Friday January 9 Housing and Economic stories

TOP STORIES:

Regulators probed Madoff eight times over 16 years: report - (www.reuters.com) Bernard L. Madoff Investment Securities LLC was examined at least eight times in 16 years by the U.S. Securities and Exchange Commission (SEC) and other regulators, who often came armed with suspicions, the Wall Street Journal said. SEC officials followed up on emails from a New York hedge fund that described Bernard Madoff's business practices as "highly unusual," the paper said. The Financial Industry Regulatory Authority, the industry-run watchdog for brokerage firms, reported in 2007 that parts of the firm appeared to have no customers, according to the paper. Madoff was interviewed at least twice by the SEC, the paper said, adding that regulators never came close to uncovering the alleged $50 billion Ponzi scheme that investigators now believe began in the 1970s. The SEC could not be immediately reached for comment by Reuters.

Prosecutors want Madoff jailed, say he sent away jewelry – (www.latimes.com) The government wants Bernie Madoff behind bars pending the next phase of his fraud case, citing the accused money manager’s decision to send valuable personal jewelry and other items to third parties in recent weeks. Madoff, 70, disposed of five items including "very valuable jewelry," Assistant U.S. Attorney Marc Litt told a federal judge at a hearing in Manhattan today, Bloomberg News reported. The government apparently got three of the items back. Despite that revelation, the judge, U.S. Magistrate Ronald Ellis, said he wanted more information from both sides before deciding whether Madoff should be detained.

Waterford Placed Into Receivership as No Buyer Found - (www.bloomberg.com) Waterford Wedgwood Plc received protection from creditors after losing money for five years and failing to find a buyer, threatening an Irish crystal-making heritage that dates back to 1759. As many as 2,700 Irish and British jobs may be at risk if no buyer emerges. Deloitte Ireland was appointed as receiver for the company and some local units, Dublin-based Waterford said today in a statement. Its shares were suspended in Dublin. Sales wilted under the dollar’s drop against the euro, eroding the value of revenue from North America, the source of almost 40 percent of the company’s business. Luxury-goods spending is slumping as the credit crunch weighs on incomes. Factory closings and job cuts in Ireland weren’t enough to revive Waterford, which had to appoint receivers after banks declined to suspend a financial-covenant test for a fourth time.

CGM’s Heebner, Fidelity’s Lange Falter as Markets Claim Victims - (www.bloomberg.com) Kenneth Heebner’sCGM Focus Fund, the industry’s top performer in 2007, dropped 48 percent last year as the worst market for stocks in seven decades humbled the best- known managers. Harry Lange’sFidelity Magellan Fund dropped 49 percent, dragged down by stakes in financial companies. The average U.S. stock mutual fund fell a record 39 percent in 2008, according to Morningstar Inc. in Chicago. The Standard & Poor’s 500 Index declined 37 percent including reinvested dividends. Investment losses, combined with withdrawals by customers, reduced U.S. stock mutual-fund assets to $3.6 trillion by Nov. 30 from $6.5 trillion at the start of the year, according to the Investment Company Institute, a Washington-based trade group. Of 4,934 diversified U.S. stock funds with more than $100 million, none eked out a gain in 2008, Morningstar data showed. “I’ve never seen anything like this,” Jeff Tjornehoj, a fund analyst at Denver-based research firm Lipper, said in an interview. “Even talented managers looked like newcomers.”

Governors Call for $1 Trillion Stimulus to Offset Budget Cuts - (www.washingtonpost.com) Of course 5 of the worst states (and worst Democratic governors) that were not saving during the good years are begging Obama for money now. These are precisely the states that deserve not to get bailout money and should really start doing some belt-tightening. To help offset state budget cuts, a group of Democratic governors urged the federal government Friday to pass a $1 trillion economic stimulus package, significantly larger than the one under discussion in Congress. The package would help states compensate for cuts to education spending that could cause long-term economic decline, as well as bolster infrastructure projects and benefits programs for the poor, the governors from New York, New Jersey, Massachusetts, Ohio and Wisconsin said in a news conference.

Obama suffers stimulus setback - (www.ft.com) Barack Obama on Sunday was dealt his first serious setback since the election when his choice for commerce secretary withdrew from nomination, as congressional leaders warned that an emergency $775bn fiscal stimulus package was unlikely to be passed before Mr Obama’s inauguration. Bill Richardson, governor of New Mexico, said he was stepping aside because of a pending probe into a company that had done business with New Mexico. “Let me say unequivocally that I and my administration have acted properly in all matters and that this investigation will bear out that fact,” he said, in a statement released on Sunday by the Obama transition team. Mr Richardson’s withdrawal came as leaders from both parties warned that a planned stimulus bill, to revive the contracting US economy and whose cost could hit $1,000bn, would be unlikely to reach Mr Obama’s desk before early February. Steny Hoyer, the Democratic majority leader in the House of Representatives, told Fox News that it would probably only reach Mr Obama by the President’s Day recess in early February.

