Tuesday September 30 Housing and Economic stories

TOP STORIES:

Historic Bailout Vote Fails in the House by Narrow Margin; Markets Plunge, Forcing a New Scramble to Solve the Crisis - (online.wsj.com) The House sent the $700 billion rescue package to defeat, a stunning turn of events that revealed political divisions. The Treasury and Fed are stuck for now with taking incremental steps to stem the financial crisis. The Dow plunged about 780 points, its worst point drop ever, as fears grew that more banks could fail. (Vote tally)

How Voter Fury Stopped Bailout - (online.wsj.com) Mr. Gingrich then capped his tepid endorsement with a call for Mr. Paulson's resignation, saying that "having a former chairman of Goldman Sachs preside over disbursing hundreds of billions of dollars to Wall Street is a terrible concept and inevitably will lead to crony capitalism and the appearance of -- if not the actual existence of -- corruption."
The defeat in Congress of a proposed $700 billion economic-rescue package followed an intense outpouring of voter anger, fanned by politicians, interest groups and media on the left and right, that overwhelmed calls from the president and top lawmakers to pass the deal. Voters opposed to the deal deluged Capitol Hill with letters, emails, phone calls and faxes over the past week. Some 23,000 signatures were collected over two days by Sen. Bernie Sanders, a Vermont Independent, calling for a five-year, 10% surtax on the wealthiest Americans to help fund the bailout. Some prominent conservatives and bloggers criticized the deal as an unwarranted intervention in the free market. Among prominent conservatives who publicly assailed the administration's proposal in recent days was former Republican House Speaker Newt Gingrich. But Mr. Gingrich said in a statement posted on his Web site Monday that he would "reluctantly and sadly" vote for the proposal if he were still in office. "This bill is not the best proposal for solving the housing crisis. It is not even a good proposal for solving the crisis," the statement said. "However, it is the only proposal Secretary [Henry] Paulson would support, and his support was essential in this setting."

Pimco's Gross: We Need Another Vote and Passage - (www.cnbc.com) Of course, those with the most to gain (or lose) are making calls for the bailout.
BlackRock CEO: Congress 'Playing with Fire' - (www.cnbc.com) Another arguably corrupt CEO who has raped and pillaged many a company. Laurence Fink, who heads the largest U.S. asset management company, BlackRock, expects a proposed bailout plan ultimately to be profitable, but said Congress was "playing with fire'' by voting it down. Fink, an expert in the asset backed securities that lie at the heart of the recent problems of many banks, worried that banks are not able to lend at the moment and that a bailout plan must be approved quickly to restore confidence. He also said there is deleveraging in financial markets, which has been accelerated by fears of heavy losses at hedge funds. "I'm disappointed,'' Fink told CNBC after the U.S. House voted to reject the Treasury's proposed bailout. "I think Congress is playing with fire. Hopefully, this is just politics.''

Citi, U.S. Rescue Wachovia - (online.wsj.com) Wachovia stock loses 90% of its value today. Citigroup acquired most of Wachovia for nearly $2 billion in a U.S.-engineered takeover. Included is a $312 billion mortgage portfolio saddled with bruising losses. Citigroup Inc. acquired most of Wachovia Corp. for nearly $2 billion in a government-engineered takeover that shows how quickly once-mighty U.S. banks are succumbing to a growing mountain of bad mortgages and other loans. Wachovia wasn't doomed by the same sort of customer exodus that led regulators to seize Washington Mutual Inc.'s banking operations last week. But federal officials intervened before dawn Monday after concluding that the Charlotte, N.C., bank's deteriorating condition posed a threat to the already fragile U.S. financial system. As part of the deal, Citigroup will inherit a $312 billion mortgage portfolio saddled with bruising losses.

London Turns Against Hedge Funds in Hunt for Culprit - (www.bloomberg.com) London is turning against the $450 billion hedge-fund industry that helped make the city a contender for the title of world financial capital. As Lehman Brothers Holdings Inc. filed for bankruptcy and HBOS Plc was pushed into a government-brokered takeover, U.K. regulators and lawmakers found a culprit: the estimated 980 hedge funds that reside in Britain, mostly in London. Harbinger Capital Partners Fund chief Philip Falcone was singled out by the Daily Mirror. The tabloid used a front-page story on Sept. 18 to brand him a ``greedy pig'' for short selling, or making bets that Edinburgh-based HBOS would lose market value. ``People are upset at the swift change of sentiment,'' said Jacob Schmidt, chief executive officer of London-based hedge fund adviser Schmidt Research Partners. ``It threatens London as a marketplace. The demonization of hedge funds isn't healthy and more and more will think of going elsewhere.''

