Saturday June 6 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Two U.S. auto parts makers file Chapter 11 - (www.reuters.com) Auto parts makers Visteon Corp and Metaldyne Corp filed for Chapter 11 bankruptcy protection for their U.S. operations, becoming the latest casualties of the global auto industry crisis. Both Visteon, which Ford Motor Co spun off in 2000, and Metaldyne Corp, a unit of Japan's Asahi Tec, said on Thursday that the bankruptcy filings do not include their non-U.S. entities or operations. The announcements came as automaker General Motors Corp moved closer to filing the largest bankruptcy ever for a U.S. industrial company. The worst economic crisis in decades is re-shaping the global auto industry, driving the weakest to the wall and hammering sales and profits across the board. In a filing with the U.S. Bankruptcy Court for the District of Delaware, Visteon listed total assets of $4.58 billion and total debts of $5.32 billion. Visteon's unsecured creditors include a unit of Bank of New York Mellon Corp holding bond debts, the Pension Benefit Guaranty Corp and IBM, which is a trade creditor.

Ford's Largest Supplier Files for Chapter 11 - (www.cnbc.com) .S. auto parts makers Visteon and Metaldyne filed for bankruptcy Thursday, becoming the latest casualties of the global auto industry crisis and adding to the pressure on cash-strapped automakers. Visteon, the former parts unit of Ford, said the No. 2 U.S. automaker had made a commitment to support bankruptcy financing for its restructuring efforts to ensure continued supply of parts. The filing comes at a time when Ford, the only U.S. automaker operating without emergency government loans, is struggling to survive the worst auto sales in nearly three decades which has sent Chrysler into bankruptcy and pushed General Motors to the brink of failure. GM had moved closer to filing the largest-ever bankruptcy for a U.S. industrial company, but GM and the U.S. Treasury had made a new offer for a crucial debt exchange that is backed by a committee for bondholders. Ford, still Visteon's biggest customer and which accounted for about 31 percent of its $1.35 billion of sales last quarter, did not detail the size of its bankruptcy financing for Visteon. Ford spun off Visteon in 2000. "We have committed to support debtor-in-possession financing, but we anticipate others will also be involved," Ford spokesman Todd Nissen said.

Government Bonds Fall as Mortgage Rate Jump Routs Treasuries - (www.bloomberg.com) Mortgage bond yields are now higher than before the Fed announced March 18 it would expand purchases of those securities to drive down interest rates on new loans. Yields on Washington- based Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds climbed to 4.69 percent yesterday, the highest since Dec. 5 and up from 3.94 percent on May 20, Bloomberg data show. The average rate on a 30-year U.S. mortgage increased eight basis points to 5.08 percent yesterday, according to bankrate.com. That’s 141 basis points higher than the 10-year Treasury yield, compared with 305 basis points at the start of the year. Treasuries rallied today, paring yesterday’s drop and sending the yield on the 10-year note seven basis points lower to 3.67 percent. Ten-year Treasury yields increased 19 basis points yesterday, the most since Jan. 19. “The bond market and its yield curve are telling you people are very skeptical about the quantitative easing,” said Robin Marshall, head of fixed income in London at Smith & Williamson Investment Management, which has $20 billion of assets. “The plan might work eventually, but it’s difficult to be accurate. The market is not sure about growth, but it seems to be certain that inflation will return.”

Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look - (www.washingtonpost.com) With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax. Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity. At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate. "There is a growing awareness of the need for fundamental tax reform," Sen. Kent Conrad (D-N.D.) said in an interview. "I think a VAT and a high-end income tax have got to be on the table." A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer. It is also hugely regressive, falling heavily on the poor. But VAT advocates say those negatives could be offset by using the proceeds to pay for health care for every American -- a tangible benefit that would be highly valuable to low-income families. Liberals dispute that notion. "You could pay for it regressively and have people at the bottom come out better off -- maybe. Or you could pay for it progressively and they'd come out a lot better off," said Bob McIntyre, director of the nonprofit Citizens for Tax Justice, which has a health financing plan that targets corporations and the rich. A White House official said a VAT is "unlikely to be in the mix" as a means to pay for health-care reform. "While we do not want to rule any credible idea in or out as we discuss the way forward with Congress, the VAT tax, in particular, is popular with academics but highly controversial with policymakers," said Kenneth Baer, a spokesman for White House Budget Director Peter Orszag. Still, Orszag has hired a prominent VAT advocate to advise him on health care: Ezekiel Emanuel, brother of White House chief of staff Rahm Emanuel and author of the 2008 book "Health Care, Guaranteed." Meanwhile, former Federal Reserve chairman Paul A. Volcker, chairman of a task force Obama assigned to study the tax system, has expressed at least tentative support for a VAT. "Everybody who understands our long-term budget problems understands we're going to need a new source of revenue, and a VAT is an obvious candidate," said Leonard Burman, co-director of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution, who testified on Capitol Hill this month about his own VAT plan. "It's common to the rest of the world, and we don't have it."

