KeNo's Housing and Economic Portal: Friday November 13 Housing and Economic stories

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Detroit House Auction Flops as Buyers Spurn Wasteland - (www.cnbc.com) In a crowded ballroom next to a bankrupt casino, what remains of the Detroit property market was being picked over by speculators and mostly discarded. After five hours of calling out a drumbeat of "no bid" for properties listed in an auction book as thick as a city phone directory, the energy of the county auctioneer began to flag. "OK," he said. "We only have 300 more pages to go." There was tired laughter from investors ready to roll the dice on a city that has become a symbol of the collapse of the U.S. auto industry, pressures on the industrial middle-class and intractable problems for the urban poor. On the auction block in Detroit: almost 9,000 homes and lots in various states of abandonment and decay from the tidy owner-occupied to the burned-out shell claimed by squatters. Taken together, the properties seized by tax collectors for arrears and put up for sale last week represented an area the size of New York's Central Park. Total vacant land in Detroit now occupies an area almost the size of Boston, according to a Detroit Free Press estimate. The tax foreclosure auction by Wayne County authorities also stood as one of the most ambitious one-stop attempts to sell off urban property since the real-estate market collapse. Despite a minimum bid of $500, less than a fifth of the Detroit land was sold after four days. The county had no estimate of how much was raised by the auction, a second attempt to sell property that had failed to find buyers for the full amount of back taxes in September. The unsold parcels add to an expanding ghost town within the once-vibrant town known worldwide as the Motor City. Critics say the poor showing at the auction underscores the limits of using a market-based system to clean up property tax problems. They say the system has enriched a few but failed to deliver a way for Detroit to staunch its dwindling population and could worsen the vacancy crisis.

No, You're Reading That Right - (www.nbcsandiego.com) 79.9 percent rate targets credit-challenged. Gordon Hageman couldn’t believe the credit card offer he got in the mail. "My first thought, it was a mistake," Hageman said. The wine distributor called the number on the offer, gave them the offer code and verified his information. Sure enough, it was right: the pre-approved credit card came with a 79.9 percent APR. Yes, 79.9 percent. The offer is for a Premier card from First Premier Bank, which is based in South Dakota. On its Web site, First Premier says it is the country's 10th largest issuer of Visa and MasterCard credit cards. The site also says it "focuses on individuals who have less than perfect credit but are actually still creditworthy." "I think they’re trying to take advantage of me," said Hageman. Ya think? Hageman acknowleged that his credit isn't perfect, but he said it's about average. He said the pre-approved offer didn’t mention the actual interest rate on the card -- for that, he had to read the enclosed fine-print disclosure. "I think you’re beginning to border on deception there," San Diego State marketing professor Michael Belch said. Belch said the card is offering a bad deal to people who are desperate. "They're just finding different ways to gouge the consumer," Belch said. The California Attorney General's office said there's nothing it can do about the cards since they are issued out of state and out of its jurisdiction. A spokesman with the Federal Deposit Insurance Corporation (FDIC) said interest rate limits on bank cards are set by the individual state and not on a federal level. According to information on the South Dakota Legislative Web site, there is "no maximum or usury restriction." In other words, the individual bank can set its own interest rate limits. Several calls made to First Premier for a comment were not returned.

We Are in the Mother of All Carry Trades: Roubini - (www.cnbc.com) Most investors follow the same strategy of borrowing in dollars and investing in assets across the world and when the greenback's downward trend will reverse, there may be crash in global assets, Nouriel Roubini, Chairman, RGE Monitor, told CNBC Monday. "There is a wall of liquidity…chasing assets," Roubini told "Squawk Box." "Now we are in the mother of all carry trades," he added. Asset prices have been inflated by the cheap funds but the dollar cannot keep falling forever, and there could be "a market crash all over the world" when the currency's course is reversed. But this will not happen too soon as the real economy is still very weak and the Federal Reserve is likely to keep interest rates close to 0 percent for longer, Roubini added. He reiterated his view that the recovery is likely to be anaemic, forecasting growth of between 1 percent and 2 percent for the US in the next two years compared with the country's potential for 3 percent annual growth. Japan and Europe are likely to grow by less than 1 percent, he said. "The (stock) markets are pricing in a V-shaped recovery," Roubini said. "If the data surprise on the downside then there is going to be a significant correction."

