KeNo's Housing and Economic Portal: Sunday August 29 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Four banks face big losses on repurchases - (www.reuters.com) The four largest U.S. banks could face as much as $42 billion in losses as they repurchase faulty mortgages from housing finance giants Fannie Mae and Freddie Mac, Fitch Ratings said on Wednesday. Total repurchases are based on the success of Fannie Mae (FMNA.OB) and Freddie Mac (FMCC.OB) proving their cases, but Fitch said it is concerned that more aggressive requests by the companies could expose banks to greater than expected losses. Under an "extremely adverse scenario," the pool of "at risk" loans for JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N), Bank of America Corp (BAC.N) and Wells Fargo & Co could total $175 billion to $180 billion, Fitch said. Spokesmen for the banks declined to comment on the Fitch report, or had no immediate comment. Fannie Mae and Freddie Mac are pushing to recover losses on loans that failed to meet "representations and warranties," which state that loans sold into mortgage bond programs fit strict underwriting requirements. As the government-sponsored enterprises (GSEs) are life support from the U.S., repurchases would help offset the tens of billions of dollars being laid out by taxpayers. Banks have responded by increasing reserves for repurchases, but are also challenging the claims. Under an "adverse but less likely" scenario where Fannie Mae and Freddie Mac successfully put back 50 percent of bad loans and the banks can still recovery 50 percent of the assets' value, the institutions could lose $42 billion, Fitch said. If the GSEs put back 25 percent of the loans, the expected loss could be $17 billion, it said.

Mexico Under Siege - (online.wsj.com) A surge of drug violence in Mexico's business capital and richest city has prompted an outcry from business leaders who on Wednesday took out full-page ads asking President Felipe Calderón to send in more soldiers to stem the violence. 'Es momento de hacer un alto y decidir sobre la mejor forma de responder a las bandas de criminales que ... buscan establecer un nuevo parámetro de terror.' 'It's time to stop and decide the best way to respond to criminal bands ... looking to establish a new boundary of terror.' – Excerpt from newspaper ad by Mexican business leaders….

The growing violence in Monterrey, long one of Mexico's most modern and safe cities, is a sign that the country's war against drug gangs is spreading ever further from poorer battlegrounds along the border and into the country's wealthiest enclaves. Residents opened their newspapers Wednesday morning to find the ads taken out by Mexican business leaders, begging the government to send more military into the city. "Enough already," said the notice that ran in national and local papers, criticizing what it said was a slow response of police against "criminal bands that in every act look to establish a new boundary of terror." Later that day, the body of Edelmiro Cavazos, mayor of the Monterrey suburb of Santiago, was found beside a highway. Mr. Cavazos had been abducted Sunday night, the latest in a string of attacks against politicians in Mexico's north.

US banks receive Basel III boost - (www.ft.com) The committee in July made significant changes to the definition of what banks could count toward highest-quality “tier one” equity capital and effectively trimmed the amount of liquid assets they would be required to keep on hand. The banks had argued – and some regulators agreed – that a tougher package could impede the still-patchy economic recovery by crimping new lending. Two separate studies released on Wednesday by the Basel Committee and the Financial Stability Board, however, concluded that tightened capital and liquidity rules would have only a modest impact on world economic growth patterns if they were phased in over time, as planned. A one percentage point increase in bank tangible equity capital – capital that cannot be withdrawn in the event of a crisis – would lead to a 0.2 per cent average decline in global output, the studies found. Commentators on both sides of the Atlantic see the July changes to the Basel proposals, commonly known as Basel III, as a big victory for lenders.

SEC’s New Jersey Fraud Case Seen as Harbinger in Muni Crackdown - (www.bloomberg.com) The Securities and Exchange Commission’s fraud case against New Jersey may presage a wave of lawsuits seeking to crack down on misdeeds by public officials who raise money in the $2.8 trillion municipal bond market. New Jersey yesterday settled claims it didn’t disclose to investors that it failed to put enough cash into its two biggest pension plans when it sold $26 billion of bonds from 2001 to 2007. The case is the first SEC fraud charge against a state and follows the creation of a unit set up this year to focus on municipal securities and pension funds. “They will be looking for other cases,” said James Doty, a former SEC general counsel who’s now an attorney with Baker Botts LLP in Washington. “It’s a harbinger that they expect disclosure standards to be scrutinized and be increased.” SEC Chairwoman Mary Schapiro has pressed for tougher disclosure rules for municipal bonds, whose history as a safe investment has been jeopardized by dwindling tax collections, record budget deficits and rising defaults by state and local borrowers. Investment losses also left states $500 billion short of funds to cover promised pensions by mid-2008, even before the collapse of Lehman Brothers Holdings Inc. sent stocks tumbling, the Pew Center on the States said.

"Why I'm Not Hiring" - (online.wsj.com) The key phrase from the article is: When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and to give her $12,000 in benefits.

With unemployment just under 10% and companies sitting on their cash, you would think that sooner or later job growth would take off. I think it's going to be later—much later. Here's why. Meet Sally (not her real name). Sally is a terrific employee, and she happens to be the median person in terms of base pay among the 83 people at my little company in New Jersey, where we provide audio systems for use in educational, commercial and industrial settings. She's been with us for over 15 years. She's a high school graduate with some specialized training. She makes $59,000 a year—on paper. In reality, she makes only $44,000 a year because $15,000 is taken from her thanks to various deductions and taxes, all of which form the steep, sad slope between gross and net pay. Employing Sally costs plenty too. My company has to write checks for $74,000 so Sally can receive her nominal $59,000 in base pay. Health insurance is a big, added cost: While Sally pays nearly $2,400 for coverage, my company pays the rest—$9,561 for employee/spouse medical and dental. We also provide company-paid life and other insurance premiums amounting to $153. Altogether, company-paid benefits add $9,714 to the cost of employing Sally. Then the federal and state governments want a little something extra. They take $56 for federal unemployment coverage, $149 for disability insurance, $300 for workers' comp and $505 for state unemployment insurance. Finally, the feds make me pay $856 for Sally's Medicare and $3,661 for her Social Security. When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and to give her $12,000 in benefits.

OTHER STORIES:

Basel Committee Says Bank Bond Investors Should Absorb Losses - (www.bloomberg.com)

China FX exchange says could add more currency pairs - (www.reuters.com)

Druckenmiller exit marks end of era - (www.ft.com)

Japanese step up foreign bond buys- (www.ft.com)

Nordics Face Housing Losses That May Spark Double Dip - (www.bloomberg.com)

Asian labour militancy on the rise - (www.ft.com)

Taiwan’s Economy Grows Faster-Than-Expected 12.53% - (www.bloomberg.com)

U.K. Posts Smaller Deficit in July Than Economists Forecast - (www.bloomberg.com)

Factories in Philadelphia Area Unexpectedly Shrink - (www.bloomberg.com)

Jobless Claims in U.S. Rose to Highest Since November - (www.bloomberg.com)

U.S. Budget Deficit Put at $1.066 Trillion in 2011 - (www.bloomberg.com)