Sunday May 17 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

White House and Car Czar Vicious Threats to Chrysler holdouts - (www.finemrespice.com) Confronting the head of a non-TARP fund holding Chrysler debt and unwilling to release it for any sum less than that to which it was legally entitled without compelling cause, this country's "Car Czar" berated the manager of said fund with an outburst of prose substantially resembling this: Who the fuck do you think you're dealing with? We'll have the IRS audit your fund. Every one of your employees. Your investors. Then we will have the Securities and Exchange Commission rip through your books looking for anything and everything and nothing we find to destroy you with. Faced with these sorts of threats, in this environment, with valued employees in the crosshairs and AIG a fresh, open wound upon the market, the fund folded. It is a tale literally so outlandish and difficult to picture that, in these circumstances and given the source, it rings absolutely true. Consider all this in a larger context where: You see Non-TARP entities claiming that: ...we have been systematically precluded from engaging in direct discussions or negotiations with the government; instead, we have been forced to communicate through an obviously conflicted intermediary: a group of banks that have received billions of TARP funds.1

Chrysler creditors ordered to reveal identities - (www.ft.com) A US bankruptcy judge ruled on Tuesday that a group of secured creditors seeking to block the restructuring of Chrysler must reveal their identities. Some members of the group had sought to remain anonymous after being criticised by the Obama administration and receiving death threats, their lawyers said during the Chrysler bankruptcy hearings on Tuesday. “Their preference is not to get in harm’s way,” Tom Lauria, representing the dissident group, told a packed Manhattan court. “Should any creditor have to contend with this issue merely to assert their legal rights in a bankruptcy filing?” The group has questioned the legality and fairness of the process under which the most viable parts of Chrysler will be sold to the United Auto Workers union, the US government and Fiat. Judge Arthur Gonzalez said there was not enough evidence of threat of physical harm to seal the names of the dissident creditors. The group of about 20 investors call themselves the “non-Tarp lenders” to differentiate from the banks that received money under the troubled asset relief programme and agreed to accept 28 cents on the dollar for $6.9bn in secured debt as part of the Chrysler restructuring. Lawyers for Chrysler and Fiat, which would own 20 per cent of the carmaker should it emerge from bankruptcy, argued that the alleged threats were just “rants” posted on a website and not credible. Oppenheimer Funds and Stairway Capital, among others, have already been identified as among the non-Tarp lenders. The rest must be made public by Wednesday. Meanwhile, the dissident creditors received support from two senior Republicans on Tuesday, who wrote to Barack Obama, US president, accusing his administration of using strong-arm tactics in negotiations. Darrell Issa, senior Republican on the House oversight and government reform committee, and Lamar Smith, senior Republican on the House judiciary committee, said it was “perfectly appropriate” for the lenders to reject the administration’s offer. They wrote that reports of a smear campaign, denied by the White House, “raise disturbing questions about your administration’s willingness to engage in Chicago-style enforcement techniques”.

Deal on 'cash for clunkers' bill - (money.cnn.com) Obama administration says it will stand behind deal struck by House Democrats to push forward legislation to stimulate car sales. The Obama administration has signaled its support for a congressional effort that aims to boost the troubled car industry by subsidizing new cars sales for consumers who scrap old ones. Congressional Democrats, emerging from a meeting at the White House on Tuesday, said they had struck a deal on a bill to establish a one-year program to encourage the purchase of 1 million new cars and trucks that get better gas mileage. Under the so-called cash-for-clunkers legislation, consumers with old, gas guzzlers could get $3,500 or $4,500 in government vouchers to use toward the purchase of new cars that get gas mileage that exceeds the old car's by four miles per gallon. "It's going to be a dramatic boom for our economy," said Rep. Henry Waxman, D-Calif., who heads the House Energy Committee. The bill would be a part of a larger energy bill, which House leaders hope to pass before Memorial Day, Waxman said in an impromptu press conference on the White House lawn with other Democrats on the House Energy committee. The deal on cash-for-clunkers would put more vouchers in the hands of consumers than a competing bill in the Senate. Its broad nature is irking environmentalists who say it helps automakers more than the environment. For example, under the deal, a consumer could turn in a clunker that gets 18 miles per gallon and get $3,500 to buy a car that just barely meets minimum emissions standards in the United States. "It's greenwash," said Therese Langer of the American Council for an Energy-Efficient Economy. "The notion that this would be part of an energy and climate bill seem particularly absurd." But automakers Ford (F, Fortune 500) and General Motors (GM, Fortune 500) applauded the deal on Tuesday.

