Saturday November 1 Housing and Economic stories

TOP STORIES:

Panicked Traders Take VW Shares on a Wild Ride – (www.nytimes.com) Two more American hedge funds (including David Einhorn again) take it up the ass!!! The auto industry is struggling, but for a few minutes on Tuesday, Volkswagen became the most valuable company in the world, one with a market value greater than Apple, Philip Morris and Intel combined. That soaring value reflected engineering of a financial, rather than automotive, sort. It came as stock traders scrambled when Porsche, a rival seeking to build one of Europe’s great car dynasties, revealed it had increased its holdings in VW, giving it an economic stake equal to about 75 percent of the company’s voting shares. Volkswagen’s stock soared to as high as 1,005 euros a share, about $1,258, on Tuesday before closing at 918 euros. The shares ended last week at 210 euros. The rise appears to have come from a short squeeze of historic proportions, as speculators who had borrowed the stock and sold it scrambled to buy shares. Many had expected the share price to fall after Porsche gained control and stopped buying shares. Among the known short sellers are two large American hedge funds, Glenview Capital and Greenlight Capital. It is not clear if, or at what price, they covered any of their short positions. Porsche now has huge paper profits, while some Wall Street firms may be facing losses that are just as big. Whoever sold Porsche the options might have been scrambling to buy shares this week to cut risk. When the options expire, Porsche will receive the difference between the market price of the shares and the exercise price of the options. That could amount to tens of billions of euros. It seems unlikely that Porsche would have had the cash to exercise the options if it were required to pay for them and take delivery of the shares, but cash settlement means it will not have to put up cash if the options are profitable. Shares in Morgan Stanley, Goldman Sachs and Société Générale of France tumbled during trading Tuesday, but the American firms made up the losses in the last hour of trading. Jeanmarie McFadden, a spokeswoman for Morgan Stanley, said the firm had less than $25 million in exposure to Volkswagen. A person who had talked to Goldman officials, but who refused to be quoted by name, said that firm did not have a large exposure to Volkswagen.

Fidelity May Lay Off 9% of Work Force - (online.wsj.com) There could be more layoffs in the mutual-fund industry as investors have been pulling money out of stock funds in record amounts. In Boston, Fidelity Investments is considering a plan to reduce head count as it suffers negative cash flow in its stock mutual funds, say people briefed on the matter. These people say layoffs could include as many as 4,000 employees, or about 9% of Fidelity's work force, and would affect a number of Fidelity units, including its core investment-management arm. Anne Crowley, spokeswoman for the Boston fund company, declined to say whether layoffs were coming. She said Fidelity has been reviewing all of its costs and staffing amid the market's turmoil. The company is "very stable, and very strong, but certainly these are extraordinary times," Ms. Crowley said. Mutual-fund companies earn much of their money from fees assessed as a percentage of assets, meaning that market declines and redemptions of fund shares have a direct impact on the bottom line.

Luxury houses going into foreclosure - (www.bizjournals.com) In a sign that just about everyone is being hit hard by the economic downturn, a new report shows 33 luxury properties have been, or are on the verge of being, repossessed. The homes, valued at $1 million to $5 million, include 14 luxury condos and 19 single-family estates on or near the water in Miami-Dade, Broward and Palm Beach counties, according to a new report from Condo Vultures. Most of the distressed properties are in Miami (11), Miami Beach (8), Hollywood (4) and Coral Gables (3). Aventura, Boca Raton, Coconut Grove, Fisher Island, Fort Lauderdale, Hallandale Beach and Sunny Isles Beach each have one distressed property priced at $1 million or more that is in foreclosure or already owned by the bank, according to the report. “There are about 109,000 residences for sale in South Florida today, and 8,100, or 7 percent, of these residences are priced at $1 million or more,” said Peter Zalewski, a principal with Condo Vultures. “Statistically, to have 33 luxury properties in trouble from a pool of 8,100 residences is not dramatic. Still, it is bit surprising that 33 luxury properties have been or are on the verge of being repossessed.”

