KeNo's Housing and Economic Portal: Thursday February 24 Housing and Economic stories

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TOP STORIES:

Perfect bailout: Fannie, Freddie now send taxpayer cash directly to wall street - (finance.yahoo.com) As the terror of the financial crisis recedes, many folks have forgotten about the two huge taxpayer-owned mortgage companies, Fannie Mae and Freddie Mac. But they're still there, money-manager Barry Ritholtz reminds us. And they're still sending billions of dollars of taxpayer cash directly to Wall Street, in what might be described as the "perfect bailout." How does this bailout work? Fannie and Freddie got a "blank check" from Treasury Secretary Tim Geithner at the end of the financial crisis. This blank check allows the housing giants to lose as much money as they want, with the taxpayer footing the bill. Fannie and Freddie use much of this money to buy mortgages from Wall Street at what may be grossly inflated prices. This is a super arrangement for the banks, because they get to unload all their terrible mortgages at prices that won't produce losses. And it's fine for Fannie and Freddie because, well, because they have the blank check. But of course there's no free lunch. And in this scheme, the US taxpayer is, as usual, footing the bill.

Wall Street Pay Reaches Record $135 Billion Taken From Rest Of Us - (www.online.wsj.com) When it comes to paychecks, Wall Street's law of gravity is back in full force: What goes down must come back up. In 2010, total compensation and benefits at publicly traded Wall Street banks and securities firms hit a record of $135 billion, according to an analysis by The Wall Street Journal. The total is up 5.7% from $128 billion in combined compensation and benefits by the same companies in 2009. The increase was fueled by a revenue rebound as the financial crisis recedes in the rearview mirror. At 25 large financial firms that have reported full-year results, revenue rose to $417 billion, another all-time high, even though last year's 1% increase was just a fraction of the industry's revenue jolt from 2008 to 2009 as trading and investment banking sprang back to life. "Things are shifting back to where they were before," said J. Robert Brown, a law professor at the University of Denver who studies compensation and corporate-governance issues. Buried in the numbers, though, are signs of how Wall Street's pay culture is bending in response to pressure from regulators and shareholders. Last year, deferred compensation made up as much as half of total pay, up from about a third previously, estimates Alan Johnson, managing director of Johnson Associates Inc., a New York pay consultant. Banks and securities firms are deferring a larger percentage of compensation than they used to, trying to counter criticism that yearly cash bonuses encourage unwise risk-taking by executives, traders and other employees aiming for a big payday. At the same time, many Wall Street firms increased base salaries in 2010, another effort to encourage employees to focus on longer-term performance. Such moves nudged overall compensation higher, though the exact amount can't be determined from figures disclosed by the companies.

Toxic Mortgages Rally as Resets Accelerate - (www.businessweek.com) Home loans that inflated the U.S. housing bubble by giving borrowers the choice of cutting interest payments in exchange for higher balances are fueling the fastest gains in the mortgage-bond market. Prices for senior bonds tied to option adjustable-rate mortgages, called “toxic” by a government commission, typically jumped 6 cents to 64 cents on the dollar in the past month, according to Barclays Capital. The next best-performing class of home-loan securities without government backing rose 4 cents. Option-ARM debt tumbled to as low as 33 cents in 2009. Rising values show Federal Reserve efforts to stimulate the economy by purchasing an additional $600 billion of Treasuries and holding interest rates near zero percent are driving investors into ever-riskier securities. Bond buyers are overcoming a “mental hurdle” even as the debt is poised to lead a second wave of rising payments for homeowners, according to TCW Group Inc.

The Next Global Banking Crisis Is 3 Years Away - (www.theatlantic.com) The world is slowly inflating a commodities bubble that could burst just like the housing market in 2008, creating an even more devastating worldwide recession. THE COMMODITIES BUBBLE: Let's start in 2011. The world is in a three-speed recovery, with Europe at the bottom, the U.S. in the middle, and Asia growing between 6 and 10 percent. If you're an investment bank looking for high returns, where do you look? The fastest gains are in the hottest markets, and the hottest markets are in the developing world. In particular, commodities investments (gold, silver, platinum, rare earth metals, oil) have soaked up lots of excess global money supply and central banks have dropped their interest rates. Commodities-rich economies like Russia, Brazil and the rest of Latin America have been key beneficiaries.

Learning To Walk: Fear, Shame And Your Underwater Mortgage - (www.huffingtonpost.com) Nearly 1 in every 4 U.S. homeowners with mortgages owe more on their home than it's worth. Once a month, those 10.8 million are faced with a question that cuts to the core of the American Dream and offers a confusing collision between a deep-seated sense of personal obligation and a cold, simple business calculation: Should I pay my mortgage? For decades, there was only one answer for most people: Of course I should keep paying, it's the right thing to do. Besides, the argument went, a home is a great investment. Today, in the wake of the most seismic housing collapse in the nation's history, that logic has increasingly been challenged by homeowners despondent about their lack of options.