Judge rejects opposition to Chrysler sale - (www.ft.com) Carmaker cleared to sell assets. A US bankruptcy judge has rejected an attempt by dissident Chrysler creditors to derail the sale of the ailing carmaker’s viable assets to a group of new shareholders, including Italy’s Fiat. In a ruling at 11pm EDT, Judge Arthur Gonzalez approved the process for the sale, which requires final court approval by May 27, as “appropriate and necessary”. He overruled objections from a group of creditors who oppose the sale and who argued that the guidelines set out restrict competing bids. Lawyers for Chrysler said the Detroit automaker was a “wasting asset” that needed to be sold quickly to preserve jobs and the value of the company. Chrysler is seeking to complete its restructuring within 60 days, emerging with a United Auto Workers union healthcare trust, the US government and Fiat as its main shareholders.The opposition of dissident creditors, who call themselves the non-Tarp lenders, has dominated proceedings in the bankruptcy court since Chrysler filed for Chapter 11 protection last week. Banks holding the bulk of $6.9bn in secured debt have accepted about 28 cents on the dollar in cash. But a group of about 20 investors, including Oppenheimer Funds and Stairway Capital, refused on the grounds that they were being strong-armed into concessions by the Obama administration. They argue that the current deal strips them of their rights and runs counter to normal bankruptcy proceedings because it does not honor their senior claim on Chrysler’s assets. The banks have received capital injections under Washington’s Troubled Asset Relief Programme, putting them under political pressure to accept Washington’s proposal. The dissidents contended in a court filing that the proposed sale of Chrysler’s assets ”was orchestrated entirely by the Treasury and foisted upon (Chrysler) without regard to corporate formalities, the fiduciary duties of (Chrysler’s) officers and directors, or other important checks and balances typically found in good faith sales”. They can still object as trial proceeds to final court approval. During Tuesday’s hearing, the timeline for the sale was modified with key dates pushed back 5 to 6 days at the request of a separate committee of unsecured creditors. Bids now must be submitted by May 20, a lead bid chosen by May 26 and a final sale hearing take place by May 27. Judge Gonzalez also ruled on Tuesday that the non-Tarp lenders must disclose their identities. They had earlier resisted on the grounds that some had received death threats. The Chrysler bankruptcy proceedings are seen as a potential test case for the restructuring underway at its much larger and more complex rival General Motors. GM has until the end of the month to agree with its bondholders on a way to slash substantially all of its $27bn in unsecured debt. The company has offered a 10 per cent equity stake, but bondholders want 58 per cent for their debt claim.

Washington sets out Tarp payback rules - (www.ft.com) Process may deter early repayment. US regulators are moving to impose tough conditions on banks that want to repay federal bail-out funds, requiring them to prove that they can issue debt without government insurance. This new requirement, which was confirmed by a senior US official, could deter some banks from trying to repay funds early. Banks have issued more than $300bn of debt insured by the Federal Deposit Insurance Corporation. Earlier, a second senior US official told the Financial Times that banks wishing to repay government funds may also be required to demonstrate that they can raise equity capital from private investors. The new debt-raising condition will be part of a framework for repayment that could be published as early as Wednesday before the release of bank stress test results on Thursday. The disclosure came as it emerged that Citigroup will have to raise less than $10bn in fresh equity – and possibly as little as $6bn – after the stress tests.US regulators were believed to have told Citi, which has already been bailed out three times by the government, it might have to raise up to $10bn to bolster its balance sheet. People close to the situation said the authorities had taken into account the fact that Citi had agreed to two disposals that would raise up to $9bn in common equity, thus reducing its need for extra capital. Citi, which declined to comment, is likely to raise any extra capital by converting trust preferred shares held by non-government investors into common stock.

Chinese ordered to smoke more to boost economy - (www.telegraph.co.uk) Local government officials in China have been ordered to smoke nearly a quarter of a million packs of cigarettes in a move to boost the local economy during the global financial crisis. The edict, issued by officials in Hubei province in central China, threatens to fine officials who "fail to meet their targets" or are caught smoking rival brands manufactured in neighbouring provinces. Even local schools have been issued with a smoking quota for teachers, while one village was ordered to purchase 400 cartons of cigarettes a year for its officials, according to the local government's website. The move, which flies in the face of national anti-smoking policies set in Beijing, is aimed at boosting tax revenues and protecting local manufacturers from outside competition from China's 100 cigarette makers. In total, officials have been ordered to puff their way through 230,000 packs of Hubei-branded cigarettes worth £400,000. China's government has ordered massive government spending at both national and provincial levels to prop up the economy following plummeting demand for Chinese exports abroad, however imposing a cigarette quota is unusual.

