Saturday May 9 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

The Return of Debtors Prison - (www.onlinejournal.com) A doctor in the Midwest wrote to me again this past Friday about how the economic mess is destroying people. He wrote, “One of my patients is a . . . 40ish CPA and she was in for an eye problem yesterday . . . She was distraught over the state of the economy and its effect on her clients. She has had many this year who have lost their homes to foreclosure. To her -- and her clients’ -- dismay, the bank or lending institution is issuing 1099 forms for re-po’d property to the victims. Apparently, since the hapless former homeowners are effectively ‘forgiven’ the remaining amounts on their loans, that is imputed as earned income and they are turned into the IRS for large tax liabilities!!! How’s that for justice? She said that she had actually had people speak seriously about killing themselves!” “What a screwed up country . . . Yesterday, I finally bit the bullet and cashed in part of my IRA (already down near 50%) to pay off office credit cards (we have depended on these credit lines for office expenses for some time) because they all raised their rates to 30%!!! Of course, O[bama] has nothing to say about usury . . . “On top of this, I ran across this today . . .” What followed was an article by Eric Ruder, Guilty of Being Poor from dissidentvoice.org. I will highlight some of its points but this is a must-read. It picks up the theme that the good doctor and his patient experienced firsthand, that of debtor’s prison, or jail time for nonpayment of debt. As Ruder points out, “19th century jailers, even pre-Civil war, largely abandoned this odious practice of putting people in jail for falling into debt . . . In fact, in the 1970s and 80s, the US Supreme Court affirmed that incarcerating people who can’t pay fines because of poverty violates the US Constitution.” As he states, “some states and county jails never got the memo. Welcome to the debtor’s prisons of the 21st century.” He then detailed a number of real-life, often tragic cases. The first was a poor Michigan resident who was ordered to reimburse a juvenile detention center $104 a month for holding her 16-year old son. This was the subject of a New York Times editorial, as well. I wonder if Ponzi swindler Bernie Madoff will be billed for his coming stay in prison, or Tyco International’s CEO Dennis Koslowski or Enron’s former CEO Jeff Skilling pay for their stays in prison. In regard to the hapless Michigan resident, Edwina Nowlin, the Times wrote, “When she explained to the court that she could not afford to pay, Ms. Nowlin was sent to prison. The American Civil Liberties Union of Michigan, which helped get her out last week after she spent 28 days behind bars, says it is seeing more people being sent because they cannot make various court-ordered payments. That is both barbaric and unconstitutional.” Ruder wrote Nowlin’s case was more serious than the Times imagined. “Not only was Nowlin under orders to pay a fine stemming from someone else’s actions, but she had been laid off from work and lost her home at the time she was ordered to ‘reimburse’ the county for her son’s detention.” And even though she couldn’t pay, the court held her in contempt and laid a 30-day sentence on her. Three days after she was jailed, she was let out for a day to work. She picked up a paycheck of $178.53, which she assumed could be put towards paying off the $104 to gain release from jail. But no, when she returned to the jail, “the sheriff told her to sign her paycheck over to the country—to pay $120 for her own room and board plus $22 for a drug test and booking fee.” Nowlin asked for but was denied a court-appointed lawyer for her defense. “So, because she was too poor to pay for a lawyer and denied her constitutional right to a court-provided lawyer, she couldn’t fight the contempt charge that resulted from her poverty.” This as the fines and fees she was supposed to pay now multiplied like a credit card balance. The director of the Michigan ACLU said, “Jailing her because of her poverty is not only unconstitutional. It’s unconscionable and a shameful waste of resources. It is not a crime to be poor in this country, and the government must stop resurrecting debtor’s prisons from the dustbin of history.”

