KeNo's Housing and Economic Portal: Saturday July 11 Housing and Economic stories

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TOP STORIES:

FDIC's Bair Cancels Listing After Cutting House Price - (online.wsj.com) The property slump is hitting home for Sheila Bair, chairman of the Federal Deposit Insurance Corp. -- one of the few regulators who saw trouble in the housing market before the bust. Last week, Ms. Bair removed her 14-room colonial in Amherst, Mass., from the market after cutting its sale price by $100,000 from an initial $795,000 in April, according to the listing sheet. It's across the street from Emily Dickinson's house in the college town. Ms. Bair, and her husband, Scott P. Cooper, paid $355,000 for the house in 2002. In "02 and "03 they received building permits valued at $89,500 to renovate the 1860s house., including new roofing and a counter-current basement pool. In 2006, President George W. Bush appointed Ms. Bair, then a professor at the University of Massachusetts at Amherst's school of management, to the FDIC post, and she was one of the few officials to remain in their positions in the Obama administration. After listing the five-bedroom property in April, the couple cut the price to $745,000 less than three weeks later, then reduced it again before withdrawing the listing. Ms. Bair's real-estate agent, Stephen Feldman, of Prudential Sawicki Real Estate, declined comment. An FDIC spokesman said Ms. Bair decided to remove the listing and wait for the market to improve on the advice of her real-estate agent. The family will continue to lease the house to its tenants. Ms. Bair and her family currently rent a house in Maryland. Houses in downtown Amherst are a tough sell in the current economy, said Linda Rotti, a sales manager at Jones Group Realty, another agent in town. The downtown location, extensive remodeling and size of Ms. Bair's house -- it has 3,630 square feet of living space -- pose difficulties, Ms. Rotti said.

Deficit forces California to issue IOUs - (www.ft.com) State grapples with a $24bn budget deficit. California is preparing to issue IOUs to its creditors this week as it grapples with an unprecedented cash crunch and prepares to begin its new fiscal year deep in the red. Once the US’s richest state, California now has the dubious distinction of having the worst credit rating in the country. It is facing a budget deficit of $24bn (€17bn, £14.5bn) yet Arnold Schwarzenegger, its governor, and the state assembly cannot agree on a budget that would address the shortfall. California’s fiscal year ends on Wednesday but as the state’s cash reserves are empty, IOUs will be issued to a range of creditors, including contractors, such as information technology companies and the food service groups that cater for prisons. “On Wednesday we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression,” said John Chiang, the state controller. “Unfortunately, the state’s inability to balance its chequebook will now mean short-changing taxpayers, local governments and small businesses.” The state is also likely to issue IOUs to the US government. California currently contributes funding for government-run programmes for elderly and developmentally disabled people but is considering issuing IOUs to cover its contributions because of the lack of cash. Education funding is protected under the state’s constitution while payments on the state’s bond debt are also guaranteed under state law. Democrats and Republicans in the state government last week struck an agreement on a range of money-saving measures. However, Mr Schwarzenegger has threatened to veto the plan on the grounds that it was a piecemeal solution to California’s budgetary woes. Mr Schwarzenegger said he would veto any bills that raised taxes without reforming the state’s government. “I will veto any majority vote tax increase bill that punishes taxpayers for Sacramento’s failure to live within its means,” he said. ”The legislature will have a difficult time explaining to Californians why they are running floor drills the day before our budget deadline. We do not have time for any more floor drills or partial solutions. It’s time for the legislature to send me a budget that solves our entire deficit without raising taxes.”

