Sunday May 3 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Broke Cities Use Renta-Cops Instead of Police - (www.infowars.com) Facing pressure to crack down on crime amid a record budget deficit, Oakland is joining other U.S. cities that are turning over more law-enforcement duties to private armed guards. The City Council recently voted to hire International Services Inc., a private security agency, to patrol crime-plagued districts. While a few Oakland retail districts previously have pooled cash to pay for unarmed security services, using public funds to pay for private armed guards would mark a first for the city. Hiring private guards is less expensive than hiring new officers. Oakland — facing a record $80 million budget shortfall — spends about 65% of its budget for police and fire services, including about $250,000 annually, including benefits and salary, on each police officer. In contrast, for about $200,000 a year the city can contract to hire four private guards to patrol the troubled East Oakland district where four on-duty police officers were killed in March. And the company, not the city, is responsible for insurance for the guards.

The Rage of the Privileged Class As It Loses Its Privileges - (www.nymag.com) As the privileged class loses its privileges, a collective moan rises from the canyons of Wall Street. Shortly after 1:30 on the afternoon of March 18, two dozen traders in AIG’s financial-products division stepped away from their Bloomberg terminals and huddled around televisions to watch their boss, CEO Edward Liddy, testify before Congress. There was much at stake. These were the people who received the greater part of $165 million in “retention bonuses” that had suddenly become, to borrow a phrase, toxic. As the hue and cry to return the money grew, the traders had thought that Liddy would stand up for them. The ruddy-faced, 63-year-old former Allstate CEO, who had been installed by Treasury Secretary Hank Paulson in September, was, if not exactly one of them, at least someone who understood the rules of the game as it had been played—and who understood what they were entitled to under those rules, even if those rules were unspoken. In AIG’s glory years, executives like Joseph Cassano, the former head of financial products, took home more than $300 million. That was the kind of money you couldn’t talk about. But as Andrew Cuomo stoked public outrage by threatening to release the names of the bonus recipients, it became clear that the game was changing. When AIG employees had arrived at their desks that morning, they found a memo from Liddy asking them to return 50 percent of the money. The number infuriated many of the traders. Why 50 percent? It seemed to be picked out of a hat. The money had been promised, was the feeling. A sacred principle was at stake, along with, not incidentally, their millions. Everyone on Wall Street is prepared to lose money. Bankers have expressions for disastrous losses: clusterfuck, Chernobyl, blowing up … But no one was prepared to lose money this way. This felt like getting mugged. Jake DeSantis, a 40-year-old commodities trader at AIG, was an unlikely face of Wall Street greed. Stocky and clean cut, with an abiding moral streak, he’d worked summers for a bricklayer in the shadow of shuttered steel mills outside Pittsburgh; he was valedictorian of his high-school class and attended college at MIT. Compared with the way many of his Wall Street brethren lived, with their Gulfstreams, Hamptons mansions, and fleets of luxury cars, his life wasn’t one to invite scorn. He had canvassed for Obama in Scranton on Election Day and drove a Prius. His division at AIG was profitable. And since joining the company in 1998, he had never traded a single credit-default swap. Now his boss was selling him out. DeSantis left work that day feeling that his world was falling apart. The next day, the House passed—by a wide margin—a bill that would levy a 90 percent tax on bonuses at firms that were bailed out. The Connecticut Working Families Party planned to bus protesters to the homes of AIG executives in Fairfield County. There were death threats. “It’s been terrifying,” says his wife’s mother, Lynnette Baughman. “It’s like a witch hunt.” It was in this environment that DeSantis sent his remarkable resignation letter to the New York Times. In the letter, which ran as an op-ed on March 25, he compared himself to a plumber (“None of us should be cheated of our payments any more than a plumber should be cheated after he has fixed the pipes but a careless electrician causes a fire that burns down the house”) and announced that he would quit AIG and donate his bonus to charity. The letter, passionate and wounded and oddly out of touch with ordinary Americans, put a human face on Wall Street’s anger. When DeSantis arrived at the office the morning his letter appeared in the paper, the AIG traders gave him a standing ovation. In some quarters of the press, he was vilified. (As Frank Rich put it in the Times, “He didn’t seem to understand that his … $742,006.40 (net) would have amounted to $0 had American taxpayers not ponied up more than $170 billion to keep AIG from dying.”) But the fracas was useful: DeSantis had succeeded in opening up an honest conversation—as typically emotional and awkward and neurotically charged as is any conversation on the subject—about money, the first this town has had in years. I n a witch hunt, the witches have feelings, too. As populist rage has erupted around the country, stoked by canny politicians, an opposite rage has built on Wall Street and other arenas where the wealthy hold sway. Its expression is more furtive and it’s often mixed with a kind of sublimated shame, but it can be every bit as vitriolic. “AIG pissed some people off, and now you’re gonna screw everyone on Wall Street?” rails a laid-off JPMorgan vice-president. (Despite the honesty of the conversation, many did not wish to be quoted by name.)

