KeNo's Housing and Economic Portal: Tuesday November 10 Housing and Economic stories

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TOP STORIES:

The bust hits boomtown that banks built: Charlotte - (www.msnbc.msn.com) A monument to the financial crisis is rising amid this city's thicket of skyscrapers: a gleaming, glass-walled trophy tower that was intended as a fitting headquarters for Wachovia's national banking empire. It will open instead as the headquarters of a regional power company. Wachovia, unable to survive a run of bad decisions, was swallowed by San Francisco-based Wells Fargo during the depths of the crisis last year. Few American cities prospered more over the past two decades than Charlotte, its growth propelled and gilded by Wachovia and its cross-town rival, Bank of America. Executives shoehorned gaudy mansions into old neighborhoods around downtown. Workers poured into vast subdivisions on the city's ever-expanding periphery. With coffers overflowing, giddy public officials spent tax dollars on a manmade river for whitewater rafting. Now, Charlotte is suffering. Unemployment has spiked to 12 percent, well above the national average. Subdivisions sit unfinished. Mansions cannot be sold. The school system, which for years has recruited teachers from shrinking cities such as Detroit, laid off more than 1,000 employees this summer. The crisis that shattered several of the nation's largest banks and left many of the survivors struggling to recover has also damaged the bank towns, the smaller cities that became financial centers in recent years, less celebrated than New York but even more dependent on the industry. The unemployment rate in Wilmington, Del., the nation's credit card capital, thanks to lender-friendly state laws, has spiked above 11 percent. In California's Orange County, formerly the epicenter of subprime mortgage lending, the office vacancy rate stands at almost 17 percent. Other cities less focused on financial services also have taken hits, including Cleveland, which lost its largest bank, National City, and Seattle, home to the giant mortgage lender Washington Mutual, which became the largest bank to fail in U.S. history. In Charlotte, the number of people served by the soup kitchen at Urban Ministry, a local charity, has increased 22 percent since August 2007, while the number of private airplanes arriving and departing from Charlotte-Douglas International Airport has dropped by 38 percent. A city that for years has proudly billed itself as the nation's second-largest banking center now is home to just one bank of any size. After Bank of America, the next-largest institution still headquartered in Charlotte has six branches and 49 employees. "We didn't worry too much about the things being done in Dallas, Atlanta, San Francisco" when banks in those cities were swallowed by Charlotte's giants, said Bob Morgan, president of the city's Chamber of Commerce. "We are now living it ourselves."

Story Of Government Sponsored 21 Year Old With Underwater FHA Loan Is Even Worse - (www.businessinsider.com) A few days ago we told the story of Denise Tejada, the 21 year old California woman who bought a house with an FHA backed loan with almost no money down. Readers were outraged. And rightfully so. It's our money on the line and it is simply outrageous that our government is still encouraging these kind of loans to be made. Even if Tejada pays off her loan in full, it was an insane gamble on our behalf to have the government back her loan. But as it turns out, the gamble was even more insane that we originally reported. Scott Jagow, who writes the Scratch Pad blog for American Public Radio's Market Place, explains: Denise got an FHA loan to buy her home for $155,000. She took out a second loan (called a 203-K loan) to refurbish the place. The total loan amount is about $183,000. She says, “In total, I gave the bank $5,087 + $1,500 which were all deposit and closing costs.” So her “down payment” was no more than 4% of the value of the home when she bought it. She will get all of that back and then some with the first-time home buyer tax credit. In other words, thanks to the various government tax breaks, Denise put absolutely no money down on her home. If she has to default on her mortgage, she'll lose nothing except her credit rating. Of course, since she's only 21 years old, there's plenty of time to recover from that. How is the FHA still engaged in promoting this kind of lending? Barney Frank has explained that expanding home ownership is the policy of the United States. Now, more than ever, the government wants to promote home buying to prop up the great American home ownership scheme. If people like Tejada can't buy a home with no money down, then the recession wins. Don't you feel awesome for helping Tejada achieve the American dream?

Hedge manager Sprott sees trouble when easing ends - (www.marketwatch.com) When so-called quantitative easing by central banks ends, the world economy may slip back into trouble, Canadian hedge fund manager Eric Sprott warned on Tuesday. Toronto-based Sprott called Citigroup, Fannie Mae, Freddie Mac, and General Motors "dead men walking" in late 2007. On Tuesday, he said the U.S. government is the new dead man walking, partly because it may struggle to keep borrowing enough money if the Federal Reserve stops buying Treasury bonds. Sprott's Canadian hedge fund, Sprott Hedge Fund LP, is up more than 400% since inception in 2000 as it rode a surge in gold prices and shares of gold miners and other raw materials companies. Bank bailouts and other dramatic efforts by central banks have stopped the world "going into the abyss," Sprott said during a presentation at the Value Investing Congress in New York. The "granddaddy" of all those bailout efforts is quantitative easing, in which central banks in the U.S. and the U.K. especially buy government bonds to keep interest rates low, Sprott said. The U.S. government has raised roughly 200% more by selling bonds this year, versus last year, Sprott noted. Through the end of the second quarter of 2009, he said the only major buyers of these government bonds were central banks. "When quantitative easing ends, what's going to happen?" he added, noting that there are already two clues to answer that question.

