Tuesday May 12 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

More on White House's Strong-Arming of Chrysler Hedge Fund Hold Outs - (www.seekingalpha.com) - In an interview of momentous importance, WJR's Frank Beckmann interviews Tom Lauria, the Head of Restructuring at top five law firm White & Case, in which the lawyer, who represents Chrysler hold-out hedge funds Stairway Capital and Oppenheimer Funds, discusses on the record the amazing treatment by the White House of Perella Weinberg, which initially had been a transaction hold-out but after threats by the White House (not my words) was forced to drop their objection and go with the administration. Says Lauria: One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight...That was Perella Weinberg. In the clip below, fast forward to the two minute mark, where the Obama administration's negotiating tactics become very, very clear. What is very odd is that Perella Weinberg could possibly have veered away from the administration's path in the first place: Zero Hedge readers know that P-W is the very firm advising the rapidly sinking FDIC "on transactions and strategies to stabilize the banking system, and also on the proper way to dispose failed institutions and how to handle delinquent securities assumed from banks, as well as the creation of the aggregator bank." This leads to the conclusion that this was really the work of one Dan Arbess, who runs the recently acquired by P-W, Xerion Capital, but nonetheless does not explain the lack of strategic integration at this most critical of advisors to Sheila Bair, and by implication the U.S. administration. How is it possible that one's core advisor would go against its client, even if offset by a Chinese Wall, is likely the big story here, and speaks volumes about the chaos behind the scenes currently occurring with regard to Wall Street's sentiment for the ruling administration.

Fat public sector sickens California - (www.grandforksherald.com) - California’s increasingly severe and largely self-inflicted economic crisis will deepen May 19 if, as is probable and desirable, voters reject most of the ballot measures that were drafted as part of a “solution” to the state’s budget deficit. They would make matters worse. California is driving itself into permanent stagnation. The state’s perennial boast — that it is the incubator of America’s future — now has an increasingly dark urgency. Under Arnold Schwarzenegger, the best governor the states next to California have ever had, people and businesses have been relocating to those states. For four years, more Americans have moved out of California than have moved in. California’s business costs are more than 20 percent higher than the average state’s. If, since 1990, state spending increases had been held to the inflation rate plus population growth, the state would have a $15 billion surplus instead of a $42 billion budget deficit, which is larger than the full budgets of all but 10 states. Since 1990, the number of state employees has increased by more than a third. In Schwarzenegger’s less than six years as governor, per capita government spending, adjusted for inflation, has increased nearly 20 percent. Liberal orthodoxy has made the state dependent on a volatile source of revenues — high income tax rates on the wealthy. California’s income and sales taxes are among the nation’s highest, its business conditions among the worst, as measured by 16 variables directly influenced by the Legislature. Unemployment, the nation’s fourth highest, is 11.2 percent. Required by law to balance the budget, the Legislature has “solved” the problem by, among other things, increasing the income, sales, gas and vehicle taxes. Proposition 1A would create a complicated — hence probably porous — spending cap and a rainy day fund. Realists, however, do not trust the Legislature to obey the law, which may be why some public employees unions cynically support 1A. Another May 19 proposition, opaquely titled the “Lottery Modernization Act,” would authorize borrowing $5 billion from future hypothetical lottery receipts. The title is a measure of the political class’ culture of lying. Voters are being warned that if they reject the propositions, there might have to be $14 billion in spending cuts. (Note the $15 billion number four paragraphs above.) Even teachers might be laid off. California teachers — the nation’s highest paid, with salaries about 25 percent above the national average — are emblematic of the grip government employees unions have on the state, where 57 percent of government workers are unionized (the national average is 37 percent).

GM could follow Chrysler into bankruptcy: analysts - (news.yahoo.com/s/afp) General Motors could soon follow Chrysler into bankruptcy protection and the process is unlikely to be simple or swift for either troubled automaker, analysts warned. "Bankruptcy may indeed be the last, best option to restructure General Motors because of the multitude of challenges the company faces and its deeply entrenched stakeholders," said Doug Bernstein, head of Plunkett Cooney's banking, bankruptcy and creditors' rights law practice group. "But it's unrealistic to expect that the process will go smoothly and quickly," Bernstein said. "The company is massive, its operations are complex, and it has thousands of potential claimants and interested parties." In announcing Chrysler's bankruptcy Thursday, President Barack Obama insisted that "Chrysler and GM are going to come back" and said a restructuring under court protection, along with a partnership with Italy's Fiat, would give Chrysler "a new lease on life." While Obama said his team would continue to work with GM to develop a long-term viability plan ahead of a June 1 deadline he also warned that "we simply cannot keep this company or any company afloat on an endless supply of tax dollars." Canadian Prime Minister Stephen Harper warned that both the US and Canadian governments "will insist that all of the stakeholders make the sacrifices necessary to ensure the long-run viability" of General Motors.

