Thursday August 7 Housing and Economic stories

Top Stories:

Realtors live close to the edge - (www.usatoday.com) Jack Jentzen never saw it coming. Four years ago, as a real estate agent in Elgin, Ill., he was enjoying the rewards of the most frenzied U.S. housing market in decades, and money poured in. Now he's fighting to keep his home. The real estate slump that hit in 2006 eventually stifled home sales, shrank prices and unleashed a wave of foreclosures. And as it did, the hardest-hit victims included a group of people, such as Jentzen, who never imagined they had anything to fear: real estate agents themselves. Tens of thousands of Realtors have been forced to quit the industry in the past couple of years. Some are enduring their own agonizing foreclosures. Agents who had staked their fortunes on galloping home sales now struggle to afford health care, utilities and other basics.

Freddie Mac's negative net worth raises questions - (www.reuters.com) - Investors are manifestly concerned about the stability of Freddie and larger sibling Fannie Mae, which together own or guarantee just under half the country's $12 trillion of mortgage debt. Freddie's shares have lost nearly 90 percent of their value in the last year, and Fannie's nearly 80 percent. Freddie Mac hopes to raise $5.5 billion of additional capital to bolster its balance sheet, but in a sense that would just bring it back to about zero: the company's assets had a negative $5.6 billion net fair value at June 30, compared with their accounting value of $12.9 billion, according to financial statements Freddie posted on Wednesday

Pimco's Gross Says U.S. Will Rescue Fannie, Freddie - (www.bloomberg.com) Bill Gross, who manages the world's biggest bond fund, said the U.S. Treasury will probably be forced to buy as much as $30 billion of preferred shares in both Fannie Mae and Freddie Mac to help shore up their capital.
``By the end of the third quarter, the preferred stock in Fannie and Freddie will be issued, the Treasury will have bought it,'' Gross, co-chief investment officer at Pacific Investment Management Co., said today in an interview on Bloomberg Television. ``We'll be on our way toward a joint Treasury-agency combination.''

Mortgages Made in 2007 Go Bad at Rapid Clip - (online.wsj.com) - Mortgages issued in the first part of 2007 are going bad at a pace that far outstrips the 2006 vintage, suggesting that the blow to the financial system from U.S. housing woes will be deeper than many people earlier estimated. An analysis prepared for The Wall Street Journal by the Federal Deposit Insurance Corp. shows that 0.91% of prime mortgages from 2007 were seriously delinquent after 12 months, meaning they were in foreclosure or at least 90 days past due. The equivalent figure for 2006 prime mortgages was just 0.33% after 12 months. The data reflect delinquencies as of April 30.
Evidence that lax lending standards were leading to higher mortgage delinquencies first emerged in late 2006. The first major casualty of the subprime credit crisis, New Century Financial Corp., imploded in early 2007. Yet the data from the FDIC and others suggest that lenders didn't substantially tighten standards until at least July or August 2007, when credit jitters hit Wall Street and financial stocks began to swoon.

Lawmaker Explores Mortgage Giants' Falling Share Prices - (www.washingtonpost.com) Yes, Waxman, you are a freaking idiot. Much of Fannie and Freddies problems stem to the late 90s and early 2000 period. Rep. Henry A. Waxman (D-Calif.), chairman of the House Oversight and Government Reform Committee, has asked the mortgage finance giants Fannie Mae and Freddie Mac whether they know of any White House involvement in the recent decline in their share prices." Waxman has been a regular irritant to President Bush on issues ranging from the leak of a CIA officer's identity to the development of U.S. policy on greenhouse-gas emissions. He has been rebuffed by the White House on numerous occasions when he sought assistance on these and other topics. A committee spokeswoman declined to comment on the requests to Fannie Mae and Freddie Mac, as did a Freddie Mac spokesman. Tony Fratto, a spokesman for President Bush, said Waxman has not contacted the White House. "It's been clear that what we have been focused on is shoring up Fannie Mae and Freddie Mac and instilling confidence in them, and that's all," he said.

Almost Half of Indiana’s Mortgage Brokers See Licenses Yanked - (www.housingwire.com) More than 40 percent of mortgage brokers in Indiana no longer have a license to do business in the state, after Indiana Secretary of State Todd Rokita said Tuesday that his office had revoked licenses for 393 of the state’s 950 mortgage brokerages for failure to comply with a new state law. To be sure, some of the firms are simply out of business — the Indianapolis Star reported Wednesday that 79 of the state’s notices to offending companies were returned as undeliverable — but the fact that so many of the brokers operating in the state literally failed to meet basic licensing criteria introduced by a 2007 law should be eye-opening. Rokita worked with leaders in the state’s General Assembly to pass a law last year requiring each licensed mortgage office doing business in the state to employ a so-called principal manager to supervise the business affairs of the office and the staff, defined as a mortgage professional with at least three years experience in the industry. Furthermore, the reforms mandate that each principal manager take and pass a practice standards examination based on Federal regulation, Indiana statute and industry best practices.

Default Risk on GM, Ford, Chrysler Hits 95%; Automakers Ask For Taxpayer Handout - (globaleconomicanalysis.blogspot.com) - One of America's three biggest automakers is almost certain to default within the next five years, according to UniCredit SpA analysis of the market for credit-default swaps. Contracts to insure $10 million of General Motors Corp. debt cost a record $4.7 million upfront plus $500,000 a year, indicating an 84 percent chance of default, while Ford Motor Co. has at least a 75 percent risk, according to UniCredit data. Combined with Chrysler LLC, the probability that one of the three will be unable to fund its business is more than 95 percent. "There might be a default at any time," said Jochen Felsenheimer, the Munich-based head of credit strategy at UniCredit, Europe's fourth-biggest bank. "The costs imply there is close to 100 percent probability that one of the big three will file for Chapter 11 bankruptcy." There is no way GM or Ford can raise money in this market. The "solution" of course is to ask for a taxpayer bailout just as Fannie Mae received. Indeed, the Detroit 3 ask up to $40 billion in loans. Detroit's three automakers are urging Congress to make as much as $35 billion to $40 billion in low-cost loans available during the next two to three years to assure that the companies survive long enough to retool and build a new generation of fuel-efficient vehicles. Chief executives Rick Wagoner, Alan Mulally and Robert Nardelli -- of General Motors Corp., Ford Motor Co. and Chrysler LLC, respectively -- talked Friday and agreed that access to capital is their most critical short-term need during this volatile period of high fuel prices and slumping SUV and truck sales, sources told the Free Press.

