Friday May 1 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

The Public Pension Shakedown: Why would a smart guy invest in a movie named 'Chooch'? - (online.wsj.com) President Obama's auto fix-it man, Steven Rattner, is in the news as one of the Wall Street financiers hit up for big money as part of New York state's unfolding pension-kickback scandal. The White House says he's done nothing wrong, and there's no public evidence that he broke any laws. But Mr. Rattner's high profile is nonetheless useful in drawing attention to the real story here, which is the growing evidence of corruption by officials who use their power over public pension funds to shake down private companies. This is the same political class that has been blaming banks for "greed" in the financial crisis. The pension fund scandal exposes the myth of the superior virtue of the public and nonprofit worlds. Greed is universal. And the opportunity for corruption is enormous when political discretion is tied to vast sums of public money. New York Attorney General Andrew Cuomo and the Securities and Exchange Commission allege that investment firms paid politically connected "placement agents" in return for a piece of New York's $122 billion pension fund. The AG has indicted three politicos for kickbacks, but the media have focused on the private firms that hired some of these political agents. Thus the attention on Mr. Rattner, who as co-founder of the Quadrangle investment firm met with a consultant about paying a finder's fee for pension cash. The motive and knowledge of these private investors need to be explored, but the main culprits are the public officials and their agents. Former New York Comptroller Alan Hevesi resigned in 2006 after pleading guilty to unrelated charges of defrauding the government. But his office served as exclusive manager for the pension fund that is one of the world's biggest institutional investors. What the New York scam is laying bare is the extent to which officials allegedly leveraged those taxpayer dollars to enrich themselves and increase their political power. For the record, it isn't illegal for investment firms to hire "placement agents." Hedge funds and private equity firms have long outsourced their marketing to companies whose job it is to reach out to potential investors and arrange roadshows. These placement agents are typically paid a percentage of the money raised. In New York, however, the agents were also major political players. Hank Morris is a noted Democratic strategist and was a top adviser and chief fundraiser for Mr. Hevesi; Mr. Cuomo has indicted him for money laundering and bribery. Former Liberal Party boss Raymond Harding had aided in Mr. Hevesi's election. When men like these come knocking on investment-house doors, the message is pay to play. Mr. Morris and associates are alleged to have made $30 million selling access to the fund. Mr. Harding helped to clear a state Assembly seat for Mr. Hevesi's son, and was allegedly rewarded by being allowed to pocket $800,000 as a pension placement agent. The indictment says Mr. Morris was aided by former deputy comptroller David Loglisci, who made clear to investment firms that they should hire Mr. Morris and who signed off on the subsequent pension fund investments. (All three men deny the charges. Mr. Hevesi, who hasn't been charged in this case, also denies any wrongdoing.)

Democratic Lawmaker Is Said to Have Agreed to Aid Crooked Israeli Lobbyists - (www.nytimes.com) One of the leading House Democrats on intelligence matters was overheard on telephone calls intercepted by the National Security Agency agreeing to seek lenient treatment from the Bush administration for two pro-Israel lobbyists who were under investigation for espionage, current and former government officials say. The lawmaker, Representative Jane Harman of California, became the ranking Democrat on the House Intelligence Committee after the 2002 election and had ambitions to be its chairwoman when the party gained control of the House in 2006. One official who has seen transcripts of several wiretapped calls said she appeared to agree to intercede in exchange for help in persuading party leaders to give her the powerful post. One of the very few members of Congress with broad access to the most sensitive intelligence information, including aspects of the Bush administration’s wiretapping that were disclosed in December 2005, Ms. Harman was inadvertently swept up by N.S.A. eavesdroppers who were listening in on conversations during an investigation, three current or former senior officials said. It is not clear exactly when the wiretaps occurred; they were first reported by Congressional Quarterly on its Web site. The official with access to the transcripts said someone seeking help for the employees of the American Israel Public Affairs Committee, a prominent pro-Israel lobbying group, was recorded asking Ms. Harman, a longtime supporter of its efforts, to intervene with the Justice Department. She responded, the official recounted, by saying she would have more influence with a White House official she did not identify. In return, the caller promised her that a wealthy California donor — the media mogul Haim Saban — would threaten to withhold campaign contributions to Representative Nancy Pelosi, the California Democrat who was expected to become House speaker after the 2006 election, if she did not select Ms. Harman for the intelligence post. Ms. Harman denied Monday having ever spoken to anyone in the Justice Department about Steven J. Rosen and Keith Weissman, the two former analysts for Aipac. Her office issued a statement saying, “Congresswoman Harman has never contacted the Justice Department about its prosecution of present or former Aipac employees.” The statement did not, however, address whether Ms. Harman had contacted anyone at the White House or had participated in phone calls in which she was asked to intervene in exchange for help in being named chairwoman of the Intelligence Committee. David Szady, the Federal Bureau of Investigation’s former top counterintelligence official who ran the investigation of Mr. Rosen and Mr. Weissman, said in an interview Monday that he was confident Ms. Harman had never intervened. “In all my dealings with her, she was always professional and never tried to intervene or get in the way of any investigation,” Mr. Szady said.