Could a Land Tax Support the Operations of Government? - (www.miller-mccune.com) The shape of a new American health care system is clearer now than it was last month, but a fraction of the American public will still be permanently steamed at President Obama for pushing through a new "entitlement" (and, eventually, raising their taxes). They don't see why America has to be so European. This column has spent the last several weeks looking at how European health care schemes might work in America; now it's time to look at an American-born idea that would — in theory — revolutionize the tax system of any country. Taxes don't need to be pulled from your income. Before the world had ever heard of Karl Marx, an American journalist from San Francisco named Henry George wrote a radical and popular work of political economy called Progress and Poverty, the first serious economic manifesto to become an American best-seller. He argued for a "single tax" on the value of land. The book made him world-famous near the end of the 19th century, and figures from Tolstoy to Einstein declared their admiration. Land, to George, was the resource for earning money, or just living: Only hoboes could get by without renting a slice of it. Land was not just natural but limited, so it belonged, in the truest sense, to the nation. Other taxes put an undue burden on human activity: Income tax weighed on productivity (wages and profits); a sales tax put a burden on trade; a "property tax," which involves not just land but the structures on top of it, burdened development. To George, it was simple logic that a government should raise taxes from the value of land. In a booming city, land values rise with the tide of human activity, so the power of a government to build subways and schools would rise, too. At the same time, a land tax would curb speculation. If a bank had to pay for sitting on acreages of unused land as an investment, or on every new high-rise apartment building it financed, real estate bubbles would vanish. The most recent recession started as a real estate bubble, of course, so George has a painful new relevance.

Deserted shopping mall bleak symbol of Fed bailout - (www.reuters.com) A $29 billion trail from the Federal Reserve's bailout of Wall Street investment bank Bear Stearns ends in a partially deserted shopping center on a bleak spot on the south side of Oklahoma City. The Fed now owns the Crossroads Mall, a sprawling shopping complex at the junction of Interstate highways 244 and 35, complete with an oil well pumping crude in the parking lot -- except the Fed does not own the mineral rights. The Fed finds itself in the unusual situation of being an Oklahoma City landlord after it lent JPMorgan Chase $29 billion to buy Bear Stearns last year. That money was secured by a portfolio of Bear assets. Crossroads Mall is the only bricks and mortar acquired through bailout. The remaining billions are tied up in invisible securities spread across hundreds, if not thousands, of properties. It is hard to be precise because the Fed has not published specifics on what it now owns. The only reason that Crossroads Mall has surfaced is that it went into foreclosure in April. Noah Diggs, who had just successfully concluded a search for work here as a shop assistant, was surprised and somewhat alarmed to learn the U.S. central bank now owned the property. "That is a bad thing, right?" he said, surveying the empty parking lot on a rainy morning in early October. Public anger over the bailout of rich Wall Street bankers has evolved into wider opposition toward government intrusion into the private sector, complicating President Barack Obama's efforts to reform financial regulation and healthcare. The controversial action to save Bear Stearns in March 2008 was defended as less damaging for the U.S. economy than letting it fail. The merit of this argument was underscored in September 2008 when rival investment bank Lehman Brothers foundered, sparking a global financial panic.

Who cares if Wall Street 'talent' leaves? - (money.cnn.com) If lower pay lures some of Wall Street's finest away, so be it. It's not as if the best and brightest were doing a good job to begin with. NEW YORK (Fortune) -- There's no need to fear a Wall Street brain drain -- despite the crackdown on pay by Washington. On Thursday, White House pay czar Kenneth Feinberg outlined compensation restrictions at seven firms that got special bailouts, and the Federal Reserve proposed to review pay practices at 28 unnamed giant banks. Critics warn that reining in pay makes it hard to keep talented employees. Hemmed in, institutions like AIG,Bank of America and Citigroup could lose their best people. These firms would then perform even more abysmally, if that's possible, leaving them hard pressed to repay tens of billions of dollars of taxpayer-backed loans. Still, we say Godspeed to this "talent." After all, the traders and suits in the corner offices don't exactly have an unblemished track record. In 2008, Citigroup, BofA and Merrill Lynch (since acquired by BofA) posted a grand total of $51 billion in losses. Yet even as they were running themselves into the ground, the firms managed to pay out more than $12 billion in bonuses -- including 1,606 million-dollar-plus bonuses, according to a report from the New York attorney general's office. "Even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks' financial performance," the report said. Meanwhile, it's hard to imagine that defection-hit firms would have a lot of trouble finding qualified replacements in the current job market.

OTHER STORIES:

Foreclosure Epidemic Reaching More Expensive Homes - (finance.yahoo.com)

U.S. Initial Jobless Claims Rose More Than Forecast - (www.bloomberg.com)

Japan�s Exports Fall for 3rd Month - (www.nytimes.com)

Goldman Sachs Is Too Big to Tell It Straight - (www.bloomberg.com)

Volcker Fails to Sell a Bank Strategy - (www.nytimes.com)

Survey predicts South Florida house values will decline more - (www.sun-sentinel.com)

Rents fall 7.5% in SF Bay Area in one year - (www.sfgate.com)

Interview with Patrick: "It's a fantastic time to be a renter" - (www.mortgagecalculator.org)

The Green Mile: Starring the FHA - (www.homedebtors.blogspot.com)

Homedebtors' Handout -- Worse Than Cash for Clunkers - (www.barrons.com)

Latest bank fee is for paying off credit card on time every month - (www.usatoday.com)