Saturday April 25 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Taxing Grandma to Subsidize Goldman Sachs - (www.businessweek.com) Financial wizards have managed to buy preferred treatment just as the sacrifices of American retirees help pay off Wall Street's losses. Monday afternoon, Goldman Sachs (GS) reported much larger than expected first-quarter profits on the heels of the strong earnings Wells Fargo (WFC) reported last week. No one should be surprised. The Federal Reserve has provided the banks with lots of cheap funds through various emergency lending facilities and quantitative easing. The Fed has permitted the banks and financial houses to park vast sums of unmarketable paper on its books—securities made nearly worthless by the misjudgment and avarice of bankers. In return, the Fed has provided these paragons of finance with fresh, cheap funds to lend at healthy rates on credit cards, auto loans, and even mortgages. While the Fed cuts the banks slack, the bankers are busy turning the screws on their debtors by raising credit card rates and fees, and harassing distressed borrowers with all the zeal the Roman army displayed sacking Palestine. Easy gravy in extra bank spreads: It takes good banking skills to borrow at 3%, lend at 5%, and make a profit. It takes much less business acumen to borrow at 2%, lend at 5%, and make a profit—which is exactly what has happened. The extra fees are just gravy. Increasing the spread for banks is akin to subsidizing parts purchases for car companies. The folks at GM (GM) would look like wizards if the Fed had been similarly generous to them. This all comes at a cost to someone—America's elderly. Many retirees depend on interest from certificates of deposit. Those rates are down dramatically and as CDs expire, retirees are compelled to reinvest their savings at lower rates and live on less income. They can take comfort that their sacrifices are helping pay off Wall Street's losses from the lavish bonuses that were paid bankers—for example, the $70.3 million Goldman doled out to CEO Lloyd Blankfein in 2007. lavish welfare for failing U.S. banks: The contrast between how the banks and car companies are treated is the product of political acumen, not financial skills, at Goldman Sachs and other banks. Having fed the campaign machines of both political parties and lavished speaking fees on future White House economic advisors, these financial wizards have managed to purchase preferred treatment in our capital. When times are good, their troops feast like a conquering Roman army. When they fail, Washington gives them welfare on the gold plates of emperors. Now the banks, led by Goldman, want to pay back the TARP funds and free themselves of federal restrictions on compensation. After all, as private concerns, they argue that what they pay will depend on what profits they can generate. Yet the Fed's lines of credit to banks, insurance companies, and such exceed $800 billion. Its monetary policy transfers income from retirees to the likes of Blankfein. Isn't this a great country?

Big Cracks Starting To Show In Commercial Real Estate - (www.cnbc.com) Commercial real estate could soon make big trouble for the market. It’s been linked to a string of negative developments and now REITs are tumbling. Shares of Boston Properties closed significantly lower on Tuesday as did Simon Property Group as well as the iShares Dow Jones US Real Estate ETF which tracks the sector. The moves come after Goldman Sachs blamed commercial real estate as a major factor for their most recent losses. And those losses could be mounting. Data released a few days back by real estate research firm Reis shows vacancies have soared at malls all around the nation. As a result asking rents dropped to $19.44 per square, down 0.6 percent, the largest single-quarter decline on Reis' records. If you watch Fast Money regularly you know Karen Finerman has been concerned about this trend. Apparently Deutsche bank is too. They estimate further price declines in commercial real estate could be as much as 45%! How is Finerman trading it? I’m short commercial real estate across the board, she says. I still think there’s room to go to the downside. I'd short Essex Property, Regency Centers, or Brookfield Properties. Or you can look at Acuity Brands, says Guy Adami. (They're a maker of light fixtures for commercial properties) If it gets up to $28 I’d get short.

