Thursday October 16 Housing and Economic stories

TOP STORIES:

Calpers fund down 25 percent for year - (www.bloomberg.com) This is the story I have been waiting for as I have not seen much written about these guys who had tons of Bear Stearns and Lehman investments. The largest public pension fund in the U.S. lost almost $67 billion in 12 months, more than 25 percent of its value, as stock markets tumbled. The market value of the California Public Employees' Retirement System declined to $193.7 billion as of Oct. 9, from $260.6 billion a year earlier. Between Sept. 15, when Lehman Brothers Holdings Inc. filed for bankruptcy, and last week, the fund's stock holdings declined by $12.4 billion to $36.8 billion, according to data compiled by Bloomberg. "The U.S. economy is experiencing the biggest financial crisis since the Great Depression," the fund said in a statement released to its members Oct. 8. "Calpers and other pension funds are not exempt."
Pensions and retirement accounts, which tend to be heavily invested in stocks, may have lost as much as $2 trillion since 2007, the Congressional Budget Office reported Oct. 7. In the 12 months through Friday, the Dow Jones Industrial Average dropped 40 percent, the Standard & Poor's 500 Index, 42 percent. Calpers reported that it lost 2.6 percent for the fiscal year ended June 30, its worst performance in six years. Retirement benefits promised to retired state workers in California are guaranteed and won't change when stock markets declin

Fear and Loathing in La Jolla - (www.nytimes.com) A FEW days ago, I spoke to a large gathering of investors in the San Diego suburb of La Jolla, and was startled by the audience’s furious anger at the powers that be. The Wall Street-Treasury-Federal Reserve axis is hated, loathed and feared by these people, who were, as far as I could tell, largely Republicans, almost all well to do — or formerly well to do. They are in a state of extreme agitation about how the current mismanagement of our financial system has played havoc with their own personal financial situation. In fact, they are among the angriest upper- and middle-class people I have ever seen. And the most frightened and worried. (In a way, they are now feeling the way ordinary workers have been feeling for years.)
And why not? With the experiment of allowing a major investment bank, Lehman Brothers, to simply vanish, leaving huge holes in the portfolios of many other financial entities, Henry M. Paulson Jr., the Treasury secretary, threw the financial system into chaos.

Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports - (www.bloomberg.com) After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports. ``We have had crazy days for a week now,'' said Johannes Smari Oluffsson, manager of the Bonus discount grocery store in Reykjavik's main shopping center. ``Sales have doubled.''

Notice the common theme – Bailouts-R-US: Who will pay for these bailouts? Taxpayers and future generations:
· US prepares $250bn banks push - (www.ft.com) Global stock markets staged a historic rally as European governments pledged a total of €1,873bn ($2,546bn) to shore up their financial sector and the US prepared to unveil its own comprehensive rescue plan on Tuesday. It was the best day for US stock markets since the rebound following the great crash of 1929 - 01:06
· Germany unveils €500bn rescue plan - (www.ft.com)
· UK launches £37bn bank rescue - (www.ft.com)
· U.S. to Guarantee New Debt and Business Deposits - (www.nytimes.com) The Treasury Department, in its boldest move yet, is expected to announce a plan to invest up to $250 billion in large and small banks, according to officials.
· I.M.F. Says It’s Ready To Help Out Hungary - (www.nytimes.com)The International Monetary Fund said that it stood ready to help Hungary as the global financial crisis increased the strains on the Eastern European country’s economy.
· Spain guarantees $135 billion in bank credits - (www.ap.com)
· RBS, HBOS, Lloyds Get 37 Billion-Pound U.K. Bailout - (www.bloomberg.com)
· Britain Props Up Banks as Fed Leads Funding Effort - (www.nytimes.com)
· Dubai May Need Help From Abu Dhabi to Repay Debts - (www.bloomberg.com)
· France to provide $491 billion in bank guarantees - (www.ap.com)

Goldman Sachs Takes on Dr. Doom - (www.nytimes.com) Notice how the press continually brands Nouriel Roubini as Dr. Doom even though he is one of the few economists that actually has been correct. Goldman Sachs is squaring off with Nouriel Roubini, a professor from New York University’s Stern School of Business, over his dire outlook for the investment bank. The back-and-forth began with an opinion piece of Mr. Roubini’s that appeared on Forbes.com. The article made a host of gloomy predictions and included the claim that Goldman’s latest capital raising-effort was a “cosmetic” fix and that “most of its lines of business (including trading) are now losing money.”
Elsewhere in the article, Mr. Roubini — who has warned for years that a major financial crisis was brewing — suggested a “total meltdown of the U.S. financial system could occur.” The article drew a forceful reaction from Lucas van Praag, Goldman’s global head of media relations and a partner at the firm.

