Tuesday October 14 Housing and Economic stories

TOP STORIES:

State to save HBOS and RBS in bank rescue - (business.timesonline.co.uk) Figures emerge for the extent of the bank bailout by the Government, which could see bank shares suspended tomorrow. THE government will launch the biggest rescue of Britain’s high-street banks tomorrow when the UK’s four biggest institutions ask for a £35 billion financial lifeline. The unprecedented move will make the government the biggest shareholder in at least two banks. Royal Bank of Scotland (RBS), which has seen its market value fall to below £12 billion, is to ask ministers to underwrite a £15 billion cash call. Halifax Bank of Scotland (HBOS), Britain’s biggest provider of mortgages, is seeking up to £10 billion. Lloyds TSB, which is in the process of acquiring HBOS in a rescue merger, wants £7 billion, while Barclays needs £3 billion. The scale of the fundraising could lead to trading at the London stock market being suspended. This would give time for the market to digest the impact of the moves.

US Treasury waits in wings to save Morgan Stanley - (www.telegraph.co.uk) - Morgan Stanley and Goldman Sachs, the last remaining independent investment banks, may receive cash injections from the American government as part of Treasury Secretary Henry Paulson’s plan to buy stakes in financial institutions. Shares in the Wall Street titans were last week hammered in the stock market rout, raising fresh concerns about their financial stability from credit rating agencies and regulators.

Financial crisis: Homeowners in Manteca neighborhood cope with foreclosures - (www.mercurynews.com) Like millions of Americans, residents who bought $600,000 luxury homes in the Paseo West neighborhood now find themselves powerless against the economic storm that has devastated their comfortable life in a tidy little subdivision in California"s Central Valley. Those homes are barely worth $350,000 now. Dave Cantrell considered loading the U-Haul in the middle of the night and leaving while his neighbors were asleep. He couldn't bear to face them. He had become a community leader here, rallying his neighbors to stand up to the builder that was planning to auction off one-third of their new Paseo West subdivision at 40 percent discounts. For one brief night in his living room on Cistus Street, with his neighbors raising their voices and pointing their fingers, they had united against the one they thought was responsible for their impending misfortune. Cantrell believed he made a difference, that maybe the auction prices wouldn't be as low as he feared, that they would all recover. He promised to have a block party when it was all over. But in the next 12 months, the housing crisis swept across the country, titans of the banking world disappeared and daily stock market tumbles of 800 points became commonplace. And the one man who tried to save his neighborhood failed. In the end, he couldn't even save himself. Like millions of Americans, Cantrell, 57, found himself powerless against the economic storm that has devastated his comfortable life in a tidy little subdivision in California's Central Valley — a place that was supposed to be the Promised Land for families who couldn't afford a house in the Bay Area. The mournful dirge of moving vans rumbling through Paseo West is a sound echoing across the country, where the mortgage crisis has sent more than a million families into foreclosure and out of their homes, leaving neighborhoods choking on dark clouds of exhaust. When the Mercury News returned to Paseo West this month, the lawns were still green. But behind closed doors, there was rage, despair and talk of suicide. One home in foreclosure was left with what looked like buckets of motor oil splashed on the walls and carpets; the kitchen counter was smashed to pieces. Carroll Aguirre sold her Lincoln Town Car and her aunt's diamond ring, and still lost her house. Edgardo Reyes lost his job as a trucker and now sleeps on the couch with the TV on all night instead of joining his wife in bed. A renter's barking pit bull keeps neighbors awake. And in the middle of the block on Grafton Street, a property has become a care home for the disabled. Neighbors are just happy it isn't a halfway house for felons. Paseo West was supposed to be a neighborhood of 92 luxury homes. But only 27 were sold before last year's auction. Of those original owners, four have gone into foreclosure, including the Aguirres, who had been living on credit and 401(k)s, and the Smiths, who had two mortgages and had put no money down. At least three others say they are on the verge of bankruptcy. Even the 34 families and investors who bought Paseo West homes at auction a year ago have lost thousands of dollars in value. And Anderson Homes has stopped building, leaving nothing but dirt on about 10 lots.

