KeNo's Housing and Economic Portal: Thursday September 17 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

China's derivative default stance rattles banks – (www.fool.com) A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent. The state-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published Saturday. While the details of the report could not be confirmed, it was Monday's hot topic in financial circles from Shanghai to Singapore as commodity marketers feared that companies holding underwater price hedges could simply renege on the deals, costing banks millions of dollars in profit. The warning from SASAC follows a series of measures from Beijing this year to crack down on the sale of derivative products by foreign banks to Chinese enterprises, principally big consumers, who bought protection against higher prices last year only to watch the market collapse -- leaving them with losses. While many companies including top airlines have come clean on the losses, some analysts fear another wave may follow. "I wouldn't be surprised if more state firms emerge with big derivatives trading losses. Otherwise SASAC wouldn't come out with such a radical move," said a Hong Kong-based derivatives analyst, who like most other industry officials and bankers declined to be named due to the high sensitivity of the issue. A SASAC media official said on Monday that he was waiting for the "relevant department's" official comment before he can clarify to media. A government official said that the Bureau of Financial Supervision and Evaluation under SASAC was handling the issue. The official declined to be named and did not elaborate. Spokespersons at Goldman Sachs and UBS declined comment, and media officials at Morgan Stanley and JPMorgan were not immediately available for comment. All are major global providers of commodity risk management. No bank were named in the Caijing report. The SASAC media officer also declined to identify any specific banks. "It's a handful of companies who are being encouraged by regulators to renegotiate," said a second banking source. "It's outrageous, but it's China, so everyone is treading very carefully." For banks that are hoping to sell more derivatives hedges in China, the world's fastest-expanding major economy and top commodities consumer, the danger goes beyond the immediate risk to existing contracts to the longer-term precedent that suggests Chinese companies can simply renege on deals when they like.The report follows an order from SASAC in July that required all central government-controlled state companies engaged in trading derivatives to make quarterly reports about their investments, including details of holdings and performance. But the reported letter opened several important questions that could not immediately be answered. "If we were among the banks receiving that letter, we would be very angry. But now the key is to find out more details on the letter: In whose name the letter was issued, the government or the corporate's? And under what was the reason for defaulting?," said a Singapore-based marketing executive with a foreign bank. The source, whose bank did not receive a letter, said that Air China, China Eastern, and shipping giant COSCO -- among the Chinese companies that have reported huge derivatives losses since last year -- had issued almost identical notices to banks.

"If it's in the name of the government, the impact will be very negative," said the source, who declined to be named. Beijing-based derivatives lawyers said the so-called "legal letter" has no legal standing -- SASAC as a shareholder has no business relationship with international banks. "It's like the father suddenly told the creditors of his debt-ridden son that his son won't pay any of his debt," said a lawyer from the derivatives risks committee of the Beijing Lawyers Association. It's also unclear why Chinese state firms, which have complained that their foreign banks sometimes did not disclose full information of potential risks when selling them complicated products, did not seek redress through the courts. "If that is the case, these firms should seek through legal measures to safeguard their rights, instead of turning to the authorities for political interference," said a different lawyer. SASAC took over the job of overseeing SOEs' derivatives trading from the securities regulator in February after several Chinese firms reported huge losses from derivatives.

Revolution is a Duty of the People - (www.dailypaul.com) Interesting video by Judge Andrew Napolitano:

