Friday November 28 Housing and Economic stories

TOP STORIES:

After Withholding Employee Vacation Payouts, Mervyn's Execs In Line For Potential Bonuses - (www.cbs5.com) You've undoubtedly heard about the Mervyn's chain shutting down. CBS 5 Investigates looks into why former employees are going without back vacation pay, yet executives are in line to receive vacation pay plus bonuses. They're the people who made Mervyn's, Mervyn's. People like Kathi Finley of Castro Valley. "It truly felt like a family," Finley said of the closing chain. Former employee Randy Spengler said, "There was always that Mervyn's-cared feeling." Economics professor Eugene Muscat of the University of San Francisco said the company was unique. "Mervyn's had a clientele and customers and staff that were family friendly," he said. But Muscat said all that changed when Mervyn's was sold. "It wasn't purchased to be continued as a family operation," he said. Muscat said that's because private equity firms bought the company and split off the real estate, essentially renting the stores back to Mervyn's and making it difficult for the stores to remain profitable. "That meant that those store managers were now carrying a much higher burden and had to work that much harder to be able to make the stores profitable, and it was a very slippery slope," said Muscat. Mervyns slid into bankruptcy and the chain is now going out of business. Eight former Mervyn's employees told CBS 5 Investigates how they felt when they heard the news. Their answers ranged from words such as "shocked" and "devastated" to describing a feeling of being "socked in the stomach."

Millionaires get farm payments; nobody checking - (www.iht.com) A sports team owner, a financial firm executive and residents of Hong Kong and Saudi Arabia were among 2,702 millionaire recipients of farm payments from 2003 to 2006 — and it's not even clear they were legitimate farmers, U.S. congressional investigators reported Monday. They probably were ineligible, but the Agriculture Department can't confirm that, since officials never checked their incomes, the Government Accountability Office said. The Agriculture Department cried foul: It said the investigators had access to Internal Revenue Service information on individuals that the department is not permitted to see. The investigators said the problem will only get worse, because the payments they cited only covered the 2002 farm bill subsidies. The 2008 farm legislation has provisions that could allow even more people to receive improper payments without effective checks, they said. There are three main types of payments: direct subsidies based on a farmer's production history; countercyclical payments that kick in when prices are low and disappear when they recover; and a loan program that allows repayment in money or crops.

Treasury extends mutual fund guarantee program - (www.contracostatimes.com) The government is extending a program to bolster the money-market mutual fund industry. The Treasury Department on Monday said the program, which provides guarantees for the popular investment products, will now run until April 30. The temporary program had been slated to expire on Dec. 18. The department said it is taking the action "to support ongoing stability in this market." Treasury set up the temporary program in September—a time of intense financial market turmoil—that led skittish investors to pull money out of the funds. The government is tapping a $50 billion fund created during the Depression to temporarily provide the guarantees. Funds pay a fee to participate in the program. Treasury last week agreed to be a buyer of last resort to assist in the liquidation of the Reserve Fund's U.S. Government Fund due to "unique and extraordinary circumstances." Under the arrangement, the fund has been given 45 days to find buyers for its assets. After that, the Treasury will step in and buy any remaining shares to ensure that each shareholder receives $1 for every share they own. Treasury said last week it did not anticipate taking similar action for any other mutual funds.

Citigroup Bailout Raises Viability Questions For Entire Banking System – (Mish at globaleconomicanalysis.blogspot.com) Still more details are emerging from the weekend bailout of Citigroup. And in what is no surprise in this corner, it appears Citigroup is not well capitalized and Faces Pressure to Slim Down. The government rescue of Citigroup Inc. reversed the perilous slide of the company's stock, but pressure is mounting on its executives and directors to do even more to stabilize the financial giant. Citigroup executives acknowledged Monday that the government made it clear in weekend negotiations that it expects the company to continue to reduce its appetite for risk, and to seriously weigh more drastic actions, including possibly breaking up the company. "This is a reprieve, but it's not a complete pardon," said another person familiar with the matter, referring to the government rescue plan. "Nobody's confused about that." The company faces swelling losses on loans that aren't covered under the government's loss-sharing agreement, which amounts to insurance on a $306 billion pool of assets. Under the plan, Citigroup will shoulder the first $29 billion in losses on that pool. After that, three government agencies will absorb 90% of any remaining losses, which amounts to $249 billion.

