KeNo's Housing and Economic Portal: Sunday December 6 Housing and Economic stories

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Geithner under fire over AIG payments - (www.ft.com) The New York Federal Reserve under Tim Geithner "severely limited its ability" to extract concessions from AIG's counterparties in talks that ended with $27.1bn (€18.18bn, £16.25bn) of public money transferred to the likes of Société Générale and Goldman Sachs, according to a government watchdog. But in spite of criticism levelled at the team of Mr Geithner, now Treasury secretary and last year president of the New York Fed, the watchdog's report fails to find evidence that the institution was negligent in not demanding "haircuts" from the counterparties to AIG's credit default swap contracts. Neil Barofsky, special inspector general for the troubled asset relief programme, said in the report that the New York Fed made "policy decisions" that weakened its hand in negotiations with AIG's counterparties. But the report reveals that a deal was rebuffed by the French bank regulator and by every leading bank contacted - with the exception of UBS, which agreed to a haircut of just 2 per cent and only if every other bank involved agreed to the same deal. Payments to the AIG counterparties have become one of the most controversial episodes of the government's involvement in last year's financial crisis. Members of Congress have urged Mr Barofsky, known as the "Tarp cop", to examine the talks amid allegations that the government funnelled taxpayers' money to US and foreign banks without making a proper effort to demand a discount. The payments were par value for collateralised debt obligations that the banks had insured with credit default swap contracts with AIG. The insurance group was facing increasing demands to post collateral against the CDS contracts and risked falling into bankruptcy amid a liquidity crisis. Paying face value for the CDOs allowed the troublesome CDS contracts to be cancelled. Mr Barofsky and his team conclude that the New York Fed "made several policy decisions that severely limited its ability to obtain concessions from counterparties", including refusing to use its leverage as bank regulator to pressure the companies or to tear up legal contracts. The New York Fed argues that it would have been wrong to override the rule of law in talks and it could not offer a different deal to different counterparties. The US Treasury said yesterday that the report "overlooks the central lesson learned from the unprecedented steps taken to support AIG. The lesson is that the federal government needs better tools to deal with the impending failure of a large institution in extraordinary circumstances like those facing us last fall".

Volcker Criticizes Accounting Proposal - (www.nytimes.com) A proposal to give banking regulators authority to block accounting standards is “a terrible idea,” Paul A. Volcker, a former chairman of the Federal Reserve Board, said Monday. Mr. Volcker has been an outspoken critic of “mark to market” accounting that forced banks to take large write-downs in asset values, a position cited by banks earlier this year when they persuaded members of the House Financial Services Committee to demand changes in that rule. But in an interview Monday, two days before a House committee vote on a proposal that would grant bank regulators the power to sidestep accounting standards, Mr. Volcker said he believed that accounting rules had to be set by an independent agency. He voiced concern that rising political pressures on both sides of the Atlantic were endangering that independence. The Financial Services Committee is to vote on amendments to a bill to establish a council of bank regulators as a systemic risk regulator, able to take action if bank activities threaten financial stability. The amendment, proposed by Representative Ed Perlmutter, Democrat of Colorado, and strongly supported by the banks, would give that group of regulators the power to order the Securities and Exchange Commission, which now oversees the Financial Accounting Standards Board, to suspend or change any accounting rule that the council thinks is a threat to financial stability. The amendment has been endorsed by the American Bankers Association, which says the S.E.C.’s focus, on helping investors, is too narrow. The amendment has been strongly opposed by groups including the Chamber of Commerce and groups representing investors. Leslie Oliver, an aide to Representative Perlmutter, said the congressman was still working on final language of the amendment and expected it to be voted on by the committee on Wednesday. The bankers’ group contends it is clear that accounting standards worsened the crisis, while others argue that the accounting rules belatedly forced the banks, and their regulators, to report on the disastrous results caused by their previous errors. Mr. Volcker was the founding chairman of the International Accounting Standards Committee Foundation, which oversees the International Accounting Standards Board, and has long been a supporter of independent rule-setting. He has been campaigning for a single set of international accounting standards, but he said on Monday that he feared that effort was being undermined.

