Saturday March 28 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Bank of England warns tensions in banking system at fever pitch - (www.telegraph.co.uk) Tensions in the financial system are approaching the fever pitch they reached before the collapse of Lehman Brothers last October, the Bank of England has warned. Tensions in the financial system are approaching the fever pitch they reached before the collapse of Lehman Brothers. Investors have restrained the amount they are willing to lend, banks have grown reluctant to entrust their cash to each other and levels of stress in the system have hit new peaks, according to the Bank's Quarterly Bulletin. The Bank's chief economist, Spencer Dale, warns in the report, published today, that: "Against the background of a significant and synchronised weakening in international economic activity, market conditions generally remained strained. In particular, bank funding markets became more difficult again reflecting renewed concerns about the scale of potential credit losses and write-downs facing banks." The report lays bare the fears investors currently have about the creditworthiness of Britain's biggest banks. It reveals that a key measure of interbank health - the spread between the London Interbank Offered Rate (Libor) and expected interest rate levels had "started to widen again" while "contacts reported some increased reluctance to lend to banks beyond very short maturities." The main worry haunting investors is the threat that banks could be nationalised and that financial institutions are harbouring "ongoing balance sheet constraints". However, most worryingly, it warns that the credit default swap spread rates on large banks - a key measure of concerns about their possibly insolvency - picked up to their highest level since just before the collapse of Lehman.

NJ Senate, Assembly, OK pension deferral bill - (www.newsday.com) A bill allowing financially strapped New Jersey towns and school districts to delay half their payments to the public employee pension system has been approved by the New Jersey Legislature. The bill passed the Senate and Assembly Monday, after a sometimes contentious debate, without a single Republican vote. Democrats control both houses. Gov. Jon S. Corzine, who originally proposed the legislation, is expected to sign the bill. "It's a compromise I'm very pleased with because we need to be able to provide support to our communities that are struggling with this period of recession," Corzine said before Monday's vote. Corzine proposed the legislation in the fall as a way to provide property tax relief to municipalities during the recession. It stalled after some lawmakers contended that deferring the payments would be bad fiscal policy. Among the bill's most vocal opponents was Sen. Bill Baroni, R-Hamilton, whose district includes thousands of state workers. "Over and over, governors and legislators have underfunded, non-funded and bonded against our pension funds," Baroni said. "Today, the Senate adds another act to that shameful legacy." The value of pension system funds was $59.2 billion as of Feb. 20. As of June 30, it was underfunded by $28.4 billion.

The Real AIG Scandal: It's not the bonuses. It's that AIG's counterparties are getting paid back in full - (www.slate.com) AIG's Manhattan, N.Y., officeEverybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars? For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already. It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse. But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden? Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed? The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation. So here are several questions that should be answered, in public, under oath, to clear the air: What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant? Was it already known who the counterparties were and what the exposure was for each of the counterparties? What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty? What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued. Why weren't the counterparties immediately and fully disclosed? Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy.

In a first, bankruptcy judge rules Calif. city can void union contracts - (www.law.com) In the first ruling of its kind, a bankruptcy judge held the city of Vallejo, Calif. has the authority to void its existing union contracts in its effort to reorganize, holding public workers do not enjoy the same protections Congress gave union workers at private companies. Municipal bankruptcy is so rare that no judge had yet ruled on whether Congressional reforms in the 1990s that required companies to provide worker protections before attempting to dissolve union contracts also applied to public workers' union contracts. U.S. Bankruptcy Judge Michael McManus held March 13 that when Congress enacted 11 U.S.C. sec. 1113 to limit companies from outright rejection of union contracts it limited it to Chapter 11 bankruptcies. By failing to extend the limits to Chapter 9, which covers municipal bankruptcy, McManus said cities have broader latitude to break existing union pacts, In re City of Vallejo, 08-26813-A-9 (E. Dist. Calif.) "This will have a huge effect nationwide if it is upheld," said Kelly Woodruff, of Farella, Braun & Martel in San Francisco, representing the firefighters and electrical workers unions. Woodruff said the unions would certainly appeal if the city ultimately voids the existing contracts with the two unions. "And I think we have a good chance of success," she said. "My understanding is that a lot of cities are watching this and particularly this motion," said Woodruff. "If the city of Vallejo succeeds in using bankruptcy to void union contracts I am sure others will follow," she said. Vallejo attorney Norman C. Hile of Orrick, Herrington & Sutcliffe's Sacramento, Calif. office said, "This is a decision that is somewhat groundbreaking." "There are a number of other cities and government entities watching it very closely," he said, but declined to speculate on whether others would take the step Vallejo took of seeking bankruptcy protection. The decision will be particularly important to cities with large unfunded pension liabilities, according to James Spiotto, of Chapman & Cutler in Chicago and a specialist in municipal bankruptcy who helped advise the Senate Judiciary Committee on Chapter 9 reforms.

