Friday January 30 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

UK Charges Taxpayers for loan bailout so Buyers can buy more cars at low cost - (www.guardian.co.uk) Green payouts and 0% deals looked at in bid to tempt motorists to buy. Cheap car loans to encourage nervous motorists back into the showrooms could be unveiled this week under plans being drawn up by the government to rescue the stricken motor industry. Gordon Brown has privately signalled backing for extending some of the same support for lending now being offered to banks to car finance houses - often offshoots of the manufacturers - allowing 0% finance deals and other incentives to flow more readily to buyers. Ministers have also looked at introducing so-called "scrappage" schemes, under which motorists willing to trade in older, polluting cars for greener new models would get a one-off payment. Germany has proposed a similar payment worth almost £2,000 for its citizens, while Spain and France have backed similar measures. The business minister Lord Carter told peers last week that "we are considering [scrappage schemes] carefully".

Britain is facing return of three-day week – (www.independent.co.uk) Shorter hours would be preferable to mass unemployment, say government sources. The prospect of the three-day week returned to haunt Britain yesterday as it emerged that ministers are considering paying firms to cut hours in order to survive the recession. Tens of thousands of businesses are already planning to scale back working hours this year in an effort to stay afloat. But as the country comes to terms with the reality of a recession, it emerged that the Government is looking at compensating employees, through their firms – thereby drawing comparisons with the shutdowns of the 1970s. While the move would safeguard jobs, it would mean that the financial crisis is on a much larger scale, further undermining confidence in the economy with the suggestion of Britain grinding to a halt.

President Obama Gets An Economic Broadside – (www.safehaven.com) As Obama assumed the presidency an economic broadside was fired across his bow when the financial markets plunged to new lows. The banks remain in a parlous state and unemployment is still rising. Economist Nouriel Roubini said that if the banking system's losses hit $3.6 trillion -- as expected by quite a few financial observers -- then the "the US banking system is effectively insolvent because it starts with a capital of $1.4 trillion." What Mr Roubini overlooked is that a fractional reserve banking system is always insolvent. This was known from the very beginning of fractional reserve banking. The system rests on the belief that withdrawals will never reach a point where the banks cannot meet them. In other words withdrawals will always be a fraction of the banking system's reserves. In short, banks can never meet their liabilities in full. This is all well and good -- from the banker's position -- unless a financial crisis causes a run.

Roubini’s Gloom Gets Traction in Panicky Tokyo - (www.bloomberg.com) The champagne must be flowing at Toyota Motor Corp. headquarters. It just ended General Motors Corp.’s 77-year reign as the world’s largest automaker. Toyota also is looking ahead and going full circle in terms of management: It just named the grandson of the company’s founder as president. The celebrations and nostalgia will be short-lived, and not just because Toyota is forecasting its first operating loss in 71 years. It’s on the frontline of an economic plunge that might push Japan into another “Lost Decade.” That’s a strong statement, and one that’s worth exploring in Japan and beyond. Economic data coming out of Tokyo have been atrocious. Exports, for example, plummeted 35 percent in December from a year earlier. That was the sharpest decline since 1980 (there are no comparable data before then). Exports were the main driver of the recovery that now has died a very sudden death. With nothing self-reinforcing about Japan’s expansion, Asia’s biggest economy seemed to go from 120 kilometers (75 miles) per hour to zero in all of a week. Now it’s going in reverse, and picking up speed. Global demand for cars and electronics is drying up fast. Toyota, Sony Corp. and Honda Motor Co. are shedding thousands of workers and closing production lines as profits and sales dwindle. It’s just the beginning as the U.S. and Europe sink. Japan Blindsided: The global crisis blindsided most Japanese executives and politicians. Much of the chatter in 2008 was about how Japan’s cash-rich banks would play a white-knight role for a Wall Street in turmoil. Mitsubishi UFJ Financial Group Inc.’s $9 billion investment in Morgan Stanley was seen as the first of many such deals.

