KeNo's Housing and Economic Portal: Wednesday October 14 Housing and Economic stories

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TOP STORIES:

FDIC expected to ask banks to prepay $36B in fees - (news.yahoo.com/s/ap) Looking to shore up the diminishing fund that insuresbank deposits, the FDIC may take the unprecedented step of requiring banks to prepay three years' worth of premiums: about $36 billion. The insurance fund has been sapped by billions from a rash of bank failures that began in mid-2008. The board of the Federal Deposit Insurance Corp. likely will call for "prepaid" bank insurance premiumsat its public meeting Tuesday to discuss the issue, three industry executives and a government official said. The banking industry prefers that option over a special emergency fee — which would be the second this year. The executives and the official spoke on condition of anonymity Monday because the decision had yet to be made public. It would be the first time the FDIC has required prepaid insurance fees. Under the plan, banks would have to pay in advance their insurance premiums for 2010-2012, bringing in about $12 billion for each of the three years, two of the executives said. That is the normal amount of insurance fees, though it could vary somewhat according to growth in total insured deposits — the basis for determining the fees. Off the table, at least for now, are the options of tapping the agency's $500 billion credit line with the Treasury Department and the agency borrowing billions of dollars from healthy banks by issuing its own debt, the industry executives and the government official said. A spokesman for the FDIC declined to comment Monday afternoon. FDIC Chairman Sheila Bair said earlier this month that she was "considering all options, including borrowing from Treasury," to replenish the insurance fund. Yet she is generally perceived as considering that the most unpalatable approach. Borrowing from the Treasury could create the undesirable impression of another taxpayer-financed bailout, while borrowing from the banks might make the FDIC look as if it were beholden to the banking industry, experts say. Ninety-five banks have failed so far this year as losses have mounted on commercial real estate and other soured loans amid the most severe financial climate in decades. The insurance fund fell 20 percent to $10.4 billion at the end of June, its lowest point since 1992, at the height of the savings-and-loan crisis. The fund has now slipped to 0.22 percent of insured deposits, below a congressionally mandated minimum of 1.15 percent. Some analysts expect hundreds more banks to fail in the coming years and the FDIC forecasts the fund will need $70 billion through 2013 to deal with those losses. But the FDIC is fully backed by the government, which means depositors' money is guaranteed up to $250,000 per account. Besides the prepayment plan, the agency could still later propose an emergency assessment, or a transfer of cash collected in fees from the FDIC's temporary rescue program that guarantees hundreds of billions of dollars of debt that banks issue to each other. The agency has collected about $9 billion in fees from banks issuing debt under the program, and $596.7 million of it already has gone into the deposit insurance fund.

Anger at bank overdraft fees gets hotter, bigger and louder - (money.cnn.com) Controversial bank account fees, which have fattened banks' bottom lines at the expense of vulnerable consumers, are rapidly becoming a black eye for the industry. Under siege are the fees charged to consumers who spend more than they have in their accounts, whether by check, debit card or at the ATM. Last week, four of the nation's largest banks said they would scale back some of their overdraft policies. Their efforts, while meaningful, have failed to appease lawmakers, including powerful Senate Banking Committee Chair Chris Dodd, D-Conn., who is preparing legislation to crack down on what he calls a pattern of "abusive" practices. At first glance, banks' practices seem reasonable enough: Overdraw your account, and the bank will cover the transaction — for a fee. The problem is, most banks don't ask consumers if they want their transactions automatically paid. In recent years, as banks realized how lucrative these fees can be, they've made it easier for consumers to overdraw their accounts, to the tune of $36.7 billion in revenue last year, USA TODAY research has found. Banks have done this by covering debit card transactions as small as $1 and charging a fee as high as $35. Some also charge fees before consumers overdraw by deducting a purchase when it's made, instead of when it clears. And they've processed transactions from highest to lowest dollar amount — which empties consumers' accounts quicker and triggers more overdrafts. Ironically, the changes banks have made to their overdraft policies are only fueling calls to reform the entire industry. Overdraft coverage can be less regulated and cost more than other high-cost (and equally criticized) options, including payday loans, in an estimated $70 billion short-term credit market. On average, consumers will pay a fee of $26.68 every time they overdraw their account, according to data from Moebs Services, an economic research firm. That means that if consumers overdraw by $100, they'd pay an annual percentage rate (APR) of 696%, if the credit is paid back in two weeks, according to a USA TODAY analysis. This compares with an APR of 450% on a $100 payday loan with an average fee of $17.25. "When consumers (overdraw) recurrently, it is a credit product, and they're paying eye-popping rates," saysSheila Bair, Federal Deposit Insurance Corp. chair, who is pushing for banks to get consumers' permission before covering overdrafts, for a fee, and to disclose APRs. Banks have long said that customers appreciate automatic overdraft coverage and that this service helps consumers avoid the embarrassment of a declined transaction. But they're now acknowledging these fees can push consumers into distress.

