KeNo's Housing and Economic Portal: Monday December 14 Housing and Economic stories

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TOP STORIES:

Lehman, Bear Executives Cashed Out Big - (online.wsj.com) Bear Stearns Cos. and Lehman Brothers Holdings Inc. executives cashed out nearly $2.5 billion from their firms between 2000 and 2008 even though the financial crisis hammered the shares they held, according to a study set to be released Monday. What happened at Bear and Lehman, the study concludes, shows that toughened oversight of compensation proposed by the U.S. Federal Reserve and other regulators around the world is needed to prevent executives from taking excessive risks. The Fed, which is reviewing compensation practices at U.S. banks, has said it favors reducing compensation risks through such moves as deferring pay or seizing pay later if a bank's financial performance suffers. Stock-based compensation also can shield firms from risk if executives are required to hold the shares for longer periods, according to the Fed. Bear and Lehman are examples of what can happen when executive compensation isn't properly aligned with performance, the study argues. "Bonuses were kept by executives even though the earnings that were the basis of the bonuses turned out to have evaporated," said Mr. Bebchuk, who hasn't discussed the study's findings with U.S. government officials. Mr. Bebchuk's co-authors were Alma Cohen and Holger Spamann, also of Harvard Law School. Using public filings from the companies, the study calculated that the that the top five executives at the two New York companies got cash bonuses of about $500 million from 2000 to 2008 and sold shares worth nearly $2 billion. The numbers were adjusted slightly upward for inflation. Former Bear Chairman and Chief Executive James Cayne and former Lehman Chairman and CEO Richard Fuld Jr. came out way ahead despite the huge losses suffered when their company's shares plummeted. Mr. Cayne walked away with $388 million for the period covered by the analysis, while Mr. Fuld got $541 million. Mr. Cayne's paper losses on his Bear stock were more than $900 million, and Mr. Fuld was hit with losses of about $930 million on his Lehman stake.

Wave of Debt Payments Facing U.S. Government - (www.nytimes.com) The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true. But that happy situation, aided by ultralow interest rates, may not last much longer. Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed. Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages. With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher. In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan. The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means. The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.

Dimon seen as successor to Geithner: report - (www.reuters.com) Several U.S. policy makers consider JPMorgan Chase & Co Chief Executive Jamie Dimon as a potential successor to U.S. Treasury Secretary Timothy Geithner, the New York Post said, citing sources. Dimon "would love to serve his country," the paper quoted people familiar with his thinking as saying. JPMorgan could not be immediately reached for comment by Reuters outside regular U.S. business hours. Geithner endured a grilling last week before the U.S. Congress over his role in the rescue of American International Group Inc in 2008, when he was president of the New York Federal Reserve Bank.

A great burden grows - (www.washingtonpost.com) Charities that ease crises now face their own fight for survival. A year after the global economy teetered on the verge of collapse, a recession -- a lingering and unwelcome guest -- has settled in at dinner tables across the land. And while plates are empty at some homes, the lines grow long at organizations like Martha's Table, a nonprofit in the District where a record number of people wait each day for a bit of something -- food or clothing or educational programs -- to see them through. "It can be a swelling river with all the different tributaries feeding into it," said Lindsey Buss, president and chief executive of Martha's Table. "And the rain isn't stopping." Across the region, demand for basic services has skyrocketed, fueled by people losing jobs in the bleak economy. For the nonprofits that provide many of those services, the economic crisis has taken a bitter toll as well; funding was down from most sources last year, with foundation endowments bludgeoned by the stock market, businesses losing money and local government budgets stretched. After last year's financial crash, nonprofit, government and business leaders created the Eight Neighbors group, banding together to help the region's most vulnerable people. At the "Nonprofit 911" meeting Monday, they talked about weathering the toughest year in recent memory, and braced for the one ahead. Alice Rivlin, an economist at the Brookings Institution and a former Federal Reserve governor, told community leaders that the downturn had worsened the socioeconomic divide in the city. There's low unemployment in wards 2 and 3, she said, but "in Ward 8 it's a Great Depression, it's 25 percent unemployment." And 2010 looks to be even more difficult. So when the pantry is picked clean, where do charities turn to keep up their mission? Well, back to the dinner table. As the traditional giving season begins -- Martha's Table, for example, gets three-quarters of its individual donations during the holidays -- nonprofits are wondering how much people writing checks will give this year. Or whether they'll give at all. "Individual donors are the biggest question mark left for 2009," Buss said, "and everybody's anxious to see what's going to happen. We know people are hurting."