Alan Greenspan: Public Enemy Number One - (www.globalresearch.ca) But given the gravity of today's financial crisis, one name stands out above others. The "maestro," as Bob Woodward called him in his book by that title. The "Temple of Boom" chairman, according to a New York Times book review. Standing "bestride the Fed like a colossus." Now defrocked as the "maestro" of misery. Alan Greenspan. From August 11, 1987 to January 31, 2006, as head of the private banking cartel euphemistically called the Federal Reserve. That Ron Paul explains isn't Federal and has no reserves. It represents bankers who own it. Big and powerful ones. Not the state or public interest. It prints money. Controls its supply and price. Loans it out for profit and charges the government interest it wouldn't have to pay if Treasury instead of Federal Reserve notes were issued. People, as a result, pay more in taxes for debt service. The nation is more crisis-prone. Over time they increase in severity. The current one the most serious since the Great Depression. Potentially the greatest ever. The result of Greenspan's 18 year irresponsible legacy. He championed deregulation and presided over an earlier version of today's crisis. The Reagan-era savings and loan fraud. It bankrupted 2200 banks. Cost taxpayers around $200 billion and for many people their savings in S & Ls they thought safe. In the 1990s, he engineered the largest ever stock market bubble and bust in history through incompetence, subservience to Wall Street, and dereliction of duty. In January 2000, weeks short of the market peak, he claimed that "the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever....Lofty stock prices have reduced the cost of capital. The result has been a veritable explosion of spending on high-tech equipment....And I see nothing to suggest that these opportunities will peter out anytime soon....Indeed many argue that the pace of innovation will continue to quicken....to exploit the still largely untapped potential for e-commerce, especially the business-to-business arena." A week later, the Nasdaq peaked at 5048. Lost 78% of its value by October 2002. The S&P 500 49% from its March 2000 high to its October 2002 bottom. Individual investors were left high and dry as a result. For Mr. Greenspan, it was back to engineering multiple bubbles with 1% interest rates and a tsunami of easy money. He advocated less regulation, not more. Voluntary oversight. The idea that markets work best so let them. Government intervention as the problem, not the solution. In the mid-1990s, he told a congressional committee:

Greenspan Says, "Who Could Have Known?" - (www.truthout.org) That's right, the former Maestro told Congress last week, when asked about the meltdown of the housing bubble and the resulting financial crisis, "we're not smart enough as people. We just cannot see events that far in advance." Unfortunately, this sentence is even worse in context. Greenspan told the committee about the brilliant economists on staff at the Federal Reserve Board. His point was that if this group could not see the housing bubble, and the risks it posed to the economy, then it was not humanly possible to see it. The reality is that it was possible - in fact, easy - to recognize the housing bubble as early as the summer of 2002. House prices nationwide had substantially outpaced inflation in the years since 1996 (coinciding with the stock bubble) after just tracking the rate of inflation for the prior hundred years. There was nothing in the fundamentals of supply or demand that could explain this run-up.

Stockton City Hall's Brilliant Plan: Flip Houses - (www.recordnet.com) City Hall intends to flip houses, using $12.1 million from the federal government to buy and restore abandoned or foreclosed homes, then sell or rent them out. Interim Housing Director Bob Bressani proposed to a City Council panel on Wednesday that the city retain nonprofit developers to implement the program, which officials said could improve neighborhoods damaged by the foreclosure crisis. Bressani proposed spending $7.2 million buying, renovating and selling houses, and another $3 million buying and restoring properties for rent. The rest would be spent on a down payment assistance program, on demolitions of blighted properties and on overhead, officials said. "This is kind of a windfall," Councilman Steve Bestolarides said. "This is going to give us an opportunity to really deliver something." The city intends for developers to buy homes at less than market value - perhaps by purchasing them in bulk - passing savings on when properties are resold.

German province blew $3.5 billion on bad US mortgage debt - (www.bloomberg.com) Teachers at the Clara Zetkin Middle School in Freiberg, Germany, were counting on a budget surplus to ease staff shortages across the state of Saxony. Those hopes have faded as a result of bets made by state- owned Landesbank Sachsen Girozentrale on structured investments backed by mortgages in the U.S. The German lender loaded up on asset-backed securities and derivatives manufactured and sold by Wall Street amounting to more than 27 times the bank's equity. Now Saxony, which pledged taxpayer money as a guarantee against losses, is on the hook for 2.8 billion euros ($3.5 billion). ``They gambled away money needed for Saxony's teachers,'' said Wolfgang Renner, 55, who teaches math and physics at the 106-year-old yellow-brick school in Freiberg, named for a former Communist Party leader.

Cost of crash: $2,800,000,000,000 so far - (www.guardian.co.uk) Autumn's market mayhem has left the world's financial institutions nursing losses of $2.8tn, the Bank of England said today, as it called for fundamental reform of the global banking system to prevent a repeat of turmoil "arguably" unprecedented since the outbreak of the first world war. In its half-yearly health check of the City, the Bank said tougher regulation and constraints on lending would be needed as policymakers sought to learn lessons from the mistakes that have led to a systemic crisis unfolding over the past 15 months.

