Tuesday January 13 Housing and Economic stories

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Disgraced Financial giant Robert Rubin resigns from Citigroup – (www.ft.com) In the 1990s, Robert Rubin was celebrated as a member of the “committee to save the world”. In the decade that followed, he wound up a scapegoat for the financial problems that nearly sank Citigroup. His decision to step down from Citi’s board, announced on Friday, brings his Wall Street career to an end on a downbeat note. In subsequent years, Mr Rubin encouraged Citi’s aggressive leveraging of its balance sheet. The goal, in part, was to replicate the outsize profits being earned by Mr Rubin’s former colleagues at Goldman Sachs. But in 2007, when the US property bubble burst, Citi began suffering tens of billions of dollars in asset write-downs. Despite the red ink, Mr Rubin remained a vocal supporter of Mr Prince. Investors criticised him for this loyalty and after Mr Prince was forced to resign, in November 2007, some started calling for Mr Rubin to step down. In recent months, as Citi’s capital position eroded and the bank needed cash infusions from the US government, criticism of Mr Rubin intensified, focusing on the $115m he has earned over the past decade from his position at Citi.

Former Clinton Treasury Secretary and Citigroup Chair Robert Rubin Resigns as his career ends in disgrace and ruin – (www.businessweek.com) Yes, another so-called expert on Obama’s financial advisory board. The former Treasury Secretary resigns from Citigroup amid rumors of a Smith Barney sale, giving investors serious doubts about a turnaround for the bank. As director and chair of Citigroup's (C) executive committee since 1999, Robert Rubin has been on the scene for many of the big bank's biggest crises. But for all his cachet and political clout, Rubin was neither able to influence Citigroup for the better nor steer it out of harm's way. "He ruined his career, he is resigning in disgrace," says Citi investor Richard Steinberg, of Steinberg Global Asset Management in Boca Raton, Fla. "I think one of the lessons we're learning from all this tumult is that people's reputations should only carry them so far in their responsibility to shareholders and management. There have been way too many free passes." On Jan. 9, the 70-year-old Rubin announced his resignation from the bank, citing a desire to deepen his involvement in outside activities and organizations including Local Initiatives Support Corp., the largest community development organization, and Kofi Annan's Africa Progress Panel.

Nationwide Inquiry on Bids for Municipal Bonds - (www.nytimes.com) The federal investigation that prompted Gov. Bill Richardson of New Mexico to withdraw his nomination as commerce secretary offers a rare glimpse into a long-simmering investigation of possible bid-rigging, tax evasion and other wrongdoing throughout the municipal bond business. Skip to next paragraphThree federal agencies and a loose consortium of state attorneys general have for several years been gathering evidence of what appears to be collusion among the banks and other companies that have helped state and local governments take approximately $400 billion worth of municipal notes and bonds to market each year. E-mail messages, taped phone conversations and other court documents suggest that companies did not engage in open competition for this lucrative business, but secretly divided it among themselves, imposing layers of excess cost on local governments, violating the federal rules for tax-exempt bonds and making questionable payments and campaign contributions to local officials who could steer them business. In some cases, they created exotic financial structures that blew up.

Best-selling writer among Madoff victims - (www.cnn.com) She used to lunch at the Four Seasons. Now the best-selling author jokes that she's inviting friends to Taco Bell. Call it gallows humor, but Alexandra Penney has just lost her life's savings. She invested every penny with accused Ponzi-schemer Bernard Madoff. full story

Feds uncover two more investor Ponzi schemes - (www.usatoday.com) More investors are learning the hard way that, as Warren Buffett is fond of saying, it's when the tide goes out that you find out who has been swimming naked. On Thursday, authorities announced two alleged Ponzi schemes, just weeks after the arrest of investor Bernard Madoff stunned Wall Street. Madoff was arrested for allegedly running one of the largest investment frauds in history in a $50 billion Ponzi scheme. The latest schemes show how alleged frauds are unraveling as investors get more averse to risk. In a Ponzi, a portion of the cash brought in from new investors is given to older investors in the form of a return. If cash stops coming in, or current investors demand their cash at the same time, the scheme collapses. The two latest cases announced Thursday: •The Securities and Exchange Commission charged Joseph Forte, 53, of Broomall, Pa., with allegedly taking $50 million from up to 80 investors. Forte reported annual returns of 18.5% to 38% since 1995 by betting on the direction of the Standard & Poor's 500 index, the complaint said. But Forte consistently lost money, racking up trading losses of $3.3 million, the complaint said, and withdrew $23.1 million of the $50 million he raised. Forte was not registered with the SEC. The SEC learned of the alleged fraud when Forte turned himself in in late December after he was unable to raise enough money from new investors to cover the redemption requests from existing shareholders, says Daniel Hawke of the Philadelphia regional office of the SEC. Attempts to reach Forte on his cellphone were unsuccessful. •The U.S. Attorney of the Western District of New York and the SEC charged Richard Piccoli, 82, of Williamsville, N.Y., with operating a scheme that took at least $17 million from investors since 2004. Through his company Gen-See, the complaint said, Piccoli promised returns of at least 7.1% from returns that came from buying high-quality residential mortgages. Records show no real estate transactions. Piccoli, who could not be reached Thursday, largely targeted clergy and religious charities by advertising in Catholic newspapers, the complaint said.