San Diego Sues WaMu, Seeks Foreclosure Freeze - (www. thetruthaboutmortgage.com) What’s the downside to buying a struggling mortgage lender on the cheap? Well, among other things, cleaning up their dirty past.
Bank of America just pledged $8.4 billion in aid to former Countrywide borrowers, and now it looks as if Chase may have to do the same. San Diego City Attorney Michael Aguirre filed a civil compliant Friday against Washington Mutual, alleging the mortgage lender engaged in “unfair or fraudulent predatory real estate lending practices.” The suit claims WaMu’s “predatory” lending practices caused scores of California residents to lose or be in jeopardy of losing their homes as a result of foreclosure. Among the charges, it alleges WaMu made loans without consideration or verification of a borrower’s ability to repay the loan, colluded with appraisers to inflate home values, induced borrowers to serially refinance, and committed fraud to conceal the nature of a loan obligation. The lawsuit is seeking to enjoin WaMu from initiating or advancing foreclosures on any owner-occupied residential mortgages involving subprime ARMs or fixed-rate mortgages, and also option arms, until workout or relocation measures have been taken.

US to Protect Mitsubishi Investment in Morgan Stanley - (www.nakedcapitalism.com) In what could set an important precedent, federal officials assured a big Japanese bank late Sunday that its planned investment in the embattled Wall Street giant Morgan Stanley would be protected, according to people involved in the talks. After two days of tense negotiations, Treasury officials urged a hesitant Mitsubishi UFJ Financial Group to proceed with its $9 billion investment in Morgan Stanley, which has sought the capital infusion to reassure investors and customers about its stability... The Treasury’s assurances amount to another extraordinary move by the government and could serve as a model for future deals. The tense, weekend talks were so critical to the financial markets that they drew in both the Treasury and the Japanese government. Mitsubishi and the Japanese government pressed the Treasury Department over the weekend to guarantee that if the United States were to inject money into Morgan Stanley at a later time — a step the Treasury has ruled out for now — the move would not wipe out Mitsubishi’s investment. Investors suffered deep losses when the government effectively nationalized the nation’s largest mortgage finance companies, Fannie Mae and Freddie Mac. The Treasury has said it might use some of the $700 billion bailout package authorized by Congress to take direct stakes in banks, but it has not spelled out how it would do so. Many prospective investors, like sovereign wealth funds, have been sitting on the sidelines, reluctant to invest in financial services companies while the government’s plans remain uncertain....

Ten who saw the meltdown coming - (business.timesonline.co.uk) Three Americans in the top 10 in this English newspaper.
# 10. Ron Paul - Republican Congressman. Back in September 2003, Mr Paul told a House Financial Services Committee that: “Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. “This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions.”
#5. Nouriel Roubini - economics professor. Aka Dr Doom, Dr Roubini is an economics professor at New York University. On September 7, 2006, at an International Monetary Fund meeting, he announced that a crisis was brewing. He said that the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. Homeowners would default on mortgages, trillions of dollars of mortgage-backed securities would unravel worldwide and the global financial system would shudder to a halt. These developments, he said, would cripple major financial institutions like Fannie Mae and Freddie Mac. As Mr Roubini stepped down, his host said: “I think perhaps we will need a stiff drink after that.” They do now.
#9. Stephen Roach - senior executive at Morgan Stanley. In November 2004, Mr Roach predicted an “economic Armageddon”, in part due to the record US current account, trade and government deficits. His outlook was largely dismissed at the time. Having being proved right, he recently went on to accuse central banks of being “asleep at the switch” in failing to stop the escalating crisis. “The lack of monetary discipline has become a hallmark of unfettered globalization,” he said.

