Saturday April 11 Housing and Economic stories

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TOP STORIES:

Exclusive: AIG chiefs pressed to donate to Dodd - (www.washingtontimes.com) $160,000 streamed in as senator gained power on banking committee. As Democrats prepared to take control of Congress after the 2006 elections, a top boss at the insurance giant American International Group Inc. told colleagues that Sen. Christopher J. Dodd was seeking re-election donations and he implored company executives and their spouses to give. Sen. Christopher J. Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee, has lost some political standing heading into re-election because of his ties to American International Group Inc. The message in the Nov. 17, 2006, e-mail from Joseph Cassano, AIG Financial Products chief executive, was unmistakable: Mr. Dodd was "next in line" to be chairman of the Senate Banking, Housing and Urban Affairs Committee, which oversees the insurance industry, and he would "have the opportunity to set the committee's agenda on issues critical to the financial services industry. "Given his seniority in the Senate, he will also play a key role in the Democratic Majority's leadership," Mr. Cassano wrote in the message, obtained by The Washington Times. Mr. Dodd's campaign quickly hit pay dirt, collecting more than $160,000 from employees and their spouses at the AIG Financial Products division (AIG-FP) in Wilton, Conn., in the days before he took over as the committee chairman in January 2007. Months later, the senator transferred the donations to jump-start his 2008 presidential bid, which later failed. Now, two years later, Mr. Dodd has emerged as a central figure in the government's decision to let executives at the now-failing AIG collect more than $218 million in bonuses, according to the Connecticut attorney general - even as the company was receiving billions of dollars in assistance from the Troubled Asset Relief Program (TARP). He acknowledged that he slipped a provision into legislation in February that authorized the bonuses, but said the Treasury Department asked him to do it. The decision has generated national outrage and put the Obama administration into the position of trying to collect the bonuses after they were distributed. It also endangers Mr. Dodd's re-election chances in 2010 as his popularity tumbles in his home state. Despite all the claims that Washington has changed, the tale of Mr. Dodd's lucrative political ties to AIG is a fresh reminder that special interests continue to use donations and fundraising to sow good will with powerful lawmakers like Mr. Dodd. "The message seems clear: The boss says I want you to support the senator," said Sheila Krumholz, executive director of the nonpartisan Center for Responsive Politics, which studies political fundraising and ethics. "And I think the employees got the message."

Accounting Corrupted By Congress To Boost Bank "Profits" - (www.bloomberg.com) March 30 (Bloomberg) -- Four days after U.S. lawmakers berated Financial Accounting Standards Board Chairman Robert Herz and threatened to take rulemaking out of his hands, FASB proposed an overhaul of fair-value accounting that may improve profits at banks such as Citigroup Inc. by more than 20 percent. The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage-backed securities. A final vote on the resolutions, which would apply to first-quarter financial statements, is scheduled for April 2. FASB’s acquiescence followed lobbying efforts by the U.S. Chamber of Commerce, the American Bankers Association and companies ranging from Bank of New York Mellon Corp., the world’s largest custodian of financial assets, to community lender Brentwood Bank in Pennsylvania. Former regulators and accounting analysts say the new rules would hurt investors who need more transparency, not less, in financial statements. Officials at Norwalk, Connecticut-based FASB were under “tremendous pressure” and “more or less eviscerated mark-to- market accounting,” said Robert Willens, a former managing director at Lehman Brothers Holdings Inc. who runs his own tax and accounting advisory firm in New York. “I’d say there was a pretty close cause and effect.” Willens, investor-advocate groups including the CFA Institute in Charlottesville, Virginia, and former U.S. Securities and Exchange Commission Chairman Arthur Levitt oppose changes that would enable banks to put off reporting losses. ‘Outrageous Threats’ : “What disturbs me most about the FASB action is they appear to be bowing to outrageous threats from members of Congress who are beholden to corporate supporters,” said Levitt, now a senior adviser at buyout firm Carlyle Group and a board member at Bloomberg LP, the parent of Bloomberg News. FASB spokesman Neal McGarity said the proposal allowing significant judgment was “in the works prior to the Washington hearing and was merely accelerated for the first quarter, instead of the second quarter.” The plan on impaired investments “was an attempt to address an important financial reporting issue that has emerged from the financial crisis,” he said. Mary Schapiro, sworn in as SEC chairman in January, testified to Congress on March 11 that the agency recommends “more judgment in the application, so that assets are not being written down to fire-sale prices.” Unrealized Losses : Goldman Sachs Group Inc. investment strategist Abby Joseph Cohen and Nouriel Roubini, the New York University professor who predicted last year’s economic crisis, made bearish forecasts last week about the outlook for the banking industry. Cohen says banks aren’t yet “in the clear,” and Roubini expects the government to nationalize more lenders as the economy contracts. The 24-member KBW Bank Index rose 21 percent in March, after slumping 75 percent during the prior 12 months. By letting banks use internal models instead of market prices and allowing them to take into account the cash flow of securities, FASB’s change could boost bank industry earnings by 20 percent, Willens said. Companies weighed down by mortgage- backed securities, such as New York-based Citigroup, could cut their losses by 50 percent to 70 percent, said Richard Dietrich, an accounting professor at Ohio State University in Columbus. “This could turn net losses into significant net gains,” Dietrich said. “It may well swing the difference as to whether bank earnings are strong this quarter, or flat to negative.” ‘Unintended Consequences’ : Citigroup had $1.6 billion of losses last year for so- called Alt-A mortgages, according to the company’s annual report. That loss would be erased with the new FASB rules, Dietrich said. Bank of America Corp. in Charlotte, North Carolina, reported “income before income taxes” last year of $4.4 billion. The FASB proposal on impaired securities would increase that figure by about $3.5 billion, or the amount of “other- than-temporary” losses that the company recognized, Dietrich said. The new rule would mean the loss would be stripped out of net income, boosting earnings, though it would still be reported in financial statements. “We’re studying the proposals,” Bank of America spokesman Scott Silvestri said. Citigroup spokesman Michael Hanretta declined to comment. While helping lenders report higher earnings, FASB’s changes may hurt Treasury Secretary Timothy Geithner’s plan to remove distressed assets from bank balance sheets, Dietrich said. Allowing companies to hold on to assets without writing them down could discourage them from selling the securities, which would work against Treasury’s objective to resuscitate markets, he said. “It’s one of the unintended consequences of having the FASB bow to political pressure,” Dietrich said. Bank Lobbying : Fair-value requires companies to set values on most securities each quarter based on market prices. Banks argue that the rule doesn’t make sense when trading has dried up because it forces them to write down assets to less than they’re worth. “Mark-to-market is fundamentally not about a quote on a screen,” Richard Kovacevich, chairman of San Francisco-based Wells Fargo & Co., said in a March 13 speech.

