Saturday October 4 Housing and Economic stories

TOP STORIES:

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.

Lehman Brothers's European creditors prepare for legal action - (business.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.

Reversal of fortune: House approves $700-billion bailout bill - (www.latimes.com) Four days after rejecting a similar plan, the House of Representatives approves the measure by a 263-171 vote. Bush quickly signs the bill into law.

Hidden in the Emergency Economic Stabilization Act of 2008 is a Provision That Totally Eliminates Reserves - (www.dailypaul.com) So, to summarize, by changing the effective date the following is now in effect. Banks don’t have to have cash on hand. The changes eliminated the requirement for banks to keep reserves of cash on hand to cover deposits, they abolished the Federal Reserve’s Earnings Participation Account, they granted the ability for the Fed to create their own rules for distributing their earnings, and they granted the ability to make payments to foreign banks. These things were not scheduled to go into effect for 3 more years. Unclear is why they needed these changes at all, the other is why they need them now. Okay, there it is, the conclusion. You can take my word for it and stop now and have some disgust at the whole thing, or you can continue on and get really mad about how convoluted and cryptic things in Washington are. Fair warning. Continue at your own risk. Still here? You really are brave. Actually you probably have no idea the mess you are in for. Don’t say I didn’t warn you. Okay, I gave you the conclusion, now here is how to get there. I’ll go fast now, try to keep up, it gets complicated.

Bailout bill loops in green tech, IRS snooping - (www.cnet.com) - Good rundown of what is in this monstrosity. IRS undercover operations: Privacy invasion? The bailout bill also gives the Internal Revenue Service new authority to conduct undercover operations. It would immunize the IRS from a passel of federal laws, including permitting IRS agents to run businesses for an extended sting operation, to open their own personal bank accounts with U.S. tax dollars, and so on. (Think IRS agents posing as accountants or tax preparers and saying, "I'm not sure if that deduction is entirely legal, but it'll save you $1,000. Want to take it?") That section had expired as of January 1, 2008, and would now be renewed. Starting with the so-called Anti-Drug Abuse Act in 1988, the IRS has possessed this authority temporarily, with occasional multiple-year lapses. A 1999 internal report said the IRS had 126 "trained undercover agents" working in field offices at the time. This is the first time that such undercover authority would be made permanent. Sens. Max Baucus (D) and Chuck Grassley (R) have been pushing to make it permanent for a while, claiming (PDF) in April that: "Undercover operations are an integral part of IRS efforts to detect and prove noncompliance. The temporary status of this provision creates uncertainty, as the IRS plans its undercover efforts from year to year." There's another section of the bailout bill worth noting. It lets the IRS give information from individual tax returns to any federal law enforcement agency investigating suspected "terrorist" activity, which can, in turn, share it with local and state police. Intelligence agencies such as the CIA and the National Security Agency can also receive that information. The information that can be shared includes "a taxpayer's identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, over-assessments, or tax payments, whether the taxpayer's return was, is being, or will be examined or subject to other investigation or processing, or any other data received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return."

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)


NOTICE THE INK IS BARELY DRY 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)

Next: The Mother Of All Bank Runs? - (www.forbes.com) It's plain that the current financial crisis is worsening in spite of--or perhaps because of--the Treasury rescue plan. The strains in financial markets are becoming more, rather than less, severe in spite of the nuclear option of a $700 billion package: Interbank spreads are widening and are at a level never seen before; credit spreads are widening to new peaks; short-term Treasury yields are going back to near-zero levels as there is flight to safety; credit default swap (CDS) spreads for financial institutions are rising to extreme levels as the ban on shorting of financial stock has moved the pressures on financial firms to the CDS market; and stock markets around the world have reacted very negatively to this rescue package. Financial institutions in the U.S. and in advanced economies are going bust. In the U.S., the latest victims were Washington Mutual (nyse: WM - news - people ) (the largest U.S. savings and loan) and Wachovia (nyse: WB - news - people ) (the sixth largest U.S. bank). In the U.K., after Northern Rock (other-otc: NHRKF.PK - news - people ) and the acquisition of HBOS by Lloyds TSB (nyse: LYG - news - people ), you now have the bust and rescue of Bradford & Bingley; in Belgium you had Fortis (other-otc: FORSY.PK - news - people ) going bust and being rescued over the weekend; in Germany, Hypo Real Estate, a major financial institution near bust, has also needed rescue. So, this is not just a U.S. financial crisis. It is a global crisis hitting institutions in the U.K., the Euro-zone and other advanced economies (Iceland, Australia, New Zealand, Canada etc.).

