Tuesday October 28 Housing and Economic stories

TOP STORIES:

GE Needs Fed Bailout To Finance Operations; Dividend At Risk - (globaleconomicanalysis.blogspot.com) GE is struggling to get short term financing at a price it wants to pay. So what does GE do? The answer is twofold:1) Borrow from the Commercial Paper Funding Facility
2) Pretend this is a good thing.Consider this ridiculous headline: GE to Sell CP to Fed to Help Unlock Credit Markets. General Electric Co., the biggest U.S. issuer of commercial paper, plans to use the Federal Reserve’s new short-term funding facility, throwing its weight behind the central bank’s efforts to unlock the credit markets. “This is a way for us to demonstrate our support for what the Fed is doing, which is providing all-around liquidity,” Wilkerson said.

One failed bank gets the housing fix right – (money.cnn.com) MARXIST/SOCIALIST GARBAGE STORY. The battered economy is in desperate need of a housing fix, and one failed bank just may have the answer. On Thursday FDIC Chairwoman Sheila Bair told the Senate Banking Committee about the success her agency has had in helping struggling borrowers at IndyMac, which the FDIC took over this summer. Bair, the nation's leading bank regulator, thinks this foreclosure prevention program can work for other banks. "Our hope is that the program we announced at IndyMac Federal will serve as a catalyst to promote more loan modifications for troubled borrowers across the country," she told the committee.

Ukraine to get $16.5 billion IMF loan - (money.cnn.com) The International Monetary Fund said Sunday it has reached a tentative agreement with Ukraine on a US$16.5 billion loan to help the country out of its growing financial turmoil. The agreement, however, is contingent on unspecified legislative changes to Ukraine banking laws and approval by the IMF board, the fund said. "The IMF is moving expeditiously to help Ukraine, and this program is focused on the essential upfront measures needed to maintain confidence and economic and financial stability," IMF Managing Director Dominique Strauss-Kahn said in a statement issued in Washington. Ukraine's Finance Ministry and its central bank said the loan would help shore up the country's flagging economic situation.

Crisis moves to Gulf Arab nations - (money.cnn.com) Kuwait moves to prop up bank after losses on Gulf stock exchanges. Kuwait moved Sunday to prop up the country's second-largest commercial bank and scrambled to protect other depositors in a sobering day of reckoning for the oil-rich Arab Gulf, which had hoped to emerge largely unscathed from the global financial crisis. The central bank's decision to halt trading in Gulf Bank shares because of high derivatives losses triggered shock waves across the region's bourses. Key stock indices sustained hits of between 3.5 to almost 9 percent, before moderately paring losses after the bank announced it was considering widespread deposit guarantees. The developments were a stark contrast to an all-clear message issued by Gulf finance ministers just one day before. Together, they highlighted problems the oil-rich states may still confront as they try to sustain massive spending and high economic growth rates amid falling oil prices and bank uncertainty. In particular, a long and lucrative property boom in the United Arab Emirates also shows signs of strain. "The halting of Gulf Bank shares spread panic in the bourse today because the government has been saying banks are safe from (global financial crisis) losses," investor Ahmed al-Fadhli said a telephone interview. Neither the government nor Gulf Bank revealed the size of the losses or their timeframe. But Ibrahim Dabdoub, the chief executive of the National Bank of Kuwait, told Al Arabiya television the losses were up to 200 million dinars ($742 million).

Goldman chief sought tie-up talks with Citi - (www.ft.com) Lloyd Blankfein, Goldman Sachs' chief executive, called Vikram Pandit, his Citigroup (NYSE:C) counterpart, last month to discuss a merger, in a dramatic example of the secret manoeuvring that preceded the government bail-out of the financial sector. The call, which was made at the tentative suggestion of the regulatory authorities or at least with their blessing, was made shortly after Goldman had won surprise approval to convert itself from a securities firm into a commercial bank on September 21, according to several people familiar with the events.

