Saturday October 25 Housing and Economic stories

TOP STORIES:

U.S. Pension Benefit Guaranty Loses at Least $3 Billion - (online.wsj.com) The U.S. Pension Benefit Guaranty Corporation [PBGC] lost at least $3 billion in stock investments in the 11 months through August ... It is likely that losses will be "substantially worse" after September results are reported, the committee said. The committee says the losses came in the agency's "trust fund," which holds the assets of terminated plans that have been turned over to the PBGC. The PBGC problems might lead to a bailout and will likely lead to higher insurance premiums for pension plans.

CDO Cuts Show $1 Trillion Corporate-Debt Bets Toxic - (www.bloomberg.com) Investors are taking losses of up to 90 percent in the $1.2 trillion market for collateralized debt obligations tied to corporate credit as the failures of Lehman Brothers Holdings Inc. and Icelandic banks send shockwaves through the global financial system. The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital. ``We'll see the same problems we've seen in subprime,'' said Alistair Milne, a professor in banking and finance at Cass Business School in London and a former U.K. Treasury economist. ``Banks will take substantial markdowns.''

Economy rocks China factories - (www.usatoday.com) In the good old days — oh, three months ago — Tao Shoulong would prowl the streets of this ancient city in his Mercedes-Benz. His wife and partner, Yan Qi, would cruise around in her Toyota Land Cruiser. Together, they would drink into the night with clients, suppliers and creditors, hatching plans to expand their Zhejiang River Dragon Textile Printing & Dyeing Co. Tao built River Dragon from a start-up with four employees into one of China's biggest textile printing firms in just five years. He had even grander dreams: He wanted to see his company's stock trade on Nasdaq alongside the likes of Microsoft and Intel. The dreams are dead. River Dragon shut down on Oct. 7. Tao and Yan have vanished, leaving behind more than $290 million in debt and a lot of anger in this city 140 miles south of Shanghai in the Yangtze River Delta. The company's demise put 4,000 workers on the street and jilted hundreds of suppliers and creditors.

Calpers suffers $40bn asset hit - (www.ft.com) Calpers, the largest state pension fund in the US, lost 20 per cent of its assets, or close to $40bn, between July 1 and October 20 this year as a result of failing financial markets. The fund’s assets fell to $192bn, well below their height of more than $250bn three years ago. Pat Macht, a spokeswoman for the fund, said the Calpers board, which met this week, would not call on the state government to lift contributions next year. State contributions are based mainly on the return in the fiscal year to June. In that year the fund lost 2.6 per cent, its first loss since 2002, but this was not sufficient to require extra contributions. However, Ms Macht said that if the fund’s return in the year to June 2009 were poor, then it might ask for an increase of 2 to 4 per cent in contributions from the state government. This would take effect from 2010. Calpers’ drop in value is a pointer to how badly US state and corporate pension plans are faring in the financial turmoil. Pensions and retirement accounts may have lost as much as $2,000bn since 2007, according to a report this month from the Congressional Budget Office.

Another One Bites the Dust: Shoe Pavilion Fully Liquidating ... - (www.costar.com) Shoe Pavilion Gets the Boot: Retailer to Close remaining 64 Stores. Great American Managing Final Round of Liquidation with SB Capital Group, Tiger Capital Group and Hudson Capital Partners. Sherman Oaks, CA-based footwear retailer, Shoe Pavilion, filed for chapter 11 bankruptcy protection July 16, 2008. As of March 29, 2008, the off-price shoes and accessories retailer operated a chain of 113 stores in Washington, Oregon, California, Arizona, Nevada, Texas and New Mexico. At the time, the company listed $60 million in assets and $25 million to $27 million in liabilities. Since filing bankruptcy, Shoe Pavilion has closed 49 underperforming stores, leaving it with 64 left in the chain. On Oct. 20, 2008, liquidation firm Great American Group, said Shoe Pavilion had commenced going-out-of-business sales at its remaining 64 stores in California, Washington, Oregon and New Mexico. Great American is managing this last round of liquidation in cooperation with SB Capital Group, Tiger Capital Group and Hudson Capital Partners. The group plans to maximize the liquidation sales by staying open through the holiday shopping season and plans for the stores to be shuttered by Mid-January.

