Friday May 15 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Colleges Flunk Economics Test as Harvard Model Destroys Budgets - (www.bloomberg.com) On a Thursday morning in March, the $32 million School of Management building at Simmons College in Boston is all but deserted. Three students lounge in armchairs facing floor-to-ceiling windows that look over the quad with its winding walkways and greening lawn; another makes photocopies. “This building is always empty,” says Raya Alazzouni, a sophomore from Saudi Arabia who’s studying graphic design and taking courses in the management school. Simmons, home to 4,700 students, opened the 66,500-square- foot (6,200-square-meter) center in January, two months before the U.S. stock market hit its lowest point in 12 years. Even before the ribbon cutting, enrollment in the management school had been dropping. Now, the vacant halls are reminders of the new math confounding U.S. colleges. Students, pummeled by scarce loans and savings plans that have fallen as much as 40 percent, are heading for less expensive schools. The perks designed to lure them during boom times -- from hot tubs to dorm-suite kitchenettes, to in-room cable TV -- are crushing universities with debt. Even projects like Simmons’s “green” management building, with its rain-absorbing roof patio and toilets with two flushing modes, can turn into burdens as schools struggle with rising expenses, plummeting endowments and needier applicants. ‘Spending Binge’: “The spending binge by colleges and universities was part of the same trend that created the bubble in the rest of the economy,” says Ronald Ehrenberg, an economics professor at Cornell University in Ithaca, New York, and author of “Tuition Rising: Why College Costs So Much” (Harvard University Press, 2000). “Now we’re seeing it burst.” From Harvard University to California’s 3 million-student community college network, the American system of higher education is in turmoil. The economic crash is upending each step in the equation that families use to determine where students will spend four of their most formative -- and expensive -- years. Today is the deadline that most schools set to receive a decision from accepted applicants. Independent colleges that lack a national name or must-have majors are hardest hit. Many gorged on debt for construction, technology and creature comforts. Now, as endowments tumble and bills mount, they’re struggling to attract cash-strapped families who are navigating their own financial woes.

Among Democrats, a rift over siding with banks - (www.csmonitor.com)
Twelve Democratic senators joined a united GOP on Thursday to prevent bankruptcy judges from being allowed to rewrite mortgage terms for homeowners facing foreclosure. With Sen. Arlen Specter exiting the GOP this week, Senate Democrats appeared to be one Minnesota recount away from an unassailable supermajority – that is, until they lost 12 of their own on a key housing vote. It’s a reminder that Senate votes come one at a time – despite what the fundraising appeals on both sides of the aisle say about getting to that game-changing 60-vote threshold. The 45-to-51 vote also uncovers a significant rift in the Democratic majority’s ranks on a defining issue: How far to accept the finance industry’s view of the nation’s economic crisis and its solution. At issue in the vote was whether to empower bankruptcy judges to rewrite mortgages to help families avoid foreclosure. The amendment, sponsored by Senate majority whip Richard Durbin, adds bankruptcy reform to a housing and consumer protection bill that enjoys bipartisan support. The underlying bill increases borrowing authority for the Federal Deposit Insurance Corporation to $100 billion, up from $30 billion, and makes permanent a temporary increase for FDIC deposit insurance to $250,000, up from $100,000 last year. It also expands access to the $300 billion Hope for Homeowners program. Courts can now write down the interest or principal on vacation homes, yachts, and other big-ticket items involved in bankruptcy proceedings, but not on primary homes. Banking industry lobbyists favor the bill but strongly opposed Durbin’s amendment, which they dubbed “cramdown.” It’s sure to “raise mortgage costs for consumers,” said the Mortgage Bankers Association in the runup to Thursday’s vote. Bankers say that if a court can lower interest rates or the principal owed on a mortgage, then it follows that banks will have to take that new risk into account when they price new mortgages — and the cost of borrowing will be higher for all consumers. Senator Durbin negotiated with banks and consumer groups for months before Thursday’s vote, but negotiations broke down, he says. But the biggest blow to Senate Democrat leadership was the depth of opposition in their own party’s ranks. “We won’t get out of this recession until we deal honestly and forthrightly with this foreclosure crisis. And I just don’t know what it will take to bring people around to the belief that these bankers don’t have the right formula for the future of this country,” said Senator Durbin. “I am sick and tired of being asked to give billions of dollars to these banks when they won’t in any way help people facing mortgage foreclosure,” he added, at a leadership briefing on Thursday. “They’re not renegotiating these mortgages. If they have no sympathy for 8 million families facing foreclosure in this country, I don’t have any sympathy for them.” Durbin says that he won’t support any further requests for taxpayer bailouts for banks under the Troubled Asset Relief Program (TARP). “This is an issue that Democrats, Republicans, independents in the country want something done [about], and I feel kind of sorry for senators that don’t support this legislation, because I think [that] can really backfire,” said Senate majority leader Harry Reid, also at the briefing. But the dozen Democrats who voted with a unified Republican caucus on the issue saw it differently. “The cramdown approach sounds real good, but I don’t think that anybody in the business of lending will be able to determine what they have in the way of mortgages if a judge can come along and make all kinds of changes to the mortgages,” says Sen. Ben Nelson (D) of Nebraska, who voted against the Durbin amendment.