Kuwait Shares Drop Most in World as Agility Indicted in U.S. - (www.bloomberg.com) Kuwaiti shares tumbled to the lowest level since March after Agility, the Middle East’s biggest storage and logistics company, was indicted by a U.S. federal grand jury. Agility slumped 8.3 percent, the most since July, after the indictment on multiple charges of conspiracy to defraud the United States. National Real Estate Co., which on its Web site lists Agility as a “sister company,” tumbled 8.8 percent. The Kuwait Stock Exchange Index lost 2.9 percent, the biggest fluctuation of 89 benchmarks tracked globally by Bloomberg, to 6,776.1, the lowest close since March 31. The measure is down 13 percent this year. “Sentiment is so bad now that both foreign and regional investors have exited the market completely and it now seems locals have had enough,” said Rabih Sultani, a fund manager at Duet Mena Ltd. in Dubai. “Everything that can go wrong went wrong this month; big corporations missed earnings estimates, political setbacks and further delays in reforms, and now conspiracy and fraud.” Commercial Bank of Kuwait SAK, the emirate’s second-largest lender by market value, posted a loss in the third-quarter earlier this week as it set aside money for bad debt. Zain, the country’s biggest phone company, reported a 53 percent drop in third-quarter profit. Resignation: A Kuwaiti opposition lawmaker submitted a request Nov. 15 to question Prime Minister Sheikh Nasser al-Mohammed al-Sabah, threatening to reignite a dispute between the executive and legislative branches. Demands to question Sheikh Nasser over his handling of the economy and his office’s affairs led to the government’s March 16 resignation.

America's Newest Land Baron: FDIC - (online.wsj.com) In the waning days of the Great Recession, the federal government is still jumpstarting the economy and propping up financial markets. It is also trying to sell Dresden Heights, a failed condo development on a noisy freeway ramp next to a Motel 6, a Waffle House and a Do-It-Yourself Pest Control. For more than a year, the Federal Deposit Insurance Corp. has been seeking a buyer for 36 partially built condos it inherited from a high-flying, short-lived Atlanta bank. The agency has been fending off vandals, haggling with architects and uncovering the developer's blunders, all in a bid to dispose of this condo project, just one of the 2,554 foreclosed assets dumped onto its books. "These are properties with a bad story," says Jim Gallagher, a senior official in the FDIC's Division of Resolutions and Receiverships. "What we're trying to sell is something that is rundown or not completed or has some property damage." The financial crisis started with Americans buying homes they couldn't afford. It is ending with the government struggling to sell buildings it never wanted. In the past two years, the FDIC has taken over 150 failed banks. In the process, it has seized more than 5,000 houses, subdivisions, buildings, parcels and other foreclosed assets. The current backlog of property stuck on the agency's books, with an appraised value of $1.8 billion, ranges from an $18,700 clapboard home with stained carpets in Birmingham, Ala., to a $1.7 million mountainside lodge with a heated driveway in Steamboat Springs, Colo. Taxpayers will be grappling with this flotsam for years to come, one example of how the crisis will linger long after the economy begins to revive. At a recent FDIC auction in Atlanta, the agency offered a four-unit condo building it had already sold once before -- after the savings-and-loan crisis two decades ago. These days, it takes the FDIC on average six to eight months to sell a property. Dresden Heights, tied up with unpaid bills, a lawsuit and complex right-of-way questions, is among its toughest prospects. The project was the brainchild of Quantum Homes and its chief executive, Ramsey "Jim" Salahat. In March 2006, just as Atlanta's housing market was peaking, Mr. Salahat took out a $3.78 million, 18-month loan from Main Street Bank in Covington, Ga., to purchase and prepare 5.3 acres abutting an interstate entrance ramp.

Things Really Bad in Detroit: Detroit/Pontiac Silverdome stadium sells for only $583,000 - (money.cnn.com) An unidentified Canadian real estate company was the winning bidder for the Silverdome, snatching it up for a mere fraction of its original value. A Toronto-based family-owned company bid $583,000 for the under-used stadium on Monday, which is currently owned by the City of Pontiac, Mich., according to auctioneer Williams & Williams. The company plans to refurbish the Silverdome into a stadium for men's Major League Soccer and women's professional soccer teams, said the auctioneer. While the stadium was the former home of the National Foodball League's Detroit Lions, it also played host to the World Cup in 1994, when Brazil beat Italy in a knuckle-biter that ended in a penalty shootout. The auctioneer Williams & Williams, based in Tulsa, Okla., said it will not identify the buyer "until the final details are worked out and the sale closes." "The Silverdome will now be in the hands of professionals who can devote their time to transform this high-profile property into a vital asset instead of enabling it to continue to languish as an empty facility," said Fred Leeb, the emergency financial planner for Pontiac, in a press release.

Nic Cage spent too much: Ex-manager says - (money.cnn.com) Nicolas Cage brought about his own financial ruin with a spending spree that included two castles, 15 palatial homes, a flotilla of yachts and a squadron of Rolls Royces, his former business manager said. Samuel Levin, responding to a lawsuit Cage filed against him, said he warned the Oscar-winning actor that he could face bankruptcy unless he scaled back his lavish lifestyle. Cage - one of Hollywood's highest-paid movie stars - sued Levin last month charging that he "lined his pockets with several million dollars in business management fees while sending Cage down a path toward financial ruin." "Cage discovered that he is now forced to sell major assets and investments at a significant loss and is faced with huge tax liabilities because of Levin's incompetence, misrepresentations and recklessness," Cage's lawsuit said. He asked the Los Angeles Superior Court for $20 million in damages from Levin.