Banks Starting to Walk Away From Foreclosures - (www.nytimes.com) Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox. Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss. So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name. “I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable. City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate. The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

GM CEO gets $23 million estimated pension - (msnbc.msn.com) Former General Motors Corp. Chairman and Chief Executive Rick Wagoner won’t get a severance payment from the automaker, but he’ll still get a pension and other benefits worth an estimated $23 million. In nearly 32 years with the company, Wagoner accrued pension benefits that the company valued at $22.1 million at the end of last year. The actual amount Wagoner will receive could vary because it will be paid in installments over the rest of his life. Wagoner, 56, also is entitled to $366,602 in unvested stock awards and $534,627 in deferred compensation as of Dec. 31, according to GM’s annual report.

Paul Krugman: Obama's Nobel Headache - (www.newsweek.com) Paul Krugman has emerged as Obama's toughest liberal critic. He's deeply skeptical of the bank bailout and pessimistic about the economy. Why the establishment worries he may be right. Traditionally, punditry in Washington has been a cozy business. To get the inside scoop, big-time columnists sometimes befriend top policymakers and offer informal advice over lunch or drinks. Naturally, lines can blur. The most noted pundit of mid-20th-century Washington, Walter Lippmann, was known to help a president write a speech—and then to write a newspaper column praising the speech. Paul Krugman has all the credentials of a ranking member of the East Coast liberal establishment: a column in The New York Times, a professorship at Princeton, a Nobel Prize in economics. He is the type you might expect to find holding forth at a Georgetown cocktail party or chumming around in the White House Mess of a Democratic administration. But in his published opinions, and perhaps in his very being, he is anti-establishment. Though he was a scourge of the Bush administration, he has been critical, if not hostile, to the Obama White House. In his twice-a-week column and his blog, Conscience of a Liberal, he criticizes the Obamaites for trying to prop up a financial system that he regards as essentially a dead man walking. In conversation, he portrays Treasury Secretary Tim Geithner and other top officials as, in effect, tools of Wall Street (a ridiculous charge, say Geithner defenders). These men and women have "no venality," Krugman hastened to say in an interview with NEWSWEEK. But they are suffering from "osmosis," from simply spending too much time around investment bankers and the like. In his Times column the day Geithner announced the details of the administration's bank-rescue plan, Krugman described his "despair" that Obama "has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they're doing. It's as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street."