Icelanders demand PM resignation, clash with police - (www.guardian.co.uk) Thousands of Icelanders demonstrated in Reykjavik on Saturday demanding the resignation of Prime Minister Geir Haarde and Central Bank Governor David Oddsson for failing to stop a financial meltdown in the country. It was the latest in a series of protests in the capital since the financial meltdown that crippled the island's economy. Hordur Torfason, a well-known troubadour in Iceland and the main organiser of the protests, said the protests would continue until the government stepped down. "They don't have our trust and they are no longer legitimate," Torfason said as the crowds gathered in the drizzle before the Althing, the Icelandic parliament. A separate group of 200-300 people gathered in front of the city's main police station demanding the release of a young protester being held there, Icelandic media reported. Police in riot gear used pepper spray to drive back an attempt to free the protester during which several windows at the police station were shattered. The protester was later released after a fine he had been sentenced to pay was paid. Iceland's three biggest banks -- Kaupthing, Landsbanki and Glitnir -- collapsed under the weight of billions of dollars of debts accumulated in an aggressive overseas expansion, shattering the currency and forcing Iceland to seek aid from the International Monetary Fund (IMF). This week, the North Atlantic island nation of 320,000 secured a package of more than $10 billion in loans from the IMF and several European countries to help it rebuild its shattered financial system. Despite the loans, Iceland faces a sharp economic contraction and surging unemployment while many Icelanders also risk losing their homes and life savings.

Why Isn't Anyone in Jail? - (finance.yahoo.com) Good accompanying video. FBI formed alliance with leading perpetrators so none of big bankers have been prosecuted. In the aftermath of the corporate scandals earlier this decade, investor confidence was (partially) restored by a parade of "perp walks" of fallen chieftains like Ken Lay, Bernie Ebbers, and Dennis Kozlowski. But nearly two years into the bursting of booms in housing and mortgage securities, scant few related arrests have been made — and most of those have been focused on individual mortgage brokers vs. major industry leaders. "There is no poster child [for the housing scandal] because you need to investigate, and you need to bring cases and we haven't done either against the major players," says William Black, Associate Professor of Economics and Law at the University of Missouri — Kansas City and a former federal regulator. Black, who was counsel to the Federal Home Loan Bank Board during the S&L Crisis and blew the whistle on the "Keating Five" in 1989, says investigations have shown fraud incidence of 50% at (once) major subprime lenders like IndyMac and Countrywide.

Goldman, GE, GM Invite Us to Buy Rigged Bonds - (www.bloomberg.com) The fleecing knows no end. Take a look at GM's 8.375 percent bond due in July 2033, and feast your eyes on the new world of American capitalism. Yesterday's price, at about 15 cents on the dollar, tells you the market believes GM will last long enough to make a little less than two years' worth of interest payments. Were it not for the chance of a government bailout, in lieu of an imminent Chapter 11 bankruptcy filing, the bonds would trade for much less. And there lies the truth about what America's capital markets have become: a rigged game. You can see it all over. Nobody who knows anything about General Electric Co. actually believes it's a AAA credit. And yet the raters at Moody's Investors Service and Standard & Poor's continue to give GE their highest mark. Meanwhile, the company just landed government insurance for as much as $139 billion of debt for its lending arm, GE Capital Corp., which also is rated AAA. If GE were really that strong, it wouldn't need the help.

Cramer: Not Another Dime for Home Builders - (www.cnbc.com) For once, I agree partially with Cramer, although we all know the real root cause of this mess wasn’t the homebuilders but the Fed, Treasury and the big banks. How about the outrageous request from homebuilders asking Congress for a 250 billion dollar stimulus package. These are the very companies that got us into this mess are now begging at the federal trough for a quarter of a trillion dollars so they can build more homes. "This package had better be deep-sixed immediately," demanded Cramer as giving these companies money is the worst possible thing he believes they could do given the house price depreciation that has threatened the global economy. "They want $250 billion? You know what? They owe us $250 billion for the damage they've caused to our economy. We need the homebuilders do go under. We don't want them pumping out any more homes. This is the absolute height of outrage," said Cramer. Cramer can't believe these guys had the guts to even ask and it must be stopped. "I'm happy to give these companies money to stop building homes or to dismantle their existing inventory (or dismantle themselves), but letting them live another day and keep building houses is like dropping napalm on the US economy. No thank you." added Jim.

