KeNo's Housing and Economic Portal: Friday July 10 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Ryanair to bar passengers from checking luggage - (www.latimes.com) urope's largest low-cost airline plans to offer an unlimited allowance for carry-on bags that comply with government size limits starting next spring. Ryanair plans to allow only hand luggage. Ryanair Holdings, Europe's largest low-cost airline, will bar passengers from traveling with anything other than hand luggage as it seeks to cut costs. Ryanair plans to offer an unlimited allowance for carry-on bags that comply with government size limits while abolishing checked luggage, starting next spring, Chief Executive Michael O'Leary said. "This isn't the end of civilization as we know it, it only sounds revolutionary," he said. Passengers will carry belongings onto the plane; when overhead bins are full items will go in the cargo hold. Ryanair already is scrapping airport check-in desks starting Oct. 1, compelling people to register for flights via the Dublin company's website.

No 2nd stimulus planned - (www.sfgate.com) A senior White House adviser said Sunday the economic stimulus has not yet "broken the back of the recession" but set aside calls for a second massive spending bill. Republicans, meanwhile, called spending under way a failure. White House adviser David Axelrod urged patience for President Barack Obama's $787 billion economic stimulus package in the face of sliding poll numbers. Former Massachusetts Gov. Mitt Romney, a past and potentially future presidential candidate, said the spending was ill-designed and served only to expand the size of government. Republicans have seized on the public's growing unease over government debt and spending to challenge the popular president. Sensing their own vulnerabilities, Obama's top advisers have ramped up their defense of spending that is incomplete and going slower than many had hoped. "You know, we take the long view on this. Look, when the president signed the stimulus package — the economic recovery package — he said it's going to take a while for this to work," Axelrod said. "And we're going to go through some rough times, and unemployment is going to go up, and ... we have to work our way through this." Some economists and business leaders have called for a second spending bill designed to help guide the economy through a downturn that has left millions without jobs. Axelrod said it's too early to know if more spending would be needed or if the administration would seek more money from Congress. "Most of the stimulus money — the economic recovery money — is yet to be spent. Let's see what impact that has," Axelrod said. "I'm not going to make any judgment as to whether we need more. We have confidence that the things we're doing are going to help, but we've said repeatedly, it's going to take time, and it will take time. It took years to get into the mess we're in. It's not going to take months to get out of it." Republicans, though, aren't waiting. "I don't think the stimulus that was passed is going to be much help," Romney said. "The stimulus that was passed was, unfortunately, focused more on government and creating employment inside government than it was creating jobs in the private sector."

The Eyeshade Smelled Trouble - (www.nytimes.com) WHEN it comes to corporate America, critics and skeptics are about as welcome as skunks at a pool party. And when companies try to silence dissenters, shareholders are often imperiled. This truism is on full display in the mess at Matrixx Initiatives, a Scottsdale, Ariz., maker of over-the-counter health care products. Best-known for its homeopathic Zicam Cold Remedy offerings, Matrixx hit a rough patch on June 16, when theFood and Drug Administration advised consumers to stop using two of its popular remedies. The F.D.A. said that it had received more than 130 reports of anosmia — or loss of smell — from users of the products and that more than 800 such reports had been delivered to Matrixx. The agency told Matrixx that Zicam Cold Remedy Nasal Gel and the same treatment in swab form could no longer be marketed without government approval. Matrixx maintains that the products, which contain zinc, are safe. But it immediately withdrew them from the market. Bill Hemelt, Matrixx’s president, said company officials would meet with the F.D.A. to try to persuade it to reverse its decision. Matrixx shares have fallen 71 percent since the F.D.A. announcement. No surprise, given that Zicam cold remedies generated 71 percent