Insider Selling Highest Since 2007 - (www.bloomberg.com) Executives and insiders at U.S. companies are taking advantage of the steepest stock market gains since 1938 to unload shares at the fastest pace since the start of the bear market. Gap Inc.’s founding family sold $45 million of shares in the largest U.S. clothing retailer this month, according to Securities and Exchange Commission filings compiled by Bloomberg. Daniel Warmenhoven, the chief executive officer at NetApp Inc., liquidated the most stock of the storage-computer maker in more than six years. Sales by the co-founders of Bed Bath & Beyond Inc. were the highest since at least 2001. While the Standard & Poor’s 500 Index climbed 28 percent from a 12-year low on March 9, CEOs, directors and senior officers at U.S. companies sold $353 million of equities this month, or 8.3 times more than they bought, data compiled by Washington Service, a Bethesda, Maryland-based research firm, show. That’s a warning sign because insiders usually have more information about their companies’ prospects than anyone else, according to William Stone at PNC Financial Services Group Inc. “They should know more than outsiders would, so you could take it as a signal that there is something wrong if they’re selling,” said Stone, chief investment strategist at PNC’s wealth management unit, which oversees $110 billion in Philadelphia. “Whether it’s a sustainable rebound is still in question. I’d prefer they were buying.”

Humbled by Meltdown, City of London Ponders Its Identity - (www.nytimes.com) Tetsuya Ishikawa reaped the fruits of London’s financial boom, structuring and selling his small share of the complex securities that fueled both his professional rise and the uninterrupted economic growth of Britain. When the boom went bust last year, he lost his job at Morgan Stanley, along with about 28,000 other Londoners working in finance. Mr. Ishikawa, who has written a fictional memoir, has no plans to return to the City, as London’s banking district is known. But Britain’s revenue-starved Labor government will find no such escape. “By 2010, the U.K. will have the largest budget deficit in the developed world,” said Richard Snook, a senior economist at the Center for Economic and Business Research in London. “The problem is that the financial services industry has been a huge cash cow for the British government for the last 10 years and now it is going into reverse.” The country’s budget deficit has soared to 12 percent of gross domestic product; its public debt burden could soon reach 80 percent of annual economic output, a figure that would leave it roughly in the same position as Greece. But at a time when Britain more than ever needs a financial sector firing on all cylinders, its economic engine is conking out — for a number of reasons, including some that critics blame on the government. All told, more than 70,000 jobs in finance are expected to disappear over the next two to three years, a big chunk of the total estimated job losses of about 280,000 in London.

Mexico City faces threat of shutdown - (www.ft.com) Mexico City authorities on Monday admitted they might have to “shut down” Mexico’s sprawling capital in an effort to combat an outbreak of swine flu that has so far claimed the lives of up to 149 people, according to official reports. Marcelo Ebrard, the city’s mayor, said on Monday morning that the next step in trying to quarantine the virus, a hybrid of human and animal influenza strains that scientists have never seen, could be shutting down the public transport network. He was also set to meet private-sector leaders over limiting the working day. At the weekend, one of Mexico’s leading business councils, which represents private-sector companies, agreed to stagger factory shifts to reduce the number of people in closed spaces. The possibility of closing one of the world’s biggest cities comes as its 22m residents are feeling a growing sense of panic. At a normally quiet corner of the middle-class neighbourhood of La Condesa on Monday morning, passers-by queued to buy blue surgical face masks by the dozen. The pharmacy owner, who preferred not to be identified, said he had sold 5,000 masks at the weekend alone. “I’ve been trying to get some more but all the stocks have run out,” he said as he handed them over in fistfuls to desperate customers.

A New Plan to Help Modify Second Mortgages - (www.bloomberg.com) The Obama administration sought to expand its $50 billion plan to reduce home foreclosures, announcing a new program on Tuesday to help troubled homeowners modify second mortgages or piggyback loans. Under the new plan, the Treasury Department will offer cash incentives and subsidies to lenders who agree to substantially reduce the monthly payments on second mortgages or forgive those loans entirely. The goal of the plan is to plug a hole in the administration’s original program, which offered subsidies to lenders who agreed to modify the primary or first mortgages of homeowners who had fallen delinquent or were in danger of doing so. But millions of homebuyers took out second mortgages to buy houses with little or no down payment or to finance home improvements and other purchases. Those second-lien mortgages have to be renegotiated separately, a step that often complicates efforts to modify the primary loans. Analysts predict that at least 4 million homeowners will face foreclosure proceedings this year, up from about 2.2 million in 2008. Administration officials said about half of those people had second mortgages.