How Banks Become Condo Rental Agents – (Mish at globaleconomicanalysis.blogspot.com) Last month in a Boston foreclosure sale, John Hancock Tower Lenders Took, a 65% Haircut In 3 Years . Boston is back in the news today with another foreclosure auction. This time it's condo related, with Chorus Bank in the thick of things. Please consider 441 Stuart Street: What Happened? This week, the building at 441 Stuart Street was offered to the public through a foreclosure auction. The property was most recently purchased in 2004 for $37.5MM with the intent of converting the building to condominiums. Recorded documents show that Corus Bank, a well-known condo conversion lender out of Chicago, placed $42MM in debt on the property in 2004. The auctioner opened at $30MM and asked if there were any bids. There were not. Next he cut the bid in half and asked for $15MM, and the bids that followed were $15.1MM, $16MM, $16.1MM, and finally $17MM. There was only one 3rd party who bid the $15.1 and $16.1 against the bank. The lender bought the property back at $17MM. Nevermind the fact that the highest 3rd party bid for the property was less than 40% of the known debt, consider the fact that the number represents only about $100/foot. Remember that this property is in Copley Square. If retail prices for completed condos are $600-900/SF and construction costs run $150-250 per foot then that’s a margin of 40% or better - isn’t it? It's interesting that no one wants this building at $100 a square foot with completed condos going for $600 to $900 a square foot. Corus Bankshares Receives 'Going Concern' Qualification: In Bank Watch (Apr. 12-18): CoStar is reporting Corus Bankshares Receives 'Going Concern' Qualification. Corus Bankshares Inc. in Chicago announced that its audited financial statements for the year ended 2008 contained a 'going concern' qualification from its independent registered accounting firm Ernst & Young LLP. Corus, with a portfolio consisting primarily of condominium construction loans, many in the hard hit areas of Arizona, Nevada, south Florida and Southern California, has seen a rapid and precipitous decline in the value of the collateral securing its loan portfolio. Thus, it is experiencing significant loan quality issues. The net loss of $456.5 million it recorded in 2008 was primarily the result of significant increases in the provision for credit losses.
N.Y. Times extends deadline in Boston Globe talks - (www.marketwatch.com) New York Times Co. extended the May 1 deadline by which it was seeking $20 million of concessions from the Boston Globe to midnight on Sunday, media reports said.
In April, New York Times said it would close the Globe unless it received the concessions. Times Co. is looking for $20 million of cuts, half from editorial and half from its production and related staff. The Boston Globe reported that management had concluded a marathon bargaining session with the Newspaper Guild and then turned to three of the paper's largest unions. These unions -- press operators, delivery-truck drivers, and employees who insert ads and editorial materials into the newspaper -- and management had moved closer to agreement on the cost savings required to keep the paper operating, the Globe reported. The drivers, press operators, and mailers represent more than 500 Globe workers, while the Newspaper Guild represents more than 600 editorial and other staffers.