Bair Says No to Furthering PPIP Scam - (Mish at globaleconomicanalysis.blogspot.com) Banks are not content to have bidders rape taxpayers on their behalf. The banks want to rape taxpayers themselves. Please consider Banks Aiming to Play Both Sides of Coin. Some banks are prodding the government to let them use public money to help buy troubled assets from the banks themselves. Banking trade groups are lobbying the Federal Deposit Insurance Corp. for permission to bid on the same assets that the banks would put up for sale as part of the government's Public Private Investment Program. PPIP was hatched by the Obama administration as a way for banks to sell hard-to-value loans and securities to private investors, who would get financial aid as an enticement to help them unclog bank balance sheets. The program, expected to start this summer, will get as much as $100 billion in taxpayer-funded capital. That could increase to more than $500 billion in purchasing power with participation from private investors and FDIC financing. Allowing banks to have it both ways would give them added incentive to sell assets at low prices, even at a loss, the banks contend. They claim it also would free up capital by moving the assets off balance sheets, spurring more lending. Bair Says Banks Can’t Buy Own Assets in PPIP Auction: The PPIP is a big enough scam as it is. Fortunately Bair Says Banks Can’t Buy Own Assets in PPIP Auction. Federal Deposit Insurance Corp. Chairman Sheila Bair said banks involved in the U.S. Public- Private Investment Program won’t be permitted to buy their own impaired assets as a way to cleanse their balance sheets. “There should be no confusion: Banks will not be able to bid on their own assets,” Bair said today at a Washington news briefing to discuss first-quarter U.S. bank earnings. There is “no structure” for such purchases, she said. Banking groups and the Clearing House Association LLC, a group of 10 lenders including JPMorgan Chase & Co. and Bank of America Corp., are pressing the FDIC to let them use the program to buy their own troubled assets, the Wall Street Journal reported today. Bair said other issues could discourage participation in the program including “discomfort” among potential buyers and sellers that Congress might change the rules.Treasuries Massacred; Yield Curve Steepest On Record - (Mish at globaleconomicanalysis.blogspot.com) Bernanke cannot have his cake and eat it too. If the economy is recovering the yield curve should steepen. And steepen it has. The Yield Curve Is Steepest On Record.The difference in yields between Treasury two and 10-year notes widened to a record on concern surging sales of U.S. debt will overwhelm the Federal Reserve’s efforts to keep borrowing costs low. The so-called yield curve steepened to 2.75 percentage points, surpassing the previous record of 2.74 percentage points set on Aug. 13, 2003. Ten-year notes have lost 10.3 percent this year, according to Merrill Lynch & Co. indexes, while 30-year bonds have lost 27.5 percent. Two-year notes have gained 0.2 percent. Rising 10-year Treasury yields are pushing yields on mortgage bonds higher, prompting holders of the securities to sell government debt used as a hedge to protect portfolios against rising interest rates. As mortgage rates rise, the expected average lives of mortgage bonds and mortgage-servicing contacts extend as potential refinancing drops, leaving holders with portfolios of longer-than-anticipated durations. Duration is a measure of bond price sensitivity to interest-rate change. “The back-up is mostly related to convexity selling by mortgage investors,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “This will be a test for the Fed.” Yield Curve 1999 – Present: If the economy is recovering, the Fed should welcome this steepening. However, what if the yield curve is simply reacting at the thought of Bernanke monetizing Obama's massive deficits and the various stimulus plans? I doubt the economy is recovering but it is may be getting worse at a lesser rate. Moreover, if the curve flattens, it sure will not be because of intervention, it will be because the so-called recovery has stalled. Heaven help Bernanke if the economy worsens and the yield curve continues to steepen. Regardless why the yield curve is steepening, Bernanke's belief that he can control both the long and short end of the curve is seriously misguided. The fact is he cannot really control either, at least for long.

