Thursday November 27 Housing and Economic stories

TOP STORIES:

Citigroup, U.S. in Talks to Create 'Bad Bank' - (online.wsj.com) Citigroup Inc. is nearing agreement with U.S. government officials to create a structure that would house some of the financial giant's risky assets, according to people familiar with the situation. While the discussions remains fluid and might not result in an agreement, talks were progressing Sunday toward creation of what would essentially be a "bad bank." That structure would help Citigroup cleanse its balance sheet of billions of dollars in potentially toxic assets, these people said. The bad bank also might absorb assets from Citigroup's off-balance-sheet entities, which hold $1.23 trillion. Some of those assets are tied to mortgages, and investors have worried such assets could cause heavy losses if they land on the company's balance sheet. Citigroup also has about $2 trillion in loans, securities and other assets on its balance sheet as of Sept. 30. Behind the push is a broad effort to shore up faith in the New York company, which saw its stock price tumble by 60% last week to a 16-year low.

Citigroup: Gov't Looks to Buy $100 Billion In Bad Assets - (www.cnbc.com) The government is looking to buy a substantial amount of assets from Citi, similar to a good bank, bad bank structure. The government would absorb much of the losses for Citi if there are losses and Citi would issue preferred stock to the government. The deal is not finalized but could be announced tonight.

McCarver: I Lost $1M Because Of Broker's Error - (www.nypost.com) Baseball great and Fox Sports broadcaster Tim McCarver claims he lost about $1 million from his investment account after his broker failed to heed his instructions and keep his money in conservative investments, his lawyer told The Post. McCarver, 67, has initiated an arbitration case against Morgan Keegan & Co., based in the broadcaster's hometown of Memphis, for allegedly misleading him on just where his money was invested, said the lawyer, Dale Ledbetter, a childhood pal. "He was told his investments - made with money he was setting aside for his children and retirement - were tantamount to buying CDs and [safe] bonds," Ledbetter said. Instead, Ledbetter said, "the funds were invested in the worst of the worst. When similar products went down 4 percent, 5 percent or 6 percent, these bonds went down 70 percent to 90 percent. "Tim was very conservative with his money because he grew up not having any," Ledbetter told The Post. "His dad was a policeman in Memphis and I knew his dad. Tim didn't earn much in his early career playing baseball." Fortunately, McCarver quickly yanked a chunk of his Morgan investment as the dicey investments started to slide - but he's still in the hole for more than $1 million, said Ledbetter, who has 100-plus other clients with similar claims against Morgan.

Goldman Traders Still Eyeing '08 Bonuses - (www.nypost.com) While the top management of Wall Street banks are being pressured to forego bonuses in light of the companies' acceptance of billions of dollars in TARP money, traders are being told they will still be getting millions in bonuses - albeit less than they got last year. "At a partner meeting last Wednesday, I breathed a sigh of relief we were told we would be getting bonuses," said one Goldman Sachs partner, who has been a trader for the firm for more than 20 years and has helped the firm score record profits and recruit blue-chip pension fund clients, like Calpers.

Buffett's Liquidity Is Pinched - (www.nypost.com) ORACLE OF OMAHA'S BET ON S&P FEELING PRESSURE. WARREN Buffett, perhaps the world's greatest value investor, should be licking his chops just about now. With his Berkshire Hathaway stockpiling billions in cash, the Oracle of Omaha should be in a perfect position to snap up some good investments - like the additional $400 million stake he bought in cash-strapped USG Corp. on Friday. But Buffett is not as liquid as he would like to be. Here's why. Back in April, Buffett revealed that he sold put options against four stock indices, including the S&P 500. He claimed, in Berkshire's annual report, that the company got $4.5 billion in premiums for the contracts - which are exercisable only upon their expiration in 15 and 20 years. Sure, Buffett was able to invest the $4.5 billion, but now that the S&P is tanking, Berkshire will have to hold cash in reserve to meet this potential monster obligation. And that means less cash to invest. Which isn't a good thing for someone so adept at spotting bargain equities and so eager to pounce. Buffett's potential constraints came to mind recently after On the Money spotted a rule-change proposal that was filed with the Securities and Exchange Commission - to increase to 15 years the maximum term for FLEX options. While we don't know who is behind the rule-change proposal, it could very well be the company that bought the now-very-valuable 15-year S&P 500 put option from Buffett. Extending the terms for FLEX options would create a market for the options and allow the company to cash in on its bet. By some estimations, that $4.5 billion contract is now worth 10 times that - or $45 billion. But the company is unable to cash in on the bet because the companies that, under more normal circumstances, would be able to buy the contract - Goldman Sachs, Morgan Stanley, JPMorgan Chase - have all had their wings clipped.

New Fears Arise in Michigan - (www.nytimes.com) The bad news keeps coming to Michigan, a state long stuck in recession and at ground zero in the national economic downturn. But unlike in months and years past, there are no exceptions to the despair, not even here among the bucolic resort communities along Lake Michigan. The flailing auto industry is important here, but so is furniture building, tourism, the retail trade and construction — pieces of the economy long buffered from the downturn in Detroit. Now waves of layoffs are sweeping towns around here in wine country and elsewhere across the state, swelling the ranks of the unemployed just as tens of thousands of those already of out of work fear running out of unemployment benefits. “You just sit and you worry,” said Pat Weber, a construction administrator in Fennville who was laid off more than a year ago. “In the last year, I’ve put in for more than 100 jobs. I stopped counting after 110. It’s just so defeating.”

