Sunday December 14 Housing and Economic stories

TOP STORIES:

GM retiree launches anti-Shelby Web site - (www.freep.com) A retired engineer from General Motors Corp. has launched a new Web site, www.BoycottAlabamaNow.com, aimed at Republican Sen. Richard Shelby and the state he represents in Congress, Alabama. Shelby has been an outspoken critic of Detroit's automakers, who have been seeking as much as $34 billion in bridge loans to stay solvent until the economy recovers. Joe Babiasz, who launched the site, said he wanted to show Shelby what it's like "to turn your back on hardworking Americans." One page of the site truth-squads remarks made by Shelby about Detroit in Congress and on various news shows. "Mr. Shelby is hell-bent on shutting down the Big Three," Babiasz said. If Shelby is "not going to support America, we're not going to support Alabama."

Cerberus is under fire in Congress - (www.freep.com) Members of Congress are turning up the heat on Chrysler's majority owner, Cerberus Capital Management, asking why the global private equity firm doesn't open its books and provide some support to the automaker itself. "Congress should demand an accounting of Cerberus' assets and why those assets cannot be used to bail out Chrysler Corporation before using taxpayer dollars," U.S. Sen. Chuck Grassley, R-Iowa, said in a letter Tuesday. Cerberus, a leading New York private equity firm, invested $7.4 billion in August 2007 to acquire 80.1% of Chrysler. At the time, executives said one of the benefits of being privately held is that Chrysler does not have to make its finances public. Publicly traded companies, such as General Motors Corp. and Ford Motor Co., must regularly file financial information with federal regulators. However, Grassley, the ranking Republican on the Senate Finance Committee, wrote that he would not support giving money to Chrysler until Cerberus does a better job explaining why it cannot help the automaker. "Due to its private nature, there is no public information about its financial position," Grassley wrote in his letter to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid. Cerberus responded in a statement by James Olecki that Chrysler has and "will continue to provide Congress with full transparency as to its financials." The firm said its investors are no different than the shareholders of GM and Ford and noted that in July "Chrysler's shareholders invested an additional $2 billion in the form of loans" to Chrysler.

'Car czar' could trigger credit issues - (www.marketwatch.com) The creation of a "car czar" to oversee the federal bailout of Detroit's automakers might trigger what's known as an event in the vast market for credit-default swaps, prompting holders of General Motors Corp. and Ford Motor Co. credit protection to demand payouts, Banc of America Securities said.
Such an event is also likely if a federal bailout falls flat and either company files for bankruptcy, as many investors fear.

Nortel explores bankruptcy, government aid scenarios - (www.reuters.com and Mish at globaleconomicanalysis.blogspot.com) Nortel Networks Corp has sought legal advice to study a bankruptcy protection scenario in the event that its restructuring plan fails and has also been exploring potential assistance from the Canadian government, the Wall Street Journal reported. Nortel, North America's biggest maker of telephone equipment has lost billions of dollars and cut tens of thousands of jobs since the technology bubble burst at the beginning of this decade. Nortel fell from $860 to .37. Wow.

B. of A. joins FDIC liquidity plan - (www.marketwatch.com) Bank of America Corp. said Wednesday it is participating in the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program, including the FDIC Transaction Account Guarantee Program and Debt Guarantee Program. Under the Transaction Guarantee Program, noninterest-bearing transaction accounts are fully guaranteed by the FDIC through Dec. 31, 2009

US Comptroller Dugan Highlights Modified Loan Re-defaults - (occ.treas.gov) Comptroller of the Currency John C. Dugan said today that new data shows that more than half of loans modified in the first quarter of 2008 fell delinquent within six months. “After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent,” the Comptroller said in remarks at the Office of Thrift Supervision’s National Housing Forum today. Mr. Dugan spoke during a panel discussion with OTS Director John Reich, Federal Reserve Board Vice Chairman Donald Kohn, FDIC Chairman Sheila Bair, and Federal Housing Finance Agency Director James Lockhart. A key question, Mr. Dugan said, is why is the number of re-defaults so high? “Is it because the modifications did not reduce monthly payments enough to be truly affordable to the borrowers? Is it because consumers replaced lower mortgage payments with increased credit card debt? Is it because the mortgages were so badly underwritten that the borrowers simply could not afford them, even with reduced monthly payments? Or is it a combination of these and other factors?” That question “has important ramifications for the foreclosure crisis and how policymakers should address loan modifications, as they surely will in the coming weeks and months,” the Comptroller added.

Mortgage giant Freddie paid $11.7 million to lobby Congress - (www.sfexaminer.com) In 2005 and 2006, Freddie Mac fought back against post-Enron demands for stricter federal regulation, counterattacking with 52 costly lobbyists, six-figure consulting contracts for VIPs and fun goodies like sports tickets for members of Congress.

