KeNo's Housing and Economic Portal: Thursday June 11 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Geithner Laughed at in China - (www.reuters.com) The students are very smart, and know Geithner is a crook and immoral. He is trying to dump bad assets on anyone that will taken them. From Reuters: Geithner tells China its dollar assets are safe. “Chinese assets are very safe,” Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s. His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

California Leads Nation to Bond Default Abyss – (www.bloomberg.com) Roughly 40 percent of California’s income-tax revenue comes from the much-harped-upon top 1 percent of earners. Thanks in part to the “millionaire tax” approved by voters in 2004, California’s income-tax rate has reached 10.55 percent on the highest earnings -- second only to Obama’s native Hawaii, which taxes some income at 11 percent. High tax rates on individuals, of course, hit many small businesses hard. If you wonder why the California economy is going so much worse than most of the country, this is a good place to start. California has to answer for its treatment of corporations as well, socking them with an income-tax rate that is just shy of 9 percent. Since the U.S. federal rate is so high relative to our trading partners, corporations that operate in California face a combined local and federal tax rate higher than that of any other country. (Japan is a distant second.) In case you wondered, California’s sales tax is high, too. Most places in California, the combined city and state sales tax rate is more than 8 percent. California is in crisis because state spending is so high that even those hefty taxes aren’t enough to balance the budget. California in D.C. Except for the sales tax, the Obama administration’s plan is to copy California’s policies. Obama has proposed a massive tax increase on U.S. corporations by curbing the deferral of taxes on corporate income earned abroad. He also has advocated higher marginal tax rates on the rich, by letting George W. Bush’s tax cuts expire. Even with those tax hikes, Obama projects that deficits are here to stay because, like California’s Democrats, Washington’s can’t resist increasing government spending. It is easy to see how investors might stop believing in California. If they do, it would be rational for the U.S. to be next.

AmeriDream: Downpayment Assistance Programs Shouldn't Burden the U.S. Taxpayer - (www.prnewswire.com) Of course, this is a PR Newswire and not a real story, as it is complete crap. Ameridream is another organization getting government money to fund their own salaries and trying to demonstrate that they do not contribute to more people who can’t afford homes getting them. Ann Ashburn, President of AmeriDream, Inc., today responded to the U.S. Department of Housing & Urban Development's announcement that certain organizations may use the federal $8,000 first-time homebuyer tax credit to offer government-subsidized downpayment assistance (DPA) to first-time homebuyers in need of a downpayment. "We firmly believe in providing downpayment assistance to creditworthy homebuyers, however HUD's policy saddles the U.S. taxpayer with an unnecessary fiscal burden and saddles first-time homebuyers with more debt. It is difficult to rationalize how homeowners are better off borrowing potentially more than 100% of the purchase price of their homes rather than using DPA funded in part by sellers to create immediate equity in their homes that does not have to be paid back. In addition, HUD's plan proposes no underwriting standards, no appraisal standards, and has no provisions to prevent borrowers from taking on debt beyond their means. Lastly, this taxpayer-funded subsidy will last only a few months, when the housing market needs a long-term DPA solution.

M&A Advisory Fees Head for Worst Quarter in More Than a Decade - (www.bloomberg.com) Fees from advising on takeovers are poised to tumble to the lowest this quarter in more than a decade as the recession curbs deal-making, according to analysts at New York-based research firm Freeman & Co. Banks worldwide reaped $2 billion in fees for transactions completed since the beginning of April, a 78 percent drop on the $9 billion they earned in the second quarter last year, according to Freeman, which based its estimates on data from Thomson Reuters. That makes this period worse than the second quarter of 2003, when banks earned $4.1 billion, and puts it track to be the slowest since at least 1998, the firm said. The credit crisis and recession have cut the amount of debt financing available for acquisitions, curbing deal-making by publicly listed companies and leveraged buyout firms. Companies have announced $655 billion of transactions so far this year, a drop of almost 50 percent on the same period last year, according to data compiled by Bloomberg. “While there are buyers, particularly in China, India, the Middle East and even Europe, they are quite cautious and are taking time to make decisions, waiting to be certain that there isn’t another downturn around the corner,” said Philip Keevil, a senior partner at New York-based mergers advisory firm Compass Advisers. “For this reason, M&A volumes will remain low at least until the autumn.”

