Tuesday January 27 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Wall Street crisis snares Main St. schools: Five Wisconsin school districts claim they were misled by advisers and could lose most of $200M investment - (www.cnn.com) To the advisor’s credit, he did say up-front that for the deal to go bad, you would need a depression, which is what I believe we are moving towards. Let’s face it Wisconsin, you were gambling with money you did not have in order to make up a deficit in your retirement/pension/health care funds. Lehman Brothers. Washington Mutual. And now ... Whitefish Bay Schools? The global financial crisis that claimed some of the world's biggest banks now has this suburban Milwaukee school district and four others on the brink of losing a hefty $200 million investment. Two years ago board members from the districts signed off on an investment to fund their teachers' retirement and health care benefits. Shawn Yde, business director for the Whitefish Bay School District, says he and his board members were told they were making a conservative investment in "AA" and "AAA"-rated bonds. Mark Hujik, from the Kenosha school board, says he and other board members were told they were investing in highly rated, and relatively safe, corporate bonds. But instead of buying corporate bonds, the school districts actually purchased one of Wall Street's most complex financial instruments: synthetic collateralized debt obligations (CDOs). Through the CDOs the schools were insuring the debt of more than a hundred companies, including 3M (MMM, Fortune 500), General Electric (GE, Fortune 500) and Exxon Mobil (XOM, Fortune 500). But they were also insuring debt from Lehman Brothers, Washington Mutual, Fannie Mae and Freddie Mac. With the downfall of Lehman, the failure of Washington Mutual and the government takeover of Fannie and Freddie, the debt defaults came rolling in, and the value of the schools' investment fell 95%. The districts are now suing their investment advisor, Stifel Nicolaus, and the Royal Bank of Canada - which created the investment product - calling it fraudulent and alleging they were misled from the beginning. 'You would need 15 Enrons': The school boards' complaint says the nature and risks of the investments were intentionally or negligently misrepresented, or omitted by the RBC and Stifel Nicolaus. RBC and Stifel Nicolaus denied any wrongdoing and claim the risk was clearly outlined. And it was - on paper. Board members from all five districts - West Allis, Kimberly, Waukesha, Whitefish Bay and Kenosha - signed closing documents that outlined investment risks. But according to Whitefish Bay's Yde, "the risk that was verbally provided to us is not the risks that we have in this transaction." The school districts cite multiple meetings they had with David Noack, their then-financial adviser from Stifel Nicolaus. According to an audio tape of a 2006 Whitefish Bay School Board meeting, Noack told board members, "It takes 15 defaults for us to start losing money and we have someone watching over every company every day for seven years. If it looks like it's going that way, they get out of it ...You would need 15 Enrons. You would need something to happen overnight." A videotape of another local school board meeting in May 2007 shows Noack saying, "If we stick to all investment-grade companies, you've still gotta have 10% go under, and I would assume - I'm not an economist, but that's a depression."

Circuit City collapse could hit real estate investors - (www.reuters.com) The collapse of electronics retailer Circuit City (CCTYQ.PK) could drive down shopping and strip mall rents, and deal another blow to commercial mortgage-backed securities' (CMBS) investors who have already seen their bond prices slide. After a dismal holiday shopping season and several failed attempts to sell itself, Circuit City -- having filed for Chapter 11 bankruptcy protection in November -- last week said it would close all its 567 U.S. stores and liquidate its assets. The move left 30,000 employees of the Woodland Hills, California-based company without work, and creditors -- including landlords -- lining up to get whatever they can after the company sells its inventory. "Now those landlords are in line like the rest of their creditors -- and probably in the back of the line to get paid," said Suzanne Mulvee, Property & Portfolio Research real estate strategist.

Williams-Sonoma Will Cut 1,400 Jobs After Sales Slump - (www.bloomberg.com) Williams-Sonoma Inc., the U.S. gourmet-cookware retailer, will cut 18 percent of its full-time workforce after holiday sales slumped and said its fourth-quarter profit would fall to the low range of its forecast. The San Francisco-based company said in a statement that it will eliminate 1,400 jobs by the end of the month as part of a plan to trim pretax costs by $75 million in 2009. Chief Executive Officer Howard Lester told employees of the cuts earlier today in an e-mail. Williams-Sonoma joins other retailers, including Saks Inc. and Macy’s Inc., in announcing firings or store closings in recent weeks as they reel from the worst holiday season in almost four decades. Home-furnishings retailers have been hit especially hard because of the U.S. housing slump. “To bring our infrastructure in line with today’s level of business, we have made the difficult and painful decision to further reduce our workforce across all areas of our company,” Lester, 73, said in the e-mail. “It is our sincere hope and expectation that no further major reductions will be required.”