of Matrixx’s $112 million in revenue last year. Its Cold Remedy Swabs are the company’s best-selling product, corporate filings show. Last Tuesday, Matrixx’s problems grew when it said the Securities and Exchange Commission had begun an informal inquiry into the company related to the F.D.A. action. This dire turn of events may have shocked some Matrixx shareholders, but it was foreshadowed back in 2002, when reports of smell loss among some Zicam users began surfacing in anonymous Internet posts. Matrixx filed a defamation suit against the posters. Then, as part of the case, it subpoenaed Tim Mulligan, an independent research analyst who had published a critical report on the company in his accounting-oriented newsletter, The Eyeshade Report. A former assistant United States attorney in Los Angeles who was licensed as a certified public accountant, Mr. Mulligan had set up his company, Forensic Advisors, in Rockville, Md., in 2001. Over the years, he had questioned the practices of several companies that were subsequently investigated by the S.E.C. Matrixx never named Mr. Mulligan as a defendant in its defamation case, but the years of legal work and costs that he incurred defending himself against the company’s subpoena finally drove him to shutter his research operation in late 2005. “It’s a shame that in our legal system you can pretty well keep somebody tied up in court without even naming them as a defendant,” Mr. Mulligan said. THE battle between Matrixx and Mr. Mulligan began in 2003, when he published a report focusing on what he called aggressive accounting practices at the company. Citing regulatory filings and other public documents, Mr. Mulligan’s 24-page report that August also warned that Matrixx might not be able to supply the F.D.A. with adequate support for its claims that Zicam reduces the severity of cold symptoms. The report also noted criticisms in medical journals of the studies that Matrixx cited to support its claims. He published the report without knowledge of the defamation case, he said. A month after Mr. Mulligan’s report, three doctors at a meeting of the American Rhinologic Society presented cases of smell loss after the use of zinc-laced nasal sprays. Consumers began to file lawsuits against Matrixx, which the company fought. Then, in November 2003, Mr. Mulligan received a subpoena from Matrixx. It asked him to produce documents used to prepare his report. Even though he thought that Maryland’s press-shield law meant that he did not have to submit, Mr. Mulligan said he handed over 383 pages of documents to Matrixx. Then he wrote three more reports on the company detailing the rising reports of smell loss among some Zicam users and the litigation risk they posed to the company. Five months after his last report, Matrixx sent Mr. Mulligan a letter saying that he had been served with a second subpoena seeking his deposition and asking for his sources and clients, among other items. “If you do not appear, a warrant may be issued for your arrest,” the letter said, according to court documents.

Rules May Limit Cash for Clunkers Program - (www.nytimes.com) In Europe, hundreds of thousands of car owners have taken advantage of government subsidies to get rid of their old vehicles and trade up to new ones. Car sales in Germany are up about 40 percent from a year ago. But a similar so-called cash-for-clunkers program that starts in July in the United States is not expected to have nearly the same impact. While the program, which President Obamasigned into law this week, gives consumers a credit that is in line with the payments in Europe — up to $4,500 — what qualifies as a “clunker” in the United States is far more limited. Further, the American program has $1 billion in financing, enough for about 250,000 consumers to use it, and ends Nov. 1, or sooner if the money runs out. Germany, on the other hand, originally expected to spend 1.5 billion euros to get 600,000 old cars off the road. But the program proved so popular, the government this spring raised the budget to 5 billion euros for two million cars and extended the deadline to the end of 2009. Still, if the alternative is to simply wait for the market to recover on its own, dealers and carmakers in the United States say they will take what they can get. “It’s better than nothing, that’s for sure,” said George Pipas, the Ford Motor Company’s chief sales analyst. “Anything to get consumers off the couch and give them a reason to go to the dealership.” The program, formally known as the Car Allowance Rebate