KeNo's Housing and Economic Portal: Saturday November 20 Housing and Economic stories

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TOP STORIES:

Portuguese, Spanish Debt Lead Peripheral Drop on Budget Concern - (www.bloomberg.com) Portuguese bond spreads hit record. Portuguese and Irish government bonds fell on mounting concern that some nations on Europe’s periphery will be forced to restructure their debt. Irish 10-year securities plunged for a 13th day after clearing house LCH Clearnet Ltd. yesterday demanded its clients place a larger deposit when trading the debt. Spanish bonds headed for a 13th day of declines. French Finance Minister Christine Lagarde said yesterday that investors must share in the cost of safeguarding sovereign debt. German bunds advanced on demand for the safest assets. “Lagarde’s comments mentioned restructuring, and that’s another nail in the coffin” for peripheral debt, said Steven Major, global head of fixed-income research at HSBC Holdings Plc in London. “There’s still a big constituency of investors and traders who have not recognized until now that restructuring could happen.” Portuguese 10-year bonds dropped, pushing the yield up six basis points to 7.24 percent at 12:21 p.m. in London, widening the yield premium over benchmark German bunds to as much as 484 basis points, a record, according to Bloomberg generic data.

How to Shut Down Fannie and Freddie - (online.wsj.com) Although Fannie Mae and Freddie Mac played a central role in causing the recent economic crisis, they are absent from the reform plans of Congress and the Obama administration. So these two government-sponsored enterprises (GSEs) remain mired in conservatorship, as extensions of the federal government. Bureaucrats now steer the primary provider of secondary market liquidity for our $10 trillion housing finance market. The administration has offered many explanations for the delay: Housing finance is complex, says Treasury Secretary Tim Geithner, so he's consulting Congress and has assembled "academic experts, consumer and community organizations, industry participants and other stake holders" to review the matter. But the Treasury doesn't need Congress or an academic assessment in order to tackle the most important reform goal: eliminating the GSEs and moving their activities to the private sector. Mr. Geithner himself can immediately reshape the mortgage markets—by withholding his approval of new debt issuances by the GSEs. That's the best way to begin curtailing the GSEs, and it can be done unilaterally.

Fraud Started At the Very Top: With Government Leaders - (www.washingtonsblog.com) The government's entire strategy now - as during the S&L crisis - is to cover up how bad things are. But it is not only a matter of covering up fraud that has already happened. The government also created an environment which greatly encouraged fraud. Here are just a few of many potential examples:

The government-sponsored rating agencies committed massive fraud (and see this)

The Treasury department allowed banks to "cook their books"

Business Week wrote on May 23, 2006:
"President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations."

Regulators knew of and allowed the use of debt-hiding accounting tricks by the big banks

Tim Geithner was complicit in Lehman's accounting fraud, (and see this), andpushed to pay AIG's CDS counterparties at full value, and then to keep the deal secret. And as Robert Reich notes, Geithner was "very much in the center of the action" regarding the secret bail out of Bear Stearns without Congressional approval. William Black points out: "Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth"

Irish Bank Default Swaps Rise to Distress on Bailout - (www.bloomberg.com) The cost of insuring the bonds of Irish banks soared to distressed levels amid concern that the government won’t be able to afford the cost of bailing out the nation’s banks. Irish and international banks’ loan losses in the country may total least 85 billion euros ($117 billion), central bank Governor Patrick Honohan said in Dublin yesterday, Morgan Kelly, an economics professor dubbed “Doctor Doom,” said on Nov. 8 that mortgage defaults may push the cost of Ireland’s bank bailout to 70 billion euros, more than the government’s estimate of 50 billion euros.

Why Las Vegas Property Tax Assessments Will Exceed Market Value - (www.nreionline.com) Vacancy rates are another metric that illustrates the severity of the downturn. The vacancy rate for all classes of office space in Las Vegas has slowed its rate of increase, but is projected to top out at a staggering 24.8% by the end of this year, according to Encino, Calif.-based real estate services firm Marcus & Millichap. By contrast, the firm estimates that the current, national vacancy rate for all classes of office is 17.7%. Applied Analysis, a research consulting firm based in Las Vegas, reports that vacancy rates have risen for the past four years in every subsector of commercial real estate, from retail to industrial to office. The average price per acre of developable commercial land in Clark County has fallen from a peak of $939,000 at the end of 2007 to $155,000 today, a drop of more than 83%, according to Applied Analysis. Brian Gordon, a principal at the research company, draws a direct correlation between the weak demand for space and the depressed value of commercial properties. The cumulative effect of these trends is clear: The market value of commercial property has dramatically declined. The question that remains for property owners is whether the taxable values assessors assign to Las Vegas real estate will reflect the decline in market value. Unfortunately for taxpayers, the short answer is no.