Thursday November 6 Housing and Economic stories

TOP STORIES:

Why did so few economists foresee the credit disaster? - (www.nytimes.com) Good question. But do we consider Ben Stein a real economist or just a press-hungry moron who loves to hear himself speak.

The Demand for Free Lunches - (www.voiceofsandiego.org) Rich Toscano is quoted in a New York Times story today about a possible $40 billion federal program to bail out delinquent borrowers and help them stave off foreclosure. In the story, reporter David Streitfeld introduces an underwater homeowner. Todd Lawrence is an airline pilot in Connecticut who can afford his monthly payments on his traditional 30-year loan, but he owes more on his mortgage than he could sell his house for. There are millions like him in the country, and Lawrence thinks they should get a share of the relief: If the banks, which frequently lent irresponsibly, and many homeowners, who often borrowed irresponsibly, are getting government assistance, Mr. Lawrence says he believes sober souls like himself are also due a break. "Why am I being punished for having bought a house I could afford?" he asked. "I am beginning to think I would have rocks in my head if I keep paying my mortgage." The story mentions another San Diegan, Jason Luker, whose business is buying homes and renting them out. "If all of our neighbors are getting bailed out despite their own bad decisions, arrogance or ignorance, and we’re asked to keep playing by the rules for the sake of the greater good, I don’t want to participate," Mr. Luker said. Some of these same fairness issues came up in a recent story I wrote about what happens to a neighborhood's property values if loans are modified. I thought this was one of the most telling quotes from the story today, which has generated a slew of comments on the Times' website: "If the lunch truly is free, the demand for free lunches will be large," said Paul McCulley, a managing director with the investment firm Pimco.

Maid-Turned-Realtor Ran Vegas Mortgage Scam - (www.bloomberg.com) Eve Mazzarella was a Las Vegas success story. The high-school dropout and former housemaid moved to the Nevada city in 2000 from Seattle, got a certificate from the ABC Real Estate School and started selling houses in what would become the hottest market in the country. In 2006, Mazzarella recorded sales of $13.8 million and made the National Association of Realtors' ``30 Under 30'' list, which names the best young agents in the nation. Mazzarella started her own company, Distinctive Real Estate & Investments Inc., in December 2003. She whipped around town in a Mercedes-Benz sport utility vehicle. She planned to build a three-story office building in Vegas's shabby downtown north of the Strip and preserve a historic house on the site by lifting it onto the roof. Her competitors were impressed. ``She was an up and comer with a brilliant future,'' says Forrest Barbee, a broker at Prudential Americana Group, a Las Vegas agency where Mazzarella once worked. The dream ended at about 5 a.m. on March 13, when federal agents smashed through the door of a stucco home on a quiet, grassy cul-de-sac looking for Mazzarella, 31, and her husband, Steven Grimm, 45, an erstwhile mortgage broker. The day before, the U.S. Attorney for Nevada had indicted the couple on 6 counts of bank fraud, later revised to 13. Prosecutors say the pair recruited fake -- or ``straw'' -- buyers to apply for loans to purchase 227 properties worth $107 million. They told the straw buyers they would pay the mortgages. Then they skimmed thousands of dollars from each of more than 432 transactions, the indictment says, stashing the cash in 80 bank accounts.

When Chips Are Down - (www.newsweek.com) Corporate big spenders may have to fold as the credit crisis exposes their debt.Gaming tycoon Sheldon Adelson's recent gyrations resemble those of Cirque du Soleil, an act he often books in his casinos. Prior to the financial crisis, the CEO of Las Vegas Sands Corp. was flying high, aggressively expanding into Asia. Now, with consumer spending plummeting, what looked savvy has become a bad bet. Last month, Adelson and his wife injected $475 million of their own money into the Sands to meet capital requirements stipulated in loans made for casino development in Macao. Over the past year Adelson's personal wealth has shrunk by an estimated $16.6 billion while the Sands' share price has tumbled from a peak near $150 to below $6. Bankruptcy has become a real risk.

Hedge funds: What they told clients – (business.timesonline.co.uk) Common theme is taking credit on the way up (rather than attributing it to easy money policies of the Fed) and blaming the Fed and intervention on the way down. TOSCA: THE events of September have had a profound negative effect on our performance. On behalf of the team, we apologise for this outcome. It is emotionally and financially draining that after eight solid years the fund should be so damaged by the failed global monetary system. The speed of regulatory intervention, the mania of negative business coverage and panic have clearly hurt our mid-term investment plans. CITADEL: REGRETFULLY, we did not foresee the financial disaster that was to unfold in September. The financial crisis dramatically raised the cost of borrowing and reduced the availability of credit to market participants, materially reducing the value of cash assets. The decision of regulators to ban the short-selling of equities created material dislocations across many of our portfolios and disrupted our ability to assume and manage risk.

