Monday April 27 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

'Car czar' named in kickback probe: report - (www.marketwatch.com) Steven Rattner, the leader of the Obama administration's auto task force, was one of the executives involved with payments under scrutiny in a probe of an alleged kickback scheme at New York state's pension fund, The Wall Street Journal reported late Thursday, citing a person familiar with the matter. A Securities and Exchange Commission complaint says a "senior executive" of Rattner's investment firm met with a politically connected consultant about a finder's fee, the report said. The firm subsequently received an investment from the state pension fund, then paid a $1.1 million fee, it cited the complaint as saying. The "senior executive," not named in the complaint, is actually Rattner himself, according to the Journal report's unnamed source. Rattner is co-founder of the investment firm, Quadrangle Group, which he left to join the Treasury Department to oversee the auto task force earlier this year. The report quoted a U.S. Treasury spokeswoman as saying that "during the transition, Rattner made us aware of the pending investigation." Read full WSJ.com article on Rattner's ties to the investigation. In the long-running pay-to-play case, authorities allege that about 20 investment firms made payments in exchange for investments from the $122 billion New York State Common Retirement Fund. The case, being investigated by New York Attorney General Andrew Cuomo and the SEC, has led to three criminal indictments and a guilty plea.

GM CEO Warns That Bankruptcy Is More Probable - (www.cnbc.com) General Motors Chief Executive Fritz Henderson said on Friday the automaker could still restructure out of court, but warned it was more probable GM may need to seek bankruptcy protection to complete that process. Henderson said the automaker faced no pressure from the U.S. autos task force to make a decision on that front. GM still prefers to restructure outside bankruptcy, but would be ready to file for court protection if necessary, he said. Henderson also said the automaker still planned to stick to its four core brands that include Chevrolet, Cadillac, Pontiac and GMC, but was examining all elements of its brand strategy. He called reports that GM would be dropping one of the core brands "speculation." In the first of what he said would be regular conference calls, Henderson said GM's work with the U.S. Treasury has been like a private equity due diligence process.

CDS blamed for role in bankruptcy filings - (www.ft.com) Credit default swaps, the derivatives instruments that have figured prominently in the global financial crisis, are now being blamed for playing a role in two bankruptcy filings this week. Bankers and lawyers involved in restructuring efforts say they are concerned some lenders to troubled companies, such as newsprint producer AbitibiBowater and mall owner General Growth Properties, stand to benefit from a default because they also hold default swaps, which entitle them to payments in such events. “We have seen CDS becoming a significant factor” when negotiations on out-of-court restructurings fail, said Alan Kornberg, the partner in charge of the bankruptcy practice at Paul, Weiss, Rifkind, Wharton & Rice, speaking generally. “We used to talk about the practice theoretically but now we see cases where it is hard to get lenders to agree to tender or to compromise and then you find out that these holdouts had significant CDS protection.” Abitibi , which filed for bankruptcy protection on Thursday, ran into trouble as the dire state of the newspaper industry eroded its cash flow and left it unable to service its debt load. It sought to persuade debt holders to exchange bonds due in August for new debt with longer dated maturity and higher yields, but failed to do so as creditors squabbled. Such exchange offers require the support of a significant number of lenders, 97 per cent in the case of bondholders in this case. But those who withhold support often have powerful incentives to do so, either because they hope to be made whole or because they are seeking to force a filing that would trigger payments under their credit protection agreements, bankers and lawyers say. Some creditors, including Citigroup, which held a small exposure to AbitibiBowater, hedged themselves in the CDS market, meaning their economic interest in the deal was different to lenders who had not bought credit insurance, according to people familiar with the matter. Citigroup declined to comment.

Mall Bankruptcy Is New Domino In Commercial Property - (www.cnbc.com) No doubt General Growth Properties' bankruptcy filing will have far-reaching implications for the commercial real estate market. The bankruptcy, which is said to be the largest real-estate failure in U.S. history, will further pressure already stressed property values for U.S. malls and mall mortgages. It's also likely to lead to speed up consolidation in the mall industry, with companies such as Simon Property, Westfield Group and Taubman Centers emerging as potential winners, that is, if they can come up with the cash to pick-up prime pieces of General Growth's portfolio. The company does have some choice pieces of real estate among its holdings, including the Ala Moana Center in Honolulu, Water Tower Place in Chicago, and the Grand Canal Shoppes at the Venetian in Las Vegas. But if you listen to General Growth, the proposition of raising money for these deals might not be easy. The company claims it is the latest victim of the credit crunch, and it sees looming problems for other commercial real estate because of constraints in the credit markets. That also means, the mall operator could have a tough time using asset sales to pay off its creditors. And so the domino effect begins with effects for other commercial property owners as well as for banks who loaned money to these property owners such as Citigroup , Deutsche Bank and Goldman Sachs, which are among General Growth's creditors.

GM seeks provision for its suppliers - (www.ft.com) General Motors is prepared to argue that hundreds of its suppliers are “critical vendors” who require timely payments if it seeks bankruptcy protection, setting the stage for what would be the most sweeping attempt ever to win special treatment for such contractors, people close to the matter say. Companies often request special treatment for a limited number of suppliers as part of bankruptcy petitions. Bankruptcy experts say GM would stand a good chance of winning protection for more suppliers than is usual because of the large number that provide “just-in-time” car parts to the company. “On its face, the justification for critical trade appears very strong here, as strong if not stronger than in most other cases,” said James Sprayregen, a bankruptcy partner at Kirkland & Ellis. “It’s hard to see how it’s going to be in anybody’s interest to shut the supply chain down.”

