Wednesday December 17 Housing and Economic stories

TOP STORIES:

California’s debt downgraded amid budget crisis - (www.ft.com) California on Thursday prepared to suspend $5bn in financing for schools, roads, power projects and levee repairs after the state’s mounting budget crisis led Standard & Poor’s to downgrade some of its short-term debt. In the past, California has been able to raise money in the bond markets to pay for infrastructure projects. However, with the markets effectively closed to the state, it will use funds earmarked for infrastructure to cover short-term obligations. Bill Lockyer, California’s treasurer, told the Financial Times the state planned to shift $5bn in infrastructure funds to short-term obligations in the near-term. He said it was working on plans to re-allocate an additional $7.5bn in such funds. A state spokesman said that current projections showed that California’s budget deficit would hit $41.8bn by 2010. Late Wednesday, S&P downgraded $5bn of short-term debt sold by California less than two months ago and warned it may downgrade a further $54bn in debt. “Our budget problems have become so severe and so noticeable that investors want better securities,” Mr Lockyer said.

Collapse of BCE plan fuels private equity industry concern - (www.ft.com) Fear of financial “Armageddon” is starving private equity of fresh funds, one investor warned on Thursday, after the collapse of the $41bn takeover of Canada’s BCE telecoms group marked a low for the industry. The BCE deal would have been the world’s largest leveraged buy-out when it was announced in June 2007. Its collapse underlines how severely conditions have turned against private equity in the past 18 months. The credit crunch has prompted banks to stop providing loans for buy-outs – the lifeblood of private equity – while market turmoil has made many investors incapable or unwilling to supply the cash needed for the equity portion of buy-outs. “As long as we are considering an Armageddon type of scenario, our hands are going to be tied for new funding in private equity,” Mark Boyle, head of private equity at the $140bn investment arm of Northwestern Mutual Life Insurance, told a conference on Thursday in London. “This environment has investment professionals so rattled they are thinking the unthinkable.” The groups that rode the “mega buy-out” boom, such as Blackstone, Kohlberg Kravis Roberts, TPG Capital and Bain Capital are already unable to raise much debt. If they are starved of fresh investor money for new deals, their future looks even less certain.

BCE buy-out’s ‘dirty little secret’ - (www.ft.com) “We had every expectation it would close when it was renegotiated,” said one person involved in the matter. But after the collapse of Lehman Brothers and AIG rescue set markets into a tailspin in September, shares of BCE sank as investors again grew concerned that the deal would not close. This time, the worries stemmed from the distress spreading across the global banking sector, which brought doubts that Citigroup, Deutsche Bank, Toronto-Dominion Bank and Royal Bank of Scotland, which was in particularly dire straits at the time, could fund the deal. Concerns over the banks’ strength proved valid, as both RBS and Citigroup were rescued. But the banks were still bound by BCE’s credit agreement, and would have been on the hook to absorb C$34bn in debt to fund the deal. The banks could have been forced to take immediate markdowns of about C$10bn on the package of leveraged loans and high-yield bonds to reflect those markets’ depressed valuations, according to people close to the matter. Citigroup and Deutsche Bank, which had committed to provide 40 and 28 per cent of the funding respectively, would have taken the hardest hit. One person close to the deal said that, for the banks, on Thursday was an “unquestionably good morning”.

Sprint Nextel’s debt downgraded to junk - (www.ft.com) Shares in Sprint Nextel, the third largest US mobile network operator, fell sharply on Thursday after Moody’s, the credit rating agency, downgraded its debt to junk status and warned that the company would continue to struggle in the face of “intense competition and weak economic conditions”. The 14 per cent, or 34 cents, fall in the company’s stock, to $2.08, together with a similar decline for Ciena, a telecommunications network equipment maker, underscored the growing impact of the recession on the sector. Moody’s said it believed Sprint’s efforts to stem customer losses would take longer than expected and predicted that operating cash flows and subscriber numbers would continue to decline until the second half of 2009 before stabilising.

