KeNo's Housing and Economic Portal: Friday March 19 Housing and Economic stories

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TOP STORIES:

Germany Moves to Out Greek Debt Speculators - (www.cnbc.com) Germany's financial watchdog has taken steps to identify speculators in Greek debt to ensure they do not benefit unduly from any rescue of Greece, a source with direct knowledge of the matter told Reuters. The probe is part of delicate deliberations in Germany as to whether it should help bail out Greece, which is grappling with mounting debts. "It would be bad if it were to emerge after a rescue that the money had gone into the pockets of speculators," the source told Reuters. "The result of the 'Greek tragedy' is that the political environment has become such that the Credit Default Swap (debt insurance) problem has come to the fore." The investigation by financial watchdog BaFin comes against a backdrop of concern over Greece's ability to manage its finances, and sends a warning signal to speculators buying and selling insurance for Greek debt - a trading strategy that is legal but has been blamed for fuelling volatility.

Sweden Unexpectedly Slides Back Into Recession - (www.cnbc.com) Sweden's economy unexpectedly slid back into recession in the fourth quarter, figures showed on Monday, sending the crown lower and raising questions about how soon interest rates will rise. Gross domestic product contracted 0.6 percent in the fourth quarter from the third, against forecasts for a 0.3 percent increase. The third-quarter GDP figure was revised to show a 0.1 percent quarterly decline from an original 0.2 percent gain, the statistics office said. This meant the economy fell back into recession, based on a widely held definition of the term. Economists were divided over the implications of the numbers. Some said GDP often gets revised sharply and this did not change the overall economic picture. Others said this made central bank forecasts for a rate rise this summer look dangerous.

Whistleblower: Pursuit of Madoff Was a 'Death Sentence' - (www.cnbc.com) Markopolos said he was living under a "death sentence" for ten years. Believing Madoff's client list included drug cartels and organized crime, Markopolos went to extremes to protect himself and his family, even going so far as to devise a plan to kill Madoff. Markopolos, and his former colleague Frank Casey — who helped Markopolos in his pursuit to bring Madoff to the attention of regulators — discusses what it was like to live under that "death sentence." Frustration with SEC: For nine years, Markopolos tried repeatedly to bring Madoff's expanding Ponzi scheme to the SEC's attention. Markopolos said he grew increasingly frustrated, angry at the SEC, eventually losing faith in the agency. He talks about the day he found out Madoff turned himself in, and how his relief that Madoff was behind bars quickly turned to fear the SEC would try to come after him.

Housing: Time to Pull the Plug on Government Support - (www.businessweek.com) America's housing market implosion was the epicenter of the Great Recession. It's hardly surprising that the federal government directed enormous resources at the market. Besides bailing out vulnerable banks, the federal government nationalized mortgage behemoths Fannie Mae and Freddie Mac, opened the lending spigot at the Federal Housing Administration (FHA), passed a first-time home buyers' tax credit, and established a mortgage modification program for troubled homeowners. The Federal Reserve embarked on a $1.25 trillion purchase of mortgage-backed securities in an effort to engineer lower mortgage rates. The Herculean efforts may be understandable. But they were a mistake in the early months of the downturn—and now stand as a public policy blunder in the early months of a recovery. That's a harsh judgment, but it's way past the time for ending taxpayer support of the housing market. These policies are geared toward propping up home prices, the definition of a perverse public policy. Artificially holding prices at above-market levels harms new potential buyers, from young adults starting their own households to immigrants putting down stakes in the American Dream. The subsidies wrongly delay the inevitable home market price adjustment to excess supply in many markets across the country. "I don't see anything being gained by holding housing prices higher than the market rate," says Dean Baker, economist and co-director of the liberal Center for Economic & Policy Research in Washington. "It is difficult to see why the government would want to pursue policies that would encourage people to pay too much for homes."

Short Selling Restrictions "A Great Indicator of Imminent Market Crashes" - (Mish at globaleconomicanalysis.blogspot.com) The rule makes no more sense than putting buy restrictions on stocks that advance 10 percent. How many variations of this silly rule are we going to see anyway? In July 2008, they put short selling restrictions on Fannie Mae and Freddie Mac. How well did that work out? Inquiring minds can tune into this real time play by play call. Flashback Tuesday, July 15, 2008: SEC Panic - Shorting Curbs Placed on GSE Stocks: The panic at the Fed, the SEC, and the Treasury department continues. In an emergency action the SEC Curbs Shorting of GSE Stocks, Considers Limits for Wider Market. ….. Shorting Curbs Can't Help: Shorting curbs cannot possibly help when the problem is solvency not liquidity. In spite of the announcement, shares of Fannie and Freddie are down another 19% each as of 1:40 PM Central. If the SEC intended to cause a short covering rally in the GSEs, it sure failed miserably. Indeed, the market response shows just how futile the actions of the SEC, the treasury department, and the Fed are.

