Tuesday October 21 Housing and Economic stories

TOP STORIES:

Lehman Demise Slams San Mateo County - (www.sfgate.com) Public school budget cuts, delays on road and Caltrain improvements, and scaled-down city services may be in store as government absorbs about $150 mil in potential losses. San Mateo County invested heavily in Lehman Bros., losing as much as $155 million when the blue-chip firm filed for bankruptcy protection on Sept. 15. "There is no way for me to express how bad we feel about the loss," San Mateo County Treasurer Lee Buffington said in an e-mail to a constituent who asked about the investments, "and at this point we are trying to recover at least a part of the lost funds by aggressively pursuing both the bankruptcy and the federal bailout of the Wall Street firms." The treasurer's preliminary estimates indicate that the San Mateo County Transportation Authority lost as much as $22.4 million, which could hamper street, highway and grade-crossing projects. The Peninsula Joint Powers Board, which operates Caltrain and includes representatives from San Francisco and Santa Clara counties, sustained losses of about $1.1 million. Daly City, Redwood City and San Bruno each racked up losses exceeding $1 million in the Lehman Bros. bankruptcy. Funds from these cities, school districts and special districts were pooled together in San Mateo County's $2.6 billion investment portfolio. Critics have said the county needs to hire an outside expert for this portfolio. It's hitting at the same time that we had a late and inadequate state budget," Holbrook said. "Those losses are impossible for a school district to absorb. This is not money just sitting around in reserves. It's used for our ongoing operating expenses - paying salaries, and making the payments on buildings and facilities."

Rethinking 'Reaganomics' - (www.sfgate.com) Dems' resurgence, financial fallout spur rethinking of wholesale expansion of government economic intervention. Ken comment: Of course, the SF Chronicle gets it wrong again. The failed policies of Reagan were not smaller government, but rather deficit spending and not enforcing laws that were already in place. More government regulation and bigger government is not the answer.

RBS to Venezuela: You're Being Cut Off - (www.cnbc.com) Venezuela's state run oil company, PDVSA, is urgently searching for replacement financing after losing a line of credit of more than $5 billion from the Royal Bank of Scotland, CNBC has learned. PDVSA had an agreement in principle with RBS until the UK government stepped in last week and bailed out the troubled bank. RBS [RBS 1.18 0.02 (+1.72%)] then rescinded the financing, citing market conditions. Now, a source within the US administration says Hugo Chavez's government is giving off indications that it's strapped for cash.

Corporate donors fill lawmaker’s charities’ coffers – (www.sfgate.com) They do not seem the most likely classical music patrons: Northrop Grumman, General Dynamics, Boeing and Lockheed Martin. But together, these defense contractors are donating hundreds of thousands of dollars to the symphony orchestra in Johnstown, Pa., underwriting performances of Mozart and Wagner in this struggling former steel town. A defense lobbying firm, the PMA Group, even sprang for a Champagne reception at the symphony's opera festival last month. Company representatives say they are being generous corporate citizens. But the orchestra is also a beloved charity of Rep. John Murtha, D-Pa., whose congressional committee hands out lucrative defense contracts, and whose wife, Joyce, is a major booster of the symphony. "She just loves knowing that we have an orchestra that is the quality of a larger city orchestra," the symphony executive director, Patricia Hofscher, said of Joyce Murtha. "Her friends have come here and been impressed by the quality of the orchestra in a geographic and economic region that, let's face it, are not on the beaten path." For the first time, corporations and their lobbyists are being required to disclose donations they make to the favorite causes of House and Senate members, and a review of thousands of pages of records shows the extent - and lavishness - of this once hidden practice. During the first six months of 2008, lobbyists, corporations and interest groups gave approximately $13 million to charities and nonprofit organizations in honor of more than 200 members of the House and Senate. The donations came from firms with numerous interests before the Congress, such as Wal-Mart, the Ford Motor Co., Kraft Foods and Pfizer, and were received by charities including prominent organizations like the Juvenile Diabetes Research Foundation and the Smithsonian National Museum of African Art, as well as local groups controlled by members of Congress or those close to them.

