KeNo's Housing and Economic Portal: Saturday June 13 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Michigan braces for next jolt - (www.freep.com) General Motors Corp.'s bankruptcy sent shivers through Michigan's already-reeling economy Monday, with businesses around the state bracing for the economic blow from thousands more lost jobs. "It's going to be a struggle this summer," said James Kokas, owner of Opus One restaurant in the shadow of GM's Renaissance Center headquarters. "It has been extremely difficult to stay in business." Though Detroit's largest automaker is no longer the giant it once was, its restructuring will have a ripple effect on everything from auto suppliers to tax revenues and housing sales. How much of an impact will depend on how quickly GM emerges from bankruptcy, economists said. "An orderly bankruptcy will not have a huge effect on the economy," said Nigel Gault, chief U.S. economist for IHS Global Insight, a forecasting firm. "If things get bogged down, then that could change." Here's a look at some potential economic outcomes: Michigan's economy: The Center for Automotive Research estimates that a quick bankruptcy will cost the state 48,700 jobs and $2.7 billion in income by the end of 2010. But if the bankruptcy drags on, Michigan could lose 338,100 jobs and $18.3 billion in income. The Detroit automakers' woes have already cost the state 17% of its total jobs, or about 772,400 positions, since 2000. As a result, many economists say GM's bankruptcy will only add to the damage that's already been done.

Berlin breaks the unwritten rule - (www.ft.com) It is not the first time that Angela Merkel, the German chancellor, has complained about the ultra-loose monetary policy being conducted in the Anglo-Saxon world. But when she attacked the European Central Bank on Tuesday, for its planned purchase of cover bonds – an unconventional way to help financial markets recover – Ms Merkel broke an unwritten ban on German leaders commenting on monetary policy close to home. The message, it seems, is that Berlin is more worried than people had assumed. The chancellor is not just concerned about the long-term inflationary potential of excessive monetary loosening. Her main concern is that the expansionary fiscal and monetary policy being deployed across the industrial world to fight the economic crisis could be planting the seeds of future crises. “We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in 10 years’ time,” she said after criticising European, British and US central bankers. Like Peer Steinbrück, her finance minister, Ms Merkel has urged fellow Europeans to start working on their “exit strategies”. Governments, she says, should commit now to reducing their budget deficits while central bankers should think about how to re-absorb the liquidity they’re pouring into markets. “Our most complex task,” she told a conference on Tuesday, “will come once we have overcome the crisis. The question will be … can we return to a path of virtue, as far as public debts are concerned for instance.” The concerns are not new, but her strong and clear comments suggest Berlin is afraid that it may be losing the argument in the global debate about how to overcome the crisis. The evidence, in Berlin’s eyes is the ECB plan, announced last month, to purchase €60bn of covered bonds.

Money Sent Home by Mexican Workers in U.S. Falls Sharply - (www.nytimes.com) The amount of money sent home in April by Mexicans working in the United States fell by almost one-fifth compared with a year earlier, the central bank said Monday, marking the largest decline since the authorities began keeping track of such transfers. Remittances, as the transfers are known, have been sliding since the end of 2007, when the construction industry in the United States began its sharp decline. Many Mexicans who had found work in building and landscaping during the boom years quickly lost their jobs. Then, as the overall United States economy fell into a recession, Mexicans in other industries, including restaurants and manufacturing, also lost their jobs. But the pace of decline in the money transfers gathered speed this year, falling 8.7 percent over the first four months compared with the same period last year, the central bank, the Bank of Mexico, reported. Migrants sent $1.8 billion in April, 18.7 percent less than in April 2008. There is no single explanation for the sharper drop in April, said Eliseo Díaz González, an economist who studies remittances at the College of the Northern Border outside Tijuana. Migrants have either lost their jobs or taken jobs with lower pay. At the same time, without good prospects of finding work in the United States, many Mexicans have decided not to risk crossing the border illegally. “We are seeing the aggravation of all these trends,” Mr. Díaz said. “With opportunities for employment in the United States shutting off, we cannot continue to export labor to the United States anymore. The prize for migrating no longer exists.”

Fed Said to Raise Standards for Banks Seeking TARP Repayment - (www.bloomberg.com) Federal Reserve officials surprised bankers in the past week by demanding they raise specific amounts of new capital before repaying taxpayer funds, applying a more stringent assessment than the stress tests in May. JPMorgan Chase & Co. and American Express Co. were told they need to boost common equity, less than four weeks after being informed they had enough to withstand a deeper economic slump. Morgan Stanley was directed to raise more funds after already selling stock to cover its stress-test shortfall. One firm was told June 1, people with direct knowledge said. The central bank’s further scrutiny signals concern at the political and economic dangers of having a bank boomerang back to government aid once it leaves the program. “The Fed doesn’t want to be criticized for allowing people to repay this and then having the banks say we just don’t have the capital to make loans now,” said Lawrence Kaplan, a former attorney at the Office of Thrift Supervision who now works at law firm Paul, Hastings, Janofsky & Walker LLP in Washington. “It’s an exercise to make sure that no one is going to get criticized for allowing these redemptions.” The Fed’s demands also partly reflect the biggest three- month rally in U.S. financial shares in at least two decades, which has made it easier for banks to raise the funds. The central bank said in a June 1 statement that the biggest 19 lenders “must successfully demonstrate access to public equity markets” before repaying TARP money.

Goldman’s Case: Goldman Sachs Group Inc. hasn’t been required to seek any more funds since the firm raised $5.75 billion by selling shares in April, according to a person familiar with the matter. The firm sold $1.91 billion of stock in Industrial & Commercial Bank of China Ltd. this week, of which about half is owned by funds managed by Goldman Sachs. That sale was unrelated to any capital raising requirements, the person said.

