Monday October 6 Housing and Economic stories

TOP STORIES:

AIG parties in style with taxpayer money only two weeks after bailout (taxdollars.freedomblogging.com) Less than two weeks after Uncle Sam gave American International Group (AIG) an $85 billion loan - staving off financial collapse - execs from one of its insurance subsidiaries, AIG American General, gathered for a conference at the uber-swank St. Regis Monarch Beach Resort, billed as “California’s only Mobil Travel Guide Five-Star Resort,” where ocean-view rooms start at $565 a night and “world class luxury” is the rule.
On Friday, before the presidential debate got under way, caterers for the St. Regis were setting up dozens of tables on the grounds of Mission San Juan Capistrano for AIG American General’s sumptuous off-site dinner. Tables were draped with soft Tuscan-gold tablecloths that cascaded to the grass; elegant fresh flower centerpiece graced each table; and what appeared to be fine crystal stemware, at least from a distance, glistened in the fading light. Workers set up a lengthy bar stocked with bottles of liquor. A half-dozen tall space heaters stood sentinel in case the evening turned cool. There was a large center stage with lighting and a sound system, and once the sun went down, the whole scene took on a magical patina as tiny white lights twinkled in the trees. The Watchdog - and the Outraged Taxpayer who alerted us to the situation - understand that corporate events such as these are planned many months in advance. I mean, really. Who could have known in the spring that there’d be Financial Armageddon in the fall? But still. “The inappropriateness and the excessiveness just blew us away,” said the Outraged Taxpayer, who went to the Mission Friday to pray in the chapel. “It’s outrageous. In very poor taste. Over the top.”

A.I.G. Already Uses $61 Billion of $85B Fed Loan - (www.nytimes.com) The American International Group said on Friday that it had already drawn down $61 billion of the $85 billion emergency bridge loan it received from the Federal Reserve two weeks ago, an announcement that startled credit ratings agencies. The emergency loan was supposed to buy the company time to sell its troubled assets in an orderly manner. But the sell-off has not yet begun, and now the insurer faces the additional pressure of trying to sell the businesses at a time when potential buyers are having trouble borrowing money.

Banks, firms borrow record amount from Fed - Economy in Turmoil ... - (www.msnbc.msn.com) Banks and investment firms borrowed in record amounts from the Federal Reserve's emergency lending facility over the past week, providing fresh evidence of the credit stresses squeezing the country. The Fed's report released Thursday said commercial banks averaged a record $44.5 billion in daily borrowing over the past week. That compared with a daily average of $39.36 billion in the previous week. On Wednesday alone, banks borrowed a record $49.5 billion, surpassing the previous high that came one day after the Sept. 11, 2001, terror attacks. For the week ending Wednesday, investment firms drew a record $147.7 billion. That was up significantly from $88.15 billion in the previous week. This category was broadened last week to include any loans that were made to the U.S. and London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch. On Wednesday alone, investment firms borrowed a record $146.6 billion, breaking the previous record set on Sept. 24.

TWO STATES NOW ASKING THE FEDERAL GOVERNMENT FOR MONEY. MAYBE THIS WILL MOTIVATE THESE RECKLESS (AND IDEALISTIC) STATES TO BALANCE THEIR BUDGETS AND STOP THEIR DEFECIT SPENDING. CREDIT IS AVAILABLE, JUST NOT AT THE 1-3% RATES YOU WISH TO BORROW AT.
· Gov. Schwarzenegger Asks For Emergency $7B Loan from US Government : NPR - (www.npr.org) Good audio interview/story. California is running out of money and may not be able to pay salaries by end of October. Gov. Arnold Schwarzenegger is asking Congress for as much as $7 billion to fund daily operations in the state. Madeleine Brand talks to Zoe Lofgren, chairwoman of the California Congressional Delegation, about the bailout request.
· Arnold wants your money! - (www.ml-implode.com)
· Mass. may seek a US loan as credit markets dry up - (www.boston.com) State Treasurer Timothy P. Cahill this week approached the US Treasury and the Federal Reserve Bank of Boston about lending Massachusetts money under the same extraordinary terms the government is giving banks and Wall Street firms during this financial crisis.The request was prompted by the state's inability to borrow from the short-term debt markets because the financial turmoil has essentially caused credit markets to stop lending or charge prohibitive rates. Earlier this week, Cahill's office shelved a $750 million debt offering because there were no buyers for state or municipal debt, he said. He did say how much the state might want to borrow from the Fed. Massachusetts' need is not as urgent, Cahill said, as the state of California's, which requested similar federal assistance on Thursday. California officials said the state would run out of money by the end of the month if the short-term debt markets do not ease, and if it could not obtain loans from the Fed.
· L.A. could face $400-million budget deficit - (www.latimes.com) The turmoil on Wall Street and the state government's dire financial situation are expected to add more misery to what already was expected to be a tough financial year for Los Angeles, Villaraigosa said. The city is being socked by an 8.2% unemployment rate, 2 percentage points above the national average, and a worsening home foreclosure crisis that is curtailing revenue from property taxes and home sales. "This is an extraordinary time, which requires extraordinary action by city leaders in order to protect taxpayer dollars and deliver the critical services to our residents," Villaraigosa said in a letter to department managers Friday.

