KeNo's Housing and Economic Portal: Monday February 22 Housing and Economic stories

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Goldman Sachs and Lloyd Blankfein (doing God’s work) Helped Push A.I.G. to Precipice - (www.nytimes.com) Billions of dollars were at stake when 21 executives of Goldman Sachs and the American International Group convened a conference call on Jan. 28, 2008, to try to resolve a rancorous dispute that had been escalating for months. A.I.G. had long insured complex mortgage securities owned by Goldman and other firms against possible defaults. With the housing crisis deepening, A.I.G., once the world’s biggest insurer, had already paid Goldman $2 billion to cover losses the bank said it might suffer. A.I.G. executives wanted some of its money back, insisting that Goldman — like a homeowner overestimating the damages in a storm to get a bigger insurance payment — had inflated the potential losses. Goldman countered that it was owed even more, while also resisting consulting with third parties to help estimate a value for the securities. After more than an hour of debate, the two sides on the call signed off with nothing settled, according to internal A.I.G. documents and an audio recording reviewed by The New York Times. Behind-the-scenes disputes over huge sums are common in banking, but the standoff between A.I.G. and Goldman would become one of the most momentous in Wall Street history. Well before the federal government bailed out A.I.G. in September 2008, Goldman’s demands for billions of dollars from the insurer helped put it in a precarious financial position by bleeding much-needed cash. That ultimately provoked the government to step in. With taxpayer assistance to A.I.G. currently totaling $180 billion, regulatory and Congressional scrutiny of Goldman’s role in the insurer’s downfall is increasing. The Securities and Exchange Commission is examining the payment demands that a number of firms — most prominently Goldman — made during 2007 and 2008 as the mortgage market imploded.

How Unions Destroyed Greece; Union Greed and Gall in Nevada; Union Protests In Utah; Taxes on Food in Phoenix - (Mish at globaleconomicanalysis.blogspot.com) The New York Times has an interesting article Is Debt Trashing the Euro? It could easily be subtitled How Unions Destroyed Greece. The same thing is happening here. Let's take a look. DIMITRIS DAMIANIDIS is a high school teacher and a strong supporter of Greece’s socialist government. But that won’t deter him from going on strike with hundreds of thousands of other public sector workers next week to fight for the 28,000-euro pension that he expects to receive annually after he turns 60 next year. “Why should I as a worker pay for the errors in policies?” he asked, in response to reports that the embattled Greek state will cut his pay and, by extension, retirement benefits. “The worker can’t be the scapegoat. So we have to defend ourselves.” As Mr. Damianidis and others on the state payroll prepare to stop work on Wednesday, fear is building that the country’s new government may lack the nerve to cut public wages and pension payments, which make up 51 percent of its budget. “The risk of contagion is a real one,” said Scott Thiel, the head of European fixed income at the asset management firm BlackRock in London. “Investor sentiment is now focused on countries like Spain and Portugal, where fundamentals are weakest.” He said that for now, he saw little risk for Italy, given the relative stability of its economy. “We have a centralized monetary policy, but we allow budgets and wages to move in different directions,” said Paul De Grauwe, an economist in Brussels who advises the president of the European Commission, José Manuel Barroso. “Without a political union, in the long run the euro zone cannot last.” Indeed, as core economies like those of France and Germany show signs of economic recovery, Greece, Portugal, Ireland and Spain are just entering savage recessions. Spain, the largest of the peripheral economies, announced last week that the number of its unemployed had reached four million — the highest in its history — and warned that the country’s deficit might be worse than previously thought. TO be sure, Mr. Damianidis is among the smallest of actors in this saga. Yet his sense of entitlement shows how hard it will be for governments in Portugal, Spain and Italy to persuade their citizens to accept cuts demanded by Brussels as well as bond investors. Yet his sense of entitlement shows how hard it will be for governments in Portugal, Spain and Italy to persuade their citizens to accept cuts demanded by Brussels as well as bond investors. The bonuses, he concedes with a smile, have nothing to do with his skill as a high school teacher. “Over the years, whenever workers would strike, they would in some cases get a bonus,” he said, as he sat in a local union office here. For decades, both conservative and socialist governments in Greece have rewarded the demands of public sector unions with higher pay and more jobs. In 2009, striking farmers were paid 400 million euros by the government — and this year they are back again, having briefly closed Greece’s border with Bulgaria. Protesting dockworkers extracted big payouts from the government in November. And the country’s tax collectors went on strike on Thursday even though their services are needed more than ever.

