KeNo's Housing and Economic Portal: Thursday December 10 Housing and Economic stories

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TOP STORIES:

Wall St. Finds Profits Again, Now by Reducing Mortgages - (www.nytimes.com) As millions of Americans struggle to hold on to their homes, Wall Street has found a way to make money from the mortgage mess. Investment funds are buying billions of dollars’ worth of home loans, discounted from the loans’ original value. Then, in what might seem an act of charity, the funds are helping homeowners by reducing the size of the loans. But as part of these deals, the mortgages are being refinanced through lenders that work with government agencies like the Federal Housing Administration. This enables the funds to pocket sizable profits by reselling new, government-insured loans to other federal agencies, which then bundle the mortgages into securities for sale to investors. While homeowners save money, the arrangement shifts nearly all the risk for the loans to the federal government — and, ultimately, taxpayers — at a time when Americans are falling behind on their mortgage payments in record numbers. For instance, a fund might offer to pay $40 million for a $100 million block of mortgages from a bank in distress. Then the fund could arrange to have some of those loans refinanced into mortgages backed by an agency like the F.H.A. and then sold to an agency like Ginnie Mae. The trick is to persuade the homeowners to refinance those mortgages, by offering to reduce the amounts the homeowners owe. The profit comes when the refinancings reach more than the $40 million that the fund paid for the block of loans. The strategy has created an unusual alliance between Wall Street funds that specialize in troubled investments — the industry calls them “vulture” funds — and American homeowners.

Upper-Bracket Tax May Be Needed for Afghan War Cost, Levin Says - (www.bloomberg.com) Here is a wild idea. How about instead of charging the rich for the war, lets raise taxes on all the politicians and their contingents that support the war. We know the following politicians are heavy supporters of the wars, so let’s charge Lieberman, Levin, and their supporters/constituents. Yes, that sounds outrageous but so is Levin’s proposal. Higher-income Americans should be taxed to pay for more troops sent to Afghanistan and NATO should provide half of the new soldiers, said Carl Levin, chairman of the Senate Armed Services Committee. An “additional income tax to the upper brackets, folks earning more than $200,000 or $250,000” a year, could fund more troops, Levin, a Michigan Democrat, said in an interview for Bloomberg Television’s “Political Capital With Al Hunt,” airing this weekend. White House Budget Director Peter Orszag has estimated that each additional soldier in Afghanistan could cost $1 million, for a total that could reach $40 billion if 40,000 more troops are added. That cost, Levin said, should be paid by wealthier taxpayers. “They have done incredibly well, and I think that it’s important that we pay for it if we possibly can” instead of increasing the federal debt load, the senator said. Other countries in the North Atlantic Treaty Organization should bear responsibility for delivering half the additional troops needed to secure the conflict zone and train Afghan forces, Levin said. He didn’t predict how many troops President Barack Obama would add. Levin also said Treasury Secretary Timothy Geithner, who has faced calls for his resignation from Republicans in Congress, should stay as long as he has Obama’s confidence. The six-term senator said the administration was right to move the prosecution of Khalid Sheikh Mohammed, the self-proclaimed mastermind of the Sept. 11, 2001, attacks, to federal court in New York from a military commission in Guantanamo Bay, Cuba. Troop Decision Near: On Afghanistan, Obama may decide within a few weeks whether to grant a request from the top commander in the field, General Stanley McChrystal, for 40,000 more troops to fight the Taliban, which harbored al-Qaeda before being toppled in the invasion following the Sept. 11 attacks. The U.S. contributes about 70,000 of the 110,000 foreign forces waging the Afghan war. Levin, who has supported adding U.S. troops to the war mainly to train the Afghan army and police to assume more responsibilities, said he might back an increase closer to 40,000 under certain conditions. These include the proportion that would be used for training, a plan for preparing enough Afghan troops and a “major program” to provide equipment to their forces. “There’s a lot of other things involved in showing resolve beside just a troop level,” Levin said. A key element to gain support will be “that whatever is announced, it be part of a NATO-Afghan initiative,” he said.

