KeNo's Housing and Economic Portal: Thursday November 26 Housing and Economic stories

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Freddie to Request Further Handouts - (online.wsj.com) Freddie Mac said it didn't need any additional federal aid for the second straight quarter as it reported a loss of $6.3 billion for the third quarter on Friday. But the company said it expected to ask for more handouts from the U.S. Treasury in the future as rising unemployment and falling home prices continue to drive higher credit-related losses for both Freddie and its larger rival, Fannie Mae. Together with Fannie Mae, which said on Thursday it would need a $15 billion capital injection, the tab for the U.S. government's bailout of both mortgage-finance giants has climbed over the past year to $112 billion, making it one of the costliest government interventions ever to stabilize housing and financial markets. The U.S. Treasury has agreed to provide as much as $200 billion in capital to each company by buying preferred stock that pays 10% dividends. Regulators took control of Fannie and Freddie through a legal process known as conservatorship 14 months ago. Both companies have posted losses over the past year as they build up reserves to handle rising volumes of bad loans. Freddie posted credit-related losses of $7.6 billion, compared to $22 billion for Fannie. The third-quarter loss narrowed from a net loss of $25.3 billion in the same period last year. Freddie's losses came during a quarter in which it filled three top vacancies, all with external hires. The company named new chief executive, financial, and operating officers. "There's general consensus among us in the industry that there is need for more" housing aid," said Charles "Ed" Haldeman Jr., Freddie's chief executive, during an interview last month. "We're not home free yet." The biggest losses for both companies have come from riskier subprime and Alt-A mortgages that they bought and guaranteed at the height of the housing boom in 2006 and 2007. Alt-A loans, for example, account for 9% of all loans guaranteed by Fannie, but represented 39% of all third-quarter credit losses.

New round of bank closures to cost FDIC $1.5 billion - (www.marketwatch.com) A California-based bank that focused on the Chinese-American market was the largest of five failures on Friday that cost U.S. taxpayers more than $1.5 billion. United Commercial Bank of San Francisco, whose parent company was UCBH Holdings Inc., was shut down by federal banking regulators late Friday, along with four other banks. The shutdown of the five banks brings the number of bank failures for 2009 to 120. The 63 U.S. branches of United Commercial were set to reopen Saturday under the ownership of Pasadena, Calif.-based East West Bancorp Inc. United Commercial, which specialized in serving the Chinese community throughout the U.S. and American companies doing business in China, had assets of $11.2 billion and deposits of $7.5 billion as of Oct. 23. The seizure of the bank by regulators comes after it had already received $299 million in federal financial aid last year. Its closure will cost the insurance deposit fund $1.4 billion, said the Federal Deposit Insurance Corp. The company had a banking license in China, a branch in Hong Kong and a subsidiary in Shanghai, and those will be assumed by East West Bancorp. The Hong Kong Monetary Authority said deposits at UCB Hong Kong will be fully covered, according a report on Saturday by the Xinhua news agency. East West said in a statement that the United Commercial transaction will create the largest bank in the U.S. focusing on the Asian American community, and the second-largest independent bank based in California. East West operates 137 branches throughout the U.S. and China. "This is a transformational event for both institutions and represents an exciting growth opportunity for East West," East West Chairman and Chief Executive Dominic Ng said in a statement.

