KeNo's Housing and Economic Portal: Thursday January 7 Housing and Economic stories

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TOP STORIES:

Real estate co Fairfield files for bankruptcy - (www.reuters.com) rivately-held real estate company Fairfield Residential LLC filed for bankruptcy protection on Sunday, saying that the collapse of the U.S. real estate and capital markets has made it difficult to continue without restructuring. The company, which filed a voluntary Chapter 11 bankruptcy petition in Delaware, said it has agreed with its significant lenders on the framework of a plan of reorganization that would allow it to continue its property management, asset management, construction services and general partner functions. Fairfield said in a statement that the plan maintains the company's existing infrastructure in a new operating company, but that some assets not assigned to the new operating company will be assigned to a liquidating trust. Fairfield specializes in multifamily housing and is based in San Diego, Calif. The case is In re: Fairfield Residential LLC, U.S. Bankruptcy Court, District of Delaware, No. 09-14378.

Washington warned of looming debt crisis - (www.ft.com) The US is heading for a public debt crisis unless action is taken soon to stabilise debt relative to national income, a bipartisan group of former congressmen, White House officials and budget experts warned on Monday. “There is a real crisis looming,” said Bill Frenzel, a former Republican ranking member of the House budget committee. Jim Jones, a former Democratic chairman of the committee, said there was no way of knowing when a market backlash might materialise. The group, known as the Pew-Peterson commission, called on Democrats and Republicans to agree on a binding debt to gross domestic product target of 60 per cent by 2018. Under the plan, an enforcement mechanism would impose spending cuts and a tax surcharge if Congress failed to achieve the target in 2018 and each year beyond. The group estimated that on reasonable assumptions US debt would otherwise rise to 85 per cent of GDP by 2018 and more than 200 per cent of GDP by 2038. Stabilising debt at 60 per cent of GDP by 2018 would require reducing the deficit by five percentage points of GDP relative to where it would be under these realistic assumptions, the group estimated. It emphasised that fiscal consolidation need not begin until the recovery was well established. However, many doubt whether cross-party political agreement on the target is feasible. Maintaining the target beyond 2018 would require big cuts to spending on entitlement programmes including Medicare, the state health scheme for the elderly. Analysts question whether anti-tax Republicans would sign up to a plan that would be likely to lead to tax increases – particularly without up-front agreement on longer-term spending cuts. Achieving such spending cuts, which would ultimately have to fall predominantly on Medicare since it is the main driver of long-term deficits, immediately after the Obama administration’s healthcare reform would be extremely challenging. The easiest Medicare savings have already been allocated to finance expanded coverage, while structural shifts in the Obama plan that might lay the foundation for second-generation health reform will not reap results for years. The Center for American Progress on Monday put out an alternative plan based on balancing the budget before interest payments by 2014 and moving to full balance by 2020.

Greece warned to act over default risk - (www.ft.com) Greece must announce bold initiatives in the next few days to rescue its collapsing bond market and avert the possibility of defaulting on a rising public debt, leading economists and bankers warned on Sunday. George Papandreou, prime minister, will outline structural reforms on Monday aimed at cutting the budget deficit from 12.7 per cent to 3 per cent of gross domestic product – the limit allowed by the eurozone’s stability and growth pact – over the next four years. But observers were pessimistic on Sunday night that Mr Papandreou would reverse his current policy and call for an immediate freeze on public sector wages and higher excise taxes. Such measures are seen as critical to lowering spreads on Greek bonds and restoring confidence in the economy. “Greece has to show it understands the magnitude of the crisis,” said Nikos Karamouzis, deputy chief executive of EFG Eurobank, the largest private Greek lender. “This means implementing immediately very radical and painful measures. This is what international financial markets and our European partners are demanding,” he said. Ireland last week announced unprecedented cuts in public sector wages and unemployment benefits, while Spain promised a 4 per cent reduction of spending in its 2010 budget amid pressure on bond markets.

