Sunday January 18 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Punish savers and make them spend money Anatole Kaletsky – (business.timesonline.co.uk) Very dangerous story and thinking, but beginning to gain favor. These are the same supposed “economists” and experts who believed the stock market and housing markets only go up. They were also the ones who believed we should defecit spend and borrow money in previous downturns. When their advice and investments go bad, they believe everyone should be forced to spend their savings for the “better good”. Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively. The battlelines are drawn. On one side we have the Labour Government and the Liberal Democrats, the Bank of England, the US Federal Reserve Board and the vast majority of Keynesian economists in every country - plus Barack Obama. On the other side, the Tory Opposition, the German Socialists, the European Central Bank, the Church of England and the vast majority of Marxist economists in every country - plus the British public. The question, of course, is what to do about the recession. Specifically whether the way out is “to spend, spend, spend or to save, save, save” - as David Cameron has so clearly put it. I believe, in line with the vast majority of non-socialist economists, that Mr Cameron's campaign for savings is completely wrong; that “borrowing our way out of debt”, paradoxical as it sounds, is exactly the right prescription for our present problems. This paradox is easily explained: if governments or wealthy individuals increase their borrowings they replace weak debtors - bankrupt hedge funds, struggling businesses or repossessed homeowners - with strong ones and this helps to stabilise the financial system and sustain economic activity and employment. The country can borrow its way out of debt.

GM Expects To Lose 500 US Dealerships - (Mish at globaleconomicanalysis.blogspot.com) Bloomberg is reporting GM Expects to Lose as Many as 500 Dealers in U.S. This Year. General Motors Corp. said it may lose as many as 500 dealers in its home market this year, an increase from 350 last year, as the largest U.S. automaker works toward its goal of cutting 1,700 by 2012. The reduction will widen in part because of the strain of a fourth straight year of U.S. auto-sales declines and a company initiative to trim its brands and emphasize only Chevrolet, Cadillac, GMC and Buick, GM North American President Mark LaNeve said in an interview today. GM may also have to spend more to convince some of its 6,400 dealers to consolidate, he said. “We had 13,000 dealers 18 years ago, so we’ve already cut that in half,” LaNeve said at the North American International Auto Show in Detroit. “We don’t want them to close all at once because we figure we lose sales for 18 months after a dealership closes until other dealers pick up the business.”

A Cash Machine Runs Low - (www.nytimes.com) For a few brief weeks, it seemed as if Vikram S. Pandit, the chief executive of Citigroup, was regaining a bit of trust on Wall Street. But on Monday, as the struggling financial giant moved toward a deal with Morgan Stanley for its Smith Barney brokerage unit, all the old demons returned. Shares of Citigroup, which had regained their footing after two recent lifelines from Washington, plunged 17 percent, to $5.60, as investors worried that the Morgan Stanley venture was a sign the bank’s troubles may again be deepening. The decline brought Citigroup stock back to the lowest level since the government last gave it backing in November, as a broader slump in banking stocks helped drive the Dow Jones industrial average below 8,500. Wall Street analysts say they believe regulators are pushing Citigroup to sell its brokerage unit because the company desperately needs capital. Splitting off Smith Barney, analysts say, may not be enough to plug a widening hole at the bank, which has lost an average of nearly $100 million a day in the fourth quarter. After nearly a decade of raking in billions as a global cash machine, Citigroup is expected to report its fifth consecutive quarterly multibillion loss next week.

Town Mourns Typical Businessman Who Took Atypical Risks - (www.nytimes.com) Another story trying to take blame off the individual and putting blame on banks/creditors. Maybe Merckle should be blamed for loading up on debt and leverage obviously trying to make a lot of money using margin/leverage. When it backfired or the credit markets dried up, he was caught empty-handed. The suicide of the German billionaire Adolf Merckle shocked the nation as much as it angered his tiny town, where he was eulogized at a service that overflowed the church. When the body of Adolf Merckle was discovered on the railroad tracks here last week, authorities ruled the German billionaire’s death to be a suicide. They said he had thrown himself in front of a train, just a day before it was announced that the company he had founded 34 years ago was being sold. But for Jürgen Wiedenmann, the owner of a sporting goods store here, Mr. Merckle’s creditors were responsible even if they were not present by the tracks on that snowy night. “The banks pushed him to it, I’m sure,” Mr. Wiedenmann said. It is a common opinion in this small south German town of 12,000, where his employees and residents saw Mr. Merckle as a decent, taciturn man who looked after his workers and his community, despite his wealth. He was No. 94 on Forbes magazine’s most recent ranking of the 400 richest people in the world. His four children grew up in a modest one-family house with the Merckle name on the mailbox. “I look at this as the banks’ taking the heart out of the family,” said Karl-Heinz Irgang, a member of the Blaubeuren City Council.

Synovus, Comerica Brace for Commercial Real Estate Loan Bust - (www.bloomberg.com) Synovus Financial Corp.,Comerica Inc. and Huntington Bancshares Inc. are among regional banks that may face a second wave of real-estate loan losses, this time for shopping centers and residential construction projects. Losses in commercial real estate excluding construction are expected to increase 10-fold, Deutsche Bank AG analyst Mike Mayo said in a Jan. 5 research note. Moody’s Investors Service said yesterday it’s considering a downgrade of Synovus because of commercial real-estate losses. Borrowers have fallen behind on payments to regional lenders as the year-old recession shutters retail stores and offices. Overdue commercial real-estate loans quadrupled from two years earlier in the third quarter to 4.73 percent, according to seasonally adjusted data from the Federal Reserve. That’s the highest level since 1994. “We’re overbuilt in a lot of areas like shopping malls,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland. Apartment developments are also suffering as falling home prices draw people away, he said. “The fundamentals are on the verge of going really, really negative for commercial,” McCain said. Losses are likely to get worse because overdue commercial construction loans, an early indicator of future defaults, are rising, according to Mayo. Developers may not be able to refinance “hundreds of billions of dollars” in loans because there aren’t any willing lenders, said Sandler O’Neill and Partners LP analysts led by Mark Fitzgibbon in a Jan. 5 note.

