KeNo's Housing and Economic Portal: Sunday December 20 Housing and Economic stories

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TOP STORIES:

Banks' Hefty Reserves Create Disquiet - (online.wsj.com) There is a $1 trillion stash of cash idling in the banking system. It's too big to ignore, and it's a cause for concern. In normal times, banks hold a bare minimum of funds in reserve to support their liabilities. But these bank reserves now exceed the U.S. Federal Reserve's regulatory floor by $1 trillion. Before the credit crisis intensified in September last year, excess reserves—effectively cash banks hold above their regulatory requirements and usually hate holding—totaled just $2 billion. The Fed's extraordinary policies aimed at shoring up the economy and banking system are the reason excess reserves have ballooned. As the central bank prints money to buy, say, mortgage-backed securities, much of that extra cash ends up in the banking system, potentially as excess reserves. So why do excess reserves create disquiet? First, inflation hawks view them with distrust. In theory, these sleeping funds could be "activated" to support a huge volume of new loans, which in turn could fuel demand and inflation. True, the Fed can increase interest payments it makes on excess reserves, which would encourage banks to keep holding them and not activate new lending. But that works only if the Fed doesn't wait too long to raise that rate. And recent history suggests the Fed usually is too slow to hike key rates after a downturn. For now, though, the inflation fears look overdone. Bank credit is actually falling, despite the excess reserves. That raises an opposing fear: That banks remain nervous, even after all that has been done to support them. They would rather cling to low-yielding cash than lend it. "If they don't make a loan, they can't make a bad one," says John Mason, associate professor at Penn State. And, he says, banks have plenty of reasons to remain cautious and liquid, such as looming commercial-real-estate losses and big debt maturities. A third camp takes a laid-back view of excess reserves. At this early point after a recession, an increase in bank lending can hardly be expected, they say. As a result, it is misleading to link falling loan totals and high excess reserves to make a convincing case that bankers are paralyzed by uncertainty. The Fed's special policies were always going to create cash that ended up in the banking sector, regardless of banks' willingness to lend, they say.

Mark Pittman, Reporter Who Challenged Fed Secrecy, Dies at 52 - (www.bloomberg.com) Mark Pittman, the award-winning reporter whose fight to make the Federal Reserve more accountable to taxpayers led Bloomberg News to sue the central bank and win, died Nov. 25 in Yonkers, New York. He was 52. Pittman suffered from heart-related illnesses. The precise cause of death wasn’t known, said his friend William Karesh, vice president of the Global Health Program at the Bronx, New York-based Wildlife Conservation Society. “He was one of the great financial journalists of our time,” said Joseph Stiglitz, a professor at Columbia University in New York and the winner of the 2001 Nobel Prize for economics. “His death is shocking.” A former police-beat reporter who joined Bloomberg News in 1997, Pittman wrote stories in 2007 predicting the collapse of the banking system. That year, he won the Gerald Loeb Award from the UCLA Anderson School of Management, the highest accolade in financial journalism, for “Wall Street’s Faustian Bargain,” a series of articles on the breakdown of the U.S. mortgage industry. Pittman’s push to open the Fed to more scrutiny resulted in an Aug. 24 victory in Manhattan Federal Court affirming the public’s right to know about the central bank’s more than $2 trillion in assistance to financial firms. He drew the attention of filmmakers Leslie and Andrew Cockburn, who featured him prominently in their documentary about subprime mortgages, “American Casino,” which was shown at New York City’s Tribeca Film Festival in May.

Buyers Take a Pass on Some Failed Banks - (online.wsj.com) People's United Financial Inc. wanted to buy failed banks on the cheap. Instead, it struck a deal to buy a healthy equipment-leasing company. Last Monday's change of plans by the Bridgeport, Conn., bank-holding company underscores a problem with the growing pile of terminally ill U.S. banks being wrestled with by the Federal Deposit Insurance Corp. Some are in such bad shape that potential buyers won't touch them at any price, even if the government agrees to eat losses on the failed bank's bad loans. In addition to their depleted capital, many seized banks operate in areas with sluggish growth prospects, are puny and are loaded with expensive deposits gathered through brokers that are likely to leave when the acquiring bank reins in interest rates, some bankers complain. Philip Sherringham, chief executive of People's United, said it is getting harder to find the dream deal that bank officials hoped to hatch from a wrecked bank. The supply of ideal targets—sensible deposit-gatherers that fatally "overextended" their loan portfolio—is slim and the competition fierce, he said. The company's roots go back to 1842. Its biggest deal was the 2008 purchase of Chittenden Corp., including six banks owned by the Burlington, Vt., company. The financial crisis has given People's United an appetite for dying banks that nevertheless might have some valuable pieces. But of the 124 banks to fail so far this year, many of those put up for sale by regulators as part of the seizure process "are of very poor quality," said Norm Skalicky, chief executive of Stearns Financial Services Inc. "It's not as if you can walk in and you are in business." The St. Cloud, Minn., bank has bought five failed banks since the financial crisis erupted, including two in Florida and one in Atlanta, where soured real-estate loans are piling up and deposits are expensive.