AP Exclusive: Fed tests harder on regional banks - (news.yahoo.com/s/ap)
The government is giving Wall Street banks a helping hand. But this time it's not a handout. The federal bank "stress tests" rate the individual loans held by big regional banks as riskier than the complex troubled assets held by the industry titans, according to a Federal Reserve document obtained by The Associated Press. That approach could threaten some major regional banks while making the national banks appear in better shape when the government releases the results of the tests next month. Regulators are administering the tests to 19 large financial firms to determine which banks are healthy, which need more help and which might fail if the recession worsens. Under one scenario, the tests assume banks will see "no further losses" on the complex securities, according to the document obtained by AP. By contrast, it estimates that individual loans will lose up to 20 percent of their value. Regional banks are holding more individual loans and fewer of the securities Wall Street giants specialize in — complex derivatives backed by huge pools of mortgage-backed loans and other debt. Analysts say regulators are probably favoring the largest banks because if even one failed, it would pose a grave financial risk. Banks that deal in securities are more connected to other corners of the global financial system.

Detroit councilman walks away from his mortgage - (www.sacbee.com) It was their dream home, a two-story, four-bedroom colonial in one of Detroit's nicest and most stable neighborhoods. But then, one day in December, City Councilman Kwame Kenyatta and his wife packed up their belongings, locked the doors, mailed in the keys and walked away - adding another vacant house to the thousands in a city hard hit by the nation's mortgage crisis. "We're already underwater when it comes to what we're paying on the house versus what the house is worth," Kenyatta said. Around the country, the practice, sometimes referred to as "mortgage walking" or "jingle mail," appears to be growing. But for Kenyatta, the decision could do more than hurt his credit rating. It could damage his bid for mayor of Detroit this summer, particularly since he has been one of the city's most vocal supporters of measures to improve neighborhoods and clean up blight. "If I'm going to follow you, you need to be a leader," said Patricia Dixon, a former neighbor of Kenyatta's. "You don't show leadership by walking away from your home in the city of Detroit. You have vandalism where they find out the houses are vacant. You have people stealing fireplaces." Kenyatta, a Democrat, is not the only elected official facing mortgage trouble. The Wayne County prosecutor's Detroit home has gone into foreclosure. And California Rep. Laura Richardson nearly lost her home before she paid up delinquent home loans. KEN NOTE: THE KEY QUESTION IS WHERE DID LAURA GET THE MONEY TO CATCH UP ON HER DELINQUENT LOANS?

Don't say prices are falling - (www.nytimes.com) IN the past few years, New York City’s frenzied love affair with real estate fueled a veritable geyser of cocktail party/water cooler/diaper circuit chatter. In these circles, who bought what and for how much was far more fascinating than the mating preferences of celebrities or the dark machinations of Dick Cheney. Flash forward to the winter and now spring of our proliferating discontent: the median sales prices of co-ops have plunged more than 20 percent in six months with no bungee cord in sight, buyers are abandoning six-figure deposits on new condos, and sellers stranded with underwater properties are feeling like victims of a Ponzi scheme. The toupee is off, and in the flat gray light of the morning after, real estate looks a lot like tech stocks in the aftermath of the Internet boom. So for those who have invested in it, has real estate become the dirtiest pair of words in town? “From what I see, it’s not that it’s a dirty word, but that it’s not a word anymore,” said David S. Markus, 44, a former hedge fund manager who owns a co-op on the Upper West Side. “Nobody wants to talk about it. In my building a year ago, people would talk about how much someone listed their apartment for. Today nobody wants to talk about the fact that we have three apartments in the B line that are for sale and none have sold. We’re all in this together and everybody’s apartment has come down in value and nobody wants to talk about it.” It may be that real estate is more persona non grata than public enemy No. 1. Susan Bernfield, 44, the artistic director of a nonprofit theater company, bought a TriBeCa loft with her husband in 1996. Most of her friends — artists, architects and people in publishing, a smattering of bankers and lawyers — settled there around the same time, before the colonization of their area by new development. She says that the subject, tenor and frequency of real estate conversations has shifted drastically over the past few months.

The international monetary systems breakdown is underway - (www.leap2020.eu) In this issue of the GEAB, our researchers anticipate the different forms a US default will take at the end of summer 2009, a US default which can no longer be concealed concealable from this April (most taxes are collected in April in the US) onward (10). The perspective of a US default this summer is becoming clearer as public debt is now completely out of control with skyrocketing expenses (+41%) and collapsing tax revenues (-28%), as LEAP/E2020 anticipated more than a year ago. In March 2009 alone, the federal deficit has nearly reached USD 200-billion (way above the most pessimistic forecasts), i.e. a little less than half of the deficit recorded for the entire year 2008 (a record high year) (11). The same trend can be observed at every level of the country’s public organisation: federal state, federated states (12), counties, towns (13), everywhere tax revenues are vanishing, suffocating the whole country with spiraling debts that no one can control anymore (not even Washington). In this issue of the GEAB (N°34), our researchers focus on how to explain the « mystery of gold price ». Indeed, our seekers (of information, not gold) identified a number of interesting leads to understand why (14) the price of gold has been fluctuating around the same level for months when the number of gold buyers is constantly increasing and demand for coins and bars far exceeds available supply in many countries. Finally, our team gives recommendations on how to prepare for the crisis in the coming months, with particular regard to savings and life-insurance.

