KeNo's Housing and Economic Portal: Sunday May 16 Housing and Economic stories

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TOP STORIES:

State Weighs Emergency Borrowing - (online.wsj.com) Scrambling to avoid running out of cash, state leaders are discussing whether to declare a fiscal emergency so they can lift a longstanding ban on short-term borrowing. The state probably would need to sell more than $1 billion in notes that would be paid off with revenue expected to be collected later in the year, said people familiar with the discussions. "We are going to have to borrow, and we're going to have to borrow in the next couple of weeks in my opinion," Assemblyman Herman D. Farrel Jr., the Manhattan Democrat who is chairman of the Assembly Ways and Means Committee, said last week at a policy forum sponsored by the Nelson A. Rockefeller Institute of Government in Albany. Morgan Hook, a spokesman for Gov. David Paterson, said emergency short-term borrowing is being discussed, but no final decisions have been made. Such a move would mark the return of a maneuver known as "spring borrowing" that hasn't been used since the administration of Gov. Mario M. Cuomo, who ended the practice in 1993.

Slayings Stir Fears in Harlem - (online.wsj.com) Some residents of Central Harlem fear the neighborhood could return to its crime-ridden past after a weekend murder on the same street where another slaying occurred days before. A man opened fire early Saturday morning on a group of people standing on the stoop of an apartment building on West 118th Street. Detectives arrived to find 30-year-old James "Freddy" Williams had been killed by a gunshot in the back of the head, police said. On Wednesday, a dispute outside Minton's Playhouse, a famous jazz club where Dizzy Gillespie once played, ended with Mohammed Nofal, 32 years old, shot to death, police said. No arrests have been made in either killing and police said the shootings are not believed to be linked. Last year, the police precinct serving the area saw a total of two murders. At this time last year, there had been only one shooting. Even before last week, there already had been five this year. Linda Brown, 82, climbed the stairs to her home on Saturday night and saw the stoop filled with flowers and candles placed in memory of Mr. Williams. Memorial messages were scrawled on sheets of poster board taped to the wall. "I was surprised," said Ms. Brown. "Not here. It doesn't happen around here." It used to happen a lot. In 1973, the precinct held the city's homicide record of 123 murders. More recent statistics showed murders on the decline, with five in 2008 and four in 2007.

Chicago housing bust - (www.csmonitor.com) Today another major metro housing market is inducted into the Re-Busting lineup of regions that have relented to the organic home price slide (as seen by the Radar Logic data) despite the generous efforts by the Feds. Chicago must have appeared too many to have surely bottomed out early last spring after dropping over 30% from its 2007 peak and facing a massive dose of government stimulation. Yet, short of a feeble spring bounce and reversion and an even more pitiful tax-credit expiration inspired blip in November, prices in Chicago have simply been sliding. Today, Chicago home prices are setting new lows some 45% below the peak set in 2007 and 17.98% below the level seen just last year. With the latest tax gimmick expiration expiring with nary squeak in prices for the area, this could be one metro market to keep an eye on for significant housing stress related macro spillover later this year.

Greek Bonds Slide on Speculation Germany Holds Back on Bailout - (www.bloomberg.com) Investors demanded an extra 6 percentage points in yield to buy the nation’s 10-year bonds rather than German bunds as the Financial Times cited German Finance Minister Wolfgang Schaeuble as saying Greece must firm up plans for deficit reductions in 2011 and 2012, and not just for this year, to qualify for aid. Citigroup Inc. said a reorganization of the debt or need for extra support looks “unavoidable.” Portugal’s bonds declined on concern the debt crisis is spreading. “The market is increasingly nervous the funding will not be in place before the next payments are due,” said Nick Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a broker for banks and investors. “Germany is playing hardball and until we see the money on the table investors will demand a higher premium to hold the debt.”

Financial News: Complex Structured Credit Returns - (online.wsj.com) Some forms of complex structured products tied to credit derivatives have returned, after a two-year lull imposed by the crisis. JP Morgan and UBS (UBS) are marketing so-called collateralised synthetic obligations, which use credit derivatives to reference corporate debt. Unlike the collateralised debt obligations worst hit during the crisis, which were tied to derivatives on mortgage-backed securities, the new CSOs are bets on the direction of credit spreads. Although such products were also hit by volatility during the crisis, they suffered to a lesser extent. Bankers said the JP Morgan CSO, named Aria IV, is managed by Axa Investment Managers. Aria I, the first CSO in the Axa series, was sold in June 2004 and referenced a portfolio of more than 140 corporate names, according to a Standard & Poor's rating note at the time of its sale. JP Morgan declined to comment. Prudential M&G is the manager for the UBS CSO. UBS was unavailable for comment. Michael Hampden-Turner, credit strategist at Citigroup, said: "There is a return of interest in structured credit. We do expect a wave of deals, but it is not going to be massive because investor demand is limited. The interest is there right now." Long-only fund managers are tapping the market for capital via single-tranche CSOs, according to a London-based credit manager. He said: "We've seen a lot of demand from our investors on the private client side where they understand this can be a good vehicle to trade corporate credit." Although structured credit is unlikely to grow to its pre-crisis heights, appetite is returning among investors who are looking for a yield, as credit spreads come in and the default rates decline, according to industry observers. The Markit iTraxx index linked to 125 companies with investment-grade ratings in Europe shows that spreads have tightened from 138 basis points 12 months ago to 82 basis points last week.

Fed May Keep Rates Low as Tight Credit Impedes Small Businesses - (www.bloomberg.com) Michael Chapman, the owner of a building company with 20 employees in Santa Fe, New Mexico, has had trouble getting a bank loan and this month he let Kansas City Federal Reserve Bank President Thomas Hoenig know it. Tight credit in commercial real estate “has really made it impossible for banks to lend to people like me,” the president of Chapman Homes said during a question period after an April 7 speech by Hoenig. Chapman said his company, unable to get a loan to hire 15 workers while big Wall Street firms get record bailouts, is “too small to succeed.” Owners of small businesses across the country are telling Fed officials that they would expand and hire more workers if only they could get financing. Policy makers at the end of a two-day meeting starting tomorrow may cite scant lending as a drag on demand as they affirm a pledge to keep interest rates low for an “extended period.”

OTHER STORIES:

Best Hope for Greece: Minimize the Losses - (www.nytimes.com)

Goldman e-mails show how crash turned into cash - (finance.yahoo.com)

Deal Near on Derivatives - (online.wsj.com)

Dodd accepts ban on bank derivatives business - (news.yahoo.com/s/ap)

Financial bill in limbo going into key vote - (www.washingtonpost.com)

Do You Have Any Reforms in Size XL? - (www.nytimes.com)

Democrats willing to test GOP in Wall St. showdown - (news.yahoo.com/s/ap)

‘Urgent Action’ Needed to Control Capital Flows, StanChart Says - (www.bloomberg.com)

Flipping houses is back in South Los Angeles - (www.latimes.com)

Greece Nears Getting Aid, Warns Against Default Bets - (www.bloomberg.com)

Greek aid depends on budget cut plans - (www.ft.com)