Sunday January 11 Housing and Economic stories

TOP STORIES:

German billionaire commits suicide due to financial crisis – (www.msnbc.msn.com) Well, I guess you can argue whether he was a real “billionaire” as it was probably purely on paper. If he was still a billionaire or even a multi-millionaire, would he still be committing suicide? German billionaire Adolf Merckle committed suicide after his business empire ran into trouble in the financial crisis, throwing himself in front of a train near his home, authorities and his family said Tuesday. The 74-year-old’s business interests ranged from pharmaceuticals to cement, and its troubles had recently been compounded by losses on shares in auto maker Volkswagen AG. Merckle’s body was found Monday night on railway tracks at Blaubeuren in southwestern Germany, prosecutors in nearby Ulm said.

California may delay tax refunds - (www.latimes.com) With Schwarzenegger's veto of Dems' $18-billion package of tax hikes and cuts, the state could begin issuing IOUs as soon as Feb. 1. GOP legislators join a suit against the package. State officials on Tuesday braced for the possibility of delaying tax refunds to millions of Californians, along with student grants and payments to vendors, as the latest round of budget negotiations between Gov. Arnold Schwarzenegger and Democratic legislators collapsed. With little more than a month's worth of cash left in the state treasury, the governor and lawmakers have been unable to agree on how to erase a budget gap projected to reach $41.6 billion by the middle of next year. Democrats announced Tuesday that two weeks of discussions had ended in an impasse and sent Schwarzenegger the $18-billion fiscal package they passed last month. The governor vetoed it, as he had promised to do.

Prop 13 leads to California cities' bankruptcy : Creative borrowing catches up with California cities - (www.latimes.com) Financing schemes that sidestepped voter approval have put local governments deeper in hock. Oxnard was in a bind, facing a $150-million bill to fix cracking and crumbling streets and no way to pay for the work without cutting other services. The city had tried, and failed, to get voters to approve a bond measure for street repair. And it had borrowed money against almost all of its public property, including a soccer stadium, three fire stations and its library -- even the Police Department's evidence-storage building. With virtually nothing left to hock, the city came up with an ingenious way to take on more debt: It borrowed against future revenue by "selling" its streets to a city-controlled financing authority. "We had way too much construction work to do and way too little money," said Ken Ortega, Oxnard's public works director. "We really pulled every creative financing string we could to come up with the money." Desperate for cash in a sputtering economy, local governments throughout California are digging themselves deeper into debt, and many are doing so through exotic financing schemes designed to sidestep the need for voter approval. California cities, counties and other agencies borrowed $54 billion last year, nearly twice as much as in 2000, and governments are straining under the load. Statewide, 24 cities and public agencies missed scheduled debt payments this year or were forced to tap reserves or credit lines to stay current, records show. That's up from nine in 2006, according to the bond industry's self-regulatory agency. The city of Vallejo, burdened with huge debt obligations, in May became the largest city in California history to file for bankruptcy protection. Chula Vista, Orange County and Palmdale are among the other cities and counties staring at red ink.

Culprits In Financial Meltdown Doing Very Well - (tpmmuckraker.talkingpointsmemo.com) This probably won't come as a surprise. But some of the major culprits in the financial crash -- former CEOs or top execs at banks whose billion-dollar losses helped precipitate the turmoil -- don't seem to be paying much of a price for their catastrophic mismangement. Dick Fuld, the former CEO of Lehman -- whose collapse in September directly ushered in the broader panic -- is already plotting a comeback. According to the Financial Times, he's thinking about starting a "small advisory boutique to help companies with strategic and financial issues." The venture would "harness [Fuld's] contacts in US companies," says the paper. Meanwhile, two former Wall Street honchos appear to be living the high-life after seeing taxpayers step in to rescue their troubled firms. The New York Post reports today that Peter Kraus, a former top executive with Merrill Lynch, just bought a $37 million Park Avenue apartment -- "featuring 11-foot-high ceilings, three fireplaces, three maid's rooms, a library, a gallery and a family room/gym." In September, Kraus got a $25 million golden parachute from Merrill when it was sold to Bank of America, even though he had only started work there that month. B of A received $25 billion in taxpayer money as part of the bailout. And back in March, Jimmy Cayne, the ousted CEO of Bear Stearns, bought two adjacent apartments at the Plaza, perhaps New York's swankiest locale, worth $28.24 million. That same month, his collapsed former firm was bought by JP Morgan Chase, with major government backing. Cayne reportedly spent much of his time playing golf and bridge while Bear Stearns was reeling last year.