Across the Country, Fear About Savings, the Job Market and Retirement - (www.nytimes.com) A year ago, Robert Paynter was comfortably retired and looking forward to years of refurbishing old cars and boating from his dock on Lake Norman in North Carolina. Over a 17-year career at Wachovia, he amassed a pile of stock and options from the bank that he had assumed would be worth more than $600,000. But now the options are worthless, and he watched the value of his Wachovia shares shrink to about $15,000 before he sold all of them this week after the bank succumbed to the financial crisis and its stock fell to fire-sale prices. The rest of his investments are in free fall. “It’s like having an out-of-body experience,” said Mr. Paynter, 61. “It’s like being in a hospital bed and watching yourself dying. Whatever the bottom is going to be, I wish it would just get there. It’s the every day, watching the blood drain out of it, that’s hard to take.” Based on interviews around the country last week as the market continued its steep slide, many people say they are sensing losses beyond the short-term hits to their portfolios. Some feel a loss of faith in the United States and its government. Others are lowering their sights for the kinds of lives they expect to lead in coming years. Tom Drooger, 56, of Grand Haven, Mich., is president of a chapter of BetterInvesting, an investment club affiliated with the National Association of Investors Corporation. Usually, Mr. Drooger is the type to study stocks closely and track the market’s movement throughout the day. By Friday, he was no longer even paying attention. He has decided to stop watching the market news on CNBC for now and instead puts on easy-listening music. “There’s nothing you can do about it after a while,” he said. He compared the financial crisis to a house on fire and said he was merely waiting until the flames die down. “Once the fire’s out, you go in and do the repairs,” he explained. “To start to try to move things around until the market wrings itself out is pointless. I’m just sitting on the sidelines, leaving everything where it’s at.”

Credit crunch hits Bay Area housing market hard - (www.sfgate.com) San Francisco may be 3,000 miles from Wall Street, but the crisis that has engulfed the country's biggest financial institutions is putting even more pressure on the Bay Area's real estate market, making it increasingly difficult for home buyers to get credit. Cheap credit played a dramatic role in fueling the housing boom of the late 1990s and early 2000s, particularly in places like the Bay Area, where buyers relied heavily on unconventional loans to purchase homes that would have otherwise been unaffordable, economists said. That cheap credit also played a dramatic role in toppling financial institutions like Lehman Bros., Washington Mutual and Wachovia Corp., which were saddled with growing piles of toxic loans as borrowers who took advantage of lax lending criteria have proved unable to pay back those loans.

The Big Apple Losing Some of Its Luster - (www.washingtonpost.com) On top of all that gloom comes the spectacular implosion of Wall Street, where some of the city's most storied financial behemoths -- Bear Stearns, Lehman Brothers, Merrill Lynch, American International Group -- have been forced to merge or seek federal handouts to stave off bankruptcy. There are projections of thousands of jobs lost in the financial services sector, and the continuing plunge in stock prices has forced dramatic and sudden changes in the lifestyles of some of New York's wealthiest. Bookings for private jets are way down, and yacht rentals are drying up. Young Manhattanites are giving up the multimillion-dollar lofts they can no longer afford. The decade-long real estate boom appears to have stalled, with new projects on hold and existing skyscrapers difficult to refinance. New Yorkers are scaling back plans for big weddings and bar mitzvahs. Even a staple of life in the city, eating out, has taken a hit. "Businesses are having tremendous difficulty getting money, and there's a loss of confidence in the marketplace," said Kathryn Wylde, president and chief executive of the Partnership for New York City, a nonprofit alliance of business leaders. "Merger and acquisition activity has stalled. . . . Portfolios have gone to hell. It's rippling all the way through our system." In true New York fashion, more and more of those directly affected by the financial crisis are finding their way to psychoanalysts' couches. "I had a whole bunch of referrals -- I had five new patients just come in," said Alden Cass, a psychologist who specializes in the mental health problems of stockbrokers and investment bankers. "These are individuals who have become successful at taking control of things, and now they are reduced to a kind of helplessness."

Developing countries feeling fallout from meltdown - (biz.yahoo.com/ap) President Bush and world financial leaders sought to display unity Saturday as a way to calm investors whose panic has spread despite stepped up government action. Many participants spoke in unusually somber tones of the need for action. The talks shifted Sunday to the World Bank and its policy-setting committee, led by Mexican Finance Minister Agustin Carstens and the bank's president, Robert Zoellick, a former U.S. diplomat and trade negotiator. As a result of the downturn, developed countries are not expected to help 28 countries facing twin shocks of rising food and fuel prices, Zoellick said. "For the poor, the costs of the crisis could be lifelong," he said. Bush said his administration was doing everything possible to halt the biggest market disruption since the Great Depression. Accompanied by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, he participated for about 25 minutes in a discussion late Saturday with the Group of 20 nations, which includes wealthy countries as well as major developing countries such as China, Brazil and India. Other speakers at a policy meeting of the IMF echoed Bush in emphasizing the need for countries to work together to address the crisis, avoiding the go-it-alone projectionist trade strategies that worsened conditions during the Great Depression of the 1930s. "There is a resolve in the international community that this crisis will be resolved, that no tools will be spared to address its ramifications," said Youssef Boutros Ghali, Egypt's finance minister and the new chairman of the policy panel.



