Monday November 17 Housing and Economic stories

TOP STORIES:

'Goldman Guys' Messed Up - (www.cnbc.com) The Treasury Department made a big mistake with the initial plan to price toxic assets in the financial system and is now bungling the recapitalization of banks, Eric Hovde, CEO and portfolio manager at Hovde Capital Advisors, said Thursday. "There was no way they could properly value the assets without wiping out the capital in the banking system," Hovde told "Squawk Box." "There was no way to properly manage the assets (and) there was no way to dispose of the assets, without cratering the real-estate markets any further." (Watch the accompanying video for the full interview...) (The Treasury is a) "bunch of Goldman Sachs guys," he said. "We have a 35-year-old technology investment banker running the TARP that has no background in financials or in real estate or was around during the last banking crisis." "Then they switch and change to what should have been done and that's injecting capital into the banks," Hovde said. "However, they've even messed that up."

Paulson Cuts Goldman Sachs a Sweetheart Deal – (www.huffingtonpost.com) An analysis of the bailout deals Treasury Secretary Henry Paulson has been cutting with taxpayer dollars reveals he's giving the culprits who created the nation's credit crisis what amount to sweetheart deals, including what one outraged critic calls a $5-billion "gift" to Goldman Sachs, the firm Paulson headed before joining the Bush team. The analysis, performed for the United Steelworkers (USW) by a former investment banker using the widely-accepted Black-Scholes Pricing Model, compared the deal Warren Buffett secured by investing $5 billion to bail out Goldman Sachs with the $10 billion deal Paulson cut to rescue his former firm as part of the $125 billion bailout to nine banks. Based on the analysis, USW President Leo W. Gerard asserted in a letter to Paulson, "Per dollar invested, Mr. Buffett received at least seven and perhaps up to fourteen times more warrants than Treasury did and his warrants have more favorable terms.

"Goldman big winner in government's revised bailout of AIG" – (www.nakedcapitalism.com) Note that the headline above was on a Wall Street Journal story about the new taxpayer-raping improved version of the AIG bailout. The current headline is anodyne: "New AIG Rescue Is Bank Blessing." Just as one wonders why the government backed down on a deal that was appropriately punitive to AIG (at worst, it was an orderly liquidation, which would be an acceptable outcome, and if management could sell enough businesses at good prices, they might be left with a rump of a company to operate). And now, the Wall Street Journal backs down from a headline that accurately and pointedly describes who does best out of these inexplicably sweetened terms. Both roads appear to lead to Goldman. As we said in an earlier post on this sorry affair, AIG claimed the interest payments were too high. The only way under the circumstances that they could be "too high" was if the company was having to borrow to fund them. If that was the case, the remedy was simple: require only part to be paid in cash on a current basis, and add the rest to principal. Similarly, AIG said they might not be able to sell subsidiaries in two years (the term of the original loan) to off the debt. Two years is a long way away. I would have waited at least a year and few months before doing anything and then might have extended the loan by a year if I was persuaded AIG really had made bona fide efforts to sell and had not held out for unrealistic prices. Similarly, Felix Salmon wondered why any changes to the terms were made now, and why this matter was not left to the next Administration. This is all looking, as reader Marshall noted, like the Clinton pardons, except with more dollar signs attached. But even with the toned-down headline, it looks as if the AIG treatment is, again. all about special dealing on behalf of Goldman. Recall that Goldman CEO Lloyd Blankfein was the only Wall Street executive invited in to work with Paulson on the terms of the original rescue. These guys are completely shameless, and for good reason. There are no repercussions from this sort of cronyism, not even recrimination in the media. From the Wall Street Journal: Banks in the U.S. and abroad are among the biggest winners in the federal government's revamped $150 billion bailout of American International Group Inc. Many banks that previously bought protection from the insurer on securities backed by now-troubled mortgage assets stand to recoup the bulk of their investments under a plan by AIG and the Federal Reserve Bank of New York to buy around $70 billion of those securities via a new company. These securities are collateralized debt obligations backed by subprime-mortgage bonds, commercial-mortgage loans and other assets.