Deflationary Spiral Deepens in Japan - (www.bloomberg.com) Japan’s consumer prices fell the most in at least 38 years in August, heightening the risk that prolonged deflation may hamper the country’s recovery from its deepest postwar recession. Prices excluding fresh food slid 2.4 percent from a year earlier, topping July’s 2.2 percent decline, the statistics bureau said today in Tokyo. The drop, the sharpest since the survey began in 1971, matched economists’ estimates. Companies from Fast Retailing Co. to Sony Corp. are lowering prices to attract consumers who face record unemployment and plunging wages. A return to the deflation that the economy only shook off in 2005 may weigh on growth as consumers and companies cut back spending in anticipation that prices will keep falling. “We’ll soon start to see that there isn’t enough domestic demand to push up wages,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “As households’ spending power falls, there’s concern that this deflation will lead to further deflation -- in other words, that we’ll enter into a deflationary spiral.” The yen’s rally to an eight-month high also threatens to stunt the recovery by making Japanese exports more expensive and eroding the value of repatriated profits. Japan’s currency traded at 89.96 per dollar at 9:53 a.m. in Tokyo from 89.63 before today’s report and rose as high as 88.24 yesterday, the strongest since January.

Newspapers: Let Them Die - (www.newsweek.com) Nobody in their right mind believes the future of the news business involves paper and ink rather than pixels on a screen. We all know where the news business is headed, and what's more, we've known it for at least a decade. So why on earth are people talking about a bailout for newspapers? Why is President Obama saying he'd consider it? Why is Congress holding hearings and considering "The Newspaper Revitalization Act" in a bid to save these ailing old rags with tax breaks and other handouts? It's like introducing legislation to save horse-drawn carriages, or steam engines, or black-and-white TV. It's stupid. It's pointless. It won't work. The fact is, all this hysteria has nothing to do with saving the news, or saving jobs. Nor is it about saving democracy, which is what the red-in-the-face newspaper lovers always get themselves huffed about, as if newspapers and democracy were inextricably linked. Democracy existed long before newspapers did, and it will survive without them. And plenty of countries that don't have democracy do have newspapers. Nor would a bailout help readers. In fact, it would only slow down our shift to the Internet, which is a far better medium for delivering information. The only beneficiaries of a bailout would be a handful of big newspaper companies that used to be profitable and powerful and now, well, aren't. Those companies saw the Internet charging toward them like a freight train, and they just stood there on the tracks. They didn't adapt. Why? Because for decades these companies enjoyed virtual monopolies, and as often happens to monopolists, they got lazy. They invested their resources in protecting their monopolies, using bully tactics to keep new competitors from entering their markets. They dished up an inferior product and failed to believe that anything or anyone could ever take their little gold mines away from them.

