KeNo's Housing and Economic Portal: Thursday October 22 Housing and Economic stories

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Bombs and Bribes - (www.safehaven.com) What if tomorrow morning you woke up to headlines that yet another Chinese drone bombing on US soil killed several dozen ranchers in a rural community while they were sleeping? That a drone aircraft had come across the Canadian border in the middle of the night and carried out the latest of many attacks? What if it was claimed that many of the victims harbored anti-Chinese sentiments, but most of the dead were innocent women and children? And what if the Chinese administration, in an effort to improve its public image in the US, had approved an aid package to send funds to help with American roads and schools and promote Chinese values here? Most Americans would not stand for it. Yet the above hypothetical events are similar to what our government is doing in Pakistan. Last week, Congress did approve an aid package for Pakistan for the stated purposes of improving our image and promoting democracy. I again made the point on the floor of the House that still no one seems to hear: What if this happened on US soil? What if innocent Americans were being killed in repeated drone attacks carried out by some foreign force who was trying to fix our problems for us? Would sending money help their image? If another nation committed this type of violence and destruction on our homeland, would we be at all interested in adopting their values? Sadly, one thing that has entirely escaped modern American foreign policy is empathy. Without much humility or regard for human life, our foreign policy has been reduced to alternately bribing and bombing other nations, all with the stated goal of "promoting democracy". But if a country democratically elects a leader who is not sufficiently pro-American, our government will refuse to recognize them, will impose sanctions on them, and will possibly even support covert efforts to remove them. Democracy is obviously not what we are interested in. It is more likely that our government is interested in imposing its will on other governments. This policy of endless intervention in the affairs of others is very damaging to American liberty and security. If we were really interested in democracy, peace, prosperity and safety, we would pursue more free trade with other countries. Free and abundant trade is much more conducive to peace because it is generally bad business to kill your customers. When one's livelihood is on the line, and the business agreements are mutually beneficial, it is in everyone's best interests to maintain cooperative and friendly relations and not kill each other. But instead, to force other countries to bend to our will, we impose trade barriers and sanctions. If our government really wanted to promote freedom, Americans would be free to travel and trade with whoever they wished. And, if we would simply look at our own policies around the world through the eyes of others, we would understand how these actions make us more targeted and therefore less safe from terrorism. The only answer is get back to free trade with all and entangling alliances with none. It is our bombs and sanctions and condescending aid packages that isolate us.

Roubini Sees Stock Declines as Soros Warns on Economy - (www.bloomberg.com) New York University Professor Nouriel Roubinisaid stock markets may drop and billionaire George Soros warned the “bankrupt” U.S. banking system will hamper its economy, highlighting doubts about the sustainability of the global recovery. “Markets have gone up too much, too soon, too fast,” Roubini, who accurately predicted the financial crisis, said in an interview in Istanbul on Oct. 3. U.S. stocks may suffer a “major decline” after climbing to the highest levels in almost a year two weeks ago, according to technical analyst Robert Prechter, founder of Elliott Wave International Inc. Stocks have surged around the world in the past six months as evidence mounts that the economy is emerging from its deepest recession since the 1930s. The Standard & Poor’s 500 Index has soared 51 percent from a 12-year low in March while Europe’s Dow Jones Stoxx 600 is up 48 percent. The euphoria contrasts with warnings from policy makers and investors like Soros, who said today that the U.S. economic recovery will be “very slow.” U.S. consumers are “overdebted” and the country’s banking system has been “basically bankrupt,” Soros said in Istanbul today. “The United States has a long way to go.” Group of Seven finance ministers and central bankers also struck a cautious tone after meeting on the shores of the Bosporus over the weekend, saying the prospects for growth “remain fragile.” ‘Barely Recovering’: “The real economy is barely recovering while markets are going this way,” Roubini said. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U-shaped. That might be in the fourth quarter or the first quarter of next year.” U.S. and European stocks gained today after reports showed service industries expanded on both sides of the Atlantic. “Stocks are very overvalued,” Prechter, who advised betting against U.S. equities three months before the market peaked in October 2007, said in an Oct. 1 telephone interview. “Stocks peaked in September and are back in a bear market.” The S&P 500 will probably fall “substantially below” 676.53, the 12-year low reached on March 9, he said. His projection implies a drop of more than 34 percent from last week’s close of 1025.21. It rose to 1031.77 at 10:05 a.m. in New York.