Builders Make Plea for Federal Aid - (online.wsj.com) Critics Warn That Propping Up Housing Demand Will Only Prolong Market's Woes. Struggling U.S. auto makers left Washington empty-handed after weeks of pleading for a handout, but that hasn't deterred home builders from stepping up to lobby Congress for help. But any federal assistance would require policy makers to figure out how to stimulate demand for housing -- the problem at the root of the global financial meltdown -- without artificially propping up home values. Some economists fear federal intervention to help homeowners may instead encourage more overbuilding. Above, unfinished homes in Carlsbad, Calif. The builders' lobby is ramping up its sales pitch for a $250 billion stimulus package called "Fix Housing First," arguing that financial markets won't recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner's mortgage rate. Congress resisted a similar effort to pass a larger tax credit earlier this year, instead creating a $7,500 credit for new-home purchases that had to be paid back over 15 years, effectively extending an interest-free loan. Builders are promoting the campaign with full-page newspaper advertisements, but face an uphill battle, with critics suggesting the proposal is too expensive and that it too heavily promotes home purchases rather than addressing loan modifications for delinquent homeowners.

Home Cheat Home – Rangel Double-Deals - Reaped DC Home Perk While Bending Apple Rental Rules - (www.nypost.com) Harlem Rep. Charles Rangel took a "homestead" tax break on a Washington, DC, house for years while simultaneously occupying multiple rent-stabilized apartments in New York City, possibly violating laws and regulations in both cases. The situation raises a number of potential problems for the congressman, including: * New York City law requires that tenants use rent-stabilized apartments as their primary residence. * DC's real Property Homestead Deduction Act also requires that a property receiving the benefit be a primary residence. * Tax lawyers told The Post that a property owner cannot have two primary residences - or take advantages provided to primary residences at two different addresses simultaneously. * DC's law also requires that the owner of a property benefiting from the tax break be a personal-income taxpayer in DC. District law exempts members of Congress from paying personal DC income tax, but they must pay property tax. The DC rules state that "by maintaining a residence in his home state and actively voting there, [a member of Congress] is demonstrating that he continues to be a part of the body politic of his home state . . . The Member is a domiciliary of his home state. Because he is not domiciled in the District, the Member cannot claim the District's homestead deduction."

Banking Regulator Played Advocate Over Enforcer - (www.washingtonpost.com) When Countrywide Financial felt pressured by federal agencies charged with overseeing it, executives at the giant mortgage lender simply switched regulators in the spring of 2007. The benefits were clear: Countrywide's new regulator, the Office of Thrift Supervision, promised more flexible oversight of issues related to the bank's mortgage lending. For OTS, which depends on fees paid by banks it regulates and competes with other regulators to land the largest financial firms, Countrywide was a lucrative catch. But OTS was not an effective regulator. This year, the government has seized three of the largest institutions regulated by OTS, including IndyMac Bancorp, Washington Mutual -- the largest bank in U.S. history to go bust -- and on Friday evening, Downey Savings and Loan Association. The total assets of the OTS thrifts to fail this year: $355.7 billion. Three others were forced to sell to avoid failure, including Countrywide. In the parade of regulators that missed signals or made decisions they came to regret on the road to the current financial crisis, the Office of Thrift Supervision stands out. OTS is responsible for regulating thrifts, also known as savings and loans, which focus on mortgage lending. As the banks under OTS supervision expanded high-risk lending, the agency failed to rein in their destructive excesses despite clear evidence of mounting problems, according to banking officials and a review of financial documents. Instead, OTS adopted an aggressively deregulatory stance toward the mortgage lenders it regulated. It allowed the reserves the banks held as a buffer against losses to dwindle to a historic low. When the housing market turned downward, the thrifts were left vulnerable. As borrowers defaulted on loans, the companies were unable to replace the money they had expected to collect.



OTHER STORIES:

Driving Profits Down - (www.nypost.com)
Pacific Rim Leaders Vow Further ‘Extraordinary’ Steps on Crisis - (www.bloomberg.com)
Saudi Arabia Cuts Repo Rate, Reserve Limits, SBB Says - (www.bloomberg.com)
Banking Regulator Played Advocate Over Enforcer - (www.washingtonpost.com)
Citigroup Pays for a Rush to Risk - (www.nytimes.com)
That Money Isn’t Leaving the Vault - (www.nytimes.com)
Strategies for Car Shopping in a Time of Tighter Credit - (www.nytimes.com)

For Luxury Brands, Less Money to Spend on Ads and Spectacles - (www.nytimes.com)
Midwest States Cut Spending in Hurry - (online.wsj.com)
Big Three’s Troubles May Touch Financial Sector - (www.nytimes.com)
Plan Begins to Emerge to Rescue Citigroup - (www.nytimes.com)
Citigroup, Fed Said to Weigh Plan to Limit Losses - (www.bloomberg.com)
Citigroup Pays for a Rush to Risk - (www.nytimes.com)

Detroit Looks to Sales Incentives - (online.wsj.com)
Economy has new-car dealers shifting to used-car focus - (www.dallasnews.com)
That Money Isn’t Leaving the Vault - (www.nytimes.com)
Strategies for Car Shopping in a Time of Tighter Credit - (www.nytimes.com)
Red Flags Flying at Mega-LBOs - (www.nytimes.com)
Dividends Replace P/Es as Stock Guides - (online.wsj.com)
Investors rush to quit buy-out funds - (www.ft.com)
Banks 'ignored warnings' - (www.ft.com)