KeNo's Housing and Economic Portal: Tuesday January 18 Housing and Economic stories

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MBIA Fights Banks for Its Life - (www.nytimes.com) MBIA, an insurance company whose very existence is imperiled because it underestimated the risks involved in mortgage lending, says the banks owe it billions because they lied about the mortgages backing securities that MBIA insured. The insurer’s financial statements show it is solvent in large part because that money will be coming in. The banks disagree. Their financial statements reflect no such obligation. Just who is right will be determined over time, by courts and by negotiations. It is unlikely that much more will be known before annual reports come out this spring, but pressure is building on both sides to provide more complete disclosure of possible outcomes, and of how they reached their conclusions. In the meantime, many of the same banks being sued by MBIA are trying to persuade a judge that the company is now and has been insolvent for a couple of years. That case was supposed to come to trial this month, but it has been delayed in part by the refusal of the New York State Insurance Department, MBIA’s regulator, to let a judge see e-mails between department officials when the department was approving a plan that reorganized MBIA in ways that left some MBIA-insured policyholders — notably banks — less likely to be paid if there are defaults.

Raise debt limit to avoid national catastrophe, Geithner warns Congress - (www.washingtonpost.com) Treasury Secretary Timothy F. Geithner warned lawmakers Thursday that the national debt could hit the legal limit on borrowing as soon as March 31, and he urged quick action to avoid a government default that would spark "catastrophic economic consequences that would last for decades." In a letter sent to every member of Congress, Geithner said the national debt stands at $13.95 trillion - $335 billion short of the limit on borrowing that Congress set last year. Unless Congress acts to raise the limit, the letter says, the United States will default on its debt, an unprecedented event that could destroy "millions of American jobs," cause interest rates to spike, damage the dollar, and halt payments to millions of Social Security recipients, veterans and active U.S. troops. "Failure to increase the limit would be deeply irresponsible," Geithner wrote. "For these reasons, I am requesting that Congress act to increase the limit early this year, well before the threat of default becomes imminent."

The Downsizing in Detroit - (www.nytimes.com) Ten years ago, the Ford Motor plant here churned out giant Expedition and Navigator sport utility vehicles that got 12 miles to the gallon — and it was one of the most profitable auto factories in the world. Today, after a $550 million renovation, the 140-acre plant is a symbol of a very different Detroit: a greener, leaner industry focused on smaller, energy-efficient cars. The factory will now build Ford’s newest compact car, the Focus, in four different and progressively more fuel-efficient versions, including an all-electric one that will be unveiled on Friday and go on sale this year. Although the transformation has been a long time coming, Ford and the rest of the domestic auto industry appear to be finally giving up their addiction to gas-guzzling trucks and sport utility vehicles. Prodded first by rising federal fuel economy standards, then shocked in 2008 by $145-a-barreloil and a global credit crisis that forced General Motors andChrysler to seek federal bailouts, Detroit is making a fundamental shift toward lighter, more fuel-conscious cars — and turning a profit doing so.

U.S. Inquiry Said to Focus on Calpers - (www.nytimes.com) Federal regulators are investigating whether California violated securities laws and failed to provide adequate disclosure about its giant public pension fund, according to a person with knowledge of the investigation. The Securities and Exchange Commission normally polices companies, but last year it brought its first enforcement action ever against a state, accusing New Jersey of securities fraud for misleading bond investors about the condition of its pension fund. The commission signaled, in its settlement with New Jersey, that it was going to look more broadly at the pension disclosures of states and cities. The fund, the California Public Employees’ Retirement System, known as Calpers, lost about a quarter of its total investment portfolio during the financial crisis, leaving the state responsible for replacing billions of dollars each year and contributing to its huge deficit. The question is whether California adequately disclosed in the preceding years how risky the pension investments were and how much money it might need to cover any shortfall.

Illinois Pension Bond Offering Faces Record Costs: Muni Credit - (www.bloomberg.com) Illinois, whose lawmakers are tackling a $13 billion budget gap, faces rising borrowing costs for a proposed $3.7 billion pension bond as yields on comparably rated taxable debt reach at least an 11-month high. Since touching a low of 5.38 percent Oct. 6, interest rates for taxable A rated bonds have risen 87 basis points to 6.25 percent, according to Standard & Poor’s, which gives the state its fifth-highest grade, A+. A basis point is 0.01 percentage point. At the same time, the premium the state pays on 30-year tax-exempt securities widened to 91 basis points yesterday, the most in a month, as lawmakers met to resolve the financial challenges, said Gary Pollack, who helps oversee $12 billion as head of bond trading at Deutsche Bank AG’s private wealth management unit in New York.