KeNo's Housing and Economic Portal: Sunday January 10 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Lawrence Summers (Obama Chief Economic Adviser) Almost Brings Harvard Down in 2008 With Toxic Interest Rate Swamps - (www.bloomberg.com) Anne Phillips Ogilby, a bond attorney at one of Boston’s oldest law firms, on Oct. 31 last year relayed an urgent message from Harvard University, her client and alma mater, to the head of a Massachusetts state agency that sells bonds. The oldest and richest academic institution in America needed help getting a loan right away. As vanishing credit spurred the government-led rescue of dozens of financial institutions, Harvard was so strapped for cash that it asked Massachusetts for fast-track approval to borrow $2.5 billion. Almost $500 million was used within days to exit agreements known as interest-rate swaps that Harvard had entered to finance expansion in Allston, across the Charles River from its main campus in Cambridge, Massachusetts. The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them. Most of the wrong-way bets were made in 2004, when Lawrence Summers, now President Barack Obama’s economic adviser, led the university. Cranes were recently removed from the construction site of a $1 billion science center that was to be the expansion’s centerpiece, a reminder of Summers’s ambition. The school said last week they will suspend work on the building early next year. ‘Case Study’: “For nonprofits, this is going to be written up as a case study of what not to do,” said Mark Williams, a finance professor at Boston University, who specializes in risk management and has studied Harvard’s finances. “Harvard throws itself out as a beacon of what to do in higher learning. Clearly, there have been major missteps.” Harvard panicked, paying a penalty to get out of the swaps at the worst possible time. While the university’s misfortunes were repeated across the country last year, with nonprofits, municipalities and school districts spending billions of dollars on money-losing swaps, Harvard’s losses dwarfed those of other borrowers because of the size of its bet and the length of time before all its bonds would be sold. In December 2004, Harvard completed agreements that locked in interest rates on $2.3 billion of bonds for future construction in Allston, with plans to borrow $1.8 billion in 2008 after they broke ground and the remaining $500 million through 2020. At the time, the benchmark overnight interest rate set by the U.S. Federal Reserve was 2.25 percent. The agreements backfired last year after central banks slashed lending rates to zero and the value of the contracts plunged, forcing the school to set aside cash.

Iranians accused of seizing Iraq oil field - (www.independent.co.uk) Iraq was last night seeking a diplomatic solution to what it said was an incursion of Iranian troops who crossed into its territory and occupied an oilfield on Thursday night. The incursion, which Iran denies, raised the spectre of another confrontation between the two neighbours who fought a war from 1980 till 1988, partly caused by Iraqi claims of Iranian trespassing. Yesterday Iraq demanded that the troops withdraw, but after an emergency meeting of its national security council it said the two countries have begun negotiations to resolve it. Since the last PoWs were exchanged in 2003, the Iraqi government, now headed by Nouri al-Maliki, has generally enjoyed good relations with Tehran. But the Iranian regime has been watching with keen interest the award of massive oil contracts across the border, and the incursion is seen as a strategic step to establish its claim in a disputed border area which is also rich in petroleum potential. The Baghdad officials say the Iranians have "trespassed" into the al-Fakkah oilfield, one of the largest in the region, which straddles the border between the two countries, three times in the last month. But this time, they are said to have pulled down the Iraqi flag and raised their own. Both countries claim that the No 4 well, the most productive in the field, belongs to them. "As well as the flag, they have also dug a trench around the oil well and deployed armoured cars," said Brigadier-General Dhafir Nadhmi of the Iraqi army. "They have taken control of the field. We are waiting for orders from our government."

