Friday December 26 Housing and Economic stories

TOP STORIES:

Economic Freedom or Socialist Intervention? - (www.safehaven.com) The freedom to fail is an essential part of freedom. Government provided financial security necessitates relinquishing the very essence of freedom. Last week, the big 3 American automakers came back to Capitol Hill with their hands out to the government. Congress spent this past week debating how much money to give them and what strings should be attached. Though the bailout plan for the auto industry has suffered what I would call a temporary setback in the Senate, other avenues for public funding are being explored through the Federal Reserve and the Treasury Department. I am afraid the American auto industry will soon learn that having billions rain down from Washington will not be the blessing one might expect. The government, after it subsidizes an industry, tends to become a very demanding benefactor. Politicians may not have any real idea about how to build a car, run a bank, educate a child, heal the sick or build a road, but they are quite adept at using carrots and sticks to manipulate and threaten those who do. Most of the federal control over education, roads, healthcare, and now banking and soon auto manufacturing, is done through money, mandates and conditions. The bailout proposal we were considering would force automobile manufacturers to submit their business plans for the approval of a new federal "car czar." This bureaucrat would have the authority to approve the automakers' restructuring plan, monitor implementation of the plan, and even stop certain transactions he determines are inconsistent with the companies' long-term viability. One could argue that if billions of taxpayer dollars are going to flow into a failing industry, then representatives of those taxpayers have "bought" a say in how that industry is run - which is precisely why bailouts are such a bad idea for both the industry and the taxpayers. The federal government has neither the competence nor the Constitutional authority to tell private companies, such as automakers, how to run their businesses. I would have thought that failed experiments with central planning and government control of business that caused so much harm in the last century would have taught my colleagues the folly of making businesses obey politicians and bureaucrats instead of heeding the wishes of consumers, employees, and stockholders. But the auto industry is in danger of learning for themselves one of the oldest lessons in politics: he who pays the fiddler calls the tune.

Supertankers store 50m barrels of oil - (www.ft.com) Oil companies and traders are storing at least 50m barrels of oil in supertankers in a clear sign of supply outstripping demand as the global economy slows. The surge in floating storage, – enough to meet France’s oil imports for a month and the biggest since late 2001–, is likely to push the Opec oil cartel, which is due to meet on Wednesday in Oran, Algeria, to make a deeper production cut to reduce stocks. Storing oil in tankers is unusual as it is significantly more expensive than inland. Abdullah al-Badri, Opec’s secretary general, said on Monday: “Stocks are very high. We have to act. We see a very sizeable reduction [in production].” Chakib Khelil, Opec president, said: “Everybody is supporting a cut.” Oil prices rose briefly above $50 a barrel, recovering from a four-year low of $40.50 earlier this month. Oil later traded $1.30 down at $44.95 barrel on concerns that Opec’s cuts would not be enough to prevent further stock building

Housing Starts, Permits Plummet to Record Low - (www.cnbc.com) Could a bottom be in now? New U.S. housing starts and permits plunged to record lows in November, as long-standing problems in the housing market continued to weigh on the U.S. economy, a Commerce Department report showed on Tuesday. Housing starts fell 18.9 percent to a seasonally adjusted annual rate of 625,000 units from 771,000 units in October. That was much less than the 740,000 starts Wall Street analysts expected to see for November.

