KeNo's Housing and Economic Portal: Wednesday January 6 Housing and Economic stories

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TOP STORIES:

Matt Taibbi: Obama’s Big Sellout – (Matt Taibbi at www.rollingstone.com) The president has packed his economic team with Wall Street insiders intent on turning the bailout into an all-out giveaway. Watch Matt Taibbi discuss "The Big Sellout" in a video on his blog, Taibblog. Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers "at the expense of hardworking Americans." Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it's not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing. Then he got elected. What's taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside. How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we've been seeing on TV this fall who Obama really is? Whatever the president's real motives are, the extensive series of loophole-rich financial "reforms" that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street's political power by institutionalizing the taxpayer's role as a welfare provider for the financial-services industry. At one point in the debate, Obama's top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals. How did we get here? It started just moments after the election — and almost nobody noticed.

Options Show S&P 500 Rally in Peril Amid Bearish Bets - (www.bloomberg.com) Traders are boosting bets in the U.S. options market that this year’s rally in the Standard & Poor’s 500 Index won’t last. The fourth most-active options to sell the SPDR Trust Series 1 yesterday were December 2010 $55 puts, contracts with so-called strike prices more than 50 percent below the cost of the exchange-traded fund known as the SPY. S&P 500 options to protect against losses in 2010 are 33 percent more expensive than one-month contracts, among the highest premiums in the past five years, according to data compiled by Bloomberg. “The real news next year would be if we don’t get a 5-to 10-percent correction,” said Stephen Wood, who helps manage $170 billion as chief market strategist for North America at Russell Investments in New York. “The rally since March has been all but uninterrupted.” Speculation is increasing that the advance that restored $5 trillion to U.S. equities will falter as the Federal Reserve raises interest rates and earnings fail to match analysts’ projections. Bearish bets in the options market last peaked a month before New York-based Lehman Brothers Holdings Inc. filed for the biggest-ever bankruptcy in September 2008, sending the S&P 500 down 46 percent in the next six months. Buyers Initiate Trades: The SPY, which has rallied 63 percent since March, added 0.4 percent to $111.11 in New York today. The December 2010 $55 puts changed hands 48,577 times yesterday, the second-highest volume since they began trading almost a year ago, and 76 percent of them traded at the ask price, indicating buyers initiated the majority of the transactions. Contracts with a strike price so far below the ETF price often aren’t bets a security will fall that much. Rather, they’re purchased by traders speculating that stock swings will increase, boosting demand for insurance against losses and increasing the contract’s price, said Dean Curnutt, president of New York-based Macro Risk Advisors LLC. “If market declines materialize, you’ll see a substantial pickup in volatility, and these puts have very strong volatility characteristics for the buyer,” said Curnutt, whose firm advises professional investors on derivatives strategies. “As volatility goes up, these far-out-of-the-money puts have a very strong and favorable reaction to increases.” The S&P 500 advanced 0.4 percent to 1,106.41 today, erasing a weekly decline, as better-than-estimated retail sales and consumer confidence data bolstered optimism that the economic recovery is strengthening.

Get Ready, Get Set, Point Fingers - (www.nytimes.com) DURING the lending mania, as Wall Street’s mortgage machinery hummed and the money poured in, millions of loans were bought and sold, zipping across town or around the world. Now that this giant factory is pretty much shuttered, details are emerging about how its assembly lines actually operated. And as a dispute between two European banks and Bank of America indicates, the revelations aren’t pretty. Starting in late 2007, Deutsche Bank invested $1.2 billion in a mortgage financing vehicle known as Ocala Funding; alongside it was BNP Paribas, a French bank that put $481 million into the same vehicle. Ocala issued short-term notes and from the proceeds, bought mortgages that it could promptly sell to Freddie Mac, the government-sponsored enterprise. Bank of America was trustee, collateral agent, custodian and depositary agent to Ocala — its back office, in essence. Ocala was busy: roughly $1 billion in mortgages flowed in and out of it each month. Because of its structure, Deutsche Bank and BNP viewed Ocala as a fairly low-risk investment. For example, Ocala could not hold mortgages that it was waiting to sell to Freddie Mac for more than 60 days, and it could buy only loans that had been reviewed and were physically held by the original lender. But there were a couple of problems with the set-up: the company writing the mortgages funneling through Ocala was Taylor Bean & Whitaker, a lender that filed for bankruptcy last August. And to make its loans, Taylor Bean used money from Colonial Bank, a Montgomery, Ala., institution that also went belly-up. The Federal Deposit Insurance Corporation took over Colonial in August. Sorting through the wreckage of those related failures has generated more questions than answers so far. Taylor Bean was shut down by the Federal Housing Administration, citing possible mortgage fraud. According to people briefed by those winding down Taylor Bean’s operations, who requested anonymity in order to preserve professional relationships, there are signs that the company sold some of its loans to more than one buyer. Lawyers representing Taylor Bean did not return phone calls seeking comment. In any event, Ocala says mortgages worth more than half a billion dollars are missing. And the F.D.I.C. is withholding the release of mortgages worth hundreds of billions held at Colonial that Ocala investors say are theirs. The government contends that it is not clear that Bank of America — as a representative for Ocala — paid for them. Deutsche Bank wrote down its investment in Ocala by almost $500 million in the third quarter of this year.