Samberg to Shut Pequot Capital Amid SEC Insider-Trading Probe - (www.bloomberg.com) Arthur Samberg, once the world’s biggest hedge-fund manager, said a federal insider-trading investigation is forcing him to shut Pequot Capital Management Inc. more than two decades after starting its first fund. “With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business,” Samberg wrote in a letter to clients yesterday. Pequot oversees $3.47 billion, according to a May 15 regulatory filing, down from $4.3 billion in November and $15 billion in 2001, when it was the top-ranked hedge-fund firm by assets. The U.S. Securities and Exchange Commission in January resumed a probe into whether Samberg’s funds illegally profited in 2001 by trading on inside information about Microsoft Corp., people familiar with the matter said at the time. That was about a year after the agency told Samberg and Morgan Stanley Chief Executive Officer John Mack they wouldn’t be accused of wrongdoing related to insider trading. “Public disclosures about the continuing investigation have cast a cloud over the firm and have become a source of personal distraction,” Samberg, 68, wrote in the letter, a copy of which was obtained by Bloomberg News. Jonathan Gasthalter, a spokesman for Wilton, Connecticut- based Pequot, declined to comment, as did Erik Hotmire, an SEC spokesman in Washington. Return Cash: Samberg’s firm will sell the holdings of the Pequot Partners, Pequot International and Pequot Endowment funds, according to the letter. The funds, with about $2 billion in assets, will return a “significant amount” of cash to investors by June. The rest will be paid out over the next several months. The $493 million Pequot Partners fund returned an average of 16.8 percent annually since its inception 22 years ago, compared with the 8.5 percent gain by the Standard & Poor’s 500 Index, according to the letter. The fund rose 1.8 percent this year through April 30, compared with a decline of 2.5 percent by the S&P 500, including reinvested dividends.





OTHER STORIES:

Yen Falls as Japanese Investors Raise Overseas-Asset Purchases - (www.bloomberg.com)
Shares in Europe, Asia Decline on Concern Over Borrowing Costs - (www.bloomberg.com)
Oil eases off 6-month high ahead of inventory data - (finance.yahoo.com)
U.S. Stock Futures Rise After Durable Goods Beat Forecasts - (www.bloomberg.com)
U.S. Weighs Single Agency to Regulate Banking Industry - (www.washingtonpost.com)
Mortgage-Bond Yields Jump, Jeopardizing Fed’s Housing Effort - (www.bloomberg.com)
Treasury Yield Curve Steepens to Record as Debt Sales Surge - (www.bloomberg.com)
Questions Delay Sale Of Toxic Bank Assets - (www.washingtonpost.com)
Treasury yields give cause for concern - (www.ft.com)
Japan Retail Sales Fall for Eighth Month on Job Woes - (www.bloomberg.com)
India Ratings Face Pressure on Widening Deficit, Moody’s Says - (www.bloomberg.com)
Japan May Scrap 50 Trillion-Yen Plan to Prop Up Stock Market - (www.bloomberg.com)

Europe Confidence at 6-Month High on Signs Worst Over - (www.bloomberg.com)
U.S. Initial Jobless Claims Fall 13,000 to 623,000 - (www.bloomberg.com)
U.S. Durable-Goods Orders Rose More Than Forecast - (www.bloomberg.com)
U.S. reportedly may create single banking regulator - (www.marketwatch.com)
Fed May Buy More Assets to Bolster Balance Sheet - (www.bloomberg.com)

Talks Fail to Secure Deal on Loan for G.M.’s European Unit - (www.nytimes.com)
Chrysler Cures a Bankruptcy, but Tests Loom - (www.nytimes.com)
Number of US banks at risk to rise again - (www.ft.com)
U.S. to Wield Significant Sway Over Reorganized GM - (www.washingtonpost.com)
Visteon Files for Chapter 11 Bankruptcy Protection - (www.nytimes.com)
A brief history of General Motors Corp. - (www.latimes.com)