KeNo's Housing and Economic Portal: Thursday April 21 Housing and Economic stories

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TOP STORIES:

Fed Help Kept Banks Afloat, Until It Didn’t - (www.nytimes.com) During the frenetic months of the financial crisis, the Federal Reserve stretched the limits of its legal authority by lending money to more than 100 banks that subsequently failed. The loans through the so-called discount window transformed a little-used program for banks that run low on cash into a source of long-term financing for troubled institutions, some of which borrowed regularly from the Fed for more than a year. The central bank took little risk in making the loans, protecting itself by demanding large amounts of collateral. But propping up failing banks can increase the eventual cleanup costs for the Federal Deposit Insurance Corporation because it keeps struggling banks afloat, allowing them to get even deeper in debt. It also can clog the arteries of the financial system, tying up money in banks that are no longer making new loans. County Bank, the largest bank in Merced County, California, took a $4.8 million loan from the discount window in March 2008 after announcing the first annual loss in its 30-year history, news that prompted depositors to withdraw $52 million.

Midtown Hustlers Are Selling 2,000 Cigarettes A Day Hot Off The Train From Virginia - (www.businessinsider.com) New York taxes $4.35 on top of every pack of cigarettes. Virginia taxes only 30 cents. This presents an enormous, albeit illegal, arbitrage opportunity for street vendors (via Kid Dynamite). Since Governor Paterson's big tax hike last summer, the local cigarette black market has been on fire, according to the NYT's Joseph Goldstein. Lonnie Warner, aka Lonnie Loosie, said he's selling ten times as many cigarettes as last year: Mr. Warner said he bought his cigarettes — almost always Newports — for a bit over $50 a carton from smugglers who get them in states like Virginia, where the state tax is well under a dollar a pack. He then resells them for 75 cents each, two for $1 or $8 for a pack ($7 for friends). Mr. Warner said he and each of his two partners took home $120 to $150 a day, profit made from selling about 2,000 cigarettes, mostly two at a time. Each transaction is a misdemeanor offense.

Poll reveals baby boomers' retirement fears - (finance.yahoo.com) Baby boomers are starting to retire, but many are agonizing about their finances and believe they'll need to work longer than they had planned, a new poll finds. The 77 million-strong generation born between 1946 and 1964 has clung tenaciously to its youth. Now, boomers are getting nervous about retirement. Only 11 percent say they are strongly convinced they will be able to live in comfort. A total of 55 percent said they were either somewhat or very certain they could retire with financial security. But another 44 percent express little or no faith they'll have enough money when their careers end. Further underscoring the financial squeeze, 1 in 4 boomers still working say they'll never retire. That's about the same number as those who say they have no retirement savings. The Associated Press-LifeGoesStrong.com poll comes as politicians face growing pressure to curb record federal deficits, and budget hawks of both parties have expressed a willingness to scale back Social Security, the government's biggest program. The survey suggests how politically risky that would be: 64 percent of boomers see Social Security as the keystone of their retirement earnings, far outpacing pensions, investments and other income.

ROGOFF: Our Tax Systems Are "Byzantine Labyrinths Funnelling Money To Powerful Interests" - (www.businessinsider.com) Economist Kenneth Rogoff believes that the current lack of worry over the global government debt crisis will make future scholars question our wisdom. In an editorial for the FT, Rogoff cited his and Carmen Reinhart's research that said debt-to-income ratios are near postwar highs across economies and if interest rates rise sharply many countries will experience problems. Rogoff says our lack of worry today will look "foolish" in the future, when debt problems come to roost. He suggests we streamline our tax system and contain entitlement spending to fight this future, and described our current tax systems as "Byzantine labyrinths funnelling money to powerful interests, creating staggering inefficiencies." Rogoff's comments echo previous research he has done, that shows countries where the debt to GDP percentage rises above 90% experience economic slowdowns. The fears he elucidates, about rising debt yields slamming countries with high debt levels, aren't too different from the arguments made by Niall Ferguson or Societe Generale's Dylan Grice.

Europe's sovereign bond troubles continue - (www.bloomberg.com) Portugal’s 10-year government bonds dropped for the 11th consecutive day after Moody’s Investors Service lowered the nation’s credit rating for the second time in three weeks amid expectations it will need a bailout. Irish bonds advanced for a third day, narrowing the yield difference to Portuguese securities. German 10-year government bond yields were within three basis points of the highest in almost 15 months on bets the European Central Bank will raise interest rates this week. A gauge of euro-area services gained more than initially estimated and a separate report today showed retail sales shrank 0.1 percent in February. “We have seen all these downgrades taking place, which were very aggressive,” said Ioannis Sokos, a fixed-income strategist at BNP Paribas SA in London. Portuguese “yields remain very high and there is no reason to see them lower before a government is formed and new fiscal measures are agreed.” Portuguese 10-year government yields gained 17 basis points to 8.76 percent as of 4:43 p.m. in London, after reaching a record 8.80 percent. The securities’ 11-day drop is the longest run since the 16 days through Dec. 27. The 3.85 percent security due April 2021 fell 0.88, or 8.80 euros per 1,000-euro ($1,421) face amount, to 68.09. The two-year note yield rose 33 basis points to 9.15 percent.

‘Mortal Wound’: Japan Disaster Could Trigger Global Liquidity Crisis - (www.finance.yahoo.com) The ripple effects from Japan's crisis worsened considerably Monday. First and foremost, engineers at the crippled Fukushima Daiichi nuclear power plant struggled to contain leakage of radioactive water into the sea. Second, Toyota announced it will shut down all of its North America factories due to parts shortages while AutoNation warned "production disruptions will significantly impact product availability from Japanese auto manufacturers in the second and third quarters of 2011." These announcements follow GM's temporary shutdown of its Shreveport plant and reports Apple is facing a shortfall of batteries for its iPad 2 as a result of the disaster in Japan. Chris Martenson, author of The Crash Course, expects more "product shortages and associated work stoppages" in the coming weeks, and warns Japan's natural and nuclear disaster could inflict a "mortal wound" on the global economy. As the title of his book and video series implies, Martenson has a proclivity to see events unfolding in a worst-case manner. But there is typically logic to his thesis, as is the case here.