More mortgage funds frozen as jittery investors take cover - (www.theaustralian.news.com.au) THREE more mortgage funds scrambled to freeze redemptions yesterday as unitholders rushed to the exits. The financial crisis has seen more than $14 billion in funds -- held by almost 100,000 investors -- thrown into limbo. The East Coast Mortgage Trust, Northern Investment Trust Fund and the Richmond Mortgage Fund -- holding a combined $660 million -- all froze redemptions yesterday as spooked investors attempted to liquidate holdings. The latest freezes followed an announcement yesterday by the giant Challenger Howard Mortgage Fund that it had frozen $2.8 billion of funds, claiming the federal Government's pledge to guarantee bank deposits had exacerbated a run on redemptions. Northern Investment Trust Fund manager Greg Anderson said investments in the $325 million fund would be frozen for an initial 90 days. ``The federal Government's October 12 move to guarantee deposits only in banks and building societies created some concern among investors,'' he said. ``But the final straw was the announcement that Challenger Howard has suspended redemptions. ``That has created a lot of concern among our investors.'' Richmond Mortgage Fund managing director Ian Cardow confirmed that the $90 million fund had been frozen following a spike in redemption applications, but declined to comment further. Other mortgage funds apparently dived for cover yesterday.

Stock Market to Implode - (www.stockmarketimplode.com) - First read this piece by Karl Denninger and see what you think. America, and Americans face a stark decision - and a choice that must be made now. We now sit literally days away, with a high probability, of a credit market "dislocation" that will change American finance and decimate the stock market. That is, worse - far worse - than what has happened thus far. Try on for size 2-3,000 points down on the Dow from here. 25% more than has been lost thus far, more-or-less "all at once." The probability of this event is now in excess of 70% - within the next few days to two weeks. The Politicians know this.

Update: E-Loan Gives Employees Notice, To Cease Operations - (www.ml-implode.com) – Another Pleasanton CA company to go out of business: We're hearing today employees have been given 60 days' notice of layoff, and that E-Loan will cease operations as of 2009-01-09. Some processing staff will remain to close-out the pipeline, according to one source we spoke with. It is not clear how many employees will be affected. Reuters reported uber-parent Popular Inc. (parent of Banco Popular) booked a $668.5 million third-quarter loss, $169 million of that attributable to E-Loan's parent Banco Popular N.A. Said Chief Executive Richard Carrion, "We are focused on the profitability of our U.S. operations and we will be taking additional steps to further reduce expenses and to close or consolidate unproductive branches." The official announcement comes from Banco Popular Wholesale Division, but specifies "all niche business lines that are non-deposit generating operations" will be closed.

Mortgage Applications Reach 8-Year Low - (www.housingwire.com) - The nation’s financial crisis is clearly keeping would-be home buyers out of the market in droves, and the Mortgage Bankers Association said Wednesday morning that its index of purchase and refinance mortgage application activity reach its lowest level in eight years. The trade group’s weekly survey for the week ended Oct. 17 found that applications fell 16.6 percent to 408.1, and were off 44 percent compared with the same week one year earlier.
The application index is calibrated to March 16, 1990; a reading of 408.1 means that application activity was roughly 4.0 times greater than when the index was first established. The MBA said that refinance applications fell 23.5 percent, while purchase applications dropped 10.9 percent, despite an apparent easing of interest rates for levels seen last week. The refinance share of mortgage activity decreased to 42.6 percent of total applications, from 46.4 percent the previous week; ARM share hovered at less than three percent of all applications.

Could It Happen Here? - (www. blownmortgage.com) - Another guest post from MG who went from Wharton to Wall St. to real estate to Blown Mortgage. Despite hard times, what possibly could happen here in the land of the free and home of the brave? Hasn’t the US always stood for and protected the civil rights of the individual. No, it hasn’t. In fact, the United States has a long tradition of violating civil rights and even the constitution itself. Going back to the first depression, which our current condition is likened to, FDR, at the beginning of his first of four terms, declared a national emergency and closed the banks. Spooked by the economy, people had been turning in their gold certificates for physical gold. With some exceptions, all gold was confiscated and all gold certificates had to be turned in for paper currency backed by trust in the US. When the banks reopened, all safe deposit boxes were sealed. Boxes could be opened only in the presence of an IRS agent. At what point do we acknowledge that the US is no longer a democracy with free markets, but has embraced socialism? I think I better change the title of this post to, “It has Happened Here.”

