Friday April 10 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

SF Bay Area down 59%, from $720,000 to $295,000! - (www.sfgate.com) Here is a look at key market elements that have been radically altered over the past two years: -- Pricing. The Bay Area reached a peak median sales price of $720,000 in spring 2007. In February, the median was $295,000. That doesn't mean that all homes lost half their value - although many did see appreciation erode significantly - but it does show a major shift in the composition of homes being sold. "There has been a huge shift toward more sales in more-affordable neighborhoods, especially inland areas and especially foreclosures," LePage said. Two years ago, only 9.4 percent of all homes changing hands went for less than $300,000. Last summer, about a quarter of all Bay Area sales were for less than $300,000. That percentage doubled within a few months, reaching 51.7 percent by February. -- FHA-backed financing. Mortgages insured by the Federal Home Administration came into being during the Great Depression as a government program to extend home ownership to low- and moderate-income people who otherwise would not have qualified. But because FHA loans were limited to small mortgage balances that didn't go far in pricey regions, they barely existed in the Bay Area. Two years ago, only 0.1 percent of all transactions here involved an FHA loan.

The Quiet Coup: Banks took over America - (www.theatlantic.com) The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time. One thing you learn rather quickly when working at the International Monetary Fund is that no one is ever very happy to see you. Typically, your “clients” come in only after private capital has abandoned them, after regional trading-bloc partners have been unable to throw a strong enough lifeline, after last-ditch attempts to borrow from powerful friends like China or the European Union have fallen through. You’re never at the top of anyone’s dance card. The reason, of course, is that the IMF specializes in telling its clients what they don’t want to hear. I should know; I pressed painful changes on many foreign officials during my time there as chief economist in 2007 and 2008. And I felt the effects of IMF pressure, at least indirectly, when I worked with governments in Eastern Europe as they struggled after 1989, and with the private sector in Asia and Latin America during the crises of the late 1990s and early 2000s. Over that time, from every vantage point, I saw firsthand the steady flow of officials—from Ukraine, Russia, Thailand, Indonesia, South Korea, and elsewhere—trudging to the fund when circumstances were dire and all else had failed. Every crisis is different, of course. Ukraine faced hyperinflation in 1994; Russia desperately needed help when its short-term-debt rollover scheme exploded in the summer of 1998; the Indonesian rupiah plunged in 1997, nearly leveling the corporate economy; that same year, South Korea’s 30-year economic miracle ground to a halt when foreign banks suddenly refused to extend new credit.

7 states see jobless rate top 10%, eliminating buyers - (finance.yahoo.com) Double-digit unemployment rates hit more states in February, with North Carolina and Rhode Island seeing their rates hit record highs. The U.S. Labor Department's report, released Friday, showed the terrible toll the recession, now in its second year, is having on workers and companies alike. Seven states have unemployment rates that topped 10 percent last month. That's up from four states in January. "It's spreading like wildfire," said Richard Yamarone, economist at Argus Research. The U.S. unemployment rate, released earlier this month, rose to 8.1 percent in February, the highest in more than 25 years. Economists predict the national jobless rate will have climbed to 8.5 percent in March when the government releases that report next week. It will probably hit 10 percent by year end even if the recession were to end later this year, they said. Michigan's jobless rate climbed to 12 percent, the highest in the country. South Carolina registered the second-highest at 11 percent and Oregon came in third at 10.8 percent.

People-less Houses, Homeless People - (www.patrick.net) Millions of foreclosed houses could be cared for and productively used by people who really need them. Instead, banks keep most of their foreclosures empty, to rot, because of a few simple selfish reasons:
· To lower prices would mean that banks would have to admit that their recorded property “values” are lies, and that they are in fact bankrupt.
· Banks don’t pay property tax on empty houses. Several articles have pointed out that banks are allowed to get away without paying property tax and the houses are never taken from banks and auctioned off for delinquent taxes. Only “little people” have to pay property tax.
· It’s easier to sell an empty house than to sell a house with people in it.
Perhaps it is time to start enforcing property tax laws against the banks.