Los Angeles on brink of abyss - (www.guardian.co.uk) Los Angeles, the second-largest US city, is facing a crisis of funding not seen since the darkest days of the Great Depression Two and a half years after the official start of the worst economic downturn and fiscal crisis in nearly 80 years, America's economy is supposedly growing again, the stock market is halfway recovered from the lows of 2008 and early 2009, and the unemployment plunge seems to have been halted. Yet, built-in time lags in how revenues are raised and budgets calculated mean that many states and cities around the country are only now starting to feel the worst of the pain. This year has been, quite simply, abysmal for local and state governments, and next year promises to be even worse. With easy cuts long-ago made, these days basic services are increasingly seen as luxuries, and public sector employees are increasingly vulnerable to wage cuts, benefits rollbacks, and unemployment. While the federal government has considerable wiggle room to borrow or simply increase the supply of money to help fight its way out of financial collapse, smaller government units in America don't have those options; increasingly cities, counties and states are facing the sorts of austerity measures we've come to associate with third world countries in crisis, or, in recent years, with vulnerable European nations such as Greece or Latvia.

Freddie ends buying of failing interest-only mortgages (well, maybe in September) - (www.reuters.com) Freddie Mac, the second largest purchaser of U.S. residential mortgages, said on Friday that it would stop buying and securitizing all interest-only mortgages because of the poor performance of those loans. Interest-only mortgages, or IOs, including Freddie Mac's Initial Interest mortgages, provide only interest payments for a specified period starting with the first monthly payment, and then principal and interest for the rest of the loan term. In its fourth quarter results this week, Freddie Mac said the unpaid principal balance of IO loans was almost $130 billion at the end of December, or 7 percent of its total portfolio. Nearly 18 percent of those loans were seriously delinquent, meaning at least 90 days late. "This change is another step in our efforts to refine our mortgage credit and purchase requirements to promote responsible lending and sustainable homeownership," Freddie Mac spokesman Michael Cosgrove said. About 14 percent of the loans had credit enhancements, according to the company. The average unpaid principal balance per loan was $254,601, Freddie Mac said.

Stockton, CA is poster town for foolish lending - (www.toledoblade.com) Since the housing crisis began, this inland port city 80 miles east of San Francisco has had one of the worst foreclosure rates in the country - and for most of the time, has had the worst rate. At the height of it, about one in 10 houses fell to foreclosure. Houses that sold for more than $500,000 before the crash now go for $200,000. In some neighborhoods, fixer-uppers cost less than $20,000. Entire neighborhoods have been devastated by the mortgage disaster. The tax base has shrunk. City services and municipal jobs have been cut. Unemployment hovers around 16 percent. Economists predict it will take years for Stockton to recover from the housing bust. Housing developments built for commuters were hit the hardest because they were the ones that attracted newcomers fleeing the huge spike in prices closer to the Bay area. Those whose livelihoods depend on a healthy housing environment - real estate brokers, contractors, day laborers - are barely holding on. Probably the happiest people are the ones scooping up foreclosures. Speculators are back, but the other bargain hunters include people who only dreamed of being able to afford a house. Weston Ranch, the subdivision that had more bank repossessions than any other place in the country for much of the last two years is starting to look like its old self.

OTHER STORIES:

US bank lending falls at fastest rate in history - (www.telegraph.co.uk)

Don't go wobbly on us now, Ben Bernanke - (www.telegraph.co.uk)

Buffett vents on financial fat cats - (money.cnn.com)

Buffett: Economic War Is Going 'Slightly Our Way' - (www.cnbc.com)

EU Asks Greece for More Measures to Cut Debt - (www.cnbc.com)

Goldman Board Rejects Shareholder Demands on Pay - (www.cnbc.com)

AIG to Sell Asian Unit to UK's Pru for $35.5 Billion - (www.cnbc.com)

HSBC Profit Dips on Debt Loss; US Losses Reduced - (www.cnbc.com)

HSBC's Bad Debts Are Bad News: Analyst - (www.cnbc.com)

Germany's Merck to Buy Millipore in $6 Billion Deal - (www.cnbc.com)

China Army Officer Urges Challenging US Dominance - (www.cnbc.com)