N.Y. Pension Deals Seen as Focus of Wide Inquiry - (www.nytimes.com) New York State prosecutors and the Securities and Exchange Commission are investigating whether the Carlyle Group, one of the nation’s largest and most politically connected private equity firms, made millions of dollars in improper payments to intermediaries in exchange for investments from New York’s state pension fund, according to two people with direct knowledge of the case. The inquiry, which is examining the activities of a number of investment companies, focuses on what has been a widespread practice among hedge funds and private equity firms — paying so-called placement agents to gain business managing the pension funds run by states for public employees. Such payments often raise questions about conflicts of interest and concerns that they lead placement agents to bribe public officials. The Carlyle Group, which over the years has employed George H. W. Bush and the former British prime minister John Major, is among the most prominent of the firms under scrutiny, and manages $1.5 billion of the state’s pension assets. Carlyle’s efforts to gain pension business in other states have drawn criticism before, but company officials have never been charged with any wrongdoing.

John Dizard: Geithner's and Citi's Days Numbered - (www.nakedcapitalism.com) Now I will admit my headline overstates John Dizard's current column in the Financial Times a hair, but only a hair. Dizard has a somewhat baroque way of presenting his messages, and the color can take the edge off his communiques. Nevertheless, he has cultivated contacts among central bankers as well as at the major financial firms, so he typically has good intelligence. The big messages are that Washington simply cannot make all the bank bondholders good, despite its pretenses it can. Citi is going to become a test case sooner than most realize. Dizard also says that the charade that the banks have a liquidity problem not a solvency problem, is wearing thin even on those who have good reason to play along (and as far as I can tell, there is absolutely no Plan B when the world wakes up and realizes what a crock Plan A was). Dizard's certainty that Geithner and Citi are goners comes through loud and clear even through his elaborate prose. From the Financial Times:
“That piece of shit up there, I never liked him. I never trusted him... But that’s history, I’m here, he ain’t.” Tony Montana (Al Pacino), watching a colleague hanged from a helicopter. Scarface (1981). It’s nearly time for some Washington careers to get the helicopter-noose treatment, particularly among the crowd of unvetted advisers and the tiny group of confirmed appointees at the Treasury Department. Politicos and policy hustlers have a style that differs slightly from Tony’s, but they’re about as sentimental. Secretary Timothy Geithner, not a bad or dishonest person, just a mediocrity who picked the wrong friends and trusted them for too long, can probably hear the rotor blades in the distance. Sadly, the prospective compensation packages for his next career are more modest than they would have been even a year ago… For the rest of us, the question is who can be the next to take the lead on the national workout. That is probably Sheila Bair, chairman of the Federal Deposit Insurance Corp. But the FDIC needs serious reinforcement of its talent, and a different capital structure, for this to work. You can pick out the likely geographical spot where the present bail-out wave will recede: 399 Park Avenue, the Citigroup HQ. Already, the Federal Deposit Insurance Corp’s resolution planners are circling the holding company’s shareholders, bondholders, and – at last! – top management. Even other Tarp financed Wall Streeters are getting tired of the pretence that the Treasury and its advisers are brilliant or that their schemes make sense. Vishwanath