Renowned author John Robbins (of Baskin-Robbins fame and fortune) lost life savings in Madoff scheme – (www.mercurynews.com) Six weeks ago, renowned vegetarian author and Soquel resident John Robbins was painfully reminded of what he's always known to be true. Robbins, who walked away from the Baskin-Robbins fortune to seek a simple life grounded in sustainable food practices, lost his life savings in the $50 billion Ponzi scheme of which Wall Street financier Bernard Madoff is accused. "I know at this moment more than ever that our real wealth is in the love in our hearts, and the people we care about and who care about us, and in the quality of relationships to the spirit and natural worlds," Robbins, 61, said in an interview Thursday. Robbins, best-selling author of "Diet for a New America" and "The Food Revolution," said he and his wife of 42 years, Deo, lost 98 percent of their net worth in the vast investment sham that has sapped international banks, movie stars and charitable organizations. As a famous longtime resister of what he calls the "toxic mythology" that "self-worth is defined by net worth," Robbins acknowledged the irony of losing more than $1 million in a scheme fueled by old-fashioned greed.

Car parts sector looks for $10bn US bail-out - (www.ft.com) The automotive parts supply sector, laid low by the sharp drop in car production in the US, is to request at least $10bn of federal bail-out funds from the troubled asset relief programme. Industry representatives met Treasury officials and members of Barack Obama’s presidential team this month to discuss a growing financial squeeze in the sector. They plan to make a formal request for access to Tarp funds soon, according to Neil de Koker, president of the Original Equipment Suppliers Association, which represents companies that supply car and van makers. Separately, Larry Summers, head of the White House National Economic Council, said that the Obama administration would use the $350bn remaining of the $700bn that Congress provided to start tackling the financial crisis. His comments came after Nancy Pelosi, the Democratic speaker of the House, suggested that Congress might have to provide more money for Tarp. Speaking on ABC TV, she said she was “open to resolving the financial crisis”, explaining that there might be a need for “some increased investment” to shore up the banks. “If they come back, there’s going to have to be a justification, because people were very, very disappointed in how this money was dealt with at first.” Auto component makers claim that the collapse of the US auto parts industry would endanger not only hundreds of thousands of jobs in their own companies, but also threaten turnround plans at General Motors and Chrysler, which are receiving $17.4bn in federal aid.

Liquidation risk grows as finance dries up - (www.ft.com) US companies face a greater risk of liquidation because sources of finance to let them reorganise under the country’s bankruptcy code are drying up in the global financial crisis. In the US, companies on the verge of insolvency can restructure themselves under a Chapter 11 bankruptcy protection process, sometimes taking years. But the credit crunch has severely limited the availability of so-called ‘debtor in possession’ financing that is vital to give them this second chance. With previous big providers of DIP financing, such as GE Capital, shying away from the market, companies may have to rely on their existing lenders, says Standard & Poor’s, the rating agency. It said on Friday there had been no substantial increase in DIP volumes in 2008, in spite of a jump in the number of bankruptcies, highlighting the reluctance of banks and investors to finance companies in bankruptcy. Steven Smith, global head of leveraged finance and restructuring at UBS in New York, said this cycle was likely to see more liquidations than in the last three combined. He said: “The lack of DIP financing available is an issue for the American economy because of the potential job destruction that could result.”

Hard Times Cut Into Free Labor by Convicts - (online.wsj.com) Many states want to close prisons to save money, but town leaders fear how they'll cope without the free or ultra-cheap labor the inmates provide. One morning recently at the town hall here, Selectwoman Terri-Lynn Hall set out some fresh coffee, crackers and dip for the cleaning crew. "I also make 'em turkeys, bake 'em hams, and serve spaghetti," she said -- "with homemade sauce." One of the crew, Rex Call, put down his mop and helped himself to a piping hot mug of joe. "I'd rather be working here than sitting in the cell all day," said Mr. Call, who -- when he's not out on work-release -- is serving two years in state prison for car theft. Although many people fight fiercely to block prisons from coming to town, Charleston and other communities are feeling an opposite impulse these days. They are fighting to keep their prisons from going away. Many states, including Maine, Ohio, Washington and New York, want to close or consolidate prisons to save money. Here in Maine, Gov. John Baldacci wants to mothball part of Charleston Correctional Facility and relocate nearly 40% of the inmates, which would cut work-release crews. But this farming town of 1,500 wants its criminal element to stick around. Town leaders say they don't know what they will do without the free or ultra-cheap labor the jailbirds provide. "Oh my goodness, gracious, they are such an asset -- they are our public-works department," said Ms. Hall. Last year, Charleston's prisoners did 39,337 hours of community work, prison officials say, roughly the equivalent of 19 full-timers. Inmates maintain the five local cemeteries, set up election booths and hang Veteran's Day flags. They built the log-cabin "snack shack" at a local park, and helped bust up beaver dams in a stream that runs along Bacon Road.