Report on Bailouts Says Treasury Misled Public - (www.nytimes.com) The inspector general who oversees the government’s bailout of the banking system is criticizing the Treasury Department for some misleading public statements last fall and raising the possibility that it had unfairly disbursed money to the biggest banks. A Treasury official made incorrect statements about the health of the nation’s biggest banks even as the government was doling out billions of dollars in aid, according to a report on the Troubled Asset Relief Program to be released on Monday by the special inspector general, Neil M. Barofsky. The report also provides new insight into the way the Treasury allocated billions of dollars to nine of Wall Street’s largest players. The report says that Bank of Americaappeared to qualify for more aid earlier, under the government plan. That assertion adds another element of intrigue to continuing investigations of the bank’s merger with Merrill Lynch and the role that regulators played in the deal, even as Merrill’s condition deteriorated. The bailout formula called for banks to get an amount equal to as much as 3 percent of their risk-weighted assets, with aid capped at $25 billion for each institution, according to the report. By size, Citigroup, JPMorgan Chase and Bank of America could have qualified for more, and the first two received $25 billion. But Bank of America was given only $15 billion in October, since Merrill Lynch was earmarked for $10 billion. The two companies agreed to a merger, though their deal had not yet been approved by regulators or shareholders. Bank of America ultimately received Merrill’s $10 billion in January — as well as $20 billion in additional bailout funds — but if the bank had not been involved in the Merrill deal, it would probably have received $25 billion at the outset, as did Citigroup and JPMorgan. Another company in the process of a merger was not treated the same. Wells Fargo was acquiring Wachovia, and it received both companies’ money at the start, according to the inspector general. Mr. Barofsky’s office also says that regulators were wrong to tell the public last year that the earliest bailout recipients were all healthy. Former Treasury Secretary Henry M. Paulson Jr., for instance, said on Oct. 14 that the banks were “healthy,” and that they accepted the money for “the good of the U.S. economy.” The banks, he said, would be better able to increase their lending to consumers and businesses.

Program to Buy Bad Assets Nearly in Place, US Says - (www.nytimes.com) The Treasury Department said on Sunday that its scaled-down program to help banks unload their troubled mortgages and mortgage securities would begin operating at full strength by the end of this month, more than a year after Congress authorized $700 billion for that purpose. Treasury officials said that five out of the nine money-management firms it selected to buy up unwanted mortgage-backed securities had raised the minimum amount of money from private investors — $500 million each — to qualify for matching investments and loans from the federal government. Administration officials said they expected the remaining four firms to complete their financing by the end of this month. Three of the biggest investment firms — BlackRock, a group led by the Wellington Management Company and a group led by Alliance Bernstein — closed deals for private financing totaling about $1.9 billion. Two other firms, Invesco and the TCW Group, lined up their private investors last week. At issue is the Public-Private Investment Program, the Obama administration’s attempt to carry out what the Bush administration had originally told Congress would be the main purpose of the $700 billion rescue program for financial institutions. The initial idea was to have the government clear out the banking system’s pipelines of bad mortgages and nearly unsellable mortgage-backed securities. The Treasury secretary under President George W. Bush, Henry M. Paulson Jr., argued that the government could revive trading in the mortgage market, restore investor confidence and let banks remove troubled assets from their books. But Mr. Paulson reversed course almost as soon as Congress approved the plan, deciding instead to have the government inject money directly into banks by buying up special nonvoting shares of their preferred stock. The revised plan, known as the Troubled Asset Relief Program, was eventually used to prop up banks, bail out companies like the American International Group, subsidize loan modifications for troubled homeowners and rescue the automobile industry. The International Monetary Fund estimated last week that financial institutions worldwide still held about $2.8 trillion in troubled mortgages and securities, and that they had booked losses on less than half that amount so far. A big share of those assets is in American banks.

Acorn Woes Hit Union, Democrats - (online.wsj.com) Democratic lawmakers in a handful of states are facing pressure from Republicans to distance themselves from the Service Employees International Union as a result of its ties to Acorn. Republicans in Kansas, Virginia and Illinois in recent weeks have called on union-backed Democrats to return SEIU campaign contributions, citing the close connection between the union and the community organizing group, whose full name is the Association of Community Organizations for Reform Now. Acorn has been under fire in the past month after secretly recorded videos showed Acorn employees offering advice on evading taxes, setting up brothels and smuggling illegal immigrants. Acorn has called the actions unacceptable and has fired the workers involved. The Virginia Republican Party urged Democratic gubernatorial candidate Creigh Deeds to return campaign contributions from the SEIU, one of the biggest financial backers of Democratic candidates. Mr. Deeds received a total of $200,000 from the SEIU in 2009, according to the Virginia Public Access Project, which tracks campaign contributions in the state. "The close, almost symbiotic, relationship that SEIU and Acorn have call into question the propriety of being so closely involved with this union," said Tim Murtaugh, spokesman for the Virginia GOP. A spokesman for Mr. Deeds couldn't be reached for immediate comment. Michelle Ringuette, an SEIU spokeswoman, said the union had suspended all organizing work with Acorn, pending a review of the organization. She said Republicans are engaged in a "smear" campaign against the union. Meanwhile, the Kansas Republican Party has also issued a call for Democratic candidates to return all contributions received from the SEIU. Tyler Longpine, communications director for the Kansas Democratic Party, called the charges "a distraction." In Illinois, the Republican Senatorial Committee called on Democratic Senate candidate Alexi Giannoulias to return contributions he received from the SEIU. Thomas Bowen, a spokesman for Mr. Giannoulias, said the candidate had no plans to return contributions from the union, and noted that Republican candidates had received contributions from the SEIU.