System, is aimed at reducing fuel consumption by removing older, gas-guzzling vehicles from the nation’s roads. The cars and trucks turned in will be scrapped and their owners given a credit of either $3,500 or $4,500 toward a new vehicle. The amount of the credit depends on the fuel-efficiency rating of the new vehicle. The official Web site for the program is cars.gov. In Europe, where nearly a dozen European countries have clunker programs, the details vary. But generally, the programs require only that the vehicle being turned in is old. In Germany, eligible cars have to be at least nine years old, and the subsidy covers the purchase of any new car, regardless of its size or fuel efficiency. The American program, by contrast, is far more complicated. To qualify, consumers must turn in a vehicle that is no more than 25 years old and has a combined city and highway fuel economy rating of no more than 18 miles per gallon, as calculated by the Environmental Protection Agency. The E.P.A. lists vehicles’ ratings at the Web site FuelEconomy.gov. The old vehicle must be drivable, and it must have been insured by and registered to the same person for at least the last year, preventing shoppers from buying an old car and flipping it to get a discount on a new vehicle. The credit cannot be applied toward a used vehicle or toward new vehicles that cost more than $45,000. To get the full $4,500 credit, consumers must buy either a new truck or sport utility vehicle that is rated at least five miles per gallon higher than the scrapped vehicle or a passenger car that is rated at least 10 miles per gallon higher than the scrapped vehicle. Because the old vehicle will be destroyed, the credit is given instead of the regular trade-in value — not in addition to it — though some dealers might compensate customers for the vehicle’s scrap value. The rules mean that the owner of a 2003 Chevrolet Trailblazer, which qualifies because it gets about 16 miles per gallon, would get nearly $2,000 less under the program than by making a normal trade-in. Conversely, a 1992 Honda Civic, which is worth only a few hundred dollars, does not qualify because its gas mileage is too high. “It has to be worth not very much and it also has to get very poor E.P.A. fuel economy,” said Jack R. Nerad, the executive editorial director and market analyst for Kelley Blue Book. “It’s a fairly narrow profile. You’re talking about people who are probably economically challenged to begin with and they have to be able to qualify for a new car purchase in the midst of a deep recession. Those are some difficult parameters.” But Mr. Nerad said the program could have a broader impact just by encouraging consumers to look at new vehicles, something many have not done because of uncertainty about their jobs and finances during the recession.

Five Banks Are Seized, Raising U.S. Failures This Year to 45 - (www.bloomberg.com) Five U.S. banks with total assets of about $1.04 billion were seized by regulators, pushing this year’s tally of failures to 45 as a recession drives up unemployment and home foreclosures. Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles were closed yesterday by state regulators, according to statements from the Federal Deposit Insurance Corp. The FDIC was named receiver of the four banks. Wilshire Bancorp’s Wilshire State Bank will take over all of Mirae’s $362 million in deposits, and will purchase $449 million of assets, the FDIC said in a statement. Sunwest Bank of Tustin, California, acquired most of MetroPacific’s $73 million in deposits and $80 million in assets, the FDIC said. Stearns Bank of St. Cloud, Minnesota, bought Horizon Bank’s $69.4 million of deposits. Stearns will purchase $84.4 million of Horizon’s assets, the FDIC said. The FDIC didn’t find a buyer for Community Bank of West Georgia, and said it will mail checks to reimburse insured depositors. The bank has deposits of $182.5 million. Charter Financial Corp.’s CharterBank will assume Neighborhood Community Bank’s $191.3 million of deposits and purchased some assets in a loss-share agreement with the FDIC, according to the agency. “The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector,” the FDIC said. “The agreement also is expected to minimize disruptions for loan customers.” Regulators have seized the most U.S. banks this year since 1993. The U.S. economy has shed about 6 million jobs since the recession began in December 2007. Foreclosure filings surpassed 300,000 for the third straight month in May, according to RealtyTrac Inc.

