Thursday April 9 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Pension insurer shifted to stocks - (www.boston.com) Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks. Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds. The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent - and all of its stock-related investments were down 23 percent - as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest. No statistics on the fund's subsequent performance were released. Nonetheless, analysts expressed concern that large portions of the trust fund might have been lost at a time when many private pension plans are suffering major losses. The guarantee fund would be the only way to cover the plans if their companies go into bankruptcy.

Pension crisis growing in New Jersey - (www.nj.com) That would be Phil Murphy, Gov. Jon Corzine's former colleague at Goldman Sachs. Murphy chaired a task force that in 2005 produced a study of the state pension fund. The fund covers not just state employees, but also workers at lower levels of government as well. The study found the state and local pension plans were badly underfunded even then, at a time when the fund's investments were soaring along with the stock market. It put the unfunded liability at $12.1 billion. That gap was so big that immediate action was called for, said the study's authors. Some unspecified state asset should be sold to beef up the fund. A one-time infusion of $8.6 billion would bring the fund into balance by fiscal 2007 if it were accompanied by annual state and local contributions totaling $1.7 billion. Corzine incorporated that advice into his ill-fated plan to borrow billions against future Turnpike tolls. That plan fell through. And the bottom fell out of the stock market. Therefore an actuary applying the fiscal analysis of that study to the current state of the fund would come to the following conclusion: Yikes! Some estimates say the unfunded liability could now be as much as $50 billion. Even under the rosiest of scenarios, the fund would require a one-shot infusion exceeding the size of the annual state budget to achieve the balance recommended in that 2005 report.

In a Down Time Everywhere Else, K Street Bustles - (www.washingtonpost.com) Last month, just before Valentine's Day, business at Holland & Knight was so slow that the law firm laid off more than 240 lawyers and staff, victims of the economic downturn that has dented Washington's reputation for being recession-proof. But one area of the multi-service firm was thriving. Rich Gold, head of the firm's public policy and regulation practice, was hiring more than a dozen lobbyists, bringing his federal lobbying team to about 70, every one of them scrambling to stay on top of provisions and changes in the mammoth economic recovery package that was barreling through Congress. They were handling about 240 clients, including 50 new ones, all eager to win a portion of the stimulus that President Obama wanted passed. "On the legal side of things, we've done our share of downsizing because of the economy, because of reduced demand," said Gold, the firm's chief lobbyist. "But on the policy side . . . we're picking up a couple clients a week at this point." Put another way, Main Street's gloom has been K Street's boon. The $787 billion stimulus package -- along with an ambitious new federal budget, bank bailouts and the beginning of a regulatory overhaul -- has succeeded in stimulating the economy along Washington's avenue of influence. In the months since the November election, more than 2,000 cities, companies and associations have hired lobbyists to help them push their agendas on Capitol Hill and at the White House, easily outpacing such numbers after the previous two elections, according to disclosure records.

Bernanke Seeks to Avert Pressures on Fed After Crisis Abates - (www.bloomberg.com) At 4:30 p.m. on March 23, on a day dominated by release of the Obama administration’s plan to save the banking system and the fourth-best day in postwar Wall Street history, the U.S. Treasury and Federal Reserve released a one-page joint statement on the division of economic responsibilities between the two agencies. Amid the flurry of news, the statement passed with little public attention; neither the New York Times nor Wall Street Journal printed articles about it the next day. The release said that while the Fed collaborates with other agencies to preserve financial stability, it alone is in charge of keeping consumer prices stable, its independence “critical.” The statement was the culmination of a behind-the-scenes, two-month long debate involving the Fed’s Open Market Committee, as well as the Treasury. The discussions were driven by Chairman Ben S. Bernanke’s concern that work with the Bush and Obama administrations on repairing banks and markets not lead to attempts at political pressure later that would delay the start of measures to combat inflation. “This is all about independence,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington and a former Fed governor. “Even though the Fed is cozying up to the Treasury, it is important to know that the Fed would maintain some stability over monetary policy.”

GM, Chrysler rocked by Obama autos team hard line - (www.reuters.com) The Obama administration seized the wheel of the failing U.S. auto industry on Monday, forcing out General Motors Corp's CEO, pushing Chrysler LLC toward a merger and threatening bankruptcy for both. GM shares plunged around 20 percent in Frankfurt after steps outlined by the White House autos panel marked a stunning reversal for management at both GM and private equity-owned Chrysler. The moves came after Europe's second-biggest carmaker by sales PSA Peugeot Citroen ousted CEO Christian Streiff, replacing him with former Corus head Philippe Varin from June 1. The Obama administration pledged only to fund GM's operations for the next 60 days while it develops a sweeping restructuring plan, instead of granting GM's request for up to a further $16 billion in loans. GM CEO Rick Wagoner, who had presided over the company's rapid decline in the past five years and had run the automaker since 2000, was forced out at the request of the autos panel headed by former investment banker Steve Rattner. A majority of GM's board will also be replaced. "We are left to look back and say that Wagoner's appointment as both chairman and CEO in 2003 was little more than an act to ensure the dynasty of GM boardroom arrogance and failure continued," said Howard Wheeldon, senior strategist at brokerage BGC Partners.

