Wednesday April 22 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Walnut Creek sales tax revenue plummets - Inside Bay Area - (www.insidebayarea.com) Walnut Creek is grappling with a projected 20 percent drop in sales tax income, bringing it to its lowest level in more than a decade. And the news about property tax income is also grim, a drop of more than $2 million is anticipated for the next fiscal year, which starts in July. In February, city leaders froze 19 open positions and took other cost-saving measures to close a $3.3 million deficit in this year's budget. At that time, advisers forecast that the 2009-10 budget would be marred by a $3.3 million shortfall. Now, with sales tax revenue from the fourth quarter finally rolling in, the news is even bleaker — the deficit for 2009-10 is actually $5.4 million. Even more startling are projections for 2010-11, which show a $13 million shortfall, and 2011-12, which show a $16.7 million deficit if drastic steps are not taken. Although city officials deny the sky is falling, the days of full city staffing and paying for capital projects with cash may be gone. In a city that has long relied on robust auto and retail sales revenue, the recession is hitting Walnut Creek especially hard. In the past, sales tax revenue has totaled about $20 million per year; for 2009-10, that number is down by $4.3 million — $2.1 million more than anticipated just two months ago. A drop in auto sales is the chief culprit, but declines in gasoline and retail store sales are also to blame, said Lorie Tinfow, assistant city manager. The loss is projected to get worse over the next few years, with a projected $9.9 million drop in sales tax revenue by 2011-12.

Treasury Directs GM to Prepare for Bankruptcy Filing - (www.cnbc.com) The Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by a June 1 deadline, despite GM's public contention that it could still reorganize outside court, people with knowledge of the plans said during the weekend. Fritz Henderson, the new chief executive of General Motors, says the company may still be able to reorganize without bankruptcy. Members of President Obama’s automotive task force spent last week in meetings and on conference calls with GM officials and its advisers in Detroit and Washington. Those talks are expected to continue this week. The goal is to prepare for a fast “surgical” bankruptcy, the people who had been briefed on the plans said. GM, which has been granted $13.4 billion in federal aid, insists that a quick restructuring is necessary so its image and sales are not damaged permanently. The preparations are aimed at assuring a GM bankruptcy filing is ready should the company be unable to reach agreement with bondholders to exchange roughly $28 billion in debt into equity in GM and with the United Automobile Workers union, which has balked at granting concessions without sacrifices from bondholders.

Ex-employee says she warned Harvard of risky moves: Endowment staffer fired after letter to president – (www.boston.com) Back in 2002, a new employee of Harvard University's endowment manager named Iris Mack wrote a letter to the school's president, Lawrence Summers, that would ultimately get her fired. In the letter, dated May 12 of that year, Mack told Summers that she was "deeply troubled and surprised" by things she had seen in her new job as a quantitative analyst at Harvard Management Co. She would go on to say, in later e-mails and conversations, that she felt the endowment was taking on too much risk in derivatives investments, and that she suspected some of her colleagues were engaging in insider trading, according to a separate letter written by her lawyer that summarized the correspondence. On July 2 Mack was fired. But six years later, the kinds of investments she allegedly warned about did blow up on Harvard. The endowment plunged 22 percent last summer, in part due to the collapse of the credit markets. As a result, the school is cutting costs and under criticism that it took on too much risk in its investment portfolio. Mack, who holds a doctorate in mathematics from Harvard, had been with Harvard Management for just four months when she approached Summers. She asked him to keep her communications confidential, or risk making her life "a living hell." But on July 1, Mack was called into a meeting by her boss, Jack Meyer, then the chief of Harvard Management. The next day Meyer fired her, according to the letter from her attorney, Jonathan Margolis, a copy of which was obtained by the Globe. Meyer told Mack that she was fired for making "baseless allegations against HMC to individuals outside of HMC," according to the Margolis letter.

Falling Rents Bring Welcome Relief As Vacancies Hit Five-Year High - (www.bloomberg.com) U.S. apartment rents fell in the first quarter and the vacancy rate rose to a five-year high as job losses and falling incomes reduced demand, said Reis Inc. Vacancies climbed to 7.2 percent from 6 percent a year earlier and 6.6 percent in the fourth quarter, according to the New York-based research firm. Vacancies were at the same level as the first quarter of 2004, matching the highest since Reis began conducting its survey in 1999. Job losses and falling wages are shrinking the pool of potential renters, bucking expectations that apartments would benefit from slumping home sales. The U.S. unemployment rate rose to 8.5 percent in March, the highest since 1983, the government said last week. The country has lost 5.1 million jobs since the recession began in December 2007. “We are arguably only at the beginning of the current downturn,” said Victor Calanog, research director of Reis. Rents paid by tenants fell 1.1 percent from the previous quarter to $984 on average. They were up 0.1 percent from a year earlier, Reis said.