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit - (www.bloomberg.com) The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago. The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis. When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.

FHA-Backed loans: The Next Subprime Crisis Looms - (www.spiegel.de) The same people whose reckless practices triggered the global financial crisis are onto a similar scheme that could cost taxpayers tons more. As if they haven't done enough damage. Thousands of subprime mortgage lenders and brokers -- many of them the very sorts of firms that helped create the current financial crisis -- are going strong. Their new strategy: taking advantage of a long-standing federal program designed to encourage homeownership by insuring mortgages for buyers of modest means. You read that correctly. Some of the same people who propelled us toward the housing market calamity are now seeking to profit by exploiting billions in federally insured mortgages. Washington, meanwhile, has vastly expanded the availability of such taxpayer-backed loans as part of the emergency campaign to rescue the country's swooning economy. Foreclosures have spiked in the wake of the subprime crisis, leading to a number of businesses, like this one in Rio Vista, CA, having to close. For generations, these loans, backed by the Federal Housing Administration, have offered working-class families a legitimate means to purchase their own homes. But now there's a severe danger that aggressive lenders and brokers schooled in the rash ways of the subprime industry will overwhelm the FHA with loans for people unlikely to make their payments. Exacerbating matters, FHA officials seem oblivious to what's happening -- or incapable of stopping it. They're giving mortgage firms licenses to dole out 100-percent-insured loans despite lender records blotted by state sanctions, bankruptcy filings, civil lawsuits, and even criminal convictions.



OTHER STORIES:

Government unveils Citigroup bailout - (msnbc.msn.com)
Housebuilders Next In Line To Beg For Bailout Funds - (www.nuwireinvestor.com)
The Truth About Bailouts - (www.seekingalpha.com)
S. Florida can't count on international investors - (www.dailybusinessreview.com)
Go West, Foreclosure Man - (norris.blogs.nytimes.com)
Foreclosures, delinquencies skyrocketing among 'prime' borrowers - (www.latimes.com)
Housing Market Forecast: No Gain, More Pain - (www.moneymorning.com)
Good housing bubble book from a fellow bubble blogger - (www.amazon.com)
Rubinomics Recalculated - (www.nytimes.com)
Credit and Credibility - (www.pbs.org)
Ron Paul: The Austrians Were Right - (www.house.gov)
Interest rates and money supply are connected - (www.idahostatesman.com)
Inflation and the Dollar's crash - (www.youtube.com)
Four Bad Bear Markets - (www.dshort.com)
The US Tax Code Map - (www.taxmap.org)
Bay area house prices plunge - (themessthatgreenspanmade.blogspot.com)
Falling prices a bitter pill for houseowners - (sfgate.com)
The housing market has downshifted AGAIN - (moneyandmarkets.com)
Why buy a house? Behold, the biggest myth of the American Dream - (sfgate.com)
Worst of financial crisis yet to come: IMF chief economist - (breitbart.com)
Futures Show House Prices Continuing To Plummet - (seekingalpha.com)
Treasury Yields Drop to Record Lows as Recession Concern Rises - (bloomberg.com)
How deep a recession? - (csmonitor.com)
U.S. power, influence will decline in future - (cnn.com)
The death of the dollar? - (news.bbc.co.uk)

The black hole in financial markets - (atimes.com)
Economist blames Fed for downturn - (kansas.com)
Suddenly, Stricter Appraisals - (nytimes.com)
Collapse of 25-year debt surge not just economic cycle - (philly.com)

Citigroup plight follows familiar plot - (guardian.co.uk)
Failed Bank List - (fdic.gov)
These People Are Burying Their Cash - (smartmoney.com)
Buy a toaster and get a free bank! - (patrick.net)