Market Has "Already Cut" Funds Rate - (themessthatgreenspanmade.blogspot.com) - While the rate cut has not yet been formalized, an event that will have at least a temporary psychological impact on financial markets, the mechanics of a lower Fed funds rate have been in place since the middle of last month.

Office Space Is Emptying Out - (online.wsj.com) Businesses are dumping office space at the fastest pace since the months after the Sept. 11 attacks, increasing the financial stress on commercial-real-estate owners and their lenders, many of them already ailing financial institutions. Nationwide, rents on office properties -- including landlord concessions and discounts -- were flat in the third quarter, the worst result for office-property owners since late 2004 -- when commercial real estate began to emerge from a prolonged slump, according to Reis Inc., a New York real-estate research firm. Rent stagnation and increasing vacancies put "strain on borrowers to make payments on mortgages," said Sam Chandan,



OTHER STORIES:

Wachovia Update: Citi / Wells Fargo At Odds Over Bid - (www.ml-implode.com) - Earlier today, Reuters reported that Wachovia had rejected Citi's offer to purchase the banking assets in favor of a $15 billion...
Wells Fargo Absolutely Did Subprime, Stated, Interest Only, No Ratio Etc - (www.ml-implode.com) - The CEO of Wells was just on CNBC in a lengthy interview with Maria Bartaromo and he said “we never did stated income, low docum...
Citigroup Demands Wachovia, Wells Fargo Terminate Merger Deal - (www.ml-implode.com) - Citigroup Inc. demanded that Wells Fargo & Co. and Wachovia Corp. terminate a $15.1 billion takeover agreement announced today, ...
Failure To Comprehend - (www.ml-implode.com)
The Question That Should Be at the Heart of the Bailout Debate - (www.ml-implode.com)
Roubini: Financial and Corporate System is in Cardiac Arrest - (www.ml-implode.com)
BAILOUT BILL PASSES - (www.ml-implode.com)
INDEPENDENT TITLE AGENTS FILE LAWSUIT AGAINST OHIO DEPARTMENT OF INSURANCE DIRECTOR ALLEGING FAILURE TO ADEQUATELY PROTECT OHIO HOMEOWNERS - (www.ml-implode.com)
Debate Over The Mortgage Debacle In the United States - (www.ml-implode.com)
Job losses now at recession levels - (www.ml-implode.com)

Payrolls Drop 159k - (www.ml-implode.com)
Edge of the Abyss - (PAUL KRUGMAN at www.nytimes.com) There’s growing evidence that the financial crunch is spreading to Main Street, with small businesses having trouble raising money and seeing their credit lines cut. And leading indicators for both employment and industrial production have turned sharply worse, suggesting that even before Lehman’s fall, the economy, which has been sagging since last year, was falling off a cliff. How bad is it? Normally sober people are sounding apocalyptic. On Thursday, the bond trader and blogger John Jansen declared that current conditions are “the financial equivalent of the Reign of Terror during the French Revolution,” while Joel Prakken of Macroeconomic Advisers says that the economy seems to be on “the edge of the abyss.” And the people who should be steering us away from that abyss are out to lunch.

Paulson's Reasons for Delaying Day of Reckoning - (www.bloomberg.com)
China Could Be Dragged Down by Wall Street Crash - (www.bloomberg.com)

600,000 jobs lost - and counting - (money.cnn.com)
Economic, credit fears punish Wall Street - (www.reuters.com)

Why propping up banks will not rescue a debauched financial system - (www.telegraph.co.uk)

U.S. Stocks Drop as Recession Concern Outweighs Bailout Passage - (www.bloomberg.com)
Treasuries Gain for Sixth Week on Speculation Fed to Cut Rates - (www.bloomberg.com)
Decade-Worst Performance For Hedge Funds In September - (online.wsj.com)
Ainslie, Einhorn, Stock Hedge Funds Post Record Drops - (www.bloomberg.com)
Manhattan real estate: Pricey but headed for a fall - (money.cnn.com)
Corporate America caught in global credit undertow - (www.reuters.com)
Not Much Fun Now With the Fund of Funds - (online.wsj.com)
High-end home market feeling pain from market, credit messes - (www.dallasnews.com)
Trichet Poised for Rates `Volte Face' as Summit Nears - (www.bloomberg.com)