KeNo's Housing and Economic Portal: Wednesday November 18 Housing and Economic stories

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Edmunds.com fires back at White House cash-for-clunkers slam‎ - (www.csmonitor.com) Edmunds.com CEO Jeremy Anwyl is defending his company’s claim that the Cash for Clunkers program was basically a lemon, saying a recent report simply reiterated what’s well known in the car industry: Incentive programs are “eyewateringly expensive.” After taking on Fox News and the US Chamber of Commerce as part of a new media strategy aimed at perceived political opponents, the White House turned its blog on Edmunds’ critical report of the $3 billion Cash for Clunkers program. In a post titled “Busy covering car sales on Mars, Edmunds.com gets it wrong (again) on Cash for Clunkers,” the White House charged the firm with “trying to grab headlines and get on cable TV” while the analysis doesn’t withstand “basic scrutiny.” Founded in 1966, Edmunds.com is the Santa Monica, Calif.-based publisher of the Blue Book series. Basically a consumer company supplying industry analysis to subscribers, Edmunds.com also offers the “True Market Value” tool. So what did Edmunds do to warrant a snarl from the White House? For one thing, its report did grab headlines, including a well-read Monitor report. According to Edmunds, only 125,000 of the 690,000 cars sold during the taxpayer-funded promotion were sales inspired by the program as opposed to those that would have happened anyway. Edmunds then divided that number by the total price tag and voilà: Each car purchased cost the American taxpayer $24,000. Besides the no-nonsense price tag (an Edmunds’ specialty) there’s nothing new about the premise of the report, Anwyl contends. (The White House used dealer reports to highlight the program’s success while Edmunds used comparative historical sales figures to get its numbers.) “We got real math behind this for the first time,” says Mr. Anwyl in a phone interview, before landing a friendly jab referencing this summer’s “Beer Summit” at the White House. “We need to send an invitation to the President to come out, we’ll have a beer and a photo opportunity, and walk him through the data. He might find it eye-opening.” More seriously, Anwyl says: “It’s shocking and somewhat troubling that this is something the White House would pick up. This administration more than any other administration is invested heavily in the auto industry, so you would hope that they would had done a little more homework than their response suggests.” The White House post instead quoted the President’s own Council of Economic Advisers (CEA) pointing out that the program increased GDP by 1.7 percent in the third quarter and will create 70,000 jobs in the second half of 2009. It took issue with Edmunds’ notion that 80 percent of the payback from the program will take place in 2009, leaving little residual effect on the auto industry into 2010. “In other words,” writes Macon Phillips, the White House’s “new media” chief, “all the other cars were being sold on Mars while the rest of the country was caught up in the excitement of the Cash for Clunkers program. The CEA’s analysis is transparent and comprehensive … Edmunds.com, on the other hand, is promoting a bombastic press release without any public access to their underlying analysis. So put on your space suit and compare the two approaches yourself.”

The Old G.M. Is Dead, but Its Shares Live On - (www.nytimes.com) A FUNNY thing happened to its stock when General Motors went bankrupt. The shares did not go directly to zero, even though it appeared clear that the old shares were worthless. The new General Motors, owned by the government and a union health fund, may or may not prosper, but the old shareholders will lose out either way. Market regulators were appalled. “They asked me whether Grandma Jones was being stupid” and buying the stock because she did not understand what was happening, said R. Cromwell Coulson, the chief executive of Pink OTC Markets, the market where dead stocks go to trade. The regulators promptly forced a change in name and ticker symbol, hoping that would clear up the confusion. The old company’s new name is Motors Liquidation Company, with a ticker symbol of MTLQQ. It trades in Mr. Coulson’s market. But it did not work. The shares still trade for about 60 cents each, giving Motors Liquidation a market capitalization of about $370 million. Not bad for a worthless piece of paper. There has been absurd trading in bankrupt shares before, but it appeared to Mr. Coulson that this trading was going on longer than in past deals. Now he says he thinks he knows why. A new rule of the Securities and Exchange Commission, which took effect in July, has made it virtually impossible for anyone to sell Motors Liquidation shares short, and is forcing those who had short positions to close them out. That is good news for shareholders, if not for believers in efficient markets. “I think more Grandma Joneses are getting a chance to sell G.M. at a higher price,” Mr. Coulson said. “The structure of the market is, if you can’t borrow it, you can’t sell it short.” In a short sale, a traders normally sells borrowed shares and then pay them back with shares purchased later, at what they hope will be a lower price. As can be seen from the accompanying graphic, the outstanding short position in Motors Liquidation stock has been steadily falling since the company went bankrupt. Contrast that to another prominent bankruptcy a few years ago, of the old Delta Airlines. It is clear that some people were able to sell the Delta shares short during the bankruptcy, and that there was a flood of short-selling shortly before the shares were formally canceled. Under former rules of long standing, traders were supposed to sell a stock short only if the shares could be borrowed, but there were exceptions, including one for market makers. Under the new rule — adopted because of complaints about so-called naked short-selling, in which there was no borrowing — it is almost impossible to do that legally. Moreover, the number of shares available to borrow declines when a company goes into bankruptcy. Institutional investors, who are usually willing to lend out shares, sell their stake and must recall shares they have lent. Fewer shares are held in margin accounts, another source of shares for lending. If Mr. Coulson is right, then people with short positions are gradually being forced to buy the shares from real shareholders. Other short-sellers cannot get into the game. That process may also be good news for the government. Under tax law, no tax is due on short-sale profits until the shares have been repurchased. So if the position can be kept open indefinitely, there is no tax to be paid, even though the profits can be withdrawn based on the minimal value of the shares. Short-sellers who are forced to cover will also have to pay taxes.