Mortgage Bonds Fall to New Lows as Paulson Scraps U.S. Buying – (www.bloomberg.com) Residential and commercial-mortgage backed bonds tumbled after Treasury Secretary Henry Paulson said the government no longer plans to buy devalued mortgage assets, credit-default swap indexes suggest. All 24 of the ABX indexes tied to subprime mortgage bonds fell to new lows, according to Markit Group Ltd. One of them, known as ABX-HE-PENAAA 07-2 linked to AAA rated bonds created in the first half of 2007, dropped 8.4 percent to 41.83. The level suggests the bonds might fetch about 42 cents for each dollar of balances. Paulson's decision follows announcements of different plans by JPMorgan Chase & Co. and Citigroup Inc., two of the country's largest banks, and Fannie Mae and Freddie Mac, the largest mortgage-finance companies, to rework bad mortgages. The government's exit as a potential buyer added to confusion that's deterring investors in the bonds. ``No one in the market knows what to believe any more,'' David Castillo, a senior trader of structured-finance bonds at Further Lane Securities in San Francisco, said in an e-mail today. ``Things change on a daily basis.''

GE Wins FDIC Insurance for Up to $139 Billion in Debt - (www.bloomberg.com) General Electric Co. said the U.S. government agreed to insure as much as $139 billion in debt for lending arm GE Capital Corp., the second time in a month it has turned to a federal program designed to help companies during a global credit crunch. Granting GE Capital, which isn’t a bank, access to a new Federal Deposit Insurance Corp. program may reassure investors and help the unit compete with banks that already have government protection behind their debt, said Russell Wilkerson, a spokesman for the Fairfield, Connecticut-based company. Coverage would be for about $139 billion, or 125 percent of total senior unsecured debt outstanding as of Sept. 30 and maturing by June 30. “Inclusion in this program will allow us to source our debt competitively with other participating financial institutions,” Wilkerson said. GE sent investors an e-mail about the program today and posted the letter on its Web site. “Our participation is a positive development for our investors.” GE’s finance businesses are able to seek FDIC debt coverage because its GE Capital subsidiary also owns a federal savings bank and an industrial loan company, both of which already qualify. GE last month started using a new Federal Reserve program designed to revive demand for commercial paper amid the global crisis.

Calpers Confronts Huge Housing Losses - (online.wsj.com) The nation's largest public pension fund, known as Calpers, is paying dearly for its ill-fated decision to become one of the most aggressive real-estate investors among public pensions. Amid the rapid decline in the housing market, the value of Calpers's investments in land and housing projects across the country had fallen 35%, to about $6 billion, as of June 30, according to recent performance results released Wednesday by the California Public Employees' Retirement System. The losses are likely to be larger now because the values were based on appraisals completed at the end of March.

Iceland’s rescue package flounders - (www.ft.com) An international bail-out of crisis-hit Iceland appeared to be unravelling on Tuesday night as the International Monetary Fund withheld official backing for the $6bn plan. Iceland has also been left with a $500m shortfall in the funds for the plan that it had hoped to raise from other international donors. Iceland agreed a $2.1bn (€1.7bn, £1.4bn) loan with the IMF on October 24 that was due to be approved by its board last Tuesday but which was delayed until the following Friday, postponed again to Monday and has now been put back to an unknown date.

Dubai property prices plummet - (www.ft.com) Peter, a veteran businessman, took a punt on the rocketing Dubai property market a couple of years ago. He bought two flats in the low-cost International City development, a maze of anonymous buildings beside Dubai’s ring-road. After selling and turning a tidy profit on both units, he banked one cheque but the other Dh300,000 ($81,700, €65,200, £53,800) bounced. “My [property] broker has disappeared to Bahrain. I don’t think he will be back in a hurry,” he says. Given the state of market alarm, few are surprised that his broker has done a runner. Rising concerns over a much expected property price correction, crystalised by a Morgan Stanley report predicting a 10 per cent price decline by the end of 2009, grew over the quiet months of the summer and the holy month of Ramadan. September’s global financial turmoil heightened nervousness in the country’s property and stock markets. HSBC on Wednesday said October prices fell 4 per cent in Dubai and 5 per cent in the UAE capital, Abu Dhabi. Speculators are exiting their property investments, sending prices down for the first time since the boom started in 2002 when Dubai opened the property market to non-Gulf Arab buyers.