44 States Face Huge Budget Shortfalls - (www.globaleconomicanalysis.blogspot.com) Some 44 states are facing fiscal stress in their FY2009 and/or FY2010 budgets. New mid-year fiscal year 2009 shortfalls of $42 billion have opened up in the budgets of at least 41 states and the District of Columbia. Budget deficits are already projected in 38 states for the upcoming fiscal year. Initial estimates of these shortfalls total almost $80 billion. As the full extent of 2010 deficits become known, shortfalls are likely to equal $145 billion.
Combined budget gaps for the remainder of this fiscal year and state fiscal years 2010 and 2011 are estimated to total $350 billion to $370 billion. Numbers Are Overly Optimistic: As bad as those numbers look, I suggest the numbers are overly optimistic. California alone has raised its budget deficit projection several times from $4 billion, to $8 billion, to $14 billion, and that is just for fiscal year 2009. The California 2010 deficit is now projected to be $25 billion, a whopping 24.8% of the Fiscal Year 2009 General Budget. However, how can anyone have any confidence in the numbers when the projected deficit is revised higher every month?

State Workers Fight Over Cutbacks as States Want More From Obama - (www.globaleconomicanalysis.blogspot.com) As the budget crisis deepens, state employees are fighting each other for survival. Potshots are thrown between management vs. non-management, union vs. non-union, teachers vs. everyone else. In addition, governors want $1 trillion out of a total package of $850 billion Congress is likely to send to Obama to sign. The math does not add up. There is other noteworthy economic news of interest. Here are a few headline news reports of interest from the past couple days. California Employees fight each other as budget crisis deepens: State workers donned their rhetorical boxing gloves in 2008 and slugged it out – with each other. Online, state workers defended themselves from attacks by private-sector workers and jabbed the governor (not so affectionately referred to as GAS) for wanting to furlough or lay off workers. And they attacked each other. ... You'd think that state workers would pull together in tough times. Strength in numbers and all that. But the opposite almost always happens when members of a large bureaucracy, be it public or private, feel threatened, said Todd Dewett, a group behavior expert at Wright State University in Dayton, Ohio. "The notion of what constitutes productive behavior gets shaken," Dewett said. "So as California's financial pie shrinks, rivalries among state workers become more fierce."

Credit squeeze hits larger companies hardest - (www.ft.com) Large companies in Europe and the US are having the terms of their credit facilities tightened more quickly and more severely than smaller companies – in contradiction of received wisdom. Surveys by the European Central Bank, US Federal Reserve and Germany’s Ifo economics institute all show banks tightening their lending criteria most for the largest companies. Possible reasons put forward for this shift in attitude include smaller companies enjoying a better relationship with their banks, and financial institutions shying away from making large loans and preferring to deal with local groups, rather than multinationals. Chris Williamson, chief economist of Markit data provider, said: “Large companies drove the credit-fuelled expansion but – especially in November – we have seen a big reversal of that”. André Kunkel, head of surveys at Ifo, said: “For the last few years, big companies consistently had it easier but then, in recent months, they saw a huge worsening in credit conditions. Lending terms have dramatically tightened for big companies.”

Investment fears in venture capital shake-out - (www.ft.com) The US venture capital industry, which has become an important source of capital for technology start-ups around the world, is facing a severe shake-out that will lead to a contraction in future investments, according to some of Silicon Valley’s leading financiers. These warnings follow one of the weakest years ever seen for profit-taking by start-up investors, and come amid predictions of an even worse period ahead. Only six companies that were backed by venture capital went public last year, the lowest numbers since the 1970s. The other main way for start-up investors to realise gains – selling out to other companies – also hit a low point in 2008. Only 325 were sold, the lowest number since 2003, according to Dow Jones VentureSource. This lack of profitable “exits” for investors has come just as venture capital firms were hoping finally to recover from the dotcom hang-over – since many of the companies funded at the peak of the boom are now mature enough to be sold or floated publicly. “There’s been far more money paid into our industry than being returned,” said Dixon Doll, founder of Doll Capital Management and current chairman of the National Venture Capital Association.

