KeNo's Housing and Economic Portal: Tuesday August 17 Housing and Economic stories

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For G.M., a Subprime Solution - (www.nytimes.com) President Obama visited Detroit last week and declared: “We expect taxpayers will get back all the money my administration has invested in G.M.” The president’s comment came the same day that G.M.’s chief executive, Edward E. Whitacre Jr., avowed, “We don’t want to be known as Government Motors,” and told an industry conference, “If you liked our first-quarter financial results, stay tuned for our second-quarter financial results.” All this shilling has a subtext: General Motors is planning to file documents soon with the Securities and Exchange Commission to pursue an initial public offering this year. It has hardly been a secret, with Mr. Whitacre’s mentioning the prospect of an I.P.O. at nearly every turn. That helps explain the timing of General Motors’ biggest deal since it emerged from bankruptcy in July 2009. Two weeks ago, the company agreed to buy AmeriCredit, a subprime lender, for $3.5 billion. At the time, industry insiders whispered, not so quietly, that it was meant to dress up G.M.’s sales numbers before an I.P.O. Last week, Mr. Whitacre appeared to acknowledge as much. “It strengthens the I.P.O. because it shows we have a credit organization just like Ford and Toyota,” he told The Detroit News, suggesting that AmeriCredit would substantially increase vehicle sales. Indeed, analysts have estimated that AmeriCredit could increase G.M. sales by 10 to 20 percent a year. In other words — and take a moment to think about what this means — G.M. plans to prod sales of its vehicles by using AmeriCredit to extend loans and leases to automobile customers with questionable credit. (That’s why they are called subprime loans.) These are the same customers who could very well be denied a loan by other lenders. But prudent lending is not at the top of G.M.’s to-do list: it needs to move its vehicles off the lot and it needs to do so quickly.

KKR Pulls $500 Million Share Sale, Citing ‘Unfavorable’ Market - (www.bloomberg.com) KKR & Co., the private-equity firm that moved its shares to the New York Stock Exchange last month, canceled a plan to raise $500 million in a stock sale and said second-quarter profit fell as investment income dropped. The firm applied to withdraw a registration for the sale, citing “unfavorable market conditions,” it said yesterday in a regulatory filing. KKR reported a 29 percent decrease in economic net income as lower unrealized investment gains led to a decline in carried interest, or the portion of profit it gets from successful holdings, the firm said in an e-mailed statement from New York. KKR has fallen almost 6 percent since it started trading in New York last month. The firm, along with larger competitor Blackstone Group LP, is expanding its non-buyout businesses to capture more fees and cope with a smaller and less-profitable deal market.

Fed, Citing Slowdown, to Buy U.S. Debt - (www.nytimes.com) Federal Reserve officials, acknowledging that their confidence in the recovery had dimmed, moved again on Tuesday to keep interest rates low and encourage economic growth. They also signaled that more aggressive measures could follow if the job market and other indicators continued to weaken. With short-term interest rates already close to zero, the Fed’s policy makers have relatively few tools available to encourage consumer and corporate spending. So they now plan to use the proceeds from the Fed’s huge mortgage-bond portfolio to buy long-term government debt. That action may put downward pressure on long-term interest rates and stimulate borrowing. For consumers, it means mortgage rates are likely to remain at record lows for some time. Though the immediate impact is likely to be modest, the decision is a turnabout from only a few months ago, when officials were discussing when and how to begin to raise interest rates and gradually shrink the $2.3 trillion balance sheet amassed through the Fed’s response to the 2008 financial crisis. In buying at least $10 billion a month in new Treasury securities — a small fraction of the roughly $700 billion in Treasury debt the Fed holds — the central bank is trying to help keep money readily available in the financial markets.

Anadarko Debtors Forgiving Spill in Bond Frenzy: Credit Markets - (www.bloomberg.com) Anadarko Petroleum Corp. sold $2 billion of notes that lack creditor protections against claims stemming from the worst oil spill in U.S. history, underscoring how corporations are gaining the upper hand over debt investors. Buyers of Anadarko’s seven-year notes will rank lower than winners of damages in lawsuits or settlements arising from the accident and holders of debt backed by the company’s divisions, said Adam Cohen, founder of Covenant Review LLC, a research firm that analyzes corporate bonds’ investor safeguards. Anadarko, based in The Woodlands, Texas, owns a 25 percent stake in the Gulf of Mexico well that BP Plc sealed last week. “If you look at the prospectus, you’d never know there was an oil spill,” said Cohen, who is based in New York. “Why would I buy a new issue that I know is going to come behind some uncertain amount of claims over the spill?” Companies are taking advantage of borrowing costs near the lowest in six years to issue $51 billion of debt this month, the fastest start to an August on record, according to data compiled by Bloomberg. Anadarko, Ally Financial Inc. and Rite Aid Corp. led 12 companies selling $11.7 billion of debt yesterday.

Wall Street Increasingly Favors Republicans: Study - (www.cnbc.com) Wall Street and its financial allies did an about-face in political spending in June, giving Republicans over two-thirds of their campaign contributions as Democrats pushed financial reform forward in Congress, a report said on Tuesday. The preliminary findings by the nonpartisan Center for Responsive Politics suggest that a financial industry trend favoring Republican candidates, which began in late 2009, may have accelerated as reform legislation progressed in the run-up to November's congressional mid-term elections. The Washington research group found that individuals and political action committees connected with the finance, insurance and real estate sectors gave 68 percent of their money to Republican interests in June, just before President Barack Obama signed financial reform into law. Nearly opposite conditions held sway in March 2009, when 70 percent of the industry's contributions went to Democrats. Republicans also received most of the industry's contributions in each of the first six months of 2010, according to the Center, which cautioned that its numbers are expected to change as it gleans further data from federal disclosure documents.