Monday February 16 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

IMF may run out of cash to fight crisis - (www.telegraph.co.uk) The International Monetary Fund could run out of cash to firefight the economic crisis in as little as six months, its managing director has warned. Dominique Strauss-Kahn said the Fund needed an urgent cash infusion if it was to continue bailing out troubled economies in the future. Mr Strauss-Kahn also indicated that the world's advanced economies were now tipping from recession into full-blown depression, cementing fears about the scale of the economic slump in rich nations. The IMF head made the comments in Kuala Lumpur in Malaysia over the weekend, where he is attending a meeting of central bankers from Southeast Asia. The Fund has bailed out a number of countries including Iceland, Latvia and Pakistan but Mr Strauss-Kahn said there would be many others in need of help in the months ahead. "Today, the IMF's resources are enough to face the situation but because we are facing a global crisis, the needs may be much bigger than previously," he said. "We have to intervene in Asia, Africa and Central Europe, Latin America, and maybe elsewhere. I can't promise that in six to eight months from now, we will have enough resources." The Fund is seeking pledges from nations with large current account surpluses and foreign exchange reserves to donate it cash to help bolster troubled countries. At the World Economic Forum in Davos late last month deputy head John Lipsky is understood to have spent time meeting with various heads of state and of sovereign wealth funds for precisely this purpose. Japan has already offered to add $100bn to the Fund's resources, Mr Strauss-Kahn said. "We need other countries to follow this generous example and provide funds with the means to address the challenges arising from this global crisis," he added. He warned that the economic crisis would intensify unless the financial system was repaired, saying that although he hoped the world could avoid a repeat of the Great Depression, the "worst cannot be ruled out. There's a lot of downside risk."

GM, Chrysler May Be Put Into Bankruptcy to Protect U.S. Loans - (www.bloomberg.com) General Motors Corp. and Chrysler LLC may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, a course of action the automakers claim would destroy them. U.S. taxpayers currently take a backseat to prior creditors, including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to loan agreements posted on the U.S. Treasury’s Web site. The government has hired a law firm to help establish its place at the front of the line for repayment, two people involved in the work said last week. If federal officials fail to get a consensual agreement to change their place in line for repayment, they have the option to force the companies into bankruptcy as a condition of more bailout aid. The government would finance the bankruptcy with a so-called “debtor in possession” or DIP loan, a lender status that gives the U.S. priority over other creditors, said Don Workman, a partner at Baker & Hostetler LLP. “They are negotiating to see if they can reach an agreement,” said Workman, a bankruptcy lawyer based in Washington. “If not, they are saying ‘We are pretty darn sure that a bankruptcy judge will allow us’” to be first in line for repayment.

Fed Overwhelmed, Calls Emergency Consultants To Untangle AIG - (Mish at globaleconomicanalysis.blogspot.com) AIG is just one piece of the derivatives mess. Nonetheless AIG alone is so complex no one can figure it out. In response, the Fed Calls Emergency Consultants To Untangle AIG. “I don’t think the Fed has seen anything like this,” former New York Fed general counsel and AIG executive Ernest Patrikis said in an interview. “AIG just got so complex in terms of private corporate matters that you just need that outside expertise.” Patrikis is now with the law firm of White & Case in New York. In addition to hiring consultants, the Fed and the Treasury have retained Wall Street firms to help manage more than $2 trillion in bailout and emergency-loan programs. Pacific Investment Management Co. runs a $259 billion program to backstop the commercial-paper market. BlackRock Inc., Goldman Sachs Asset Management, Pimco and Wellington Management Co. are managing the Fed’s purchases of up to $500 billion of mortgage-backed securities. JPMorgan Chase & Co. oversees a separate program under which the Fed may lend up to $540 billion to support money market mutual funds. Last month, the House passed conditions for releasing the remaining $350 billion of financial-rescue funds, including a requirement that the Fed give details of the contracts and selection process for the mortgage-backed securities purchase program’s managers. The Senate isn’t planning to take up the legislation. BlackRock is also managing and selling assets acquired in the Fed’s $29 billion rescue of Bear Stearns Cos., as well as securities called collateralized debt obligations the central bank purchased in the bailout of AIG, the largest U.S. insurer by assets.