Car dealer blues - ContraCostaTimes.com – (www.contracostatimes.com) The struggling economy has eroded the vitality of Bay Area auto dealerships, causing a number of them to shut their doors or shrink their operations in the past few days. In the East Bay, Silicon Valley and on the Peninsula, a string of auto dealers has gone out of business. Weak sales, soaring gasoline prices and the mortgage meltdown are the primary factors that have caused dealership closures this week and during the past 12 months. All told, at least eight dealerships have closed in the Bay Area in less than a year, including six in the East Bay that have closed or consolidated. And the problem has spread well beyond this area. "We are seeing on a weekly basis dealerships closing throughout the state," said Peter Welch, president of the California New Car Dealers Association. So far in 2008, about 100 dealer-members of the association have not renewed their membership. The association has confirmed that 70 of those, all in California, are no longer in business. At the end of 2007, the association had about 1,300 members. Now it has about 1,200, Welch said. The slump in the housing market is a key factor behind the slowdown in vehicle sales. "A year to 16 months ago, probably about four out of 10 vehicle purchases were done with home-equity loans," Welch said. "Now a lot of people no longer have equity in their homes. That source of financing has gone away."

Hedge fund manager slams ‘idiot’ bankers - (www.ft.com) Parting shot as Andrew Lahde retires. A hedge fund manager who made what is thought to be one of the biggest percentage profits of all time bowed out of the business on Friday with a fierce attack on the “idiots” running big banks who were willing to take the other side of his bets. Andrew Lahde, founder of California’s Lahde Capital, used his farewell letter to investors to round on the US “aristocracy” able to pay for their children to gain a top-class education. Mr Lahde, who has made tens of millions of dollars from his highly successful bets against the financial and property sectors during the past two years, also called for the legalisation of cannabis and said he was now dropping out to spend time with his money. Saying he was “in this game for the money”, Mr Lahde went on to mock those who traded with him. “The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking.” The full text of Andrew Lahde’s letter: “These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.

Powell backs Obama for President - (www.ft.com) Colin Powell, the former Republican US secretary of state, endorsed Barack Obama, the Democratic presidential candidate, in the latest sign of fracturing unity in the Republican party ahead of next month’s election

Wall Street banks in $70bn staff payout - (www.guardian.co.uk) Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned. Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed. Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany's Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts. The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed. At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.

Small banks watch and president the Marxist – (www.wallstreetexaminer.com) - the FDIC is temporarily guaranteeing all interbank credits for 30 days, starting past Monday. After the promotion expires in early November (just after elections, he-he), the banks will receive the new price-list for FDIC insurance coverage. And this insurance will be finally graded depending on the bank’ strength. The cost of this insurance for troubled banks will be dire. That’s when those troubled banks will publicly recognize that they simply cannot afford the FDIC coverage anymore and we’ll see the second wave of failures (the first wave we’ve just enjoyed).

F.B.I. Struggles to Handle Wave of Financial Fraud Cases - (www.nytimes.com) The Federal Bureau of Investigation is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country’s economic crisis, according to current and former bureau officials. The bureau slashed its criminal investigative work force to expand its national security role after the Sept. 11 attacks, shifting more than 1,800 agents, or nearly one-third of all agents in criminal programs, to terrorism and intelligence duties. Current and former officials say the cutbacks have left the bureau seriously exposed in investigating areas like white-collar crime, which has taken on urgent importance in recent weeks because of the nation’s economic woes.

European banks in no hurry for bailouts - (www.iht.com) Germany and France on Friday gave final approval to their costly bank rescue packages, but many beleaguered European banks were in no hurry to sign up for the government bailouts. Given that a number of major financial competitors already have the benefit of state backing, though, some of the big names of European banking, including ING of the Netherlands and Unicredit of Italy, may not be able to resist pressure from investors to accept government aid, strings and all. On Friday, UniCredit arranged a capital injection from Libyan state investors in an effort to improve its balance sheet without Italian government support. Despite the new legislation, there were few signs that continental European governments were planning to force banks into a state recapitalization, as was the case in the United States and Britain over the past week.

South Korea pledges $130 billion to avert markets meltdown – (www.reuters.com) South Korea announced on Sunday a package worth over $130 billion to rescue its markets dragged down in the global financial crisis, offering a state guarantee on foreign debt and promising to recapitalize financial firms. Asia's fourth-largest economy has looked one of the region's most vulnerable to the credit crunch with its banks struggling to find the dollars they need to pay debt and as frightened investors hammered down the won to its lowest in over a decade. The country's top three economic planners told a joint news conference that on top of the guarantees worth $100 billion, they would also inject $30 billion to banks and exporters and help smaller firms get some 12 trillion won ($9 billion) in loans.

Leading Indicators at 33 Year Low, Consumer Sentiment Drops Most on Record - (Mish at globaleconomicanalysis.blogspot.com) The Economic Cycle Research Institute ECRI reports Weekly Leading Index Growth at 33-yr Low. A measure of future economic growth in the United States fell to its worst level in 6 years and its annualized growth rate had its biggest weekly decline in almost four decades to hit a fresh 33-year low, a search group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 117.0 in the week to Oct. 10, down from 120.6 in the previous period. It is at its lowest level since Oct. 25, 2002, when it stood at 117.0. The index's annualized growth rate slid from a downwardly revised minus 14.8 percent to negative 17.1 percent, its lowest since Jan 31, 1975, when it was minus 17.9 percent, according to ECRI data.