Nonprofit Groups to Push for Exceptions to Lobby Rule - (www.nytimes.com) Critics of the president’s anti-lobbyist policy say it assumes that all lobbying is suspect, even legitimate advocacy at the heart of a democratic process. When it came time for President Obama to pick a human rights chief, many around him thought Tom Malinowski was the obvious choice. As the Washington advocacy director for Human Rights Watch, Mr. Malinowski has fought slaughter in Darfur, repression in Myanmar and torture in the United States. He served in the State Department and on the National Security Council under the last Democratic president. But he had one liability: he was a registered lobbyist. The fact that Mr. Malinowski lobbied on behalf of genocide victims rather than military contractors, investment firms or pharmaceutical companies made no difference. Mr. Obama’s anti-lobbyist rules do not distinguish between those who advocate for moneyed interests and those who advocate for public interests, and so Mr. Malinowski was ruled out. But in the process, he has become the symbol of a deep discontent among many Democrats over Mr. Obama’s policy. “It’s an outrage,” said Stephen Rickard, executive director of the Open Society Policy Center, an advocacy organization. “Tom is one of the most effective and dedicated human rights activists in Washington, and you could get 20 people to say that. It’s extremely unfortunate that Tom and people like Tom can’t be brought in to use their talents.” The dispute over the policy underscores the tension between the grand gestures of the campaign trail and the undesired consequences once in office. As a candidate, Mr. Obama presented himself as a reformer who would purge Washington of the insidious influence of special interests. As president, he has found some of his own supporters among those purged. Although Mr. Obama has issued a few waivers to allow activists to work in his administration, the broad sweep of his rules points to the lasting damage of the scandal surrounding the powerful lobbyist Jack Abramoff, who pleaded guilty in 2006 to fraud, tax evasion and conspiracy to bribe public officials. The assumption underlying the Obama policy, critics say, is that all lobbying is suspect, even legitimate advocacy at the heart of a democratic process.

Stanford Points Fingers in Fraud Case - (www.nytimes.com) . Allen Stanford, the Texas financier accused of defrauding tens of thousands of bank depositors, said on Monday that he was not a thief. He denied that his operation was a Ponzi scheme and suggested that if any depositor money had been lost, it was largely a result of “Gestapo tactics” used by the government. “I don’t think there is any money missing,” Mr. Stanford said. “There never was a Ponzi scheme, and there never was an attempt to defraud anybody.” The government has said as much as $6 billion is missing. In an interview at his attorney’s office in Houston, a high-strung, emotional Mr. Stanford offered various theories about the problems that have engulfed his Stanford Financial Group and Stanford International Bank. He allowed that some of the assets held by his organization on behalf of clients might have declined in value. As explanation, he cited the economic crisis and actions the government had taken against him in recent months. But in another part of the interview, Mr. Stanford suggested that if any fraud had been committed, James M. Davis, his former chief financial officer, was to blame. “The investment and risk committee reported to Jim Davis, not to me,” he said. “The Stanford International Bank quarterly report was produced in Tupelo, Miss., under Davis’s direction and signed off by him. I trusted his integrity.”

A Bigger, Bolder Role Is Imagined For the IMF - (www.washingtonpost.com) Inside a cavernous assembly hall in downtown Washington, dignitaries gather twice a year for routine meetings of the International Monetary Fund. Before long, though, the room could take center stage in the IMF's transformation into a veritable United Nations for the global economy. Surrounded by blond wood paneling and a digital screen the size of a cinema's, central bankers and finance ministers would meet to convene a financial security council of sorts. Serving almost as ambassadors to the IMF, they would debate ways to put out the world's economic fires and stifle reckless policies before they ignite new ones. Bowing to a new economic world order, the IMF would grant fresh powers to the likes of China, India and Brazil. It would have vastly expanded authority to act as a global banker to governments rich and poor. And with more flexibility to effectively print its own money, it would have the ability to inject liquidity into global markets in a way once limited to major central banks, including the U.S. Federal Reserve. That image of a radically transformed IMF -- whose role in the global economy had turned largely advisory in recent years -- is now coming together through internal IMF documents, interviews and think-tank reports. Finance ministers from major nations will begin grappling with the formidable details of the IMF's makeover this weekend when they converge in Washington for the fund's biannual assembly. The changes, broadly outlined by President Obama and other leaders of the Group of 20 nations in London earlier this month, could take months, even years to take shape. But the IMF is all but certain to take a central role in managing the world economy. As a result, Washington is poised to become the power center for global financial policy, much as the United Nations has long made New York the world center for diplomacy. The IMF's mission is expanding so broadly that its managing director, Dominique Strauss-Kahn, said in an interview that the organization -- which underwent deep cuts last year before the financial crisis swept the globe -- may boost staffing in coming months, potentially creating dozens of high-paying jobs in the District.