Chrysler won't repay bailout money - (money.cnn.com) Chrysler LLC will not repay U.S. taxpayers more than $7 billion in bailout money it received earlier this year and as part of its bankruptcy filing. This revelation was buried within Chrysler's bankruptcy filings last week and confirmed by the Obama administration Tuesday. The filings included a list of business assumptions from one of the company's key financial advisors in the bankruptcy case. Some of the main assumptions listed by Robert Manzo of Capstone Advisory Group were that the Treasury would forgive a $4 billion bridge loan given to Chrysler in the closing days of the Bush administration, a $300 million fee on that loan, and the $3.2 billion in financing approved last week by the Obama administration to fund Chrysler's operations during bankruptcy. An Obama administration official confirmed Tuesday that Chrysler won't be repaying the loans, though a portion of the bridge loan may be recovered by Treasury from the assets of Chrysler Financial, the former credit arm of the automaker which is essentially going out of business as part of the reorganization. "The reality now is that the face value [of the $4 billion bridge loan] will be written off in the bankruptcy process," said the official, who added that the 8% equity stake that Treasury will be receiving as part of the company's reorganization is meant to compensate taxpayers for the lost money. "While we do not expect a recovery of these funds, we are comfortable that in the totality of the arrangement, the Treasury and the American taxpayer are being fairly compensated," said the official.

GM shareholders may get wiped out - (money.cnn.com) General Motors Corp. Tuesday detailed plans to all but wipe out the holdings of remaining shareholders by issuing up to 60 billion new shares in a bid to pay off debt to the U.S. government, bondholders and the United Auto Workers union. The unusual plan, which was detailed in a filing with U.S. securities regulators, would only need the approval of the U.S. Treasury to proceed since the U.S. government would be the majority shareholder of a new GM (GM, Fortune 500), the company said. The flood of new stock issuance that could be unleashed has been widely expected by analysts who have long warned that GM's shares could be worthless whether the company restructures out of court or in bankruptcy. The debt-for-equity exchanges detailed in the filing with the Securities and Exchange Commission would leave GM's stock investors with just 1% of the equity in a restructured automaker, ending a long run when the Dow component was seen as a bellwether for the strength of the broader U.S. economy. GM shares closed Tuesday at $1.85 on the New York Stock Exchange. The stock would be worth just over 1 cent if the first phase of GM's restructuring moves forward as described. Once GM has issued new shares to pay off its debt to the U.S. government, bondholders and its major union, it said it would then undertake a 1-for-100 reverse stock split. Such a move would take the nominal value of the stock back to near where it had been before the flood of new shares. But in the process, GM's existing shareholders would see their stake in the 100-year-old automaker all but wiped out.





OTHER STORIES:

Bank Stress Tests: 'Whole Process Has Been a Fiasco' - (www.cnbc.com) The bank stress tests may not only be misguided policy, critics say, but may actually conflict with two other key government initiatives.
Subprime lobbyists in $370m battle - (www.ft.com) Study reveals decade of spending.
The high end is going to get flattened by HELOC Ponzi - (www.irvinehousingblog.com)
Feds Charge Five in $70 Million "Dream House" Ponzi Scam - (www.consumeraffairs.com)
Demographics Force US House Prices Lower - (www.bloomberg.com)
Housing prices pit builders against banks - (www.lvrj.com)
Spin Cycle Set to High - (www.chrismartenson.com)
Cheaper to bulldoze them! - (www.housing-kaboom.blogspot.com)
Trying to find a job is not a job - (www.latimes.com)
Nonsales jobs are few - (www.idahostatesman.com)
Houseownership and Wealth Accumulation/Destruction - (Charles Hugh Smith at www.oftwominds.com)

The Madoff Affair - (www.pbs.org)
Companies help lenders transfer mortgages, foreclose - (www.tampabay.com)
Fed's Bernanke to Face Tension on the Hill - (www.washingtonpost.com)
China has 'canceled US credit card' - (www.google.com)
Worries Rise on the Size of US Debt - (www.nytimes.com)
Obama Budget Cuts Visualization - (www.youtube.com)
How I Learned To Love The European Welfare State - (www.nytimes.com)
Community gardens a hot trend in recession - (www.denverpost.com)
A Better Strategy Than The Boss's - (www.dilbert.com)

Asian Markets Rally on Banks, Tokyo Surges 4% - (www.cnbc.com)
One Stock That's Winning and Losing at the Same Time - (www.cnbc.com)
Cisco Earnings Fall but Surpass Street Expectations - (www.cnbc.com)
Cramer: Banking Problem Is Solved - (www.cnbc.com)
Prepare For Correction, History Not With Bulls - (www.cnbc.com)
Oil Prices Ignore Supply, Demand Picture: Here's Why - (www.cnbc.com)
Chicken Wars: Did KFC Execs Prank Call Rival's Offices? - (www.cnbc.com)
Seven Things We're Still Doing Despite The Recession - (www.cnbc.com)