When will “more debt” not be the answer? - (www. blownmortgage.com) And just in the nick of time, we observe, this being options expiration week. Not all that much seems to have come from the G7+ meeting this past weekend. We somehow expected more than: “The Federal Reserve led an unprecedented push by central banks to flood the financial system with dollars, backing up government efforts to restore confidence and helping to drive down money-market rates. In its statement the Fed said: “In order to provide broad access to liquidity and funding to financial institutions, the Bank of England, the European Central Bank, the Federal Reserve, the Bank of Japan, and the Swiss National Bank are jointly announcing further measures to improve liquidity in short-term U.S. dollar funding markets. To assist in the expansion of these operations, the Federal Open Market Committee has authorized increases in the sizes of its temporary swap facilities with the BoE, the ECB, and the SNB, so that these central banks can provide U.S. dollar funding in quantities sufficient to meet demand.”

Agent sentenced to 14 Years for mortgage fraud - (www.speroforum.com) - Joseph Sterling Jetton, 61, of Woodstock, Ga., was sentenced today to 14 years in federal prison to be followed by five years of supervised release and ordered to pay $11,194,300 in restitution on charges of conspiracy, bank fraud, wire fraud and money laundering related to a multi-million dollar mortgage fraud scheme. Jetton was convicted by a jury on Nov. 26, 2007, after a three week trial, and was sentenced today by U.S. District Judge Beverly B. Martin.

It's Raining Bailouts In Europe - (www.forbes.com) French president Nicolas Sarkozy and German chancellor Angela Merkel unveiled two broadly similar plans on Monday, designed to "restore confidence" to the banking sector. Both leaders offered to guarantee up to 400 billion euros ($544.5 billion) in bank debts, while at the same time setting aside around 60-80 billion euros ($81.7-$108.9 billion) in fresh capital for banks that needed it. The bailout will come at a price, however: Sarkozy made special mention of how failing institutions would not be rescued without curbs on executive pay or a change in strategy. Spain, whose banks seem to have benefited from the country's tight regulations, said it did not need to take stakes in its lenders because they were largely solvent. As a case in point, one of the country's biggest banks, Banco Santander (nyse: STD - news - people ), hardly looked to be in need of government funding Monday as it was reported to be in talks to buy the rest of Philadelphia-thrift Sovereign Bancorp (nyse: SOV - news - people ) that it didn't already own. (See "Santander Stalks Sovereign.")

Just stop paying your mortgage - (www.signonsandiego.com) If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government's landmark $700 billion bailout package has an important message for you: stop making your mortgage payments . . . immediately. Furthermore, if you believe that with some planning and sacrifice you may be able to meet your mortgage obligations, the government's message is clear: relax, don't bother. While angry voters have labeled the package as a bailout for Wall Street, it is more akin to a “Get out of Jail Free” card for anyone who acted irresponsibly during the boom. Here's why. Nobody likes foreclosure, least of all politicians. The new law clearly indicates that the government will make major efforts to reduce foreclosures through “term extensions, rate reductions and principal write-downs” of the troubled mortgages that it buys from the private sector. In other words, your new landlord will bend over backward to keep you in your home. The legislation telegraphs this by including a provision that extends until 2013 the exclusion of loan reductions from taxable income.


OTHER STORIES:

Feels Like Socialism … But I Like It: Trump - (www.cnbc.com) While the global plan to recapitalize banks will probably be bad for his business, driving prices higher at a time when he has the cash to buy, it is necessary and smart, real estate developer Donald Trump said Tuesday. "We were headed for Great Depression No. 2," Trump told "Squawk Box." As a free-market capitalist, Trump admitted feeling uncomfortable at the "artificial" injection of cash into banks, but said it was a much better idea than the original plan just to buy up distressed assets. "It's almost socialistic, but I like it, really like it," he said. (Video: Trumps full comments)

PepsiCo Profit Misses View; To Cut 3,300 Jobs - (www.cnbc.com)
Golden Opportunity - (www.ml-implode.com) - "Even if the price of gold fell in half, gold stocks would still be fairly valued," says Steve Lehman, senior portfolio manager ...
My Plan to Save The World - (www.ml-implode.com) - "While there are sure to be some readers out there who will interpret the following as both serious and constructive suggestions...
RBS's New Chief Hester to Reverse Goodwin's Growth - (www.ml-implode.com) - "Stephen Hester, the new chief executive officer at Royal Bank of Scotland Group Plc, plans to sell assets and shrink the bank t...
Ludwig von Mises now turning in his grave - (www.ml-implode.com) - ""What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom ...

