KeNo's Housing and Economic Portal: Sunday December 11 Housing and Economic stories

Saturday, December 10, 2011

Sunday December 11 Housing and Economic stories

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EU monetary chief sees 10 days to rescue euro zone - (www.reuters.com) The world's major central banks acted jointly on Wednesday to provide cheaper dollar funding to European banks facing a credit crunch as the euro zone's debt crisis drove EU ministers to urge more IMF help to avert financial disaster. The emergency move by the U.S. Federal Reserve, the European Central Bank, and the central banks of Japan, Britain, Canada and Switzerland recalled coordinated action to stabilize global markets in the 2008 financial crisis after the collapse of Lehman Brothers. In Italy, now the focal point of the euro debt crisis, the Treasury started emergency cash tenders for banks which have been squeezed particularly hard as Rome's borrowing costs have soared towards 8 percent, a level seen as unaffordable in the long term.

AMR-Backed Municipal Airport Bonds Fall on Bankruptcy by American Parent - (www.bloomberg.com) Municipal securities backed by American Airlines parent AMR Corp. (AMR) dropped as much as 68 percent after the third-largest U.S. carrier declared bankruptcy. AMR’s $3.2 billion of debt backing airport facilities may not have much effect on municipal defaults this year, because it isn’t clear how much will be abandoned, according to analysts including Phil Villaluz, managing director of municipal research for Sterne Agee & Leach Inc. in New York. AMR and American sold tax-exempt securities called special- facilities bonds through airports and municipal authorities to pay for gates and maintenance hangars in cities such as New York, Los Angeles and Dallas. American became the final large U.S. full-fare airline to seek court protection following the Sept. 11 terrorist attacks. It listed $29.6 billion in debts in U.S. Bankruptcy Court papers filed yesterday in Manhattan.

Moral hazard will result from ECB bond buying - (www.ft.com) In providing advances to the banking system to stay a panic, a central bank should follow two rules. “First, that these loans should only be made at a very high rate of interest. This will operate as a heavy fine on unreasonable timidity and will prevent the greatest number of applications by persons who do not require it . . . “Secondly, that at this rate these advances should be made on all good banking securities and as largely as the public ask for them.” This is the original definition of the role of the central bank as lender of last resort by Walter Bagehot in his famous book Lombard Street (1873).

Central Banks Pushed to Act Amid Funding Squeeze - (www.bloomberg.com) The squeeze that has driven funding costs for European banks to the highest since the aftermath of Lehman Brothers Holding Inc.’s collapse is prompting economists and traders to urge central banks to do more to fight the worsening debt crisis. The Euribor-OIS spread, a measure of banks’ willingness to lend to each other, widened to 98.2 basis points at 9:15 a.m. in London, the biggest gap since March 2009, up from 96.6 basis points yesterday. The cost for European banks to fund in dollars rose to the highest level since October 2008, a month after New York-based Lehman filed forbankruptcy protection. European Central Bank President Mario Draghi has resisted pressure from politicians to backstop governments as contagion spreads to Italy and France, confronting leaders with what Morgan Stanley calls a “critical moment in European history.” While the ECB is already offering banks unlimited cash and has cooperated with the Federal Reserve to keep dollars flowing through the financial system, other options may include cutting its benchmark interest rate, expanding liquidity lines or working with the International Monetary Fund.

Ratings Firms Misread Signs of Greek Woes- (www.nytimes.com) In a stern pronouncement, Moody’s Investors Service this week warned of rising prospects for multiple defaults by countries in the euro zone and credit rating downgrades of nations across Europe if leaders should fail to resolve the spreading debt crisis. When it comes to Greece, critics say Moody’s should have been tougher a lot earlier. Until two years ago, the ratings agency took a relatively lax approach to growing signs of troubles in Greece, epicenter of the current crisis, even as the country plowed ahead with a borrowing binge that jeopardized its fiscal condition. Moody’s held off dropping its strong A rating of Greece’s bonds despite growing political turmoil and economic woes through 2009. Investor fears over Greece’s short-term financing needs were “misplaced,” Moody’s said in a report in early December 2009. Twenty days later, after a review, the agency downgraded the nation’s debt, the last of the major ratings agencies to do so.