KeNo's Housing and Economic Portal: Saturday November 21 Housing and Economic stories

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Lenders abandon properties - (www.daytondailynews.com) Owner, neighbors, city left to deal with a home that no one has any incentive to improve. As if the mortgage foreclosure crisis wasn’t bad enough, sometime last year a new phenomenon began to emerge: Experts say mortgage lenders and banks began walking away from foreclosed properties, especially in urban areas. The so-called “walkaways” can occur along several different paths, but the effect is the same — after threatening or getting foreclosure, the lender attempts to abandon the usually vacant property, leaving the original owner, the neighbors and the city to live with the damage. Owners often accumulate taxes and zoning enforcement fines on property they believe they no longer own. Neighbors watch their property values decline as the vacant property deteriorates and is often broken into and stripped. Cities then have to bear the cost of boarding up a structure, maintaining the lawn and, eventually, demolishing it. Dayton housing inspector John Carter did a study last year of 302 vacant and abandoned residences in the city and found that about 70 percent were bank walkaways. Of those walkaways, he said, about 20 percent had mortgages but no foreclosure was ever filed. “There are several tragedies to it,” said Richard Stock, director of the University of Dayton’s Business Research Group. “The very first tragedy is, my God, these people could have continued to be in their house all this time, maintaining it. And then there’s the impact on the community.”

Madoff documents reveal incredulous, unfocused SEC - (www.reuters.com) U.S. securities investigators raised repeated concern over how Bernard Madoff could be running an honest business, but never followed through on the many red flags they uncovered. Hundreds of documents released on Friday by U.S. Securities and Exchange Commission's portray an agency at times skeptical or dismissive of evidence that the now imprisoned mastermind of the world's largest Ponzi scheme was up to no good. At other times, it appeared the agency knew that goings-on at Bernard L. Madoff Investment Securities LLC were improper but never followed through on their discoveries or on the allegations of chief whistleblower Harry Markopolos. "I don't think we should worry about Bernie finding out to whom we speak .... we are not telling anybody that we have found anything improper (except for his lies to us, of course)," one SEC investigator wrote in a May 16, 2006 e-mail. In September, SEC Inspector General David Kotz issued his full report on how the agency mishandled warnings and assigned inexperienced lawyers to examine Madoff. He said this led to five botched probes starting in the early 1990s that might have unearthed Madoff's estimated $65 billion Ponzi scheme. Madoff is serving a 150-year prison sentence after pleading guilty to the fraud. He told Kotz that if SEC lawyers had done some basic investigative work, it "would've been easy for them to see" he was a crook. The documents could prove fodder for the lawyers suing the SEC for negligence on behalf of several Madoff victims. This week, the court-appointed trustee liquidating Madoff's firm estimated the crime cost investors at least $21.2 billion, but only $534 million of payments have been authorized. The SEC under current Chairman Mary Schapiro is implementing reforms designed to avoid a repeat, including more oversight by senior lawyers and greater use of subpoenas.

How Goldman secretly bet on U.S. housing crash, and won - (www.mcclatchydc.com) In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting. Goldman's sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation's premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies. Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk. Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws. "The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted." John Coffee, a Columbia University law professor who served on an advisory committee to the New York Stock Exchange, said that investment banks have wide latitude to manage their assets, and so the legality of Goldman's maneuvers depends on what its executives knew at the time. "It would look much more damaging," Coffee said, "if it appeared that the firm was dumping these investments because it saw them as toxic waste and virtually worthless." Lloyd Blankfein, Goldman's chairman and chief executive, declined to be interviewed for this article. A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurance-like bets, called credit-default swaps, to "hedge" against a housing downturn.

Wall Street Throws Vast F-you Party At Expense of USA - (www.bloomberg.com) In Washington and on Main Street, politicians and voters are railing against Wall Street’s multi- million-dollar pay packages. In the financial world, most executives expect their bonuses to match or exceed last year’s, with 1 in 10 predicting their best-ever payout. Having shaken off the biggest economic decline since the 1930s, almost three in five traders, analysts and fund managers believe their 2009 bonuses will either increase or won’t change, according to a quarterly poll of Bloomberg customers. Only one in four see a decline. Asians are the most optimistic about pay and Americans and Europeans somewhat less so. “The large banks are knocking the cover off the ball,” said Daniel Alpert, managing director of New York-based investment bank Westwood Capital LLC. The industry is “making money, though with government help.” Worldwide, a majority of market professionals in the survey also turn thumbs down on government attempts to limit compensation, with 51 percent saying restrictions will stifle useful innovation. Only about 38 percent think pay limits will control excessive risk-taking. In the U.S., where President Barack Obama has chided Wall Street for being “motivated only by the appetite for quick kills and bloated bonuses,” 65 percent say the restrictions will damp innovation. The Bloomberg Global Poll of investors and analysts in six continents was conducted Oct. 23-27. It is based on interviews with a random sample of 1,452 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 2.6 percentage points. ‘Hit Hard’: “If we were looking for a sense of Wall Street to be, ‘we’re hit hard, I’m going to make less money,’ these results don’t show it,” said J. Ann Selzer, president of Selzer & Co., the Des Moines, Iowa-based public-opinion research firm that conducted the survey. The findings “give some fuel to the people who claim that Wall Street hasn’t really gotten it,” said Mark Borges, a compensation consultant at Compensia Inc. in Corte Madera, California. “There really hasn’t been a dramatic cultural shift in these organizations.”

Small banking empire collapses; 9 fail in 1 day - (www.marketwatch.com) Federal regulators have shut the doors on part of a small banking empire built by through a string of 28 acquisitions over the past two decades. Nine banks, all owned by the same troubled Illinois holding company, were closed Friday by regulators, and the Federal Deposit Insurance Corp. said U.S. Bank of Minneapolis would assume their deposits. The nine banks as of Sept. 30 had combined assets of $19.4 billion and deposits of $15.4 billion, the FDIC said. Combined, US Bank took over 153 branches. The deposit insurance fund will take an estimated $2.5 billion hit, the FDIC said. All nine banks were subsidiaries of FBOP Corp., a holding company based in the Chicago suburb of Oak Park, Ill., according to the FDIC. The closings brought the 2009 total to 115 in 2009 -- the first year since 1992 that more than 100 banks have gone under. By number, banks in Georgia account for one-fifth of all U.S. banks closing this year, with 20 failures, followed by Illinois with 19, California with 13, and Florida with nine. Privately held FBOP, which originated as the parent company of First Bank of Oak Park, wasn't involved in Friday's closures, the FDIC said. FBOP is run by Michael Kelly, who from his base in the Chicago suburbs snapped up banks in San Diego, Los Angeles, Houston, and San Francisco. He started in 1990 with First Bank of Oak Park, which had $125 million in assets. The FBOP subsidiaries that were closed Friday were identified as Bank USA, Phoenix; California National Bank, Los Angeles; San Diego National Bank, San Diego; Pacific National Bank, San Francisco; Park National Bank, Chicago; Community Bank of Lemont, Lemont, Ill.; North Houston Bank, Houston; Madisonville State Bank, Madisonville, Texas; and Citizens National Bank, Teague, Texas.