Supposed MarketWatch Chief Economist (we use the term loosely) Irwin Kellner duped by Madoff and now he is suing everybody - (www.michaelcovel.com) Irwin Kellner’s bio reads: Irwin Kellner is chief economist for MarketWatch, and is Distinguished Scholar of Economics at Dowling College in Oakdale, N.Y. The guy with all the expert economic advice lost $6 million with Madoff. It takes two to tango. All these people, some with the slick resumes, just turned the blind eye. Greed, baby, greed. Now Irwin is suing. Also consider Nicola Horlick a UK fund manager with massive Madoff losses: “I never met Madoff. He didn’t meet any investors. All contact was through these feeder funds that supplied him with the capital. The strategy we were supposedly buying into was very conservative. There was extensive due diligence being conducted on the funds by our advisers, who are part of Man Group. He must have been matching the amount of money he paid out to what would have happened had he followed the strategy that he said he was following.” I love that: the strategy they were supposedly buying into. My guess? Nicola Horlick had no clue about Madoff’s exact strategy, just like everyone else invested with this con man. But money was still given freely to Madoff wasn’t? Do you think anyone will want to give any of these inept fund of funds another dime ever again? See, it’s not just Madoff, it’s everyone who bought into it. This is stupidity and greed on a massive scale. I feel sorry for none of them. This Madoff example is exactly why there are “sheep” in my new documentary film “Broke: The New American Dream.”

Citigroup Agrees to Adjust Mortgages in Bankruptcy - (www.cnbc.com) Citigroup became the first major bank to support a controversial plan to let bankruptcy judges alter mortgages in a effort to prevent more housing foreclosures. Until now, banks have been ardently opposed to the proposal, which key Democratic lawmakers hope to attach to President-elect Obama's economic stimulus legislation. The so-called "cramdown" proposal has been backed by Democrats over the past year as a potential solution to the foreclosure crisis. Under the change, bankruptcy courts could alter the terms of mortgages, subject to certain conditions: 1) Only mortgages entered into prior to the date of enactment of the bill would be eligible for the treatment. All loans, and not just subprime, are eligible. 2) Borrowers have to show they made a “good faith” attempt to work with the lender before considering this bankruptcy provision. Bankruptcy cannot be the first option, and borrowers have to prove it wasn’t. 3) Bankruptcy judges can strip away a lender’s credit or rights if they violated the Truth in Lending Act or other state and federal laws.

Las Vegas' new nickname: 'The Bone Yard' - (www.lvbusinesspress.com) Las Vegas has earned plenty of nicknames over the years, such as "Sin City," "The Entertainment Capital of the World" and "Lost Wages."Deutsche Bank gaming analyst Bill Lerner has coined a new moniker, "The Bone Yard." The Wall Street researcher is predicting any number of planned hotel-casino projects or high-rise condominium developments could be halted, delayed or stopped altogether this year as the economic downturn continues to haunt the gaming industry. Those projects, Lerner said, could join "The Bone Yard," which includes Boyd Gaming Corp.'s $4.8 billion Echelon and Las Vegas Sands Corp.'s $600 million St. Regis condominium tower, where empty construction shells were halted in midstream during 2008. Other "Bone Yard" residents include projects that never got off the ground, such as W Las Vegas, Las Ramblas and the Hard Rock Hotel's residential expansion. Additional "Bone Yard" listings include Elad Group's planned $5 billion version of New York's Plaza Hotel and MGM Mirage's joint venture on the north end of the Strip. Both were stalled because of the meltdown in the financial lending markets.

More quasi-public banks will need bailouts - (optionarmageddon.ml-implode.com) Though you have probably never heard of it, the Federal Home Loan Bank system could implode, adding billions more to the Fannie/Freddie bailout tab. Bloomberg: The Federal Home Loan Banks face potentially “substantial” losses on mortgage bonds, and in a worst-case scenario only four of the 12 would remain above regulatory capital minimums, Moody’s Investors Service said. The FHLBs, government-chartered cooperatives owned by U.S. financial companies, hold about $76.2 billion of “private- label” mortgage securities that may cause losses under accounting rules, the New York-based ratings firm said in a statement today. Moody’s said it is unlikely to lower the system’s Aaa debt ratings because of their government support. What does this have to do with the Fannie/Freddie bailout? Well, few people noticed when that bailout announcement was made, but when Treasury agreed to bail out Fan and Fred, it also backstopped the Federal Home Loan Banks: The second step Treasury is taking today is the establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

Obama Must Tackle Fannie, Freddies Federal Ties - (www.bloomberg.com) President-elect Barack Obama has little time to decide the fate of Fannie Mae and Freddie Mac as bank regulators warn of the drag the government-seized mortgage- finance companies are having on the U.S. economy. Federal regulators are concerned that if the new Obama administration doesn’t act quickly enough it may miss the opportunity to resolve the ambiguous government backing of Fannie and Freddie, an arrangement that has scared away many foreign investors the companies rely on to fund new loans. Throwing the full faith and credit of the U.S. behind Fannie and Freddie may almost double the $5.8 trillion in federal debt, pushing Treasury rates higher, raising the government’s borrowing costs, and boosting inflation. Regulators may be ready to pay that price, with some pushing for an explicit guarantee for the companies and others seeing the need for nationalization.