The Moguls of Mirage, Now Muted - (www.nytimes.com) The moguls were out in full frolic on Tuesday at Michael’s, the ego gymnasium of Manhattan media. Not only was Bill Clinton in the house, hosting some folks from his Global Summit, but so were Barry Diller of IAC/InterActiveCorp, Peter A. Chernin, formerly the president of the News Corporation, Jeffrey L. Bewkes, who runs Time Warner, and Edgar Bronfman Jr., head of the Warner Music Group. By most accounts, it was smiles and hearty handshakes all around, and why not? They are a fun bunch with mystical reputations for lording it over not just huge media conglomerates, but American’s cultural consciousness, as well. But their good mood has nothing to do with their ability to return value to their shareholders. A new book, which comes out Oct. 15, “The Curse of the Mogul: What’s Wrong With the World’s Leading Media Companies,” by Jonathan A. Knee, an investment banker and media professor, along with Bruce C. Greenwald and Ava Seave, maintains that in the aggregate since 2000, large media companies have written down $200 billion in value. Gee, even at a time when billion seems like the new million, that seems like a lot of money. “They convince people that there is something magical and special about managing the creative process,” Mr. Knee said over lunch. “Moguls are fun — they do mogul-y things like big deals and make grand pronouncements, but they are not usually a good thing when you stand back and look from a value perspective.” “Curse of the Mogul” does a pretty good job of stepping back. From 1995 to 2005, the Walt Disney Company, Viacom, Time Warner and the News Corporation returned an average of 2.5 percent to shareholders while the Standard & Poor’s 500-stock index returned 9 percent, according to Mr. Knee’s book. And now that big media companies are under attack from a growing digital insurgency, their tendency to underperform the market has only grown. At lunch last week at the Four Seasons (long on bankers, short on moguls), Mr. Knee maintained that the media chieftains continue to operate on principles that have lost salience, if they ever had any in the first place. “The four pillars of media conventional wisdom have not changed: First, growth at all costs; second, content is king; third, the answer to all problems is to expand globally; and finally, that by embracing convergence and the Internet, they will be able to solve all their problems,” Mr. Knee said.

Sharp Drop in Start-Ups Bodes Ill for Jobs, Growth Outlook - (online.wsj.com) New companies will be crucial to the strength of any economic recovery. Businesses in their first 90 days of life accounted for 14% of hiring in the U.S. between 1993 and 2008, according to the Bureau of Labor Statistics. But this recession is taking a particularly heavy toll on business creation, as sources of small-business funding dry up and would-be entrepreneurs become more risk-averse. When entrepreneurs do launch businesses, they are hiring fewer employees on average. The trends threaten to damp growth in jobs and economic output for years. Company formation typically dips slightly in recessions, says Brian Headd, a Small Business Administration economist. Earlier this decade, business starts -- including new businesses and units of existing businesses -- fell 9% between the third quarter of 2000 and the first quarter of 2003, the BLS says. This time, the decline has been steeper. Business starts fell 14% from the third quarter of 2007 to the third quarter of 2008; the 187,000 businesses launched in that quarter were the fewest in a quarter since 1995. The number ticked up slightly in the fourth quarter, the latest data available. But those new establishments created only 794,000 jobs, the fewest since the government began tracking the data in 1993. The recession may have ended, but history suggests business creation won't rebound quickly. The 2001 recession officially ended in November of that year. But business starts didn't begin growing again until mid-2003. A sustained lull in company formation "could have huge implications for the economy down the road," Mr. Headd says. To be sure, as in past recessions, some laid-off workers are starting businesses to stay afloat, or testing long-held dreams. The Kauffman Foundation, a nonprofit research group that promotes entrepreneurship, says more Americans started businesses last year than in 2007. Kauffman cites research by University of California, Santa Cruz, economist Robert Fairlie, who analyzes different BLS data. But funding remains an issue. Banks are reluctant to lend, especially to companies with weak or no credit history. In a July survey of more than 53 loan officers by the Federal Reserve, more than one-third reported tightening terms for small-business loans in the prior three months, while only one reported easing terms. The stimulus package included $730 million for the SBA to help unlock the market for small-business loans, including loans for start-ups. The agency says lending through its programs is rebounding, but some small-business owners and entrepreneurs say more government support is needed. Investors are also conservative. Venture-capital investment in U.S. companies fell 44% in the first half of 2009 from a year earlier, to $9.27 billion. Other major sources of small-business funding -- personal savings and home equity -- also have declined.

OTHER STORIES:

US Economy Needs Second Stimulus: Wilbur Ross - (www.cnbc.com)

Xerox to Buy Affiliated Computer for $6.4 Billion - (www.bloomberg.com)

Living, Dying by Currencies Is No Way to Succeed: William Pesek - (www.bloomberg.com)

Calif. has nation's highest mortgage burdens - (lansner.freedomblogging.com)

Major US Firms Draw Up Emergency Plans for Swine Flu - (www.cnbc.com)

Not many are buying million-dollar houses in San Luis Obispo County - (www.sanluisobispo.com)

U.S. house sales miss expectations - (sacramento.bizjournals.com)

Honest appraisals make house sales harder - (www.buffalonews.com)

A New Dictionary of Realtor-Speak - (www.minyanville.com)

Chicago Fed Index: Economic activity lower in August - (www.calculatedriskblog.com)

Retail Stores Closing Doors - (www.walletpop.com)