KeNo's Housing and Economic Portal: Monday January 11 Housing and Economic stories

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NY Fed Chief Abruptly Resigns - (www.nytimes.com) Stephen Friedman, the chairman of the Federal Reserve Bank of New York, abruptly resigned on Thursday, days after questions arose about his ties to Goldman Sachs. Mr. Friedman was chairman of the New York Fed at the same time that he was a member of Goldman’s board. He also had a substantial stake in the firm as the Fed was devising a solution to keep Wall Street banks afloat. Denis M. Hughes, deputy chairman of the board, will take over as the interim chairman, the New York Fed said in a statement. (Read Mr. Friedman’s letter after the jump.) Because the New York Fed approved a request by Goldman to become a bank holding company, the chairman’s involvement in Goldman was a violation of Fed policy, The Wall Street Journal said in an article earlier this week. The New York Fed asked for a waiver, which, after about two and a half months, the Fed granted, the newspaper said. During that time, Mr. Friedman bought 37,300 more Goldman shares in December, which have since risen $1.7 million in value. In his resignation letter, Mr. Friedman said his public service on the board was being characterized as “improper” despite his compliance with the rules. “The Federal Reserve System has important work to do and does not need this distraction,” he said. “With respect to Steve’s purchases of Goldman shares in December of 2008 and January of 2009, which have been the object of some attention lately, it is my view that these purchases did not violate any Federal Reserve statute, rule or policy,” Thomas C. Baxter, the general counsel of the New York Fed, said in a statement. “I enjoyed working with Steve, and will miss his contributions in the boardroom.”

Credit card's newest trick: 79.9 percent interest - (www.news.yahoo.com/s/ap) It's no mistake. This credit card's interest rate is 79.9 percent. The bloated APR is how First Premier Bank, a subprime credit card issuer, is skirting new regulations intended to curb abusive practices in the industry. It's a strategy other subprime card issuers could start adopting to get around the new rules. Typically, the First Premier card comes with a minimum of $256 in fees in the first year for a credit line of $250. Starting in February, however, a new law will cap such fees at 25 percent of a card's credit line. In a recent mailing for a preapproved card, First Premier lowers fees to just that limit — $75 in the first year for a credit line of $300. But the new law doesn't set a cap on interest rates. Hence the 79.9 APR, up from the previous 9.9 percent. "It's the highest on the market. It's the highest we've ever seen," said Anuj Shahani, an analyst with Synovate, a research firm that tracks credit card mailings. The terms are eyebrow raising, but First Premier targets people with bad credit who likely can't get approved for cards elsewhere. It's a group that tends to lean heavily on credit too, meaning they'll likely incur the steep financing charges.

Senate Healthcare Bill Tanning Bed Tax: Yes You Heard Me Right - (www.theadmonition.com) An interesting tidbit about the Senate healthcare bill that you may find fascinating or maddening depending on your political stripe is the tanning bed tax that will be levied on people who are looking for that summertime glow. Yes, a 10% tax on all indoor tanning services is included in the Senate healthcare bill. The Senators from hell replaced the Botox tax with the Indoor tanning tax. I suppose Tanning Salons fall under cosmetic healthcare in one way or another according to the brain trust in Washington. But then again, why should any cosmetic surgery or cosmetic procedure or any kind be considered healthcare at all? I suppose that’s a debate unto itself. The tanning bed tax is included in an amendment added to the original Senate healthcare bill, but no biggie, this amendment is only 383 pages long. You’ll find the tanning bed tax located in the section titled “Cosmetic Procedures”. Is going to a tanning bed a cosmetic procedure? Who says so? And how is it related to healthcare? Because some folks say it causes skin cancer? So if you visit a tanning bed your insurance premiums should be higher? Who are these people that we’ve sent to Washington to do the work of the people?

Considering the tanning bed tax, I wonder how many other hidden jewels are included in this wonderful piece of legislation? Nancy Pelosi probably petitioned Reid to drop the Botox tax and replace it with this idiocy. But then again, she does look awfully tan most of the time.

Senate Bill Boosts Medicare Tax, Drops Surgery Levy - (www.bloomberg.com) The U.S. Senate’s health-care overhaul plan would almost double a proposed increase in Medicare payroll taxes for high-earners and impose a new tax on indoor tanning, replacing an earlier levy on plastic surgery. The new version of the bill announced today by Senate Majority Leader Harry Reid contains a 0.9 percentage-point increase in the Medicare tax for individuals who earn more than $200,000 and couples earning more than $250,000, according to an estimate by the nonpartisan Joint Committee on Taxation. The increase would start in 2013. The tax threshold wouldn’t be indexed for inflation. That would generate $86.8 billion over six years, up from about $50 billion that would have been generated by an earlier proposed increase of 0.5 percentage point. Those affected would pay a Medicare tax rate of 2.35 percent, while their employers would continue to pay 1.45 percent. The higher Medicare tax and a new proposed 10 percent excise tax on indoor tanning would be in place of an earlier proposal to tax breast enhancements and other elective cosmetic procedures, which was dropped from the bill. The U.S. Food and Drug Administration says tanning lamps are hazardous, and it is considering stricter regulation. The main tax component of the bill remains a 40 percent excise tax on the portion of employer-provided health-insurance plans worth more than $8,500 for individual coverage and $23,000 for families in 2013.

