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

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The Submarine Deals That Helped Sink Greece - (online.wsj.com) As Greece slashes spending to avoid default, it hasn't moved to skimp on one area: defense. The deeply indebted Mediterranean nation, whose financial crisis roiled the global financial system this year, is spending more than a billion euros on two submarines from Germany. It's also looking to spend big on six frigates and 15 search-and-rescue helicopters from France. In recent years, Greece has bought more than two dozen F16 fighter jets from the U.S. at a cost of more than €1.5 billion. Much of the equipment comes from Germany, the country that has had to shoulder most of the burden of bailing out Greece and has been loudest in condemning Athens for living beyond its means. German Chancellor Angela Merkel has admonished the Greek government "to do its homework" on debt reduction. The military deals illustrate how Germany and other creditors have in some ways benefited from Greece's profligacy, and how that is coming back to haunt them. Greece, with a population of just 11 million, is the largest importer of conventional weapons in Europe—and ranks fifth in the world behind China, India, the United Arab Emirates and South Korea. Its military spending is the highest in the European Union as a percentage of gross domestic product. That spending was one of the factors behind Greece's stratospheric national debt.

Mortgage Investors Turn to State Courts for Relief - (www.nytimes.com) Investors who lost billions on boatloads of faulty mortgage securities have had a hard time holding Wall Street accountable for selling the things in the first place. For the most part, banks have said they can’t be called out in court on any of this because they had no idea that so many of these loans went to people who lacked the resources to make even their first mortgage payment. Wall Street firms were intimately involved in the financing, bundling and sales of these loans, so their Sergeant Schultz defense rings hollow. They provided hundreds of millions of dollars in credit to dubious underwriters, and some even had their own people on site at the loan factories. Many Wall Street firms owned mortgage lenders outright. Because many of the worst lenders are now out of business, investors in search of recoveries have turned to the banks that packaged the loans into securities. But successfully arguing that Wall Street aided lenders in a fraud is tough under federal securities laws. This is largely a result of Supreme Court decisions barring investors from bringing federal securities fraud cases that accuse underwriters and other third parties as enablers.

Companies brace for end of cheap made-in-China era - (news.yahoo.com/s/ap) Factory workers demanding better wages and working conditions are hastening the eventual end of an era of cheap costs that helped make southern coastal China the world's factory floor. A series of strikes over the past two months have been a rude wakeup call for the many foreign companies that depend on China's low costs to compete overseas, from makers of Christmas trees to manufacturers of gadgets like the iPad. Where once low-tech factories and scant wages were welcomed in a China eager to escape isolation and poverty, workers are now demanding a bigger share of the profits. The government, meanwhile, is pushing foreign companies to make investments in areas it believes will create greater wealth for China, like high technology. Many companies are striving to stay profitable by shifting factories to cheaper areas farther inland or to other developing countries, and a few are even resuming production in the West. "China is going to go through a very dramatic period. The big companies are starting to exit. We all see the writing on the wall," said Rick Goodwin, a China trade veteran of 22 years, whose company links foreign buyers with Chinese suppliers.

Build America Program’s Impending End Prompts Plea to Senate - (www.bloomberg.com) U.S. state, city and county groups urged the Senate to extend the Build America Bond program, the part of the federal economic-stimulus plan that has driven down borrowing costs for public-works projects across the country. The move to push back this year’s scheduled expiration by two years faltered in the Senate last month. Republicans balked at the cost of the bill that included the measure, as well as extra Medicaid funding and unemployment benefits. Six groups, including those representing mayors, governors and state treasurers, urged Senators to prolong the bond-subsidy program. “Failure to take prompt action on a BABs extension may have immediate, unintended, and negative consequences for the market for BABs, both in the U.S. and overseas,” the groups said today in a letter to Senators Max Baucus and Senator Charles Grassley. Baucus, a Montana Democrat, is chairman of the Finance Committee, and Grassley, a Republican from Iowa, is the ranking minority-party member of the panel.

Borrowers Hit New Home-Loan Hurdles - (online.wsj.com) Dennis Davis has a nearly perfect credit score, equity in his home, considerable savings and a solid pension plan. But Mr. Davis recently found that his lender didn't want to refinance his mortgage. The problem? Mr. Davis's income-tax return showed he had taken a loss on an investment he made in a small, family-owned business. That was enough to raise doubts about his otherwise strong financial condition. Three years after the onset of the mortgage crisis, lenders continue to tighten credit standards. The initial moves were a natural reaction for a business badly burned by rising delinquencies and defaults. But conditions are now so tight that lenders are frustrating borrowers who have enviable financial situations but still can't easily satisfy lenders' rigid checklists. "The pendulum may have swung too far the other way," Scott Anderson, a senior economist at Wells Fargo Securities, said in a report last month. Some analysts thought that by this point in the business cycle, lenders would have started to relax credit conditions slightly after clamping down on the risky bubble-era practices. Instead, the screws are still tightening. That is partly because lenders are taking every precaution to avoid being forced to buy back loans from mortgage investors Fannie Mae and Freddie Mac in the event of default. When a borrower defaults, Fannie and Freddie typically buy the loan out of the mortgage-security pool and pursue a workout or foreclosure. But they can force lenders to repurchase loans when they find flaws in the way they were underwritten. Repurchases were a minor nuisance when defaults were low but have escalated over the past year.

State Budget Woes ‘Just as Tough’ in 2011, Fed Economist Says - (www.bloomberg.com) Tepid economic growth and demands for aid from ailing U.S. cities and towns will combine to make next year “just as tough” for state budget makers, according to Yolanda Kodrzycki, an economist at the Federal Reserve Bank of Boston. States have closed budget deficits totaling about $169 billion since July 2008 and still face a combined $127 billion gap through fiscal 2012, according to a report last month by the National Governors Association and the National Association of State Budget Officers. Fiscal recovery will be weighed down by “lackluster” economic growth of about 3 percent a year and the need to help local governments confronting falling property tax collections, Kodrzycki told governors gathered yesterday in Boston. “Next year is going to be just as tough” for balancing state budgets, Kodrzycki said on a panel on economic development at the National Governors Association meeting. Even if economic growth quickens, it’s not completely “translating into fiscal recovery,” she said.