Illinois Governor Suspends Business With Bank Of America - (www.huffingtonpost.com) Odd timing, but the day before he was arrested, Blago requested that no Illinois government agencies do business with Bank of America. llinois Governor Rod Blagojevich announced Monday that he is asking all Illinois government agencies to suspend business with Bank of America. Blagojevich contended that Bank Of America received a multi-billion dollar bailout from the government and should accordingly restore credit to the Republic Windows & Doors company in Chicago

Fed Mulls Issuing Own Debt - (www.cnbc.com) The U.S. Federal Reserve is considering issuing its own debt for the first time, the Wall Street Journal said, citing people familiar with the matter. Fed officials have approached Congress about the move, which could include issuing bills or some other form of debt and would provide the central bank with more flexibility to tackle the financial crisis, the Journal said. The Fed could not be immediately reached for comment. The Fed can already print as much money as it wants, but issuing debt is largely the province of the Treasury Department.

Sex, Lies, and Subprime Mortgages - (www.businessweek.com) But in the mortgage business, it went further: The women allegedly offering sexual favors were bank employees. Evan Stone, president of Walnut Creek (Calif.) mortgage brokerage Pacific Union Financial, says "minimally trained and minimally dressed" wholesalers often wooed brokers. He says he regularly got visits in his suburban office from representatives wearing unusually short skirts to entice him and his team of brokers to party at the local Ruth's Chris Steak House. Stone says one New Century wholesaler offered to fly him to Chicago to "have a good time." He says he declined all offers of sexual favors. "There were some indecent proposals made," he says. "That was part of building the relationship."

Madoff accused of fraud - (www.marketwatch.com) Bernard Madoff, former Nasdaq Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, was arrested and charged with securities fraud Thursday in what federal prosecutors called a Ponzi scheme that could involve losses of more than $50 billion. Madoff, 70, of New York, was charged with one count of securities fraud, according to a statement from the Acting U.S. Attorney for the Southern District of New York and the Federal Bureau of Investigation. The Securities and Exchange Commission filed a complaint in federal court in Manhattan seeking an asset freeze and the appointment of a receiver for the firm run by Madoff. "We are alleging a massive fraud, both in terms of scope and duration," said SEC Enforcement Bureau director Linda Thomsen in a statement. "We are moving quickly and decisively to stop the fraud and protect remaining assets for investors, and we are working closely with the criminal authorities to hold Mr. Madoff accountable."

Vanguard's Bogle: Homeowner Bailout Is Needed - (www.cnbc.com) The survival of the U.S. economy depends on helping homeowners, said John Bogle, The Vanguard Group founder and former CEO. “We once said, we have companies that are too large to fail and homeowners that are too small to bail,” Bogle told CNBC’s Erin Burnett. “We have to help the mortgage owners; that’s the only way to get around it.” Bogle said mortgage modifications should be part of a homeowner bailout. “Rewriting the terms, the maturities, the payments, the interest rates all have to be part of that,” he said. “That’s going to be a tough job.” Bailing out U.S. homeowners would require a large federal government staff, he said. “I don’t think people have realized the major implications of the government having to run the economy,” he said

Timeshare Vacation Homes Squeezed by Credit Crisis - (www.cnbc.com) The timeshare vacation home, that status symbol of the American middle class, has been hit by a double whammy amid the global credit crisis. Credit for consumers to finance timeshare purchases is harder to come by, and the securitization market for hotel companies selling bonds backed by timeshare deals has mostly closed its doors. "In the last few months, sales have really dropped off a cliff—consumer credit is really disappearing in a lot of ways," said Jeremy Glaser, lodging industry analyst at investment research firm Morningstar. "The syndication (securitization) market has all but gone," said lodging industry veteran Bjorn Hanson of New York University. This is a double dose of bad news for big hotel firms like Wyndham Worldwide [WYN 5.66 -0.61 (-9.74%) ] , Marriott International [MAR 16.59 -1.00 (-5.69%) ] and Starwood Hotels & Resorts Worldwide [HOT 16.15 -0.80 (-4.72%) ] , for which timeshare had become a big earner in recent years. Wyndham said on Monday it will cut about 4,000 jobs as it shrinks its timeshare business to reduce its reliance on a shaky securitization market. Wyndham expects to reduce vacation ownership interest sales in 2009 to $1.2 billion from expected gross sales of $2 billion in 2008 by eliminating sales offices and marketing programs. Marriott International's third-quarter profit fell 28 percent as timeshare slowed. Marriott has warned that 2009 will be tough and that its timeshare investment spending is expected to decline to reflect weaker demand. Starwood also reported declining revenues from timeshare in the third quarter. Starwood said it closed three sales centers and was reducing overhead to fit lowered expectations for the business.