Woes that felled S.F. law firms shake industry - (www.sfgate.com) The U.S. legal industry is going through its first big revenue shortfall in more than 15 years, and that unexpected slump helped cause the recent back-to-back dissolutions of two of San Francisco's top law firms, say experts in the business of law. Heller Ehrman LLP, established in 1890, and the 84-year-old Thelen LLP had been legendary players on the San Francisco legal scene. Heller is remembered for achievements such as arranging funding for the Golden Gate Bridge and for pro bono work on such issues as overturning the state ban on gay marriage. Thelen was instrumental in the construction of both the Golden Gate and Bay bridges and Hoover Dam. Both were dissolved in recent weeks, victims of a cultural shift that has loosened the bonds of loyalty that hold big law firms together but are weakening as plunging profits put partners' values to the test. Now the same forces that humbled Heller Ehrman and Thelen - competitive pressures, defections of partners and tightening credit - are buffeting law offices elsewhere and are likely to cause failures in other cities. "I would anticipate that we would see more dissolutions, and I think they will be East Coast firms," said Ward Bower with Altman Weil, a Pennsylvania consultancy that advises law firms on a range of topics from mergers to management.

More Utility Bills Go Unpaid - (online.wsj.com) Utilities are becoming more aggressive about collecting money from delinquent customers, leading to a surge in service shutdowns just as economic woes are pushing up the number of households falling behind on bills. The utilities say they are under pressure to clean out accounts that are weighing down their books at a time when their stocks are being hammered and earnings growth has slowed. Meanwhile, the increasing number of homes left without power -- which could rise as economic pain deepens -- is beginning to worry some consumer advocates and regulators. In Pennsylvania, PPL Corp. increased shutoffs by 78% in the first three quarters of the year compared with the same period a year earlier. Shutoffs at electric utilities throughout the state increased by 20% in that period. George Lewis, a spokesman for PPL, based in Allentown, Pa., said the utility had been somewhat lax in the past but decided this year to "reverse the trend and prevent people from getting further in debt" by cutting them off sooner. About 3% of the company's residential accounts have been disconnected for delinquency

Slump Threatens to Burn Whole Foods - (online.wsj.com) The souring economy is aggravating the troubles of Whole Foods Market Inc., a onetime Wall Street darling now mired in a nearly three-year slump. Analysts say the upscale grocer probably will have to trim its earnings forecast for the current fiscal year and announce further cuts to capital spending or new-store plans when it reports fiscal fourth-quarter results Wednesday. "They're going to have to take their punches," said Bob Summers, an analyst with Pali Research. "It's kind of the wrong time, wrong concept."

Emerging markets face financing crunch - (www.globeinvestor.com) Between bonds and syndicated loans, emerging market companies have borrowed roughly $1.3-trillion in the last three years or so, according to various industry estimates. “All of that will come due by 2014, pretty much,” said David Spegel, global head of emerging markets strategy at ING in New York. He added these bonds and loans carry $60-billion of interest payments through the end of 2009. “The prospects of all of this debt being rolled over are very slim. Banks are not going to be able to lend at the same levels they were and borrowers were accustomed to in the past. That is not going to change for a long time,” said Mr. Spegel, Fears a brewing global recession will cut into earnings and cash flow will limit how much self-funding companies can do to keep growing. At the same time, the collapse in commodity prices is restricting earnings and cash flow also, reinforcing the risks these companies face gaining access to financing. “Talking to clients in the last few days, the single biggest concern I hear is about rollover risk in the face of a continued refinancing freeze,” Alan Ruskin, chief international strategist at RBS Global Banking in Greenwich, Connecticut, wrote clients.