'The Goldman Conspiracy' - (www.marketwatch.com) 10 reasons why Wall Street has absolute power over America's democracy. Two mind-numbing fast-paced dramas. Two parallel worlds. One real, one fiction, both deadly. Jack Bauer, mythic hero of "24." Dying from a deadly bio-pathogen leaked from weapons developed by Starkwood, a rogue mercenary army attacking the presidency, hell-bent on taking over America. The other drama in play: "Hank the Hammer" Paulson, iconic Wall Street hero, a Trojan Horse placed inside Washington by Goldman Sachs as Treasury Secretary in control of America's $15 trillion economy. Goldman, a modern dynasty with vast financial powers much like those once used by the de' Medici, Rothschilds and Morgans to control nations. Both dramas play high-stakes games with financial WMDs that have lethal consequences. Jack compresses thrills, kills and chills into 24 hours. Hank, Goldman and their army of Wall Street mercenaries move with equally blinding speed, heart-pounding action. Drama? You bet. Six short months ago Hank led an assault on Congress. The scene parallels one in "24:" Sangala War Lord Juma's brazen attack inside the White House. But no AK-47s necessary. The Hammer assaulted Congress with just a two-and-a-half page memo in hand. Like a crack special-ops warrior, he took down the enemy, demanding $750 billion, absolute control, total secrecy, no accountability and emergency powers to act immediately ... warning that inaction was not an option, that collapse of America's banking system was imminent, would bring down the global monetary system, pushing world's economies into a "Great Depression II." Congress surrendered. Here's the whole plot: Scene 1. American government is now run by the 'Goldman Conspiracy': Oh, you really think just I'm plotting a television series? Or just paranoid, exaggerating this power grab? You better read "The Usual Suspects," Matthew Malone's brilliant article in Portfolio magazine: He "exposed" the "Goldman Sachs 'conspiracy' to take over the U.S. financial system." Read it in this context: America's financial sector has exploded from 19% of corporate profits in 1986 to 41% today, becoming a magnet for every wannabe billionaire. They know why Wall Street must control Washington. Malone focuses on the incestuous "conspiracy" of Goldman alumni in Treasury, Bank of America, Merrill Lynch, AIG, Citigroup, Washington lobbyists and politicians. Scene 2. Huge conflicts motivating Wall Street's 'Trojan Horse': And just in case you think any emphasis on The Hammer's conflict of interest was invented purely to increase drama, please remember that he worked at Goldman for three decades after serving under Nixon. He got $38 million his last year as CEO in 2006 before becoming Treasury Secretary. Then during the market meltdown six months ago the $700 million personal fortune he built at Goldman was threatened by Goldman's huge $20 billion derivatives exposure at AIG: Suddenly his responsibilities at Treasury merged with a strong self-interest in protecting his personal fortune. AIG was "saved."



OTHER STORIES:

Biggest Budget Deficit In UK History Coming Up - (Mish at globaleconomicanalysis.blogspot.com)
Commercial Real Time Bomb Goes Off But No One Notices - (Mish at globaleconomicanalysis.blogspot.com)
Economist Mankiw Defends Policy of Theft - (Mish at globaleconomicanalysis.blogspot.com)
Pacific Grove California Explores Bankruptcy Over Pension Issues - (Mish at globaleconomicanalysis.blogspot.com)

Banks say they're lending, but they're not -- and that's good - (www.marketwatch.com)
Morgan Stanley mulling buy of U.S. regional banks: report - (www.marketwatch.com)
Yahoo's profit tumbles; company will cut 5% of workforce - (www.marketwatch.com)
FDIC discussed possible Pandit replacements at Citi: report - (www.marketwatch.com)
Many firms with DB pension plans are significantly underfunded - (www.marketwatch.com)

Killing the Myths of Houseownership - (www.reallyfuckedhomeowner.com)
Ameriquest: A window into the mortgage meltdown - (www.contracostatimes.com)
The Casualties of a Building Boom That Got Ahead of Itself - (www.nymag.com)
Why Housing Is Not Coming Back - (www.Charles Hugh Smith)
Backdoor Way To Clear Housing Inventory: Tax Liens - (www.optionarmageddon.ml-implode.com)

Treasuries shaky as investors' sanctuary - (www.washingtontimes.com)
US May Convert Banks' Bailouts to Equity Share - (www.nytimes.com)
Foreclosure Watch 2009 as Option ARM's Reset - (www.subprimemortgagedebacle.com)
Time For Professor Mankiw To Resign - (Mish)
Zero Interest Rate paper from 2003 - (www.dallasfed.org)