KeNo's Housing and Economic Portal: Wednesday April 28 Housing and Economic stories

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TOP STORIES:

Former regulator, CEO blame each other for Fannie's failure - (www.washingtonpost.com) A former regulator of Fannie Mae blamed "greed, excessive risk-taking and abuse" on the part of the company's executives for the events that led to the mortgage giant's failure and bailout. But Fannie's former chief executive blamed the struggles on an "impossible" set of choices foisted on the District-based company by its government overseers, the Federal Housing Finance Agency. It was a familiar question of culprit or casualty on Friday during the third day of hearings by the Financial Crisis Inquiry Commission, which is investigating the causes of the economic calamity of the past two years. Was Fannie Mae, which backed a huge chunk of the nation's home loans, a primary instigator of the crisis? Or was it a victim of flawed public policy and a housing downturn that was worse than anybody could have imagined? Fannie and its rival, Freddie Mac of McLean, were seized by the FHFA in September 2008 and have since received more than $125 billion in aid to stay afloat. The panel's hearing comes as the Obama administration is preparing to launch a process to decide the companies' fate. Questions by the commission's six Democratic and four Republican members were aimed at revealing whether executives at Fannie and Freddie rushed into buying hundreds of billions of dollars of risky home loans in pursuit of more business, fatter profits and, ultimately, bigger paychecks. Former Fannie chief executive Daniel H. Mudd accepted responsibility for the company's struggles and said he was "sorry" that he could not strike a balance that would have allowed the company to survive without government aid.

Villaraigosa Has The Biggest, Most-Expensive Mayor's Office In Decades - (www.laweekly.com) We said Mayor Antonio Villaraigosa practically looked heroic earlier this month when he stepped up to call for the agonizing cuts -- 1,000 workers -- that the City Council avoided in the face of L.A.'s $212 budget deficit. But over the weekend La Opinion newspaper pointed out that Villaraigosa's own office budget has its own villainous attributes. La Opinion staffer Isaias Alvarado reports that, despite the office taking a 10 percent hit this fiscal year in the name of belt-tightening, Villaraigosa's City Hall operations spend nearly $8 million a year -- $1.8 million more than predecessor Jim Hahn, and $1.4 million more than Mayor Richard Riordan before him. In early February Villaraigosa seemed quick to make a dubious order to cut 1,000 workers from the city's payroll, a move he might not have authority to make. But his own budget has been somewhat of a sacred cow. Alvarado used California Public Records Act requests to find out that the mayor spent a whopping $9 million on his office, staff and salaries in 2008-2009 fiscal year. The mayor's office, according to the report, employs 173 workers. Hahn had 121. Riordan had 114. Villaraigosa's operations employ 12 deputy mayors (who have once assistant each), 10 financial advisers, eight communication advisers, seven energy-and-environment advisers, six transportation advisers and three international-trade advisers. The biggest divisions inside the office include neighborhood community services, with 25 employees, executive services, with 23, and legislative and intergovernmental relations, with 19.

L.A. to Run Out of Cash in a Month - (www.bloomberg.com) Los Angeles will run out of cash on May 5, city ControllerWendy Greuel said today in a release in which she requested a $90 million transfer of reserve funds to pay bills. The controller said she received a letter from the Los Angeles Department of Water and Power today indicating the utility wouldn’t send an anticipated $73 million payment to the city’s general fund. That money is part of an annual contribution of 8 percent of power revenue that the utility makes in lieu of paying taxes to the city, according to Ben Golombek, a spokesman for the controller. “The question I have been asked most often during the budget crisis is, ‘When will the city run out of money?” Greuel said in the e-mailed release. “Unfortunately, we finally have the answer.”

Consumers in U.S. Face the End of an Era of Cheap Credit - (www.nytimes.com) Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates. That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession. The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing. “Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.” The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

South Carolina Bank Becomes 42nd to Fail This Year - (www.nytimes.com) Regulators shut down a bank in South Carolina on Friday, the 42nd bank failure in the United States so far this year amid mounting loan defaults, especially in commercial real estate. The Federal Deposit Insurance Corporation took over Beach First National Bank, based in Myrtle Beach, S.C., with $585.1 million in assets and $516 million in deposits. Bank of North Carolina, based in Thomasville, N.C., agreed to assume the assets and deposits of the failed bank.

Mysterious U.S. Treasuries buyers may be banks - (www.reuters.com) An analysis by a primary dealer in the U.S. Treasuries market shows that domestic banks could account for a large increase in direct bidders for government debt. The presence of direct bidders, one of three main categories of participants at Treasury auctions, has increased during recent auctions of securities. Primary dealers, the banks and investment firms authorized to deal directly with the government and help the Federal Reserve carry out monetary policy, have fretted over the unpredictability of the direct bid, as well as the paucity of information on the identity of the bidders. A report from Nomura Securities analyzing the Treasury Department's investor allotments and auction data theorizes that domestic banks account for part of the increase in direct bidders. "With banks still reluctant to lend and the saving rate on the rise, bank assets have been shifting from loans to securities, benefiting from the steep curve," wrote George Goncalves, a fixed income strategist at Nomura. Treasury data shows banks increased their purchases of longer-dated Treasuries just as the percentage of direct bidders began to increase. The department, which is aware of the identities of bidders but does not disseminate the information, welcomes the added participation in auctions as the government continues to issue new debt at a breakneck pace.

OTHER STORIES:

US and China continue dance over currency policy - (www.ft.com)

In Currency Games, the Prize May Be a Trade War - (www.nytimes.com)

Gold hits 2010 high as Greece fear boosts buying - (www.reuters.com)

CDS trial shows how connected markets are - (www.ft.com)

Two Treasury Forecasts: a Grand Canyon-Size Gap - (online.wsj.com)

Greece Wins More Than EU30 Billion in EU, IMF Aid - (www.bloomberg.com)

Germany Said to Accept Compromise on Loan to Greece - (www.bloomberg.com)

China Reports March Trade Deficit on Surging Imports - (www.bloomberg.com)

Polish President, Bank Chief in Plane Crash, Reports - (www.bloomberg.com)

Greece may use EU safety net if needed: Greek PM - (www.reuters.com)

Europe Said to Firm Up Terms of Greek Loans - (www.nytimes.com)