KeNo's Housing and Economic Portal: Monday January 25 Housing and Economic stories

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TOP STORIES:

High pay, bonuses keep flowing at Bailed Out Fannie, Freddie - (www.northjersey.com) As the nation’s thoughts turned to eggnog and gift-giving on Christmas Eve, the news hit: "Fannie Mae, Freddie Mac executive compensation significantly reduced." Better yet, the government said the pay would be more aligned with "taxpayer interests." All this sounded like a reason for some holiday cheer. One might expect the government to keep pay under tight control at the mortgage giants, which have taken $111 billion in taxpayer money over the past year and just got a blank check for more. Instead, taxpayers wound up with a piece of coal. Left out of the government’s news release were the numbers that really mattered — like the fact that Fannie and Freddie’s CEOs could make at least $6 million in cash for 2009, and possibly more. That puts them on track to make 15 times the salary of President Obama, who is technically their boss. A year after Fannie and Freddie were bailed out and amid continued promises from the Obama administration to rein in executive pay, the plump pay packages — which were disclosed in the companies’ securities filings — show not much has changed. "This highlights the myth of pay reform out of Washington," said J. Robert Brown, a professor of business law and corporate governance at the University of Denver and an expert on compensation issues. "This is a sign that the government isn’t going to do much about the problems of pay." This should have been an easy one for the government, which wields power at Fannie and Freddie unlike anywhere else. Both companies were taken over by regulators in the late summer of 2008 after being crippled by nearly $15 billion in losses as the housing market tanked. Fannie and Freddie play a vital role in the mortgage market by backing three-quarters of all new residential mortgages. They purchase loans from lenders and sell them to investors with a guarantee against default.

America slides deeper into depression as Wall Street revels - (www.telegraph.co.uk) December was the worst month for US unemployment since the Great Recession began. The labour force contracted by 661,000. This did not show up in the headline jobless rate because so many Americans dropped out of the system. The broad U6 category of unemployment rose to 17.3pc. That is the one that matters. Wall Street rallied. Bulls hope that weak jobs data will postpone monetary tightening: a silver lining in every catastrophe, or perhaps a further exhibit of market infantilism. The home foreclosure guillotine usually drops a year or so after people lose their job, and exhaust their savings. The local sheriff will escort them out of the door, often with some sympathy –– just like the police in 1932, mostly Irish Catholics who tithed 1pc of their pay for soup kitchens. Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody's Economy.com expects another 2.4m homes to go this year. Taken together, this looks awfully like Steinbeck's Grapes of Wrath. Judges are finding ways to block evictions. One magistrate in Minnesota halted a case calling the creditor "harsh, repugnant, shocking and repulsive". We are not far from a de facto moratorium in some areas. This is how it ended between 1932 and 1934, when half the US states declared moratoria or "Farm Holidays". Such flexibility innoculated America's democracy against the appeal of Red Unions and Coughlin Fascists. The home siezures are occurring despite frantic efforts by the Obama administration to delay the process.

IMF to Send Team to Greece Tomorrow on Request of Authorities - (www.bloomberg.com) A team of International Monetary Fund officials arrive in Greece today to aid the government in its efforts to tame Europe’s biggest budget deficit. The mission, “within the context of the regular surveillance that the IMF provides to its membership,” will help the government with “pension reform, tax policy, tax administration and budget management,” a spokeswoman for the Washington-based lender said in an e-mailed statement yesterday. The visit comes as Prime Minister George Papandreou moves to complete a plan to convince the European Union that Greece can reduce the shortfall from 12.7 percent of output in 2009 to less than 3 percent in 2012. EU and European Central Bank officials were also in Athens last week to vet the government’s efforts and EU President Herman van Rompuy also visits today. The so-called stability pact will be discussed at a Cabinet meeting by the end of the week, Papandreou said on Jan. 10. He also plans to hold a news conference this week to outline the government’s priorities for the year. “The Greek government is aware of the seriousness of the situation,” Olli Rehn, EU commissioner-designate, said yesterday during his confirmation hearing before a European Parliament committee in Brussels. “The commission is assessing the matter with major concern.”

Banks’ Losses May Spell Shake-Up in Germany - (www.nytimes.com) ven in an era of bad banking deals, the case of Bayerische Landesbank, a bank based in Munich, stands out. Its ill-fated attempt to expand in Eastern Europe has cost Bavarian taxpayers 3.7 billion euros ($5.4 billion). It has also led to a criminal investigation of the bank’s former chief executive, which included the spectacle of Munich police and prosecutors raiding offices of an institution whose supervisory board is stacked with local politicians. The criminal investigation is a new twist in the troubled history of Germany’s state-owned banks, but the sizable losses are not. Even before the most recent scandal, the Bayerische Landesbank, known as BayernLB, had required a taxpayer bailout equal to a quarter of the state’s annual budget, in part caused by investments placed with banks in Iceland. Taxpayers in Baden-Württemberg and Hamburg have also had to pump billions into their state-owned banks. In North-Rhine Westphalia, Germany’s most populous state, WestLB in Düsseldorf needed 8 billion euros in government grants and loan guarantees to stay afloat after making disastrous investments that included derivatives tied to subprime mortgages in the United States. The Landesbank rescues — reminiscent of the financial crises at American-backed lenders Freddie Mac and Fannie Mae — have placed a serious burden on German state governments already suffering from slumping tax revenue, as well as the federal government, which is helping to cover some losses.