White House tells banks to waste bailout money on crap loans - (www.sfgate.com) An impatient White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans. "What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said. Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government. "They will be watching very closely, and they're working with the banks," she said. Anthony Ryan, Treasury's acting undersecretary for domestic finance, made the same point in a speech in New York before financial executives. "As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy," Ryan told the annual meeting of the Securities Industry and Financial Markets Association. "It is in a strengthened institution's best financial interest to increase lending once it has received government funding." Said Perino: "The way that banks make money is by lending money. And so, they have every incentive to move forward and start using this money." There has been some evidence of easier lending, Perino said. But it's not enough to calm stock markets or help small businesses that depend on a free flow of credit, not just to expand but to maintain operations through making payroll or financing inventories.


OTHER STORIES:

Another record plunge in house prices - (biz.yahoo.com)
Non-Agency Mortgage Bonds Collapse - (Mish at globaleconomicanalysis.blogspot.com)
Advice for Renters: Wait Until 2010 to Buy - (www.seekingalpha.com)

5 Big Shot Investors Who Predicted The Crash - (thedailybeast.com)
Where the dollar is headed - (humorland.wordmess.net)

Treasuries Drop as Ryan Cites `Unprecedented' Borrowing Needs – (www.bloomberg.com)
Yen Drops Most Versus Dollar Since 1974; BOJ May Reduce Rates - (www.bloomberg.com)
Crude Oil Falls as U.S. Consumer Confidence Drops to Record Low - (www.bloomberg.com)
L.A. hit hard as house prices continue their record-breaking fall - (www.latimes.com)
House prices still falling amid gloomy forecast - (www.sfgate.com)
House Prices in Selected Cities Through August 08 - (www.nytimes.com)
U.S. Stocks Rally, Dow Jones Industrials Climb 889 Points - (www.bloomberg.com)
Ryan Says Treasury to Need `Unprecedented' Financing - (www.bloomberg.com)
Downturn Clobbers Public Pension Funds - (www.washingtonpost.com)
Insurers and pensions seen piling into long US swaps - (www.reuters.com)
Funds' October Surprise - (www.nypost.com)
Global finance could lose $2.8 trillion in crisis - (www.reuters.com)

King Henry's bank edict will trigger 'greatest ever depression' - (www.marketwatch.com)
Economist Laffer: The age of prosperity is over - (latimesblogs.latimes.com)
Mortgages bond sellers out of fools willing to buy - (www.bloomberg.com)

Iceland Central Bank Raises Key Interest Rate to 18% - (www.bloomberg.com)
Crisis Deals New Blow to Japan - (online.wsj.com)
In Japan, a Robust Yen Undermines the Markets - (www.nytimes.com)
A Scramble to Shore Up Economies Worldwide - (www.nytimes.com)
Mixed signals over Brazilian ‘subprime’ bets - (www.ft.com)
Honda warns on profit - (www.reuters.com)
Indonesia Plans `Response Policy' to Boost Currency - (www.bloomberg.com)
Volkswagen Overtakes Exxon as World's Most Valuable Company - (www.bloomberg.com)
Consumer Confidence in U.S. Plunged to Record Low - (www.bloomberg.com)
Rattled by Housing Slide, Consumers See Worse to Come - (www.nytimes.com)
S&P: Home prices post 17 pct annual drop in August - (biz.yahoo.com/ap)
Central Banks Slashing Rates As Investors Flee - (www.washingtonpost.com)
Industrial real estate floods NM market - (albuquerque.bizjournals.com)
Good credit? Home loans no longer a sure thing - (www.usatoday.com)
Treasury clears way for $700B bailout to begin - (biz.yahoo.com/ap)
Whirlpool to cut 5,000 jobs by 2009 - (biz.yahoo.com/ap)
Wal-Mart to slow store openings - (www.chicagotribune.com)
The end of the road for U.S. carmakers? - (www.latimes.com)
G.M. Speeds Hat in Hand to Treasury - (www.nytimes.com)
White House Explores Aid for Auto Deal - (www.nytimes.com)
Newspaper circulation slide continues - (www.chicagotribune.com)
General Growth Folds On Vegas Hand - (www.forbes.com)
Life Insurers May Tap Treasury After $160 Billion Goes to Banks - (www.bloomberg.com)
Lessons of 1929 shape response to current crisis - (seattletimes.nwsource.com)
Don't Blame Mark-to-Market Accounting - (www.washingtonpost.com)