AdFreak: Ed McMahon raps for FreeCreditReport.com - (adweek.blogs.com) Forget Freddie Mac. It's Eddie Mac who needs a bailout—and fast, because he's really hitting the skids! Swimming in debt and faced with losing his Beverly Hills home, 85-year-old Ed McMahon is shooting viral rap videos for FreeCreditReport.com. The late Johnny Carson's former second banana and ex-Star Search host tells the AP: "I knew I could sing the blues, but I didn't know I could rap." The lyrics fall into the so-bad-they're-good-no-actually-they're-bad! category, with references to "a ninja swinging nunchucks," "media chumps," "playing gin rummy" and a "wife with bad credit." (Sure, blame the trophy wife.) Oddly, McMahon does have some street cred, having gone gansta old-school as a violent pimp in the blaxploitation classic Slaughter's Big Rip Off.

Treasury Would Emerge With Vast New Power - (www.nytimes.com) Rarely if ever has one man had such broad authority to spend government money as he sees fit. The draft legislation, which will be put to a House vote on Monday, gives Treasury Secretary Henry M. Paulson Jr. and his successor extraordinary power to decide how the $700 billion bailout fund is spent. For example, if he thinks it wise, he may buy not only mortgages and mortgage-backed securities, but any other financial instrument. There are now two separate oversight panels involved, one composed of legislators and the other including regulatory and administration officials. Still, Mr. Paulson can choose to buy from any financial institution that does business in the United States, or from pension funds, with wide discretion over what he will buy and how much he will pay. Under most circumstances, banks owned by foreign governments are not eligible for the money, but under some conditions, the secretary can choose to bail out foreign central banks. Under the bill, the Treasury is to buy the securities at prices he deems appropriate. Mr. Paulson may set prices through auctions but is not required to do so. Rarely if ever has one man had such broad authority to spend government money as he sees fit, with no rules requiring him to seek out the lowest possible price for assets being purchased.

The post-bailout agenda - (www.csmonitor.com) House Speaker Nancy Pelosi says Congress bears no blame for the current crisis. And in a Thursday night TV speech, President Bush cited a large influx of foreign money as a primary cause for American's financial excess. Such political deflection doesn't bode well for what should be the biggest rethink of the government's role in financial markets since the New Deal, or even since Alexander Hamilton set up the first central bank. Congress too often fails to find a balance between letting business regulate itself and forcing a government's hand on markets. Two mistakes stand out from this crisis and call for correction: One is the 1999 repeal of a Depression-era Glass-Steagall law that prevented the financial institution from both lending money and investing it. The repeal recreated the same conflict of interest and casino-like culture of greed that led to the 1929 market crash. It also led to companies becoming "too big to fail," forcing government bailouts.

Crisis Hits Europe's Banks As U.S. Seals Bailout Deal - (online.wsj.com)
· European Regulators Move Swiftly to Rescue Two Lenders - (www.nytimes.com) The Belgian-Dutch Fortis Group and Britain’s Bradford & Bingley are two leading European banks with heavy exposure to soured mortgages.
· Fortis Gets $16.3 Billion Rescue - (online.wsj.com) Fortis will receive a $16.37 billion injection from the Netherlands, Belgium and Luxembourg, after BNP Paribas and ING Groep walked away from talks to acquire the company.
· Germans Discuss Hypo Rescue - (online.wsj.com) German bank Hypo Real Estate Group, an important real-estate lender in the U.S., is in difficulty because of the international credit-market turmoil, and German banks and authorities are in talks about a possible rescue of the Munich-based lender, according to a senior German official. The official said the outcome of the talks and the shape of a rescue plan weren't clear late Sunday. Several state-sector German banks have needed bailouts or suffered heavy losses since 2007. But Hypo Real Estate would be the first listed, private-sector bank to face a bailout in the current banking crisis.
· MKM to liquidate its flagship fund - (www.ft.com) MKM Longboat is to liquidate its $1.5bn (£816m) flagship hedge fund after the London manager was hit by heavy client withdrawals and caught in the collapse of Lehman Brothers. MKM, formed three years ago by the European partners of Sagamore Hill, a US hedge fund, had already paid out $400m of redemptions this month and decided to wind down the fund after Lehman failed. The fund is at the larger end of those closing this year and is likely to raise the level of concern in the industry about redemptions, which have been high since the end of last year. Next Tuesday is the last day for many investors in the industry to lodge requests to have their money back by the end of the year, and redemptions are being closely monitored by funds worried they may be forced to sell assets to repay clients.
· U.K. Officials in Talks on Bradford & Bingley Rescue - (www.bloomberg.com) The U.K. government is in talks with banking executives over a possible rescue of Bradford & Bingley Plc, the mortgage lender whose shares have tumbled 93 percent this year after late loan payments surged. Treasury, Financial Services Authority and Bank of England officials are working ``closely'' with the company and executives of other banks, said a Treasury spokesman who asked not to be identified because of ministry policy. The options for Bradford & Bingley include a takeover by the government, acquisition by a rival bank or a break up and purchase by several buyers. Bradford & Bingley, the U.K.'s largest lender to landlords, may join HBOS Plc and Northern Rock Plc among British banks that couldn't survive the worldwide credit crisis. In the U.S., regulators seized Washington Mutual Inc., America's biggest failed bank, this week and sold assets to J.P. Morgan Chase & Co.