OTHER STORIES:

Mandelson admits economy going into reverse - (business.timesonline.co.uk) Business Secretary says contraction is inevitable but refuses to use the term 'recession' to describe state of economy
US faces worst recession in 26 years - (www.ft.com)
OPEC May Cut Production by 2 Million Barrels a Day, Khelil Says - (www.bloomberg.com)
NG Gets $13.4 Billion Injection From the Netherlands - (www.bloomberg.com)

Banks braced for Lehman debt deadline - (business.timesonline.co.uk) Opinions are varied on whether estimates for settlement arising from bank's demise will fall within $6 billion estimate
Old homes surviving crisis - (www.marketwatch.com) Data likely to show latest existing-home sales still holding up. Despite the ongoing turmoil in the credit and housing markets, sales of pre-owned homes are doing surprisingly well over the past year, especially when compared with sales of new homes.
Pakistani economy falters, IMF may be only hope - (www.sfgate.com) President Asif Ali Zardari returned from China last week without a commitment for hard cash needed to shore up Pakistan's crumbling economy, leaving him with the politically unpopular prospect of having to ask the International Monetary Fund for help. Pakistan was seeking the aid from China, an important ally, as it faces the possibility of defaulting on its current account payments. With the United States and other nations preoccupied with a financial crisis, and Saudi Arabia, another traditional ally, refusing to offer concessions on oil, China was seen as the last port of call before the IMF. Accepting a rescue package from the IMF would be seen as a humiliating step for Zardari's government, which took office earlier this year. An IMF-backed plan would require the government to cut spending and raise taxes, among other measures, which could hurt the poor, officials said.

Scandal costs Caisse d’Epargne €600m - (www.cnbc.com) Bank team made unauthorised bets
Pakistan Asks for $10 Billion from IMF - (www.cnbc.com)
S. Korea Joins Global Rescue with $130 Billion - (www.cnbc.com)
IMF Probes Chief over Ties with Co-Worker - (www.cnbc.com) The International Monetary Fund has launched a probe into allegations of improper behavior in relation with a subordinate by its chief, Dominique Strauss-Kahn. The investigation focuses on whether Strauss-Kahn abused his position in connection with a sexual relationship with a subordinate, in a case that deals a heavy blow to the IMF at a key moment in the world financial crisis.
Layoffs Starting to Spread As US Recession Looms - (www.cnbc.com) Shockwaves from the global financial crisis are now being felt in almost every corner of working America as companies press the eject button on increasing numbers of their employees. While the ax has been falling for months in the financial, homebuilding and auto industries—where the current economic downturn started—makers of everything from soft drinks to water filtration systems have unveiled rounds of job cuts in recent weeks as they brace for what could become a long and deep recession.

We had to burn the village to save it - (londonbanker.blogspot.com) The cycle of debt deflation is just getting rolling. The banks were only the first bailout and already the federal deficits are ballooning unsustainably. What will be the recourse when municipalities and states face default through catastrophic tax and revenue shortfalls? What will be the recourse when large commercial employers, industries and infrastructure confront failure from collapsing consumption expenditure? What will be the consequence when unemployment, homelessness, political disaffection and crime are resurgent and threaten the political fabric?
The Confidence Game - (bigpicture.typepad.com) - "Terrific essay by James Grant on confidence, or the lack thereof, in capitalism"
Rapid Downward Revisions in Expected Growth - (www.ml-implode.com) - "...or: "Yikes!""
Smart People Saying Dumb Things - (www.ml-implode.com) - Megan McArdle & Dan Drezner discuss who deserves the blame for the current credit crisis. (video below). What is fascinating to me about this discussion is how in an attempt to assess political blame, they each completely miss the underlying issue as to what actually occurred

Case-Shiller Home Price Index back to 2003 - 2004 prices - (www.ml-implode.com) - "Wasn't there something about the year-round-golf and pro athletes that was supposed to prevent this kind of thing?"
Option Armageddon: Must-Read Manifesto, er, Investor Letter - (www.ml-implode.com)
An inefficient truth - (www.ml-implode.com)
`Armageddon' Prices Fail to Lure Buyers Amid Selling - (www.ml-implode.com)

Financial Crisis Provides Fertile Ground for Boom in Lawsuits - (www.nytimes.com)
Some investors grow leery of stocks in grim market - (www.ap.com)