Venezuela Bolivar Plunges as Chavez Threatens Bank Seizures - (www.bloomberg.com) Venezuela’s bolivar sank to a two- month low and bonds tumbled as President Hugo Chavez’s threat to seize more banks prompted investors to pull their money from the financial system and move it overseas. The bolivar plunged as much as 9 percent to 6.30 per dollar, the weakest since Sept. 9, in the unregulated parallel market, traders said. The currency traded at 6.1 at 5:20 p.m. in New York. Venezuelans buy dollars in the parallel market when they can’t get government authorization to purchase them at the official exchange rate of 2.15 per dollar. After seizing four banks and a brokerage on charges that their owner diverted deposits and failed to show the origin of funds, Chavez said yesterday that he has another group of banks on his “radar.” He vowed to nationalize the private banking industry if lenders don’t follow Venezuelan law. Chavez’s “comments on intervening in other banks has sparked even more uncertainty regarding the financial system,” said Alejandro Martinez, an economist at Veneconomia, a research company in Caracas. “People get scared and seek dollars as refuge.”

Sarkozy to unveil Big Loan plan - (finance.yahoo.com) French President Nicolas Sarkozy on Monday unveiled details of a euro35 billion ($52 billion) government-backed spending program aimed at boosting France's investments in its universities as well as in fields such as electric cars and renewable energy. Sarkozy said the plan, known as the "Big Loan," was needed to get France ready for the future, although critics contend it will significantly worsen France's already stretched public finances. "Today we must prepare our country for the challenges of the future, so that France can fully profit from the recovery, so that it is stronger, more competitive and that it creates more jobs," Sarkozy said at a news conference in the Elysee palace. The president rejected claims the program amounted to a stimulus plan, saying the investments it will finance "would be necessary even without the crisis." Of the euro35 billion, Sarkozy said euro22 billion will be raised via government borrowing, with the remainder made up by the euro13 billion that French banks have paid back to the government since the state stepped in to shore up their capital last year at the peak of the global financial meltdown. Including private investment that the government aims to attract, the plan will mobilize euro60 billion, Sarkozy said.

One-Fifth of For-Profit College Borrowers Default on U.S. Loans - (www.bloomberg.com) One in five people who took out federal student loans to attend for-profit colleges defaulted within three years of leaving school, according to U.S. government data released today. The report issued by the Education Department provides a preview of how colleges may fare under a 2008 law that will require default rates to be calculated over three years, instead of the current two, starting in 2012. “We’re hopeful that by providing this three-year information, schools will take a look and see where they are and see some of the things that they’ll need to do,” Dan Madzelan, the department’s acting assistant secretary for postsecondary education, said today in an interview. Starting in 2014, schools that have had three-year default rates of at least 30 percent for three consecutive years, or 40 percent in any one year, would lose federal funds under the new law, Madzelan said. Corinthian Colleges Inc. and Lincoln Educational Services Corp. are among for-profit education companies that may be vulnerable to federal sanctions if they fail to improve on the default rates at some of their schools, said Jarrel Price, an analyst at Height Analytics in Washington. Corinthian’s Everest Institute in Southfield, Michigan, had a 37 percent three-year default rate on student loans, according to the Education Department’s unofficial report. Lincoln College of Technology in Melrose Park, Illinois, had a 33 percent default rate for that period.

OTHER STORIES:

Junk Bond Sales Set U.S. Record as Buyers Return - (www.bloomberg.com)

Fastest Food Inflation Since Riots Means Milk Up 39% - (www.bloomberg.com)

Bond Traders Put Pressure on Debt-Laden Nations - (www.nytimes.com)

Yen Favored for Carry Trades as Japan Faces Deflation - (www.bloomberg.com)

Corporate Bond Risk Falls in Europe, Credit-Default Swaps Show - (www.bloomberg.com)

Abu Dhabi Bails Out Dubai World With $10 Billion - (www.bloomberg.com)

Dubai May Need More Help to Repay Debt After Abu Dhabi Bailout - (www.bloomberg.com)

Nakheel Bond Prices Double, Bailout Leaves ‘Bitter Aftertaste’ - (www.bloomberg.com)

Abu Dhabi steps in to bail out Dubai - (www.ft.com)

U.A.E. Stocks, Nakheel Bonds Rise, Default Risk Falls on Rescue - (www.bloomberg.com)

Japan Tankan Sentiment Rises at Slowest Pace Since Recession - (www.bloomberg.com)