OTHER STORIES:

Business Seeks Stimulus Tax Cuts - (online.wsj.com) Business groups are ramping up lobbying efforts to expand tax credits and incentives in Obama's $825 billion economic-stimulus bill.
Recession Batters Law Firms, Triggers Layoffs - (online.wsj.com) The recession has arrived for U.S. law firms, long seen to be insulated from economic downturns, with pay cuts and layoffs becoming commonplace.

Congress may make $7,500 home buyer tax credit more attractive – (www.latimes.com) Few consumers have tried to claim the credit because it had to be repaid over 15 years. But there's a...
Exporters try to halt Obama's trade barriers - (business.timesonline.co.uk) US companies are opposed to a federal initiative for fear that the policy will end in retaliation from foreign governments
Carmakers agree to keep aid within borders - (business.timesonline.co.uk) Ministers: City lost plot on bailout - (business.timesonline.co.uk) Government has been telling top businessmen that the City has 'missed' crucial details of last week's bank rescue package
Banking hole too deep to cover, says Rogoff - (business.timesonline.co.uk)
Minister attacks 'grossly over-rewarded' bankers - (business.timesonline.co.uk)
UBS bonus plan inflames rewards row - (business.timesonline.co.uk) The bank is expected to pay out more than £1 billion to staff next month after it was bailed out by Swiss government
UBS bailed out in Swiss government rescue - (business.timesonline.co.uk)
Moody's warns of credit downgrades - (business.timesonline.co.uk) Rating agency said that shortfall in final salary company pension schemes was at worst level for five years and could get worse
RBS to purge directors in big shake-up - (business.timesonline.co.uk) The clear-out comes as RBS is preparing to place £50 billion to £100 billion of loans into the government’s new bank-insurance scheme
RBS chief slams short-selling as shares slide - (business.timesonline.co.uk)
Nationalisation calls as RBS teeters on the brink - (business.timesonline.co.uk)
Madoff’s UK investors set to sue - (business.timesonline.co.uk) UK investors are planning legal action against banks over advice received before the Bernard Madoff investment scandal

Living on the hedge - (www.marketwatch.com) The plunge in commodity prices is causing havoc for first-quarter corporate earnings, as many companies are finding themselves on the wrong side of their hedges against grain and oil rises. Crude ends week up 9% Obama to let states restrict emissions - (www.marketwatch.com) Allianz reportedly to start its own retail bank - (www.marketwatch.com) Kellogg expands peanut butter recall - (www.marketwatch.com) China rebuts yuan criticism - (online.wsj.com)RBS said planning purge of directors - (www.marketwatch.com) Auto dealers dropping like flies - (online.wsj.com)

Time to Unravel the Knot of Credit-Default Swaps - (www.nytimes.com)
Obama Plans Fast Action to Tighten Financial Rules - (www.nytimes.com)
Warning of quantitive easing problems in eurozone - (www.ft.com)
IMF in discord over renminbi - (www.ft.com)
Obama aide says bail-out may not be enough - (www.ft.com)
Obama Details Recovery Plan - (www.washingtonpost.com)
Obama Signals Tough Restrictions on Banks in Rescue Package - (www.bloomberg.com)
Fed weighs options on credit markets support - (www.ft.com)
Barack's Bank Bet - (www.nypost.com)
Bad Times Spur a Flight to Jobs Viewed as Safe - (www.nytimes.com)
A Premium Sucker Punch - (www.washingtonpost.com)

Freddie Will Ask For More U.S. Funds - (www.washingtonpost.com)
Six Errors on the Path to the Financial Crisis - (www.nytimes.com)