Friday March 27 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

AIG Says $105 Billion Flowed to Goldman, SocGen, U.S. States - (www.bloomberg.com) AIG failed, but the real reason for the AIG bailout is beginning to emerge, as it is basically a way of funneling money into failed states, banks, etc. Banks got $22.4 billion in collateral, $27.1 billion in payments from a U.S. entity to retire credit-default swaps and $43.7 billion tied to the securities-lending program, AIG said in a statement. Goldman Sachs Group Inc. led beneficiaries, with $12.9 billion, followed by Societe Generale SA, France’s No. 3 bank, with $11.9 billion, and Deutsche Bank AG, Germany’s biggest lender, with $11.8 billion. AIG and the Fed had previously refused to reveal the counterparties, saying the contracts were confidential and that the information could damage AIG’s business prospects. States, including California and Virginia, got $12.1 billion tied to guaranteed investment contracts. “It puts a sour taste in the American taxpayer’s mouth, but you have to look at that in terms of the bigger picture,” said Donald Powell, chairman of the Federal Deposit Insurance Corp. from 2001 until 2005. “If you’re going to have any chance of recovery you probably have to stay with it.”

AIG payments to banks stoke bailout rage – (news.yahoo.com) Goldman Sachs Group Inc and a parade of European banks were the major beneficiaries of US$93-billion in payments from AIG -- more than half of the U.S. taxpayer money spent to rescue the massive insurer. The revelation on Sunday by American International Group Inc was another potential public relations nightmare, coming on the same weekend that the Obama administration expressed outrage over AIG's plan to pay massive bonuses to the people in the very division that destroyed the company by issuing-billions of dollars in derivatives insuring risky assets. The size of the payments also illustrates how seriously a potential collapse of AIG was viewed by the regulatory authorities. U.S. Federal Reserve Chairman Ben Bernanke said in an interview with CBS news magazine "60 Minutes" that the failure of AIG would have brought down the financial system. AIG, an embattled insurance giant that has received federal bailouts totaling US$173-billion and is now paying US$165 million in employee bonuses, is at the heart of a global financial crisis that President Barack Obama is trying to address with plans for trillions of dollars in spending.

Life Insurers Lost $32 Billion in Capital in 2008 - (www.bloomberg.com) U.S. life insurers, a group led by MetLife Inc. and Prudential Financial Inc., reported a $32 billion decline in statutory capital in 2008 as investments fell, Moody’s Investors Service said. Capital and surplus declined 13 percent to $208.6 billion from $240.6 billion, Scott Robinson, a vice president at Moody’s, said in a research note today. Most carriers face “quite limited” options for replacing capital, and some may stop selling certain types of policies to conserve funds, Robinson said, without identifying the firms. Life insurers have turned to the government with requests for capital injections after losses on corporate debt, commercial mortgages and subprime securities sapped funds. No. 1 MetLife said this month it may be selected for a Treasury capital infusion, while No. 2 Prudential and Hartford Financial Services Group Inc. await replies from the U.S. on aid applications filed last year. “Managements struggling to maintain capital ratios and fight the perception of financial weakness may face an erosion of their brands and market presences,” Robinson said. The dip in capital “would have been much deeper” if not for a loosening of reserve requirements by state regulators and injections at the life insurance subsidiaries of American International Group Inc., which was bailed out by the U.S. government, Robinson said. MetLife has dropped 66 percent in six months of New York trading, while Newark, New Jersey-based Prudential has fallen 76 percent and Hartford has plummeted 89 percent. New York-based AIG, once the world’s biggest insurer, is down 78 percent.

AIG Bonuses Should Be Legally Blocked Obama Says - (www.cnbc.com) President Barack Obama told Treasury Secretary Timothy Geithner to take all legal measures to block hefty bonuses awarded to employees of AIG , the insurance company that received up to $180 billion in bailout money, a White House adviser said Monday. "The president told Secretary Geithner .. to take every legal means that he has to push back against this, to figure out who put this in the contracts and when, and to make sure this doesn't happen again," Austan Goolsbee, a member of Obama's Council of Economic Advisers, told Reuters Financial Television. "Obviously we're not going to break the law, but there are a number of legal means that we have to push back, and the president instructed Secretary Geithner to do so," he said. Obama's action comes after Rep. Barney Frank, chairman of the House Financial Services Committee called for a shake up at insurance giant American International Group in the wake of disclosures it will pay roughly $165 million in bonuses to its executives. Frank says members of Congress are going to look very closely at the situation with AIG and see what can be done about it.