Back-Door Taxes Hit Americans With Public Financing in the Dark - (www.bloomberg.com) Salvatore Calvanese, the treasurer of Springfield, Massachusetts, for four years, had a ready defense for why he risked $14 million of taxpayer money on collateralized-debt obligations laden with subprime mortgages in 2007. He didn’t know what he was buying, he says, and trusted the financial professionals who sold them and told him they were safe. “I thought they were money markets that were just paying more,” Calvanese said in an interview. “Nobody ever used the term ‘CDO,’ and I am not sure I would have known what that was anyway.” Such financial mistakes, often enabled by public officials’ lack of disclosure and accountability for almost 90 percent of government financings in the $2.8 trillion municipal bond market, are costing U.S. taxpayers as much as $6 billion a year, according to data compiled by Bloomberg in more than a dozen states. The money lost to taxpayers -- when the worst recession since the Great Depression is forcing local governments to cut university funding, delay paying bills and raise taxes -- is enough to buy health care for everybody in Minneapolis; Orlando, Florida; and Grand Rapids, Michigan, according to figures from the U.S. Census Bureau and the U.S. Department of Health and Human Services. Florida county commissioners approved no-bid deals with their favorite banks in an arrangement that led to criminal convictions. Pennsylvania school board members lost $4 million on an interest-rate swap agreement they didn’t understand in the unregulated $300 billion market for municipal derivatives. Trouble With Swaps: Local agencies in Indianapolis, Philadelphia, Miami and Oakland, California, spent $331 million to end interest-rate swaps with banks including JPMorgan Chase & Co. of New York and Charlotte, North Carolina-based Bank of America Corp. during the past 18 months. The swaps, agreements to exchange periodic interest payments with banks or insurers, were intended to save borrowing costs. Payments increased instead. New Jersey taxpayers are sending almost $1 million a month to a partnership run by Goldman Sachs Group Inc. for protection against rising interest costs on bonds the state redeemed more than a year ago, Bloomberg News reported Friday. The interest-rate swap agreement, which the state entered in 2003 under former Governor James E. McGreevey, remained in place even after the state Transportation Trust Fund Authority replaced $345 million in auction-rate bonds that had fluctuating yields with fixed-rate securities last year.

Wall Street making billions moving money from Fed to Treasury - (blogs.law.harvard.edu) Wall Street banks have had profitable quarters. JPMorgan Chase reported $3.6 billion in profit (more than $1 billion per month). Goldman Sachs was only slightly behind, at $3.2 billion. These profits supposedly came from “trading.” I asked a friend who has worked in the money business how this was possible. “For someone to make money trading, there has to be someone on the other side of every trade who is losing money. Where does each bank find someone who can lose $1 billion every month?” He explained that “carry trade” would be a more accurate description of what they’re doing. Because of the Collapse of 2008 financial reforms, the big investment banks are able to borrow money from the U.S. government at 0 percent interest. Then they can turn around and buy short-term bonds that pay 2 or 3 percent annual interest. Now they’re making 2 percent on whatever they borrowed. They can use leverage to increase this number, by pledging some of the bonds that they’ve already bought as collateral on additional bonds. I asked if they were taking any risk in order to earn this return. “If interest rates went up to 20 percent, even though the bonds are short-term, the price of the bond could fall enough to make the trade a money-loser.” (Though since the banks are too big to fail, they would simply be bailed out with additional taxpayer funds.) What kind of bonds are they buying? Are they investing the money in American business? “No, they are mostly buying Treasuries.” So the money is just being shuffled from one Federal bank account to another, with each Wall Street bank skimming off $1 billion per month for itself? “Pretty much.”

For "Lucky Few" Who Renegotiate Mortgages, Towering Debt Remains - (www.huffingtonpost.com) A Huffington Post analysis of recent mortgage-modification data shows that even those relatively few homeowners fortunate enough to renegotiate their loans are almost never getting lenders to forgive any of the principal. Instead, monthly payments are being cut either by lowering inflated interest rates, extending the duration of the loan repayment, or simply postponing the day of reckoning by setting up large balloon payments decades down the line. Furthermore, President Obama's much heralded $75 billion plan to prevent foreclosures is essentially limited to people who still hold a job -- leaving many of the approximately 10 percent of Americans who are unemployed with no more options than they had before. In short, there is some relief for homeowners who haven't lost their jobs and were paying high interest rates - but not so much for people who've lost their jobs, bought a house that they can't afford, or now have significant negative equity due to the bursting of the housing bubble. For them their burdens remain. The relative failure of Obama's plan is a particular disappointment, consumer advocates say. After spending hundreds of billions of dollars in bank bailouts, the administration proposed a plan that would pay mortgage servicers for successfully modifying eligible delinquent home loans. Investors that owned securitized mortgages that were modified would get paid, too. Most importantly, distressed homeowners would get to keep their homes. Despite the incentives, the program hasn't been a roaring success. The administration originally said it would "help up to three to four million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments." Thus far, about 500,000 homeowners have been placed in three-month trial plans. Though it's still early on (the program was launched in March), as of Sept. 1 only 1,711 of the trial modifications had become permanent.