Are We Courting a Populist Backlash? - (www.rgemonitor.com) The government is doing a lousy job helping distressed homeowners. And according to John Dugan, the Comptroller of the Currency, the little that's been done has had surprisingly little effect. Nearly 36 percent of homeowners holding mortgages whose terms were adjusted to give them more leeway defaulted on payments within three months, and almost 53 percent were behind on payments by six months. What's going on? It's hard to know for sure, because the homeowners who have qualified for help so far were supposed to have been fairly good credit risks to begin with. My guess is the worsening economy is making it harder for just about all homeowners to pay their mortgages, and those who were teetering on the edge months ago -- although perhaps good credit risks before that time -- are now way under water. Two of the biggest culprits: Layoffs and fewer working hours. With far less money coming in, more and more people have to choose between paying their mortgages and trying to keep up with larger and larger credit card debt. They're trying to manage both while paying the medical bills and the food bills and energy bills, and they can't make it. It wouldn't surprise me if many of these Americans were starting to look at the size of the bailouts of Wall Street and the bailout of the Big Three -- at the executives, well-paid professional employees, upscale creditors and shareholders, and even well-paid blue-collar workers, who are the major beneficiaries of this federal largesse -- and conclude that a fundamental principle of fairness is being violated. These Americans aren't revolutionaries. To the contrary, they're deeply conservative. They've worked hard, but their hard work hasn't paid off. Some have tried to save, only to see their savings disappear. They're worried about the future and about their kids' futures. They never expected anything like this. This is the angry soil in which populist backlashes can take root.



OTHER STORIES:

Biotechnology Companies Get Their Turn in Line for Federal Aid - (www.bloomberg.com) U.S. biotechnology executives are lobbying Congress to change a tax law and provide millions of dollars in government money to small, cash-starved drugmakers that comprise most of the industry. The industry wants a temporary change in tax laws that would allow companies to receive a rebate upfront in exchange for giving up a portion of net operating losses deductions they are eligible to take once they begin to make a profit, Matt Gardner, president and chief executive of BayBio, an industry group in South San Francisco, California, said yesterday in a telephone interview. The effort in Congress is being led by the Biotechnology Industry Organization, or BIO, a Washington, D.C.-based trade group. According to the group’s figures, 25 percent of the 370 publicly traded U.S. biotechnology companies have less than six months of cash on hand. The industry also has been hit by hundreds of layoffs and some bankruptcies. Under the proposal, a company with $100 million in net operating losses would be entitled to $35 million in lower federal taxes when it becomes profitable, Alan Eisenberg, executive vice president of BIO, told the New York Times. Such a company might receive $20 million now under the proposal, he said. Gardner said executives from the lobbying group and biotechnology companies would be talking today with lawmakers on Capitol Hill seeking the change. Is there any group that does not want a bailout?

AIG's bottomless pit of losses - (www.marketwatch.com) Troubled insurer reportedly stands to lose another $10 billion on bets it made in its financial-product unit.AIG owes $10 billion on bad trades - (www.marketwatch.com)
Senate Republicans voice opposition; House to vote tonight - (www.freep.com)
Freddie Mac Internal E-Mail: Warnings Ignored - (www.usnews.com)
Rio Tinto to slash 14,000 jobs, pare debt as priorities shift - (www.marketwatch.com) Mining giant Rio Tinto Wednesday announced a slew of measures reflecting an urgent shift in its priorities toward conserving cash and lowering costs, as a deteriorating economic crisis and falling commodity prices begin to bite. Citing the "unprecedented rapidity and severity of the global economic downturn," the Anglo-Australian company said it will slash as many as 14,000 job roles globally, including 8,500 contractors and 5,500 employee roles. The company also said it will pare net debt by US$10 billion by the end of 2009 and lower "controllable operating costs" by at least $2.5 billion a year in 2010. The disclosure came less than a month after the bigger rival BHP Billiton (BHP) withdrew its $66 billion hostile bid, dashing expectations of investors who bet heavily on the success of a takeover of Rio. At the same time, the pulled bid raised concern that Rio might struggle to meet payments of billions of dollars in debt related to its acquisition of Alcan Inc. last year. The era of debt financed mega-deals is over.
Auto Bailout Is In Jeopardy As GOP Opposition Mounts - (www.cnbc.com) Emergency aid for the nation's auto industry was thrown into jeopardy as Republicans revolted against the $14 billion deal between Democrats and the White House.
Obama Wants to Move Past Bailouts - (www.cnbc.com)
Americans Glum on Crisis, Hopeful on Obama: Poll - (www.cnbc.com)
Whitney: Banks On Life Support Next 18 Months - (www.cnbc.com)
$500,000 is the new $1 million - (realestate.msn.com)
Ways to Lower the Cost of Housing - (Charles Hugh Smith at www.oftwominds.com)
Maui house prices plunge 25% - (www.starbulletin.com)
Chapman U. sees O.C. house prices off 7% more in 09 - (lansner.freedomblogging.com)
Palm Beach locals pour more and more of their income into mortgages - (www.palmbeachpost.com)
Zell Expects Tribune to Survive Bankruptcy Protection - (www.cnbc.com)
Irish property crash warning fell on deaf ears - (www.independent.ie)
Solution: Crashing Prices or Cheaper Mortgages? - (www.seekingalpha.com)

Question for Economic Experts: Can You Say "Housing Bubble"? - (www.truthout.org)
Census numbers explain why housing bubble burst - (seattletimes.nwsource.com)
What Lies Behind Higher US Negative Equity, Default Rates? - (www.researchrecap.com)
Should Fannie and Freddie even exist? - (www.seekingalpha.com)
Pitfalls of following analysts' advice - (www.bloomberg.com)

Huge Demand For Treasuries As Banks Refuse To Lend - (Mish at globaleconomicanalysis.blogspot.com)
Obama's dependence on China - (news.yahoo.com)
The future for house prices - (www.denverpost.com)