The Crash: What Went Wrong? - (www.washingtonpost.com) The Merrill Lynch bond deal known as Mantoloking has ended up with a different punch line: proof of the frenzied, foolhardy drive for upfront fees that helped bring down the world's financial markets and trigger the largest federal bailout in history. Wall Street firms thought they had a surefire way to profit from the booming real estate market without much risk to their companies. They engaged in a kind of financial alchemy, creating a trillion-dollar chain of securities on the back of subprime mortgages and other loans, which were sold to investors in private offerings that no government regulator scrutinized. With these deals, known as collateralized debt obligations, the world glimpsed the raw power of unchecked financial markets operating full-throttle to the point of self-destruction. The cascading losses on CDO bonds have undermined the solvency of several large banks and obliterated the trust that is the bedrock of all functioning markets. The debacle also has called into question the competence of Wall Street, the independence of bond-rating firms, the prudence of insurers and the foresight of regulators. Deals like Mantoloking were "the height of lunacy," says Joshua Rosner, a bond market expert who issued multiple warnings about lax lending standards during the past seven years, earning him status as an early prophet of the credit crisis. So many of these bonds have become untouchable that they stand in the way of restoring the flow of credit that the global financial system needs to operate and that the economy needs to climb out of recession. Experts say that firm prices must be established for the bonds -- no matter how low they may go -- so the system can clear itself of these toxic assets. Not only did no government agency or official try to stop the bond deals as they were selling, but Washington cheered this new market because it expanded homeownership -- at least until defaults started piling up. "Wall Street and Washington acted in concert to provide an artificial sense of a safety net," said Julian Mann, a Los Angeles-based investment portfolio manager for First Pacific Advisors who looked over many CDO offerings. Like many others, Mann faults Washington for failing to rein in the subprime market, with its many no-documentation, teaser-rate loans that extended credit to those who couldn't afford it and invited fraud. He also blames Wall Street for relying on elaborate models that predicted that default rates would be low when common sense screamed otherwise.

Downturn Spurs "Survival Panic" for Some in the U.S. - (www.cnbc.com) A paralegal, recently laid off, wanted to get back at the "establishment" that he felt was to blame for his lost job. So when he craved an expensive new tie, he went out and stole one. Violent Behavior: Besides an increase in shoplifting, psychologists said retailers need to be prepared for more instances of violent behavior like that seen at a Wal-Mart store in Long Island, New York the day after Thanksgiving. "I wouldn't be surprised if we see an uptick in crime, related to stealing," said UCLA's Fong. "I wouldn't be surprised if we see more workplace violence and more violence at the malls." A throng of shoppers seeking rock bottom prices on flat-screen TVs and computers surged into the Wal-Mart store in predawn hours, trampling and killing a worker in the process. Fong said many shoppers have never stopped to think about why they were buying items, and it was easy to ignore looking deeper during a boom that support such spending. But now, patients that can no longer shop to relieve stress have become anxious or depressed, he said. Others fume: "'I used to be able to afford that, I should be able to afford that now, I deserve that stuff,"' he said.

Careful with the Word 'Crisis', Russian Media Told - (www.cnbc.com) When a Russian sociologist wrote a newspaper column last month suggesting the global financial crisis could cause social unrest, the state media watchdog advised the paper not to spread extremist sentiments. "This is censorship," said Yevgeny Gontmakher, the author of the column and the head of the Academy of Science's Social Policy Centre. "The situation in the country is changing; you can no longer utter the word 'crisis'." The financial crisis is presenting Russia's ruling elite with the most serious challenge to its power in a decade. The Kremlin has responded by offering a bailout package and economic stimulus measures between them worth over $200 billion. But journalists and critics say the Kremlin has deployed another weapon too: using its grip on the media to try to prevent ordinary people from finding out how bad things really are. Russia's sovereign debt was downgraded by Standard & Poor's for the first time in 10 years on Dec. 8, stocks have lost about 70 percent of their value since May, and the central bank has spent $160.3 billion in a bid to support the ruble. A reporter for a major Russian newspaper said editors told staff at morning meetings to exercise care when reporting on the impact of the crisis inside Russia.

AIG Sells $39.3 Billion in Assets to NY Fed's Fund - (www.cnbc.com) American International Group, the insurer bailed out by the U.S. government in September, said on Monday it sold $39.3 billion of assets to a fund established by the Federal Reserve Bank of New York. The new fund, Maiden Lane II, was created to hold mortgage liabilities from an AIG securities lending portfolio that caused huge losses to the troubled insurer, the company said in a press release. The New York Fed extended the loan to Maiden Lane II to enable the purchase of the securities for $19.8 billion.