Freddie CEO Makes Preposterous Claim - (Mish at globaleconomicanalysis.blogspot.com) Freddie Mac CEO, Richard Syron, warned of the troubled times in housing, even revised his forecast for home price drops, peak to trough, from 15 percent to 18-20 percent. He said we’re only halfway through the correction. But then one of his underlings went on to assure everyone that Freddie Mac (FRE) would be able to withstand $40 billion worth of credit pain through 2009 (if it finishes raising that $5.5 billion it promised). He also talked about how they may reverse some of the previously estimated losses as the portfolio does better than expected. Anyone following Alt-A mortgages knows that Freddie's claim is simply preposterous. Thus, the only surprise this quarter is that anyone was surprised when Freddie Mac's loss was bigger than expected.


Other Stories:

AIG Falls After Insurer Posts Third Straight Loss - (www.ml-implode.com) - American International Group Inc., the world's biggest insurer, fell 11 percent in early trading after housing-related writedown...
Foreclosures Skyrocketing in Military Towns - (www.ml-implode.com) - Support the troops! "Foreclosures in many military towns are increasing at rates drastically above the national average, accord...
The Frugal Future - (www.ml-implode.com)
Want to know why home prices are gonna keep falling. - (www.ml-implode.com)
Freddie Mac and the Housing Market - (www.ml-implode.com)
Countrywide Dogs Howling Over Bare Bones - (www.ml-implode.com)
Rescap Update: 1 More HomeComings Office Gone - (www.ml-implode.com)
Texas Cities Lead Nation with Highest Home Equity - (www.ml-implode.com)
Will The Muni Bond Market Embrace Connie Lee? - (www.ml-implode.com)

U.S. Stocks Retreat on AIG's Loss, Wal-Mart's Sales Forecast - (www.bloomberg.com)
Crude Oil Rises as Turkey Says Pipeline Repair May Take 2 Weeks - (www.bloomberg.com)
Treasuries Gain After Unemployment Claims Reach Six-Year High - (www.bloomberg.com)

U.S. Jobless Claims Rose Last Week to Six-Year High - (www.bloomberg.com)
40% of U.S. homeowners say their houses have risen in value - (www.dallasnews.com)
Inflation fears persist as Fed holds rates - (www.ft.com)
Highest Unsold Home Supply Since '82 Seen Needing 50% Reduction - (www.bloomberg.com)
Pending Home Resales in U.S. Unexpectedly Rose 5.3% - (www.bloomberg.com)

Mortgage Failure Rate Rises - (online.wsj.com)
Wall Street Report Tries to Dissect Financial Meltdown - (www.nytimes.com)
Mortgage Delinquencies Accelerated During 2007 - (online.wsj.com)
Hedge Funds Chalk Up Losses - (online.wsj.com)
Big banks seek to limit their own risks - (www.ft.com)
Big banks prepare to scale back business - (www.ft.com)
Citigroup May Pressure Other Firms With Deal on Auction-Rate Securities - (online.wsj.com)

AIG Posts Third Straight Quarterly Loss on Housing - (www.bloomberg.com)
Chrysler, Nissan May Team Up - (online.wsj.com)
Freddie Needs Equity Lift - (online.wsj.com)
Retailers slash prices in back-to-school fight - (www.chicagotribune.com)
Shoppers buying more store brands as budgets get tight - (www.dallasnews.com)
High Costs, U.S. Sales Hurt Toyota - (online.wsj.com)
Freddie Mac’s Big Loss Dims Hopes of Turnaround - (www.nytimes.com)
Freddie Mac's negative net worth raises questions - (www.reuters.com)
CarMax to slow growth after seeing sales drop - (www.signonsandiego.com)
GM Presses Ad Agencies on Costs - (online.wsj.com)
Tempest for a Bank That Bet on Risky Loans - (www.nytimes.com)

Credit crisis taking toll on European insurers - (www.iht.com)
Bank of Korea Raises Rate to 5.25% to Curb Inflation - (www.bloomberg.com)
Food price inflation spirals to 9.5 per cent - (business.timesonline.co.uk)
UK dealers cut car prices as sales fall - (www.ft.com)
Defaults to Rise in Europe a Year After Crunch Began - (www.bloomberg.com)
Barclays profits plunge on huge credit-related losses - (news.yahoo.com/s/afp)
U.K. July Home Values Fall Most Since 1983, HBOS Says - (www.bloomberg.com)
As Mexican inflation soars, President Felipe Calderon shakes up Economic Ministry - (www.latimes.com)
The Big Freeze part 4: How to build a US recovery - (www.ft.com)

Wednesday August 6 Housing and Economic stories

Top Stories:

Default Risk on GM, Ford, Chrysler Hits 95%; Automakers Ask For Taxpayer Handout - (globaleconomicanalysis.blogspot.com) - One of America's three biggest automakers is almost certain to default within the next five years, according to UniCredit SpA analysis of the market for credit-default swaps. Contracts to insure $10 million of General Motors Corp. debt cost a record $4.7 million upfront plus $500,000 a year, indicating an 84 percent chance of default, while Ford Motor Co. has at least a 75 percent risk, according to UniCredit data. Combined with Chrysler LLC, the probability that one of the three will be unable to fund its business is more than 95 percent. "There might be a default at any time," said Jochen Felsenheimer, the Munich-based head of credit strategy at UniCredit, Europe's fourth-biggest bank. "The costs imply there is close to 100 percent probability that one of the big three will file for Chapter 11 bankruptcy." There is no way GM or Ford can raise money in this market. The "solution" of course is to ask for a taxpayer bailout just as Fannie Mae received. Indeed, the Detroit 3 ask up to $40 billion in loans. Detroit's three automakers are urging Congress to make as much as $35 billion to $40 billion in low-cost loans available during the next two to three years to assure that the companies survive long enough to retool and build a new generation of fuel-efficient vehicles. Chief executives Rick Wagoner, Alan Mulally and Robert Nardelli -- of General Motors Corp., Ford Motor Co. and Chrysler LLC, respectively -- talked Friday and agreed that access to capital is their most critical short-term need during this volatile period of high fuel prices and slumping SUV and truck sales, sources told the Free Press.