!! WHO: Only 7 Swine Flu Deaths NOT 152 !! - (www.smh.com.au) Funny, but CNN and Wolf Blitzer are still is still running panic stories and haven’t corrected their initial death figures. A member of the World Health Organisation (WHO) has dismissed claims that more than 150 people have died from swine flu, saying it has officially recorded only seven deaths around the world. Vivienne Allan, from WHO's patient safety program, said the body had confirmed that worldwide there had been just seven deaths - all in Mexico - and 79 confirmed cases of the disease. "Unfortunately that [150-plus deaths] is incorrect information and it does happen, but that's not information that's come from the World Health Organisation," Ms Allan told ABC Radio today. "That figure is not a figure that's come from the World Health Organisation and, I repeat, the death toll is seven and they are all from Mexico." Ms Allan said WHO had confirmed 40 cases of swine flu in the Americas, 26 in Mexico, six in Canada, two in Spain, two in Britain and three in New Zealand. Ms Allan said it was difficult to measure how fast the virus was spreading. She said a real concern would be if the flu virus manifested in a country where a person had had no contact with Mexico, and authorities were watching all countries for signs of that.

Italy Seizes Millions from Four Banks - (www.nytimes.com) With municipal bond investigations spreading to Europe from the United States, Italian authorities have seized about $300 million in assets of four global banks — JPMorgan Chase, Deutsche Bank, UBSand Depfa — whose officials have been accused of fraud. The Guardia di Finanza in Milan, the financial police of Italy, took over real estate properties, bank accounts and stock holdings on Monday to assure it could collect from the banks if their officials were found guilty and the banks were held responsible. The seizures stem from the banks’ handling of a $2.2 billion municipal bond issue and related financial contracts known as swaps that Milan undertook to retire other debt in June 2005. The lead prosecutor accused the bankers of misleading the city and falsely claiming that the deal would generate savings. If all the costs had been properly included, the prosecutor said, the entire deal would have been illegal under a national law that allows restructuring of debt only if it produces a savings.

Justice Dept. Opens Antitrust Inquiry Into Google Books Deal - (www.nytimes.com) The Justice Department has begun an inquiry into the antitrust implications of Google’s settlement with authors and publishers over its Google Book Search service, two people briefed on the matter said Tuesday. Lawyers for the Justice Department have been in conversations in recent weeks with various groups opposed to the settlement, including the Internet Archive and Consumer Watchdog. More recently, Justice Department lawyers notified the parties to the settlement, including Google, and representatives for the Association of American Publishers and the Authors Guild, that they were looking into various antitrust issues related to the far-reaching agreement. The inquiry does not necessarily mean that the department will oppose the settlement, which is subject to a court review. But it suggests that some of the concerns raised by critics, who say the settlement would unfairly give Google an exclusive license to profit from millions of books, have resonated with the Justice Department. A spokeswoman for the Justice Department was not immediately available to comment. A spokesman for Google declined to comment. Representatives for the Association of American Publishers and the Authors Guild could not immediately be reached. The settlement agreement stems from a class action filed in 2005 by the Authors Guild and the Association of American Publishers against Google. The suit claimed that Google’s practice of scanning copyrighted books from libraries for use in its Book Search service was a violation of copyrights. The settlement, announced in October, gives Google the right to display the books online and to profit from them by selling access to individual texts and selling subscriptions to its entire collection to libraries and other institutions. Revenue would be shared among Google, authors and publishers.

Foreclosures Set to Soar in California - (online.wsj.com) California is about to get hit by another foreclosure wave. Pre-foreclosure notices in the state jumped by 80% in the first quarter of 2009 from the previous quarter, according to a new report from DataQuick Information Systems of San Diego, a sign that foreclosures in California will rise sharply in the coming months. Foreclosure moratoria and a state law that slowed down foreclosures had artificially depressed new foreclosure filings at the beginning of the year. The newest data shows how those foreclosures are wending through the system as lenders play “catch-up.” Some 135,000 default notices were sent out in the first three months of the year, an 80% increase from the fourth quarter of 2008 and a 19% increase from the previous year period. That’s higher than any quarter DataQuick has measured since its tally began in 1992. The DataQuick report also found that foreclosure activity was spreading out from the state’s most affordable (and battered) inland regions, reaching areas that have been less affected to date. Those affordable housing markets, which have 25% of the state’s housing stock, accounted for 47.5% of all default activity during the quarter, down from 52% last year. Notices of default jumped by 40%, for example, in San Luis Obispo County on the central California coast. Defaults were up by 38% in Los Angeles County and by 35% in San Francisco. Mortgages made in 2006 were the most likely to trigger a default notice, and those loans had a 8.5% default rate. Loans made in 2005 had a 4.9% default rate, while those made in 2004 had a default rate of less than 1%.

