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

KeNosHousingPortal.blogspot.com

TOP STORIES:

South Jersey firefighter takes stand against union - (www.courierpostonline.com) For more than three decades, Michael Schaffer has willingly run into burning buildings. He's performed CPR on children. He's freed people trapped in crashed vehicles. He's even rescued cats and dogs. Last June, the union Schaffer has belonged to for 21 years brought him up on charges for volunteering with the fire department where he resides. The International Association of Fire Fighters forbids members from volunteering for departments that already employ some IAFF firefighters or are viewed as targets by the IAFF for expansion. Schaffer's hometown firehouse is all-volunteer and employs no union workers directly. But through mutual aid agreements, the firehouse -- in the West Berlin section of Berlin Township -- makes runs in neighboring towns that employ some IAFF firefighters. Rather than risk expulsion by his "brothers" for doing something that he loves and that runs in the family, Schaffer resigned last month from his union, Cherry Hill Firefighters Local 2663. Now, in a department of more than 100 paid firefighters, he is the only career firefighter who is not a member of the IAFF. But he may not be the only one for long: The union warns it's bringing other members up on the same charges.

Geithner's Illegal Money-Laundering Scheme Exposed - (www.americanthinker.com) While everyone, including Congress, the media, and the public, have focused on AIG's $100-million bonus payments to key employees, and most recently on AIG's stealth payments to counterparties like Chase and the French giant Société Générale -- the latter made worse by the fact that it was the Federal Reserve (FED) that wanted to keep these payments hidden from public view -- the problem with the AIG bailout is much deeper and more fundamental. Just about everyone has had something to say about this bailout -- mostly that it was an ugly but necessary step to stave off a domino effect that would have brought the world's financial system to its knees. But what we have not yet heard is just how Treasury Secretary Geithner, as then-head of the NY FED, got away with taking ownership of 77.9% of AIG's equity and voting rights in clear violation of the law. The question we are left with is: Why? What motivated this illegal grab of AIG's equity and voting rights? Was it desperation in the face of the largest potential collapse in the history of modern finance? Was it unbridled power combined with supreme hubris? Or was it just criminal? The answer to this query resides in the as-yet-hidden files of the Federal Reserve Bank of New York, now subject to a subpoena issued by my office in the federal lawsuit Murray v. Geithner, pending in the Eastern District of Michigan.

The Deal: Specifically, the deal Geithner put together in September 2008 was for the NY FED to pour up to $85 billion of debt funding into AIG to solve its liquidity crisis as the Credit Default Swap counterparties, the banks which had insured themselves against the sub-prime mortgage meltdown, demanded payments under their AIG insurance policies. AIG ended up drawing down $60 billion almost overnight. But Geithner was not content with a straight debt deal where AIG promised to pay back principal and interest and handed over almost all of its assets as collateral. Geithner wanted real ownership and control (77.9%, to be exact) of AIG's equity and the voting rights to go along with that. The problem Geithner knew he had to confront, however, was that the FED was not authorized to take ownership in AIG or any other financial institution. The law authorized the FED only to loan money and take collateral. While the FED might end up with ownership after a default and foreclosure on the collateral, the Federal Reserve Act does not authorize the NY Fed to structure the debt deal with an equity piece.

The Criminal Artifice: So what did Geithner do? He took equity, but he used a fictitious "Trust" to accomplish that which he could not do legally. The AIG Credit Facility Trust has three so-called independent, non-governmental trustees owning the 77.9% of the legal interests of AIG, and the Trust agreement assigns the U.S. Treasury the beneficial interests in the 77.9%. The highly-touted "independence" of the trustees is quite obviously critical to save the Trust from the claim that it is merely a ruse for FED ownership and control. But there is only one problem with this Trust structure: It is invalid and illegal for two important reasons, not the least of which is that its independence is nonexistent.

Bailout Mutiny Looms With Iceland’s Taxpayer Vote: Matthew Lynn - (www.bloomberg.com) A referendum in Iceland isn’t the kind of event that would usually attract much world attention. This time will be different. The country will vote this week on how to pay back the money it owes the U.K. and Dutch governments for bailing out the Icelandic banks that crashed during the credit crunch. On March 6, Icelandic taxpayers should send a message to the rest of the world: Can’t pay, won’t pay, so go take a hike. There is no reason why they should pay the money back. Ordinary people didn’t run up the debts; the Dutch and British governments were guilty of regulatory incompetence; the overseas savers were stupid and greedy; and meeting the debt might well bankrupt the country for a generation. If they refuse, they will make a point that taxpayers in many other countries will sympathize with: We won’t always pick up the bill for losses made by bankers. The facts at issue are simple. The failure of lender Landsbanki Islands hf more than a year ago left many savers in the U.K. and the Netherlands facing losses. Those “Icesave” deposit holders have been compensated, but the British and Dutch governments expect Iceland to meet the cost of the bailout. Iceland’s government has agreed, but President Olafur R. Grimsson, who opposed the legislation, has insisted it go to a referendum. A “no” vote is enough to revoke the bill.