A Slow-Mo Meltdown - (www.nytimes.com) And there’s no end to the pain in sight. Ben Bernanke and his colleagues at the Federal Reserve have cut the interest rates they control repeatedly since last September. But they haven’t managed to reduce borrowing costs for the private sector. Mortgage rates are about the same as they were last summer, and the interest rates many corporations have to pay have actually gone up. So Fed policy hasn’t done anything to encourage private investment. The problem is fear: private-sector finance has dried up because investors, burned by their losses on securities that were supposed to be safe, are now reluctant to buy anything that isn’t guaranteed by the U.S. government. And the proliferation of special rescue packages — the TAF, the TSLF, the Bear Stearns deal, the Fannie-Freddie thing — may have staved off blind panic, but has fallen far short of restoring confidence. Oh, and those tax rebates Congress and the White House agreed to mail out have already done whatever good they’re going to do. Looking forward, it’s hard to see how consumers can keep spending even at their current rate — which means that things will probably get considerably worse before they get better.

Midwest elevators exhaust credit limits - (www.agweekly.com) Scott Dubbelde has told himself, time and again, that there is no use fretting about things over which he has no control. Even so, the general manager of a grain elevator cooperative in Hanley Falls lies awake at night, worrying about the ballooning debt his elevator has incurred to finance its inventory. “I’d be lying to you if I said I wasn’t worried,” Dubbelde said. “This is about our survival.” These may be boom times for farmers, but the sharp rise in commodities prices is putting unprecedented financial pressure on country grain elevators - the first point of sale for most crops. Just as families have borrowed more to meet rising costs, grain elevators have dramatically increased their debt burden as the prices of corn, soybeans and wheat have soared. Borrowing levels at some grain elevators have more than quadrupled since February. And with little cash on hand, many elevators have stopped buying grain from farmers that won’t be delivered within a few months, depriving farmers of a key hedge against falling grain prices.

At Freddie Mac, Chief Discarded Warning Signs - (www.nytimes.com) My opinion is that if there is a public bailout, the stockholders, bondholders, and execs of the company should be let go, left with nothing, etc. The current execs should not be left intact. The chief executive of the mortgage giant Freddie Mac rejected internal warnings that could have protected the company from some of the financial crises now engulfing it, according to more than two dozen current and former high-ranking executives and others. Skip to next paragraphThat chief executive, Richard F. Syron, in 2004 received a memo from Freddie Mac’s chief risk officer warning him that the firm was financing questionable loans that threatened its financial health. Today, Freddie Mac and the nation’s other major mortgage finance company, Fannie Mae, are in such perilous condition that the federal government has readied a taxpayer-financed bailout that could cost billions. Though the current housing crisis would have undoubtedly caused problems at both companies, Freddie Mac insiders say Mr. Syron heightened those perils by ignoring repeated recommendations.

The fiction of corporate transparency - (articles.moneycentral.msn.com) The Securities and Exchange Commission has made a big fuss about changing the rules for shorting stocks, but that's like shooting the messenger. The commission ought to spend its time making sure companies tell the real story and file financial forms that are accurate. Eminently deserving of the SEC's focus, for example, is the flurry of headlines surrounding Merrill Lynch (MER, news, msgs). Last week, just two weeks after reporting earnings, the company said it would take a $5.7 billion write-off in the third quarter. Yet in a conference call at the time of the earnings report, when CEO John Thain was pressed about why Merrill wouldn't liquidate assets in need of liquidation, he assured folks that it wasn't something the company needed to do. He also repeated a familiar refrain: that Merrill didn't need any new capital to support its business. "Right now we believe that we are in a very comfortable spot in terms of our capital," he said.

JetBlue to charge for pillows, blankets - (www.bizhjournals.com) Note the marketing BS on this one. The good news is you usually have a few customers on each flight that are a pain in the butt, and constantly nag the flight attendants for these. This should nip this problem in the bud (just kidding). The airline says it will replace its old in-flight pillows and blankets with an “eco-friendly” kit that can be purchased on flights of longer than two hours. Passengers will have to shell out $7 for the pillow-and-blanket kit, though they’ll get a $5 coupon to any item at retailer Bed, Bath & Beyond with the purchase. “Replacing our old, recycled pillows and blankets with this state-of-the-art, high-quality take home kit is an eco-conscious, health-conscious and customer-conscious decision,” Brett Muney, general manager of product development for JetBlue, said in a statement. “We are constantly seeking ways to enhance the in-flight experience for our customers, and providing them the option to purchase The World’s Cleanest travel pillow and a fleece blanket at an affordable price delivers on that promise.”



