KeNo's Housing and Economic Portal: Saturday August 21 Housing and Economic stories

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"Really Stupid Strategy" to Hide Bank Losses - (finance.yahoo.com) 109 U.S. banks have failed so far this year, 23 in this quarter alone. These failures may not cost depositors, but they do come at a steep cost to the FDIC. As discussed here with ValuEngine’s Richard Suttmeier, the FDIC Deposit Insurance has already spent $18.93 billion this year, “well above the $15.33 billion prepaid assessments for all of 2010.” The situation is likely even worse than the FDIC portrays, says William Black Associate Professor of Economics and Law at the University of Missouri-Kansas City. “The FDIC is sitting there knowing that it has both the residential disaster and the commercial real estate disaster [and] knowing it doesn’t have remotely enough funds to pay for it,” he says. What the FDIC should really be doing, Black argues, is raise its assessments to better reflect the true state of the banking system. However, that would turn an already precarious position into crisis as it would cause more banks would fail. The other option, though not politically plausible, would be to ask the Treasury Department or Congress for more funds. Therefore, we’re left in our current situation. “That also means we’re following a Japanese type strategy of hiding the losses,” he says. “This is a really stupid strategy and it’s ours.”

Banks gird for financial overhaul's ban on speculating with their own money - (www.washingtonpost.com) Wheels are in motion at the country's biggest banks to eliminate lucrative parts of their businesses banned by the financial overhaul legislation signed into law last month. A rule barring banks from speculating in the markets with their own money has been one of the legislation's most controversial and potentially costly provisions for Wall Street. Several banks have started figuring out how they'll comply with the law. Goldman Sachs is considering new roles for its star traders, moving them from managing the bank's money to clients', according to analysts. Other banks, including Citigroup and J.P. Morgan Chase, are mulling over similar moves as they get ready to pare back their proprietary-trading desks.

Detroit Goes From Gloom to Economic Bright Spot - (www.nytimes.com) After a dismal period of huge losses and deep cuts that culminated in the Obama administration’s bailout of General Motors and Chrysler, the gloom over the American auto industry is starting to lift. Jobs are growing. Factory workers are anticipating their first healthy profit-sharing checks in years. Sales are rebounding, with the Commerce Department reporting Friday that automobiles were a bright spot in July’s mostly disappointing retail sales. The nascent comeback is far from a finished product. Foreign competitors are leaner and stronger, accounting for more than half of all car sales in this country. The sputtering economic rebound is spooking investors and consumers alike, threatening to derail some of Detroit’s gains. And talks next year on a new contract with the United Automobile Workers could revive old hostilities. Still, the improving mood here reflects real changes in how Detroit is doing business — and a growing sense that the changes are turning the Big Three around, according to industry executives and analysts tracking the recovery.

Market Compass Goes Awry When Governments Steal - (www.bloomberg.com) Tim Price, the director of investments at PFP Group in London, says the credit crisis has destroyed “the boundaries of possibility.” Faith in credit ratings, government debt, economic Darwinism, regulation, and the enlightened self- interest of banks and bankers has vanished. As a result, “literally anything is possible,” he says. Scary Sirens: A feature of the credit crisis was how tiny alarm bells started jingling everywhere in the prior months, just softly enough to feel like they could be safely ignored. Listen hard today, and an entirely different suite of scary sirens is discernible through the noise of allegedly optimistic company earnings reports. The U.S. government bullied BP Plc into canceling its dividend for the first three quarters of this year and cajoled it into setting up a $20 billion fund to compensate victims of the Gulf of Mexico oil spill. That’s stealing from the company’s shareholders; President Barack Obama has no jurisdiction over BP’s treasury, no matter what your moral stance is on seabirds. Moreover, it looks like the U.S. plans to tweak the rules governing Fannie Mae and Freddie Mac to enhance the pace of mortgage forgiveness. In other words, it will force the now government-controlled agencies to let debtors keep their houses without making all of their debt payments. Bondholders Get Robbed: That’s stealing from Fannie and Freddie’s bondholders, whatever you think about the behavior of mortgage lenders in the go-go years. Ireland is also planning rule changes to make it harder for mortgage companies to foreclose on defaulters, according to the Irish Independent newspaper. And in the U.K., the government is pushing commercial banks, many of which it controls as a result of various bailouts, to boost their lending. Never mind that the very arbitrariness of state intervention might be what is making entrepreneurs shy away from making fresh investments. If enforced, the government will be stealing from the banks’ other shareholders by forcing executives to make loans they otherwise wouldn’t touch, just to meet politically determined quotas.

'Hindenburg Omen' foreshadows imminent FTSE crisis - (www.telegraph.co.uk) Opinion was as polarised as ever on Friday, as one market commentator said shares could be riding for an imminent fall, only days after a respected investor predicted the FTSE 100 would hit 6,000 before the end of the year. In his daily morning note, David Buik at BGC Partners drew attention to the Hindenburg Omen, which he described somewhat theatrically as "easily the most feared technical pattern in all of chartism". Those of a wary disposition also noted the date - Friday 13th. The Hindenburg Omen is said to be a statistical sign that equity markets are heading for a fall and measures factors such as the proportion of shares registering 52-week highs and lows, as well as a somewhat complex ratio known as the McClellan Oscillator. Despite several days of falls the London market closed up 9.38 points on Friday at 5,275.44 - 725 points below what it needs to rise to meet the prediction of Standard Life Investments chief executive Keith Skeoch who predicted on Thursday that the FTSE 100 would hit 6,000 before the end of 2010.