Thursday May 21 Housing and Economic stories

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TOP STORIES:

Economic Casualties Pile Into Tent Cities - (www.usatoday.com) Jim Marshall recalls everything about that beautiful fall day. The temperature was about 70 degrees on Nov. 19, the sky was "totally blue," and the laughter from a martini bar drifted into the St. Petersburg park where Marshall, 39, sat contemplating his first day of homelessness. "I was thinking, 'That was me at one point,' " he says of the revelers. "Now I'm thinking, 'Where am I going to sleep tonight? Where do I eat? Where do I shower?' " The unemployed Detroit autoworker moved to Florida last year hoping he'd have better luck finding a job. He didn't, and he spent three months sleeping on sidewalks before landing in a tent city in Pinellas County, north of St. Petersburg, on Feb. 26. Marshall is among a growing number of the economic homeless, a term for those newly displaced by layoffs, foreclosures or other financial troubles caused by the recession. They differ from the chronic homeless, the longtime street residents who often suffer from mental illness, drug abuse or alcoholism. For the economic homeless, the American ideal that education and hard work lead to a comfortable middle-class life has slipped out of reach. They're packing into motels, parking lots and tent cities, alternately distressed and hopeful, searching for work and praying their fortunes will change. "My parents always taught me to work hard in school, graduate high school, go to college, get a degree and you'll do fine. You'll do better than your parents' generation," Marshall says. "I did all those things. … For a while, I did have that good life, but nowadays that's not the reality." Tent cities and shelters from California to Massachusetts report growing demand from the newly homeless. The National Alliance to End Homelessness predicted in January that the recession would force 1.5 million more people into homelessness over the next two years. Already, "tens of thousands" have lost their homes, Alliance President Nan Roman says. The $1.5 billion in new federal stimulus funds for homelessness prevention will help people pay rent, utility bills, moving costs or security deposits, she says, but it won't be enough. "We're hearing from shelter providers that the shelters are overflowing, filled to capacity," says Ellen Bassuk, president of the National Center on Family Homelessness. "The number of families on the streets has dramatically increased."

Experts say GM bankruptcy almost inevitable - (www.msnbc.msn.com) For General Motors Corp., the task at hand is so difficult that experts say a Chapter 11 bankruptcy filing is all but inevitable. To remake itself outside of court, GM must persuade bondholders to swap $27 billion in debt for 10 percent of its risky stock. On top of that, the automaker must work out deals with its union, announce factory closures, cut or sell brands and force hundreds of dealers out of business — all in three weeks. “I just don’t see how it’s possible, given all of the pieces,” said Stephen J. Lubben, a professor at Seton Hall University School of Law who specializes in bankruptcy. GM, which is living on $15.4 billion in federal aid, faces a June 1 government deadline to complete its restructuring plan. If it can’t finish in time, the company will follow Detroit competitor Chrysler LLC into bankruptcy protection. Although company executives said last week they would still prefer to restructure out of court, experts say all GM is doing now is lining up majorities of stakeholders to make its court-supervised reorganization move more quickly. “If we need to pursue bankruptcy, we will make sure that we do it in an expeditious fashion. The exact strategies I’m not getting into today, but we’ll be ready to go if that’s required,” CEO Fritz Henderson said last week. The threat of bankruptcy, however, may be just a negotiating ploy to pull reluctant bondholders into the equity swap deal. In Chrysler’s case, some secured debtholders resisted taking roughly 30 cents on the dollar for what they were owed, but most gave in after they were identified in court documents. Henderson, who took over in March when the government ousted Rick Wagoner, said last week there’s still time to get everything done by the deadline, although he conceded it will be difficult to meet a government requirement that 90 percent of its thousands of bondholders agree to the stock swap. The biggest obstacle to GM restructuring out of court appears to be its bondholders, who have been reluctant to sign on to the stock swap when the government and United Auto Workers union would get far more stock in exchange for debts owed by GM. GM has proposed issuing 62 billion new shares, 100 times more than the 611 million now offered publicly. Even though the U.S. government has agreed to back up GM and Chrysler new-car warranties, potential car buyers already view GM as if it’s in bankruptcy, reflected by the company’s steep revenue drop in the latest quarter, Lubben said. On Thursday, GM posted a $6 billion first-quarter loss and said its revenue dropped plunged by nearly half, largely because bankruptcy fears scared customers away from showrooms.

