Thursday January 15 Housing and Economic stories

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TOP STORIES:

Ariz. police say they are prepared as War College warns military must prep for unrest; IMF warns of economic riots – (www.bizjournals.com/phoenix) A new report by the U.S. Army War College talks about the possibility of Pentagon resources and troops being used should the economic crisis lead to civil unrest, such as protests against businesses and government or runs on beleaguered banks. “Widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security,” said the War College report. The study says economic collapse, terrorism and loss of legal order are among possible domestic shocks that might require military action within the U.S. International Monetary Fund Managing Director Dominique Strauss-Kahn warned Wednesday of economy-related riots and unrest in various global markets if the financial crisis is not addressed and lower-income households are hurt by credit constraints and rising unemployment. U.S. Sen. James Inhofe, R-Okla., and U.S. Rep. Brad Sherman, D-Calif., both said U.S. Treasury Secretary Henry Paulson brought up a worst-case scenario as he pushed for the Wall Street bailout in September. Paulson, former Goldman Sachs CEO, said that might even require a declaration of martial law, the two noted.

U.S. Military Preparing for Domestic Disturbances - (www.freerepublic.com) With 11 million people on the street, The U.S. Army War College is testing scenarios for “use of American troops to quell civil unrest brought about by a worsening economic crisis.” The Army believes “economic collapse, terrorism and loss of legal order,” says the Phoenix Business Journal, citing the USAWC, “are among possible domestic shocks that might require military action within the U.S.”

Government and Fraud (how Government runs the largest ponzi scheme) by Ron Paul – (www.safehaven.com) Billions of dollars were recently lost in the collapse of Bernie Madoff's self-described Ponzi scheme, in which too-good-to-be-true returns on investments were not really returns at all, but the funds of defrauded new investors. The pyramid scheme collapsed dramatically when too many clients called in their accounts, and not enough new victims could be found to support these withdrawals. Bernie Madoff was running a blatant fraud operation. Fraud is already illegal, and he will be facing criminal consequences, which is as it should be, and should act as an appropriate deterrent to potential future criminals. But it seems every time someone breaks the law, politicians and pundits decide we need more laws, even though lack of laws was not the problem. The government itself runs a fraud much bigger than Madoff's. Our Social Security system is the very definition of a Ponzi, or pyramid scheme. If the government truly had an interest in protecting people's savings, they would allow people to opt out of Social Security altogether. We would cut wasteful spending, such as our overseas empire, to honor current obligations to seniors, and eventually phase the program out. Instead, as with Enron and Sarbanes Oxley, I expect new, unrelated legislation to be proposed that further damages freedom in the name of protecting us, amidst loud proclamations that they have made the world safe. Merely passing a law does not fix any problems, just as throwing paper at a recession does not stop it. How can a government so complicit in mandatory public fraud effectively pre-empt private fraud? I see no reason to believe that any new law, or regulatory agency will solve anything. But I do see liberty slipping away every time Congress decides to "do something". We already have an oversight agency, the SEC, which did a poor job overseeing and preventing this, but does a great job hamstringing honest, productive businesses and driving them overseas. Total trust in government solutions only creates moral hazard, and amplifies risky behavior. Trust in government got us here. We trusted government to eliminate risk, but it just made risk more creative and dangerous. We trusted the Federal Reserve, a supra-governmental cabal of private banks, to know better than the free market what interest rates should be, and how to stabilize the business cycle, but like a spinning top that loses its balance, it has instead spun the business cycle and the economy wildly out of control. No governmental activity can negate market forces or nullify the cardinal rule of caveat emptor. Government can however, use our fears against us and promise unrealistic outcomes as a means to consolidate power and erode our liberties. Liberty comes with risk. This is a fact of life. But life without liberty is not much of a life at all.
The only way the American people will get through these difficult times is through our own resilience and ingenuity. At best, the government is irrelevant in finding prosperity again. At worst, government can present a massive obstacle for the economy to overcome. If we do not wise up and rein government back in to its Constitutional limitations, bloated government could be a cumbersome unnecessary weight the economy will continually have to support to stay afloat