Developer defaults leave potholes behind - (www.charlotteobserver.com) Unfinished streets and other concerns bedevil neighborhoods while developers' bond problems grow in a rough economy. In an unprecedented sign of hard times for builders, Mecklenburg County developers have defaulted recently on 30 bonds that ensure streets and sidewalks are finished. The bonds or letters of credit, totaling more than $2.5 million, cover the costs of new streets, curbs and gutters, sidewalks and stormwater controls if builders or developers can't complete the work. They let developers begin selling lots while ensuring that public infrastructure is built. But the wave of bond defaults in recent months leaves collateral damage: mud running into streams from abandoned building sites; potholed streets; and government staff completing developers' work. Calling bonds, as the practice is known, is a last resort for city and county enforcers, one they have rarely faced in the past. That's changed as building starts have plummeted – through May, the county's single-family residential permits were down 57 percent from last year – and credit tightens for developers and buyers. Since August, Charlotte officials have cashed eight developer bonds – three more than in the previous 15 years, according to David Weekly, the city's land development manager. City officials blame the economic downturn. The largest of the forfeited city bonds, two totaling $461,000, were posted by the developers of the Rapids at Belmeade, a community in northwest Charlotte. The developers filed for bankruptcy protection last September.

Jeffrey Picower benefitted from Madoff scam more than Madoff - (www.msnbc.msn.com) It is rare these days to see Bernard Madoff's name in print unaccompanied by the word "Ponzi." Yet recent allegations raise the possibility of one key difference between Madoff's crimes and those of legendary con artist Charles Ponzi. While Ponzi's scam was under way, Ponzi himself was its biggest beneficiary. It now appears that the biggest winner in Madoff's scheme may not have been Madoff at all, but a secretive businessman named Jeffry Picower. Between December 1995 and December 2008, Picower and his family withdrew from their various Madoff accounts $5.1 billion more than they invested with the self-confessed swindler, according to a lawsuit filed by the trustee who is trying to recover money for those Madoff defrauded. In contrast, shortly after he confessed, Madoff declared his household net worth to be between $823 million and $826 million, according to court documents. While the Madoffs clearly lived opulently, no evidence has emerged that their combined assets and expenditures approached the amount the Picower family is alleged to have withdrawn from the scheme. In an era when billions of dollars are being tossed about in financial collapses and government bailouts, remarkably little attention has been paid to Jeffry Picower's extraordinary success with Bernie Madoff. If Picower has penetrated the popular consciousness at all, it is as a Madoff victim. The victim narrative is buoyed by testimonials from the nonprofits who received funding from his charitable foundation — which quickly closed on the heels of the swindler's confession. For this reason, ProPublica decided to take a closer look at both Jeffry Picower and the complaint filed against him by Madoff trustee Irving Picard.

Tishman Speyer May Lose Silicon Valley Land After Default - (www.bloomberg.com) Tishman Speyer Properties LP may lose a plot of land in California’s Silicon Valley to Bank of America Corp. after defaulting on an $86.2-million loan used to buy the site, people familiar with the matter said. Tishman Speyer, the New York-based owner of Manhattan’s Rockefeller Center, is in negotiations with the bank about the 41 acres (16.6 hectares) in North San Jose, according to the people, who declined to be identified because the discussions are private. Land values are dropping faster than commercial buildings in the recession because vacant properties don’t generate income, making it even harder to refinance in a climate where lending is scarce. That has hit developers such as Tishman Speyer that scheduled projects to start just as the credit markets turned and economic growth slowed. Tishman Speyer paid $108 million for the land at the market’s peak in March 2007. “No one wants to own something that doesn’t produce any income and in some cases has a cost to it because you have to pay taxes and insurance,” said Tom Craig, a commercial real estate broker in Seattle. “Land is the most elastic part of commercial real estate. When times are bad, it’s not worth anything. When times are good it’s worth a lot.” John R. Miller, Tishman Speyer’s West Coast regional head, didn’t immediately return a call for comment, and an outside spokesman declined to comment. Shirley Norton, a spokeswoman for Bank of America, declined to comment.