Ambac Financial posts $392M loss in 1st quarter - (finance.yahoo.com) Bond insurer Ambac Financial Group Inc. said Monday it lost $392.2 million in the first quarter, a narrower loss than the year before, in part due to a rise in value in credit derivatives. Ambac lost $1.36 per share in the quarter that ended March 31. That compares to a loss of $1.66 billion, or $11.69 per share, a year earlier. Analysts polled by Thomson Reuters had expected a loss of 93 cents per share. Revenue moved into positive territory to $1.13 billion, improved from year-earlier negative revenue of $1.66 billion. Negative revenue usually occurs when a company is forced to reverse gains it recorded as revenue in an earlier period. Net premiums earned rose 5 percent to $196.8 million. Like others in its industry, Ambac was hit hard in the past two years by losses on its coverage of risky financial instruments such as mortgage-backed securities and has been working to reduce its exposure to such debt instruments. Ambac said its quarterly results included $279.7 million in pretax income from a rise in the value of credit derivatives.

GM ducks question about moving HQ - (www.freep.com) Is General Motors thinking about moving its corporate headquarters from Detroit? GM CEO Fritz Henderson didn’t rule out the idea today in a conference call with reporters. He stressed that there wasn’t a plan currently to do so but noted that the struggling automaker is looking at every idea to improve its business. “We’re looking, frankly, at everything within our business but it’s not like we have that queued up at the top of our list. As we look at the structure, look at the business, we’re looking at everything,” Henderson said. “At this point, I don’t really have anything to report. Our headquarters is here, we’ve got a fairly large complement of people here. And we’re proud to be here.” Henderson added: “We don’t have ... such plans but if we did, it would be motivated by business rationale, which would be cost, efficiency and speed.” The idea of moving GM’s headquarters out of Detroit seems to have emerged last week during a meeting between Warren Mayor Jim Fouts and Ed Montgomery, President Barack Obama's director of recovery for auto communities and workers. Fouts today told the Free Press that he brought up the proposal Friday during his talks with Montgomery and Gov. Jennifer Granholm. “General Motors is going to be looking to consolidate. They’re looking to collaborate, and obviously, they’re looking to save money. The GM Tech Center has everything you want — they have research, they have design, they have administrative offices,” Fouts said. “I pointed out to them that they just recently made an investment of $1.5 billion in new development at the Tech Center.” “It would seem to me that they would want to consolidate and move most of their facilities ... to Warren to save money,” the mayor added. He noted that Warren has provided $100 million in tax abatements to the Tech Center, which occupies about 1 square mile in the suburb, and the city does not have a city income tax. “We have some things to offer General Motors. We have no city income tax unlike our sister city to the south,” Fouts said of Detroit. “We have clean and safe neighborhoods.”

Treasuries Gain as Fed Buys Debt Amid Rising Mortgage Rates - (www.bloomberg.com) Treasuries rose as the Federal Reserve bought $3.51 billion of U.S. debt amid speculation the central bank will increase its purchases as rising yields send mortgage rates above 5 percent. Thirty-year bonds led the gains as the Fed bought government securities maturing between August 2026 and May 2038, the first of three buybacks this week as policy makers seek to lower consumer lending rates. The central bank bought $2.5 billion at its last buyback of securities of that maturity on March 30. The yield on the 30-year bond climbed last week to the highest since November after an auction of $14 billion of the securities suggested waning demand. Stocks fell. “As rates climb, it puts pressure on mortgage rates, which puts pressure on the Fed to buy back paper to keep rates lower,” said Theodore Ake, head of U.S. Treasury trading in New York at Mizuho Securities USA Inc., one of 16 primary dealers that trade with the Federal Reserve. The 30-year bond yield fell eight basis points, or 0.08 percentage point, to 4.20 percent as of 11:15 a.m. in New York, according to BGCantor Market data. The 4.25 percent security due in May 2039 gained 1 9/32, or $12.81 per $1,000 face amount, to 100 29/32. Ten-year yields fell eight basis points to 3.22 percent. Mortgage Rates: The Standard & Poor’s 500 Index lost 1.8 percent after an increase of 5.9 percent last week. Treasury 10-year yields have risen for seven consecutive weeks, the longest advance in five years, as President Barack Obama borrows record amounts to stimulate the economy and service a widening budget deficit. The government will sell $3.25 trillion of debt in the fiscal year ending Sept. 30, according to primary dealer Goldman Sachs Group Inc. Obama’s administration raised its estimate of the deficit this year to $1.84 trillion, up 5 percent from the February estimate, and to $1.26 trillion next year, up 7.4 percent. The administration also projected Obama’s budget for 2010 will end up at $3.59 trillion, compared with the $3.55 trillion it estimated previously.