Other Stories:

Holding Back the Flood - (www.time.com)
Housing Lenders Fear Bigger Wave of Loan Defaults - (www.nytimes.com)
After the Bubble, Ghost Towns Across America - (online.wsj.com)
Bad News Keeps Coming for the European Economy - (www.spiegel.de)
Three Strikes Against Consumers - (www.nytimes.com)
GM's $15.5 Billion Loss Is Third-Biggest in a Century - (www.bloomberg.com)

Credit crunch far from over - (money.cnn.com)
US housing bill will not save economy - (www.business24-7.ae)
Goldman Downgrades Economic Outlook - (www.cnbc.com)
Fannie faces glut of unsold houses - (www.chicagotribune.com)
The Bigger Bubble Still Has Yet To Pop - (www.huffingtonpost.com)
Time For Next Wave Of Loan Defaults And Bank Failures - (www.nuwireinvestor.com)
Homedebtors rent out property as they wait for a better market - (www.latimes.com)
Credit Crunch Anniversary and Mega Trends Investing - (www.marketoracle.co.uk)
Builder CEO says housing bill 'no silver bullet' - (www.marketwatch.com)
Should I Buy or Sell? Seven Considerations - (Charles Hugh Smith at www.oftwominds.com)
Delinquent US property loans rise in June - (www.reuters.com)
Yes, That's $2 Trillion of Debt-Related Losses - (www.rgemonitor.com)
Has suburbia turned onto a dead-end street? - (www.timesunion.com)
Glenn Beck: Realtors are LIARS - (www.youtube.com)
What Goes Up Must Come Down - (PDF - patrick.net)
Bank Robbery 2008 Style - (www.jsmineset.com)

Triad Posts Q2 Loss of $198.8 Million - (www.ml-implode.com) - "Now in portfolio run-off, mortgage insurer Triad Guaranty Inc. said late Monday that it lost $198.8 million during the second ...
Take a Ride on the Magic Omnibus: Impact of H.R. 3221 on the FHA Program - (www.ml-implode.com) - "On July 30, 2008, President Bush signed H.R. 3221, otherwise known as the Housing and Recovery Act, making it Public Law # 110-...
If you wondered who the Fannie bail out was for, wonder no longer… - (www.ml-implode.com) - "I’ve said numerous times that the main reason for bailing out the mortgage giants Fannie Mae and Freddie Mac was not for the US...
Syron's Song - (www.ml-implode.com) - allegations have surfaced that Dick Syron, the now-embattled boss of Freddie Mac, ignored warnings from risk managers and underl...
U.S. housing market changes drastically as new help arrives - (www.ml-implode.com) - The dice have been rolled for the fate of 300 million Americans. Congress recently enacted legislation to resolve the worst ...
US housing bill will not save the economy - (www.ml-implode.com)
IndyMac Unit Eyed For Fraud - (www.ml-implode.com)
Suit blames loan servicer for pending foreclosure - (www.ml-implode.com)
Time for a Second Stimulus Package? - (www.ml-implode.com)
Fannie and Freddie Own 44% Of Foreclosed Homes - (www.ml-implode.com)
Freddie Mac chief disregarded warning signs - (www.ml-implode.com)
Truce Time in the Fan-Fred Wars - (www.ml-implode.com)
Moody’s & Fitch Join S&P in Massive Alt-A RMBS Downgrade Avalanche - (www.ml-implode.com)
How much worse can “It” get? - (www.ml-implode.com)

Oil falls as low as $118 on demand concerns - (www.ap.com)
Wall Street holds on to gains after Fed decision - (www.ap.com)
Fed Keeps Rate at 2% as Inflation Accelerates, Growth Stagnates - (www.bloomberg.com)
Federal Reserve statement on interest rates - (www.ap.com)
Higher Prices Outpace June Spending by Consumers - (www.nytimes.com)
Rising prices stifle impact of stimulus payments - (www.signonsandiego.com)
Service Industries in U.S. Contracted Again in July - (www.bloomberg.com)
Fed seen holding rates steady as growth stumbles - (www.reuters.com)
Hard times creep up the socio-economic ladder - (www.chicagotribune.com)
Price Increases Ramp Up, Sounding Inflation Alarm - (online.wsj.com)
No Fun for Six Flags As Parks Face Slump - (online.wsj.com)
Consumer Price Index may not reflect your family's reality - (www.dallasnews.com)

Analysis: The cost of a wrong turn – The Big Freeze part 2 - (www.ft.com)
Defaults Hurt Credit-Card Bonds - (online.wsj.com)
Credit-Card Bonds Fight A Tougher Debt Market - (online.wsj.com)
Efforts to bring credit ratings into clearer focus - (www.ft.com)

Chrysler refinancing falls short by $6bn - (www.ft.com)
At Freddie Mac, Chief Discarded Warning Signs - (www.nytimes.com)
Holders Hungry for Profit Will Find Slim Pickings at Merrill Lynch - (online.wsj.com)
Online advertising growth slows - (www.latimes.com)
Walgreens offers 90-days of generics for $12 - (www.chicagotribune.com)
After a Franchisor Files for Bankruptcy - (www.businessweek.com)

European June Retail Sales Decline by Most Since at Least 1995 - (www.bloomberg.com)
Booming China Suddenly Worries That a Slowdown Is Taking Hold - (www.nytimes.com)
Northern Rock Gets 3 Billion-Pound British Government Injection - (www.bloomberg.com)
European governments hesitate on pension cuts - (www.iht.com)
Asia's Policy Makers Clash Over Inflation Strategies - (online.wsj.com)
Hard Times for Argentina - (www.businessweek.com)

Tuesday August 5 Housing and Economic stories

Top Stories:

WCI Communities files for Chapter 11 bankruptcy - (www.reuters.com) - This will be the largest homebuilder bankruptcy so far this year, and one of the biggest ever. It seems that [Carl] Icahn couldn’t pull any more rabbits out of his hat, especially after the board terminated the special company committee to consider purchase offers last month,” said Jack McCabe, CEO of Deerfield Beach-based McCabe Research & Consulting, referring to the company’s chairman. Home builder WCI Communities Inc (WCI.N: Quote, Profile, Research, Stock Buzz) said on Monday it and about 130 of its subsidiaries filed for Chapter 11 bankruptcy protection because it failed to obtain the financing that would keep $1.8 billion of debt out of default. WCI, whose business is concentrated in Florida, one of the states hardest hit by the housing downturn, needed to restructure its debt before August 5 to avoid falling short of the cash needed to pay lenders.