The Bet That Blew Up Wall Street - (www.cbsnews.com) The world's financial system teetered on the edge again last week, and anyone with more than a passing interest in their shrinking 401(k) knows it's because of a global credit crisis. It began with the collapse of the U.S. housing market and has been magnified worldwide by what Warren Buffet once called "financial weapons of mass destruction." They are called credit derivatives or credit default swaps, and 60 Minutes did a story on the multi-trillion dollar market three weeks ago. But there's a lot more to tell. As Steve Kroft reports, essentially they are side bets on the performance of the U.S. mortgage markets and the solvency on some of the biggest financial institutions in the world. It's a form of legalized gambling that allows you to wager on financial outcomes without ever having to actually buy the stocks and bonds and mortgages. It would have been illegal during most of the 20th century, but eight years ago Congress gave Wall Street an exemption and it has turned out to be a very bad idea. While Congress and the rest of the country scratched their heads trying to figure out how we got into this mess, 60 Minutes decided to go to Frank Partnoy, a law professor at the University of San Diego, who has written a couple of books on the subject. Ask to explain what a derivative is, Partnoy says, "A derivative is a financial instrument whose value is based on something else. It's basically a side bet." Think of it for a moment as a football game. Every week, the New York Giants take the field with hopes of getting back to the Super Bowl. If they do, they will get more money and glory for the team and its owners. They have a direct investment in the game. But the people in the stands may also have a financial stake in the ouctome, in the form of a bet with a friend or a bookie. "We could call that a derivative. It's a side bet. We don't own the teams. But we have a bet based on the outcome. And a lot of derivatives are bets based on the outcome of games of a sort. Not football games, but games in the markets," Partnoy explains. But the rocket fuel was the trillions of dollars in side bets on those mortgage securities, called "credit default swaps." They were essentially private insurance contracts that paid off if the investment went bad, but you didn't have to actually own the investment to collect on the insurance. "If I thought certain mortgage securities were gonna fail, I could go out and buy insurance on them without actually owning them?" Kroft asks Eric Dinallo, the insurance superintendent for the state of New York. "Yeah," Dinallo says. "The irony is, though, you're not really buying insurance at that point. You're just placing the bet." Dinallo says credit default swaps were totally unregulated and that the big banks and investment houses that sold them didn't have to set aside any money to cover their potential losses and pay off their bets. "As the market began to seize up and as the market for the underlying obligations began to perform poorly, everybody wanted to get paid, had a right to get paid on those credit default swaps. And there was no 'there' there. There was no money behind the commitments. And people came up short. And so that's to a large extent what happened to Bear Sterns, Lehman Brothers, and the holding company of AIG," he explains. In other words, three of the nation's largest financial institutions had made more bad bets than they could afford to pay off. Bear Stearns was sold to J.P. Morgan for pennies on the dollar, Lehman Brothers was allowed to go belly up, and AIG, considered too big to let fail, is on life support to thanks to a $123 billion investment by U.S. taxpayers.

They’re Shocked, Shocked, About the Mess - (www.nytimes.com) MY hypocrisy meter konked out last week. It started acting up on Wednesday, spinning wildly as executives from the nation’s leading credit-rating agencies testified before Congress about their nonroles in the credit crisis. Leaders from Moody’s, Standard & Poor’s and Fitch all said that their firms’ inability to see problems in toxic mortgages was an honest mistake. The woefully inaccurate ratings that have cost investors billions were not, mind you, a result of issuers paying ratings agencies handsomely for their rosy opinions. Still, there were those pesky e-mail messages cited by the House Committee on Oversight and Government Reform that showed two analysts at S.& P. speaking frankly about a deal they were being asked to examine. “Btw — that deal is ridiculous,” one wrote. “We should not be rating it.” “We rate every deal,” came the response. “It could be structured by cows and we would rate it.” Asked to explain the cow reference, Deven Sharma, S.& P.’s president, told the committee: “The unfortunate and inappropriate language used in these e-mails does not reflect the core culture of the organization I am committed to leading.” Maybe so, but that was a lot for my malarkey meter to absorb. Then, on Thursday, my meter sputtered as Alan Greenspan, former “Maestro” of the Federal Reserve, testified before the same Congressional questioners. He defended years of regulatory inaction in the face of predatory lending and said he was “in a state of shocked disbelief” that financial institutions did not rein themselves in when there were billions to be made by relaxing their lending practices and trafficking in exotic derivatives. Mr. Greenspan was shocked, shocked to find that there was gambling going on in the casino.

Downtown slowdown: Seattle, Bellevue building projects take a hit - (seattletimes.nwsource.com) How many construction cranes did you count the last time you drove through downtown Seattle or downtown Bellevue? Ten? Twelve? More? Count them while you can. The credit crunch and related economic woes are drying up the development pipeline in the region's two commercial hubs. More than two dozen projects are on hold, many because developers say they can't borrow money to build. The slowdown is hard to see amid the forest of new office, condo and apartment towers under construction in the two downtowns. But work on many of those buildings began in 2006, before the first glimmerings of crisis. Most will be finished by the end of next year. As those cranes come down, fewer new ones will go up. Even now they are less numerous than many had anticipated. In early 2007, the Downtown Seattle Association identified 10 projects as the next wave of downtown development, projects that were "permitted and scheduled for construction." Nearly two years later, four of those projects still haven't broken ground. A fifth, the troubled 1 Hotel & Residences, started then stopped, leaving a deep hole at the prominent corner of Second Avenue and Pine Street.

Scope of foreclosure crisis daunts government - (www.msnbc.msn.com) Each day from July through September, more than 2,700 Americans lost their homes in foreclosure. That number, up from 1,200 a day a year ago, is a sign that the mortgage industry and government programs have done little to help troubled homeowners. The mortgage market's troubles have proved to be far more serious and intractable than most in government or the private sector had predicted a year ago. A massive speculative bubble in housing prices caused millions of Americans to think of their homes as an investment, rather than a place to live. Now prices are plummeting, especially in once-sizzling markets like California, Florida and Nevada. And the bleeding might not stop until the end of next year. The median home price in the U.S. dropped 9 percent in September from a year ago to $191,600, and is down 17 percent from the peak in July 2006, the National Association of Realtors said Friday. Already, 23 percent of homeowners with a mortgage owe more on their loans than their homes are worth, and that figure is expected to rise to 28 percent by this time next year, according to Moody's Economy.com.