The Coming AFSCME & Teacher Pension Storm - (www.ml-implode.com) Today's Wall Street Journal featured an article in the Money & Investing section regarding US state and municipality pension-funding woes. It is a topic for which I've been waiting to see become a mainstream media coverage. Right after recounting some of the troubles various localities are having complying with pension funding for government and related workers, the article made a reference to voter outrage, ""It's going to be huge showdown" between taxpayers and public employees, said Susan Mangiero, president of Pension Governance Inc., a consulting and research firm in Trumbull, Conn. "The anger is more acute today when people are feeling economic hardship." The specter of higher pension bills comes as many states and cities are struggling to balance their budgets or, in some cases, avoid drastic measures, such as filing for bankruptcy protection, amid falling tax revenue, foreclosures and rising unemployment costs." I was discussing exactly this point with my business partner this weekend. I have friends who are teachers, and I firmly believe they are going to be in for a major disappointment by the end of twenty years. Especially the ones who are public school employees. It won't be too long before a growing number of states' voters realize how much their governments have given away in unsustainable "30-and-out" or less packages to various governmental employees over the decades since WWII. Side by side with unions such as the UAW, Teamsters and Steelworkers, AFSCME members reaped huge pension promises from governments during an era from the 1950s-1970s when the US experienced a temporary growth bubble resulting from the absence of competition from WWII losers Japan and Germany. Beginning in the early 1970s, American industry began to suffer from these competitors, but the prior decades' pension promises, made by dimwitted, myopic CEOs, governors and legislators, remained.

Thornburg Mortgage May File Chapter 11 Bankruptcy - (www.cnbc.com) - Thornburg Mortgage, a large and troubled provider of "jumbo" mortgage loans, on Tuesday said it may file for Chapter 11 bankruptcy protection. The Santa Fe, New Mexico-based company has struggled with liquidity problems since the summer of 2007, when the value of mortgages on its balance sheet began to tumble….A bankruptcy filing would make Thornburg one of the largest U.S. mortgage providers to seek protection from creditors since the housing slump began, joining rivals such as Washington Mutual Inc and IndyMac Bancorp Inc. Thornburg has specialized in making mortgages larger than $417,000 to borrowers with good credit, but it ran short of capital as investors stopped buying its loans. In a Tuesday statement, Thornburg said it is evaluating strategic alternatives to restructure its financing agreements, make deferred payments, and meet obligations to bondholders. The company said several of its own lenders have agreed not to exercise their rights under various financing agreements through March 31.

Goldman Offers Loans to Stretched Employees - (www.nytimes.com) Goldman Sachs got its bailout. Now some of its bankers, those aristocrats of Wall Street, apparently need a bit of a bailout too. Skip to next paragraphGoldman, which accepted billions of taxpayer dollars last fall and, as learned Sunday, was also a big beneficiary of the rescue of the American International Group, is offering to lend money to more than 1,000 employees who have been squeezed by the financial crisis. The loans, offered via e-mail last week, could range from a few thousand dollars to hundreds of thousands. Working at Goldman has long been regarded as a sure path to riches. But Goldman’s employees are losing money on their personal investments — particularly in Goldman’s own elite investment funds, which have been considered one of the perks of working at the bank. Now these funds have stumbled, and some Goldman employees who financed their gilded lifestyles by borrowing in good times are suddenly short on cash needed to meet commitments to their personal investments in the funds. “It’s a problem with the culture of spending,” said Gustavo Dolfino, the president of Whiterock Group, a Wall Street recruitment firm. “No matter how much you have, you spend like you have a lot more.”