Bankrupt State Of California Starts Selling Office Buildings, CB Richard Ellis Markets Largest Office Portfolio In America – (www.zerohedge.com) CB Richard Ellis has a brand new client: the bankrupt state of California, which is now attempting to sell what is the largest office portfolio currently marketed nationwide, at 8.7 million square feet. The California Department of General Services has announced CBG has been retained to sell 17 office buildings. The state is hoping the sale will generate more than $660 million in proceeds to offset cuts in the state budget. With a budgetary hole in the billions, California will likely need to throw in quite a bit of beachfront property in order to make it seem like it has the fiscal catastrophe under control. BusinessWire reports: "The Governor was clear that we must re-think how we manage the state’s real estate. The awarding of this contract is a significant step forward in DGS’ effort to carry out that mission,” said Acting DGS Director Ron Diedrich. “We look forward to working with the talented and experienced team that CB Richard Ellis has assembled to seek out the investors worldwide that want to purchase these prime office buildings and allow the state to tap the needed equity.” CBRE has already begun marketing the properties to investors in the global capital markets. The 11 properties range from the 97,000 square foot Judge Joseph A. Rattigan Building in Santa Rosa, to the LEED Gold Certified Capital Area East End Complex in Sacramento and the 24-story, 863,000 square foot Elihu M. Harris Building in downtown Oakland. “We are very pleased to be selected as the State of California’s advisor on this exciting disposition assignment,” said Kevin Shannon, CBRE Vice Chairman. “This will be the largest office portfolio available for sale in the nation currently. The offering is ideally suited for what the majority of investment capital is seeking right now which is stable leased product. We will conduct an expansive global marketing campaign appropriate for this generational acquisition opportunity, and we expect to attract tremendous domestic and international interest.” In order to prevent any allegations of impropriety in awarding what would be one of the biggest ever CRE contracts, California conducted a test of 6 brokerage companies. CBRE earned the contract for the brokerage services with the state after competing alongside five other companies. Each company was scored in multiple categories including: history of sales over $20 million over the past seven years; sales of at least $7.5 million over the last 10 years; experience of the proposed sales team; an interview with each bidder’s sales team; and the bidder’s proposal for its percentage of sales compensation. Commissions for commercial real estate sales range from approximately one-half of one percent for high valued properties to as high as 4% for smaller valued properties. Through a very competitive process, all of the proposals received by the State were under one percent and the winning proposal was substantially less than one-half of one percent, representing a good value for the State. The status of this "exciting" portfolio sale will be closely followed by all who believe the bottom in CRE is still to come. As a reminder the Department of General Services (www.dgs.ca.gov) serves as the business manager for the State of California, with more than 4,000 employees and a budget in excess of $1 billion. DGS helps state government better serve the public by providing services to state agencies including innovative procurement and acquisition solutions, creative real estate management, leasing and design services, environmentally friendly transportation, and architectural oversight and innovative funding for the construction of safe schools. Here is a listing of all the office buildings included in the ongoing disposition.

Mortgage 'Cram-Down' Amendment Fails in US House - (www.bloomberg.com) The U.S. House rejected a mortgage “cram-down” amendment that would have given federal judges the power to lengthen mortgage terms, cut interest rates and reduce loan balances for homeowners in bankruptcy court. Lawmakers voted 241-188 today against the amendment, which was to be part of broader legislation reining in excessive risk taking on Wall Street. All but four of the Republicans who voted opposed the amendment, pulling with them 71 Democrats to defeat the measure. The cram-down provision was identical to legislation that passed the House in March and then failed in the Senate amid opposition from the banking industry. Banks and broker-dealers told House leaders in a Dec. 8 letter that the legislation would increase bankruptcy filings, lead to abuses of the court system and undermine efforts to stabilize the housing market. Lenders are “gratified that the House saw fit to vote down the bankruptcy cram-down amendment that would have further increased costs for borrowers,” the Washington-based Mortgage Bankers Association, the industry’s largest trade group, said in a statement today. Representative Dan Lungren, a California Republican, said the amendment would increase mortgage insurance premiums for borrowers “and deny help to those we seek to help.” “This is a prime example of good intentions creating bad policy,” he said before the vote. The amendment was sponsored by House Judiciary Committee Chairman John Conyers of Michigan, and supported by House Financial Services Committee Chairman Barney Frank of Massachusetts. The two Democrats were among 184 from their political party to vote in favor of the amendment today.

Six-Figure Federal Salary Gravy Train – (Mish at globaleconomicanalysis.blogspot.com) At a time when incomes are plunging for the private sector middle-class, More Federal Employees Get Six-Figure Salaries. The number of federal workers earning six-figure salaries has exploded during the recession, according to a USA TODAY analysis of federal salary data. Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession's first 18 months — and that's before overtime pay and bonuses are counted. Federal workers are enjoying an extraordinary boom time — in pay and hiring — during a recession that has cost 7.3 million jobs in the private sector. Defense Department civilian employees earning $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009, the most recent figure available. When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000. The growth in six-figure salaries has pushed the average federal worker's pay to $71,206, compared with $40,331 in the private sector. How the $!!! can the department of transportation possibly justify 1,690 workers making in excess of $170,000? The Federal Aviation Administration also has 1,700 workers making in excess of $170,000. The Department of Transportation was established by an act of Congress on October 15, 1966. Now there are over 56,000 employees according to the Department of Transportation Fiscal Year 2010 Budget Highlights. The fiscal insanity does not stop with numbers of employees and their salaries. One also needs to factor in pension benefits that private sector employees do not receive.