Will Geithner, Summers Succeed in Raiding the FDIC, Fed? - (www.huffingtonpost.com) Geithner and Summers have now announced their plan to raid the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve (Fed) to subsidize investors to buy toxic assets from the banks at inflated prices. If carried out, the result will be a massive transfer of wealth -- of perhaps hundreds of billions of dollars -- to bank shareholders from the taxpayers (who will absorb losses at the FDIC and Fed). Soaring bank share prices on the morning of the announcement, and in the week of leaks and hints that preceded it, are an indication of the mass bailout at work. There are much fairer and more effective ways to accomplish the goal of cleaning the bank balance sheets. A major part of the plan works as follows. One or more giant investment funds will be created to buy up toxic assets from the commercial banks. The investment funds will have the following balance sheet. For every $1 of toxic assets that they buy from the banks, the FDIC will lend up to 85.7 cents (six-sevenths of $1), and the Treasury and private investors will each put in 7.15 cents in equity to cover the remaining balance. The Federal Deposit Insurance Corporation (FDIC) loans will be non-recourse, meaning that if the toxic assets purchased by private investors fall in value below the amount of the FDIC loans, the investment funds will default on the loans, and the FDIC will end up holding the toxic assets. To understand the essence of the giveaway to bank shareholders, it's useful to use a numerical illustration. Consider a portfolio of toxic assets with a face value of $1 trillion. Assume that these assets have a 20 percent chance of paying out their full face value ($1 trillion) and an 80 percent chance of paying out only $200 billion. The market value of these assets is given by their expected payout, which is 20 percent of $1 trillion plus 80 percent of $200 billion, which sums to $360 billion. The assets therefore currently trade at 36 percent of face value.

Bank of America Accused in Ponzi Lawsuit - (www.nytimes.com) Bank of America effectively set up a branch in a Long Island office that helped Nicholas Cosmo carry out a $380 million Ponzi scheme, according to a class-action lawsuit filed in federal court. The lawsuit, filed in Federal District Court in Brooklyn late Thursday, contends that Bank of America “established, equipped and staffed” a branch office in the headquarters of Mr. Cosmo’s firm, Agape Merchant Advance. As a result, the lawsuit contends that the bank knowingly “assisted, facilitated and furthered” Mr. Cosmo’s fraudulent scheme. “Bank of America was at the epicenter of this scheme,” said the lawsuit, which seeks $400 million in damages from the bank and other defendants. “Without Bank of America’s participation, the scheme would not have succeeded and grown to such an enormous size.”

Hang the Bankers! Getting Ready to Vent in London - (www.time.com) It's a rotten time to be a banker. Whether their fingerprints are on a single credit default swap or collateralized debt obligation or not, financiers are being fingered for blowing up the global economy. The assets they traded are "toxic" and their bonuses "obscene." And members of the public, it seems, are fed up with the lot of them. In a leaked security memo sent to staff last week, bosses at AIG warned workers to keep an eye out for aggressors amid the "growing sense of public attention fueled by increased media scrutiny." AIG employees were advised to ditch AIG apparel or ID badges outside the office, and dial emergency services if they think they're being followed. "At night," the company suggested, "travel in pairs and always park in well-lit areas." (They might well have added, "choose seats at the rear of theaters"; when the boss of one of Iceland's beleaguered banks took his seat inside the country's National Theater recently, he was roundly booed.) Top of Form
This week it's been Fred Goodwin's turn. The former boss of the stricken Royal Bank of Scotland is rumored to be mulling a move to South Africa after vandals smashed windows and his car at his Edinburgh home. Britons are livid that Goodwin was awarded a $1 million annual pension after he quit RBS in disgrace last year. The 50-year-old oversaw a disastrous expansion that almost felled one of Europe's largest banks, prompted a $30 billion government bailout last fall and triggered the biggest annual loss in U.K. corporate history. "We are angry," a group claiming responsibility for the attack wrote in an e-mail to an Edinburgh newspaper, "that rich people, like him, are paying themselves a huge amount of money and living in luxury, while ordinary people are made unemployed, destitute and homeless. Bank bosses should be jailed. This is just the beginning." (See pictures of the financial crisis in London.) Things might get even hotter in the coming days. On the eve of a meeting between leaders of the G-20 in London next week, thousands of protesters are expected to converge on the Bank of England as part of "Financial Fool's Day." G-20 Meltdown, the umbrella of anti-capitalist groups behind the demonstration, promises a "carnival" atmosphere. But here's a spoiler alert: "We are going to be hanging a lot of people like [RBS's Fred Goodwin] from lampposts on April Fool's Day and I can only say let's hope they are just effigies," Chris Knight, one of the march's organizers, told the BBC on Wednesday. "If he winds us up any more, I'm afraid there will be real bankers hanging from lampposts," Knight said, before adding: "Let's hope that that doesn't actually have to happen." A day later, the University of East London, which employs Knight as a professor of anthropology, suspended him. (See TIME's G-20 content.)