Daddy’s Home, and a Bit Lost - (www.nytimes.com) Darien, Conn. Skip to next paragraphSince losing his job, Scott Berry of Darien, Conn., spends days in his home office and with his children, Samantha and Max. SCOTT BERRY has always been a morning person. For years he would wake up at 5 a.m., shower, shave and, tamping down a twinge of regret, plant quiet kisses on his two sleeping children and his wife, before backing his BMW out of the driveway. As the family breadwinner, he worked long hours at his job as a technology analyst for a boutique investment firm in Manhattan. The demands of his work and the substantial commute from his home in Darien meant he rarely saw Samantha, 8, and Max, 7, before his wife, Tracey, had them in their pajamas and ready for bed. Then in December 2007, Mr. Berry, 49, lost his job. He immediately looked for a new position but found opportunities puzzlingly elusive. In mid-2008 came the rout on Wall Street. “The good news is, I don’t feel singled out for unemployment,” he said, running his hand through his light-brown hair. But his plan for his next job — as an analyst in a venture capital firm or as an executive at a start-up — has been deferred. So Scott and Tracey Berry have faced a complex series of choices about work, money and the roles and responsibilities each would assume in the family. Their goals: to keep their domestic economy from mirroring the national one — and to stay married. One mother in TriBeCa, who is married, at least for now, to a Wall Street executive, put it rather bluntly: “My job was to run the household and the children’s lives,” she said. “His job is to provide us with a nice lifestyle.” But his bonus has disappeared, and his annual pay has dropped to $150,000 from $800,000 a year. “Let me just say this,” she said, “I’m still doing my job.” The Berrys’ marriage isn’t as fraught, and they were never the kind of couple who lived bonus to bonus — which may explain why they, unlike most newly unemployed Wall Street families, are willing to open their lives to a reporter. In good times, they saved, set up college funds for their children and paid off their mortgage. Aside from a modest car loan, they don’t carry any debt. Despite their year of little work, their 11-year marriage seems as solid as their spacious five-bedroom Colonial home.

Obama Calls for Sacrifice, Scaling Back Campaign Promises - (www.bloomberg.com) President-elect Barack Obama said turning around the U.S. economy will require cutting back on some campaign promises and personal sacrifice from Americans. “I want to be realistic here, not everything that we talked about during the campaign are we going to be able to do on the pace we had hoped,” Obama said in an interview on ABC’s “This Week” program, scheduled to air tomorrow. ABC posted excerpts of the interview, Obama’s first since returning to Washington as president-elect, today on its Web site. Obama is pressing Congress to act quickly on a two-year economic stimulus plan of about $775 billion that includes new government spending and tax cuts. In appearances last week the president elect warned that failure to pass legislation enacting his proposals within the next few weeks risks letting the U.S. fall into a deeper and more prolonged recession. The Labor Department reported yesterday that the U.S. lost almost 2.6 million jobs in 2008 and that the unemployment rate jumped to 7.2 percent in December, the highest level in almost 16 years. The losses were widespread, with manufacturers, builders, retailers and temporary-help agencies axing positions. All Americans will have to sacrifice to put the economy back on track, Obama said. “Everybody’s going to have to give,” Obama said. “Everybody’s going to have to have some skin in the game.”

Industry Recoils at Citi's Mortgage Deal - (www.washingtonpost.com) Citigroup's support for a plan to let bankruptcy judges modify the terms of troubled mortgages and help borrowers avoid foreclosure left its banking industry counterparts on the defensive yesterday, insisting that the plan would do more harm than good. After years of failed attempts, congressional supporters of the proposed law are cautiously optimistic about its prospects. And privately, banking executives acknowledge that some type of legislation is likely to pass, but they said they want to limit the loans eligible to be modified. The major banking trade groups held a conference call with members after the Citigroup announcement Thursday, and all of the banks affirmed their opposition to the deal, according to a person on the call. Industry groups including the Financial Services Roundtable, the American Bankers Association, the Mortgage Bankers Association and the American Securitization Forum have all issued statements opposing the deal. But, according to a congressional aide, two other large banks are actively negotiating with Sen. Richard J. Durbin (D-Ill.) to be included in the agreement. This comes as more borrowers are being swept into a deepening foreclosure crisis despite government and industry efforts to help. Under the legislation being considered, a bankruptcy judge could change the terms of a loan by reducing its interest rate, extending its length, or lowering the principal or loan balance, known as cramdown provisions. The law would apply only to existing loans and not to loans made after the law passed. Currently, judges are allowed to modify the terms of a mortgage for a second or vacation home but not a primary residence. In its agreement with Senate leaders, including Durbin and Sen. Charles E. Schumer (D-N.Y.), Citigroup won some concessions. The agreement added a requirement that homeowners contact their lender at least 10 days before filing for bankruptcy. The industry wants to limit the cramdowns to subprime borrowers or to homeowners driven into bankruptcy by an unaffordable mortgage.

