KeNo's Housing and Economic Portal: Thursday August 27 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Arthur J. Samberg Hedge Fund, in Dissolving, Braces for S.E.C. Inquiry - (www.nytimes.com) When Arthur J. Samberg abruptly announced the closing of his $3 billion hedge fund in May, Wall Street buzzed that regulators were coming after him for improper trading. Those rumors were confirmed this week when Mr. Samberg told his clients that federal regulators intended to bring a civil action against him and his firm, Pequot Capital Management. Mr. Samberg, renowned as a money manager, withstood an investigation in 2006, only to have it reopened late last year. In a letter to clients on Monday, he reiterated his longstanding position: Pequot had done nothing wrong. But the Securities and Exchange Commission is pressing its case. Mr. Samberg, 68, and Pequot received so-called Wells notices about six weeks ago, signaling that the commission plans to bring enforcement action, said a person close to the investigation, who had signed confidentiality agreements. A spokesman for the S.E.C., citing policy in such matters, declined to comment. It was unclear whether Pequot was trying to reach a settlement with the S.E.C., but Mr. Samberg, in his letter to Pequot clients, said that the allegations were “without merit” and that Pequot would defend itself vigorously. A spokesman for Pequot declined to comment. “We do not believe this development impacts the process of liquidating the remaining securities in the Pequot funds,” Pequot said in its letter. The investigation centers on Pequot’s trades in Microsoft securities in 2001. That move followed revelations that Mr. Samberg had paid $2.1 million to a former Microsoft employee, David Zilkha, in 2007. Mr. Zilkha had worked briefly for Pequot six years earlier. The payment came to light recently during Mr. Zilkha’s divorce proceedings. Mr. Samberg is liquidating his core funds, which have about $2 billion of assets under management. The firm’s other funds, which manage about $1 billion in assets, will be spun off. Mr. Samberg has made a fortune for himself and his investors. His funds have performed well over their 22 years, netting about 16.8 percent, after fees, every year. At its height in 2001, the firm managed almost $15 billion.

White House's Deal With Big Pharma Undermines Democracy - (robertreich.blogspot.com) Robert Reich was the nation's 22nd Secretary of Labor and is a professor at the University of California at Berkeley. This is his personal journal. I'm a strong supporter of universal health insurance, and a fan of the Obama administration. But I'm appalled by the deal the White House has made with the pharmaceutical industry's lobbying arm to buy their support. Last week, after being reported in the Los Angeles Times, the White House confirmed it has promised Big Pharma that any healthcare legislation will bar the government from using its huge purchasing power to negotiate lower drug prices. That's basically the same deal George W. Bush struck in getting the Medicare drug benefit, and it's proven a bonanza for the drug industry. A continuation will be an even larger bonanza, given all the Boomers who will be enrolling in Medicare over the next decade. And it will be a gold mine if the deal extends to Medicaid, which will be expanded under most versions of the healthcare bills now emerging from Congress, and to any public option that might be included. (We don't know how far the deal extends beyond Medicare because its details haven't been made public.) Let me remind you: Any bonanza for the drug industry means higher health-care costs for the rest of us, which is one reason why critics of the emerging healthcare plans, including the Congressional Budget Office, are so worried about their failure to adequately stem future healthcare costs. To be sure, as part of its deal with the White House, Big Pharma apparently has promised to cut future drug costs by $80 billion. But neither the industry nor the White House nor any congressional committee has announced exactly where the $80 billion in savings will show up nor how this portion of the deal will be enforced. In any event, you can bet that the bonanza Big Pharma will reap far exceeds $80 billion. Otherwise, why would it have agreed? In return, Big Pharma isn't just supporting universal health care. It's also spending a lots of money on TV and radio advertising in support. Sunday's New York Times reports that Big Pharma has budgeted $150 million for TV ads promoting universal health insurance, starting this August (that's more money than John McCain spent on TV advertising in last year's presidential campaign), after having already spent a bundle through advocacy groups like Healthy Economies Now and Families USA. I want universal health insurance. And having had a front-row seat in 1994 when Big Pharma and the rest of the health-industry complex went to battle against it, I can tell you first hand how big and effective the onslaught can be. So I appreciate Big Pharma's support this time around, and I like it that the industry is doing the reverse of what it did last time, and airing ads to persuade the public of the rightness of the White House's effort. But I also care about democracy, and the deal between Big Pharma and the White House frankly worries me. It's bad enough when industry lobbyists extract concessions from members of Congress, which happens all the time. But when an industry gets secret concessions out of the White House in return for a promise to lend the industry's support to a key piece of legislation, we're in big trouble. That's called extortion: An industry is using its capacity to threaten or prevent legislation as a means of altering that legislation for its own benefit. And it's doing so at the highest reaches of our government, in the office of the President. When the industry support comes with an industry-sponsored ad campaign in favor of that legislation, the threat to democracy is even greater. Citizens end up paying for advertisements designed to persuade them that the legislation is in their interest. In this case, those payments come in the form of drug prices that will be higher than otherwise, stretching years into the future. I don't want to be puritanical about all this. Politics is a rough game in which means and ends often get mixed and melded. Perhaps the White House deal with Big Pharma is a necessary step to get anything resembling universal health insurance. But if that's the case, our democracy is in terrible shape. How soon until big industries and their Washington lobbyists have become so politically powerful that secret White House-industry deals like this are prerequisites to any important legislation? When will it become standard practice that such deals come with hundreds of millions of dollars of industry-sponsored TV advertising designed to persuade the public that the legislation is in the public's interest? (Any Democrats and progressives who might be reading this should ask themselves how they'll feel when a Republican White House cuts such deals to advance its own legislative priorities.) We're on a precarious road -- and wherever it leads, it's not toward democracy.