Harvard Derivatives Whiz Fired For Emailing Larry Summers About "Frightening" Trades? - (tpmmuckraker.talkingpointsmemo.com) Late update: Harvard spokesman John Longbrake called to emphasize that the university had conducted thorough investigations of all allegations about Harvard Management Company and point out the 13.8% annualized returns HMC delivered in the ten years that ended June 2008. In a separate development, we learned that Mack was scheduled to be the subject of a February 23 Newsweek story by Michael Hirsh that had been subsequently shelved. Hirsh declined to comment. A former quantitative analyst at Harvard Management Company, the university's once-vaunted endowment manager, tells the Harvard Crimson she was fired for voicing concern to then-university president Larry Summers' chief of staff about the money manager's risky use of derivatives the traders didn't understand. The episode dates back to 2002, when analyst Iris Mack, whose website identifies her as the second African American woman to earn a Harvard PhD. in applied math (and someone who likes primary colors) joined the much-venerated Harvard Management Company, which invests the university's then $18 billion endowment, to find what she termed a "frightening" state of affairs.

America's Abandoned Cities - (Mish at globaleconomicanalysis.blogspot.com) Flint Michigan typifies the plight of inner city urban decay. Inquiring minds are wondering what if anything can be done. MLive explores that issue in an article discussing what to do with abandoned neighborhoods in Flint. The view through an abandoned house's broken window looks out on a boarded-up house across the street on East Russell Avenue in Flint. Look in any direction from Bianca Bates' north Flint home, and you'll see graffiti-covered siding, boarded-up windows and overgrown lots. About half of the homes on her block are burned out or vacant magnets for drug dealers and squatters. It isn't where she thought she'd end up, but it's all she can afford to rent. Property abandonment is getting so bad in Flint that some in government are talking about an extreme measure that was once unthinkable -- shutting down portions of the city, officially abandoning them and cutting off police and fire service. Temporary Mayor Michael Brown made the off-the-cuff suggestion Friday in response to a question at a Rotary Club of Flint luncheon about the thousands of empty houses in Flint. City Council President Jim Ananich said the idea has been on his radar for years. The city is getting smaller and should downsize its services accordingly by asking people to leave sparsely populated areas, he said. "It's going to happen whether we like it or not," he said. "We'd have to be creative about it, but it's something worth looking into. We're not there yet, but it could definitely happen." The concept of "shrinking cities" isn't new to urban areas similar to Flint. Last year, the city of Youngstown, Ohio, proposed incentives to encourage people to move out of nearly empty blocks and relocate to more populated areas closer to the heart of the city. Some people were offered upward of $50,000, according to news reports.Corporate Bond Default Rate Highest Since Great Depression - (Mish at globaleconomicanalysis.blogspot.com) Moodys says Default Rate Surges to Highest Since Depression. Thirty-five companies defaulted in March, the highest number in a single month since the Great Depression, according to Moody’s Investors Service. The rate at which speculative-grade corporate borrowers worldwide failed to meet their obligations rose to 7 percent from 4.1 percent at the end of last year, Moody’s said in a report today. So far this year, 79 companies rated by Moody’s have defaulted, the New York-based ratings firm said. Almost $1.3 trillion of losses and writedowns at financial institutions worldwide, combined with the deepest economic slowdown since World War II, have weakened companies’ finances, reducing their ability to pay debt. The global default rate will peak at 14.6 percent in the final quarter of the year, Moody’s predicted, lower than last month’s 15.3 percent forecast. In the U.S., the default rate at the end of the first quarter was 7.4 percent, up from 4.5 percent at the end of 2008, and in Europe it jumped to 4.8 percent from 2 percent at the end of the final quarter of last year. European default forecasts remain the highest and are expected to peak at 21 percent in the fourth quarter, down from the 22.5 percent the ratings firm’s model calculated last month. Europe’s Recession Deepens: Bloomberg is reporting Europe’s Recession Deepens as Investment Declines. Europe’s recession deepened more than estimated in the fourth quarter after companies scaled back production and consumer spending declined. Gross domestic product in the euro region fell 1.6 percent from the previous three months, the most in at least 13 years, the European Union’s statistics office in Luxembourg said today, revising a March 5 estimate of a 1.5 percent contraction. Investment plunged 4 percent, also more than estimated, and household spending fell 0.3 percent. While the rate of contraction in European manufacturing and services industries may be easing, European leaders face increasing pressure as unemployment continues to increase, crushing consumer confidence. These "signs of recovery" that cheerleaders have been seeing are mostly nonsense. The stock market has been rallying because Treasury Secretary Geithner and President Obama are willing to screw taxpayers out of trillions of dollars for the benefit of banks. Such action will not reduce defaults, restore lending, or do a damn thing for cash strapped consumers out of a job with no job prospects.