Britain and U.S. Clash at G-20 on Tax to Insure Against Crises - (www.nytimes.com) The United States and Britain voiced disagreement Saturday over a proposal that would impose a new tax on financial transactions to support future bank rescues. Prime Minister Gordon Brown of Britain, leading a meeting here of finance ministers from the Group of 20 rich and developing countries, said such a tax on banks should be considered as a way to take the burden off taxpayers during periods of financial crisis. His comments pre-empted the International Monetary Fund, which is set to present a range of options next spring to ensure financial stability. But the proposal was met with little enthusiasm by the United States Treasury secretary, Timothy F. Geithner, who told Sky News in an interview that he would not support a tax on everyday financial transactions. Later he seemed to soften his position, saying it would be up to the I.M.F. to present a range of possible measures. “We want to make sure that we don’t put the taxpayer in a position of having to absorb the costs of a crisis in the future,” Mr. Geithner said after the Sky News interview. “I’m sure the I.M.F. will come up with some proposals.” The Russian finance minister, Alexei Kudrin, also said he was skeptical of such a tax. Similar fees had been proposed by Germany and France but rejected by Mr. Brown’s government in the past as too difficult to manage. But Mr. Brown is now suggesting “an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global financial transaction levy.” Supporters of a tax had argued that it would reduce the volatility of markets; opponents said it would be too complex to enact across borders and could create huge imbalances. Mr. Brown said any such tax would have to be applied universally. “It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us,” Mr. Brown said at the summit. “There must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards.”

Small Businesses Hunker Down to Survive - (www.nytimes.com) New data show that small businesses have battened down the hatches in response to the recession. From the beginning of this year through Sept. 30, sales at small businesses (privately held companies with revenue of $10 million or less) have fallen 3.75 percent, according to figures from Sageworks Inc. At the same time, net profit at these businesses has risen to 6.5 percent. How have they accomplished this? By cutting their costs. Overhead, payroll and advertising as a percentage of sales have all declined. The numbers show that small companies have “reacted strongly and appropriately” to survive the downturn, said Drew B. White, the chief financial officer of Sageworks. When you are a small business and your survival is at stake, it is hard to take financial and strategic risks, which generally require extra spending. “I am not looking to privately held small business to lead us out of this recession,” Mr. White said.

U.S. Unemployment Rate Hits 10.2%, Highest in 26 Years - (www.nytimes.com) As the unemployment rate surged to 10.2 percent in October, reaching double digits for the first time in 26 years, it suddenly seemed possible that the nation might yet confront the worst joblessness since the Great Depression. In the six decades since the government began compiling such data, the highest level of unemployment came at the end of 1982, when it hit 10.8 percent. Despite the widespread assumption that the recession has already ended, and even as the economy has resumed growing, the government’s latest snapshot of the labor market released Friday testified to the uncomfortable truth that expansion had yet to translate into jobs. “The guy on the street is going to ask, ‘What recovery?’ ” said Stuart Hoffman, chief economist at the PNC Financial Services Group in Pittsburgh. “The job market is still in reverse.” The sharp rise in unemployment — which climbed from 9.8 percent in September, as the nation lost another 190,000 net jobs — intensified pressure on the Obama administration to show results from the $787 billion package of spending measures unleashed early this year to spur the economy. On Friday, President Obama signed into law a bill that that extends both unemployment benefits and temporary tax credits for home buyers, adding that he was on the lookout for other ways to generate job growth. Hilda Solis, the labor secretary, noted a slowdown in the pace of deterioration in arguing that better days were already on the way, while dismissing suggestions that the stimulus had proved disappointing. “I don’t think it’s a matter of things going wrong,” she said in a conference call with reporters. “We’re making a tremendous turning point here.” But the stark reality of double-digit unemployment seemed certain to inject fresh tension into the economic policy debate, offering Republicans a prop as they assert that the administration’s spending package has failed to create jobs. Labor unions and some Democrats have called for more spending to create jobs — a course that runs headlong into worries about swelling federal budget deficits.

Investigation Is Sending Shock Waves Through Silicon Valley - (online.wsj.com) A widening insider-trading probe is causing new tremors in Silicon Valley, as prosecutors say a network of employees at technology companies acted as paid informants for managers of a San Francisco hedge fund implicated in the case. A criminal complaint filed Thursday by the Manhattan U.S. Attorney's office says employees at six unnamed technology companies provided information to Richard Choo-Beng Lee, co-founder of the hedge fund Spherix Capital LLC. Employees at four unnamed companies provided information to Ali Far, Mr. Lee's partner at Spherix, according to a separate complaint. It isn't clear whether some or all of those companies are ...