States Shut Down to Save Cash - (online.wsj.com) California drivers can't line up to renew their licenses Friday. Wisconsin natives can't order copies of their birth certificates. Georgia consumers will have to postpone registering complaints with state watchdogs. And stranded motorists in Maryland may have to wait a little longer for highway-department help. Across the country, cash-strapped state governments are shutting down business for a day at a time to save money. State offices are shuttered Friday in California, Maine, Maryland and Michigan. Rhode Island had planned to join them until a judge on Thursday blocked its closure plan. Some state agencies are closed in Georgia and Wisconsin, and most Colorado state offices will be shuttered on Tuesday. Other states, such as Arizona, have been trying to keep their operations open while furloughing thousands of workers. So far the effect of furloughs appears to have been muted, with most people able to take care of state business in advance of closures or by filing forms online. But at the Detroit Center for Family Advocacy, which helps low-income families avoid sending children to foster care, furloughs have already slowed assistance efforts, said managing attorney Tracy Green. The center's work often involves crisis intervention, but some cases have sat unresolved for days because workers in the Department of Human Services were on furlough. "It has been real problematic," Ms. Green said. A Department of Motor Vehicles office in San Francisco, meanwhile, was packed Thursday with more than 150 people. Last summer, without furloughs, wait times rarely exceeded an hour, but with three furlough days a month, people are waiting more than two hours each day, said Maria De Guia, a motor-vehicle field representative. To make matters worse, inability to keep the office staffed meant roughly a third of the office's 26 services windows are closed at any given time. Outside, Jerry Oliver was finally putting a registration sticker on his 1977 green Chevy Impala after waiting about three hours. "Today was a nightmare," he said. "I understand they're trying to save some money, but it's inconvenient for everybody." Jordan Wells said he visited the DMV office two weeks in a row to renew his driver's license, only to find it closed both times because of furloughs. He understands why the furloughs are necessary, he said, "so I tolerate it." The furloughs, which basically act as salary cuts for state workers, are the latest response to plunges in tax revenue because of the recession. State legislatures have struggled to cover shortfalls that have ballooned to $168 billion, or 24% of their general-fund budgets, for the current fiscal year, which for most began July 1, according to a report released Thursday by the left-leaning Center on Budget Policy Priorities. Consumers have reined in spending, eroding sales-tax receipts, while job losses have cut income-tax collections. States have already responded by raising fees and tapping rainy-day funds, and are now forced to deal with wage costs, which make up about 13% of their budgets, according to the Rockefeller Institute of Government in Albany, N.Y.