Federal District Court Obstructs Lawsuits Challenging Authority for Bailouts - (www.ml-implode.com) - In case you are wondering how the gov't is getting away with all this (from 9/26): Late last week, WTP Chairman and constitutional activist Robert Schulz filed a federal lawsuit in United States District Court in Albany seeking to halt the execution of the emergency bailout of Wall Street insurance giant American Insurance Group, AIG. On Wednesday, Schulz filed a second federal lawsuit seeking to block the larger Wall Street bank bailout currently being negotiated through the U.S. Congress. Yesterday, while ignoring the dissimilar legal issues raised in the two lawsuits, the U.S. District Court issued an Order combining the two cases into a single case and denying the applications for injunctive relief requested. The Court, in effect, ducked a judicial (and very public) hearing to examine the critical legal question at the heart of the bailouts: What Constitutional authority exists for the U.S. Government or Federal Reserve to use public (taxpayer) funds for definitively private purposes? One unnamed practicing attorney also with several decades of federal litigation experience agreed that the District Court's basis for denying the injunction hearings was contrived to provide cover to block any public, judicial examination of the highly controversial constitutional questions raised by the bailouts adding, "If the Court had dared sign that request, all those cameras now in Washington would immediately be up here in New York."

Bailout Protest Pics - (www.ml-implode.com) Is this story related to the 2 stories below??:
· Bush Gets Army Ready To Attack Americans - (www.armytimes.com) Beginning Oct. 1 for 12 months, the 1st BCT will be under the day-to-day control of U.S. Army North, the Army service component of Northern Command, as an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks. It is not the first time an active-duty unit has been tapped to help at home. In August 2005, for example, when Hurricane Katrina unleashed hell in Mississippi and Louisiana, several active-duty units were pulled from various posts and mobilized to those areas. But this new mission marks the first time an active unit has been given a dedicated assignment to NorthCom, a joint command established in 2002 to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities.
· Army to station active-duty unit in the U.S. for 'crowd control' - (www.examiner.com)

Where's the Fire? Fed Nearly Busted - (londonbanker.blogspot.com) - The Fed is very close to being illiquid. That is the fear factor we are seeing at work, and the reason no one will discuss why the bailout is needed - only emphasize the urgency. In the last two weeks — if I am reading the Federal Reserves’ balance sheet data correctly — the Fed has: Increased “other loans” to the financial system by around $230 billion (from $23.56b to $262.34b); Increased its “other assets” by about $80b (from $98.67b to $183.89b); Increased the securities it lends out to dealers by $60b (from $117.3b to $190.5b); That works out to the provision of something like $370b of credit to the financial system in a two week period. And that is just what I saw on a cursory glance. The most that the IMF ever lent out to cash strapped emerging economies in a year? $30b, in the four quarters through September 1998 (i.e. the peak of the 97-98 crisis). The most the IMF ever lend out over two years? $40b, in the eight quarters through June 2003 (this covered crises in Argentina, Brazil, Uruguay and Turkey). This is a very real crisis. The Fed’s balance tells a story of extraordinary stress. I never would have expected to see the Fed lent out these kinds of sums over such a short-period.

