KeNo's Housing and Economic Portal: Tuesday December 15 Housing and Economic stories

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Freddie Mac trying to minimize exposure from failed lender, regional bank - (www.washingtonpost.com) Freddie Mac, the government-backed mortgage finance giant, said Monday it's trying to minimize losses on more than $1 billion in assets at risk because of the summer collapse of mortgage lender Taylor, Bean & Whitaker and a regional bank with which it did business. McLean-based Freddie Mac said it filed a petition to claim about $595 million that Taylor Bean had collected on its behalf and placed on deposit at Colonial Bank, an Alabama-based bank that was shut by regulators in early August, a few weeks before Taylor Bean filed for Chapter 11 bankruptcy protection. Colonial Bank is now in the hands of the Federal Deposit Insurance Corp. For a fee, Taylor Bean collected the monthly payments on home loans that were owned by Freddie Mac. Freddie Mac also reiterated on Monday that it is due $500 million for home loans that Taylor Bean had sold the company with the promise that it would buy them back if they didn't meet Freddie Mac's standards. Freddie Mac says the loans did not pass muster and wants to sell them back, but Taylor Bean's bankruptcy prevents the sale. It is not clear what the price tag associated with the collapse of Taylor Bean and Colonial Bank will ultimately be for Freddie Mac. "Freddie Mac is currently assessing its other potential exposures to [Taylor Bean] and is working with the debtor in possession, the FDIC and other creditors to quantify these exposures," the company said in a statement. "At this time, Freddie Mac is unable to estimate its total potential exposure related to [Taylor Bean's] bankruptcy; however, the amount of additional losses related to such exposures could be significant." Freddie Mac earlier this month posted a $5 billion loss for the third quarter, but said for the second time in a row that it didn't need any more federal aid. Freddie Mac and its rival, Fannie Mae of the District, have received $111 billion in aid since the government seized the firms in 2008. Fannie Mae also did business with Taylor Bean but the company said it has reported the extent of its exposure.

The Phantom Menace – (PAUL KRUGMAN at www.nytimes.com) A funny thing happened on the way to a new New Deal. A year ago, the only thing we had to fear was fear itself; today, the reigning doctrine in Washington appears to be “Be afraid. Be very afraid.” What happened? To be sure, “centrists” in the Senate have hobbled efforts to rescue the economy. But the evidence suggests that in addition to facing political opposition, President Obama and his inner circle have been intimidated by scare stories from Wall Street. Consider the contrast between what Mr. Obama’s advisers were saying on the eve of his inauguration, and what he himself is saying now. In December 2008 Lawrence Summers, soon to become the administration’s highest-ranking economist, called for decisive action. “Many experts,” he warned, “believe that unemployment could reach 10 percent by the end of next year.” In the face of that prospect, he continued, “doing too little poses a greater threat than doing too much.” Ten months later unemployment reached 10.2 percent, suggesting that despite his warning the administration hadn’t done enough to create jobs. You might have expected, then, a determination to do more. But in a recent interview with Fox News, the president sounded diffident and nervous about his economic policy. He spoke vaguely about possible tax incentives for job creation. But “it is important though to recognize,” he went on, “that if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.” What? Huh? Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence. Now, it’s politically difficult for the Obama administration to enact a full-scale second stimulus. Still, he should be trying to push through as much aid to the economy as possible. And remember, Mr. Obama has the bully pulpit; it’s his job to persuade America to do what needs to be done. Instead, however, Mr. Obama is lending his voice to those who say that we can’t create more jobs. And a report on Politico.com suggests that deficit reduction, not job creation, will be the centerpiece of his first State of the Union address. What happened? It took me a while to puzzle this out. But the concerns Mr. Obama expressed become comprehensible if you suppose that he’s getting his views, directly or indirectly, from Wall Street. Ever since the Great Recession began economic analysts at some (not all) major Wall Street firms have warned that efforts to fight the slump will produce even worse economic evils. In particular, they say, never mind the current ability of the U.S. government to borrow long term at remarkably low interest rates — any day now, budget deficits will lead to a collapse in investor confidence, and rates will soar. And it’s this latter claim that Mr. Obama echoed in that Fox News interview. Is he right to be worried? Well, spikes in long-term interest rates have happened in the past, most famously in 1994. But in 1994 the U.S. economy was adding 300,000 jobs a month, and the Fed was steadily raising short-term rates. It’s hard to see why anything similar should happen now, with the economy still bleeding jobs and the Fed showing no desire to raise rates anytime soon.