California Needs New $11 Billion Cash Loan as Deficit Emerges - (www.bloomberg.com) California will likely need $11 billion to pay bills in what may be its largest cash-flow borrowing since 2003, state finance officials said. The state will have exhausted all available cash by August along with $19 billion in internal funds and may need to bridge a $10.6 billion gap between projected monthly expenditures and revenue, state controller John Chiang, a Democrat, said yesterday in a news release. California, home to one of every eight Americans, faces an $8 billion budget shortfall in the coming fiscal year even after Governor Arnold Schwarzenegger and lawmakers agreed in February to close a record $42 billion deficit with a package of tax increases, spending cuts and borrowing intended to leave the government with a surplus 16 months from now. “The borrowing is going to have to happen fairly quick into the new fiscal year,” said Tom Dresslar, spokesman for California Treasurer Bill Lockyer. Officials also said California seeks federal government guarantees for its notes that would be required by many institutional purchasers. Passage of the current budget plan ended a four-month impasse that left California nearly broke and on the verge of issuing IOUs to pay daily bills. The standoff also forced Lockyer to halt state bond sales in November, saying investors wouldn’t lend California money at affordable rates until the stalemate ended.

Calif.'s budget fix falls heavily on taxpayers - (news.yahoo.com/s/ap) When they plugged California's $42 billion budget hole last month, Gov. Arnold Schwarzenegger and legislative leaders said everyone had to give up something to repair the state's finances. That sentiment did not extend to California businesses and corporations with significant operations in the state. All the tax hikes in the two-year budget plan — a boost in the sales tax that took effect Wednesday and increases in the personal income tax and vehicle license fee — fall squarely on the shoulders of working Californians. That's a solution unique among states struggling with budget deficits and runs counter to the approach of the Obama administration, which is pushing tax cuts for low- and middle-income Americans. The decision also is beginning to feed the backlash over five budget-related measures California lawmakers are asking voters to approve during a special election in May. Anti-tax groups have begun a campaign to defeat the ballot measures, saying the budget package places too much of a burden on taxpayers in a state that already has a reputation for high taxes. A recent poll shows the propositions in trouble, including the one Schwarzenegger wants most: a measure that would implement a state spending cap in exchange for extending the taxes an additional one to two years. Just 39 percent of likely voters support that measure, Proposition 1A, with 46 percent opposed, according to the Public Policy Institute of California survey. If voters reject that and the other budget-related measures on May 19, California would face a $6 billion shortfall. Taxpayer groups are undeterred by that prospect, saying lawmakers should have solved the budget deficit without putting so much of the cost on average Californians. The Howard Jarvis Taxpayers Association estimates the budget package will cost a family of four an additional $1,100 a year, largely canceling any benefit Californians will receive from federal tax cuts. By comparison, no tax increases were seriously considered for businesses. Instead, the budget deal contains a long list of corporate tax breaks and credits, including ones for the film industry and a change in the tax formula that will save businesses hundreds of millions of dollars.




OTHER STORIES:

Banks Are Set to Receive More Leeway on Asset Values - (www.nytimes.com)
Cerberus Tries to Salvage What It Can From Chrysler - (www.nytimes.com)
Seattle FHLB Had ‘Material Weaknesses’ in Internal Controls - (www.bloomberg.com)

FHA Mortgage Defaults, Delinquencies Rise - (online.wsj.com)
Foreclosure starts rise, but few houses actually auctioned - (www.idahostatesman.com)
Apartment vacancies surge on job losses, new inventory - (www.seattlepi.com)
Real estate: Oh, how things have changed - (www.whittierdailynews.com)
Desperate efforts to prevent sane re-pricing of real estate - (jameshowardkunstler.typepad.com)
AIG Was Responsible For Banks' Recent Profitability - (zerohedge.blogspot.com)
Fed and Treasury's Power Pact - (www.bloomberg.com)
Financing the Empire - (www.counterpunch.org)
Asia's savers are not the culprits - (www.atimes.com)

Is BofA's Lewis the Next CEO in the Hotseat? - (www.cnbc.com)
Billionaire Peter Peterson's Foundation - (www.pgpf.org)
America the Tarnished - (www.nytimes.com)
Your Moment of Obama Zen - (www.paul.kedrosky.com)
George Carlin Lives On - (www.dvorak.org)

Job Losses at 742,00 in March; Planned Layoffs Fall - (www.cnbc.com)
Mortgage Applications Climb, Rates at Fresh Low - (www.cnbc.com)
Ross Says Satyam Is 'Interesting'; Declines Comment - (www.cnbc.com)
IMF Predicts up to 1% Contraction in '09 - (www.cnbc.com)
Automakers Set to Report Weak March Sales - (www.cnbc.com)
Obama's Thinking on GM, Chrysler Is Unchanged - (www.cnbc.com)
Honda to Cut North American Production, Worker Pay - (www.cnbc.com)
Worried About Conficker Virus? Here's What To Do - (www.cnbc.com)
HP Mulls Google Software Instead of Windows for PC - (www.cnbc.com)
Cramer: Too Late to Buy In? - (www.cnbc.com)
Japan Business Confidence Dives to Record Low - (www.cnbc.com)