Las Vegas prices continue to improve for buyers - (www.lvrj.com) Following the trend of recent months, home sales in Las Vegas increased substantially in March from the same month a year ago while median prices continued to fall. The Greater Las Vegas Association of Realtors reported 2,980 single-family home sales during the month, a 30 percent increase from February and more than double the number from March 2008. The median price fell to $149,000, down 4.2 percent from the previous month and down 38.7 percent from a year ago. Inventory of units available for sale increased slightly to 22,812 in March, compared with 22,142 in February. It’s up 0.2 percent from a year ago. Realtors association President Sue Naumann said she didn’t see any big surprises in the monthly statistics. “As prices drop, sales climb. It’s pretty much the same we’ve had the entire quarter,” she said. “Of course, we do have all that inventory out there, but it’s holding steady. They’re being cleaned out.” It’s good to see nearly 3,000 home sales in March, Naumann said. With interest rates at their lowest level since the 1960s and median prices under $150,000, people are encouraged by the return of housing affordability in Las Vegas. “I hate to sound like a parrot, but it’s a buyer’s market,” the Realtor said. “What else defines a buyer’s market? Unless they’re giving them away.” Rob Jenson of ReMax Central in Las Vegas finds it interesting that inventory remains so high despite the increase in monthly sales. Inventory of single-family homes peaked in July and has stayed around 21,000 to 21,500 units, he said.

US Treasury Privatized Profits And Socialized Losses - (www.newgeography.com) The U.S. Treasury took enormous powers for itself last fall by telling Congress they would use it to “ensure the economic well-being of Americans.” Six months after passage of the Emergency Economic Stabilization Act of 2008 Americans are worse off. Since it was signed into law on October 3, 2008, here are the changes in a few measures of our economic well-being: The Troubled Asset Relief Program (TARP) was sold to Congress and the American public as an absolute necessity to save the American Dream of homeownership. Once the legislation was passed and the funds were released, however, Treasury decided to give the money to banks with no restrictions on its use – no monitoring, no reporting requirements, no nothing. We are worse off today than we were when the legislation was signed – and are likely to remain so when TARP has its first year birthday later this year. Yet, the U.S. government has already paid out $2.9 trillion, with further commitments to raise the total to over $7 trillion – a number that Senator Max Baucus (D-MT) said “is mind-boggling, indeed it is surreal. It’s like having a second government.” The money Treasury is passing out is more than all government spending in 2008. The Senate Finance Committee, of which Baucus is chair, held a hearing on March 31 (TARP Oversight: A Six Month Update). The three parties established as monitors in the 2008 legislation were there to testify. Without exception they “are deeply troubled by the direction in which Treasury has gone.”Senator Chuck Grassley (R-IA) suggested [referring to former-Secretary Paulson] that Congress “was awed by a person who comes off of Wall Street, making tens of millions of dollars. … You think he knows all the answers and when it’s all said and done you realize he didn’t know anything more about it than you did.” As soon as Treasury got the money they decided to bailout big banks instead of helping homeowners with mortgages bigger than the market value of their homes. Since then, Paulson, Geithner, and Bernanke have refused to comply with demands to produce documents about the TARP recipients’ use of funds.

Murrieta feels recession's long reach - (www.latimes.com) Hit hard by job losses and foreclosures, the city has seen food pantry traffic quadruple, and there's even talk of building a shelter. At this point in life, Linda Juarez expected to have five years of equity in her house, a secure future for her family and a viable stake in the American dream. But that's not how the story has played out. Her home's value has withered, her husband was laid off and rehired for less pay and grand dreams have given way to more modest expectations. Recently, those amounted to securing a frozen chicken for dinner so her children would be spared another night of canned green beans and ramen noodles. "It's the last thing you expect," she said. "You work hard, you are raised in a good family and then this." Juarez, 38, was waiting in a long line of cars that began forming before dawn recently outside a Murrieta food pantry. Housewives, real estate agents, soldiers and businessmen sat with the windows up and eyes fixed straight ahead. For many, pride has taken a back seat to survival. "I used to spend $160 every two weeks for food. Now it's $50 every two weeks," said Glenn Garrett, 36, a laid-off construction foreman with three children. "But I'm still a dad, and it's still my responsibility to put food on the table."




OTHER STORIES:

California ups ante in seeking U.S. help on debt sales - (www.latimes.com)
Redding, CA rental market increasingly affordable - (www.redding.com) SF office rents plunge 24% in year, helping tenants - (www.sfgate.com) Manhattan Affordability Increasing Steeply - (www.nytimes.com)
Internet payday lenders with ties to Indians dodge California regulators - (www.latimes.com)
Thinning dealer ranks is key to reducing GM and Chrysler's costs - (www.latimes.com)
Buyers Happy About Manhattan Housing Market - (www.gothamist.com) Housing Market Datapoint of the Day - (www.seekingalpha.com) Florida condos on blacklist ripe to become simple rentals - (marketplace.publicradio.org) Dear Bank, Produce The Note! - (www.americanfreepress.net)
Lay 'death tax' debate to rest - (www.latimes.com)

Bailed-Out Banks Face Probe over Fees: Report - (www.cnbc.com)
China Economy Improves But Deflation Haunts Japan - (www.cnbc.com)
Lower US rents cheering up renters – (uk.reuters.com) US pro-debt policies caused housing bubble - (www.herald-mail.com)
US May Enlist Small Investors in Bank Bailout - (www.nytimes.com) Buffett's Berkshire Loses Top Credit Rating - (www.bloomberg.com) Fed Interest Rate Fixing Means Wells Fargo's Record Profits - (www.finance.yahoo.com) Fed Invites Inflation - (www.nytimes.com) Author who predicted crisis sees inflation ahead - (www.reuters.com) After all, It's Just a House - (blog.youwalkaway.com)