Banks could face new pay restrictions for U.S. aid - (www.latimes.com) Rep. Barney Frank, who heads the House Financial Services Committee, today listed the strings he wants to attach to the second installment of the $700-billion financial system bailout. Here are some of the restrictions the Massachusetts Democrat would impose on banks that want to tap the next $350 billion in government funds to bolster their capital: -- No payments or accruing of any bonus or incentive compensation to the 25 most highly compensated employees. So Frank now wants to limit pay far down banks’ chain of command. This is the same restriction imposed on the auto companies for the government help they got. -- No compensation plans that would encourage manipulation of earnings to enhance compensation. Not sure how exactly they would even gauge this. -- Private aircraft or leases would have to be divested. Bankers flying coach?? This rule was imposed on the auto companies as well. -- No golden parachute payments as long as the bank has government capital. This one is a no-brainer with the public. Frank also would authorize the Treasury to have an observer at board or board committee meetings of banks receiving government funds.

Free speech as long as you don't say anything negative - (www.sfgate.com) In a case that could chill free speech online, a San Francisco chiropractor has sued a local artist over negative reviews published on Yelp, the popular Web site that rates businesses. Christopher Norberg, 26, of San Francisco posted the first review in November 2007 after visiting Steven Biegel at the Advanced Chiropractic Center on Valencia Street. In the six-paragraph write-up, Norberg criticized Biegel's billing practices and said the chiropractor was being dishonest with insurance companies. When the chiropractor complained about the review, Norberg replaced it with a new entry a few weeks later that read in part, "I think that he is trying to scare me into removing a negative post (that might explain why he has only positive ones). I believe that he has been harassing me into shutting up, and I feel as a consumer I have a voice and that I can use it on forums made for sharing it, especially when I feel that the experience was unsatisfactory." Biegel said both reviews were malicious and in February sued Norberg for libel and invasion of privacy. If the case isn't settled, it will go to trial in March in San Francisco Superior Court.

The Great California Fiscal Earthquake - (www.time.com) The list of cuts and shortfalls is almost apocalyptic. According to the UCLA Anderson Forecast, thousands of lost jobs in the public and private sectors will cause California's unemployment rate to leap to 8.5% by the end of 2009 (it was 6.5% in October 2008). If the state runs out of cash by mid-February, as has been predicted, hundreds of state vendors, such as electrical-supply wholesalers, food-service companies and building- and grounds-maintenance firms, will be sent IOUs from the state government. Deductions for each dependent may drop from $309 to $103 on Californians' 2009 income tax forms. And, by the way, don't count on a tax refund showing up soon after you file in April — one of those IOUs may find its way to your mailbox instead, explaining that the refund may be delayed. Even drowning one's sorrows may be difficult here in "fiscal Armageddon," as Governor Schwarzenegger has referred to the budget crisis; one of his solutions is a sizable tax on booze. "At a time we should be investing for our unmet needs and stimulating the economy, we're going in the other direction," says California state treasurer Bill Lockyer, a Democrat. "Every day, we go deeper in the hole." California has found itself in this financial quagmire as a result of a collision of events. "It really has been a combination of things that have created the monstrosity that we are now in," says Barbara O'Connor, director of the Institute for the Study of Politics and Media at Sacramento State University. She cites inflation, population growth and mandates (like Proposition 13, which placed a limit on state property-rate taxes that resulted in restrictions on tax increases) as having a snowball effect over the course of 30 years. Add these to California's extremely high home-foreclosure rate and a global recession (approximately 1 in 4 jobs in the state has international-trade ties), and the deficit quickly adds up. In the past, the state would borrow or sell bonds to bridge the gap, but with the current credit crunch, few investors are willing to offer assistance.