Citi, Morgan Stanley look to sidestep bonus caps: report - (www.reuters.com) Anticipating restrictions on bonuses, officials at Citigroup Inc and Morgan Stanley are exploring ways to sidestep tough new federal caps on compensation, the Wall Street Journal said. Executives at these banks and other financial institutions that received government aid are discussing increasing base salaries for some executives and other top-producing employees, the paper said, citing people familiar with the situation. The discussions are at an early stage, partly because the government has not yet issued specific rules on the bonus payments that will be allowed at companies that received aid under the government's Troubled Asset Relief Program, the paper said. The report comes on the heels of widespread outrage that insurer AIG, kept alive on a government bailout of up to $180 billion, was paying its employees bonuses of $165 million. In February, President Barack Obama set a $500,000 annual cap on pay for top executives at companies receiving taxpayer funds.





OTHER STORIES:

Jim Rogers has gold coins in his pocket - (www.ml-implode.com)- " Jim Rogers, chairman of Rogers Holdings, talks with Bloomberg's Bernard Lo about the global recession, U.S. government bailout...
NAMB Goes on Offensive Against JP Morgan, Dimon - (www.ml-implode.com)- " The National Association of Mortgage Brokers is mad as hell, and they’re not going to take it anymore. At least, that’s the me...
Housing starts rebound - don't get too excited - (www.ml-implode.com) - " Some analysts are putting about as much trust in these numbers as they are in the most Wall Street’s most recent dead-cat-boun...
Goldman Offers Loans to Stretched Employees - (www.ml-implode.com)

FDIC Extends the Debt Guarantee Component of Its Temporary Liquidity Guarantee Program - (www.ml-implode.com)
Bear Stearns: The Fed's Original 'Systemic Risk' Sin - (www.ml-implode.com)
Rated F for Failure - (www.ml-implode.com)
TIC January data was a disaster - (www.ml-implode.com)
How Rich Countries Die - (www.ml-implode.com)

Oil climbs as some traders believe worst is over - (finance.yahoo.com)
Treasurys up as Fed's policy meeting starts - (www.marketwatch.com)
U.S. Stocks Advance After Unexpected Gain in Housing Starts - (www.bloomberg.com)
U.S. Bailouts Add to Risk of Depression, Rogers Says - (www.bloomberg.com)
Treasurys Are 'Disaster Waiting to Happen': Dr. Doom - (www.cnbc.com)
Efforts intensify to start Talf - (www.ft.com)
Backing Off On Mark-To-Market - (www.forbes.com)
Foreign investors slash US holdings - (www.ft.com)
Auto delinquency rates rise nearly 9 percent in 4Q - (finance.yahoo.com)
BOJ May Buy Subordinated Loans to Boost Bank Capital - (www.bloomberg.com)
Mexico Imposes Tariffs on U.S. Amid Trucking Dispute - (www.bloomberg.com)
India faces $190bn infrastructure funding shortfall - (www.ft.com)
In Downturn, China Exploits Path to Growth - (www.nytimes.com)
U.S. February Producer Prices Rise 0.1%; Core Rate Gains 0.2% - (www.bloomberg.com)
U.S. Housing Starts Unexpectedly Increase on Condos - (www.bloomberg.com)
Bernanke May Need ‘Massive’ Asset Buying to Counter Contraction - (www.bloomberg.com)
Markets watch for next Fed move - (www.ft.com)
Small-Business Lending Gets a Boost - (www.washingtonpost.com)
Caterpillar to lay off 2,454 workers in 3 states - (finance.yahoo.com)
AmEx's Elite Customers Falling Behind - (www.forbes.com)