Giant Wall St. Fraud Leaves Charities Reeling - (www.nytimes.com) When Jeanne Levy-Church created the JEHT Foundation in 2002 to promote justice, equality, human dignity and tolerance, she tapped into investments run by Bernard L. Madoff. Those investments were initially made more than three decades ago by her father, Norman Levy, who entrusted his real estate fortune to Mr. Madoff. Financed solely by regular contributions from Ms. Levy-Church, the foundation gave away more than $75 million over the next few years. But on Monday, the young foundation announced that it would cease operations by the end of January — a victim of the same investments that made it a star in liberal philanthropic circles. “The returns had been steady and strong for all these years,” said Robert Crane, the foundation’s chief executive. “It was shocking.”



OTHER STORIES:

Goldman Posts $2.1 Billion Loss, But Shares Rise - (www.cnbc.com) Goldman Sachs posted a loss of $2.12 billion, translating to $4.97 a share in the fourth quarter, but its shares rose nearly 4 percent in premarket trading
Bank of America Stock Could Fall to $9: Analyst

Consumer Prices Take Another Record Plunge - (www.cnbc.com)
Best Buy Posts Lower Net Profit, Looks to Cut Jobs - (www.cnbc.com)

Fed May Signal Other Steps Besides Interest-Rate Cut - (www.cnbc.com)
Bush Administration Gets Close to Auto Bailout Deal - (www.cnbc.com)
Democrats Prepare Hurdle for Second TARP - (www.cnbc.com)
Stock futures up after data on inflation, housing - (biz.yahoo.com/ap)
Gold Declines as Investors Sell After Price Rally, Euro Stalls - (www.bloomberg.com)
European Stocks, U.S. Index Futures Gain; Shares Drop in Asia - (www.bloomberg.com)
Tremont Group Funds Invested $3.3 Billion With Madoff - (www.bloomberg.com)

Median home price tumbles to 6½-year low - (www.signonsandiego.com)

Trichet Sees Rate-Cut Limit, Signals ECB May Pause - (www.bloomberg.com)
Russian Industrial Production Shrinks Most Since 1998 - (www.bloomberg.com)
Europe’s Services, Manufacturing Recession Worsens - (www.bloomberg.com)
Europe banks face $19 billion Q4 write-down - (www.reuters.com)
German stimulus offers job promise - (www.ft.com)
Saudi Arabia Cuts Key Interest Rate Half a Point - (www.bloomberg.com)
Japanese business confidence dives - (www.ft.com)
European Car Sales Slumped 26% in November as Recession Deepens - (www.bloomberg.com)

Housing Starts in U.S. Fell 18.9% to 625,000 Pace - (www.bloomberg.com)
U.S. Consumer Prices Fall 1.7%; Core Rate Unchanged - (www.bloomberg.com)
Rate cut expected as Fed mulls emergency tools - (www.reuters.com)
Fed Looking at Another Rate Cut to Stem Crisis - (www.washingtonpost.com)
Fed Readies for Balance Sheet Tool as Rate Nears Zero - (www.bloomberg.com)
US Deficit would top $1 trillion with new method - (biz.yahoo.com/ap)
Luxury sales drop 33% after Black Friday - (www.ocregister.com)
U.S. States Cut Spending for First Time Since 1983 - (www.bloomberg.com)
Arena Football to cancel 2009 season-reports - (www.reuters.com)
Goldman Sachs Reports First Loss as a Public Company - (www.bloomberg.com)
Homebuilder sentiment index unchanged at record low of 9 in December - (www.chicagotribune.com)
Big Oil Projects Put in Jeopardy by Fall in Prices - (www.nytimes.com)
AIG sells $39.3 billion in assets to NY Fed's fund - (www.reuters.com)
Toyota delays Mississippi assembly plant - (www.latimes.com)
Dell Trails Its Rivals in the Worst of Times - (www.nytimes.com)
Primary care doctors struggling to survive - (www.chicagotribune.com)
New York state plans soft drink ‘obesity tax’ - (www.ft.com)