Southern California office market is hammered by recession - (www.latimes.com) Vacancy rates have climbed as high as 30% in some areas, and landlords have been offering deep discounts or such perks as a year of free rent as an incentive to sign leases. Layoffs, tight credit and other fallout from the troubled economy have battered Southern California's office market, leading to vacancy rates as high as 30% in some areas. The pain is expected to continue for months, if not years, with vacancies rising even as the economy shows modest signs of recovery, according to industry observers tracking activity in the first quarter. "We have a rough road ahead of us," said Joe Vargas, senior managing director of real estate brokerage Cushman & Wakefield. "It's going to be a very challenging market for the remainder of the year." Desperate landlords in the Inland Empire have begun offering such perks as a year of free rent to attract tenants. In West Los Angeles, owners are steeply discounting the monthly cost of an office -- cutting rates that, ironically, grew so high during the boom years that many companies were forced to move out and find cheaper digs. Vacancy in Los Angeles County reached 14.3% in the first quarter, up from 11.2% a year earlier, according to a report released last week by Cushman & Wakefield. In Orange County, where demand has been dwindling for more than a year, vacancy ticked up to nearly 18% from 15%. Among the hardest-hit markets are the Inland Empire, Irvine and north Los Angeles County, all of which have been wracked by the losses of tenants in the troubled industries of mortgage and finance. Vacancies in all three areas have surpassed 20%, a sign of a very weak market. In Ontario and the area around Los Angeles International Airport, vacancy tops 30%.

Citigroup Credit Losses Rising Rapidly, Goldman Says - (www.bloomberg.com) Citigroup Inc.’s credit losses are growing at a “rapid rate,” undermining Chief Executive Officer Vikram Pandit’s efforts to stabilize the U.S. bank, according to Goldman Sachs Group Inc. While Citigroup posted first-quarter net income of $1.6 billion last week, the New York-based bank suffered an “underlying” loss of 38 cents a share, Richard Ramsden, a Goldman Sachs analyst, wrote in a research note dated yesterday. He repeated a “sell” rating on the stock. Citigroup, which received $45 billion in government aid, ended a five-quarter losing streak on trading gains and an accounting benefit for companies in distress. The bank, which cut compensation costs and took fewer writedowns, still reported higher delinquencies on home and credit-card loans. The results “included several one-time items which muddied the waters,” Ramsden wrote in the note. “The key question mark in our mind remains what Citi’s earnings power will be on the other side of the crisis.” Citigroup fell 48 cents, or 13 percent, to $3.17 at 10:29 a.m. in New York Stock Exchange composite trading. The shares had dropped 46 percent this year before today. Ramsden halved his estimate for Citigroup’s 2009 loss to 25 cents a share, while keeping unchanged his forecast for net income of 20 cents a share for 2010. He expects the bank to earn 40 cents a share in 2011. The analyst kept a 12-month price target for the stock of $1.50.

Investors Air Discontent With Bank of America - (www.nytimes.com) For more than 70 years, through good times and bad, the Eliasberg family stood by their bank. Their tiny lender grew up to become part of what is now Bank of America — tying the family’s fortunes to that of the nation’s largest bank. But now Richard Eliasberg, whose father helped found Baltimore National Bank, in 1933, says he is losing faith in Bank of America, and in its embattled leader, Kenneth D. Lewis. Like a growing number of shareholders, Mr. Eliasberg is alarmed by the daunting challenges confronting Bank of America. Mr. Lewis, the chairman and chief executive, is under growing pressure, both from within and without, to turn things around fast. “For the first time, I’m disappointed,” said Mr. Eliasberg, who owns a substantial number of Bank of America shares for an individual, though he has sold a third of his shares in the last year. Anxious shareholders are likely to get a bit of good news on Monday, when Bank of America is expected to report solid first-quarter results. Across much of the banking industry, tentative signs of recovery are appearing, notably in mortgage lending and trading. But Mr. Lewis, who built Bank of America into an industry behemoth by making a string of acquisitions, still has much to prove. Many of his investors are growing restive, and they are unlikely to be quieted by one quarter’s results.