Sheraton Keauhou Bay Resort and Spa is in foreclosure after owner defaults – (finance.yahoo.com) The Sheraton see Bay Resort and Spa on the Big Island is going into foreclosure after the resort's owner defaulted on its mortgage, another sign Hawaii's beleaguered tourism industry is suffering during the global recession. Kenneth Marcus, a commissioner appointed by Circuit Court Judge Ronald Ibarra, confirmed Thursday that the hotel is due to be auctioned July 31. Owners Koa Hotel LLC have defaulted on nearly $60 million remaining on their mortgage, interest and fines. Marcus said the hotel is due to stay open -- for the time being at least. "As far as the operations of the hotel, nothing is likely to change, for all outward appearances," Marcus said. "In terms of the short term, it should be business as usual." He couldn't say for sure what would happen to the hotel after the sale, but said it it's unlikely someone would buy the hotel and close it. Koa Hotel is owned by the New York private equity firm Brickman Associates. The property's major creditor is Lehman Brothers Holdings Inc., which filed for bankruptcy last year. The resort's business declined amid a broader drop in visitors to Hawaii since last spring. So far this year, 15 percent fewer tourists have visited the Big Island compared to the first part of 2008. A buyer would get a 521-room resort and spa on about 20 acres of land owned by Kamehameha Schools. The resort has three restaurants and bars, retail space, a fantasy pool, a spa, a wedding chapel, a fitness center, a business center and two tennis courts. Notice of the foreclosure sale, which Marcus said would be advertised starting Sunday, said no minimum price has been set for the auction. Interested bidders must register with Marcus at least five days before the auction. Potential bidders must sign a confidentiality agreement before being permitted to review some financial documents. Marcus will take the winning bid to Ibarra's court, where further bids are allowed. Ibarra will approve the winning bid. According to county property tax records, Koa Hotel doesn't owe any back taxes. Kekoa Paulsen, spokesman for Kamehameha Schools, said the leaseholders were not in default on lease payments. Koa Hotel purchased the former Kona Surf Hotel in 2001. In 2005, the owners took out an $82 million mortgage from Lehman Brothers. The hotel sits on an oceanfront lot, but doesn't have a beach. This has long been a problem for hotel owners, said licensed Realtor and Honolulu-based hotel broker consultant Ronald Gilligan, who was involved in earlier purchases of the property. "It was geographically inconvenient for long stays," Gilligan said. This hotel foreclosure sale most likely won't be Hawaii's last during the economic downturn, Gilligan said.

Bloated State Police Pension Plans – Something Has To Give - ("Mish" at globaleconomicanalysis.blogspot.com) The police union in Michigan is doing what public service unions in general usually do, 1) whine for more taxes 2) Complain they need more workers to maintain safety 3) Elect layoffs over reduced pay 4) Ignore the long term issues that need addressing. Please consider Michigan State Police layoffs take effect Sunday. LANSING, Mich. (AP) - About 100 Michigan State Police troopers will be laid off Sunday after a last-ditch effort to avoid the job loss failed. Members of the Michigan State Police Troopers Association voted against a furlough plan that would have temporarily cut their pay to avoid layoffs of low seniority workers. The furlough plan would have required troopers to take 37 hours of unpaid leave over a six-week period. That would have saved jobs now, but there was no guarantee low-seniority officers would have kept their jobs in the next budget year. Mike Moorman, the troopers' union president, said the vote reflects dissatisfaction with how the state has handled public safety funding in recent years. Michigan has lost more than 2,000 law enforcement officers statewide this decade, including more than 400 from the state police. Positions have been eliminated as government tax revenues decline during a lengthy recession. "The membership's rejection of furlough time is not a reflection on our unwillingness to stop the loss of 100 troopers," Moorman said in a statement. "Our members are fed up with the lack of public safety priorities in Michigan, which have been discussed for years, yet never acted upon." Col. Peter Munoz, director of the Michigan State Police, said in a statement he is "deeply disappointed" a solution could not be found to avoid the layoffs. The state spent more than $8 million in the past few years training the troopers it now plans to lay off to save less than $2 million in the current budget year. Some state lawmakers continue to question why Gov. Jennifer Granholm's administration plans to move the police department into a new $40 million headquarters building in downtown Lansing early next year. The move could have long-term financial implications for the state police -- including significantly higher annual lease payments of $3.7 million per year -- but it does not affect the department's budget for the current fiscal year. Peter Munoz, director of the Michigan State Police, whines he is "deeply disappointed a solution could not be found to avoid the layoffs". Munoz is wrong. There was a perfectly good solution to avoid the layoffs. If the union wanted to protect the most workers, the vote would have been for pay cuts. Instead, the union elected to do what unions typically do, protect the few instead of sharing the pain. Of course there is plenty of blame to be spread around. Why is the legislature and/or Governor authorizing a new $40 million police headquarters in Lansing with lease payments $3.7 million per year higher? After the layoffs, the Michigan State Police will have 958 troopers at posts across the state. Reduce the pension plans and benefits to reasonable levels and perhaps Michigan can afford 1200 officers. Then again, why isn't 900 or even 850 officers enough? Michigan has lost 400 state police in a decade. Is anyone suffering for it? How? Voters are fed up with paying ever increasing taxes to keep unneeded public servants in high paying jobs with ridiculous pension benefits. State Police Pension Double-Dipping: Inquiring minds are digging further into the Michigan State Police layoff situation. Please consider Why another budget "crisis?" State Police Pension Double-Dipping (among other reasons).