Tirupattur, a Morgan Stanley credit strategist, said on a conference call last week that “The policymakers think lack of liquidity and leverage is the main problem…they think prices are depressed more for technical than underlying reasons. There are clearly several asset classes where current prices are better explained by collateral performance.” “Collateral performance” means that the banking system’s real losses, not temporary mark to market losses, are overwhelming the capital injections finance-able by Federal bail-out appropriations. Congress won’t vote for any more, because they want to safely return home to their districts and maybe get re-elected. So who’s left? The receivers at the FDIC. They’re sort of like the Internal Revenue Service, though without the Service’s easygoing institutional nature and its agents’ good sense of humour. When there is a seizure, or “resolution”, of a bank, they take over as owner, guarantee deposits, and fight to take control of any assets. They are not customer-centric, relationship lenders. The FDIC is a corporation owned by the US government, but its costs are paid through levies on member banks. Before Sheila Bair puts up government buildings colour swatches on the wall of Mr Geithner’s office, though, she will want to decide whether it might make more sense to stay in her current position. Senate confirmation would not be a challenge for her. Maybe, though, having some other punching bag at the Treasury would be better, especially since the FDIC faces staff shortages. Managing that, as well as a leadership transition and a raft of resolutions, would be difficult. Also, while the Wall Streeters in Mr Geithner’s corner are demoralised enough to be brushed aside, and the big bank shareholders are either playing some derivative arb or totally out of it, the bondholders of the banks aren’t going to run away crying like little girls. Their basic implied threat is to withhold any further capital investment in big banks, which example would be followed by foreigners. That is less scary than it was before Hank Paulson’s crash.
GM Creditor Cracks Show as Bankruptcy Threat Looms - (www.cnbc.com) GM Bondholders Pursue Separate Bankruptcy Strategies. The prospect of General Motors avoiding bankruptcy is becoming "less likely," and that may be pushing bondholders to pursue separate bankruptcy strategies, two sources close to government talks said on Tuesday. The Obama administration's auto task force led by Steven Rattner is in its second week of talks in Detroit and is preparing a reduced term sheet for bondholders for about $28 billion of unsecured GM debt. Those creditors have expressed frustration over the lack of detail they are receiving directly from the U.S. government or from GM in their talks. A united front by the 10-member bondholder committee may be starting to show signs of strain, according to two sources familiar with the group. "Bankruptcy court is a big unknown, and saying that we'll be in and out within two months doesn't sit right," said one person close to the bondholder committee. "The goal is to have an honest negotiation and that's what we're holding out for," the source said, who declined to be named due to the confidential nature of the negotiations. "An out-of-court scenario is becoming less and less likely with each passing day." At least one large bondholder is preparing for potential bankruptcy by reviewing which courts may be most favorable to bondholders, and has ruled out the Eastern District of Michigan as being more favorable to the United Auto Workers union, according to a second source familiar with the talks. The perception is that GM and the union would have a home court advantage in Michigan, and that the issue may draw protests in Detroit and enflame emotional confrontations, as opposed to a potential filing in New York or Delaware, that person said.