Railroad Bailout May Offer a Model for Detroit - (www.nytimes.com) As General Motors and Chrysler struggle to remain solvent, the railroad bailout of a generation ago could offer a template to the Obama administration — one in which the federal government would run the auto companies until they are back on their feet. Skip to next paragraphThat was a different age, of course. Congress was very much on board, supervising the reorganization of the bankrupt Northeastern railroads and then forming Conrail, in 1976, to run them. The auto companies, in contrast, are being pushed by the White House and Congress to reorganize themselves and remain private corporations, owned by shareholders. Conrail presided over huge cutbacks in rail operations, leaving the railroad system with much less track and roughly half the number of employees. By 1981, it was turning a profit hauling freight, and eventually its operations were sold back to privately operated lines. Five years after Conrail’s creation, Ronald Reagan became president and gave government takeovers a bad name by popularizing the view that government was inept in the marketplace. The Obama administration, respectful of this continuing view, wants the automakers to stand on their own, with only temporary federal loans to get them through the hard times.

Obama Administration Bracing for Bailout Backlash - (www.cnbc.com) The Obama administration is increasingly concerned about a populist backlash against banks and Wall Street, worried that anger at financial institutions could also end up being directed at Congress and the White House and could complicate President Obama’s agenda. The administration’s sharp rebuke of the American International Group on Sunday for handing out $165 million in executive bonuses — Lawrence H. Summers, director of the president’s National Economic Council, described it as “outrageous” on “This Week” on ABC — marks the latest effort by the White House to distance itself from abuses that could feed potentially disruptive public anger. “We’ve got enormous problems that need to be addressed,” David Axelrod, Mr. Obama’s senior adviser, said in an interview. “And it’s hard to address because there’s a lot of anger about the irresponsibility that led us to this point.” “This has been welling up for a long time,” he said. Mr. Obama’s aides said any surge of such a sentiment could complicate efforts to win Congressional approval for the additional bailout packages that Mr. Obama has signaled will be necessary to stabilize the banking system.

The Real Scandal of AIG – (www.huffingtonpost.com) Pathetic analysis by Robert Reich as he mentions nothing about the counter-party payments that were received by the big banks and investment companies (i.e., Goldman Sachs). The real scandal of AIG isn't just that American taxpayers have so far committed $170 billion to the giant insurer because it is thought to be too big to fail -- the most money ever funneled to a single company by a government since the dawn of capitalism -- nor even that AIG's notoriously failing executives, at the very unit responsible for the catastrophic credit-default swaps at the very center of the debacle -- are planning to give themselves $100 million in bonuses. It's that even at this late date, even in a new administration dedicated to doing it all differently, Americans still have so little say over what is happening with our money. The administration is said to have been outraged when it heard of the bonus plan last week. Apparently Secretary of the Treasury Tim Geithner told AIG's chairman, Edward Liddy (who was installed at the insistence of the Treasury, in the first place) that the bonuses should not be paid. But most will be paid anyway, because, according to AIG, the firm is legally obligated to do so. The bonuses are part of employee contracts negotiated before the bailouts. And, in any event, Liddy explained, AIG needed to be able to retain talent

A Continent Adrift - (www.nytimes.com) Another pathetic analysis by Paul Krugman. The pathetic argument again is Europeans are failing because they are not “stimulating” enough.
I’m concerned about Europe. Actually, I’m concerned about the whole world — there are no safe havens from the global economic storm. But the situation in Europe worries me even more than the situation in America. Just to be clear, I’m not about to rehash the standard American complaint that Europe’s taxes are too high and its benefits too generous. Big welfare states aren’t the cause of Europe’s current crisis. In fact, as I’ll explain shortly, they’re actually a mitigating factor. The clear and present danger to Europe right now comes from a different direction — the continent’s failure to respond effectively to the financial crisis. Europe has fallen short in terms of both fiscal and monetary policy: it’s facing at least as severe a slump as the United States, yet it’s doing far less to combat the downturn. On the fiscal side, the comparison with the United States is striking. Many economists, myself included, have argued that the Obama administration’s stimulus plan is too small, given the depth of the crisis. But America’s actions dwarf anything the Europeans are doing. The difference in monetary policy is equally striking. The European Central Bank has been far less proactive than the Federal Reserve; it has been slow to cut interest rates (it actually raised rates last July), and it has shied away from any strong measures to unfreeze credit markets. The only thing working in Europe’s favor is the very thing for which it takes the most criticism — the size and generosity of its welfare states, which are cushioning the impact of the economic slump. This is no small matter. Guaranteed health insurance and generous unemployment benefits ensure that, at least so far, there isn’t as much sheer human suffering in Europe as there is in America. And these programs will also help sustain spending in the slump.