Geithner's Hedge Fund - (www.washingtonpost.com) Call it Uncle Sam's hedge fund. The rescue of the American financial system proposed by Treasury Secretary Timothy Geithner is, in all but name, a gigantic hedge fund. The government would lend vast sums to private investors to enable them to buy loss-ridden assets at discounts from banks with the prospect of making sizable profits. If that's not a hedge fund, what would be? The hope is that the $14 trillion U.S. banking system would expand lending if it could get rid of many of the lousy securities and loans already on its books. View Only Top Items in This Story
Almost everyone thinks that a healthier banking system is necessary for a sustained economic recovery. Can the Geithner plan work? Maybe, though obstacles abound. One is political. Private investors may balk at participating because they fear populist wrath. If the plan succeeds, many wealthy people will become even wealthier. Congress could subject them (or their firms) to humiliating hearings or punitive taxes. Why bother? Another problem: Investors and banks may be unable to agree on prices at which assets would be bought. But succeed or fail, Geithner's plan illuminates a fascinating irony. "Leverage" -- borrowing -- helped create this mess. Now it's expected to get us out. How can this be? It's not as crazy as it sounds. Start with the basics on how leverage affects investment returns. Suppose you bought a stock or bond for $100 in cash. If the price rises to $110, you make 10 percent. Not bad. Now, assume that you borrowed $90 of the purchase price at a 5 percent interest rate. Over a year, the stock or bond still increases to $110, but now you've made more than 50 percent. You pay $4.50 in interest and pocket a $5.50 gain on your $10 investment. Note, however, that if the price fell to $95, you'd be virtually wiped out ($4.50 in interest paid plus $5 lost on the security).

Boston’s John Hancock Tower May Be Sold for Half of 2006 Price - (www.bloomberg.com) Boston’s John Hancock Tower, the tallest skyscraper in New England, may be sold to lenders led by Normandy Real Estate Partners for about half the $1.3 billion paid in 2006 by Broadway Partners, which defaulted on its loan. The building will go on the auction block tomorrow in New York under state rules that govern mezzanine loan foreclosures. Mezzanine loans are intended to fill the gap between a first mortgage and the borrower’s cash down payment. While mezzanine lenders seeking to foreclose must hold an auction of ownership interests, they start out ahead of other bidders because they are credited the unpaid balance of their loan as part of their bid. Normandy controls about $472 million of loans on the Hancock Tower, according to people familiar with the financing, who asked to remain anonymous. “By the time the process gets to a public auction, the most likely winner will be the senior-most foreclosing mezzanine lender,” said David Furman, a real estate partner at law firm Gibson Dunn & Crutcher. “It is allowed to credit bid the amount of its loan; therefore, it can usually outbid everyone else.”

Blackstone Rejects SEC Request for Fund Data as Fortress Agrees - (www.bloomberg.com) Blackstone Group LP, the world’s largest private-equity firm, rebuffed a request from securities regulators to publicly disclose the performance of its buyout and hedge funds while Fortress Investment Group LLC agreed. The U.S. Securities and Exchange Commission asked both New York-based companies to include fund returns in their financial reports, according to letters the agency released earlier this month. Fortress did so in its annual report. Blackstone told the SEC it wouldn’t. Buyout firms and hedge-fund managers are accustomed to operating in private, and the decisions by both companies to sell shares to the public in 2007 sparked debate over how much information they would divulge. Returns are an important indicator of a firm’s ability to attract new cash from clients and increase revenue, said Conrad Weymann, managing partner at Mallory Capital Group LLC, a Darien, Connecticut-based investment bank. “In this game, it’s track record, track record, track record,” said Weyman, whose firm raises money for private- equity and private real-estate funds.





OTHER STORIES:

America the Tarnished - (www.nytimes.com)
Rising Powers Challenge U.S. on Role in I.M.F. - (www.nytimes.com)
EU, U.S. Joblessness to Reach 10% This Year - (www.bloomberg.com)
Only a united front at the London G20 can save the world from ruin - (www.telegraph.co.uk)
Europe fetches the monetary helicopters, at long last - (www.telegraph.co.uk)
'Perfect storm' puts all types in financial peril - (www.usatoday.com)

U.S. Stock-Index Futures Decline; Citigroup, GM, Alcoa Drop - (www.bloomberg.com)
Stocks Drop, Treasuries Gain as U.S. Warns on Banks, Carmakers - (www.bloomberg.com)
Asia stocks hammered on investors' flight to safety - (www.marketwatch.com)
Dollar, Yen Gain as Euro, Pound Weaken on Deepening Recession - (www.bloomberg.com)
Treasuries Rise as Stocks Fall on Concern GM, Chrysler May Fail - (www.bloomberg.com)
Oil slides below $51 in Asia on profit-taking - (finance.yahoo.com)
Corporate investment-grade bond volume surges - (www.marketwatch.com)

Japan's industrial production falls 9.4 percent - (finance.yahoo.com)
Home and company loans pick up - (www.ft.com)
G-20 Targets Hedge Funds as Leaders Near Consensus - (www.bloomberg.com)
EU, U.S. Joblessness to Reach 10% This Year, OECD’s Gurria Says - (www.bloomberg.com)
Obama's Redesigned G-20 Agenda - (www.businessweek.com)
U.S. Moves to Overhaul Ailing Carmakers - (www.nytimes.com)
GM’s Wagoner Steps Aside After Failing Obama Scrutiny - (www.bloomberg.com)
Regulators see new role for Fannie, Freddie: report - (www.reuters.com)
Why Berlin Says U.S. "Bad Bank" Plan is Bad - (www.time.com)