Bank watch list climbs to 552 - (money.cnn.com) Despite the frenetic pace of bank failures this year, more than 500 banks are still at risk of going under - the highest level in nearly 16 years. The Federal Deposit Insurance Corp. said Tuesday that the number of banks on its so-called problem list climbed to 552 during the the third quarter. The last time the number was this high was at the end of 1993, in the final days of the savings and loan crisis. At that time, the list contained 575 institutions. The FDIC, which was created to cover the deposits of consumers and businesses in the event of bank failures, also revealed that its deposit insurance fund slipped into the red for the first time since 1991. During the quarter, the value of the fund fell $18.6 to a negative $8.2 billion, partly because of $21.7 billion provision the agency took for future bank failures. Problem banks typically face difficulties with their finances, or are suffering through operations or management issues that threaten their existence. The institutions that wind up on the list are considered the most likely to fail, although few of them actually reach that point. On average, just 13% of banks on the FDIC's problem list have been shut down. So far this year, 124 banks have failed, and hundreds more are expected to follow in the coming years as the industry continues to struggle with housing-related loan losses and commercial real estate woes.

Pressure mounts for Geithner to Resign... - (www.washingtonpost.com) Treasury Secretary Timothy F. Geithner is making few new friends in Congress these days, as a growing litany of bipartisan critics are questioning whether he should keep his job. Rep. Kevin Brady of Texas, the top Republican House member on the Joint Economic Committee, on Thursday was the latest lawmaker to call for Mr. Geithner to resign, saying the nation has lost confidence in the Obama administration's ability to handle the economy. "For the sake of our jobs, will you step down from your post?" Mr. Brady asked Mr. Geithner during a hearing of the panel. Mr. Geithner, who was appointed by Mr. Obama and took office in January, shrugged off the request, saying that it was "a great privilege for me to serve this president." "I agree with almost nothing in what you said," the secretary added. "And I think almost nothing of what you said represents a fair and accurate perception of where this economy is today." Another Texas Republican, Rep. Michael C. Burgess, went a step further than Mr. Brady in his criticism of the secretary. "I don't think that you should be fired; I thought you should have never been hired," Mr. Burgess told Mr. Geithner. Mr. Burgess said questionable actions in Mr. Geithner's past, such his admission shortly after his nomination that he owed back taxes, made him unsuitable for the job from the beginning. "It did not leave the American people with a good feeling about the person who was going to be responsible for this economic recovery," he said. The GOP rebukes came two days after the release of an embarrassing report by a Treasury Department watchdog that criticized Mr. Geithner's handling last fall of an initial emergency plan to save then-failing American International Group (AIG) while head of the Federal Reserve Bank of New York.

...Jamie Dimon as Replacement? - (jessescrossroadscafe.blogspot.com) This news story is what is known in American parlance as a 'trial balloon.' It is a little leak to the press to assess the public and media reaction to a proposed change. The game plan appears to be one of creating change you can believe in by replacing Bernanke and Geithner with Larry Summers, currently Obama's chief economic advisor and financial Rasputin, and Jamie Dimon, the CEO of J. P. Morgan bank. Lloyd Blankfein apparently is not available for the job, having found his vocation in doing God's work. At least that is the plan that is being put 'on the table' by an influential group of financiers, or so we have been informed. Senator Chris Dodd, often the message bearer for Wall Street, mentioned last week that Mr. Bernanke's confirmation as Fed chief was not a certainty. Jamie Dimon learned the business from Sandy Weil, one of the chief architects of the efforts of the Wall Street banks' campaign to overturn Glass-Steagall. He is also very smooth andpolitique, as opposed to Mr. Geithner who is in quite a bit of political trouble and not handling it with the gravitas mixed with detached joie de vivre expected in elite circles. As Treasury Secretary perhaps Jamie can help out his old firm with their 130 million ounce naked short in silver. Oops, the US Treasury is out of silver too. We are discounting rumours that President Obama is considering an executive pardon for Bernie Madoff, with the condition that he agree to serve as Treasury Secretary. "Take those T bills and put them where the mooncakes don't shine, Hu Jintao."