Toxic assets ‘bridge too far’ - (www.ft.com) The Federal Reserve should not be involved in financing toxic assets that date from the bubble era, Charles Plosser, president of the Philadelphia Fed, has told the Financial Times. “I think it is a bridge too far,” said Mr Plosser, arguing that such proposed Fed loans would expose the US central bank to credit risk and tie up a sizeable chunk of its balance sheet in long- term assets that would be hard to price and liquidate. The Fed agreed to consider providing investors with loans to buy these assets – including bubble-era subprime securities – as part of a wider effort to clean up bank balance sheets involving the Treasury and the Federal Deposit Insurance Corporation. His comments challenge Fed chairman Ben Bernanke’s view that the Fed can help to restart trading in these assets without unduly limiting its balance sheet flexibility or taking on too much credit risk, once haircuts on loans and Treasury risk capital are taken into account. Mr Plosser is an independent-minded member of the Federal Open Market Committee but his doubts about the so-called “legacy assets” programme are shared by many others. “I have reservations about the Fed intervening in private credit markets as a matter of principle. I think it confuses monetary and fiscal policy,” Mr Plosser said. He said interventions in private credit markets involved picking winners, would be difficult to unwind, risked compromising the Fed’s independence and could delay the market’s self-healing. By contrast, Mr Plosser is less concerned than some of his colleagues about buying government debt. “I do not think that buying Treasuries is more inflationary than buying mortgage-backed securities,” he said, while operating in the Treasury market carried fewer costs.

Eerie Parallels Between Soviet Planned Economy and American Capitalism - (www.newdeal20.org) The foolish consequences have now come home to roost, consequences of pursuing a policy that encouraged short-run speculative trend following capital inflows, which buoyed domestic stock and bond markets and kept domestic interest rates low at the expense completely ignoring trade competitiveness, a rising current account deficit, and a growing net debtor position. In fact, there are broader, ominous parallels between the former Soviet Union’s planned economy and current trends within today’s American finance-dominated capitalism. Just as the Soviet planned economy venerated “the State” above all else, American capitalism today views the health and eternal expansion of globalized, free-flowing capital and of manufacturing as the ultimate goal. Both Soviet style communism and American “finance capitalism,” however, propagate vast and harmful income gaps; both rely on and promote militarism increasingly to obtain their geopolitical and economic objectives, and neither leaves much room for consideration of workers’ well being. We all know what eventually happened to the Soviet Union. Although different in degree, there is no law of nature that exempts the United States today from the same devastating effects that eventually ran the Soviet Union into the ground if current trends, as appears likely, prevail. GM and its counterparts cannot hang on if they are the only existing part of the manufacturing sector. Like a clump of rainforest that is too small, they will eventually disappear, unless they are reconnected to a large, thriving manufacturing sector. Most observers blame the automakers’ decline on some kind of historical inertia created by the dominance that these firms wielded for so long. Certainly, that may have something to do with it. But these observers miss the importance of the ecology of the industrial system because they understand marketing and finance, not production (both companies have arguably been transformed from car makers to banks through their finance subsidiaries). Ford’s “world” cars are “bad” cars precisely because they are “world.” The engineers need to “kick the tires” of the new production processes they design. So while a market may be global, production and the growth of production take place most efficiently at continental or sub-continental distances. Ford used to have a huge, centralized production complex in River Rouge; if they really wanted to turn things around, they would go back to their roots.

OTHER STORIES:

U.K. Mortgage Approvals Increase to Highest in a Year - (www.ml-implode.com) - "U.K. mortgage approvals rose more than economists forecast in April to the highest level in a year, underpinning demand for hom...

Even the rich feeling the pinch of the real-estate bust - (www.ml-implode.com) - "he most notable downsizing of the American home has been in its price. The luxury end usually escapes the worst of housing down...

ECB may tighten up ABS collateral rules - (www.ml-implode.com) - The European Central Bank may tighten up the rules on the European asset-backed securities (ABS) it accepts from banks as colla...

Zillow: Mortgage rates up - (www.ml-implode.com) - ``Maryland had the highest 30-year, fixed-rate mortage at 5.35 percent. Georgia's were the lowest, at 5.15 percent.''

U.S. prosecutors far from decision on Mozilo: sources - (www.ml-implode.com) - "Prosecutors are at least several months away from deciding whether to bring a criminal case against Countrywide Financial Corp ...

Julian Robertson: “depression and explosive inflation” possible - (www.ml-implode.com)

The Big Collapse Could Be Very Near - (www.ml-implode.com)

Eerie Parallels Between Soviet Planned Economy and American Capitalism - (www.ml-implode.com)

Bankers lobbied secretly to keep derivatives under Federal Reserve ‘oversight’ and away from real scrutiny - (www.ml-implode.com)

Subprime meltdown over; now comes the bad part - (www.ml-implode.com)

How Washington blew GM’s bankruptcy - (www.ml-implode.com)

Concerns over role of US as investor in GM - (www.ft.com)

Emerging Markets Most Costly Since ‘07 on Fund Flood - (www.bloomberg.com)

China’s Yu Tells U.S. Not to Be Complacent About Debt - (www.bloomberg.com)

U.S. distressed debt best performer in 2009: report - (www.reuters.com)

Why Cisco got the Dow-index slot over other tech ideas - (www.latimes.com)

Hedge-Fund Investors May Add $50 Billion in 2009, Barclays Says - (www.bloomberg.com)