JP Morgan blamed for Lehman's fall - (busness.timesonline.co.uk) The giant bank is alleged to have frozen $17bn of cash and securities belonging to Lehman on the Friday before its failure. JP MORGAN has been accused by its Wall Street rivals of dealing the final hammer blow that forced Lehman Brothers into collapse in a sensational claim that threatens to spark a colossal legal battle. The giant American bank is alleged to have frozen $17 billion (£9.6 billion) of cash and securities belonging to Lehman on the Friday night before its failure. According to Lehman’s biggest creditors, this was what precipitated the liquidity crisis that embroiled the firm, forcing it into Chapter 11 bankruptcy protection on the morning of Monday, September 15. The allegations have been raised in a filing at the bankruptcy court in New York, lodged late last week. Lehman’s biggest creditors include almost every big firm on Wall Street, most of Europe’s heavyweight banks and insurance companies as well as a slew of Japanese and Chinese institutions that are owed several hundred billion dollars.

Creditors prepare for legal action - (busness.timesonline.co.uk) The fallout from the collapse of Lehman Brothers in Europe continued apace yesterday as Deminor, the Brussels investor rights group, began a legal action aimed at recouping billions of dollars of losses for the bank’s creditors. Deminor said that Lehman vehicles had issued an estimated $34 billion (£19.3 billion) of bonds and other structured credit products across Europe in recent years, some of which had been sold on to retail investors. It said that it had been swamped by requests from creditors trying to recover assets and would be forming a representative group. It argued that the bonds were guaranteed by Lehman’s Wall Street parent, which is in Chapter 11 bankruptcy protection from its creditors. As well as taking legal action against any relevant Lehman entities in Belgium, the Netherlands and the US, Deminor said that it would pursue claims against intermediaries and other brokers who had sold on Lehman investments. “In many cases, the European banks seem to have made misrepresentations about the risk profile and guarantees attached to these instruments when promoting them with their retail clients,” Deminor said.

Treasury to Hire Asset Management Firms to Jumpstart Rescue - (www.bloomberg.com) Treasury Secretary Henry Paulson is hiring as many as 10 asset-management companies to join the lawyers and bankers he is recruiting to kickstart the government's new $700 billion bank-rescue program. The Treasury began implementing the plan within an hour of Congress yesterday giving Paulson the powers he sought to combat the U.S. financial crisis. Paulson is seeking to assemble a team to determine which toxic securities to target, how to value them and how to buy them. BlackRock Inc., Pacific Investment Management Co. and Legg Mason Inc. are seeking to become money managers for the program, people familiar with the matter said. ``This is something that, for a typical company, would take no less than five years,'' said Lynn Turner, a former chief accountant at the Securities and Exchange Commission. ``Anyone who thinks they can do this in two weeks is insane.''

Bank of America to Lehman: Where's Our Money? - (www.businessweek.com) The Lehman Brothers bankruptcy is quickly becoming one giant mess. Scores of hedge funds that had hundreds of millions in cash and other securities parked with Lehman's prime brokerage operation in London have had their accounts frozen. A number of these hedge funds have filed formal objections with the bankruptcy court, and at least one fund, New York's Bay Harbour Management, is mounting a legal challenge to the court's hastily approved sale of Lehman's brokerage arm to Barclays Capital. Now an even more troubling scenario is arising: legal disputes stemming from the estimated $1 trillion in derivatives transactions that Lehman had entered into on behalf of itself and some of its customers. Already, at least three lawsuits have been filed, alleging that nearly $600 million in collateral posted by some of Lehman's trading partners in derivatives transactions hasn't been returned and is in jeopardy of disappearing as the bankruptcy process unfolds.