China asks local lenders not to lend to U.S. banks - (www.marketwatch.com) Chinese regulators have asked domestic banks to stop lending to U.S. financial institutions in the interbank money markets to prevent possible losses during the financial crisis, the South China Morning Post reported Thursday. The China Banking Regulatory Commission's ban on interbank lending of all currencies applied to U.S. banks, but not to lenders from other countries, the report added, citing a source



OTHER STORIES:

AIG Bailout Saved Goldman From Major Loss - (www.ml-implode.com) Goldman and no other Wall Street firm was involved in the AIG rescue talks and an AIG failure would have created a hole as big as $20 billion in Goldman's balance sheet
Buffett Bought Goldman Stake As "Call" On Bailout; Now Advising Congress - (www.ml-implode.com) - Am I the only one who finds this just a tad bit odious? Readers might recall that on Sept. 23rd, the Sage of Omaha single-hand...
Kinda Almost Bailout Deal? - (www.ml-implode.com) - ``There is a bill in the house. There is not one in the Senate so we need to create as much doubt as we can, as soon as we can.'...
A picture of the Apocalypse - (www.ml-implode.com) - "The government may have to spend a nearly unlimited amount of money to bail out “the system.” We’re talking well north of a tr...
Congress, White House Reach Deal - (www.ml-implode.com) - "Given that we have seen the announced deals blow up already, I am rather skeptical of this one. For all I know they are attempt...
Senator Dianne Feinstein Responds To Constituents - (www.ml-implode.com)
Where's the Fire? Fed Nearly Busted - (www.ml-implode.com)
Was WaMu Takeover Illegal Siezure In JP Morgan's Favor To Protect FDIC? - (www.ml-implode.com)
11,666,666 Home Owners Could be Rescued from Foreclosure - (www.ml-implode.com)
So, Who Won The Debate? - (www.ml-implode.com)
Bailout Scare-Mongering: "Another Bank Teetering on the Edge" Listen to this article - (www.ml-implode.com)
No Amnesty For Wall Street by Chuck Baldwin - (www.ml-implode.com)
Short-Sale Ban Wallops Convertible-Bond Market - (www.ml-implode.com)

Wall Street, R.I.P.: The End of an Era, Even at Goldman - (www.nytimes.com)
Out of the Shadows and Into the Harsh Light - (www.nytimes.com)
Power Shifts From N.Y. to D.C. - (www.washingtonpost.com)
Maybe Short-Selling Isn’t So Bad, After All - (www.nytimes.com)
Wall Street Lays Egg With Its Nest Eggs - (online.wsj.com)
Muni Money-Fund Yields Surge - (online.wsj.com)
Municipalities Also Find Credit Is Scarce - (www.nytimes.com)
The End of the 'BSD' - (www.newsweek.com)
The Monster That Ate Wall Street - (www.newsweek.com)
Talks on future of Fortis to run into Sunday - (www.reuters.com)

U.K. Banks Seek Government Funding Plan to Help Restart Lending - (www.bloomberg.com)
Pakistan faces twin threats - (www.iht.com)
Just a hint of weakness is fatal in this market - (business.timesonline.co.uk)

Lawmakers Get Down to Details of Drafting Bill - (www.washingtonpost.com)
Bailout battle heads to weekend showdown - (www.reuters.com)
Conservatives Viewed Bailout Plan as Last Straw - (www.nytimes.com)
What $700B won't buy: a quick fix for the economy - (www.ap.com)
Wall Street wreckage washes up on west coast - (www.ft.com)
Troubled Wachovia Seeks Out a Merger - (online.wsj.com)
Wachovia, Looking for Help, Turns to Citigroup - (www.nytimes.com)
Behind Insurer’s Crisis, a Blind Eye to a Web of Risk - (www.nytimes.com)
Lehman Brokerage Lost $400 Billion in Assets Before Bankruptcy - (www.bloomberg.com)
What’s Free About Free Enterprise? - (www.nytimes.com)
Regulator in Chief? - (www.nytimes.com)

Crisis Hits Europe's Banks As U.S. Seals Bailout Deal - (online.wsj.com)
Financial Troubles Humble U.S. - (online.wsj.com)
Party Leaders Back Revised Plan for Bailout - (www.nytimes.com)
The Real Costs of the Bailouts - (online.wsj.com)
Breakthrough Reached in Negotiations on Bailout - (www.nytimes.com)
Citigroup and Wells Fargo Said to Be Bidding for Wachovia - (www.nytimes.com)
Lehman structure could take years to unravel - (www.ft.com)
GM Dealer Group Bill Heard Files for Bankruptcy - (www.bloomberg.com)
Lessons From 124 Banking Blow-Ups - (www.nytimes.com)
Hedge Funds Are Bracing for Investors to Cash Out - (www.nytimes.com)
After the Deal, the Focus Will Shift to Regulation - (www.nytimes.com)
Long-term disadvantages of short-selling ban may outweigh the benefits - (www.telegraph.co.uk)
Fortis Gets EU11.2 Billion Rescue From Governments - (www.bloomberg.com)
Hedge funds to hand back millions - (www.telegraph.co.uk)