OTHER STORIES:

Hard Times Change Super Bowl Ads - (www.sfgate.com) Some advertisers are opting out of the game, others are toning down the hype and glitz.
Bars and restaurants are getting toasted by happy hour - (www.latimes.com) Happy hour is getting happier, and that's making restaurants sadder. As the recession drags on, drinkers such as Luis Romero of Anaheim are gravitating to happy hour -- that late-afternoon period when bars and restaurants sell discounted drinks and food to attract customers during what otherwise would be a slow time. "You start watching your pennies a bit more," said Romero as he sipped a $3.75 pint of Honey Blond Ale one recent afternoon in the Yard House restaurant at Shoreline Village in Long Beach. Just a few hours later, the same beer would sell for $6. Typically, alcoholic beverages are recession-resistant, if not immune to economic downturns. This current recession, however, is hurting alcohol sales more than previous slumps have. People are trading down from premium vodka brands to whatever is good enough to still make the martini work. Others are giving up expensive Napa Valley Cabernet Sauvignons for budget reds. Some are ordering a soft drink or just consuming water when they dine out.
Obama Again Raises Estimate of Jobs His Stimulus Plan Will Create or Save - (www.nytimes.com) Barack Obama said that his economic recovery plan would create or save three million to four million jobs.
Room for Debate: Fear Factor in the Workplace - (www.nytimes.com)
At McDonald’s, the Happiest Meal Is Hot Profits - (www.nytimes.com) McDonald’s has managed to sustain its momentum even as the economy and the restaurant industry as a whole are struggling.

Founders of Indian Company Interrogated in Fraud Case - (www.nytimes.com) The brothers who founded the outsourcing company Satyam have been interrogated and jailed, and the Indian government announced a new board for the company.
Is Government Spending Too Easy an Answer? - (www.nytimes.com) There are ample reasons to doubt whether a huge increase in government spending is what the economy needs.
Looking to Obama to Bring Logic to Food Safety - (www.nytimes.com) The division of labor between the Agriculture Department and F.D.A. creates internal squabbling and some bizarre situations.
Ukraine and Russia Sign Deal Over Gas - (www.nytimes.com) Russia and Ukraine signed an agreement with the European Union to establish monitors of gas pipelines.
In the Financial Crisis, Ordinary People vs. Extraordinary Problems - (www.nytimes.com) The problems we face now are so large that they humble the average and the above average and even the very much above average.
At Least the Agents Are Sold - (www.nytimes.com) Some developers in New Jersey cultivated sales agents, and several ended up buying into their properties.
In New York, No Crisis for Niche Manufacturers - (www.nytimes.com) Small manufacturers serving niche markets and wealthy customers are proving recession-proof.

Housing: Where Is the Bottom? - (seekingalpha.com)
No Recovery for Real Estate as Speculators Dominate Sales - (bloomberg.com)
Obama Must Tackle Fannie, Freddies Federal Ties - (bloomberg.com)
More quasi-public banks will need bailouts - (optionarmageddon.ml-implode.com)
Citigroup Agrees to Adjust Mortgages in Bankruptcy - (cnbc.com)
Loan Delinquencies Hit Record High Last Year - (washingtonpost.com)
Housing downturn hits L.A.-area rents - (latimes.com)
Silicon Valley's Santa Clara County has Highest Foreclosure Spike in CA - (msn.com)

Realty woes finally hit home in Manhattan - (www.nypost.com)
Buyers rejoice: Manhattan house prices finally fall - (www.reuters.com)
China Losing Taste for Debt From U.S. - (www.nytimes.com)
Housing Bubbles And Market Sense - (www.scoop.co.nz)
Why You Financial Advisor Failed You - (thelastgoodidea.blogspot.com)
Rich Get Stuck in Subprime Slime - (www.minyanville.com)
Madoff and me: one victim's story - (articles.moneycentral.msn.com)
Economy projected to shrink 2.2% - (www.usatoday.com)
Radical cheap: $1,000 houses - (money.cnn.com)