Madoff Investors Paid Fees to Funds for Profits That Vanished - (www.bloomberg.com) Investors wondering what happened to the $50 billion that disappeared in Bernard Madoff’s alleged Ponzi scheme need look no further than the fees charged by the hedge funds that marketed his money-making prowess. Many investors left their savings in the Madoff-run funds, content in the belief that their nest eggs were doubling every seven years. Firms that sold the feeder funds, including Fairfield Greenwich Group, Tremont Group Holdings Inc. and Bank Medici AG, were paid fees every year. “The people who put money into those feeder funds generally let their investments ride,” said Ross Intelisano, a lawyer at New York-based Rich & Intelisano LLP retained by clients who had more than $100 million with Madoff. The eight largest Madoff-only vehicles had a combined $27 billion in assets. That’s more than half of what the 70- year-old financier, who was arrested on Dec. 11 in New York, said was lost in the scheme. Their role in the scandal has damaged the reputation of funds of funds, which tout their ability to select superior investment managers, and exposed them to client lawsuits.





OTHER STORIES:

Geithner Preparing Overhaul Of Bailout - (www.washingtonpost.com)
U.S. Job-Market Collapse in 2008 Was Probably Biggest Since ’45 - (www.bloomberg.com)

Why You Financial Advisor Failed You - (thelastgoodidea.blogspot.com)
Rich Get Stuck in Subprime Slime - (minyanville.com)
Citigroup supports measure giving courts big say on mortgage reductions - (www.latimes.com)
Lenders Backlogged By Refinancing Rush - (www.washingtonpost.com)
Treasury’s Oversight of Bailout Is Faulted - (www.nytimes.com)
Emerging-Market Debt Funds Record First Inflow Since August - (www.bloomberg.com)
Canada Lost 34,400 Jobs in December, Unemployment Rose to 6.6% - (www.bloomberg.com)
Madoff and me: one victim's story - (articles.moneycentral.msn.com)
Economy projected to shrink 2.2% - (usatoday.com)
Radical cheap: $1,000 houses - (money.cnn.com)
Free speech as long as you don't say anything negative - (sfgate.com)

The worst is yet to come; there is a blood bath coming - (nytimes.com)
Job losses stack up as recession deepens - (finance.yahoo.com)
Wal-Mart and the Retail-Stock Markdown – (www.businessweek.com)
ECB's Trichet says global financial system remains fragile despite state rescue measures - (www.chicagotribune.com)
U.K. Manufacturing Plunged in November as Recession Worsened - (www.bloomberg.com)
Satyam fights for survival as shares plunge - (www.ft.com)
London Boom Time Bill Comes Due as Bankers Buy Coffee on Credit - (www.bloomberg.com)
U.S. Loses 524,000 Jobs; 2008 Losses Most Since 1945 - (www.bloomberg.com)
No Recovery for Real Estate as Speculators Dominate Sales - (www.bloomberg.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)
Manhattan Apartment Sales Drop for Fourth Quarter - (bloomberg.com)
Metro-Area Foreclosure Sales Tripled in First 10 Months of 2008 - (bloomberg.com)
The NYTimes Just Made Me Want to Retire - (floricane.typepad.com)

The Great California Fiscal Earthquake - (time.com)
Realty woes finally hit home in Manhattan - (nypost.com)
Buyers rejoice: Manhattan house prices finally fall - (reuters.com)
China Losing Taste for Debt From U.S. - (nytimes.com)
Housing Bubbles And Market Sense - (scoop.co.nz)
US recession forecast to drag on - (news.bbc.co.uk)
Millionaires feel some economic pinch in downturn - (money.cnn.com)
German billionaire kills himself - (news.bbc.co.uk)
Credit crunch shows little sign of easing - (csmonitor.com)
In Fed Rate Cut, Fears of Long Recession - (nytimes.com)
Treasuries Fall Amid Concern U.S. to Sell Record Amount of Debt - (bloomberg.com)
Banks trying to cope with rise in bad loans - (chicagotribune.com)
For most investors, it's about rental income - (dailybusinessreview.com)
Pay Or Go: Walk away from your mortgage calculator - (payorgo.com)
Pending house sales plunge to record low - (msnbc.msn.com)
Pending Sales of Existing Houses Fell 4% in November - (bloomberg.com)
Stop The Wall Street Bonuses - (newgeography.com)
Where Is Our Ferdinand Pecora? - (nytimes.com)
15 reminders that Wall Street's con game goes on 10 years later - (marketwatch.com)