Monday March 2 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Fannie Mae Rescue Hindered as Asians Seek Guarantee - (www.bloomberg.com) Asian investors won’t buy debt and mortgage-backed securities from Fannie Mae and Freddie Mac until they carry explicit U.S. guarantees, similar to those given on bonds issued by Bank of America Corp. or Citigroup Inc. The risks are too great without a pledge that the U.S. will repay the debt no matter what, according to Hideo Shimomura, chief fund investor in Tokyo for Mitsubishi UFJ Asset Management Co., and other bondholders and analysts in Japan, China and South Korea interviewed by Bloomberg. Overseas resistance may hamper U.S. efforts to hold down home-loan rates and rebuild the nation’s largest mortgage-finance companies. Even after President Barack Obama vowed on Feb. 18 to sink as much as $400 billion of capital into Fannie Mae and Freddie Mac, double the original commitment, “there is still a concern that there is no guarantee” from the government, said Shimomura, who oversees $4 billion in non-yen bonds for the arm of Japan’s largest bank. “Looking at the risk, they’re not so attractive,” he said. “We need a guarantee before we’ll buy.”

U.S. Tries a Trillion-Dollar Key for Locked Lending - (www.nytimes.com) Credit cards, home equity lines, student loans, car financing: none come cheaply or easily in these credit-tight times. The banks, the refrain goes, just will not lend money. But it is not simply the banks that are the problem. It is also what lies behind them. Largely hidden from view is a vast financial system that serves as the banker to the banks. And, like many lenders, this system is in deep trouble. The question is how to fix it. Most banks no longer hold the loans they make, content to collect interest until the debt comes due. Instead, the loans are bundled into securities that are sold to investors, a process known as securitization. But the securitization markets broke down last summer after investors suffered steep losses on these investments. So banks and other finance companies can no longer shift loans off their books easily, throttling their ability to lend. The result has been a drastic contraction of the amount of credit available throughout the economy. By one estimate, as much as $1.9 trillion of lending capacity — the rough equivalent of half of all the money borrowed by businesses and consumers in 2007, before the recession struck — has been sucked out of the system. Banking chiefs, who have come under sharp criticism for not making more loans even as they have accepted billions of taxpayer dollars to prop themselves up, say it is the markets, not the banks, that are squeezing American borrowers.

Government tightens grip on Fannie and Freddie - (www.ft.com) The Obama housing plan announced this week draws Fannie Mae and Freddie Mac yet more tightly into the embrace of federal government and shows their importance to housing policy. The latest moves, including doubling the public capital available to the government-sponsored enterprises to $200bn apiece, firm the implicit guarantee on their debt to the brink of making it explicit. “Through the preferred stock purchase agreements and our commitment to ensure that each organisation maintains a positive net worth, we effectively stand behind the debt of these companies,” said Treasury spokeswoman Stephanie Cutter. This raises the question as to whether at some point the administration might abandon the remaining ambiguity about their status and declare that it stands full-square behind their debts. Such a statement could substantially reduce the risk spread between their securities and government securities, lowering their cost of funds and bringing down the rates of conforming mortgage loans – those guaranteed by Fannie and Freddie.

GM’s Saab Unit Files for Reconstruction to Survive - (www.bloomberg.com) Saab Automobile filed for protection from creditors after parent General Motors Corp. said it will cut ties with the Swedish carmaker following two decades of losses. Saab, based in Trollhaettan, filed for reorganization with a Swedish district court to separate itself from GM and bring resources back to Sweden, Saab Chief Executive Officer Jan Aake Jonsson said in a statement today. The reorganization, slated to take three months, will place Saab under court supervision, with the aim of creating a “fully independent” business entity. Saab’s future was put in doubt after GM said on Feb. 18 that it wants to cut the unit loose by 2010 at the latest or seek protection from creditors for Saab if it fails to win financial support from the Swedish government. Sweden has ruled out taking over Saab, saying taxpayers’ money shouldn’t be pumped into a company that’s been unprofitable for 19 of the last 20 years. “Unless the Swedish government is prepared to put a lot of money into Saab, I think that this is just another step down the road to the graveyard,” said Stephen Pope, chief global strategist at Cantor Fitzgerald in London.

Summit to tackle ballooning US deficit - (www.ft.com) The Congressional Budget Office shocked global markets a month ago, when it estimated that America's budget deficit would hit almost $1,200bn this year - a number that would shatter all postwar records. Four weeks later, the CBO's projections look positively rosy.Capitol Hill has since passed a $787bn (€620bn, £550bn) two-year fiscal stimulus. Barack Obama, US president, has announced $75bn in new spending to provide relief to struggling mortgage holders and an additional $200bn in contingent liabilities for the housing market via Fannie Mae and Freddie Mac, the state-owned mortgage providers. Finally, Chrysler and GM have asked for another $21.6bn in state aid - barely a drop in the sea of red ink now enveloping Washington. This is without anticipating Treasury's request for hundreds of billions to recapitalise the financial sector. Mr Obama will host a bipartisan summit on fiscal discipline next Monday that will aim to address America's long-term struggle to control entitlement costs in healthcare and social security. For most economists, it cannot come a moment too soon. "We are now looking at fiscal deficits of over a trillion [a million million] dollars every year for the next decade," says William Gale of the Brookings Institution. "And that is without adding all the trillions of dollars in contingent liabilities of the Federal Reserve and the Treasury, which show up nowhere in the budget or national debt numbers."