OTHER STORIES:

A.I.G. Lists Which Banks It Paid With U.S. Bailout Funds - (www.nytimes.com)
U.S. Industrial Production Fell 1.4% in February - (www.bloomberg.com)

AIG payments to banks stoke bailout rage - 14 hours ago
Too Early Yet to Call a Market Bottom: El-Erian - (www.cnbc.com)
Citi's Pandit Awarded $10.8 Million; Names Directors - (www.cnbc.com)
New York Manufacturing Index Hits Record Low - (www.cnbc.com)
Obama To Mobilize Supporters In Budget Push - (www.cnbc.com)
Bank Stocks Rise on Optimism Bottom Was Hit - (www.cnbc.com)
Madoff's Homes, Cars, Furniture Sought By Government - (www.cnbc.com)

Patrick: I thought the bust would be more gradual - (lansner.freedomblogging.com)
The High Cost Of Subsidizing Bad Decisions - (www.ibdeditorials.com)
Citi Using Taxpayer Dollars To Pay Millions In Signing Bonuses - (www.businessinsider.com)
High-end sellers delusional about property's value - (www.bubbleinfo.com)
Mortgage default notices reach record high in Santa Clara County - (www.mercurynews.com)
In Silicon Valley and nationwide, underemployment grows - (www.contracostatimes.com)
Silicon Valley Foreclosures, Feb'09 Data - (www.viewfromsiliconvalley.com)
SF Seasonal Bounce To Be Lower Than Ever - (www.socketsite.com)
Detroit's dirt-cheap and dangerous real estate attract artists - (www.detnews.com)
England house prices will plummet; scary chart - (www.moneyweek.com)
Builder: It is 'rational' for homeowners to walk away - (www.inbusinesslasvegas.com)
Thoughts on Walking Away From Your Mortgage - (www.nytimes.com)
Imaginary Household "Wealth" Falls by Trillions - (www.nytimes.com)
China's Leader Says He Is 'Worried' Over US Treasuries - (www.nytimes.com)
Credit Default Swaps explained clearly in five minutes - (nalert.blogspot.com)
Marxist Critique of Capitalist Globalization - (www.monthlyreview.org)
Suburbia RIP? - (finance.yahoo.com)
There's No Pill for This Kind of Depression - (online.wsj.com)
Madoff Behind Bars Walt Handelsman - (weblogs.newsday.com)

U.S. Treasuries Decline Amid Speculation Credit Crisis Easing -(www.bloomberg.com)
Euro Gains on G-20’s Pledge to Double IMF Funds, Bank Outlook - (www.bloomberg.com)
Oil Rises to a 2-Month High on Optimism Economy Will Improve - (www.bloomberg.com)
U.S. Stocks Retreat as Rally in Financial Shares Fizzles - (www.bloomberg.com)
Obama Orders Treasury Chief to Try to Block A.I.G. Bonuses - (www.nytimes.com)
Foreign Demand for Long-Term U.S. Assets Declines - (www.bloomberg.com)
Obama, Geithner Outline Plan to Help Small Businesses - (www.bloomberg.com)
401(k) Plans Need Fixes, Advocates Tell Lawmakers - (www.bloomberg.com)
Central Banks Gorge on Dollars, Englander Sees Fall - (www.bloomberg.com)
Downturn takes toll on earnings - (www.ft.com)
Foreign Direct Investment in China Falls 15.8% on Global Crisis - (www.bloomberg.com)
China lost billions in diversity drive - (www.ft.com)
Russian Industry Shrinks for Fourth Month as Demand Wanes - (www.bloomberg.com)
U.S. Economy: Production Falls for Fourth Consecutive Month - (www.bloomberg.com)
Obama May Widen Fed Powers, Boost Capital Rules, WSJ Reports - (www.bloomberg.com)
G-20 Turns Sight on Banks’ Toxic Assets in Coordinated Move - (www.bloomberg.com)

A.I.G. Lists Firms It Paid With Taxpayer Money - (www.nytimes.com)
Virgin Megastore closings mark end of U.S. retail era - (www.reuters.com)