Greece May Sell 25 Billion Euros of Bonds to China, WSJ Reports - (www.bloomberg.com) The Greek government is trying to raise about 25 billion euros ($38 billion) in a sale of bonds to Chinese banks, the Wall Street Journal reported, citing an unidentified person familiar with the matter. Greece is seeking a deal where Chinese banks would buy at least 25 billion euros in new bonds next year and “some bonds” in the secondary market, the Journal quoted the person as saying. Discussions are still at an early stage, the person said. The European nation may sweeten the deal by granting extra incentives on Chinese investments in the country, the person said, according to the report. Greece’s economy will contract more than 1 percent this year and unemployment will exceed 9.5 percent, Bank of Greece Governor George Provopoulos said last week, revising down month- old forecasts.

Climate Change Raw Temperature Data Has Been Dumped! - (www.timesonline.co.uk) SCIENTISTS at the University of East Anglia (UEA) have admitted throwing away much of the raw temperature data on which their predictions of global warming are based. It means that other academics are not able to check basic calculations said to show a long-term rise in temperature over the past 150 years. The UEA’s Climatic Research Unit (CRU) was forced to reveal the loss following requests for the data under Freedom of Information legislation. The data were gathered from weather stations around the world and then adjusted to take account of variables in the way they were collected. The revised figures were kept, but the originals — stored on paper and magnetic tape — were dumped to save space when the CRU moved to a new building. The admission follows the leaking of a thousand private emails sent and received by Professor Phil Jones, the CRU’s director. In them he discusses thwarting climate sceptics seeking access to such data. In a statement on its website, the CRU said: “We do not hold the original raw data but only the value-added (quality controlled and homogenised) data.” The CRU is the world’s leading centre for reconstructing past climate and temperatures. Climate change sceptics have long been keen to examine exactly how its data were compiled. That is now impossible. Roger Pielke, professor of environmental studies at Colorado University, discovered data had been lost when he asked for original records. “The CRU is basically saying, ‘Trust us’. So much for settling questions and resolving debates with science,” he said. Jones was not in charge of the CRU when the data were thrown away in the 1980s, a time when climate change was seen as a less pressing issue. The lost material was used to build the databases that have been his life’s work, showing how the world has warmed by 0.8C over the past 157 years. He and his colleagues say this temperature rise is “unequivocally” linked to greenhouse gas emissions generated by humans. Their findings are one of the main pieces of evidence used by the Intergovernmental Panel on Climate Change, which says global warming is a threat to humanity.

OTHER STORIES:

Dollar Weakens as Risk Aversion Eases After U.A.E. Backs Dubai - (www.bloomberg.com)

European Stocks Slip, Trimming Monthly Gain; Bourbon Declines - (www.bloomberg.com)

In-Geithner-We-Trust Bond Market Gets Lowest Yield - (www.bloomberg.com)

Gold, in ‘Healthy Breather,’ May Top $1,200: Technical Analysis - (www.bloomberg.com)

Massachusetts Leads Munis as Market Rebounds From Sell-Off - (www.bloomberg.com)

Taxing Wall Street Today Wins Support for Keynes Idea of 1936 - (www.bloomberg.com)

China May Use Dubai Crisis to Purchase Gold, Oil, Daily Reports - (www.bloomberg.com)

Emerging Market IPO Returns Rout Developed Nations’ New Shares - (www.bloomberg.com)

Dubai World’s Debt Not Guaranteed by Government - (www.bloomberg.com)

Dubai Shares Fall Most in a Year on Dubai World Restructuring - (www.bloomberg.com)

Crisis Puts Focus on Dubai’s Complex Relationship With Abu Dhabi - (www.nytimes.com)