Irish Mogul's Empire Totters - (online.wsj.com) Once a symbol of Irish resurgence, business titan and rugby hero Sir Anthony O'Reilly is now being tackled from all sides by the economic crisis. Sir Anthony O'Reilly long has been a symbol of Irish resurgence, a national rugby hero and raconteur who conquered the U.S. corporate world before returning home to oversee a sprawling business empire. That empire now shows signs of unraveling. Sir Anthony, once America's highest-paid chief executive while leading H.J. Heinz & Co., has seen the value of his holding in his Dublin-based global newspaper group, Independent News & Media PLC, plunge to $52 million from more than $1.1 billion just 18 months ago. Concerns about a €200 million ($253 million) debt payment that Independent News faces in May have sent its shares down 90% over the past year to 18 European cents -- less than the price of most of its newspapers. Facing declining advertising and readership in addition to its debt load, say analysts, the company could be forced into a fire sale of assets that could cost the firm its trophy publication: the London-based Independent. In another corner of the O'Reilly world, Waterford Wedgwood PLC, the historic maker of fine china and crystal controlled by Sir Anthony and his brother-in-law, is in the equivalent of bankruptcy reorganization, and workers are occupying a shuttered factory. U.S. private-equity investor KPS Capital Partners LP is negotiating a possible purchase of the company that could be announced within days, according to a person familiar with the situation. Sir Anthony is an example of how, for some business titans, the credit crunch and recession have become a brutal multifront assault. His big bets on newspapers, luxury goods and the remaking of Ireland itself made him the richest man in the country. Now each of those areas has boomeranged on him. Mr. O'Reilly, 72 years old, sounds pessimistic about his prospects and Ireland's, saying in a recent interview that the Irish economy will be "lucky" to contract just 4% this year and that there is little the country can do about it. "It is impossible that if Ireland does not do well, that any of us can do well," he said.




OTHER STORIES:

Policing TARP Proves Tricky - (online.wsj.com)
BofA's Lewis Gets Subpoena on Merrill - (online.wsj.com) Bank of America Chairman Kenneth Lewis was subpoenaed by New York state over bonuses and losses at Merrill. Former Merrill CEO Thain was interviewed.
Authorities Widen Stanford Probe - (online.wsj.com) Texas financier R. Allen Stanford was tracked down in Virginia by FBI agents, at the request of the SEC, and served papers. Prosecutors are investigating if he was operating a Ponzi scheme.
Stanford's Political Investments - (online.wsj.com)
U.S. Wants More Names From UBS - (online.wsj.com)
Market Hits Crisis Low - (online.wsj.com)
Wave of Selling Spans Globe - (online.wsj.com) A selloff that pushed the Dow industrials to a new six-year low and then spilled across the globe to drag down markets in Europe and Asia looked likely to pull U.S. shares down further Friday. Gold neared $1,000.
Gold Futures Hit High of $998 - (online.wsj.com)
Subscriber Content Read Preview

Gold Advances Near Seven-Month High in London on Haven Demand - (www.bloomberg.com)
Futures point to more Wall Street losses - (www.marketwatch.com)
Stocks in Europe, Asia, U.S. Futures Decline; Anglo Retreats - (www.bloomberg.com)
Oil falls below $39 as economic outlook worsens - (www.reuters.com)
Corporate Bond Trading Highest Since ‘07 as Credit Freeze Thaws - (www.bloomberg.com)
Bank debt trades at distressed levels - (www.ft.com)

SEC to Examine Boards' Role in Financial Crisis - (www.washingtonpost.com)
Trouble Trickles From Steep Drop in Oil Prices - (www.washingtonpost.com)
Europe Services, Manufacturing Shrink at Record Pace - (www.bloomberg.com)
Japanese stocks tumble as Topix hits 25-year low - (finance.yahoo.com)
Euro zone economic downturn gathers pace - (finance.yahoo.com)
BoJ to buy Y1,000bn of corporate bonds - (www.ft.com)
California Legislature Passes Tax Plan, Ends Impasse - (www.bloomberg.com)
Southern California home prices fall to 2002 levels - (www.latimes.com)
Costs for individual health plans soar - (www.usatoday.com)
Summit to tackle ballooning US deficit - (www.ft.com)

A Swiss Bank Is Set to Open Its Secret Files - (www.nytimes.com)
ABC cuts Oscar ad rates - (www.latimes.com)
Its Muscle Car Glory Faded, Pontiac Shrivels Up - (www.nytimes.com)
The Global Recession, Graded on a Curve - (www.nytimes.com)