Boehner Demands Fed Identify Recipients of Bailout Loans - (www.bloomberg.com) House Republican leader John Boehner called for the Federal Reserve to disclose the recipients of almost $2 trillion of emergency loans from American taxpayers and the troubled assets the central bank is accepting as collateral. Boehner, in a prepared statement, also asked the Federal Reserve to comply with a Freedom of Information Act request seeking details about the loans. The Fed ``should comply with this Freedom of Information Act request, and in the interest of full and fair disclosure, they must begin providing lawmakers and taxpayers all information about how they are using federal tax dollars,'' Boehner said. Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, there is little disclosure about how the programs are being implemented.

Builder on New York market: It's Dead - (norris.blogs.nytimes.com) Robert I. Toll, the chief executive of the luxury home builder Toll Brothers, used to say New York City was the bright spot for home sales. No more. “New York City was a nice stand-alone beacon,” he said in a conference call this afternoon. “Now it has joined the rest of the country.” That happened, he said, in mid-September after the financial crisis worsened. “The financial industry has to lose 100,000 jobs,” he said, before his colleagues evidently tried to tell him that was too negative, and he amended his statement to say the loss could be smaller. “That’s got to have an impact,” he added. One more negative: “The foreign market is not there as it was to support the price of condos,” he said. He said that one condo project that his company is building in the Williamsburg section of Brooklyn was now being marketed as “rent-to-own.” Mr. Toll was asked in the call if any members of Congress were on board to back his plea to subsidize home prices. He said there had been talks, but he had no endorsements.



OTHER STORIES:

Bloomberg suing Fed to find out whos getting the bailout cash - (www.nbr.co.nz)
Where Is The Bailout Money Really Going? - (www.cbsnews.com)

Chip Makers Cut Outlook, Jobs in Silicon Valley - (www.nytimes.com)
Bay Area houseowners owe more than house is worth - (www.sfgate.com)
Roubini predicts further 20-25% drop in stocks - (www.youtube.com)
Michael Lewis explains CDS's - (optionarmageddon.ml-implode.com)
The End of Wall Street's Boom - (www.portfolio.com)

Intel Cuts $1 Billion From Sales Forecast Amid Slump - (www.bloomberg.com)
Best Buy cuts profit forecast - (money.cnn.com)
Morgan Stanley to Fire More Workers as Economy Slows - (www.bloomberg.com)
How to vote NO on the Automaker Bailout - (watchingmarcitz.wordpress.com)
Paulson Shifts Focus of Rescue to Credit Card Abusers - (www.bloomberg.com)
American Express seeks $3.5B from feds - (money.cnn.com)
EU clamps down on fraud by credit rating agencies - (www.businesweek.com)
Treasury, Fed Consider New Plan to Aid Auto, Credit Card Loans - (www.bloomberg.com)
Paulson Shifts Focus of Rescue to Consumer Lending - (www.bloomberg.com)
TARP's $700 Billion Can't Meet `Phenomenal' Spending, Reid Says - (www.bloomberg.com)
One-Third Who Sold Homes in Past Year Lost Money, Zillow Says - (www.bloomberg.com)
Russia Debt Risk Jumps After `Clumsy' Ruble Widening, Rate Rise - (www.bloomberg.com) EDITOR’S CHOICE

Bailout: $3.5T So Far, But Real Cost May Be Much Higher - (finance.yahoo.com)
New Houseowner Bailouts Won't Work Either - (finance.yahoo.com)
Modifying mortgages is just a band-aid - (www.businessweek.com)
Dems seek auto aid as treasury shifts rescue focus - (news.yahoo.com)
Japan relives its 1990s nightmare - (www.theglobeandmail.com)
Hedge funds pursue capital - (www.ft.com)
Companies push Congress for pension relief - (www.boston.com)

Financial groups' losses near $1,000bn - (www.ft.com)
SEC Looks to Limit Rating-Firm Conflicts - (online.wsj.com)
Volume of Swap Contracts Declines - (online.wsj.com)
Hedge fund redemptions total $100B in October - (biz.yahoo.com/ap)
NYSE, Nasdaq short interest continue to drop - (www.reuters.com)