Life Insurers Seek Lower Cash Cushions - (www.washingtonpost.com) Battered by the financial crisis, life insurers are urging regulators to let them operate with thinner financial cushions -- the capital they must hold to absorb financial shocks and cover their obligations to policyholders. The American Council of Life Insurers, an industry group, has been pleading with regulators to adopt a variety of changes in capital and reserve requirements before companies must file their annual reports for 2008. The ACLI fears that the reports could otherwise spook policyholders into dropping coverage and liquidating policies -- steps that an ACLI official said would be unwarranted and contrary to consumers' interests. The changes the industry group seeks would make companies appear healthier.

Jim Rogers: ‘UK has nothing to sell’ - (www.ft.com) The pound is a currency with no underpinning and should fall against the dollar and the euro, says Jim Rogers, chairman of Rogers Holdings and co-founder of the Quantum Fund with George Soros. He says his view reflects the UK’s dire economic situation: “It’s simple, the UK has nothing to sell.” The pound is set to fall much further according to Jim Rogers, chairman of Rogers Holdings. Is he right? Mr Rogers says the two main pillars of support for sterling have been North Sea oil and the strength of the UK financial services sector, in particular, the City of London’s role. But Mr Rogers says just as North Sea oil is running out, so London’s standing as a major financial centre is set to suffer. “I don’t think there is a sound UK bank now, at least, if there is one I don’t know about it,” he says. “The City of London is finished, the financial centre of the world is moving east. All the money is in Asia. Why would it go back to the west? You don’t need London,” says Mr Rogers. Mr Rogers thinks the pound is more vulnerable than the dollar or the euro. He says the UK housing market is arguably in a worse state than that of the US, given pockets of strength in the US and prices that are sliding across the board in the UK.

Barclays Falls Seventh Day on Nationalization Concern - (www.bloomberg.com) Barclays Plc, the U.K. bank that turned down government funding last year, declined for a seventh straight day in London trading on speculation that it may be forced to take more writedowns and be nationalized. Barclays, which dropped as much 35 percent earlier in the day, recovered to close down 9.3 percent at 66.1 pence. The shares have lost 57 percent this month, valuing the company at 5.5 billion pounds ($7.5 billion). “There is genuine fear from shareholders, who see a real risk of nationalization,” said Simon Maughan, an analyst at MF Global Securities Ltd. who has a “sell” rating on Barclays. “The whole rest of the world, operating in the same business as Barclays, has seen significant losses. There is talk that Barclays will bring its results forward to prove its case. Bring it on.”

College costs also a bubble, far beyond real value - (www.lawschool.com) As steadily as ivy creeps up the walls of its well-groomed campuses, the education industrial complex has cultivated the image of college as a sure-fire path to a life of social and economic privilege. Joel Kellum says he's living proof that the claim is a lie. A 40-year-old Los Angeles resident, Kellum did everything he was supposed to do to get ahead in life. He worked hard as a high schooler, got into the University of Virginia and graduated with a bachelor's degree in history. Accepted into the California Western School of Law, a private San Diego institution, Kellum couldn't swing the $36,000 in annual tuition with financial aid and part-time work. So he did what friends and professors said was the smart move and took out $60,000 in student loans. Kellum's law school sweetheart, Jennifer Coultas, did much the same. By the time they graduated in 1995, the couple was $194,000 in debt. They eventually married and each landed a six-figure job. Yet even with Kellum moonlighting, they had to scrounge to come up with $145,000 in loan payments. With interest accruing at up to 12% a year, that whittled away only $21,000 in principal. Their remaining bill: $173,000 and counting. Kellum and Coultas divorced last year. Each cites their struggle with law school debt as a major source of stress on their marriage. "Two people with this much debt just shouldn't be together," Kellum says. The two disillusioned attorneys were victims of an unfolding education hoax on the middle class that's just as insidious, and nearly as sweeping, as the housing debacle. The ingredients are strikingly similar, too: Misguided easy-money policies that are encouraging the masses to go into debt; a self-serving establishment trading in half-truths that exaggerate the value of its product; plus a Wall Street money machine dabbling in outright fraud as it foists unaffordable debt on the most vulnerable marks.