The Bogus Bank Recovery - (www.newsweek.com) If you take the headlines at face value, it has been a good month for banks. Wells Fargo announced $3 billion in first-quarter profits, Goldman Sachs racked up $1.8 billion, JPMorgan Chase had $2.1 billion, Bank of America $4.25 billion and even beleaguered Citigroup tallied $1.6 billion in profits. Treasury Secretary Tim Geithner validated the good news by declaring that the "vast majority" of the nation's banks are now well capitalized and solvent. Markets rallied. The worst of the financial crisis, it seemed, had passed. Smart investors know better. At the core, this financial crisis has been driven by uncertainty—about who's holding what, how much it's worth and when it might blow up. A careful look at last week's profit news reveals that there's still plenty of uncertainty lurking on the balance sheets of America's top banks. First, the most glaring examples: even as Bank of America was chalking up its profits, it was also warning that it faced growing credit losses, due to a decline in credit quality across all of its businesses (the bank's provisions for credit losses rose to $13.4 billion in the first quarter from $8.5 billion in the last quarter of 2008). "Make no doubt about it," said BOA chairman Kenneth Lewis, "credit is bad, and we believe it will get worse before it eventually stabilizes and improves." At least he admits it. Goldman's chair Lloyd Blankfein certainly didn't go to any pains to explain that a chunk of his bank's good news came not from savvy trading, but from an accounting shift. Goldman switched from being a securities firm to a bank holding company last autumn, which changed its fiscal year, allowing it to leave much of December—a month with plenty of write-downs—largely off the books. And that's only the bad news that we can see



OTHER STORIES:

One Nation, Under Banks, With Justice for No One - (www.bloomberg.com)
Commercial Real Estate Begins Its Implosion - (www.economist.com)
Optimism About US Economy May Be Wishful Thinking - (www.cnbc.com)
Big Analyst Astonishes Street With Bank Upgrade - (www.cnbc.com)
Entire BofA Board Opposed by Giant Calpers Fund - (www.cnbc.com)
Mish: Extreme Home Makeover - Depression Edition - (Mish at globaleconomicanalysis.blogspot.com)
Mortgage Modification Bill Faces Trouble in Senate - (www.washingtonpost.com)
Peso Tumble, Swine Flu May Prompt Mexico to Tap IMF - (www.bloomberg.com)

Citigroup Seeks Permission to Pay Bonuses: Report - (www.cnbc.com)
Save China, Save the World? - (www.cnbc.com)
Societe Generale Chairman Bouton Offers to Resign - (www.cnbc.com)

China Demand Means Asia Exporters May Be Past Worst - (www.bloomberg.com)
Swine-Flu Warning Raised as Virus Crosses Continents - (www.bloomberg.com)
U.S. Economy: Confidence Index Rises Most Since 2005 - (www.bloomberg.com)
Outbreak Threatens Global Recovery - (www.washingtonpost.com)
Citigroup Doesn't Plan to Rely On the US For More Capital - (www.cnbc.com)
Chinese Economy Cannot Recover in Isolation - (www.cnbc.com)
Home Prices in 20 U.S. Cities Declined at Slower Pace - (www.bloomberg.com)
Home Vacancies Rise in U.S. to Record Amid Recession - (www.bloomberg.com)
Citigroup, Bank of America Decline on Capital Report - (www.bloomberg.com)
U.S. Reaches Deal With Chrysler Banks, Person Says - (www.bloomberg.com)
Bank of America CEO’s Support Erodes Ahead of Annual Meeting - (www.bloomberg.com)
U.S. Tries to Broker Sale Of Chrysler's Loan Arm - (www.washingtonpost.com)
G.M.’s Latest Plan Envisions a Much Smaller Automaker - (www.nytimes.com)
WHO raises alert level as swine flu cases rise - (www.marketwatch.com)
1918’s Killer Pandemic Provides Cautionary Tale, Global Plans - (www.bloomberg.com)
Swine flu spreads to Middle East, Asia-Pacific - (finance.yahoo.com)