sets Floor on Stock Prices to Stop Plunge. Pakistan set a floor for stock prices on the benchmark exchange, moving to halt a plunge that has wiped out $36.9 billion of market value since April. Securities can trade within their daily limit of 5 percent "but not below the floor-price level" of yesterday's close, the exchange said on its Web site, without giving details. The exchange is working to restore confidence after President Pervez Musharraf quit on Aug. 18 to avoid impeachment, and ruling alliance members nominated rivals for the presidency. Investors stoned the exchange last month after it removed a 1 percent daily limit on price declines.

Muni Bonds’ No-Tell Habits - (www.nytimes.com) While Jefferson County’s problems clearly offer a warning sign, investors who hold municipal securities — whether individually or in a mutual fund — have little way of recognizing when trouble is brewing. That’s a result of a severe lack of financial disclosure by municipal issuers, which had $2.6 trillion of debt outstanding at the end of 2007. Most of that debt is held by individual investors. Amazing as it is in this day and age, the municipal bond market is a place where disclosure is pretty much voluntary. As such, investors depending on interest and principal payments from entities issuing these bonds receive only spotty financial reports. How spotty? Woefully so, according to a new study by DPC Data, one of the four data collectors known as nationally recognized municipal securities information repositories. The study shows dismal disclosure among municipal issuers in both annual filings of financial statements and other reports of material changes that are of concern to investors — for example, a looming ratings downgrade by one of the credit rating agencies. In 2006, bonds that had raised approximately $350 billion upon issuance were found to be delinquent in disclosure. “Our findings indicate that nondisclosure is an established practice and a growing trend,” said Peter J. Schmitt, the author of the study and the chief executive of DPC Data. “The implications of any failure to disclose are serious. At a minimum, it is a breach of the fundamental principles of investor protection, suggesting hidden problems or potential fraud.”


Other Stories:

In taxing times, target the rich? - (www.mercurynews.com) Yes, all the supposedly poor people are trying to get the “rich” to pay more. They are already paying on average 106% of all personal taxes (subsidizing the parents and elders who received tax rebate checks). In a stalling election-year economy, California's one-time "wealth tax" is just one example of the make-them-pay bull's-eyes showing up on the backs of wealthy Americans.
Commerzbank to Buy Dresdner, Axe 9,000 Jobs - (www.cnbc.com)
Two Million Flee Gustav, Gulf Refineries Close - (www.cnbc.com) U.S. energy companies shut nearly all offshore oil production and were racing to bring down flood-prone Louisiana refineries ahead of Hurricane Gustav's landfall.
Italy's Alitalia files for bankruptcy protection - (www.mercurynews.com)
Calif. salaries don't support home prices - (www.ocregister.com)
Oil companies shutting down Gulf operations - (www.ap.com)
GM Offers Early Retirement to 9,000 Salaried Workers - (www.bloomberg.com)
Lehman Has Plan for Real-Estate Loans - (online.wsj.com)
Hurricane Gustav Strengthens, Accelerates, Heads for Cuba, Gulf - (www.bloomberg.com)
Gustav May Hit Gulf Platforms Harder Than Katrina - (www.bloomberg.com)
British economy facing 'worst downturn in 60 years': Darling - (news.yahoo.com/s/afp)
ECB Plots Clampdown - (online.wsj.com)

Commerzbank Agrees to Buy Dresdner for EU9.8 Billion - (www.bloomberg.com)
Australia, frontier of a global rush to commercialize water - (www.iht.com)
Borrowing Costs Increase Sharply For Russian Firms - (online.wsj.com)
Office space boom as Shanghai reaches for the sky - (www.ft.com)
Banks shift funds out of U.S. to Europe: BIS - (www.reuters.com)

Why did Johnny Mac pick Sarah Palin? - (www.ml-implode.com) - "I’m not the first to notice that Palin is easy on the eyes. Craig Ferguson thinks she has the “naughty librarian” thing going"
Britain’s mortgage lenders may be sitting on millions of pounds of worthless loans - (www.ml-implode.com) - "Eventually people living on the coasts, and in homes under sea level, will not be able to get private insurance. That day will ...
Lenders face huge hit on mortgages fraudulently obtained by crime gangs - (www.ml-implode.com) - "Britain’s mortgage lenders may be sitting on hundreds of millions of pounds of worthless loans fraudulently obtained by crimina...
Bloggers versus MSM - (www.ml-implode.com) - "I'm appalled at what passes for news from the daily newspaper I read in the morning when I get my coffee."
Our work here is nearly done. HousingPANIC (the blog) will end on November 5, 2008 - (www.ml-implode.com) - there were a few main reasons for this blog: 1) To warn others of what was about to come 2) To expose the lies of realtors ..
Good Neighbors, Good Neighborhoods - (www.ml-implode.com)