Bank to warn downturn to be more severe than forecast - (www.telegraph.co.uk) No shit. And we wonder why these so-called “experts” never recognized the danger in the first place. The Bank of England will come into conflict with the Treasury as it warns on the severity of the recession.

In Ireland, "the game is up" – (www.globalpost.com) Unrest brews as the government implements crisis measures to save the economy. At 2 a.m., with time for compromise running out, the Irish prime minister finally presented his emergency plan for the floundering economy to the country’s trade union leaders. He proposed an average 7 percent reduction in gross pay for bureaucrats, teachers, police, firefighters, road cleaners and everyone else on the public payroll, in the form of a levy to finance their pensions. He made clear that without an agreement the government would do it anyway. Inevitably the union leaders said “No.” They couldn't sell it to their members. At 4 a.m. the delegates acknowledged that Ireland’s unique social partnership had broken down; they left the government buildings, and staggered off through the driving sleet to get some sleep. This afternoon in the Irish parliament, Dail Eireann, a haggard-looking Taoiseach Brian Cowen announced that the government would legislate immediately for his proposals. With his bleary-eyed finance minister Brian Lenihan beside him, he spelled out other measures to cut expenditures by 2 billion euros (about $2.6 billion) this year, including reduced fees to doctors and lawyers on state contracts, a smaller child care supplement for parents and a reduction in overseas development aid. Cowen then appeared on television at prime time to make what amounted to a state of the nation address. “We are experiencing the most profound economic crisis in 70 years,” he intoned solemnly. “The Irish economy is suffering from the aftermath of a large housing and construction boom and a loss of competitiveness … exacerbated by the decline in the value of sterling (the pound) relative to the euro (Ireland’s currency).” Declaring what amounted to a national emergency, he warned that, “We are borrowing half our day-to-day expenses for this country for the course of this year.” Ireland’s international creditworthiness is at stake with the emergence of a gap of 20 billion euros (about $25.7 billion) between revenue and expenditure this year. Ireland was the first European country to go into recession in the current global downturn, and its economy is forecast to contract by an unprecedented 10 percent this year. But rarely has a developed country been asked to swallow such harsh medicine as Cowen prescribed. In a typical case, a couple made up of a firefighter and a teacher would have to forfeit 5,000 euros (about $6,422) of their gross joint pay of 60,000 euros (about $77,000). The country’s trade union leaders will meet in the coming weeks to decide whether they will follow French trade unionists and organize strikes.

Barclays defends decision not to write down £2.4bn debt from AA/Saga deal - (www.guardian.co.uk) Controversy surrounds loans used by a trio of private equity groups to finance the mega-merger. Barclays will tomorrow refuse to write down the value of at least £2.4bn of loans used by a trio of private equity groups to finance the debt-heavy merger of the Automobile Association and Saga, the over-50s holiday and insurance specialist, weeks before the credit markets froze up, bursting the leveraged buyout bubble. It is believe to be one of the biggest exposures to a single private equity deal held by any European bank. The bank, which is expected to report almost £6bn of annual profits, has promised to give unprecedented detail on the state of its balance sheet after months of speculation and downgrades from credit rating agencies and banking analysts. Its shares have lost more than 70% of their value since early October. Barclays' director of risk, Robert Le Blanc, will deliver a detailed presentation in the hope of easing investor concerns. Barclays Capital, the bank's investment banking division, is believed to have arranged the lion's share of £4.8bn of loans to Acromas, a merger vehicle owned by the private equity houses Charterhouse, Permira and CVC. Some £1.3bn of these were sub-investment grade, or "junk" loans. The sum borrowed to finance the deal was 8.8 times AA and Saga's projected top-line operating profits for 2007. The junior debt arranger on the deal was the Japanese bank Mizuho. Both banks had hoped to syndicate the loan to other debt investors but appetite for such loans vanished in the credit crunch. A similar problem was encountered by banks that arranged debt finance for the £10bn buyout of Alliance Boots, Europe's largest private equity deal. But these banks later sold on the debt at ­distressed prices, having never intended to retain it. Last month senior debt in ­Alliance Boots was trading at 68p in the pound.