Chinese Drywall Linked to Metal Corrosion, Sickness in U.S. Homes - (www.bloomberg.com) Sulfur emissions from imported Chinese drywall is linked to corroding metal and wires in U.S. homes, and may be causing eye irritation and other health complaints by homeowners, federal investigators said. A study of 51 homes with Chinese-made drywall found corrosion, including on copper air-conditioner coils, the report by the Consumer Product Safety Commission said today. The homes also had elevated levels of hydrogen sulfide and formaldehyde, which may cause eye irritation, cough, headaches and sinus infections reported by some homeowners, the report said. Most of the 2,100 homeowners who complained live in Florida or Louisiana, where the imported drywall was used to rebuild after hurricanes in 2004 and 2005. About 7 million sheets of drywall were imported from China in 2006, according to the consumer agency. U.S. safety officials have banned further imports and set up a task force to consider remedies. “We now have the science that enables the Task Force to move ahead to the next phase -- to develop both a screening process and effective remediation methods,” Inez Tenenbaum, chairman of the CPSC said in a statement. “We are now ready to get to work fixing this problem.” The levels of hydrogen sulfide and formaldehyde are low so they may be combining to act as irritants, safety officials said in a telephone conference with reporters. A group representing producers and users of formaldehyde challenged that finding today, calling the report’s hypothesis “irresponsible.” The Only Difference In the study, the only difference between the control and complaint homes was in the level of hydrogen sulfide, said Betsy Natz, executive director of the Arlington, Virginia-based Formaldehyde Council Inc. “There was no difference between the levels of formaldehyde measured in each group,” Natz said in an e-mail. Federal and state health experts said homeowners should open windows, keep temperatures low, run a dehumidifier, and spend time outdoors to limit the health effects of the irritants.

Wells Fargo Takes Over Deed to Sea Island’s Frederica Community - (www.bloomberg.com) Wells Fargo & Co. took the deed to Sea Island Co.’s 3,000-acre Frederica community in Georgia, adding to the list of developments caught in the commercial property crunch. Under the accord, disclosed by Wells Fargo yesterday, Sea Island transferred the deed on Nov. 19 to the residential and golf complex at the north end of St. Simons Island, 320 miles southeast of Atlanta. The community has a 400-acre lake, a Tom Fazio-designed golf course favored by St. Simons resident Davis Love III, river frontage and 600 home sites. “As the lender to the Frederica development, Wells Fargo has been working closely with the Sea Island Company to explore options for the property that would serve the needs of both parties and the community,” the San Francisco-based bank said in an e-mailed statement. Lack of credit, falling prices and waning occupancies forced borrowers to forfeit stakes in assets ranging from Boston’s John Hancock Tower to Sheffield57, a New York condominium conversion project. Last week, Morgan Stanley agreed to settle a $2 billion debt to Barclays Capital by giving up Crescent Real Estate Equities, which owned Canyon Ranch spa and resort residential developments. Frederica was intended to be a “Pebble Beach of the East,” said Peter Capone, an architect who was Sea Island’s chief designer. Lot sales at Frederica, which reached more than $2 million a parcel in 2005 and 2006, were supposed to help finance the rest of Sea Island’s expansion, Capone said in an interview in October. “That thing was positioned to make several hundred million dollars in land sales,” Capone said of Frederica.