Bush's Third Term? You're Living It - (www.tomdispatch.com) It sounds like the plot for the latest summer horror movie. Imagine, for a moment, that George W. Bush had been allowed a third term as president, had run and had won or stolen it, and that we were all now living (and dying) through it. With the Democrats in control of Congress but Bush still in the Oval Office, the media would certainly be talking endlessly about a mandate for bipartisanship and the importance of taking into account the concerns of Republicans. Can't you just picture it? There's Dubya now, still rewriting laws via signing statements. Still creating and destroying laws with executive orders. And still violating laws at his whim. Imagine Bush continuing his policy of extraordinary rendition, sending prisoners off to other countries with grim interrogation reputations to be held and tortured. I can even picture him formalizing his policy of preventive detention, sprucing it up with some "due process" even as he permanently removes habeas corpus from our culture. I picture this demonic president still swearing he doesn't torture, still insisting that he wants to close Guantanamo, but assuring his subordinates that the commander-in-chief has the power to torture "if needed," and maintaining a prison at Bagram Air Base in Afghanistan that makes Guantanamo look like summer camp. I can imagine him continuing to keep secret his warrantless spying programs while protecting the corporations and government officials involved. If Bush were in his third term, we would already have seen him propose, yet again, the largest military budget in the history of the world. We might well have seen him pretend he was including war funding in the standard budget, and then claim that one final supplemental war budget was still needed, immediately after which he would surely announce that yet another war supplemental bill would be needed down the road. And of course, he would have held onto his Secretary of Defense from his second term, Robert Gates, to run the Pentagon, keep our ongoing wars rolling along, and oversee the better part of our public budget. Bush would undoubtedly be following through on the agreement he signed with Iraqi Prime Minister Nouri al-Maliki for all U.S. troops to leave Iraq by the end of 2011 (except where he chose not to follow through). His generals would, in the meantime, be leaking word that the United States never intended to actually leave. He'd surely be maintaining current levels of troops in Iraq, while sending thousands more troops to Afghanistan and talking about a new "surge" there. He'd probably also be escalating the campaign he launched late in his second term to use drone aircraft to illegally and repeatedly strike into Pakistan's tribal borderlands with Afghanistan. If Bush were still "the decider" he'd be employing mercenaries like Blackwater and propagandists like the Rendon Group and he might even be expanding the number of private security contractors in Afghanistan. In fact, the whole executive branch would be packed with disreputable corporate executive types. You'd have somebody like John ("May I torture this one some more, please?") Rizzo still serving, at least for a while, as general counsel at the CIA. The White House and Justice Department would be crawling with corporate cronies, people like John Brennan, Greg Craig, James Jones, and Eric Holder. Most of the top prosecutors hired at the Department of Justice for political purposes would still be on the job. And political prisoners, like former Alabama Governor Don Siegelman and former top Democratic donor Paul Minor would still be abandoned to their fate. In addition, the bank bailouts Bush and his economic team initiated in his second term would still be rolling along -- with a similar crowd of people running the show. Ben Bernanke, for instance, would certainly have been reappointed to run the Fed. And Bush's third term would have guaranteed that there would be none of the monkeying around with the North American Free Trade Agreement (NAFTA) that the Democrats proposed or promised in their losing presidential campaign. At this point in Bush's third term, no significant new effort would have begun to restore Katrina-decimated New Orleans either. If the Democrats in Congress attempted to pass any set of needed reforms like, to take an example, new healthcare legislation, Bush, the third termer, would have held secret meetings in the White House with insurance and drug company executives to devise a means to turn such proposals to their advantage. And he would have refused to release the visitor logs so that the American public would have no way of knowing just whom he'd been talking to. During Bush's second term, some of the lowest ranking torturers from Abu Ghraib were prosecuted as bad apples, while those officials responsible for the policies that led to Abu Ghraib remained untouched. If the public continued to push for justice for torturers during the early months of Bush's third term, he would certainly have gone with another bad apple approach, perhaps targeting only low-ranking CIA interrogators and CIA contractors for prosecution. Bush would undoubtedly have decreed that any higher-ups would not be touched, that we should now be looking forward, not backward. And he would thereby have cemented in place the power of presidents to grant immunity for crimes they themselves authorized. If Bush were in his third term, some of his first and second term secrets might, by now, have been forced out into the open by lawsuits, but what Americans actually read wouldn't be significantly worse than what we'd already known. What documents saw the light of day would surely have had large portions of their pages redacted, and the vast bulk of documentation that might prove threatening would remain hidden from the public eye. Bush's lawyers would be fighting in court, with ever grander claims of executive power, to keep his wrongdoing out of sight. Now, here's the funny part. This dark fantasy of a third Bush term is also an accurate portrait of Obama's first term to date. In following Bush, Obama was given the opportunity either to restore the rule of law and the balance of powers or to firmly establish in place what were otherwise aberrant abuses of power. Thus far, President Obama has, in all the areas mentioned above, chosen the latter course. Everything described, from the continuation of crimes to the efforts to hide them away, from the corruption of corporate power to the assertion of the executive power to legislate, is Obama's presidency in its first seven months.