Obama's Promise: You Can Take It To the Bank! - (www.dailypaul.com) Speaking of a new tax on the rich to finance the war in Afghanistan, whatever happened to the main stream media following up on this original boast by Obama? Youtube.com — "I will promise you this, that if we have not gotten our troops out by the time I am president, it is the first thing I will do. I will get our troops home. We will bring an end to this war. You can take that to the bank. " - Barack Obama Campaign Promise - October 27, 2007>

Fla. jobless rate climbs to 11.2 percent in Oct. - (www.google.com/hostednews/ap) Florida's unemployment rate continued its steady upward climb in October to 11.2 percent — a mark last seen in the 1970s and a tenth of a percentage point higher than September's adjusted rate, state officials said Friday. The number of unemployed Floridians topped 1 million in September for the first time. It remained slightly over that mark in October at just over 1 million out of a labor force of nearly 9.2 million. Florida's October rate was the seventh highest — tied with Kentucky — among the 50 states and District of Columbia and exceeded the national figure by a full percentage point. It was Florida's highest since June 1975, when it also was 11.2 percent. The last time it was higher was 11.9 percent in May 1975. It's up 4.3 percentage points from October 2008. "This rate indicates that Florida's families and businesses are still facing challenges, while fewer job losses reveal slight improvement in the economic climate," said Agency for Workforce Innovation Director Cynthia R. Lorenzo. While the state is continuing to shed jobs, the loss rate has dropped. Florida had 339,600 fewer nonagricultural jobs in October than the same month last year. That's a decline of 4.4 percent compared to 5.4 percent for September. Three sectors of Florida's economy have been hardest hit: Trade, transportation and utilities; professional and business services; and construction account for more than two-thirds of the state's job losses. Health care has been the only growth sector for most of the year. September's rate initially had been announced as 11 percent but later was adjusted to 11.1 percent. If not for the state's declining labor force — down by 25,000 in October and 142,000 over the year — the unemployment rate would have been even higher, said Agency for Workforce Innovation economist Rebecca Rust. She said those who have given up looking for work include people who have decided to retire early, go back to school or leave Florida. The employment picture isn't expected to start improving until the second quarter of next year, Rust said.

Upper-Bracket Tax May Be Needed for Afghan War Cost, Levin Says - (www.bloomberg.com) Higher-income Americans should be taxed to pay for more troops sent to Afghanistan and NATO should provide half of the new soldiers, said Carl Levin, chairman of the Senate Armed Services Committee. An “additional income tax to the upper brackets, folks earning more than $200,000 or $250,000” a year, could fund more troops, Levin, a Michigan Democrat, said in an interview for Bloomberg Television’s “Political Capital With Al Hunt,” airing this weekend. White House Budget Director Peter Orszag has estimated that each additional soldier in Afghanistan could cost $1 million, for a total that could reach $40 billion if 40,000 more troops are added. That cost, Levin said, should be paid by wealthier taxpayers. “They have done incredibly well, and I think that it’s important that we pay for it if we possibly can” instead of increasing the federal debt load, the senator said. Other countries in the North Atlantic Treaty Organization should bear responsibility for delivering half the additional troops needed to secure the conflict zone and train Afghan forces, Levin said. He didn’t predict how many troops President Barack Obama would add. Levin also said Treasury Secretary Timothy Geithner, who has faced calls for his resignation from Republicans in Congress, should stay as long as he has Obama’s confidence. The six-term senator said the administration was right to move the prosecution of Khalid Sheikh Mohammed, the self-proclaimed mastermind of the Sept. 11, 2001, attacks, to federal court in New York from a military commission in Guantanamo Bay, Cuba. Troop Decision Near: On Afghanistan, Obama may decide within a few weeks whether to grant a request from the top commander in the field, General Stanley McChrystal, for 40,000 more troops to fight the Taliban, which harbored al-Qaeda before being toppled in the invasion following the Sept. 11 attacks. The U.S. contributes about 70,000 of the 110,000 foreign forces waging the Afghan war. Levin, who has supported adding U.S. troops to the war mainly to train the Afghan army and police to assume more responsibilities, said he might back an increase closer to 40,000 under certain conditions. These include the proportion that would be used for training, a plan for preparing enough Afghan troops and a “major program” to provide equipment to their forces. “There’s a lot of other things involved in showing resolve beside just a troop level,” Levin said. A key element to gain support will be “that whatever is announced, it be part of a NATO-Afghan initiative,” he said.