Troopers start getting a portion of their pension while still working and simultaneously collecting their regular salary. The amount of pension they can collect is 30 percent the first year, 50 percent the second, and then increases 10 percent each year until eventually they are getting full pension and full pay before they have retired. The money is not paid out to them immediately but is deposited into an interest-bearing retirement account they get when they really retire. That's nuts, of course. No sane private sector employer would give away such a benefit. We offer one because legislators abandoned their fiduciary duty to be responsible stewards and gave away a huge pile of loot to a powerful public employee union. The rationale under which that caper was foisted on taxpayers was that Michigan State Police are eligible to retire and collect their pensions after just 25 years of service with no minimum age. As a result it's not uncommon to have age 40-something men and women in the prime of life eligible to call it a career and head for the beaches, spending the last 35-40 years of their lives lounging at taxpayer expense. Needless to say this causes potential staffing problems at the MSP. Rather than fix the problem in a rational and fiscally prudent way - establish a minimum age of say 55 or 65 before an individual can start collecting a pension - the political class gave away some boodle in the form of a goofy DROP program as an incentive to keep troopers working. Pretty sweet deal, huh? Sweet for the troopers, but not for the taxpayers. And just one more example of why you should never believe a politician who says, "Our budget has been cut to the bone." Mike Moorman, the troopers' union president, whines "Our members are fed up with the lack of public safety priorities in Michigan". Moorman is not bright enough to figure out what everyone else in the world knows: The US is in recession and Michigan is at the top of the list. There simply is no more tax money to pay for boated unions or their pension plans.

175 California Hotels In Default; Sheraton Keahou Bay Resort in Hawaii Defaults; More Defaults Coming - ("Mish" at globaleconomicanalysis.blogspot.com) Hotel owners are facing the same problems as homeowners, being upside down on their properties with no good escape. Please consider Hotel foreclosures jump in California. In California, 175 hotels are in default -- the first stage in the foreclosure process -- according to a report from Atlas Hospitality Group, an Irvine-based brokerage firm. Another 31 have been foreclosed, nearly one third of them in the Inland region. Of those in default or foreclosure, about 75 percent obtained new loans between 2005 and 2007 for construction financing, re-financing or to buy the hotel, according to the firm. Atlas Hospitality estimates that 2,500 hotels -- about 25 percent of the state's entire hotel population -- refinanced or obtained new loans in that time meaning more defaults and foreclosures could be on the horizon. The industry has been rattled by foreclosures before, especially in the mid-1990s, but the impact today is more widespread, hitting both low-end and high-end properties in every region, Reay said. Those who bought hotels between 2006 and 2006 are likely sitting on properties worth at least 50 percent less than what they paid, he said. [Mish: obviously there is a typo in the date range] Reay's firm is marketing The Block at Big Bear, a 50-room hotel that catered to snowboarders. The hotel's owner walked away earlier this year and closed the hotel, which is in default. The hotel was appraised for more than $4 million in 2006. Today, Reay's firm, working with a court-ordered receiver, is asking $2.04 million for the property. Hoteliers will likely have to survive at least two more years of low revenues, diminishing profit margins and fewer rooms booked by travelers unwilling to spend. Atlanta-based PKF Hospitality Research has forecast that the revenue hoteliers earn per room will reach its lowest point of the recession in the third quarter of this year.