Feds have come up with an exit tax! - (www.nypost.com) This law was ruled illegal in the 70s when the state of CA tried to charge an exit tax for people moving out of the state. But it is OK for the federal government to do the same thing. In fact, anyone who has $600,000 in assets and a lust for becoming a citizen of France, Italy or maybe an island in the Pacific should take note of this one. Thanks can be given to a bill that passed Congress recently and was quietly signed by President Bush two weeks ago. Called the Heroes Earnings Assistance and Relief Act of 2008 (the HEART bill, for short), the main part of the new law deservedly gives benefits to soldiers. But the last part of the bill, under "revenue provisions," sticks it to anyone who no longer wants to live the American dream. A hot button topic in recent years has been the fight against immigrants trying to get into this country. This bill now takes a hard line against emigrants - people trying to get out. Consider the tax an exit fee.

The World’s Grandest Ponzi Scheme Unravels - (realestateandhousing2.blogspot.com) - Latest Mike Morgan. Not for the faint of heart. Let’s talk about what is happening now . . Depression - Totally unavoidable. Bank on it. Well . . . you won’t be able to bank on it, but you can bet on it. We are not only headed for a Depression, but a violent Depression that will be far worse than 1929. Some experts believe the United States will fall into the chaos, bedlam and anarchy that tore apart Yugoslovia. I am not going that far, but I know our morals and ethics are not the same as they were in 1929. Moreover, we are a far more violent society and totally dependent upon a well oiled system for delivery of food and basic services. Bank Failures - I warned that Fridays would become known as F3 - FDIC Failure Fridays. And Voilá . . . two bank failures on Friday, July 25. Then another bank failure a week later, after the market closed, on August 1. Next week? Maybe none, but maybe 10 . . . or more. And here’s why.

Infospace and the Great Shareholder Robbery of 2007 – (billburnham.blogs.com) Before you give the management team and board any credit for doing the right thing, you might want to know a little something about the a deal they struck for themselves that nicely coincided with their fire sale. The plan was to sell off the assets and dividend out the cash proceeds to the company's long suffering shareholders, which sounds fair enough. However, the management team was able to convince the board that they should get paid a "bonus" equivalent to the dollar value of the dividends that would theoretically accrue to any vested or unvested stock options they might have. So if the company did a $5 dividend of sale proceeds and the stock dropped $5 (which it inevitably would), the management team would get a $5/share bonus for each vested and unvested stock option they owned. Now on one level that sounds fair enough. I mean after all, why should the management team and the employees have their options go further underwater simply because they are doing the right thing and trying to get shareholders back some cash. However the net effect of such a scheme is to basically give the management team a gross cut of whatever they sell an asset for without regard to whether or not the sale was even profitable. The cynic/economist/anyone with common sense would say that under such a incentive structure management would race out and sell everything and the kitchen sink for whatever price they could get because it was money in their pocket no matter what.
Care to guess what happened? Everything Must Go! That's right, Infospace's management team ran out and sold everything they could for whatever price they could get. The directory business, painstakingly built up over a period of 10 years: sold for $225M to a private equity firm. The mobile business, which they been acquiring new businesses for less than a year earlier: sold for $135M to a private competitor (who reportedly now mightily regrets the purchase). And what did they do with all that cash (as well some cash from settling a lawsuit with a former founder who defrauded the company's investors)? Why surprise, surprise, they dividended out all that cash out to their shareholders in two special dividends totaling $15.30/share or over $500M in cold hard cash. And what, pray tell, what did the management team get for the arduous task of lifting up the phone and calling their bankers? A cool $90M in special cash bonuses and stock compensation in 2007. If you are on that management team, the thought that likely came to mind as you cashed your 2007 bonus check was "God Bless America!"

California Budget Impasse Enters Eighth Week After Deadline - (online.wsj.com) Arnold is trying, but getting no help from the politicians in the state. California enters its eighth week after a budget deadline with no deal in sight between Republican and Democratic lawmakers on a spending plan, a delay that brings the nation's most populous state closer to having to slash services deeper and borrow at premium rates. Already, Gov. Arnold Schwarzenegger on July 31 ordered layoffs of 22,000 part-time and temporary workers, instituted a hiring freeze and lowered the pay of minimum-wage state workers from a higher state level to the federal one.

Dozens of Laid-off Workers Protest at Gov. Schwarzenegger's Home - (www.myfoxla.com) Arnold taking the blame for the lack of action on the state legislature. Dozens of state workers who have been laid off or had their wages slashed by Gov. Arnold Schwarzenegger tried to return the favor Sunday by going to his Brentwood home and telling him "you're fired" -- at least symbolically. Wearing purple shirts of solidarity, members of Service Employees International Union Local 1000 marched outside the governor's home around noon and attempted to give him a giant "pink slip" as part of ongoing protests against the governor's budget cutbacks. Schwarzenegger, who accepts no salary for being governor, was in Sacramento, meeting with legislative leaders on the budget issue, according to his office. Faced with an estimated $15 billion state budget deficit and gridlock in the Legislature on approving a new spending plan, which was due June 15, Schwarzenegger signed an executive order Thursday that rolls back the salaries of up to 200,000 state employees to the federal minimum wage of $6.55 an hour and lays off more than 10,000 of the state's 22,000 temporary workers.

DMV workers protest governor's move to slash pay - (www.signonsandiego.com) Trouble. DMV workers to do less work than before!!! Wearing purple union shirts and carrying signs, some 25 to 30 Department of Motor Vehicles employees picketed in front of the Hillcrest DMV office Monday morning to protest Governor Arnold Schwarzenegger's move to slash state workers' pay. The group chanted “Value us, Value us” and “$6.55 has got to go” as they marched in a protest that lasted from 7:30 to 8 a.m. at the DMV office on Normal Street near University Avenue. Employee Paulette Sylvia, 35, said if her wage is cut to just the minimum of $6.55 an hour, her monthly take home pay would be reduced from about $1,900 to just $600. After, rent, food and car expenses, the DMV field representative, who handles drivers licenses and registrations, said the possibility of living on the streets is real. “It could possibly happen,” she said.