NOTICE THE INK IS BARELY DRY ON BAIL-OUT BLL AND WALL STREET IS ASKING FOR MORE, VARIOUS STATES ARE COUNTING ON HOPE, AND CONDITIONS SEEM TO BE WORSENING:
· After House OKs bailout, credit markets tighten on fears the plan isn't enough to help economy - (www.latimes.com) That didn’t take long for Wall Street and Economists to start asking for more. With credit still gummed-up and stocks at new lows, Wall Street says additional U.S. help may be needed
· Gov. hopes rescue will free up funds - (www.latimes.com) California needs $7 billion to pay salaries and bills.
· Bailout may ease state credit crunch - (www.latimes.com)
· U.S. Sheds 159,000 Jobs; 9th Straight Monthly Drop - (www.nytimes.com) - Government data showed the worst month of retrenchment in five years, enhancing fears that the downturn has entered a more painful stage.
· Jobs disappear at fastest rate in 5 years, more losses seen as US prepares for elections - (www.latimes.com)



OTHER STORIES:

Senate Approves Bailout, Stocks Decline Anyway! (bloomberg.com)
Contact your Representatives again To Stop House Approval of Senate Plan (house.gov)
That Giant Sucking Sound (3.bp.blogspot.com)
Ten Reasons Not To Bail Out Wall Street (solari.com)
No BAIL OUT! Remove Paulson & Start Over (youtube.com)
The Insanity of the $700 Billion Giveaway (counterpunch.org)
Like a kid demanding a million cookies! (wondermark.com)
Let the Rich Bail Them Out (truthout.org)
Bush administration may rescue Wall Street, but not economy (guardian.co.uk)
Why the Wall Street bailout won't save America's economy (macleans.ca)
Bailouts Don't Address the Real Problem (voiceofsandiego.org)
Markets cannot correct until bailout efforts stop (dividendinc.blogspot.com)
First-time buyers welcome crash! (news.bbc.co.uk)
The bailout bill's foreign aid program (marketwatch.com)
Politicians pack bailout plan with pork (nypost.com)
Credit Crisis Spreads a Pall Over Silicon Valley (nytimes.com)
US Debt Graph (treasurydirect.gov)
September Madness (patrick.net)

End of an Era on Wall Street: Goodbye to All That - (www.nytimes.com)
Smaller Hedge Funds Struggle As Money Pipeline Dries Up - (online.wsj.com)
Familiar Abuses Seen in Latest Finance Crisis - (online.wsj.com)
Frank Words from a Battered Hedge Fund Manager - (www.nytimes.com)
Hypo Real Estate Says Banks Withdrew Rescue Support - (www.bloomberg.com)
Depression of 2008 - (business.timesonline.co.uk)
Feeling Wall Street's pain, from Manila to Paris - (www.ap.com)
European Leaders Meet on Crisis, Focus on Oversight, Accounting - (www.bloomberg.com)
Europe's big banks aim to profit from Wall Street's losses - (www.iht.com)
Belgium, Luxembourg scramble to sell Fortis - (www.reuters.com)
Shockwaves took Europe by surprise - (www.ft.com)
Markets call time on Iceland - (www.bbc.co.uk)
Exodus as UK savers shift to Irish safe haven - (www.ft.com)
Down hedge fund alley - (www.guardian.co.uk)
Bonfire of the hedgies - (business.timesonline.co.uk)

Anxiety on Economy Wins Out - (www.nytimes.com)
For Treasury Dept., Now Comes Hard Part of Bailout - (www.nytimes.com)

California officials hope for easing of credit crunch - (www.latimes.com)
Historic Bailout Passes As Economy Slips Further - (online.wsj.com)
Paulson Moves On to Nuts and Bolts of Rescue - Washington Post
California Hopes Washington Brings Credit Relief - (online.wsj.com)
September U.S. Payrolls Fall as Economy Worsens - Business Week
L.A. could face $400-million budget deficit - (www.latimes.com)
Pressured to Take on Risk, Fannie Hit a Tipping Point - (www.nytimes.com)
Lehman Cash Crunch Caused by Lender JPMorgan, Creditors Say - (www.bloomberg.com)
A.I.G. Uses $61 Billion of Fed Loan - (www.nytimes.com)
For Two Longtime Bank Rivals in Charlotte, Competition Turns to Concern - (www.nytimes.com)
Lehman creditors seek to probe firm: report - (online.wsj.com)
Why contagion never stops at the border - (www.globeinvestor.com)