Chavez’s Three-Tiered Currency System May Spur Inflation Surge - (www.bloomberg.com) President Hugo Chavez, struggling to stem an outflow of dollars and rein in a budget deficit, has adopted a multiple-tiered exchange-rate system that fueled corruption, food shortages and inflation in the 1980s. Shoppers in Caracas lined up over the weekend to buy imported televisions, DVDs and refrigerators on concern prices will soar after Chavez on Jan. 8 devalued the 2.15-per dollar exchange rate by as much as 50 percent. He set a rate of 2.6 for imports of items such as food and medicine, a rate of 4.3 for “non-essential” products and committed to defend the bolivar in the unregulated market, where it traded today at 6.25. The three-tiered rate system mirrors the failed policy the South American country implemented after a collapse in its biggest export, oil, led to a devaluation in 1983 that Venezuelans call “Black Friday.” Chavez, who said the weaker currency will stimulate economic growth, runs the risk of creating an inflation surge and swelling corruption, said Harvard University’s Ricardo Hausmann. “Latin America learned in the 1980s that policies like this do not work,” Hausmann, who runs Harvard’s Center for International Development, said in a phone interview. Hausmann served as planning minister in the 1990s under Carlos Andres Perez, the president who dismantled the multi-tiered rate system of the 1980s. “It’s too easy a game to steal money through a multi-tiered exchange rate. You make a bundle just on the exchange differential.”

Treasury Yield Curve Steepens to a Record as Equities Advance - (www.bloomberg.com) Treasury two-year notes rose for a second day as investors added to bets the Federal Reserve will keep interest rates on hold in the first half of the year. The yield difference between 2- and 10-year notes rose to the most on record as the government prepared to sell $10 billion of Treasury Inflation Protected Securities today, the first of this week’s four note and bond auctions for $84 billion. Two-year note yields fell the most since August last week after a report showed the U.S. economy unexpectedly lost jobs in December. “There has been some decent buying that has come off of Friday’s data,” said Thomas L. di Galoma, head of U.S. rates trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “People are hiding out in the front end waiting for supply to come to the back end. The market feels comfortable with the steepening pressure.” Two-year note yields fell four basis points, or 0.04 percentage point, to 0.94 percent at 12:33 p.m. in New York, according to BGCantor Market Data. That’s the lowest level in over two weeks. The 1 percent security maturing in December 2011 rose 3/32, or 94 cents per $1,000 face amount, to 100 1/8. The spread between 2- and 10-year Treasuries widened two basis points to 287 basis points. It earlier touched an all-time high of 289 basis points.

Cold imperils Florida's fish, fruit and veggies - (finance.yahoo.com) Growers were scrambling Monday to assess damage and pick as many oranges as possible from thousands of acres of citrus groves. Trucks filled with fruit rumbled through the center of town all day as their drivers rushed them to juice plants. Freezing temperatures that swept in on an Arctic front from Canada have been plaguing the state for a week, with several areas approaching or breaking records on Monday. The cold is extremely tough on the state's fruit and vegetable growers, with crops such as citrus trees and sugar cane suffering damage when exposed to temperatures below 28 degrees for more than 4 hours. It was below 28 degrees more than 8 hours overnight in the agriculture-dominated area around Lake Okeechobee. "Temperatures have been ridiculous cold for South Florida," said Eric Hopkins, vice president of Hundley Farms Inc. in Belle Glade on the lake's southern edge. He estimated his farm would lose about $750,000 in green beans and sweet corn because of the cold. "We survived a couple of the nights, but this weekend sort of finished us off as far as the sweet corn and green beans go," he added. Overall crop damage tallies won't be available for days or weeks, agricultural officials said. But the state Department of Agriculture said there has been "significant crop damage" throughout the state, from tropical fish farms near Tampa to the ferns grown in Volusia for filler in Valentine's Day bouquets. Strawberries were also affected.

OTHER STORIES:

Dollar Drops Most Since November on Fed Outlook After Payrolls - (www.bloomberg.com)

Gold Advances to One-Month High as Dollar’s Drop Spurs Demand - (www.bloomberg.com)

Oil Falls From 15-Month High on Forecasts for Warmer Weather - (www.bloomberg.com)

Treasury Shorter-Term Notes Gain on Fed Rate Bets; Sales Loom - (www.bloomberg.com)

U.S. Stocks Advance a Sixth Day on Alcoa, Record China Imports - (www.bloomberg.com)

Obama Weighs Fee to Recoup Bank Bailout and Cut Deficit - (www.nytimes.com)

China's commodity imports soar in December - (www.reuters.com)

Bernanke Bond Spread Most Since 2007 Shows Decoupling - (www.bloomberg.com)

Rate rise fears spark rush to issue bonds - (www.ft.com)

U.S., in Nod to Creditors, Is Adding TIPS Issues - (online.wsj.com)

Dollar No Match for Aussie, Loonie Approaching Parity - (www.bloomberg.com)