Companies Tap Pension Plans To Fund Executive Benefits - (online.wsj.com) At a time when scores of companies are freezing pensions for their workers, some are quietly converting their pension plans into resources to finance their executives' retirement benefits and pay. In recent years, companies from Intel Corp. to CenturyTel Inc. collectively have moved hundreds of millions of dollars of obligations for executive benefits into rank-and-file pension plans. This lets companies capture tax breaks intended for pensions of regular workers and use them to pay for executives' supplemental benefits and compensation. The practice has drawn scant notice. A close examination by The Wall Street Journal shows how it works and reveals that the maneuver, besides being a dubious use of tax law, risks harming regular workers. It can drain assets from pension plans and make them more likely to fail. Now, with the current bear market in stocks weakening many pension plans, this practice could put more in jeopardy.

Target sells Mervyn's (2004 story) to private equity firms - (www.bizjournals.com) Is this another case of private equity firms acquiring a good company, extracting cash, and leveraging them with tons of debt? The consortium acquiring Mervyn's includes Sun Capital Partners Inc.; Cereberus Capital Management L.P.; and Lubert-Adler/Klaff and Partners L.P.

Mervyns files for Chapter 11 bankruptcy protection - (ap.google.com) And now: The company, which had been languishing for several years, said that all of its 175 stores will remain open and business will continue as it reorganizes. Privately held Mervyns operates mainly in California, and has seen its sales drop further as the state is among the hardest hit by the real estate slump. "Mervyns needs to reorganize its finances and operations due to the state of the economy and difficult operating environment for our industry," Chief Executive John Goodman said in a statement. The Hayward, Calif.-based chain has been shuttering stores and leaving states such as Oregon and Washington since 2005, after a consortium of private equity players including Sun Capital Partners Inc. bought Mervyns from Target Corp. for $1.2 billion. Mervyns, along with some affiliates, filed for Chapter 11 protection from its creditors in U.S. bankruptcy court for the District of Delaware. According to court documents, Mervyns listed liabilities and assets of $500 million to a $1 billion each, with Levi Strauss & Co. as its largest unsecured creditor.

Buying a bank owned house in Oakland - (www.nothingugly.com) However, the City of Oakland is doing everything in it’s mother-lovin’ power to stop this sale. Why? Probably because they LIKE crack houses. My diligent and excellent escrow company has been “working” with the City of Oakland for almost a month to try to get this thing sold. First, we pull the title. YOW! Ug-LEE. There are numerous liens on the property from the city. Apparently, when the owner walked away, the crack heads moved in. The city cleaned it up a few times, and tried to charge the owner for the service. Now, the owner has fled, so the city is owed the cleaning charge. Also, there are numerous fines from “red tagging” - All the work was done without permits. There are three additional liens which were recorded in error (how do you record a lien by mistake? Three times?) Then, there’s the doozy. The city has a $50,000 “prospective lien” on the property. And, to cap it all off, the city is in the process of declaring the property a “Substandard public nuisance”. Now, this is all well and good. The guys who “fixed” this house weren’t going to correct anything, and city wants to get paid. However, here comes a buyer - me - paying cash for a crack house in West Oakland. Not to fix it and flip it, but to live there. You’d think they’d want to help. Here’s where the fun starts. Escrow contacts the city, and the city informs us that the “prospective lien” is ACTUALLY only for $5176, and they refer us to an inspector. The inspector’s boss has been known to return emails, though it usually takes 48 hours. The inspector herself hasn’t returned an email, ever. And she’s running about 30% on phone calls. In fact, the city of Oakland’s voicemail system has been entirely unavailable twice. So, since we’re now three weeks into the 7 day escrow, I decide to trot down to city hall.


Other Stories:

Moody’s & Fitch Absolutely Hammer Alt-A RMBS From Nearly Every Bank - (www.ml-implode.com) - While factoring in the unprecedented home price deprecation seen in the past 12-months and projecting that out, [ratings agencies] are discovering that those who purchased a home as early as 2004 are now under water and at an exponentially greater risk of default. Even many who purchased much earlier than that and put a second mortgage on the property are in a negative equity position. This is making their modeling systems a TILT.
How much worse can “It” get? - (www.ml-implode.com) - "We are believers in Steve's debt deflation theory, and in fact named our 2008 bear market call after it. I'm interviewing Steve...
MGIC Reduces Mortgage Insurance LTV’s in CA, NV, AZ and FL…This Leaves Two - (www.ml-implode.com) - MGIC, following in the footsteps of most of their competition, reduced the allowable loan-to-value (LTV) ratios for mortgage insurance in CA, NV, AZ and FL to 90% effective today.


LA Times picks up the prime meme, but misses the point - (www.ml-implode.com) - "The problems that plagued subprime lending — loose underwriting criteria, pervasive fraud, products dependent on either serial ...
Fannie's Mudd Soothed Asian Investors as Bonds Rose - (www.ml-implode.com) - "Asian investors were among the most important groups to soothe because central banks, financial institutions and funds in the r...
Worst inflation in 27 years trumps tax rebates - (www.ml-implode.com) - Nominal spending grew 0.6% on the month, but the increase was all due to higher prices, which spiked 0.8% -- the most for a mont...
Second, Larger Wave of Mortgage Defaults Coming - (www.ml-implode.com) - "Its pretty obvious that late 2006 early 2007 was when something unusual began in Sub-prime mortgages. And, not much after that ...
Housing Lenders Fear Bigger Wave of Loan Defaults - (www.ml-implode.com)