Citadel Broadcasting Files for Bankruptcy Protection - (www.bloomberg.com) Citadel Broadcasting Corp., the owner of radio stations in cities including New York and Chicago, filed for U.S. bankruptcy protection in Manhattan. The company, which syndicates Don Imus’s morning talk show through its U.S. radio network, listed assets of $1.4 billion and debt of $2.5 billion in its Chapter 11 filing today in U.S. Bankruptcy Court. Forstmann Little & Co., a New York-based private equity firm, owns 29 percent of the company’s common stock, according to court papers. The filing covers about 50 units of Las Vegas-based Citadel. Citadel hired financial advisers in May to aid in talks with lenders on a possible refinancing. U.S. radio broadcasters including Clear Channel Communications Inc., the largest, have struggled with debt loads and a drop in advertising revenue, particularly from carmakers. Citadel reported a loss of $21.3 million in the third quarter as revenue fell 14 percent. “The ongoing weakness in the economy and advertising spending, compounded by rising debt and leverage” have left Citadel with an “unsustainable capital structure,” Neil Begley, an analyst at Moody’s Investors Service, said Dec. 11 in a report. Sales “will continue to decline” this quarter, Citadel said in a Nov. 6 filing with the U.S. Securities and Exchange Commission. The company didn’t expect to meet January financial covenants, leading to a default and possibly forcing a bankruptcy filing, Citadel said at the time.

Dubai World poised to press for loan extensions - (www.reuters.com) Debt-ridden conglomerate Dubai World is expected on Monday to ask key creditors for more time to pay off its loans, but leave them none the wiser concerning their prospects of being paid back in full. Saddled with a $22 billion debt pile and in need of restructuring, the Gulf Arab emirate's flagship company is expected to formalize a request for a payment standstill at a meeting with some 90 creditors at Dubai's World Trade Center complex. Though important, the gathering will probably mark only an intermediate step in a lengthy process, with banking sources anticipating no detailed proposals on the terms of the potential standstill to be discussed. "Providing clarity is clearly the number one priority," said Raj Madha, banking analyst at EFG-Hermes. "Obviously a standstill is not ideal. But a standstill with visibility of when payments will be received or the extent of these payments would be sufficient to call it a result." Dubai sent shockwaves through global markets on November 25 when it requested a standstill on $26 billion of debts linked to Dubai World and its two property units Nakheel and Limitless. A $10 billion lifeline from neighboring Abu Dhabi last week -- the third to Dubai this year -- helped it stave off default on a $4.1 billion Islamic bond, or sukuk, from Nakheel. A local newspaper said on Sunday that Dubai may still repay lenders in full, citing unnamed sources. The National daily said two top Dubai officials, on a confidence-building mission to Britain and the United States in recent days, told financial leaders in London that repaying all bank loans in full "was discussed as a medium-term possibility." Sheikh Ahmed bin Saeed al-Maktoum, head of Dubai's Supreme Fiscal Committee and the uncle of Dubai's ruler, and Mohammed al-Shaibani, deputy head of the committee, met officials in London last week. "They made clear there were a number of options the government of Dubai saw as feasible and desirable for Dubai World and repayment in full was one of them," the newspaper quoted a person who attended the talks as saying.

Debt default in a developed country is unthinkable – or is it? - (www.ft.com) Greece’s fiscal travails and ratings downgrades have provided some year-end trades for the speculators who have been betting against the bonds of the least flush euro area governments, and a great deal of material for professionally gloomy commentators such as myself. Most of the product of the euro-commentariat has stopped short of predicting outright default. That would, it is generally understood, be unthinkable for a developed country. It’s the sort of thing done by the Argentines of the world, not Europeans or Americans. Oh, sorry, strike the last statement. A developed, advanced, government-of-laws-not-men such as that of the US could repudiate its debt, and it did so in 1933. In March of that year, the US passed a law effectively repudiating the “gold clause”, incorporated in public and private bond documentation, that promised payment in currency equivalent to a fixed mass of gold, or “weight”, as non-physicists say. The private ownership of monetary gold was outlawed, and creditors were instead told that they would be paid in “legal tender coin or currency.” The US declared that the gold private citizens could not own was now worth $35 per ounce, rather than $20.67, for an effective devaluation of 41 per cent. That devaluation was more than twice the post-euro-entry increase in the real effective exchange rate (Reer) of Greece, more than the Reer increase of Spain and Italy, and just a little less than the Reer increase of Hungary over the same period. Economists, columnists, credit analysts, and the like say that ultimately these countries need to regain that Reer competitiveness with either “internal devaluation”, ie wage, pension, and state services cuts, or “external devaluation”. The first means that the population pays, the latter that external creditors pay.