Condé Nast to Shut Four Magazines - (online.wsj.com) Condé Nast Publications Inc., facing a steep drop-off in advertising, said it would chop four magazines from its roster -- including 68-year-old Gourmet, long considered one of the world's most prestigious food titles. The publishing giant -- known for a corporate culture as lavish as the lifestyles portrayed on its magazine pages -- has come face to face with a stark reality caused by the steep fall-off in advertising. Ad pages at 14 of Conde Nast's 23 print publications fell by more than the industry average of 29.5% in the second quarter, according to the Publishers Information Bureau. In addition to Gourmet, Condé Nast will eliminate Modern Bride and Elegant Bride, as well as a parenting magazine called Cookie. About 180 jobs will be cut, said Condé Nast Chief Executive Chuck Townsend. Condé Nast announces it will close four of its publications. The News Hub discusses what that means for glossy magazines. Plus, bank stocks rally after a Goldman upgrade and the FTC lays out new rules for bloggers. The cuts may accelerate a broader power shift within the controlling Newhouse family. Late to developing its online publishing, the company is now shifting resources out of print publications to its digital businesses as well as its core magazines. With that change, more power is moving to Steve Newhouse, chairman of Advance.net, the company's Internet arm. He is a nephew of Si Newhouse Jr., the publishing company's octogenarian chairman. "We know that we have a big, big digital future," Mr. Townsend said in an interview. The closures announced Monday come amid a two-year advertising downturn that is forcing most major publishers to close magazines and eliminate jobs. Through June, U.S. consumer magazines have run one-quarter fewer pages of advertising than a year before, squeezing magazines' main source of revenue. Time Warner Inc.'s Time Inc. and Hearst Corp. -- which with Condé Nast make up the Big Three of U.S. magazine publishers -- have steadily shed titles, staff and employee perks. Condé Nast for a long time seemed immune. Under the elder Mr. Newhouse, Condé Nast takes pains to create an appearance of prosperity designed to woo advertisers and wow competitors. The company provides car services and clothing allowances for its editors, who are told to stay in top hotels and fly first class. That culture is regularly on display en route to magazine-industry events where New York-based publishers and editors fill the first-class cabin while their peers at other publishing houses, relegated to the back of the plane, file past them. The culture was supported by Condé Nast's parent, Advance Publications Inc., which used its newspaper and cable-TV properties to shelter the magazines. Condé Nast relies heavily on luxury advertisers, which were among the last to pull back. Magazines such as Vogue were able to weather the downturn into the second half of last year. But as the squeeze caught up with it, Condé Nast early this year closed Domino, a housing magazine, and Portfolio, a high-profile business magazine startup. In July, Mr. Townsend wrote in a memo to employees that the company had hired consultants McKinsey & Co. to help "realign" Condé Nast. Gourmet presented the most difficult call. Executives considered reducing the magazine's frequency, according to people familiar with the talks, but the November issue will be the last. Condé Nast will retain Gourmet's book and TV arms, but otherwise its epicurean efforts will be focused on Bon Appétit.

MGM Mirage Slashes Condo Prices - (online.wsj.com) MGM Mirage is cutting the price of the condos at its $8.5 billion City Center development by 30% due to the economic downturn, the company announced Monday. The move is intended to address a growing backlash from many of the people who signed contracts on condos in the 2,440-unit complex during the height of the Las Vegas real-estate boom. Many had said they would have trouble closing on those units now that financing has become harder to obtain and the market in Las Vegas for luxury condos has crashed. Investors and observers had anticipated a price cut from the company for some time. "We believe that in this economic climate, this price reduction is an appropriate step to take on behalf of our buyers so as to provide them greater flexibility in closing on their residences," City Center's chief executive, Bobby Baldwin, said in a statement. The multi-towered City Center project, which is situated on 67 acres on the Las Vegas Strip, is expected to open in December as a mixed-use complex with residential, retail and casino spaces. In 2006 and 2007, when the market for luxury condominiums was at its height, MGM Mirage used more than $300 million in deposits for residential units to help fund the enormous complex. That was common practice among developers at the time. MGM Mirage had hoped to sell its condos at top-of-the-market prices, which would have brought in $2.6 billion. However, it ended up getting deposits on only a portion of the inventory. If all of those deposits were to result in sales, it would mean $1.6 billion in revenue. But the market for new residences in Las Vegas has dropped by roughly 40% and financing for luxury condos has withered. That threatened to scuttle sales for people who had put down deposits on City Center, and that could have spelled trouble for City Center, which risked opening its doors with a raft of units still up for sale.