Politicians push bailed-out RBS to abandon £1bn bonus plans - (www.guardian.co.uk) Politicians from all sides rounded on the state-supported Royal Bank of Scotland yesterday as the row intensified over the failed bank's apparent determination to share £1bn of bonuses among staff. The former deputy prime minister John Prescott called on the Treasury to rule out any bonuses and the shadow chancellor, George Osborne, told bankers: "The party's over." The Treasury announced it had commissioned an independent review of the reward policies at banks, but the chancellor, Alistair Darling, admitted that existing contractual obligations between RBS and its employees may mean bankers still receive handsome bonuses. It has been suggested the bank has set aside a bonus pot of £1bn for its 177,000 employees. There is growing anger that bankers who mishandled billions in the run up to the recession may still be rewarded despite RBS being propped up by £20bn in taxpayers' money. Sir Fred Goodwin, the former chief executive of RBS, and Sir Tom McKillop, the former chairman, will face some of this opprobrium when they give evidence to the Treasury select committee this week.

Inadequate Loan Loss Reserves At Numerous Minnesota Banks - (Mish at globaleconomicanalysis.blogspot.com) At Minnesota banks, bad loans are piling up much faster than the amount of money being set aside to cover them. The StarTribune takes a look at the problem in State's banks below norm in reserves. Despite repeated warnings of economic trouble ahead, banks in Minnesota have failed to keep pace with the rise in bad loans. Among those banks, the ratio of past-due and nonaccrual loans -- or loans for which payment is in doubt -- as a percentage of total loans rose 50 percent since 2006, while the reserves to total loans ratio remained virtually unchanged. Many Wall Street analysts watch bank reserves more closely than bank profits, said analyst Crabtree in Minneapolis. "Earnings mean very little nowadays, because no one believes them," he said. "Reserve levels and capital ratios are by far more important." As of the third quarter, the average coverage ratio for Minnesota banks fell to its lowest level in nearly two decades. As of Sept. 30, the coverage ratio for Minnesota banks was 61 percent, which means that for every $1 in noncurrent loans the banks have set aside 61 cents to cover future losses, according to the FDIC. That's down from 81 percent a year earlier. Nationwide, the coverage ratio stands at 85 percent -- nearly a third higher than Minnesota's. Nearly 40 of the state's 400 banks have coverage ratios below 30 percent, a level that is less than half the state average. Among the larger ones are First Minnesota Bank of Minnetonka, with more than $370 million in assets, and Minnwest Bank Minnesota Valley in Redwood Falls with assets of $510 million. One reason Minnesota banks are reserving less than peers in other parts of the country is that the state experienced a boom in bank startups earlier this decade. So, like Summit, many of these banks are still building reserves.

Schwarzenegger Plan for Furloughs Upheld by Judge - (www.bloomberg.com) California Governor Arnold Schwarzenegger can order thousands of state workers to take two unpaid days off a month to cut $1.4 billion from the budget, a judge ruled. Superior Court Judge Patrick Marlette in Sacramento, California, today ruled in favor of Schwarzenegger in a lawsuit brought by employee unions seeking to block the furloughs. Schwarzenegger said yesterday that he would lay off workers to achieve the savings if he lost in court. “I cannot help but recognize the huge impact this will have on state workers,” Marlette said at a hearing today in Sacramento. “My job is not to rule if this is the right solution but whether his action is authorized by law.” The unpaid days off, scheduled to begin Feb. 6 for 238,0000 workers, amount to a 10 percent pay cut, according to labor unions that oppose them. Schwarzenegger, a Republican, ordered the furloughs to help conserve cash. California, the most-populous U.S. state, is anticipated to have $42 billion less than it will need to pay for schools, police and other services through June 2010 because the recession and stock market have lowered tax revenue.

Counties threaten tax revolt against California budget – (www.mercurynews.com) California counties are throwing another wrinkle into the state's cash crisis as Gov. Arnold Schwarzenegger and legislative leaders try to agree on a way to erase a $42 billion budget deficit. Several counties are considering some form of tax revolt—either filing lawsuits or delaying tax payments to the state—because the governor has proposed withholding payments to them for as long as seven months in a move to preserve cash. Local governments already are missing out because the state has imposed a 30-day payment delay to counties. That was part of a move by the state controller to delay refunds to taxpayers, money for college tuition-assistance programs and payments to state vendors. The Riverside County Board of Supervisors authorized staff to file a lawsuit, while elected officials in Colusa County decided to impose a 30-day delay on sending any taxes and fees it collects to the state. "We will have to shut the doors," said Kim Dolbow-Vann, a supervisor in Colusa County, north of the state capital. "We don't have the borrowing capacity" to backfill delayed payments. Los Angeles County also is considering payment delays. County Supervisor Don Knabe said it's important to know whether the state's threat to withhold money is legal. Schwarzenegger's finance spokesman, H.D. Palmer, said it's not clear whether the withholdings would have a significant effect on state government. Counties collect property taxes, which go to public schools. Palmer suggested the state could in turn withhold sales tax revenue from the counties because the state needs to ensure it has enough cash throughout the year to pay its debt. "We don't put these proposals forward lightly," Palmer said. "We will move heaven and earth to ensure that bond holders will be paid on schedule."

