KeNo's Housing and Economic Portal: Monday December 13 Housing and Economic stories

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Fed aid in financial crisis went beyond U.S. banks to industry, foreign firms - (www.washingtonpost.com) The financial crisis stretched even farther across the economy than many had realized, as new disclosures show the Federal Reserve rushed trillions of dollars in emergency aid not just to Wall Street but also to motorcycle makers, telecom firms and foreign-owned banks in 2008 and 2009. The Fed's efforts to prop up the financial sector reached across a broad spectrum of the economy, benefiting stalwarts of American industry including General Electric and Caterpillar and household-name companies such as Verizon, Harley-Davidson and Toyota. The central bank's aid programs also supported U.S. subsidiaries of banks based in East Asia, Europe and Canada while rescuing money-market mutual funds held by millions of Americans. The biggest users of the Fed lending programs were some of the world's largest banks, including Citigroup,Bank of America, Goldman Sachs, Swiss-based UBS and Britain's Barclays, according to more than 21,000 loan records released Wednesday under new financial regulatory legislation. The data reveal banks turning to the Fed for help almost daily in the fall of 2008 as the central bank lowered lending standards and extended relief to all kinds of institutions it had never assisted before. Fed officials emphasize that their actions were meant to stabilize a financial system that was on the verge of collapse in late 2008. They note that the actions worked to prevent a complete financial meltdown and that none of the special lending programs has lost money. (Some have recorded healthy profits for taxpayers.) But the extent of the lending to major banks - and the generous terms of some of those deals - heighten the political peril for a central bank that is already under the gun for a wide range of actions, including a recent decision to try to stimulate the economy by buying $600 billion in U.S. bonds.

Nervous US muni market eyes Vallejo - (www.ft.com) People in Vallejo, California, a former navy town a ferry ride from San Francisco, have seen their police force cut nearly in half, three fire stations closed and an end to city funding for a library, the Vallejo Symphony and a local senior centre. The city, which has a population of about 120,000, was an early casualty of the fiscal stress that is weighing on US states and cities. Unsuccessful in negotiating wage cuts with labour unions, and suffering a fall in property tax revenue, it filed a rare municipal bankruptcy in May 2008. Since then, Vallejo has become a de facto test case for part of the federal bankruptcy code, called Chapter 9, that deals with municipalities. Investors in America’s $2,800bn municipal bond market are watching anxiously as cities and other public entities across the US struggle to make ends meet. Like sovereigns in Europe, states cannot file for bankruptcy. A big concern in the bond markets is whether other cash-strapped local entities will turn to the courts for relief and force bondholders to accept concessions that have, at least in the recent past, been reserved for citizens, workers and vendors. In the past two weeks, investors have withdrawn more than $5bn from so-called “muni” funds, which buy municipal bonds, in part because of nervousness over local finances.

Unemployed, and Likely to Stay That Way - (www.nytimes.com) So the legions of long-term unemployed will probably be idle for significantly longer than their counterparts in past recessions, reducing their chances of eventually finding a job even when the economy becomes more robust. “I am so worried somebody will look at me and say, ‘Oh, he’s probably lost his edge,’ ” said Tim Smyth, 51, a New York television producer who has been unable to find work since 2008, despite having two decades of experience at places like Nickelodeon and the Food Network. “I mean, I know it’s not true, but I’m afraid I might say the same thing if I were interviewing someone I didn’t know very well who’s been out of work this long.” Mr. Smyth’s anxieties are not unfounded. New data from the Labor Department, provided to The New York Times, shows that people out of work fewer than five weeks are more than three times as likely to find a job in the coming month than people who have been out of work for over a year, with a re-employment rate of 30.7 percent versus 8.7 percent, respectively.

Too Big to Succeed - (www.nytimes.com) THE world has experienced a severe financial crisis and economic recession. The Treasury and the Federal Reserve took actions that saved businesses and jobs and may very well have saved the economy itself from ruin. Still, the public seems ungrateful, expressing anger at these institutions that saved the day. Why? Americans are angry in part because they sense that the government was as much a cause of the crisis as its cure. They realize that more must be done to address a threat that remains increasingly a part of our economy: financial institutions that are “too big to fail.” During the 1990s, Congress, with encouragement from academics and regulators, repealed the Glass-Steagall Act, the Depression-era law that had barred commercial banks from undertaking the riskier activities of investment banks. Following this action, the regulatory authority significantly reduced capital requirements for the largest investment banks. Less than a decade after these changes, the investment firm Bear Stearns failed. Bear was the smallest of the “big five” American investment banks.

492 Days From Default to Foreclosure - (blogs.wsj.com) The average borrower in the foreclosure process hadn’t made a payment in 492 days as of the end of October, according to LPS [LPS Applied Analytics]. That compares to 382 days a year ago and a low of 244 days in August 2007. In other words, people who default on their mortgages can reasonably expect, on average, to stay in their homes rent-free more than 16 months. In some states such as New York and Florida, the number is closer to 20 months. Speeding up the process won’t be easy, as demonstrated by the banks’ continuing legal troubles related to robo-signers, bank employees who signed foreclosure affidavits without properly checking the required loan documentation. Millions of Americans still are paying their mortgages even though they owe more than their homes are worth. The more banks’ backlog grows, the more likely they are to join it, adding to the already giant pile of foreclosures weighing on the housing market.