Ohio Sheriff Refuses to Process “Heartless” Evictions - (www.housingwire.com) Saying that evicting former owners and tenants during winter weather and a recession is “heartless,” Butler County, Ohio sheriff Richard Jones has become the third sheriff this year to refuse to process some eviction orders. Jones on Tuesday ordered his deputies to ensure that people have shelter before they’re forced out of their homes, according to a report by WLWT television in Hamilton, Ohio; otherwise, he said his department will refuse to honor all eviction orders.


OTHER STORIES:

BlackRock Cuts 500 Jobs, Struggles with Outflows - (www.cnbc.com)
UBS Freezes $6 Billion Property Fund - (www.cnbc.com)
EU Commits to Stimulus Worth 1.5% of GDP - (www.cnbc.com)
Time to Reverse Bank Bailout: Economist - (www.cnbc.com)
Wells Fargo to Take $40 Billion Charge: Bove - (www.cnbc.com)

Warren Buffett Hikes Burlington Northern Stake to 20% - (www.cnbc.com)
Medvedev Hints at Coordinating Oil Cuts with OPEC - (www.cnbc.com)

Our asset-dependent economy - (themessthatgreenspanmade.blogspot.com)
Own Gold? Time to Fold - (www.seekingalpha.com)
Humpty Dumpty On Inflation - (Mish at globaleconomicanalysis.blogspot.com)
Just got back from bankruptcy court, things are bad - (www.doomers.us)
'Pay option' loans could swell defaults - (msnbc.msn.com)
Foreclosure Storm Will Hit U.S. in 09 Amid Job Loss - (www.bloomberg.com)
White-Collar Unemployment Spreading - (cityroom.blogs.nytimes.com)
Web 2.0 did not learn from Bust 1.0 - (www.marketwatch.com)
Fighting Foreclosures, F.D.I.C. Chief Draws Fire - (www.nytimes.com)
Housing foreclosures draw protesters to Bank of America - (www.freep.com)
Bank of America to Cut 35,000 Jobs Over 3 Years - (www.nytimes.com)
Congressional Motors introduces The Pelosi - (iowahawk.typepad.com)

Madoff Charged in $50 Billion Fraud at Advisory Firm - (www.bloomberg.com)
Madoff ‘Big Lie’ Hits Fairfield Sentry, Kingate Funds - (www.bloomberg.com)
Collapse of BCE plan fuels private equity industry concern - (www.ft.com)
Jones Concedes Errors With Bacon, Griffin in Strategy Shakeout - (www.bloomberg.com)
S & P slightly lowers California's credit rating - (www.latimes.com)
30-Year Mortgage Rate Hits Its Lowest Level in 4 Years - (www.washingtonpost.com)
Wall Street bonuses seen dropping 50 percent - (www.reuters.com)
China’s Economic Slowdown Is Deepening, Two Top Officials Warn - (www.bloomberg.com)
India Industrial Output Falls for 1st Time Since 1993 - (www.bloomberg.com)
HBOS Loan Writedowns for 2008 Rise to $7.5 Billion - (www.bloomberg.com)
Household Net Worth in U.S. Declines Most on Record - (www.bloomberg.com)
California budget deficit to hit $41.8B by 2010 - (biz.yahoo.com/ap)
Debt held by U.S. households shrinks for first time - (www.latimes.com)
Why home values may take decades to recover - (www.usatoday.com)
Study Finds White-Collar Jobless Rate Spreading - (www.nytimes.com)
Auto Bailout Talks Collapse as Senate Deadlocks Over Wages - (www.washingtonpost.com)
GM, Chrysler Survival Options Narrow After Vote Fails - (www.bloomberg.com)
KB Toys Succumbs to Holiday Slump - (www.nytimes.com)
Cemex tumbles as it fails to refinance debt - (www.ft.com)