How Lehman Got Its Real Estate Fix - (www.nytimes.com) BACK when he was a major Wall Street deal maker, Mark A. Walsh, the former head of the global real estate group at Lehman Brothers, had a running joke with Carmine Visone, one of his managing directors. Mr. Visone, 10 years older than his boss, would lecture Mr. Walsh about the importance of fundamentals: land values, construction cost and rents. As Mr. Visone remembers it, Mr. Walsh would wave his hand dismissively and would argue just as emphatically that the best way to make office buildings spew cash was through the magic of financial engineering. Typically, Mr. Visone gave in. “He was too smart for me,” Mr. Visone recalls. Many others were equally in awe of Mr. Walsh’s intellect. Until Lehman Brothers collapsed last September, Mr. Walsh was considered the most brilliant real estate financier on Wall Street. In the ’90s, he pioneered the art of lending to office building developers and then slicing up and repackaging the debt for investors. Less risky pieces went to institutional investors; the lower-rated chunks to hedge funds and others hungry for juicier returns. Lehman pocketed a fee every step of the way, and it often retained a risky piece or two to give its own earnings a kick. “That was one of Lehman’s strengths,” says Brad Hintz, a former chief financial officer at Lehman who is now an analyst at Sanford C. Bernstein. “In fact, a lot of Wall Street firms tried to duplicate Lehman’s commercial real estate strategy.”Mr. Walsh, who wore rumpled Brooks Brothers suits and could be painfully awkward in front of crowds, was one of Lehman’s biggest profit producers. Former Lehman executives say Richard S. Fuld Jr., the bank’s chief, relied on Mr. Walsh to bankroll the firm’s swanlike transformation from a second-tier bond trading shop into a full-service investment bank. Former members of his unit, who requested anonymity because they were concerned about being swept up in lawsuits and investigations surrounding Lehman’s collapse, say it generated more than 20 percent of Lehman’s $4 billion in profits at the peak of the real estate boom in 2006. Many factors, of course, contributed to Lehman’s demise last fall. Near the end, it carried $25 billion in toxic residential mortgages. It was wildly overleveraged. And the federal government made the fateful decision not to rescue Lehman from its mistakes. But when real estate overheated in the years before Lehman’s implosion, Mr. Walsh made billions of dollars in loans and equity investments that also ultimately helped bring down the bank. Lehman’s bankruptcy hasn’t quelled the controversy about Mr. Walsh’s activities. Last fall, the United States attorney’s office in Manhattan subpoenaed him and other former Lehman executives as part of an investigation into whether the firm improperly valued its commercial real estate holdings, among other things. In March in a civil complaint, Anne Milgram, the New Jersey attorney general, accused Mr. Walsh and 17 other former Lehman officials of defrauding the state’s pension funds by misrepresenting Lehman’s real estate exposure. Mr. Walsh, 49, declined to be interviewed for this article.

Chrysler’s Fall May Help Administration Reshape G.M. - (www.nytimes.com) Fresh from pushing Chrysler into bankruptcy, President Obama and his economic team are hoping that the hard line they took last week gives them leverage to force huge changes in General Motors, a far larger and more complex company. Officials say that, difficult as Mr. Obama’s decision was on Wednesday to take all the risks of a Chrysler bankruptcy, the politics of reshaping G.M. will be far harder. Already a shadow of the company that once dominated the American landscape, G.M. will be forced to eliminate tens of thousands of additional jobs and close factories and dealerships nationwide. In Chrysler’s case, the tough job-cutting decisions had already been made and the government is taking only a small stake. An alliance with Fiat envisions selling the company’s cars in new markets around the world and adding cars that use Fiat’s fuel-efficient technology. But in G.M.’s case, Mr. Obama will be forcing deeper cuts and becoming the controlling shareholder. He will also be overseeing the radical downsizing of G.M.’s work force as he is trying to reverse rising unemployment. “G.M. is very different than Chrysler,” Rahm Emanuel, Mr. Obama’s chief of staff, said Friday. “But I suppose the one lesson for G.M., and all the other players, is that this is a moment when a Democratic president said, ‘I am really willing to let a company dissolve, and there’s not going to be an open checkbook.’ There’s got to be real viability.”

Thirsty Las Vegas is a case study of the next global crisis - (seattletimes.nwsource.com) On a cloudless December day in the Nevada desert, workers in white hard hats descend into a 30-foot-wide shaft next to Lake Mead. As they've been doing since June, they'll dig down into the limestone surrounding the reservoir that supplies 90 percent of Las Vegas' water. In September, when they hit 600 feet, they'll turn and burrow for 3 miles, laying a new pipe as they go. The crew is in a hurry. It's battling the worst 10-year drought in history along the Colorado River, which feeds the 110-mile-long reservoir. Since 1999, Lake Mead has dropped about 1 percent a year. By 2012, the lake's surface could fall below the existing pipe that delivers 40 percent of the city's water. As Las Vegas' economy deteriorates, the workers also are racing against a recession that threatens the ability to sell $500 million in bonds so they can complete the job. Patricia Mulroy, manager of the Southern Nevada Water Authority, is the general in this region's war to stem a water emergency playing out worldwide. It's the biggest battle of her 31-year career. "We've tried everything," Mulroy says. "The way you look at water has to fundamentally change." Across the planet, people like Mulroy are struggling to solve the next global crisis. She started her push with conservation. She's paying homeowners $1.50 a square foot to replace lawns with gravel and asking golf courses to dig up turf. That helped cut Las Vegas' water use by 19.4 percent in the seven years ended in 2008, even as the metropolitan area added 482,000 people, bringing the total to 2 million. It wasn't enough. So she's planning a $3.5 billion, 327 mile underground pipeline to tap aquifers beneath cattle-raising valleys northeast of the city. She's suggested refashioning the plumbing of the entire continent, Paul Bunyan-style, by diverting floodwaters from the Mississippi River west toward the Rocky Mountains. If Mulroy's ideas are extreme, one reason is that the planet's most essential resource doesn't work like other commodities.