GM Cuts Ties with Toyota in US Joint-Venture General Motors cut operational ties on Monday to a northern California auto plant it had operated in a joint-venture with Toyota Motor since 1983. The move deepens uncertainty over the future of a plant that employs over 4,000 workers and was once seen as a ground- breaking experiment in bringing production efficiencies pioneered in Japan to a U.S. workforce. GM, which has been operating in a U.S. government-sponsored bankruptcy since the start of the month, said it was unable to reach an agreement with Toyota on a new production plan for the Fremont, California plant. "After extensive analysis, GM and Toyota could not reach an agreement on a future product plan that made sense for all parties," GM said in a written statement. GM and Toyota have been 50-50 partners in the joint-venture plant commonly known by its acronym NUMMI for the New United Motor Manufacturing. The Pontiac Vibe -- the only GM vehicle built at the plant -- will go out of production in August under a previously announced plan by GM. Toyota uses the plant to build the Corolla sedan and the Tacoma compact pickup truck. Toyota, which surpassed GM as the world's top automaker in 2008, said it had hoped the joint-venture would continue and said it would consider whether to continue operating the plant on its own. "While we respect this decision by GM, the economic and business environment surrounding Toyota is also extremely severe, and so this decision by GM makes the situation even more difficult for Toyota," Toyota said in a statement. "We will consider alternatives by taking into account various factors, including the current distressed market conditions, our overall North American manufacturing capacity, and the viability of the facility as a stand-alone operation without GM production," the Japanese automaker said. GM is dropping its Pontiac brand as part of an effort to shed dealers, slow-selling nameplates and debt in a bankruptcy that will effectively nationalize the automaker with a $50 billion investment from the Obama administration.

Production of the Vibe accounted for less than a quarter of NUMMI output from the start of the year to mid-June, according to data from trade publication Automotive News. 'The Door Is Open': Toyota built 48,872 Corollas and 10,838 Tacomas at the plant during the first six months of the year, according to the Automotive News data. That represented about 15 percent of Toyota's overall North American output. A GM spokeswoman said the automaker was open to future partnerships with Toyota, but declined to comment on what those might include. The Vibe is based on the Toyota Matrix. "I can tell you that the door is open to future opportunities with Toyota," said GM spokeswoman Elaine Redd.

Chicken Farmers Have Hearts Plucked Out - (Mish at globaleconomicanalysis.blogspot.com) Last December, Pilgrim's Pride Went Bankrupt. The repercussions on chicken farmers are still being felt. Please consider At Chicken Plant, a Recession Battle. DOUGLAS, Ga. -- This small town was devastated in February when its largest employer, Pilgrim's Pride Corp., said it would close a chicken-processing plant as part of the company's bankruptcy filing. Since then, city and county officials have been working to find a buyer who could save the plant's nearly 1,000 jobs and $300,000 in annual county tax revenues. But there's a problem: Pilgrim's Pride isn't eager to sell. Pilgrim's has so far rejected a $32 million bid for the plant from Amick Farms LLC of Batesburg, S.C., company and city officials say. Another chicken company took a look and decided Pilgrim's asking price was too high, say people familiar with the matter. City officials say the company kept a prospective bidder from touring the plant, making it a challenge to market. Pilgrim's says it hasn't been offered a fair price for the plant and is cautious about letting rivals see its manufacturing processes. In an email to the city of Douglas, Pilgrim's President and Chief Executive Don Jackson said, "With declining demand for chicken in this terrible economy we need to remove chicken from the market. This would not be accomplished with a sale." While he said he recognized the "devastating impact" a closing would have on Douglas, "the actions do strengthen the company and help protect the jobs" of the company's 40,000 U.S. employees and farmers. Many businesses in the U.S. are struggling with excess capacity. From autos to airlines to houses, "there's a landscape of industries and sectors that are recognizing that they're going to need to scale down," says Nancy L. Rose, an economist at the Massachusetts Institute of Technology Department of Economics in Cambridge. With no plant to process the birds they raise, local chicken farmers have no income to pay off debts. Months ago, the hundreds of cavernous, metal-and-wood chicken houses in the county were worth at least $200,000 each when filled with chickens, farmers say. Now, except for flies and old feathers, the structures sit empty and are virtually worthless. Mr. Jackson, Pilgrim's CEO, appears to have struggled over the decision to shut the plant. In a March 11 email to Ms. Lewis, the Economic Development Authority official, he said: "I do not mean to 'pluck the heart' out of Douglas or any other community. All of my 58 years have been spent in agriculture. Thirty of it in the chicken business. I grew up on a farm and my father spent his entire life farming. Not some 'rich' farmer but one just like your neighbors in Coffee County. He would be sick over this situation." Mr. Jackson declined to be interviewed. Pilgrim's began dismantling chicken operations in the area, slaughtering hens and selling off eggs. The steps were necessary because "you can't close a plant and have tens of thousands of live chickens there with no place to go," Pilgrim's bankruptcy attorney, Stephen A. Youngman, said in court transcripts. Douglas residents still hope the plant will reopen. One recent afternoon, after a corporate jet landed at the local airport, rumors flew that a buyer might have arrived. It turned out the plane was carrying executives from Little Debbie, a maker of cookies and cakes, doing business in the region.