Late Harvest Sows Problems for Farmers - (online.wsj.com) Most years, Larry Thorndyke has his corn fully harvested by Halloween. This year, almost all of his 1,400 acres of corn are still in the field, exposing his farm to crop disease, bad weather and a potential financial nightmare. "It's getting scarier. The longer we go, the more mold keeps growing and the more ears fall off," said the 50-year-old farmer, taking a break from steering his combine over dark, wet dirt Thursday, his first full day of harvesting corn this season. "Every day you wait, you lose more money." The combination of a late planting season and an unusually cool, wet fall is causing one of the latest harvests in recent memory. On Monday, the U.S. Department of Agriculture said just 20% of the corn crop had been harvested in the major corn-producing states, compared with 58% on average by this point in 2004 through 2008. Farmers also had brought in just 44% of the soybean crop, versus 88% on average over the past five seasons. The slowdown complicates life for farmers and threatens to take a bite out of their earnings in a year when net farm income already was expected to be 38% below last year's near-record high. "Most of the farmers' income is still out there in the field," said Loyd Brown, president of Hertz Farm Management, a Nevada, Iowa, company that manages more than 1,800 farms with some 430,000 acres across the Midwest. "They're anxious to get it harvested and anxious to know where they stand for the year." Rain is good for growing crops, of course, as long as it stops in time for crops to dry out enough to be stored without rotting. The longer crops wait in the fields, the greater the risks of mold and other damage. A dry spell never took hold this year, keeping many farmers out of their fields, especially in eastern Iowa and Illinois. Crop losses from mold are starting to hit hard, particularly in the warm Mississippi Delta region. Alabama Agriculture Commissioner Ron Sparks warned Friday of a potential crisis for the state's farmers if they don't get dry weather soon. Because corn hasn't had a chance to dry out in the field, many farmers are being forced to pay extra to have grain elevators dry their crops.

Home-Loan Banks' Loss - (online.wsj.com) The Federal Home Loan Banks, still struggling with soured investments in mortgage securities, had a combined third-quarter net loss of $165 million. The loss reflected write-downs totaling $1.04 billion in the value of private-label mortgage-backed securities. Such securities aren't backed by any U.S. government entity. Some of the home loan banks invested heavily in such securities during the housing boom, partly to increase their interest income. In recent quarters, these banks have repeatedly had to write down the value of those securities as mortgage defaults and foreclosures surge. The 12 regional home loan banks are separately owned and operated as cooperatives and report individual results, but they also produce combined results quarterly for the convenience of debt investors. The banks are jointly liable for debt issued by any of them. The write-downs have eroded capital at some of them, forced the reduction or elimination of dividends and raised concerns that some of the banks eventually could need capital infusions or bailouts. In the year-earlier quarter, the 12 banks had combined net income of $506 million. Five of the 12 banks -- those in Boston, Chicago, Pittsburgh, San Francisco and Seattle -- had losses in the latest quarter, and the others, which generally invested less in private-label securities, were in the black.

Angry Americans feel they are still in slump - (www.ft.com) If Barack Obama had been told last November that the economy would have moved out of recession by July – as Thursday’s gross domestic product numbers indicated – he might have broken out the champagne. However, the White House was more funereal than celebratory in keeping with the opinion of most voters. For most Americans, the return to growth is a pure abstraction. Next week’s jobless numbers, which is likely to see another 200,000 joining the unemployed, will be the more accurate reflection of the public’s mood, which alternates between angry and sullen. Jobs growth always lags behind economic growth and forecasters project unemployment will climb from its current 9.8 per cent to 10.3 per cent by early 2010. Since jobs and wages dominate most people’s perception of the health of the economy, Mr Obama faces the awkward prospect that most Americans will still feel like they are in recession in the build-up to next year’s mid-term elections. To that extent his difficulties are predictable. Remember George Bush senior, who was defeated by Bill Clinton in 1992 in the “economy, stupid” election even though the US had returned to growth several months before. However, neither Mr Bush senior, nor any recent US president, has simultaneously had to grapple with a jobless, or job-loss, recovery and an electorate seething with resentment against Washington’s generous treatment of the perceived authors of the recession – Wall Street. Previous downturns were induced by sharp interest rate rises to quell the consequences of overheating. In most people’s view, this recession was caused by the speculative greed of bankers – an entirely different kind of downturn that fits the plot of a morality play. Unlike most morality plays, however, this one appears to be rewarding the baddies. While the job numbers continue to deteriorate, Wall Street is enjoying good times again and preparing another season of huge bonuses. Goldman Sachs, alone, is on track to pay out $21bn (€14bn, £12.7bn) in bonuses by the end of the year. Since it repaid the direct bailout money it received from Washington – as opposed to the implicit subsidies from which it continues to benefit – it was not subjected to the pay restraints announced last week by Ken Feinberg, Mr Obama’s “pay czar”.