OTHER STORIES:

G7 poised to take joint action - (www.ml-implode.com) - "Finance ministers and central bankers from the Group of Seven leading economies agreed to take "urgent and exceptional" co-ordi...
Treasury Trashes the Market, No Help from Ben - (www.ml-implode.com) - ``Sickeningly, there’s likely to be little letup given the amount of supply that must be settled tomorrow and Monday and the cer...
Paulson: Will Buy Equity "Soon" - (www.ml-implode.com) - ``Paulson also seemed to say buying equity provided a bigger bang for the buck than buying troubled mortgage assets.''
Capital Flight is now being discussed - (www.ml-implode.com) - ""Is this the beginning of the end for the dollar and the Treasury market? Is this the first sign of the bursting of the bubble ...

A Hard Lesson About FDIC - (www.sfgate.com) Learning the hard way about FDIC insurance. Fran Quittel lost thousands after IndyMac went belly-up. She later mounted a campaign urging the FDIC to require banks to warn depositors if their account balance is over the insurance limit.

Australian government guarantees all bank deposits - (news.yahoo.com/s/afp) The Australian government will guarantee all deposits in domestic banks as the financial crisis enters a dangerous new phase and threatens growth, Prime Minister Kevin Rudd said Sunday. "We are talking about all deposits, let's be clear about that," Rudd told reporters in Canberra."For Australian banks, building societies, credit unions and also for the foreign subsidiaries of banks operating in Australia taking deposits."

Bailout managers may be buying own securities - (www.sfgate.com)

On the brink of a meltdown - (www.marketwatch.com) IMF confident world governments will act in time to avert crisis. The global financial system is on the brink of a meltdown and additional steps must be taken immediately by the richest nations to calm jittery bankers and investors, the IMF warns. Policymakers from around the globe are united in their resolve to avert a global financial meltdown, the International Monetary Fund said Saturday. Although the talks in Washington this weekend haven't come up with the specific solutions needed for each nation, the whole world is committed to do whatever it takes to unfreeze credit markets, said Dominique Strauss-Kahn, the IMF's managing director. "No one is going to let an important financial institution fail," Strauss-Kahn said. Earlier in the day, he opened up the discussions by warning that worries about the insolvency of major banks had pushed "the global financial system to the brink of systemic meltdown."
Report: Germany readies its own bank bailout plan - (www.marketwatch.com)

Crisis stings Oakland project - Inside Bay Area - (www.insidebayarea.com) The financial meltdown is hitting home. Oak Knoll project developer SunCal Companies announced Friday that it is suspending demolition work at the site in the Oakland hills because its financial partner has gone under. SunCal spokesman Joe Aguirre said Lehman Brothers, the huge financial giant that declared bankruptcy last month, was its financial investor for the 167-acre development at the former Oak Knoll Naval Medical Center.
"SunCal Companies regrets that the bankruptcy filing by Lehman Brothers requires us to suspend work at Oak Knoll to protect our many consultants and contractors," Aguirre said in a prepared statement. "We've been unable to obtain assurance of continued funding to allow us to move forward with confidence at this point in time. Relationships with our valued project teams are of critical importance to SunCal, and in good faith we cannot ask these professionals to work without having proper assurances of future payment."

America's Luxury Foreclosure Capitals - (www.forbes.com) Just because a neighborhood is full of swimming pools and luxury cars doesn't mean the guy around the corner is making his mortgage payments. Take plush Laguna Niguel, Calif. This South Orange County community has 61,891 residents and borders glamorous beach cities like Laguna Beach and Dana Point, but it has the highest number of bank-owned properties--210--of the ZIPs we examined. These foreclosures have likely contributed to the decline of the area's median home price, which has fallen by $52,750, or 7.2%, to $679,500 in the last year. San Juan Capistrano, Calif., was second on our list with 190 repossessed properties among 33,826 residents. Just a few miles away, banks own 181 homes in the 4,000-acre, 23,140-person planned community Ladera Ranch. Median homes in these cities sell for $685,000 and $704,409, respectively.

Britain to take control of two major banks - (news.yahoo.com/s/afp)
Europe's Leaders Race to Find Financial Solution - (www.bloomberg.com)

World Leaders Offer Unity But No Steps To Ease Crisis - (www.washingtonpost.com)

Lehman Auction Leaves Cloudy Picture For Banks - (www.forbes.com) Hedge funds and banks that bought insurance against a default in bonds of Lehman Brothers stand to be $365 billion richer. That's because derivatives traders, using an auction Friday, set the price of Lehman's bonds at 8.625 cents on the dollar. The amount of insurance--in the form of credit default swaps--written to protect bond holders is estimated at $400 billion. Buyers of the insurance will collect the full face value of their holdings from the sellers of the insurance. Of course that also means the banks, funds and insurance companies that sold it are out $365 billion, which is the difference between the price of Lehman's bonds as set in the auction and the remaining 91.375 cents in face value.