Erin Go Broke - (www.nytimes.com) “What,” asked my interlocutor, “is the worst-case outlook for the world economy?” It wasn’t until the next day that I came up with the right answer: America could turn Irish. What’s so bad about that? Well, the Irish government now predicts that this year G.D.P. will fall more than 10 percent from its peak, crossing the line that is sometimes used to distinguish between a recession and a depression. But there’s more to it than that: to satisfy nervous lenders, Ireland is being forced to raise taxes and slash government spending in the face of an economic slump — policies that will further deepen the slump. And it’s that closing off of policy options that I’m afraid might happen to the rest of us. The slogan “Erin go bragh,” usually translated as “Ireland forever,” is traditionally used as a declaration of Irish identity. But it could also, I fear, be read as a prediction for the world economy. How did Ireland get into its current bind? By being just like us, only more so. Like its near-namesake Iceland, Ireland jumped with both feet into the brave new world of unsupervised global markets. Last year the Heritage Foundation declared Ireland the third freest economy in the world, behind only Hong Kong and Singapore. One part of the Irish economy that became especially free was the banking sector, which used its freedom to finance a monstrous housing bubble. Ireland became in effect a cool, snake-free version of coastal Florida. Then the bubble burst. The collapse of construction sent the economy into a tailspin, while plunging home prices left many people owing more than their houses were worth. The result, as in the United States, has been a rising tide of defaults and heavy losses for the banks. And the troubles of the banks are largely responsible for putting the Irish government in a policy straitjacket. On the eve of the crisis Ireland seemed to be in good shape, fiscally speaking, with a balanced budget and a low level of public debt. But the government’s revenue — which had become strongly dependent on the housing boom — collapsed along with the bubble. Even more important, the Irish government found itself having to take responsibility for the mistakes of private bankers. Last September Ireland moved to shore up confidence in its banks by offering a government guarantee on their liabilities — thereby putting taxpayers on the hook for potential losses of more than twice the country’s G.D.P., equivalent to $30 trillion for the United States.

Good News: Option ARM Resets Delayed - (www.businessweek.com) Finally, there might be some good news for struggling homeowners. Thousands of mortgage loans that were supposed to reset at a higher rate this spring won't be changing, putting off the grim threat of foreclosure or bankruptcy for many Americans by as much as a year. Unfortunately, the reprieve will only be a temporary one. A year ago, real estate forecasters were warning that spring 2009 would be the start of a whole new wave of foreclosures. Across the country option adjustable-rate mortgages (ARMs), an especially scary loan type often compared to a ticking time bomb, were set to detonate at an accelerating pace. But something happened that few could have predicted. Interest rates dropped to historically low levels and the wave of resets could now be delayed until well into 2010. As a result, many borrowers—who have the option of making payments so low that they don't even cover the interest, which is then added to the original loan balance—now have some breathing room. Third of Loans Deeply Delinquent: Credit Suisse (CS) estimates (click here to see the chart) that the resets will begin to accelerate next spring, rising from about $4 billion resetting in March 2010 to a peak of $14 billion in September 2011. The current level is about $1 billion. About $500 billion of option ARM loans are outstanding, according to the bank. "Things have gotten pushed out," says Chandrajit Bhattacharya, director in U.S. Mortgage Strategy for Credit Suisse. "Right now it looks like the big increase is probably going to be somewhere toward the middle of next year."




OTHER STORIES:

Deutsche sees risk of U.S. GDP falling 10 pct in Q1 - (www.reuters.com)
U.S. Stocks Tumble as Financials, Commodity Shares Retreat - (www.bloomberg.com)
Oil Falls the Most in Seven Weeks as Dollar Gains, Stocks Drop - (www.bloomberg.com)
Treasuries Rise as Bank Credit Concerns Spur Risk Aversion - (www.bloomberg.com)
Bill Miller Not Dead Yet as Value Funds Bury Quants - (www.bloomberg.com)

Europe’s rich rush for hedge fund exits - (www.ft.com)
IMF Lending Exceeding $55 Billion Prompts Bondholders’ Anxiety - (www.bloomberg.com)
China’s Influence Grows Along With Its Car Sales - (www.nytimes.com)

China set to invest again in Europe - (www.ft.com)
U.S. May Convert Banks’ Bailouts to Equity Share - (www.nytimes.com)
U.S. Economy: Leading Index Shows Recovery Many Months Away - (www.bloomberg.com)
IBM Sales Miss Estimates Amid Slump, Currency Changes - (www.bloomberg.com)
Oracle to Acquire Sun Microsystems for $7.4 Billion - (www.bloomberg.com)
Insurance premiums rise on sour profits, market returns - (www.usatoday.com)
PepsiCo Offers About $6 Billion to Buy Out Bottlers - (www.bloomberg.com)
Inflation is looming on America’s horizon - (www.ft.com)