I Want A House Price Crash! - (www.fool.co.uk)
Finding Bottom: Why Prices Won't Stop Falling - (findingbottom.blogspot.com)
Housing Lenders Fear Bigger Wave of Loan Defaults - (www.nytimes.com)
Why the Fannie Bail Out is Bad Policy - (www.counterpunch.org)
Bailing Out the Bad Guys: What Congress and Bush Do Best - (www.thenation.com)
Big housing bill: no rescues soon - (www.csmonitor.com)
Housing investment off $305 billion from 06 peak - (lansner.freedomblogging.com)
Florida bank is 8th closed by FDIC - (money.cnn.com)
U.S. May Be in Very Long Recession - (www.bloomberg.com)
Greenspan Says Housing Prices Not Yet Near Bottom - (www.bloomberg.com)
The Credit Crisis Turns One - (www.businessweek.com)
Chase Suspends Jumbo Mortgages Completely - (Mish)
Foreclosures force commuters from central valley back to SF Bay Area - (www.modbee.com)

Glut of One-Bedroom Apartments in Manhattan - (www.nytimes.com)
Supply glut to drag down prices for years - (www.theglobeandmail.com)
Builders still build in spite of glut - (milwaukee.bizjournals.com)
Wave Goodbye to the Invisible Hand - (www.washingtonpost.com)
Stop the bailout - (www.youtube.com)

U.S. stocks open under pressure on financials, inflation woes - (www.marketwatch.com)
U.S. Spending Rises; Prices Jump the Most Since 1981 - (www.bloomberg.com)
Only luck can save America's economy - (www.ft.com)
New York Feels the Pinch From Wall Street Downturn - (www.washingtonpost.com)
Fed's Cuts Seem Toothless As Rates Resist - (online.wsj.com)
Housing Lenders Fear Bigger Wave of Loan Defaults - (www.nytimes.com)
Hedge-Fund Sluggers Strike Out - (online.wsj.com)
Derivatives put equities in the shade - (www.ft.com)
Fewest Treasury Traders Since 1960 Hit Taxpayers - (www.bloomberg.com)
S&P Email: 'We Should Not Be Rating It' - (online.wsj.com)
Citigroup Said to Close Remaining Tribeca Global Fund - (www.bloomberg.com)
Van Wagoner to Step Down As Manager of Growth Fund - (online.wsj.com)
When 401(k) Investing Goes Bad - (online.wsj.com)

Finance Unit of Chrysler Fails to Renew Some Funding - (online.wsj.com)
Disney raises ticket prices at US theme parks - (www.chicagotribune.com)
Fannie, Freddie Push Aims to Contain Defaults - (online.wsj.com)
Chrysler offers 72-month finance deals as it tries to attract customers after ending leasing - (www.chicagotribune.com)
Clorox to raise prices further to offset commodity costs that contributed to profit drop - (www.chicagotribune.com)
Citigroup Loses on Credit-Card Securitizations as Payments Lag - (www.bloomberg.com)
Restaurant industry thinning out ranks - (www.dallasnews.com)
McDonald's Tests Changes In $1 Burger As Costs Rise - (online.wsj.com)

European June Factory Prices Increase Record 8% on Energy - (www.bloomberg.com)
European companies braced for slowdown - (www.ft.com)
High-rise plans stalled as gloom grows - (www.ft.com)
Riches to Rags - (www.nytimes.com)
The trials of Jimmy Cayne - (www.fortune.com)

Royal Bank of Scotland poised for biggest loss in UK banking history - (www.ml-implode.com)
Freddie Mac Foreclosure Timelines - (www.ml-implode.com)
Mr. Mortgage: Chase Quietly Scaling Back Mortgage Lending - (www.ml-implode.com)
The fiction of corporate transparency - (www.ml-implode.com)

Monday August 4 Housing and Economic stories

Top Stories:

Like a regular Friday night date - (www.themessthatgreenspanmade.blogspot.com) Let's see. It's Friday, what bank(s) is the FDIC taking over this weekend? According to this report in CNN/Money, it's Florida's First Priority Bank whose first priority apparently wasn't solvency. This is the eighth bank failure of the year and the fourth in the last month."

FHA Personal Accounts - (calculatedrisk.blogspot.com) It took approximately twelve minutes for some of the bigger economic illiterates in Congress to sponsor a bill to reauthorize FHA DAPs--a form of money-laundering in which property sellers can inflate their sales prices by funneling money to a "non profit" which then "gifts" the funds to the buyer of the property."

New Rules at Freddie Mac Likely to Backfire - (globaleconomicanalysis.blogspot.com) - Pressure to raise servicer spreads may have just gotten a little more intense on Thursday, with Freddie Mac (FRE) announcing a huge, mixed bag of changes to its servicing guidelines — including doubling the amount of money it pays for each workout alternative, and lengthening foreclosure timelines in key states. The GSE also said it would start reimbursing servicers for the cost of door-to-door outreach programs, and make administrative changes intended to streamline the workout process. Perhaps the boldest move by Freddie Mac on Thursday — and one that won’t get much press attention — was its decision to eliminate foreclosure timeline compensation altogether for servicers, effective immediately. In other words, servicers will no longer earn a bonus based on how quickly they can foreclose. Doubling the length of time to do a workout is just begging freeloaders to take advantage.Those who have made up their minds to walk away, may now be able to live rent free for 10 months before the foreclosure proceedings start.

The Echelon In Las Vegas Becomes “Ghost Casino” - (www.housingdoom.com) Analysts said that the delay of Echelon could forestall a complete housing recovery in the local market. Housing observers had long relied on the 2009 opening of CityCenter, combined with the 2009 start of hiring for Echelon, to lift prices and sales of local homes by next summer. With financial markets questioning the number of new jobs the megaresorts will create, and with staffing delayed, prospects for improvement in housing are cloudy

Less Stringent Ethics - ((globaleconomicanalysis.blogspot.com) Ken Wilson, the Goldman Sachs banker who is joining the US Treasury to help the country through the financial crisis, is expected to take a temporary post that will subject him to less stringent ethics rules than many other high-level officials. Mr Wilson was likely to be treated as a “special government employee”, making it unlikely he would have to sell assets or produce the detailed disclosure reports required of officials appointed by the president and confirmed by the Senate, legal experts said.