Capitalism without failure….. - (www.ml-implode.com) - So companies like Wells Fargo and General Motors buy—or try to buy—distressed assets (Wachovia and Chrysler respectively) in order to make themselves “too big to fail.” Not only is it politically unpalatable to let major American industrials go under, but the government thinks it’s cheaper to save them. Uncle Sam is on the hook anyway. In the case of banks, via deposit insurance. In the case of other industrials like Detroit automakers, via pension insurance. All those obscene retirement benefits that are bankrupting auto companies are, you guessed it, backstopped by taxpayers….



OTHER STORIES:

Yahoo firing 1,500 workers; 3Q profit falls 64 pct - (biz.yahoo.com)
Foreclosures could keep topping records as job losses mount - (www.marketwatch.com)
The Trouble With a Houseowner Bailout - (www.nytimes.com)
Any Houseowner Bailout Will Come Loaded With Problems - (www.nuwireinvestor.com)
When a house is just a house - (www.sfgate.com)

Fed Attempting To Prevent "Great Depression II" - (www.ml-implode.com)
Is Another Emerging Markets Crisis in Motion? - (www.ml-implode.com)
FDIC to Sign Major Lease in Orange County - (www.loanworkout.org) The Federal Deposit Corporation (FDIC) has a job to do and this job may be the biggest clean up effort by any government or non-government agency ever in the history of our country and quite possibly the world."
The difference between panic and capitulation - (www.marketwatch.com)
Protesters link mortgage lenders to broader economic crisis - (www.marketwatch.com)
Police raid Germany's 'dumbest bank' - (www.guardian.co.uk)
Housing glut gives couple many options - (www.indystar.com)
Downsizing to 100 square feet of bliss - (www.cnn.com)
The Safety and Immediacy of Liquid Assets in a Deleveraging Panic: MZM, Home Currencies, Bank Reserves, and Gold - (www.ml-implode.com)
Burn After Reading - (www.ml-implode.com)
National City Posts $729 Million Loss For Quarter, Will Layoff 4,000 - (www.ml-implode.com)
Europe's Stormy Outlook - (www.ml-implode.com)
Investors taking losses up to 90% in mortgage-backed bonds - (www.bloomberg.com)
Volcker Says U.S. in Midst of Unprecedented Financial Crisis - (www.bloomberg.com)
Economies in Recession: The Starbucks Effect - (www.newsweek.com)
Bailout Vote Map - (www.constituentresponse.com)

Conflicts Blamed for Subprime Ratings - (online.wsj.com)
Yields Bedevil Money-Market Managers - (online.wsj.com)
U.S. Insurer Of Pensions Has Lost $2 Billion - (www.nytimes.com)
Credit Rating Agencies Face Scrutiny - (www.nytimes.com)
DOJ said to be probing whether Lehman misled analysts - (www.financialweek.com)
Hedge Funds Worldwide Post Record Losses in September - (www.bloomberg.com)
Market downturn shatters faith in stocks - (www.latimes.com)
Argentina Default Looms, Pension Seizure Roils Market - (www.bloomberg.com)

Hungary Raises Benchmark Rate to Defend Its Currency - (www.bloomberg.com)
Fed Raises Rate It Pays on Banks' Reserve Balances - (www.bloomberg.com)
Mortgage applications dropped 16.6% last week - (www.marketwatch.com)
Fed Prepared to Prop Up Money-Market Funds - (www.washingtonpost.com)
U.S. Layoffs Surged in September - (online.wsj.com)
California Home Sales Revive, But Not Without Intense Pain - (online.wsj.com)
Some Cut Back on Prescription Drugs in Sour Economy - (www.nytimes.com)
5% of UA freshmen obtained payday loan - (www.chron.com)
Worst joblessness in nation staggers R.I. - (www.boston.com)
Amazon.com shares plunge on sharply lowered revenue outlook for 2008 - (www.latimes.com)
Merck Will Cut 7,200 Jobs as Profit Falls 28 Percent - (www.bloomberg.com)
Credit crisis hits energy investment: industry - (www.ap.com)
Shift: Report says Nissan offering to buy 20% of Chrysler - (www.financialweek.com)
Kerkorian, Cerberus Auto Retreat Spotlights Industry Collapse - (www.bloomberg.com)
More retailers liquidating - (www.chicagotribune.com)
Caterpillar's 3Q profit sinks 6% on higher costs - (www.chicagotribune.com)
Chili's parent Brinker sees profit fall 37% - (www.dallasnews.com)
Toyota to post first drop in annual sales in a decade due to weak global demand - (www.chicagotribune.com)
Eli Lilly takes $1.4-billion charge related to Zyprexa probe - (www.latimes.com)