U.S. Foreclosure Filings Set Third Record-High in Five Months - (www.bloomberg.com) Foreclosure filings in the U.S. climbed to a record for the third time in five months in July as falling home prices and the recession left more homeowners unable to keep up payments or refinance. A total of 360,149 properties received a default or auction notice or were seized last month, according to data sellerRealtyTrac Inc. One in 355 households got a filing, the highest monthly rate in RealtyTrac records dating to January 2005, the Irvine, California-based company said in a statement. “We’re in a deep hole,” Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc., said in an interview. “There is a whole new wave of foreclosures tied to the cyclical dynamics of the economy.” Foreclosures increased as the U.S. recorded another 247,000 job losses in July and home prices fell, leaving an increasing number of mortgage holders owing more than their properties were worth. The median price of an existing single-family house dropped 15.6 percent to $174,100 in the second quarter, the most in records dating to 1979, the National Association of Realtors said yesterday. Almost one-quarter of U.S. mortgage holders are underwater, property data firm Zillow.com said Aug. 11. “There are a slew of factors showing fundamental weakness on the demand side: tighter underwriting, job loss, investors who’ve been badly burned,” saidStuart Gabriel, director of the UCLA Ziman Center for Real Estate in Los Angeles. “We have not seen the bottom of the housing market.” Nevada, California: July’s foreclosure filings rose 32 percent from a year earlier and 6.7 percent from June, RealtyTrac said. Nevada had the highest foreclosure rate for the 31st consecutive month as one in 56 households there got a filing, more than six times the national average. Auctions and bank seizures both rose 20 percent from the previous month. California had the second-highest filing rate at one in 123 households, three times the U.S. average, and initial defaults were up 15 percent from June, RealtyTrac said. Arizona was third at one in 135 households as scheduled auctions rose 25 percent from the previous month.

Readers tell their stories about having 'underwater' mortgages - (www.tbo.com) Georgenna Malone admits she got in over her head on her mortgage, but given a housing bust of epic proportions, she'd hoped for a little more leniency from her lender. This 63-year-old New Tampa woman and her husband are among the legions of Bay area residents who were caught flat-footed by the unprecedented drop in housing values. A new report by Zillow.com, a real estate Web site, estimates that 49 percent of single-family homeowners in the Bay area were "upside-down" on their mortgages in the second quarter, or owe more than the home is worth. That's up from 45 percent of people who were upside-down on their mortgages in the first quarter. Malone and others called in to the Tribune or left messages on TBO.com, sharing their horror stories about the housing market. A woman who calls herself "Karippp" posted a message on TBO.comsaying she is selling her home for $47,000 less than the home is worth – in a process called a short sale. "I have owned (my house) for 7+ years without a deliquency (sic) and the realtor is asking me to quit paying my mortgage to have the mortgage co. agree to a short sale," Karippp writes. In Malone's case, an unexpected fire helped push her and her husband to the brink. Before the housing market meltdown, life was fairly good, she said. The couple's townhome in New Tampa had seen a huge appreciation in its value, and hoping to capitalize, refinanced their loan. With some extra money from their home's equity, they were able to pay off some credit cards and pay off a second mortgage. Their credit score rose to nearly 700, its highest level in years, she said. Then, tragedy struck. The couple owns a small coffee business that sells coffee and cappuccino at state fairs and other shows and festivals. About six months after refinancing, a fire tore through a facility where the couple was storing their coffee equipment. They lost half of it, she said. Things started going downhill soon after. They became late on their mortgage in May 2008 and hoped to renegotiate their mortgage terms with their lender. However, the lender wouldn't consider it until the couple was at least 90 days late, she said. Today, Malone and her husband are on verge of selling off their townhome at a loss. They originally bought their home years ago for $81,000 and expect to sell it for $75,000, she said. After refinancing to pay off their other debts, that leaves a deficiency of about $91,000, which the lender is demanding they repay eventually, she said.