Bets rise on rich country bond defaults - (www.ft.com) The mounting level of debt in the industrialised world is prompting a growing number of investors to use the derivatives market to bet on the chance of rich governments defaulting on bonds. The volume of activity in sovereign credit default swaps – which measure the cost to insure against bond defaults – linked to the US, UK and Japan have doubled in the past year because of concerns about their public finances. CDS volumes for Italy, which has one of the highest debt burdens of the developed economies, are now the highest for an individual country, according to the Depository Trust & Clearing Corporation. In contrast, the outstanding volume of CDS linked to emerging nations such as Russia, Brazil, Ukraine and Indonesia have been flat or fallen in the past 12 months as investors have become less interested in trading the risks of those countries. In the past, the CDS market for developed countries was sluggish, because few investors saw the need to buy or sell protection against a risk of default that seemed exceedingly remote. However, rising debt levels and growing political and economic uncertainty has created a more active market, with more investors now seeking insurance. Meanwhile, many banks are prepared to offer protection in exchange for a fee. This fee has recently jumped, since the cost to insure the debt of developed countries has increased since the summer of last year, while the cost of insuring emerging market debt has fallen. Gary Jenkins, head of fixed income research at Evolution, said: “The biggest single risk hanging over the bond markets is the rapid rise in public debt in the industrialised world. “If we get to a point where the market thinks the levels of debt are unsustainable, then we will see an almighty sell-off in the government bond markets, with yields soaring. Governments need to take action to cut deficits and debt.” Fitch Solutions, the data arm of the Fitch Group, said that there is almost as much uncertainty in the CDS market about the outlook for the developed economies and their bond markets as there is for emerging economies. Comparisons between Italy and Brazil are often used by strategists as an example of the contrasting fortunes of the developed and emerging world. Italy’s debt to gross domestic product ratio is forecast to rise to 127.3 per cent in 2010. On the other hand, Brazil’s debt to GDP ratio is forecast to stabilise at 65.4 per cent in 2010.

Revisiting a Fed Waltz With A.I.G. - (www.nytimes.com) A RAY of sunlight broke through the Washington fog last week when Neil M. Barofsky, special inspector general for the Troubled Asset Relief Program, published his office’s report on the government bailout last year of the American International Group. It’s must reading for any taxpayer hoping to understand why the $182 billion “rescue” of what was once the world’s largest insurer still ranks as the most troubling episode of the financial disaster. And it couldn’t have come at a more pivotal moment. Many in Washington want to give more regulatory power to the Federal Reserve Board, the banking regulator that orchestrated the A.I.G. bailout. Through this prism, the actions taken in the deal by Treasury Secretary Timothy F. Geithner, who was president of the Federal Reserve Bank of New York at the time, grow curiouser and curiouser. Of special note in the report: the Fed failed to develop a workable rescue plan when A.I.G., swamped by demands that it pay off huge insurance contracts that it couldn’t make good on as the economy tanked, began to sink. The report takes the Fed to task as refusing to use its power and prestige to wrestle concessions from A.I.G.’s big, sophisticated and well-heeled trading partners when the government itself had to pay off the contracts. The Fed, under Mr. Geithner’s direction, caved in to A.I.G.’s counterparties, giving them 100 cents on the dollar for positions that would have been worth far less if A.I.G. had defaulted. Goldman Sachs, Merrill Lynch, Société Générale and other banks were in the group that got full value for their contracts when many others were accepting fire-sale prices. On the question of whether this payout was what the report describes as a “backdoor bailout” of A.I.G.’s counterparties, Mr. Barofsky concluded: “The very design of the federal assistance to A.I.G. was that tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.’s counterparties.” The report noted that this was money the banks might not otherwise have received had A.I.G. gone belly-up. The report zaps Fed claims that identifying banks that benefited from taxpayer largess would have dire consequences. Fed officials had refused to disclose the identities of the counterparties or details of the payments, warning “that disclosure of the names would undermine A.I.G.’s stability, the privacy and business interests of the counterparties, and the stability of the markets,” the report said.