Federal Reserve announce unlimited liquidity - (www.ml-implode.com)
Lehman Brothers demise triggers huge default - (business.timesonline.co.uk)
Houseowners drowning in mortgage debt - (www.chicagotribune.com)
OK Now — Which One is Real? - (www.ml-implode.com)
Fannie, Freddie to Purchase “Under-Performing” Mortgage Bonds - (www.ml-implode.com)
Essence of the "Rescue" Plan - (www.ml-implode.com)
Saddled With Debt, Some Decide to Torch Vehicles - (www.washingtonpost.com)
Behind the Panic - (www.financialsense.com)
The Crash: A Libertarian Perspective - (www.capitolhillblue.com)
Putting the credit crisis in perspective - (www.economist.com)
Biggest US car firms may seek bail-out - (www.guardian.co.uk)
U.S. regulator's 2004 rule let banks pile up new debt - (www.iht.com)
Exploring the worst-case scenario - (www.msnbc.msn.com)

How did Republicans get $8 million bailout from failing Wachovia? - (www.southernstudies.org)
US Power May Not Stay So Super - (www.nytimes.com)
Credit squeeze hits card limits, equity lines - (www.signonsandiego.com)
Chula Vista forces lenders to maintain foreclosures - (www.signonsandiego.com)
Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports - (www.bloomberg.com)
The Nausea Express - (jameshowardkunstler.typepad.com)
Mortgage wish-list 'not prudent' - (www.ml-implode.com)
Hey, Neighbor, Did You Get Your Mortgage Reduced? - (www.voiceofsandiego.org)
Shiller: Rent, Don't Buy - (www.newsweek.com)

U.S. stocks turn mixed; Nasdaq dips into the red - (www.marketwatch.com)
UPS now delivers loans - (www.ajc.com)
Hedge-Fund Chiefs Move To Cash Amid Storm - (online.wsj.com)
Venture capital fundraising down 5.5% in third quarter - (www.latimes.com)
Street's Demands May Stir Public Wrath - (online.wsj.com)
Tudor, SAC Capital Said to Have Raised Cash as Markets Tumbled - (www.bloomberg.com)
Hedge Funds Concede Errors, Profess Optimism After Worst Losses - (www.bloomberg.com)
O.C. foreclosure inventory hits 3,300 homes - (www.ocregister.com)
High-Flying Hedge Fund Falls Back to Earth - (www.nytimes.com)
How a banking crisis brought down a small economy - (www.economist.com)
U.K. Home Sales Fall to Three-Decade Low, RICS Says - (www.bloomberg.com)
U.K. Inflation Reaches Fastest Since at Least 1997 - (www.bloomberg.com)
Plunging Russian asset values put hedge fund prices on the rack - (www.ft.com)
Worries mount in Asia over a coming storm - (www.iht.com)
Japan rolls out measures to stabilize markets - (www.iht.com)
Icelanders Sink Under Foreign-Currency Loans as Krona Plunges - (www.bloomberg.com)
China Currency Reserves Rise to Record $1.9 Trillion - (www.bloomberg.com)
Treasury Said to Invest $125 Billion in U.S. Banks - (www.bloomberg.com)
U.S. Forces Nine Major Banks To Accept Partial Nationalization - (www.washingtonpost.com)
We're Laying the Groundwork for Recovery - (online.wsj.com)
Both Sides of the Aisle See More Regulation - (www.nytimes.com)
Volcker warns of "considerable recession" in US - (biz.yahoo.com/ap)
California, Under S&P Review, Seeks Notes to Avert Cash Crunch - (www.bloomberg.com)
Economic Woes Hit HDTV Sales - (online.wsj.com)
GMAC's Lending Restrictions May Add to GM's Sales Woes in U.S. - (www.bloomberg.com)
Retailers cutting back on holiday hiring - (www.latimes.com)
Menu changes, higher costs ahead at restaurants as food costs keep rising - (www.chicagotribune.com)
GM to Close Plants, Limit Lending - (online.wsj.com)
Sports Feel a Chill as Economy Weakens - (online.wsj.com)
U.S. Auto Sales Rate May Skid to Lowest Since 1983 - (www.bloomberg.com)
Samsung Pares DRAM Shipment Forecast - (online.wsj.com)
Boeing, Union Talks Collapse - (online.wsj.com)
Major airlines slashing fuel surcharges - (www.chicagotribune.com)