Spain hit by public finance warning - (www.ft.com) The growing dangers for Europe’s sharply slowing economies were highlighted yesterday as Spain became the third eurozone country to be warned over its deteriorating public finances in the space of three days. Standard & Poor’s, the rating agency, said Spain’s top-notch triple A credit ratings could be downgraded because of pressure on its public finances after it entered what is likely to be a deep recession in the fourth quarter. On Friday, Greece and Ireland were also warned by the agency that their ratings could be downgraded as economic conditions worsen. The warning is likely to help drive up borrowing costs for those countries.

California United Bank refuses $8.3 million from Treasury fund - (www.latimes.com) California United Bank, the lender to small and mid-size businesses that won approval for $8.3 million from the Treasury, doesn't want the money. The restrictions, costs and possible uncertainties outweigh the potential benefits of the bank's participation, the Encino lender said Monday. The bank has sufficient capital, Chief Executive David I. Rainer said in the statement. The bank's decision stands out as more than 200 regional lenders, insurers and financial companies have applied for Troubled Asset Relief Program funds totaling at least $82 billion, according to Bloomberg data. Analysts said they expected more banks to refuse the government money because it comes with restrictions. "It will not surprise me if banks that have healthy capital ratios, that have been approved for TARP, decide to reject it because they see the terms and conditions are going to change and could be too onerous for those recipients," said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine.



OTHER STORIES:

Bernanke: Governments Will Need to Do More - (www.cnbc.com) Federal Reserve Chairman Ben Bernanke said Tuesday the global economy is being hit hard by a financial crisis and how governments respond will determine the timing and strength of recovery.
Citi, Morgan To Reveal Smith Barney Deal Today? - (www.cnbc.com)
Spain Probes Santander over Madoff: Report - (www.cnbc.com)
Citi's Move to Shed Broker Fails to Stem Cash Worries - (www.cnbc.com)
Trade Gap Shrinks on Record Import Plunge in November - (www.cnbc.com)
Sony Is Seen Posting First Operating Loss in 14 Years - (www.cnbc.com)
EADS Exits US Defense Deal to Save Cash - (www.cnbc.com)

FTC seeks to halt integration of Whole Foods, Wild Oats - (www.latimes.com) The Federal Trade Commission on Monday asked a federal judge to halt the integration of Wild Oats Markets Inc. and Whole Foods Market Inc. as part of a continuing legal battle over the 2007 deal that combined the two natural-grocery chains. >>
Alcoa swings to loss of $1.19 billion in fourth quarter - (www.latimes.com) The aluminum company suffers the effects of plunging demand in a weakened global economy. Revenue falls 19% from a year earlier. >>
UK Recession May Be the Steepest in over 20 Years - (www.cnbc.com)
Gazprom: US Orchestrating Ukraine in Gas Row - (www.cnbc.com)
AIG to Sell Canadian Unit to Bank of Montreal - (www.cnbc.com)

Oil drops towards $36 on falling demand expectations - (www.reuters.com)
High net worth clients rethink concept of risk - (www.ft.com) Over the years, Tiger 21, a New York-based peer education group of self-made multimillionaires, has held sporadic conference calls for members to discuss investment topics. But as the global financial crisis worsened last summer, and many scrambled to understand the unfolding disaster, the organisation began to schedule calls on alternate Friday afternoons, immediately after the market close. The subjects have ranged from hedge funds and private equity to gold, public equities and cash alternatives. “Many members who had unblemished track records as entrepreneurs really had not fully appreciated the risks in their portfolios,” says Michael Sonnenfeldt, founder of Tiger 21, a group whose 170 members manage personal investment portfolios from $10m to $700m. “One of the biggest surprises was how complex the world of finance is. [The crisis] has exacted not just a financial toll but often an emotional toll and a family toll.”
EDITOR’S CHOICE
Hedge funds lost 19 percent in 2008 - (www.reuters.com)
China’s Exports Decline by Most in Decade on Global Recession - (www.bloomberg.com)
China Slowdown, Asset Price Drop Pose Growing Threat, WEF Says - (www.bloomberg.com)
Trade Losses Rise in China, Threatening Jobs - (www.nytimes.com)
U.K. Slumps Most Since 1989 as Home Sales Drop, Surveys Show - (www.bloomberg.com)
China crude oil imports grow 9.6% in 2008 - (www.marketwatch.com)
Slowest house sales in 30 years reported - (www.ft.com)
Bush to press Congress on Tarp funds - (www.ft.com)
Obama Seeks Rest of Bailout - (www.washingtonpost.com)
America Hunkers Down: A Nation of Savers? - (www.washingtonpost.com)
Despite Anger, Release of $350 Billion More for Bailout Gains Favor - (www.nytimes.com)
Alcoa Has First Net Loss in Six Years as Demand Falls - (www.bloomberg.com)
Alcoa Says More Output Cuts May Be Needed After Loss - (www.bloomberg.com)
Sony shares fall on talk of losses - (www.ft.com)
Lobster business fishes for a lifeline - (www.usatoday.com)