G7 talk on Greece will not soothe global investors - (www.reuters.com) Investors are skeptical of assurances European finance ministers gave to their Group of Seven counterparts this weekend that the euro zone's debt crisis is under control. The 16-country currency bloc is facing its biggest ever test after concerns about Greece's huge public debt and deficits spread to several other euro zone countries, pushing the euro to a near nine-month low against the dollar. A sell-off of Greek, Portuguese and Spanish debt last week, which hurt global stock markets, pushed Greece's debt woes onto the agenda of the meeting of Group of Seven rich nations' finance ministers and central bankers in Canada's remote north. European ministers told their G7 peers on Saturday they would make sure Greece sticks to its budget-cutting plan. European Central Bank President Jean-Claude Trichet issued a statement to express confidence in that plan while U.S. Treasury Secretary Timothy Geithner said the Europeans "made clear to us they will manage this with great care."

Ailing securitisation market hits Citi asset sales - (www.ft.com) The securitisation market’s failure to recover from its slump during the crisis is complicating efforts by Citigroup and other troubled financial groups such as AIG to sell unwanted assets and repair their balance sheets, bankers and executives say. People close to the situation said that Citi had opened talks with private equity groups and hedge funds over the sale of $3bn-worth of car loans as part of its efforts to cleanse its balance sheet of billions of dollars in troubled assets. To make the business more attractive, Citi is believed to have offered to provide the buyers of the loans with finance for a few years after the sale. Bankers said that the initial response from potential bidders had been encouraging. Some of the Citi loans have already been securitised under the term asset-backed securities loan facility (Talf), a US government programme aimed at supporting the ailing securitisation market. However, some private equity groups and hedge funds that have looked at the assets said that the lack of a thriving market for securitised bonds, which are backed by cash flow from loans, made the assets less attractive. They added that the absence of a fully functioning securitisation market increased the uncertainty over how buyers could fund the loans once Citi’s credit facility expired. “Private equity can’t make a bid on anything where the business model requires a bet that the external funding markets and securitisation comes back,” said the head of capital markets at a big private equity firm.

Out of work, burnt out, giving up - (money.cnn.com) Amy Shropshire; Age: 29; Hometown: Columbus, Ohio; Job wanted: Marketing manager; I've been looking for work since July 2007 but haven't applied to a single job in about 6 months. I graduated with my M.A. in marketing July 2007 in London and decided that I would look for a job there. I applied for about 400 jobs. I had three interviews but I knew that not having a visa, it would be difficult. I moved back to the U.S. in June 2008 and spent a few months coming to terms with moving back in with my parents, but started diligently applying for jobs a few months later. I kept track -- since then I've applied for 759 jobs, have heard back from 23, and interviewed with two. I have 6 years experience in project management in the nonprofit sector. But even when friends pass along jobs to me, I just don't get excited about them anymore, knowing that odds are I'll do all this work putting something together and not even get an acknowledgment from the company. A few months ago, I just stopped looking because I've been doing volunteer work to try to keep my skills up and am putting in over 40 hours a week doing that.

UNION PROTEST: Education supporters rail at rally - (www.lvrj.com) raucous crowd of more than 600 teachers and parents blasted potential state budget cuts for K-12 education during a rally Saturday at Chaparral High School organized by the Clark County Education Association, the teachers' union. While state Democratic leaders and school and union officials all spoke, some of the biggest applause lines were shouted from the gymnasium bleachers. Audience members chanted "Recall (Gov. Jim) Gibbons" and called the Review-Journal "a rag" after Stephen Augspurger, director of the principals' union, the Clark County Association of School Administrators, cited opposition from the "R-J editorial board." Thirteen-year-old Jakob Brounstein, an eighth-grader at Hyde Park Middle School, stole the limelight with a speech he said was inspired by Martin Luther King Jr. and President Barack Obama. Brounstein told the assembled that America had grown too decadent to support education. "It seems America's brightest minds are its least valued," he said. Signs like "Will teach for food" and "A pay cut is a tax increase" expressed anger at the governor's recommendation to cut teachers' salaries by 6 percent to help close a budget gap brought on by the economic crisis. Another sign, "Taxes not axes," uttered what was missing from politicians' speeches: the mention of any new taxes. The sign holder was Joan Kissling, a science teacher at Brinley Middle School.