After the Bubble, Ghost Towns Across America - (online.wsj.com) Dennis Pflueger and his wife won a rent-free year in a nice new house in an expensive subdivision not far from the headquarters of Wal-Mart Stores Inc. As part of the prize, they then have the option to buy the four-bedroom home for $452,000. Mr. Pflueger, a telephone-cable installer who describes himself as an "old redneck," is in the middle of his free year. But the Pfluegers are a bit lonely. Just one other family lives in any of the 28 new or unfinished houses on Foxboro Court. Up the street, a sign announcing "Elegant Homes" sits on a lot choked with weeds. The block is as quiet as an old ghost town.

Small Florida bank is 8th U.S. failure this year - (www.reuters.com) WASHINGTON (Reuters) - Bank regulators closed a small Florida-based bank on Friday, the eighth U.S. bank to fail this year under pressure from a weak economy and a credit crisis precipitated by falling home prices. The Federal Deposit Insurance Corp said First Priority Bank had $259 million in assets and $227 million in deposits and its failure will cost the federal fund that insures deposits an estimated $72 million

Housing Lenders Fear Bigger Wave of Loan Defaults - (www.nytimes.com) The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building. Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults. The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

US lawmakers discuss retirement poverty - (www.ft.com) US lawmakers last month began efforts to revitalise corporate defined benefit plans, amid worries that Americans are not saving enough for retirement. The effort comes as numerous companies are closingDB pensions and offering new employees defined contribution plans, which provide much less in retirement. A joint economic committee hearing on the issue in early July followed two years after the Pension Protection Act was introduced to ensure companies' pension plans had enough money to pay retirees - a law many say has backfired and helped fuel DB scheme closures. The act took effect this year and, among other things, requires companies to maintain a higher funded status to cover their liabilities. Lawmakers and the experts they interviewed at the hearing said those closures could undermine the economy.


Other Stories:

Speculators don't create commodity bubbles - (www.ml-implode.com) - The evidence does not support the claim that speculation has been the source of, or has exacerbated, the price increases. Indee...
Housing bill - A hair of the dog - (www.ml-implode.com) - It is not entirely clear why the core business of the enterprises—providing guarantees for mainstream (not subprime) mortgages—n...
Greedy bankers, lousy government led to housing mess - (www.ml-implode.com) - "In Washington," the New York Times reports, "Fannie and Freddie’s sprawling lobbying machine hired family and friends of polit...
Spain's Inflated Home Values Infect Mortgage Bonds - (www.ml-implode.com) - `` The Spanish market is not the U.S. property market,'' Bertoni says. ``We don't have the famous subprime. Generally speaking, the collateral for each loan is always quite high.''
That hasn't prevented Kutxa's bond from losing 8 percent since it was issued in February last year. That contributed to the Pioneer fund underperforming the JPMorgan EMU Bond Index by 2.7 percentage points over the past 12 months.”
U.S. May Be in `Very Long' Recession, Harvard's Feldstein Says - (www.ml-implode.com)
Henry Paulson has lost Control over US Finance, Economy - (www.ml-implode.com)
Revisions matter. So do levels - (www.ml-implode.com)
Doscientos Mes - (www.ml-implode.com)
America's Smartest Banker - (www.ml-implode.com)

Rich begin feeling the pain in down economy - (www.ap.com)
Fed Session to Confront Trio of Economic Threats - (online.wsj.com)
Only luck can save America's economy - (www.ft.com)
U.S. Vehicle Sales Fall 13.2% Amid High Gas Prices and Tight Credit - (www.nytimes.com)

Finance Has Become the Business of America - (online.barrons.com)
Graduates' Job Hunts: Majorly Frustrating - (www.washingtonpost.com)

The big freeze: A year that shook faith in finance - (www.ft.com)

Hedge-Fund Sluggers Strike Out - (online.wsj.com)
Derivatives put equities in the shade - (www.ft.com)
Fewest Treasury Traders Since 1960 Hit Taxpayers - (www.bloomberg.com)
S&P Email: 'We Should Not Be Rating It' - (online.wsj.com)
Van Wagoner to Step Down As Manager of Growth Fund - (online.wsj.com)
New York to File Charges Against Citigroup Over Securities - (www.nytimes.com)

Highland to Pay in Stages - (online.wsj.com)
Finance Unit of Chrysler Fails to Renew Some Funding - (online.wsj.com)
Disney raises ticket prices at US theme parks - (www.chicagotribune.com)
Fannie faces glut of unsold homes - (www.chicagotribune.com)
RV sales fall as families stay home - (www.ft.com)
Fannie, Freddie Push Aims to Contain Defaults - (online.wsj.com)
Chrysler offers 72-month finance deals as it tries to attract customers after ending leasing - (www.chicagotribune.com)
Clorox to raise prices further to offset commodity costs that contributed to profit drop - (www.chicagotribune.com)
Automakers Race Time as Their Cash Runs Low - (www.nytimes.com)
The Chips Are Down in Vegas but Steve Wynn Is Betting Big - (www.nytimes.com)

Japan close to declaring recession - (www.ft.com)
European companies braced for slowdown - (www.ft.com)
High-rise plans stalled as gloom grows - (www.ft.com)
Bank Tries to Allay Fears of Instability in Venezuela - (www.nytimes.com)
Shipping Costs Start to Crimp Globalization - (www.nytimes.com)
Growing inflation pressures point to more pain - (www.ft.com)
China's economic miracle at a crossroads as Olympics start - (www.telegraph.co.uk)

Up, Up and Away ... - (www.newsweek.com)
An S.B.A. Lender, Uncensored - (www.nytimes.com)
Three Strikes Against Consumers - (www.nytimes.com)
Wave Goodbye to the Invisible Hand - (www.washingtonpost.com)