East SF Bay houses with negative equity could pull down economy - (www.contracostatimes.com) The plunge in home prices has shoved the value of a growing number of houses in the East Bay and neighboring regions under water, an ominous trend that could unleash a new wave of foreclosures. Depending on the county, anywhere from one-third to two-thirds of East Bay Area homeowners who have mortgages are finding that their houses are worth less than the loans they have on the residences — a condition known as negative equity. And the problem appears to have worsened, not improved, during the second quarter of 2009, a Zillow.com report shows. "This is consistent with what is happening with home values," said Stan Humphries, chief economist with Zillow, an online site for real estate. "Home values are strongly negative in those areas." In Contra Costa County, Solano County and San Joaquin County, the problem of homes being under water worsened in the April-June quarter compared with negative equity in the January-March period, Zillow said. In Alameda County and San Mateo County, negative equity woes eased modestly. "The housing market has a lot of risks right now," Humphries said. "Negative equity serves as a stimulus for more foreclosures and foreclosures create more inventory and lower home prices. The vicious cycle perpetuates itself." The nagging deterioration in home equity suggests the region's residential market continues to erode, not improve, warned Brad Kemp, director of regional research with Beacon Economics. "The housing market is getting worse," Kemp said. "More people are getting laid off. Home prices are still falling. The price you could sell your house for today is less than yesterday's." The rate of mortgaged homes that were under water was 30 percent in Alameda County, 45 percent in Contra Costa County, 63 percent in Solano County, and 67 percent in San Joaquin County, Zillow's report disclosed. "If a house is under water, that can cause more foreclosures because it reduces your incentive to pay your mortgage," said Jeffrey Michael, director of the Stockton-based Business Forecasting Center at the University of the Pacific. Even worse, these problems could linger, he said. "Because of the negative equity, we will have heightened foreclosure problems for years, even if the job market improves," Michael said. The problems can be particularly frustrating because homeowners are acutely aware of the steep slide in the values of their houses since prices peaked in the 2005-06 time frame. "That's a tremendous amount of wealth being written off," Humphries said.

Record number of foreclosures scheduled for sale in CA - (www.centralvalleybusinesstimes.com) The number of properties scheduled for foreclosure sale – new Notices of Trustee Sale minus those sales that have cancelled or sold – rose to a record level of 124,874 in July, nearly double the levels reached during the foreclosure peak last year, according to a report by ForeclosureRadar Inc., a Discovery Bay-based foreclosure information company. Overall, foreclosure stats were mixed, with Notice of Default filings flat, Notice of Trustee Sale filings rising by 31.6 percent and foreclosure sales dropping 22.7 percent. Again this month, Merced County leads the state in the rate of foreclosures with 281 sales in July or one for every 908 residents. But Merced’s foreclosure sales total is down by a third from June and down by 53 percent from July of last year. Half of the state’s Top Ten counties for rates of foreclosure sales are in the Central Valley. In third place is Yuba County with one foreclosure sale for every 972 residents. Stanislaus County ranks fourth in the state with one sale for every 1,054 residents. San Joaquin County, with 619 homes sold at foreclosure auction in July, ranks sixth with one for every 1,108 residents. Madera County placed tenth in July with one sale for every 1,227 residents.

U.S. food giants warn of sugar shortage: report - (www.reuters.com) Large U.S. food companies said the country could "virtually run out of sugar" unless the Obama administration eased import curbs, the Wall Street Journal said. In a letter to Agriculture Secretary Thomas Vilsack, the companies -- including Kraft Foods Inc (KFT.N), General Mills Inc (GIS.N), Hershey Co (HSY.N) and Mars Inc -- said there could be a severe shortage of sugar used in chocolate bars, breakfast cereal, cookies, chewing gum and thousands of other products, the paper said. The companies warned they would hike consumer prices and lay off workers if the agriculture department did not allow them to import more tariff-free sugar, the paper said. Current import quotas limit the amount of tariff-free sugar the food companies can import in a given year, except from Mexico, suppressing supplies from major producers such as Brazil, the paper said. Sugar prices are poised to hit 30-year highs on a perfect storm of huge Indian imports and tight supplies. The U.S. Department of Agriculture, Kraft, General Mills, Hershey and Mars did not immediately return calls seeking comment that were made outside regular U.S. business hours.