KeNo's Housing and Economic Portal: Wednesday February 8 Housing and Economic stories

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TOP STORIES:

Banks Hoarding ECB Cash May Double Company Defaults - (www.bloomberg.com) Corporate defaults may almost double in Europe as companies struggle to refinance debt and banks hoard cash borrowed from the European Central Bank or use it to buy government bonds. Europe’s default rate may soar to 8.4 percent or more, from 4.8 percent at the end of 2011 as the recession bites and company financing dries up, according to Standard & Poor’s. Petroplus Holdings AG (PPHN) became the latest victim of the tough stance banks are adopting when the region’s biggest independent oil refiner said this week it will file for insolvency after losing access to $2.1 billion of credit lines. “It’s very challenging for anyone to raise money from lenders right now,” said Andrew Cleland-Bogle, a Frankfurt- based director at corporate finance specialist DC Advisory Partners. “Combine that with increased bank capital requirements and you can see that although banks are getting money they’re very selective when it comes to lending it. 2012 is going to be a very, very tough year.”

Principal reductions fail to reduce future default rates - (www.ochousingnews.com) Reducing mortgage balances is a risky idea that hasn’t been shown to keep borrowers who owe more than their property’s worth in their homes, according to Credit Suisse Group AG. Of the 11 million of “underwater” homeowners, about 6.5 million have never missed a payment and 2 million more are making on-time payments after a delinquency, said Dale Westhoff, the bank’s global head of structured products research. Let’s pause for a moment and contemplate those numbers. If only 6.5 million out of 11 million underwater loan owners have not missed a payment, then 4.5 million have. That means 41% of underwater loan owners are or have been delinquent on their mortgage. Wow! That deserves its own headline. Widespread principal reductions may drive defaults “much, much higher” as borrowers seek the aid, he said.

=Private Equity is a heavily Subsidized Industry - (www.bloomberg.com) The real reason that private equity executives need to be full taxpayers -- paying 35 percent of their income in federal tax as opposed to the 15 percent capital-gains rate they have enjoyed for years -- is not because, generally speaking, they make so much money. Nor is it because the return they get on what personal capital they risk is dwarfed by the profits they get on their investors’ capital. Nor is it so they will pay the same tax rates as their secretaries (although this is a good reason, too). No, the real reason the tax loophole for private equity mavens must be closed once and for all is that American taxpayers subsidize the private-equity industry -- and its outsize paychecks -- and simple fairness demands that they don’t also get an additional break in the form of lower tax rates.

A Government Overwhelmed by Corporate Money - (www.robertreich.org) According to the New York Times, Apple Computer employs 43,000 people in the United States but contracts with over 700,000 workers abroad. It makes iPhones in China not only because of low wages there but also the ease and speed with which its Chinese contractor can mobilize their workers – from company dormitories at almost any hour of the day or night. An Apple executive says “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.” He might have added “and showing a big enough profits to continually increase our share price.” Most executives of American companies agree. If they can make it best and cheapest in China, or anywhere else, that’s where it will be made. Don’t blame them. That’s what they’re getting paid to do.

Buffett Blames Congress for Romney's 15% Rate - (www.bloomberg.com) Warren Buffett, the billionaire calling for more taxes on the rich, saidMitt Romney’s U.S. rate of about 15 percent reflects poor laws rather than failings by the candidate for the Republican presidential nomination. “It’s the wrong policy to have,” Buffett told Bloomberg Television’s Betty Liu in an interview today. “He’s not going to pay more than the law requires, and I don’t fault him for that in the least. But I do fault a law that allows him and me earning enormous sums to pay overall federal taxes at a rate that’s about half what the average person in my office pays.” Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A), supports Democratic President Barack Obama and said Congress needs to raise taxes on the wealthiest Americans to close the budget deficit. Romney has agreed to release his 2010 tax return tomorrow, under pressure from Republican opponents, after saying he pays about 15 percent. Romney co- founded Boston-based private-equity firm Bain Capital LLC.