Panama’s Bond Flop May Spark More Losses After Rout, MFS Says - (www.bloomberg.com) Panama will look for other chances to sell bonds after a “window of opportunity” it saw yesterday to offer $760 million of debt disappeared, said Dario Espinosa, sub-director for public credit at the Finance Ministry. The country scrapped yesterday the plan to have a state development fund sell the government debt from its credit portfolio after the offer fueled the worst bond rout in nine months. The fund, which is controlled by the finance ministry, tried to take advantage of a run-up in Panama’s bond prices and a boost to its credit-rating outlook by Standard & Poor’s to sell the debt, Espinosa said. “We saw a window of opportunity, but sadly the market didn’t open as much as we wanted,” Espinosa said in a phone interview from Panama City. Panama’s failed bond offering may spark further declines in the debt as investors anticipate the government will make a second attempt at selling the securities, said Ward Brown, who manages about $5 billion of emerging-market debt at Massachusetts Financial Services. The fund’s transition from buyer of Panamanian bonds to seller will remove a source of demand, curbing a two-month rally in the bonds, he said.

Midnight in the food-stamp economy - (www.reuters.com) At 11 p.m. on the last day of the month, shoppers flock to the nearest Walmart. They load their carts with food and household items and wait for the midnight hour. That's when food stamp credits are loaded on their electronic benefits transfer cards. "Once the clock strikes midnight and EBT cards are charged, you can see our results start to tick up," says Tom Schoewe, Wal-Mart Stores Inc's chief financial officer. As food stamps become an increasingly common currency in a struggling U.S. economy, they are dictating changes in how even the biggest retailers do business. From Costco to Wal-Mart, store chains are rethinking years of strategy as they watch prized customers lose jobs and turn to this benefit, the stigma of which is disappearing not just in society, but in corporate America. Besides staffing up for the spike in shoppers on the first day of the month, retailers are adjusting when and what they stock, updating point-of-sale systems to accept food stamps and shifting expansion plans to focus on lower-income shoppers. Take Costco Wholesale Corp, a warehouse club operator that caters to middle income Americans who must pay $50 a year to shop in its stores. Nudged along by New York Attorney General Andrew Cuomo, who threatened legal action, Costco began accepting food stamps at a few New York stores in May. It now plans to clear the payments in all of its 413 locations in the United States and Puerto Rico. "Our view was ... we would not get a lot of food stamps because our member on average is a little more upscale," Costco Chief Financial Officer Richard Galanti said in October. "Well, I think that was probably a little bit arrogant on our part." As of September, a record of more than 37 million people were enrolled for the government benefit, federal officials told Reuters, an increase of nearly 35 percent since the U.S. slid into recession at the end of 2007. An estimated one in eight Americans depends on the benefit to buy food. With the nation's unemployment in double digits, more people are expected to enroll. By some government estimates, up to 16 million people who are not receiving food stamps today could qualify.

Seven U.S. Banks Are Seized, Raising Year’s Failure Toll to 140 - (www.bloomberg.com) Seven U.S. banks were seized by regulators, bringing this year’s total of failed lenders to 140 as financial companies are tested by the recession and the Federal Deposit Insurance Corp. anticipates more shutdowns. Banks with $14.4 billion in total assets were closed yesterday in six U.S. states, the FDIC said in statements on its Web site. The agency is overseeing the dissolution of banks at the fastest pace in 17 years. Two of the closures were in California. The assets and deposits of Federal Bank of California in Santa Monica were bought by closely held OneWest Bank, which acquired IndyMac Federal Bank this year. Imperial Capital Bank was bought by City National Corp., the Beverly Hills-based parent of City National Bank, which expanded in Southern California with the purchase. “Imperial Capital Bank is a very good fit for City National, given that eight of its nine locations are in communities we serve,” City National Chief Executive Officer Russell Goldsmith said in a statement. “We’re pleased to contribute to the increased stability of the banking system.” Federal Bank was the biggest lender seized yesterday, with $6.1 billion of assets and $4.5 billion in deposits, according to the FDIC. Based in La Jolla, Imperial Capital had assets of $4 billion and $2.8 billion in deposits. Earlier this week, the FDIC boosted its 2010 budget by 56 percent to $4 billion to manage further shutdowns. The total budget will increase from $2.6 billion and the set-aside for bank failures doubles to $2.5 billion over this year, according to a proposal approved by the FDIC board. The agency staff will increase to 8,653 next year from 7,010 this year.