No-Rental Rules Hinder Recovery - (www.smartmoney.com) In growing numbers of American towns and subdivisions, that question has become anything but academic, as homeowners associations abruptly ban rentals. Blame it on the huge slump in the housing market. For owners who have to move or who own houses as investment properties, short-term rentals can bring in some cash and keep them from having to sell at a big loss. But instead of greeting renters with hosannas, many towns and subdivisions are barring their doors, arguing that tenants usher in neglect, misbehavior and even violent crime. Almost 60 million Americans live in developments governed by homeowners associations, and by some estimates as many as 40 percent of those communities enforce restrictions that keep owners from becoming landlords. Indeed, many associations are enacting even tighter anti-renter rules — even in the parts of the country hit hardest by falling prices. Often the backlash comes after the rowdy-tenant threat becomes a reality. In Sacramento an active-adult community recently erupted into a geriatric war zone over rental rules after tenants got blamed for diapers in the pool and other transgressions. The city of North Las Vegas had so much trouble with crime and vandalism, much of it attributed to renters, that it forbade new home buyers from leasing out their homes within two years of purchase.

OTHER STORIES:

Pimco Quits GM Bondholder Group After Reneging on GMAC Deal - (www.bloomberg.com)
Federal House Loan Banks may have to borrow from U.S. - (www.latimes.com)
Roubini Predicts U.S. Losses May Reach $3.6 Trillion - (bloomberg.com)
Why this contagion will be with us for years to come - (business.theglobeandmail.com)
The Rise of the Insane State - (www.geocities.com)
Months of Supply Metric is Utter Nonsense - (www.miamicondoforum.com)
SoCal home price drops nearly 35 percent - (www.signonsandiego.com)

Dollar Falls to Lowest Versus Yen Since 1995 as Options Expire - (www.bloomberg.com)
Investors Dump Shares As Banking Fears Mount - (www.washingtonpost.com)
Hedge funds’ $400bn withdrawals hit - (www.ft.com)
Saudi billionaire Alwaleed rejigs investments-report - (www.reuters.com)
Japan Exports Plummet Record 35%, Signaling Job Cuts - (www.bloomberg.com)
January house sales plunge 50% in Toronto - (www.yourhome.ca)
Dutch house sellers reduce prices as buyers stay away - (www.nrc.nl)
The Future of Housing: Think Small - (biz.yahoo.com)

Trichet ready to supervise banks - (www.ft.com)
New House Prices vs. Median Income - (www.seekingalpha.com)
Lost Decade -- Per Capita Net Worth and Living Standards - (www.chartingtheeconomy.com)
Grim 2009 Forecast for Housebuilders - (www.nuwireinvestor.com)
Banks Foreclose on Builders With Perfect Records - (www.nytimes.com)

Canada Cuts Rate to Record 1%, Signals More Easing - (www.bloomberg.com)
Emerging Markets Face $180 Billion Investment Decline - (www.bloomberg.com)
King Says BOE Asset Buying May Start Soon Amid Slump - (www.bloomberg.com)
UK jobless rate at 6.1 pct, highest in 10 years - (finance.yahoo.com)
A Boom in Office Towers in Calgary - (www.nytimes.com)
Geithner Says Obama Economic Plan Will Come in Weeks - (www.bloomberg.com)
Obama Team Pushes to Complete Rescue as Stocks Plunge - (www.bloomberg.com)
California's median home price falls 38 percent - (finance.yahoo.com)
Hearing Over, Geithner’s Confirmation Is Expected - (www.nytimes.com)
Economists predict economic gloom for next four years - (www.chicagotribune.com)
Stimulus Projects May Be Slow, CBO Says - (www.washingtonpost.com)
Intel to Shutter Five Older Plants by End of 2009 - (www.bloomberg.com)
Toyota moves into first place - (www.ft.com)
What Obama Left Out of the Economic Recovery Plan - (informationclearinghouse.info)
Obama Stimulus: An $825 Billion First Step - (gothamgazette.com)
U.S. stimulus not enough, TARP bailout misused: Soros - (www.reuters.com)

Retailers cut inventory to address shift in consumer spending - (www.latimes.com)
Chrysler-Fiat alliance offers advantages for both firms - (www.latimes.com)
Intel slashes some processor prices by nearly 50% - (www.chicagotribune.com)
In 2009, Layoffs Is the Business to Be In - (www.nytimes.com)