Greece Aid Plea Snubbed by Germany in ‘Historic Moment’ for EU - (www.bloomberg.com) Greece’s pledge to deepen planned budget-deficit cuts failed to yield commitments of financial assistance from Germany, Europe’s biggest economy, to help solve its financial crisis. German Chancellor Angela Merkel said a meeting tomorrow with Greek Prime Minister George Papandreou won’t be “about aid commitments.” Her finance minister, Wolfgang Schaeuble, said the deficit-reduction measures announced in Athens were probably enough to convince investors to buy Greek debt. While Papandreou is risking a backlash at home to meet European Union demands for more deficit cuts before allies even consider providing aid, Merkel is facing domestic opposition to tapping taxpayers to extend a financial lifeline to Greece. “There would be no understanding in Germany for bailing out Greece,” Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin, said by phone. “It’s a bit of catch-22 situation: if you give in to Greece and you put 5 billion or perhaps even 10 billion into some kind of rescue package or into some guarantees, then the German government would look irresponsible. However, if it doesn’t, then European Union leaders might put a lot of pressure on Merkel and say, look, we have to bail out Greece.”

End of TALF Spurs CIT, Sallie Mae Bond Sales: Credit Markets - (www.bloomberg.com) CIT Group Inc., the commercial finance company that emerged from bankruptcy, and SLM Corp., the student lender, are leading the most asset-backed bond sales in six months under an expiring U.S. program that helped unlock credit markets. CIT is selling $667 million of bonds backed by equipment leases this week, its first since exiting Chapter 11 in December, said a person familiar with the offering who declined to be identified because terms aren’t public. SLM, known as Sallie Mae, is selling $1.55 billion of securities backed by loans without government guarantees, another person said. Total sales this week may reach almost $7 billion. The Federal Reserve’s Term Asset-Backed Securities Loan Facility, which provides low-cost loans to bond buyers, helped spur $178 billion of issuance last year, according to Bank of America Merrill Lynch. Infrequent issuers or those selling “unusual” debt are unsure if they’ll get yields as low relative to benchmark rates after the program ends tomorrow for non-mortgage debt, said Reed Auerbach of law firm Bingham McCutchen LLP.

U.S. Said to Tell Hedge Funds to Save Euro Records - (www.bloomberg.com) The U.S. is asking hedge funds not to destroy trading records on euro bets, according to a person with knowledge of the requests, as Europe and the U.S. step up scrutiny of the funds’ role in the Greek debt crisis. The Department of Justice sent notices to save the records to at least some of the hedge funds whose executives attended a dinner hosted by New York-based research and brokerage firm Monness, Crespi, Hardt & Co. on Feb. 8, said the person, who declined to be identified because the information is private. The European Commission said yesterday it will investigate trades in sovereign credit-default swaps in the wake of the Greek crisis, which has pushed the euro lower and prompted officials to warn hedge funds they shouldn’t try to profit from the woes of the region’s nations. One of 23 themes discussed at the Feb. 8 dinner was a wager that the euro would fall against the dollar, according to an agenda obtained by Bloomberg News.

OTHER STORIES:

Obama sends ‘Volcker rule’ to Congress - (www.ft.com)

Global banks warn on rates and house prices - (www.ft.com)

Banks Summoned by EU to Discuss Sovereign CDS Market - (www.bloomberg.com)

Mortgage Windfall Misses Many - (online.wsj.com)

Bearish Bets on Greece: Short-Lived? - (online.wsj.com)

Treasury Swap Spread Smallest Since 1988 as Greece Creates Plan - (www.bloomberg.com)

EU Plans ‘Instruments’ to Aid Distressed States, Barroso Says - (www.bloomberg.com)

Asia Risks Asset Bubbles If Rates Kept Low Too Long, S&P Says - (www.bloomberg.com)

China Overtakes U.S. in Attracting Most Property Investment - (www.bloomberg.com)

Britain Grapples With Debt of Greek Proportions - (www.nytimes.com)

China banks absorbed $170 billion FX swaps in '09: report - (www.reuters.com)