Foreclosure looms for McAfee mansion in CO Springs - (www.denverpost.com) One of the Pikes Peak region's most star-studded home sales in recent years - the purchase of the sprawling mountain estate built by software pioneer John McAfee - is in danger of becoming one of its highest-profile foreclosures. Jeffrey "Patrick" Wu, a Chicago commodities trader who bought the property from McAfee at an on-site auction in May 2007, still owes about $3.2 million on a loan he took out to finance the $5.72 million purchase, according to a published notice by the Teller County Public Trustee's Office. A June 3 sale of the 280-acre compound, near Woodland Park, has been scheduled by the Trustee's Office in Cripple Creek, according to the notice. The estate, once McAfee's yoga retreat center and one of several residences he owned, includes a 10,000-square-foot main residence, with an entertainment center, three guest homes, nine cabins, four trout ponds, a horse paddock and unobstructed mountain views. McAfee, who gained fame as being one of the first to market antivirus computer software with the company that bears his name, reportedly spent $25 million to build the estate and spent more than 15 years filling it with collectibles from around the world. "People are curious, so we've had general-interest calls on the property, but nothing serious so far," said Pam Cronce, deputy public trustee.




OTHER STORIES:

U.S. Stocks Retreat From Four Month High on Valuations - (www.bloomberg.com)
Analysts Turning Bearish on S&P 500 After 14% Rally - (www.bloomberg.com)
Hedge funds cut fees for investors - (www.ft.com)
Banks Brace for Credit Card Write-Offs - (www.cnbc.com)
Credit-Card Reform Bill Goes Before Senate Later Today - (www.cnbc.com)
Shifting Their Energies - (www.nytimes.com)
China’s New Yuan Lending Cools; Money Supply Surges Record 26% - (www.bloomberg.com)
China consumer price index falls 1.5 pct. in April - (finance.yahoo.com)
Communists Can’t Outspend Capitalists as China Jobless Increase - (www.bloomberg.com)
Chavez’s Oil Seizures May Cause ‘Substantial’ Output Decline - (www.bloomberg.com)
Administration Plans to Strengthen Antitrust Rules - (www.nytimes.com)

Big spending to revive U.S. economy is still planned - (www.latimes.com)
Peel 'em and weep: First-class stamps rise 2 cents - (news.yahoo.com/s/ap)
GM CEO: Bankrupty Likely, Firm May Leave Detroit - (www.cnbc.com)
Four Big US Banks Selling Stock To Repay TARP - (www.cnbc.com)
HSBC Profit Rises, Investment Banking Strong - (www.cnbc.com)
Rising Credit Card Losses Are Next Challenge for Banks - (www.nytimes.com)
Intel May Face Record Fine, Rebate Ban in EU Antitrust Case - (www.bloomberg.com)
Sallie Mae's About-Face on Loan Subsidies - (www.washingtonpost.com)
Irrational Exuberance 3.0 Is Oozing Into Markets: William Pesek - (www.bloomberg.com)

AIG Is Selling Japanese Headquarters for $1.2 Billion - (www.cnbc.com)
Obama's Healthcare Plan Shot In The Arm for IT Sector - (www.cnbc.com)
Health Overhaul Could Save US Trillions: Obama - (www.cnbc.com)
China Slips Deeper Into Deflation; Analysts Relaxed - (www.cnbc.com)
White House Forecasts Higher U.S. Budget Deficit - (www.cnbc.com)