Brown Faces Winter of Discontent as Workers’ Anger Mounts - (www.bloomberg.com) Spreading strikes, reduced workweeks and tens of thousands of job cuts are throwing British Prime Minister Gordon Brown back to the 1970s. With 16 months before he has to call an election, Brown is facing the toughest test of a Labour premier since James Callaghan’s so-called Winter of Discontent in 1979, after which the party was cast out of office for almost two decades. “They’ve sold us down the river,” said Charles Hilton, 61, an electrician from Hull in northern England who was out on strike yesterday with local oil-refinery workers. “We’re going to see civil unrest in this country. It’s already started. It will grow unless things are sorted.” Matthew Worley, a history lecturer at Reading University and author of a book on the Labour Party in the 1920s and 30s, sees a parallel to Depression-era politics. “There was a big fear of unemployment; a lot of people saw themselves as skilled people yet they were being undermined not by better labor, but by cheaper labor,” Worley said. “And you see again the idea that what happens somewhere else today will happen to us next.” Also reminiscent of the 1930s is the growing presence of a nationalist party. The anti-immigrant British National Party has had representatives at all of the demonstrations at refineries and plants, said Simon Darby, its deputy leader. Unions and government workers are resisting pay cuts in California, Ireland, and the UK. However, concession have to be made, and so they will. Obama might foolishly grant California a temporary reprieve with emergency funding, but that will only delay the inevitable. Realistically speaking, the game is up.



OTHER STORIES:

Website Allows Job Seekers To Bid On Low Pay - (Mish at globaleconomicanalysis.blogspot.com)
Sign of the Times - Gold for Sale in New Orleans - (Mish at globaleconomicanalysis.blogspot.com)

Toxic debt scheme may cost UK banks £16bn in fees - (www.telegraph.co.uk) Britain's stricken banks may have to pay £12bn-£16bn in up-front fees to participate in the Treasury's toxic debt insurance scheme.
Royal Bank of Scotland to pay £1 billion in bonuses - (www.telegraph.co.uk)
Barclays kicks off a busy week for results - (www.telegraph.co.uk) Barclays, which is expected to post profits of £5.8bn, is first up in a busy week for company earnings.

Key Labour work plan close to collapse - (www.guardian.co.uk) Firms say too many people out of employment and too few vacancies to make flagship policy viable
More business news
Bank's grimmest warning yet on economy - (www.guardian.co.uk)
Scottish and Southern cuts prices - (www.guardian.co.uk)
Royal Mail and unions to hold 'modernisation' summit - (www.guardian.co.uk)
New RBS chairman purges board - (www.guardian.co.uk)

Spending More Than $800 Billion Is the Easy Part - (www.nytimes.com)
U.S. Taxpayers Risk $9.7 Trillion on Bailouts as Senate Votes - (www.bloomberg.com)
Nissan to cut 20,000 jobs worldwide - (www.ft.com)
Weighing the Employee Free Choice Act - (www.latimes.com)
US eyes ways to accelerate car purchases - (www.ft.com)
Shipments to US stores likely to drop 11.8% The - (www.ft.com)
Sales of PCs to fall for first time in eight years - (www.ft.com)
Stimulus Pitch Absorbs Agenda - (www.washingtonpost.com)
Fed Lacks Consensus on Treasury Purchases Even as Yields Climb - (www.bloomberg.com)
US plan to curb mortgage rates falters - (www.ft.com)
Japan’s corporate bankruptcies rise 16% - (www.ft.com)
Companies’ capital spending ‘to fall by a third’ - (www.ft.com)
Nissan to Cut 20,000 Jobs as Carmaker Forecasts Loss - (www.bloomberg.com)
Securitisation faces long odds on stability - (www.ft.com)