KKR Swings Into Loss in 2008; Crisis Slows Takeovers - (www.bloomberg.com) KKR & Co., Henry Kravis’s and George Roberts’s private equity firm, swung to a loss in 2008 as leveraged buyouts dried up amid the credit crisis. The New York-based firm posted a $1.2 billion loss for 2008, compared with pretax economic net income of $815 million the previous year, KKR said in a presentation to investors late yesterday. The loss is the firm’s first in at least five years. KKR, Blackstone Group LP and other rival leveraged buyout firms have struggled to finance acquisitions in the past 18 months after the credit crisis shut off the debt financing they rely on for takeover finance. A lack of credit for acquisitions and scant appetite for initial public offerings are preventing LBO firms from selling holdings. Stephen Schwarzman’s Blackstone had a $1.3 billion loss for 2008. KKR’s assets under management shrank by 11 percent to $47.3 billion at the end of March, the company said. The firm, which acquired Seoul-based Oriental Brewery for $1.8 billion last month, said it has $15.3 billion of cash available to invest. Fellow buyout firms such as Apollo Management LP and London-basedCandover Investment Plc

have also marked down the value of the companies they own to match a global decline in prices for almost all types of assets. KKR values five of its 10 biggest investments -- including Texan power producer Energy Future Holdings Inc. and British drugstore chain Alliance Boots Ltd. -- at less than what it originally paid for them, according to the filing.

Banks Dig In for Battle Against Regulation - (www.nytimes.com) As the financial crisis entered one of its darkest phases in October, a handful of the nation’s largest banks began holding daily telephone sessions. Murmurs were already emanating from Washington about the need for a wide-ranging regulatory overhaul, and Wall Street executives girded for a fight. Atop the agenda during their calls: how to counter an expected attempt to rein in credit-default swaps and otherderivatives — the sophisticated and profitable financial instruments that were intended to limit risk but instead had helped take the economy to the brink of disaster. The nine biggest participants in the derivatives market — including JPMorgan Chase, Goldman Sachs, Citigroup andBank of America — created a lobbying organization, the CDS Dealers Consortium, on Nov. 13, a month after five of its members accepted federal bailout money. To oversee the consortium’s push, lobbying records show, the banks hired a longtime Washington power broker who previously helped fend off derivatives regulation: Edward J. Rosen, a partner at the law firm Cleary Gottlieb Steen & Hamilton. A confidential memo Mr. Rosen drafted and shared with the Treasury Department and leaders on Capitol Hill has, politicians and market participants say, played a pivotal role in shaping the debate over derivatives regulation. Today, just as the bankers anticipated, a battle over derivatives has been joined, in what promises to be a replay of a confrontation in Washington that Wall Street won a decade ago. Since then, derivatives trading has become one of the most profitable businesses for the nation’s big banks. The looming fight over regulation is the beginning of a broader debate over the future of the financial industry. At the center of the argument: What is the right amount of regulation?

Bubble Trouble Haunts Japan 20 Years After Crash: William Pesek - (www.bloomberg.com) Japan is booming, hot, going places, an oasis from the global crisis. One might be excused for believing that’s true with a cursory look at the stock market. The Nikkei 225 Stock Average has jumped 30 percent in the last three months alone. That might be fine if not for a deepening recession and the steady return of the deflation that Japan thought it had finally defeated. Bubble, anyone? Well, yes. Analysts predicting a big earnings rebound in late 2009 or in 2010 are ignoring an underlying economy that is contracting at a record pace. Things in Asia’s biggest economy will worsen before the “green shoots” supposedly sprouting around the globe take root there. There are some positive signs that are engendering a false sense of optimism. Japan’s industrial output surged 5.2 percent in April, the most in 56 years. Some economists took that as evidence the world recession is easing. And then there was last week’s victory by Steel Partners. The fund run by U.S. investor Warren Lichtenstein won shareholder support to install a new board at Aderans Holdings Co., blocking a rival bid for control of Japan’s largest wigmaker. It was a rare win for shareholder activism. The bigger picture is far less comforting. Never mind long- term crises such as debt and demographics, neither of which is remotely being addressed at the moment. Consider a shorter-term problem: price trends. Deflation’s Return: Consumer prices, excluding fresh food, declined for a second month in April. The 0.1 percent drop was modest, yet it fit with other evidence that weak global demand is chipping away at household and business confidence. Tokyo-based analysts such as Takashi Nishimura of Mitsubishi UFJ Securities Co. aren’t exaggerating when they say “this is the beginning of the deflationary period in Japan.” Actually, an argument can be made that Japan never defeated deflation, regardless of the spin coming from the government and the Bank of Japan. It took record increases in food and energy in 2008 for Japan even to register modest inflation. The price pressures that did bubble up were more about the global economy than anything that Japanese policy makers did. The BOJ’s “quantitative easing” policies, the ones now being employed by the Federal Reserve, helped stabilize the economy. What they didn’t do was repair Japan’s malfunctioning credit system. No matter how many yen the BOJ prints, there is little demand for borrowing and negligible interest in lending. Same Problem “Japan is facing the same problem as during the first half of the decade, when nominal interest rates hit zero, but this was still too high,” says Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. “This is again the situation.” Jerram’s view is based on the so-called Taylor rule, which recommends lowering the benchmark interest rate by a certain level if unemployment rises and inflation decelerates.