Group Seeks to Block Chrysler/Fiat, Opel Heats Up- (www.cnbc.com) A group of investment funds sought to block Chrysler's planned alliance with Fiat, while the Italian automaker advanced its bid to overhaul the industry by setting its sights on Germany's Opel.
The dissenting lenders led by Oppenheimer Funds and Stairway Capital argued in a New York bankruptcy court that the sale proposal was "orchestrated entirely by the U.S. Treasury and foisted upon the debtors." A lawyer for the group, Tom Lauria, said some identified publicly in the politically charged reorganization have received death threats "which they perceive as being bona fide." Those lenders have notified police and the FBI, he said. President Barack Obama called the dissenters "speculators" in public criticism last week for refusing to join Chrysler's biggest banks in a government-brokered deal to wipe out Chrysler's $6.9 billion debt and move forward with the Fiat alliance. "We still have a very fragile coalition to get from here to there," Corinne Ball, Chrysler's bankruptcy lawyer, said near the start of a court hearing on Monday. Chrysler asked U.S. Judge Arthur Gonzalez to schedule a hearing as soon as May 21 to approve a $2 billion sale of most of the automaker's assets. "Absent a prompt sale, approved in the coming weeks, the value of the debtors' assets will rapidly decline and the ability to achieve a going concern sale will be lost," Chrysler said in court documents supporting the sale to Fiat.

Flawed Credit Ratings Reap Profits as Regulators Fail - (www.bloomberg.com) Ron Grassi says he thought he had retired five years ago after a 35-year career as a trial lawyer. Now Grassi, 68, has set up a war room in his Tahoe City, California, home to single-handedly take on Standard & Poor’s, Moody’s Investors Service and Fitch Ratings. He’s sued the three credit rating firms for negligence, fraud and deceit. Grassi says the companies’ faulty debt analyses have been at the core of the global financial meltdown and the firms should be held accountable. Exhibit One is his own investment. He and his wife, Sally, held $40,000 in Lehman Brothers Holdings Inc. bonds because all three credit raters gave them at least an A rating -- meaning they were a safe investment -- right until Sept. 15, the day Lehman filed for bankruptcy. “They’re supposed to spot time bombs,” Grassi says. “The bombs exploded before the credit companies acted.” As the U.S. and other economic powers devise ways to overhaul financial regulations, they have yet to come up with plans to address one issue at the heart of the crisis: the role of the rating firms. That’s partly because the reach of the three big credit raters extends into virtually every corner of the financial system. Everyone from banks to the agencies that regulate them is hooked on ratings.



OTHER STORIES:

'Too-Big-To-Fail' Banks May Be Next Hot-Button Issue - (www.cnbc.com) While Wall Street obsesses over stress tests, Congress is moving on to the next hot-bottom issue—new authority over big financial firms
Wells Fargo Asked to Boost Capital - (www.cnbc.com)
About Ten US Stress Test Banks Need Capital - (www.cnbc.com)
Ross: Obama's Tax Changes Are a 'Huge Mistake' - (www.cnbc.com)
Falling Wage Syndrome - (www.nytimes.com) - (www.nytimes.com)
Silverton Bank fails; 11th and biggest bank failure in Ga. - (atlanta.bizjournals.com)
Swedish bank rescue expert doubts U.S. efforts will work - (www.usatoday.com)

U.S. Initial Jobless Claims Fell to 631,000 Last Week - (www.bloomberg.com)
Foreclosure filings in record jump - (money.cnn.com)
China Has "Cancelled US Credit Card" - (www.google.com/hostednews/afp)
US vs. Europe - Which is the Welfare State? - (www.ritholtz.com)
US Workers Wages Stagnate as Firms Rus to Slash Costs - (www.washingtonpost.com)

Worries Rise on Size of US Debt - (www.nytimes.com)
Pandemic Nonsense: Flying Pig Flu - (www.augustreview.com)
US Economy Worst in 50 Years - (www.bizjournals.com)
Stocks Rise Worldwide - (www.bloomberg.com)
Mish: Anti-Libertarian Nonsense on the Fed - (Mish at globaleconomicanalysis.blogspot.com)
Panzner: Changing Sides - (www.financialarmageddon.com)
Deflation: 7-11 Looks to Lower Rents Across the Board - (www.dallasnews.com)
US Economy Plunges at 6.1% Pace in First Quarter - (www.bloomberg.com)
Fed Needs Capital for At Least 6 Banks - (www.bloomberg.com)
Foreclosure Prevention Bill Shields Servicers From Fraud - (Mish at globaleconomicanalysis.blogspot.com)
California Declares Swine Flu Emergency - (abcnews.go.com)
Teens Turn off Spending - (www.courierpostonline.com)