Doubts grow over Mexican debt repayments - (www.ft.com) Yields on bonds issued by many of Mexico's leading companies have risen sharply in the past few weeks, signalling growing doubts about the ability of some to repay debts amid current market turmoil.

Financial Meltdown Worsens Food Crisis - (www.washingtonpost.com) As shock waves from the credit crisis began to spread around the world last month, China scrambled to protect itself. Among the most extreme measures it took was to impose new export taxes to keep critical supplies such as grains and fertilizer from leaving the country. About 5,700 miles away, in Nairobi, farmer Stephen Muchiri is suffering the consequences. It's planting season now, but he can afford to sow amaranthus and haricot beans on only half of the 10 acres he owns because the cost of the fertilizer he needs has shot up nearly $50 a bag in a matter of weeks. Muchiri said nearly everyone he knows is cutting back on planting, which means even less food for a continent where the supply has already been weakened by drought, political unrest and rising prices. While the world's attention has been focused on rescuing investment banks and stock markets from collapse, the global food crisis has worsened, a casualty of the growing financial tumult.

US public pension funds face big losses - (www.ft.com) Public pension funds in US states are facing their worst year of losses in history, exacerbating existing funding shortfalls and putting pressure on state governments to shore them up.
In the nine months to the end of September, the average state pension fund lost 14.8 per cent, according to Northern Trust, a fund company. The loss has grown since, as financial markets slumped further in October. The previous highest loss for state funds was 7.9 per cent for the full year in 2002. California's Calpers, the US's biggest pension fund, last week reported a loss of 20 per cent of its assets, or more than $40bn, between July 1 and October 20 this year.



OTHER STORIES:


Gulf Bank May See Loss as Derivatives Contracts Sour - (www.bloomberg.com)
Financial Meltdown Worsens Food Crisis - (www.washingtonpost.com)
Spending Stalls and Businesses Slash U.S. Jobs - (www.nytimes.com)
Uses for $700 billion bailout money ever shifting - (biz.yahoo.com/ap)
Seattle-area house prices decline - Seattle Times
Recession's dark cloud looms over earnings season - (biz.yahoo.com/ap)
GE Will Cut Costs, Jobs, Immelt Says - (online.wsj.com)
The Price of Optimism - (www.nytimes.com)
But Have We Learned Enough? - (www.nytimes.com)

Currencies Fall as Fears Spread and Stocks Slip - (www.nytimes.com)
Hedge funds face collateral pressure - (www.ft.com)
Bond Risk Surges by Record on U.K. Recession, Auto Sales Slump - (www.bloomberg.com)
Recession fears deepen global rout - (money.cnn.com)

Gloomy Forecast On Hedge Funds - (www.washingtonpost.com)
Citadel Chief Denies Rumors of Trouble - (www.nytimes.com)
OPEC Orders Cut in Oil Production - (www.nytimes.com)
Another Bubble Bursts - (online.wsj.com)

Denmark Raises Main Rate Half a Point to 5.5% to Boost Krone - (www.bloomberg.com)
U.K. GDP Shrinks, First Recession Since 1991 Looms - (www.bloomberg.com)
Asia Backs Sarkozy Push for Financial-Market Revamp - (www.bloomberg.com)
Financial crisis: Hedge Fund turmoil is hitting millions of savers, experts say - (www.telegraph.co.uk)
South Koreans reliving nightmare of last financial crisis - (www.iht.com)
Tight Credit Curbs Growth in India - (www.nytimes.com)
Russia's Micex Halts Trading Until Next Week After Stocks Slump - (www.bloomberg.com)
States' Tax Receipts Fell Sharply in Latest Quarter - (online.wsj.com)
U.S. Home Resales Rose in September to One-Year High - (www.bloomberg.com)
Squeezed banks borrow record amount from Fed - (www.boston.com)

Greenspan Says He Was Wrong On Regulation - (www.washingtonpost.com)
Stockton, Calif., tries digging out - (www.usatoday.com)
Insurers Are Getting in Line for Piece of Federal Bailout - (www.nytimes.com)
Georgia's Alpha Bank & Trust Fails; Toll Rises to 16 - (www.bloomberg.com)
Chrysler Plans to Cut 25% of Salaried Jobs by Dec. 31 - (www.bloomberg.com)
U.S. Mulls Widening Bailout to Insurers - (online.wsj.com)
Wall Street layoffs could surpass 200,000 - (www.latimes.com)
AIG Has Used Much of Its $123 Billion Bailout Loan - (www.washingtonpost.com)
Companies hunkering down for long recession - (www.chicagotribune.com)
Restaurant industry is starving for customers - (www.latimes.com)

Ingersoll-Rand to Eliminate `Several Thousand' Jobs - (www.bloomberg.com)
Shipping Firms Gear Down as Slow Economy Takes Toll - (online.wsj.com)
Drug reactions at record pace - (www.boston.com)

Crisis caused by negligence and incredible stupidity - (www.ft.com)
‘A Full-Blown Crisis’ - (www.newsweek.com)
China's Wen calls for 'every means' against crisis - (ap.google.com)