Even Higher Taxes Coming for California - (www.latimes.com) While Californians are still feeling the sting of income and sales tax hikes signed into law earlier this year, now comes news that state tax authorities plan to take a little more from their pockets. For only the second time in 30 years, the tax board is lowering the point where each tax bracket begins, bumping many people into a higher category. At the same time, officials are cutting back some deductions. Everyone will pay more, even people whose bracket or income doesn't change. The extra sums will total as much as $140 per family, on top of the increases previously enacted. Officials said the latest adjustments have been triggered by inflation, or rather the lack of it. This year, the state's inflation index was a negative numberfor the first time since 1983. When the economy takes a deep plunge, so do tax brackets. The new changes apply to the 2009 tax year. Residents are already paying hundreds -- even thousands -- of additional income tax dollars under the quarter-point rate increase and other tax hikes approved in February as part of a budget deal. "Everything is going up, up, up," said Othman Rabie, owner of a sandwich shop in downtown Sacramento. "And business is going down." Back in February, state lawmakers and Gov. Arnold Schwarzenegger approved a slate of temporary tax increases in an effort to balance California's perennially out-of-whack books. In addition to the income tax rate rising 0.25%, the dependent credit was slashed by more than two-thirds. The vehicle license fee nearly doubled to 1.15% of a car's value. The state sales tax climbed 1%. This summer, lawmakers and Schwarzenegger decided to withhold 10% more from workers' paychecks starting Nov. 1 -- an accounting scheme to collect taxes faster. Under another bookkeeping maneuver, individuals and businesses that make estimated tax payments will pony up more of that money sooner starting in the first half of next year.

Hong Kong (China) Pulling All Physical Gold from London Depositories! - (www.marketwatch.com) Hong Kong is pulling all its physical gold holdings from depositories in London, transferring them to a high-security depository newly built at the city's airport, in a move that won praise from local traders Thursday. The facility, industry professionals said, would support Hong Kong's emergence as a Swiss-style trading hub for bullion and would lessen London's status as a key settlement-and-storage center. "Having a central government-sponsored vault would create a situation where you could conceivably look at Hong Kong as being a hub, where metal could be traded for the region," said Sunil Kashyap, managing director at Scotia Capital in Hong Kong, adding that the facility was the first with official government backing in the region. The Hong Kong Monetary Authority, which functions as the territory's unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, the Hong Kong government said in an earlier statement. The monetary authority reported $63 million in physical gold reserves as of July 31, according to its International Reserves and Foreign Currency Liquidity statement. The authority wouldn't disclose where the reserves are held, but local media reports cited gold traders as saying that London's the most likely location. Traders said the new depository facility could also foster new financial products, such as exchange-traded funds based on precious metals. The 3,660-square-foot depository, located at the city's main Chek Lap Kok Airport, will serve as a "storage facility for local and overseas government institutions," according to the government statement. Martin Hennecke, a financial advisor with the Hong Kong-based Tyche Group Ltd., said that could be appealing to regional central banks unnerved after watching the global financial system teeter on verge of implosion last year.

Mish: Too Big to Survive - (Mish at www.globaleconomicanalysis.blogspot.com) Some emails I receive are too good not to share. This is one of them. "GD" tells his story of attempting to buy a foreclosed property. "GD" Writes: Mish, I had to pass this tale along to illustrate how ridiculous the housing situation is and how much of a mess Bank of America / Merrill Lynch (BAC) is right now. My wife and I are currently looking to buy a house in hopes of finding something that has reasonably returned to earth in the last 18 months in the Bay Area. We found a bank owned property in an excellent neighborhood that had been absolutely gutted by the departing owners/tenants. The listing agreement said that all offers had to be submitted with a Bank of America prequalification. We have been working with Merrill because we have investments with them and they are willing to verify our assets without forcing to sell anything until the last minute. Our agent contacted the selling agent to make sure that it was fine for us to submit our offer with the Merrill pre-approval. No dice, it had to be Bank of America. So we contact a B of A rep and get a quick approval ($50 for the trouble plus another run on our credit). Then our agent prepares the offer and learns that the house is actually owned by Merrill. We then contacted our Merrill rep and had him see what the story was to determine if we could perhaps deal directly with the person inside managing that portfolio. What happened next? You probably already guessed it, Merrill couldn’t find the property on any of its books. Neither could Bank of America. Needless to say we walked away from such a mess. This is not a “one hand doesn’t know what the other is doing,” this is a other fingers on the same hand are clueless situation. These banks are not too big to fail. They are failing because they are too big.