Potential Conflicts Abound in Government Role - (online.wsj.com) Even after nine months of extraordinary government intervention, the scope and complexity of the General Motors Corp. rescue present a thicket of conflicts unlike any seen before in Washington. The federal government is likely within weeks to emerge as the principal owner of a storied U.S. corporation whose factories and products touch the lives of tens of millions of Americans. It will simultaneously serve as the company's regulator, tax collector, customer, pension backstop and lender. The administration put out a set of overarching principles Sunday meant to guide its interactions with GM and other companies in which the U.S. has an equity stake. The points stressed that the administration has no desire to own parts of companies and would do so only under extreme conditions. Once helping a company such as GM restructure, the government would manage its stake "in a hands-off, commercial manner" and not get involved in issuing day-to-day directives to GM, the guidelines said. Obama aides have wrestled for weeks over how to portray the government's increasing involvement as an active player in the private sector. But given the size of the $50 billion U.S. investment, it will be hard for President Barack Obama and Congress to say they will remain uninvolved in a company saved only by taxpayer largesse. Already the administration has said it wants to direct GM to make more fuel-efficient small cars, a potential threat to the company's near-term profitability. And members of Congress successfully pressured GM to roll back a decision to ship some jobs to China.

OTHER STORIES:

If You Think Worst Is Over, Take Benjamin Graham's Advice - (online.wsj.com)

The Housing Hurricane Will Howl Again - (online.barrons.com)

Next Crisis Looms for German Economy - (www.spiegel.de)

Dow kicks out GM and Citigroup - (money.cnn.com)

Freddie Opens Tender Offer to Go Long - (www.ml-implode.com) - " Freddie Mac (FRE: 0.78 -2.50%) will carry out this week the largest tender offer in its nearly four decade long history. Fredd...

More Prime Foreclosures; More Re-Defaults - (www.ml-implode.com) - ""Another problem is that with home prices continuing to fall, more and more borrowers, who are essentially just renting their m...

Blame it on Reagan - (www.ml-implode.com) - " Krugman points to the 1982 signing of the Garn-St. Germain Depository Institutions Act that deregulated mortgage financing, en...

US Manufacturing Contracts 16th Consecutive Month; China Expands 3th Month - (www.ml-implode.com) - "Investment demand for housing is picking up in the US as noted in Buying Frenzy In Phoenix. However, that demand is widely scat...

Home Builders' Losses Expected to Narrow - (www.ml-implode.com) - " When home builders Hovnanian Enterprises Inc. and Toll Brothers Inc. report results this week, industry watchers will be looki...

Hedge funds take aim at Florida real estate - (www.ml-implode.com)

Citigroup Stuck With Bernanke Offer Rival Banks Plan to Refuse - (www.ml-implode.com)

Fed Mortgage Efforts Prove Costly - (www.ml-implode.com)

Close to 3% Delinquency in Fannie’s SFM Portfolio - (www.ml-implode.com)

Las Vegas: Retail Follows Rooftops- Down The Drain - (www.ml-implode.com)

Treasuries Drop as Stocks, Oil Gain; Geithner Reassures China - (www.bloomberg.com)

Dollar Drops on China Optimism, Concerns About GM Bankruptcy - (www.bloomberg.com)

Oil climbs to near $68, new high for the year - (finance.yahoo.com)

World markets gain on strong manufacturing reports - (finance.yahoo.com)

European shares start new month on upbeat note - (www.marketwatch.com)

US stock futures rise following overseas gains - (finance.yahoo.com)

Global Crisis ‘Inevitable’ Unless U.S. Starts Saving, Yu Says - (www.bloomberg.com)