How to Puff Up Earnings, Goldman Sachs Style - (www.ritholtz.com) Leave it to the clever boys at Goldman Sachs to turn dross into gold: They have come up with a way to hide massive losses so clever, it requires special comment: The Orphan Month. Yesterday, we noted that the bulk of their profits had come from AIG transfer payments — the theft from taxpayers AIG 100% payouts funded via bailout monies that saw Goldie as one of the largest recipients. Floyd Norris notes that most of the AIG effect was in December. “For the first quarter, the total A.I.G. effect on earnings was, in round numbers, zero.” How is it possible that this occurred? Isn’t GS on a December to February calendar? Well, there is a small asterisk about that. It seems that GS is moving from a December to a quarterly calendar. Meaning their latest Q is January thru March. But what of December, with all t he AIG monies and the comparison to the strong December 2007 and all? In a word, Orphaned: Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s news release, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ending in February. The orphan month featured — surprise — lots of writeoffs. The pre-tax loss was $1.3 billion, and the after-tax loss was $780 million. Would the firm have had a profit if it stuck to its old calendar, and had to include December and exclude March? Truly astounding . . . the word Chutzpah simply does not do it justice . . .

Singapore devalues currency after GDP plunge - (business.timesonline.co.uk) Singapore’s central bank effectively devalued the city state’s currency yesterday as its Government warned that the global economic crisis would bring the worst economic plunge on record. Singapore’s unprecedented contraction between January and March was described by analysts as “horrendous”. First-quarter GDP shrank by 11.5 per cent compared with a year earlier, far outstripping analysts’ predictions. But worse was the Government’s dramatic revision of GDP forecasts for the full year, said traders in Singapore dealing rooms. Previous forecasts of a 5 per cent contraction were revised to one of between 6 per cent and 9 per cent. It was the third time forecasts have been adjusted in the past five months. Economists rushed to recalculate their outlooks for Singapore and what one told The Times were the “diminishing prospects of an early recovery”. The Trade Ministry said that recent, tentative signs of stability in, for example, the US housing market, did not yet amount to clear signs of a turnaround. The Monetary Authority of Singapore (MAS) — the central bank — said that “considerable downside risks to growth remain”. That was one of the reasons the MAS gave for easing monetary policy for only the second time since 2003.

Fiat Could Scrap Chrysler Talks Because of Unions - (www.cnbc.com) Italian car maker Fiat will abandon partnership talks with ailing Chrysler unless unions agree to cuts in labor costs, Fiat Chief Executive Sergio Marchionne said. Sending a clear warning to U.S. and Canadian unions, Marchionne told Wednesday's Globe and Mail newspaper the deal with the U.S. automaker had only a 50-50 chance of completion because of lack of progress in talks with union leaders. Canadian unions were especially resistant, he said. "Absolutely we are prepared to walk. There is no doubt in my mind," Marchionne said in the interview posted on the Toronto newspaper's website. "We cannot commit to this organization unless we see light at the end of the tunnel." Fiat and Chrysler are in talks with Chrysler's unions and bondholders to agree a partnership before an April 30 deadline set by the U.S. government. Washington has warned that Chrysler would go into bankruptcy if they fail to complete the deal, designed to save the smallest of Detroit's Big Three car makers. Chrysler also stands to get up to $6 billion in additional funding from the government if a deal is reached. Short of having Fiat inject cash into Chrysler, he said he would do whatever it took to save the car maker, including becoming chief executive.





OTHER STORIES:

Government to Report on Health of Top Banks - (www.cnbc.com)
UBS Posts Loss, Cuts Jobs - (www.cnbc.com)
Foreclosures Ramp Up - (www.cnbc.com)
Fed Weighs Holding Press Conferences - (www.cnbc.com)
Banks 'Virtually Laughing' at Loan Seekers: Trump - (www.cnbc.com)
BlackRock to Raise Up to $7 Billion for Toxic Assets - (www.cnbc.com)

U.S. Producer Prices Fall in March; Core Unchanged - (www.bloomberg.com)
U.S. Retail Sales Unexpectedly Drop as Jobs Evaporate - (www.bloomberg.com)
Fed’s Fisher Forecasts Steep Contraction in U.S. GDP - (www.bloomberg.com)
Workers’ Confidence About Retirement at Record Low, Survey Says - (www.bloomberg.com)
Intel Profit Declines 55% on Falling Chip Demand - (www.bloomberg.com)
Goldman Sachs Raises $5 Billion in Sale to Repay TARP Funds - (www.bloomberg.com)

Global Ad Spending to Drop Most in 29 Years, Hurting TV, Print - (www.bloomberg.com)
Stocks Spooked by Signs that Economy Remains Weak - (www.cnbc.com)
Yahoo to Cut Hundreds of Jobs: Source - (www.cnbc.com)
Pirates Seize 4 More Ships, 60 Crew Members - (www.cnbc.com)
SEC to review whether BofA broke the law - (www.ft.com)
Glamour Dims as Hecklers Hit the Auto Show - (www.nytimes.com)
Delta, AMR May Lead U.S. Airlines to $2 Billion Quarterly Loss - (www.bloomberg.com)
Brand Names Live After Stores Close - (www.nytimes.com)
Lehman Sitting on Bomb’s Worth of Uranium Cake as Prices Slump - (www.bloomberg.com)

Recession knocks VC funds to 5 1/2-year low - (www.sfgate.com)
Carry Trade Comeback Means Biggest Gains Since 1999 - (www.bloomberg.com)
The Student Loan Industry Pushes Back - (www.wasingtonpost.com)