OTHER STORIES:

For Sale, Still: Grand Houses In Gracious Neighborhoods - (www.washingtonpost.com)

Mortgage defaults in America: Can pay, won't pay - (www.economist.com)

Uh-Oh, Here We Go Again? - (www.fool.com)

New TV show gives houseowners the cold truth - (www.sfgate.com)

Temporary Bailouts Tend To Become Permanent - (www.blogs.reuters.com)

Embrace Deflation - It's The Cure, Not The Problem - (Mish at globaleconomicanalysis.blogspot.com)

Unemployment Soaring - (www.theautomaticearth.blogspot.com)

California Income Gaps Continue To Widen - (PDF – www.cbp.org)

Recovery When? How About If? - (www.americanthinker.com)

Bringing Transparency to the Federal Reserve - (www.cato.org)

No Recovery Until 'Well into 2010’: Ross - (www.cnbc.com)

Paulson to Testify on BofA/Merrill Lynch in July - (www.cnbc.com)

Billions to Banks - The AIG Insurance Bailout - (www.gimmiethescoop.com)

Canadian housing market still on very shaky ground - (www.macleans.ca)

There Is No Market In Health Care - (www.patrick.net)

Reviving Do-It-Yourself Building - (www.newgeography.com)

Credit Card Hell - (www.mint.com)

I should buy your house for next to nothing - (www.dilbert.com)

Treasury Set to Unveil PPIP; Ross, GE Capital Participate - (www.cnbc.com) The U.S. Treasury is plans to roll out its long-awaited Public-Private Investment Program plan. CNBC has confirmed that two firms will be Wilbur Ross's Distressed Real Estate/debt fund and a joint venture between GE Capital and private investor Angelo Gordon & Co.

Japan Job Woes Deepen But Consumption Points Up - (www.cnbc.com)

Madoff Sentence Cheered, Seen as 'Strong' Message - (www.cnbc.com)

Investors War for Madoff Funds - (www.cnbc.com)

Madoff Victims Speak Out - (www.cnbc.com)

Chinalco Seen Taking Up Rio Issue, Rights in Demand - (www.cnbc.com)

Will Commodities Stay Hot All Summer? - (www.cnbc.com)

Slideshow: A Rogues Gallery of Financial Crime - (www.cnbc.com)

Dollar Falls for Fourth Day Against Euro as Risk Appetite Rises - (www.bloomberg.com)

U.S. stock futures lean higher as quarter ends - (www.marketwatch.com)

Markets out of step on timing of US rate rise - (www.ft.com)

Deficit forces California to issue IOUs - (www.ft.com)

VIX Below Lehman Bankruptcy Level Leaves ‘Wall of Worry’ Intact