Fed predicts economy will get worse - (money.cnn.com) The U.S. economy is likely to deteriorate further this year and unemployment will rise into 2010, according to the latest forecasts from the staff of the Federal Reserve. This bleak forecast was presented to Fed policymakers when they met last month and lowered interest rates to near zero. Low interest rates are one key tool the central bank uses to try to spur economic activity. According to the minutes from that meeting, the central bank is now predicting that gross domestic product, the broadest measure of economic activity, will fall in 2009. "I think that the Fed is really very scared right now -- like everybody else -- and they want to pull out all the stops," said David Wyss, chief economist for Standard & Poor's

Madoff turned hedge fund losses into fraud to put taxpayers on hook? - (www.indymedia.ie) Madoff Fund was Bust NOT a Fraud, but Fraud Entitles Investors to Compensation. In a brilliant piece of detective work and logic reasoning, writer Muhammad Rafeeq has exposed what Madoff is really at by pleading guilty to the $50 billion so called fraud. Rafeeq worked for many years in large investment firms and knows how the system works. On reading that banks like HSBC and Santander and others have lost billions, he says there is absolute no way that these banks would commit money to a single institute like Madoff without an extensive history of accounts going back at least 3 years and investigation and analysis of the investment model, assets and other data. There are teams of specialists in these banks to do this all the time. Rafeeq suggests that Madoff fund simply went bust in which case the investors would not be entitled to get any money back. But by claiming it is a fraud and Madoff has pleaded guilty, and the state accepts it, it means all the so called defrauded investors are entitled to be fully compensated under the US government's financial fraud protection scheme. In this brilliant article Rafeeq brings to the fore what any of us should know as obvious if we think about it and Madoff has deceived us all twice. There is no way that so many people and so many institutes, banks and pension funds would have invested billions with Madoff with absolutely zero oversight or prior investigation. The more likely scenario is that is hedge fund went bust as are up to 30% of hedge funds are expected to do so. But by pleading guilty, the entire corrupt and criminal system has gone along with his deceit and accepted. It means that the tax payer will ultimately be bailing out these losses. Expect more "frauds" like Madoff to be come to light and the CEOs to strangely plead guilty because they now all want to get on the bailout gravy train. Here's some choice quotes from the article: The first caught his attention: ....So a truly heartwarming confession. And it was apparently made to his 2 sons, both of whom who worked for the fund and who had absolutely no idea that this fraud was being perpetrated, until such time as this astounding confession. But then I started to look more closely at the mix of investors who have lost money. About half of them are professional investing institutions.... .Spanish bank Santander had £2.1billion of client money with Madoff. HSBC has admitted to lending about £600million to funds who wanted to use debt to gear up their positions with Madoff. Then the dots begin to join... I have acted as a professional consultant to major EC and US financial institutions on corporate and institutional credit risk and the idea that anyone in HSBC or Santander could authorise large investment without the internal checks and controls being employed is almost impossible. To try and believe that EVERY institution that invested in Madoff circumvented their internal control procedures IS impossible. .... ... When the credit committee are called together to review an application, everything is ready prepared for them .... .... the lower levels of credit approval process will have prepared a summary of all the application documentation, included in the meeting bundle, with the strengths, weaknesses, and other important credit risk points. This application will usually contain a set of audited accounts going back a minimum of 3 years and most likely 5 years. There will be a full credit breakdown of the investment profile of the business, Madoff's hedge fund, looking at how the fund obtains its returns; investment assets and investment methodology. After the committee is satisfied that all the issues and concerns have been addressed they will vote on the approval or otherwise.

Fannie Mae's Last Stand - (www.vanityfair.com) The chairman of the universe.” “Washington, D.C.’s Medici.” “The face of the Washington national establishment.”“One of the most powerful men in the United States.” All those phrases were used to describe a man you may never have heard of: Jim Johnson, the C.E.O. of mortgage giant Fannie Mae in the 1990s. Fannie was then one of the largest, most profitable companies in the world, with a stock-market value of more than $70 billion and more earnings per employee than any other company in America. (By comparison, G.M. at its peak, in 2000, was worth only $56 billion.) On one level, Johnson, now 65 years old, was just another businessman with a lot of money and multi-million-dollar houses in desirable locations from D.C. to Sun Valley, Idaho, to Palm Desert, California. Chairman of D.C.’s premier arts venue, the Kennedy Center, and one of its top think tanks, the Brookings Institution, Johnson was out “wearing white-tie and black-tie every night,” says Bill Maloni, Fannie’s former chief lobbyist. “Everyone wanted a little bit of Jim.” But Johnson was also a political force, because the company he ran had a public mission—literally. It had been chartered by Congress to help homeownership. Johnson liked to paraphrase the old motto about General Motors: “What’s good for American housing is good for Fannie Mae,” he’d say. Accordingly, he built Fannie into what former congressman Jim Leach, a Republican from Iowa and longtime Fannie gadfly, calls “the greatest, most sophisticated lobbying operation in the modern history of finance.” He may be right. John McCain was embarrassed last summer by revelations that his campaign manager, Rick Davis, had served as the president of the Homeownership Alliance, an advocacy group for Fannie and Freddie Mac, Fannie’s smaller brother. The “revolving door,” as people call it, between the Hill and Fannie and Freddie spun so quickly that it’s actually more surprising when someone isn’t on the list than when they are. Rahm Emanuel served on Freddie’s board! Right-wing godfather Grover Norquist lobbied for Fannie! Newt Gingrich was a consultant for Freddie, and Ralph Reed was a consultant for Fannie!