Don't believe the myth about the fiscal mess - (www.idahostatesman.com) Unfortunately, both Republicans and Democrats are trying to assign blame even though this is a complicated issue. Unfortunately, I believe Free Markets will suffer. Bad government policies, including too-prolonged expansion of the money supply and haphazard financial-sector regulation, are major components of the economic mess we now face. But their interactions are complex. Unfortunately, a simplistic myth is increasingly voiced - that everything would be hunky-dory if the federal government had not forced otherwise unwilling lenders to make risky loans to poor people. U.S. Rep. Michele Bachmann, the Minnesota Republican who wants her colleagues audited for anti-Americanism, has been an enthusiastic propagator of the myth. In an op-ed last month, she asserted: "Using the authority of the Community Reinvestment Act, the big push for subprime mortgages began in earnest during the Clinton years. Banks that didn't play ball were subject to serious fines and lawsuits, and regulatory obstacles were placed in their way." She went on to say that risky loans resulting from government pressure composed the bulk of the bad mortgage-backed securities that were the precipitating cause of financial market chaos.


OTHER STORIES:

Citi may see record-high credit-card hit - (www.marketwatch.com) Bank says card-backed assets may turn historic losses in 2009 after reporting a $1.4 billion loss in third quarter.
One in five US houseowners with mortgages is underwater - (news.yahoo.com)
1-in-4 Calif. houseowners lost their equity - (lansner.freedomblogging.com)
IRA fix is broken from the start - (www.marketwatch.com) Proposals swirling around Washington are impractical, more a last-minute political football than a real solution.

Rebalance now or wait until the dust settles? - (www.ft.com)
Bank of Japan edges closer to zero rates - (www.ft.com)
Fear of Deflation Lurks as Global Demand Drops - (www.nytimes.com)
VeraSun Doomed as Botched Trades Overwhelm Aid, Gates, Khosla - (www.bloomberg.com)
More Utility Bills Go Unpaid - (online.wsj.com)
KKR Delays Plans to Go Public Amid Market Turmoil - (www.bloomberg.com)
Bernanke's Fed Chasing Down the Global Infection: William Pesek - (www.bloomberg.com)
U.S. crude futures drop $2 on demand concerns - (www.reuters.com)
Stocks rise ahead of manufacturing, auto data - (biz.yahoo.com/ap)
US retail investors flee from bond markets - (www.guardian.co.uk)

The housing market: halfway to bottom - (www.presstelegram.com)
China Drops Strict Loan Caps on Banks - (online.wsj.com)
Discord on Economies In a World Of Trouble - (www.washingtonpost.com)

Credit crisis is exposing free market hypocrisy - (business.theage.com.au)
Nobel Winner Aumann Says Bernanke, Paulson Steps Not Smart - (www.bloomberg.com)
1.2 million FL mortgage holders owe more than house's value - (www.palmbeachpost.com)
Seattle house prices down again, expected to get worse - (seattlepi.nwsource.com)
It's the yield, dude - (www.greaterfool.ca)
Task force targets SF Area buyers, brokers who lied on applications - (www.contracostatimes.com)
IRS, Justice Target Undisclosed Assets In Swiss Accounts - (www.washingtonpost.com)

Who will be saved by bailout? - (www.dailybusinessreview.com)
Mortgage Plan Will Piss Off Those It Doesn't Help - (www.nytimes.com)
Here's the exam financial advisers should have to pass - (features.csmonitor.com)

Factory sector weakens sharply in October - (www.marketwatch.com)
Idaho car sales now small potatoes - Idaho Stateman
Stimulus 2: Can more spending spur a recovery? - (www.csmonitor.com)
Circuit City closing 155 stores - (ap.google.com)
Behind AIG's Fall, Risk Models Failed to Pass Real-World Test - (online.wsj.com)
Slump Threatens to Burn Whole Foods - (online.wsj.com)
Effectiveness of AIG's $143 Billion Rescue Questioned - (www.washingtonpost.com)
Bernanke Push for Lower Rates Drives U.S. Yields Up - (www.bloomberg.com)
Debt Linked to Buyouts Tightens the Economic Vise - (www.nytimes.com)
CEOs, Celeb Investors Hit Hard by Market Plunge - (www.time.com)
Rebalance now or wait until the dust settles? - (www.ft.com)
Chinese Manufacturing Shrinks by Record, Survey Shows - (www.bloomberg.com)
EU Says Europe Economy Probably Already in Recession - (www.bloomberg.com)
Persian Gulf States Asked to Increase Global Bailout Financing - (www.nytimes.com)
Commerzbank to Tap German Rescue Fund; SocGen Profit Drops 84% - (www.bloomberg.com)
Some owners deserting factories in China - (www.latimes.com)
Bank of Japan edges closer to zero rates - (www.ft.com)
Medvedev: US to blame for global financial crisis - (biz.yahoo.com/ap)
China Drops Strict Loan Caps on Banks - (online.wsj.com)