Consumer groups protest life insurers' plan to lower reserves - (www.latimes.com) Two prominent consumer groups are up in arms over proposals that would reduce the amount of money life insurers must set aside to pay future claims. The Consumer Federation of America and the Center for Economic Justice say the changes would increase the risk that an insurer would fail to pay all its obligations under life insurance policies and annuity contracts. The revisions would ease capital requirements that the life insurance industry calls inflexible and overly conservative. Both sides cite the country's current financial crisis in making their arguments. The industry's effort to modify the rules has the support of regulators, who contend that it won't harm policyholders. "It would be irresponsible for us to suggest something that makes the product riskier," said Roger Sevigny, president of the National Assn. of Insurance Commissioners, which represents state insurance regulators. Because all states require insurers to adhere to accounting rules set forth by the association, the organization can change the capital requirements without legislation or any action by individual state regulators.

Series spreads the blame on economy - (www.latimes.com) Robert E. Rubin, an advisor on President-elect Barack Obama's transition team, is blamed in one story for loosening regulations on banks when he served as President Clinton's Treasury secretary, then pushing Citigroup into investments that would cripple the banking giant. Henry G. Cisneros, national housing czar under Clinton, takes a hit in another story for pushing an ill-conceived San Antonio, Texas, subdivision that would be ravaged by foreclosure. In one of the tale's most telling moments, a buyer expresses incredulity that the developers let him get a loan. "I was a student making $17,000 a year," he says. "My wife was between jobs. In retrospect, how in hell did we qualify?" Yet another article in "The Reckoning" tells how mortgage giant Fannie Mae became impossibly bloated as "Democratic lawmakers demanded that the company buy more loans that had been made to low-income and minority home buyers." The Times could have brought even sharper focus on the failure of congressional Democrats, but it hardly forgave their slavish devotion to the company. In their cheerleading comments from the go-go days of the housing boom, Sen. Jack Reed (D-R.I.) and Rep. Frank appear particularly hapless. The sheer length and breadth of the Times series delivered its own message: No single individual, agency or firm can be held responsible for the giant mess we've gotten ourselves into.


OTHER STORIES:

Hoteliers see too much room at the inn - (www.latimes.com) The industry's prospects for 2009 look grim as anxious leisure and business travelers cut spending. >>
Keeping the house makes for a messy divorce - (www.latimes.com) It's not just a matter of who keeps the home. Loans, liens and other financial issues can preclude a clean split. >>
Global Corporate Profits to Drop in ’09; More Bankruptcies Loom - (www.bloomberg.com)
Dollar Rally Fizzling as Fed Triggers Risk Appetite - (www.bloomberg.com)
The Year Hedge Funds Got Hit - (www.washingtonpost.com)
How to Avoid Getting Burned by the Next Bernard Madoff - (www.washingtonpost.com)
Economic downturn could change tastes in housing - (www.latimes.com)
Chinese Manufacturing Contracts as Exports Decline - (www.bloomberg.com)
Gas Dispute Has Effects Past Russia and Ukraine - (www.nytimes.com)

Fed has abandoned monetary policy, critic says - (www.reuters.com)
2008 Job Losses Probably Worst Since 1945: U.S. Economy Preview - (www.bloomberg.com)

Venture capital industry squeezed - (www.sfgate.com)
Mnuchin, Paulson & Co. in Group Buying IndyMac Bank - (www.bloomberg.com)
Tar sands refinery projects face sticky future - (www.ft.com)
Home Prices in Selected Cities - (www.nytimes.com)
Membership Has Its Penalties - (www.newsweek.com)

U.S. Stocks Retreat on Earnings Concern; AT&T, JPMorgan Decline - (www.bloomberg.com)
As Vacant Office Space Grows, So Does Lenders’ Crisis - (www.nytimes.com)
Rising vacancies in office buildings may imperil lenders - (www.dallasnews.com)
Investors dump $89B in U.S. securities in historic fire sale - (www.usatoday.com)
Oil Curve Steeper Than ‘99 Shows Possible Gain in ‘09 - (www.bloomberg.com)
Toyota, Nissan Lead Drop as Japan Car Sales Fall to 28-Year Low - (www.bloomberg.com)
Fed Officials Endorse ‘Big Stimulus’ to Battle U.S. Recession - (www.bloomberg.com)
Apple's condition linked to Steve Jobs' health - (www.latimes.com)
Hoteliers see too much room at the inn - (www.latimes.com)
In Silicon Valley, Venture Capitalists Turn Cautious and Focus on the Short Term - (www.nytimes.com)
Auto Industry Still Coming to Grips With the Damage of 2008 - (www.nytimes.com)
Homeownership goals created house of cards – (www.signonsandiego.com)
The Ponzi Scheme in Every Hedge Fund - (www.time.com)