Obama takes step over the line that separates government from private industry - (www.latimes.com) His automaker bailout plan wades into 'industrial policy,' in which government officials, not business executives or the free market, decide what products a firm makes and how it charts its future. President Obama's plan to save failing U.S. automakers -- and make them the instruments for creating a cleaner, greener transportation system -- marked a major step across the line that traditionally separates government from private industry. His announcement Monday of a new position on bailing out Detroit went beyond a desire to be sure tax dollars were not wasted in bailing out struggling companies. It put the Obama administration squarely in the position of adopting a so-called industrial policy, in which government officials, not business executives or the free market, decided what kinds of products a company would make and how it would chart its future. His automotive task force concluded, for example, that the Chevy Volt, the electric car being developed by General Motors Corp., would be too expensive to survive in the marketplace. It declared that GM was still relying too much on high-margin trucks and SUVs, and that Chrysler's best hope was to merge with a foreign automaker, Fiat. Judgments like those are usually rendered in corporate boardrooms or announced in quarterly reports. But this time they were coming directly from the White House. The notion that it was the president, not car company executives, who would pick such a course drew immediate criticism, especially from conservatives. "When did the president become an expert in strategic corporate management?" said Rep. Tom Price (R-Ga.), chairman of the conservative Republican Study Committee. "The federal government is famous for its mismanagement, yet this administration continues to demonstrate its certainty that Washington always knows best."

Life Insurers Find Fates Tied to Stocks - (online.wsj.com) Once a seemingly stable sector, life insurers are looking like a concentrated bet on the broader market. On Monday, that wasn't a good bet. Stocks of life insurers plunged, led by Lincoln National Corp., which dropped 38% after the Radnor, Pa., company said late Friday that it withdrew an application to issue debt under a debt-guarantee program run by the Federal Deposit Insurance Corp. Other life insurers also fell more than the Dow Jones Industrial Average's 3.3% decline. MetLife Inc., Prudential Financial Inc. and Hartford Financial Services Group Inc. all had double-digit-percentage declines.




OTHER STORIES:

Is BofA's Lewis the Next CEO in the Hotseat? - (www.cnbc.com)
Kneale: Sacrificing GM's Wagoner, and Fearing Obama - (www.cnbc.com)
Harder Deal Terms Seen for GM Bondholders, UAW - (www.cnbc.com)

Luxury Houses Lingering on Market - (www.businessweek.com)
US programs seen too late to stem foreclosure wave - (www.reuters.com)
Walk away? Calculator helps you decide - (www.youwalkaway.com)
New House Sales Fell 41% in February 2009 - (www.ritholtz.com)
San Diego House Prices Reasonable At Last - (www.voiceofsandiego.org)
Why Are These Renters Smiling? - (www.nytimes.com)
When Banks Rob People - (www.patrick.net)
Bank of America To Use Bailout To Increase Banker Salaries - (www.bloomberg.com)

Public Central Bank - (www.publiccentralbank.com)
Bank of North Dakota -- State Owned -- Is Very Profitable - (www.dvorak.org)
Peering into the Abyss - (www.lewrockwell.com)
What Can $150k Buy in Real Estate Around the World? - (www.matadorlife.com)
Far lower costs lure US patients abroad for treatment - (www.cnn.com)