Sewers at Capacity, Waste Poisons Waterways - (www.bloomberg.com) t was drizzling lightly in late October when the midnight shift started at the Owls Head Water Pollution Control Plant, where much of Brooklyn’s sewage is treated. A few miles away, people were walking home without umbrellas from late dinners. But at Owls Head, a swimming pool’s worth of sewage and wastewater was soon rushing in every second. Warning horns began to blare. A little after 1 a.m., with a harder rain falling, Owls Head reached its capacity and workers started shutting the intake gates. That caused a rising tide throughout Brooklyn’s sewers, and untreated feces and industrial waste started spilling from emergency relief valves into the Upper New York Bay and Gowanus Canal. “It happens anytime you get a hard rainfall,” said Bob Connaughton, one the plant’s engineers. “Sometimes all it takes is 20 minutes of rain, and you’ve got overflows across Brooklyn.” One goal of the Clean Water Act of 1972 was to upgrade the nation’s sewer systems, many of them built more than a century ago, to handle growing populations and increasing runoff of rainwater and waste. During the 1970s and 1980s, Congress distributed more than $60 billion to cities to make sure that what goes into toilets, industrial drains and street grates would not endanger human health. But despite those upgrades, many sewer systems are still frequently overwhelmed, according to a New York Times analysis of environmental data. As a result, sewage is spilling into waterways. In the last three years alone, more than 9,400 of the nation’s 25,000 sewage systems — including those in major cities — have reported violating the law by dumping untreated or partly treated human waste, chemicals and other hazardous materials into rivers and lakes and elsewhere, according to data from state environmental agencies and the Environmental Protection Agency. But fewer than one in five sewage systems that broke the law were ever fined or otherwise sanctioned by state or federal regulators, the Times analysis shows. It is not clear whether the sewage systems that have not reported such dumping are doing any better, because data on overflows and spillage are often incomplete.

Bills Yielding Zero as Stocks Soar Make 1938 Moment - (www.bloomberg.com) For the first time in seven decades, Treasury bills are paying no interest while stocks continue to appreciate -- a divergence in U.S. financial markets that might be perilous if Federal Reserve Chairman Ben S. Bernanke didn’t know all about 1938. That’s when the Standard & Poor’s 500 Index climbed 25 percent even as bill rates tumbled to 0.05 percent from 0.45 percent. As 1939 began, stocks began a three-year, 34 percent decline after the Fed increased borrowing costs prematurely to stymie inflation that never materialized. While almost no one expects Bernanke, a self-described “Great Depression” buff, to raise rates before mid-2010, bond investors say with unemployment above 10 percent and housing taking another downturn, they have no qualms about lending the government money for nothing to ensure their capital is preserved. Stock investors, meanwhile, say the worst is over and that low borrowing costs coupled with the $12 trillion of fiscal and monetary stimulus will bolster earnings. “The question is what are you going to do with all the money that has been created?” said James Hamilton, a former visiting scholar at the Fed who teaches at the University of California, San Diego. “It’s not a contradiction at all to see very low short-term yields and at the same time have people trying to buy stocks. They are both reflecting that same force.”

OTHER STORIES:

U.S. Corporate Bond Sales Climb to a Record $1.17 Trillion - (www.bloomberg.com)

CFTC chief Gary Gensler is out to police financial Wild West - (www.usatoday.com)

Central-Bank Comments Boost Euro - (online.wsj.com)

Dollar Slump Persisting as Top Analysts See No Bottom - (www.bloomberg.com)

East Europe Proving Too Good as Debt Erodes 50% Gain - (www.bloomberg.com)

China Wants to Slow Credit Boom - (www.nytimes.com)

Europe Manufacturing, Services Expansion Accelerates - (www.bloomberg.com)

U.S. State Tax Revenue Fell 11 Percent in Fourth Quarterly Drop - (www.bloomberg.com)

U.S. Existing Home Sales Rise 10%, More Than Forecast - (www.bloomberg.com)

Divisions emerge over exit strategies - (www.ft.com)

Bullard Says Fed Should Keep Asset Purchase Program Past March - (www.bloomberg.com)