Black’s Apollo Said to Be Among Lenders in Lyondell Bankruptcy – (www.bloomberg.com) Apollo Management LP, the private- equity firm led by Leon Black, is among the largest creditors of Lyondell Chemical Co., which filed for bankruptcy protection, according to a person with direct knowledge of the matter. Apollo, based in New York, is now a member of a lending group providing so-called debtor-in-possession financing to fund Lyondell’s operations, according to the person, who asked not to be identified because Apollo’s stake hasn’t been disclosed. Steven Anreder, a spokesman for Apollo, declined to comment. Lyondell spokeswoman Susan Moore didn’t return phone calls seeking comment. Apollo, TPG Inc. and Blackstone Group LP’s GSO Capital Partners were among buyout firms that bought high-yield, high- risk debt last year at discounted prices. The average high-yield loan price fell 28 cents on the dollar last year to 66.6 cents, according to Standard & Poor’s LCD, as Wall Street firms whittled down $230 billion of loans they’d promised to private-equity firms to fund takeovers before credit markets seized up. “Apollo may be trying to protect an earlier error in judgment with Lyondell,” said Jonathan Macey, a law professor at Yale University. He said Apollo may be trying to avoid deeper losses by providing bankruptcy financing.

Stacey's Bookstore closing down in S.F. - (www.sfgate.com) Stacey's Bookstore, the iconic San Francisco shop that called Market Street home for all of its 85 years and had carved out a niche for technical publications, announced Tuesday evening that it would close in March. Like other independent book sellers, Stacey's had been hurt over the past decade by the rise of national chains, like Barnes & Noble, and Web-based booksellers, such as Amazon.com. The store's general manager, Tom Allen, said sales had dropped 50 percent since March 2001. But the final blow was the crumbling economy, which hit hard during the holidays. Stacey's sales in the fourth quarter of 2008 plummeted 15 percent from the same period in 2007. "That in itself would not have spelled the end," said Allen.


OTHER STORIES:

Stocks recharge rally Oil caught in tug-of-war - (money.cnn.com)
Autos: 2008 winners and losers - (money.cnn.com)

Treasurys Falling Again - (www.cnbc.com)
Bank of America CEO Lewis to Skip 2008 Bonus - (www.cnbc.com)
Merrill's Sontag Named Head of Retail Brokerage - (www.cnbc.com)
Fed Feared Rate Cuts Wouldn't Be Enough For Economy - (www.cnbc.com)
Read the Fed Minutes - (www.cnbc.com)
Obama Says Budget Deficit To Hit $1 Trillion Soon - (www.cnbc.com)
Plenty of Projects for Stimulus - (www.cnbc.com)
Could Widespread Confusion Thwart TARP? - (www.cnbc.com)

Recession driving truckers into heavy competition - (www.latimes.com) Cuts at firms are pushing more haulers into the ranks of independent owner-operators, spurring bidding wars for fewer jobs. >>
Deflation fear prompted Fed's latest interest rate cut - (www.latimes.com) Concern that declining prices could deepen the recession was key in the decision, meeting minutes show. >>

CS-CPI Negative 3.1% Year over Year in November - (Mish)
Obama: $1 trillion deficits 'for years' - (money.cnn.com)
Alcoa to cut global workforce by 13% - (money.cnn.com)
Bank of America CEO skips bonus - (money.cnn.com)
Fed Killing Long-Term Yields - (seekingalpha.com)
Want to Cut Your Debt? Work Less, Get More Bailout Benefit - (economix.blogs.nytimes.com)
Total Bailout Cost Approved For $8.5 Trillion - So Far - (geldpress.com)
Self-bailouts: Nice work, if you can get it - (optionarmageddon.ml-implode.com)
Wilbur Ross: I will buy a bank Eye on banks - (money.cnn.com)
Millionaires? More like $700,000-aires - (money.cnn.com)

More Welfare For Really Rich Guys - (usnews.com)
Deflation on the Ski Slopes? - (seekingalpha.com)Money Leaves the "Govt Sponsored Mattress" - (www.cnbc.com)
US Treasurys Losing Favor As Investors Seek Profits - (www.cnbc.com)
Pro: Corporate Debt Tops in '09 - (www.cnbc.com)
New year brings spectre of 1930s-style depression to eurozone - (www.guardian.co.uk)
Wall Street suffers worst year since 1931 - (theaustralian.news.com.au)
Markets Limp Into 2009 After a Bruising Year - (www.nytimes.com)
Investors' big question: Will stocks' slide get even worse? - (www.latimes.com)
Four Bad Bears: End of Year Update - (www.calculatedriskblog.com)
England house prices will not be leaping ahead for many years - (www.telegraph.co.uk)
Sowing Lysenko's Seeds in a Monetary Twilightzone - (powerfulpancake.blogspot.com)