U.S. Workers' Wages Stagnate As Firms Rush to Slash Costs - (www.washingtonpost.com) In December, Timothy Owner, a trombone player with the Virginia Symphony Orchestra, called his landlord to tell her he might have trouble paying rent around May. He and the orchestra's 53 other full-time members, many of whom are paid less than $30,000 a year, had agreed to a month-long furlough. The furlough, which ended yesterday, was rough, Owner said. But he and other musicians acknowledged that the alternative could have been worse. "We're less unhappy if this means the orchestra will survive," he said. Across the country, workers' earnings are stagnating or, in some cases, declining. For many Americans, the setbacks are all the more troubling because they have lost so much wealth in recent months, with the value of their homes and retirement packages plummeting. Employers big and small have resorted to slashing hours and once-unthinkable wage cuts. In March, staffing agencies that work for Microsoft agreed to a 10 percent reduction in their bill rate. In April, hotel operators in New York City asked unionized waiters, housekeepers and bellhops to reopen their contract and accept wage cuts. State governments such as Indiana's have frozen pay, while others, including Maryland and California, have furloughed employees. According to a recent Washington Post-ABC News poll, more than a third of Americans say they or someone in their household has had their hours or pay cut in the past few months. That's a nine-point increase since a similar poll was conducted in February. Wages in absolute terms -- not adjusted for inflation -- tend not to fall, even during economic downturns. In a study of the recession of the early 1990s, Yale economist Truman Bewley found that employers are loath to reduce wages because of the potential impact on morale and productivity. That's why wages are considered "sticky" -- they rarely slip.





OTHER STORIES:

HomeOwner’s Equity: Less than 15% - (www.ml-implode.com) - "Interesting discussion on negative equity in this week’s Barron’s. Citing Stephanie Pomboy’s recent missive, Alan Abelson takes...
Depression Scares Are Hardly New - (www.ml-implode.com) - WHAT is the chance that the current downturn will morph into another Great Depression? That question has been preoccupying peop...
Stupidity Squared - (www.ml-implode.com) - "..., it's important to remember we are in this mess because Greenspan elected to blow another bubble rather than face what woul...
'China cancels America's credit card' - (www.ml-implode.com)
Banker: 'What'd I Do Wrong, Officer?' Cop: 'You've Got Algae in the Pool, Sir' - (www.ml-implode.com)
The State of the FDIC - (www.ml-implode.com)

Gold May Be ‘Off to the Races’ Above $950: Technical Analysis - (www.bloomberg.com)
Banks' health, jobs report to test bulls' will next week - (www.marketwatch.com)
Stress Test May Push 14 Banks to Raise Money, FBR’s Miller Says - (www.bloomberg.com)
House hunting? It's not a buyer's market everywhere - (www.latimes.com)
China to Keep ‘Stability’ of Yuan Rate, Boost Growth - (www.bloomberg.com)
Italy’s GDP May Decline 4.2 Percent, Ministry Says - (www.bloomberg.com)
ADB to Boost Lending After Capital Increase, Nag Says - (www.bloomberg.com)
Chinese travelers get cold feet - (www.latimes.com)

A Shrinking Trade Deficit, at Least for Now - (www.nytimes.com)
All Eyes Turn to GM And Its Bondholders - (www.washingtonpost.com)
Three Banks Seized by Regulators, Pushing Year’s Total to 32 - (www.bloomberg.com)
Buffett Says Some Bets Could Cost His Company - (www.nytimes.com)

Report: Citigroup may need $10B in extra capital - (finance.yahoo.com)
Chrysler Begins Voyage Down Bankruptcy Route - (www.nytimes.com)
Students’ First Lesson: Beware Loans’ Fine Print - (www.nytimes.com)