Credit-Card Securities Worsen, But Bank Still Bullish - (www.cnbc.com) The performance of credit-card asset-backed securities deteriorated further in March as debt-burdened consumers suffered increased job losses and defaulted on payments, but JPMorgan Securities remains bullish on the segment. Consumers, whose spending accounts for two-thirds of economic activity, have come under increasing financial stress as the economy remains in its 16th month of recession and unemployment hit a 25-year high in March. The write-down of uncollectable credit card debt or charge-offs, climbed to 8.82 percent from 8.40 percent in February, according to JPMorgan's Bankcard Index, in line with an increase in unemployment to 8.5 percent from 8.1 percent. Still, despite the deteriorating performance, JPMorgan said it remains "very bullish" on consumer ABS, including credit cards, given the strong demand for deals sold under the Federal Reserve's new program aimed at reviving consumer lending and reopening securitization markets. "The success of the WFN and Cabela new issues, that were upsized and oversubscribed, bodes very well for the sector, expanding potential spread tightening to beyond benchmark bank cards," said Christopher Flanagan, JPMorgan analyst. World Financial Network and Cabela, were among the credit card issuers to sell securities in April under the Federal Reserve's Term Asset-Backed Loan Facility, known as TALF. Since the Fed announced its program in November, consumer ABS spreads, including credit cards, have narrowed by a substantial 200 to 300 basis points, followed by another round of tightening since the program's launch in March. The analyst said it expects to see further narrowing in spreads as demand increases.

Foreclosure Filings Jump as Moratoriums End - (www.cnbc.com) U.S. foreclosure activity leaped 46 percent in March from a year earlier, hitting a record high as programs stunting the torrid pace of failing mortgages expired, RealtyTrac reported on Thursday. A temporary freeze on foreclosures by major banks and government-controlled home finance companies Fannie Mae and Freddie Mac ended before President Barack Obama's massive housing stimulus, unveiled on March 6, could take root. Filings, which include notice of default, auction sale or bank repossession, jumped 17 percent in March from February. Filings for the quarter also marked a record high, jumping 24 percent from the same period a year ago. The March and first-quarter totals were the highest since RealtyTrac began tracking them in January 2005, even as bank repossessions declined. One in every 159 U.S. households with mortgages got a foreclosure filing in the first three months of this year, RealtyTrac said. Filings were reported on more than 803,000 properties in the quarter.




OTHER STORIES:

Bank Stress Tests to Start Emerging Next Week - (www.cnbc.com)
How Much Longer Can Banks Wow The Street? - (www.cnbc.com)
Starwood Sues Hilton Over New Luxury Brand - (www.cnbc.com)
Thirty-Year Mortgage Rate Falls to 4.82%: Freddie Mac - (www.cnbc.com)
GM Preparing to Make Official Bond Exchange Offer - (www.cnbc.com)

Treasuries Fall as Supply, Economy Overshadow Fed Debt Purchase - (www.bloomberg.com)
Crude Oil Rises After Unexpected Decline in U.S. Jobless Claims - (www.bloomberg.com)
Gold, Silver Fall to 1-Week Lows as Slow Inflation Cuts Demand - (www.bloomberg.com)
U.S. Stocks Rise, Led by Tech Shares, as Hewlett-Packard Gains - (www.bloomberg.com)
Bank Test Results May Strain Limits Of Bailout Funding - (www.washingtonpost.com)
Lending By Bailout Recipients Falls Again - (www.washingtonpost.com)
China buys less U.S. debt as reserve growth slows - (www.usatoday.com)
China bank lending may slow, but not dramatically - (www.marketwatch.com)
China’s GDP Grows at Slowest Pace in Almost a Decade - (www.bloomberg.com)
Europe Industrial Production Plunges 18.4%, the Most on Record - (www.bloomberg.com)

Deals Help China Expand Its Sway in Latin America - (www.nytimes.com)
Turkish unemployment reaches historic high - (www.ft.com)
U.S. Home Starts Fell in March; Permits Dropped to Record Low - (www.bloomberg.com)
No End Yet for Housing Downturn, Data Suggest - (www.nytimes.com)
New jobless claims fall unexpectedly to 610K - (finance.yahoo.com)
US foreclosures up 24 percent in 1st quarter - (finance.yahoo.com)
Manufacturing Slips, but Fed Finds Stability in Some Parts of U.S - (www.washingtonpost.com)
Bernanke Frets as Variable Notes Strip Taxpayers in N.Y., Texas - (www.bloomberg.com)
8 states seek stimulus money for high-speed rail - (finance.yahoo.com)
GM Said to Plan All-Stock Offer for Bondholders by April 27 - (www.bloomberg.com)
JPMorgan Profit Beats Estimates as Trading Revenue Increases - (www.bloomberg.com)
General Growth Seeks Chapter 11 Bankruptcy Protection - (www.bloomberg.com)
No Easy Workout - (www.nytimes.com)
Unsure of Saturn’s Fate, Dealerships Are Closing - (www.nytimes.com)
Magazine Ad Pages Decline Almost 26% in First Quarter - (www.nytimes.com)
Pipe Made in India Incenses Illinois Town - (www.nytimes.com)

Sunday April 26 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Silverado figure, Neil Bush Associate and perpetual criminal Michael Wise leaps to his death – (www.bizjournals.com) Michael R. Wise, onetime chairman of Denver's failed Silverado Banking Savings & Loan who later pleaded guilty to defrauding investors in Aspen, has killed himself by jumping from an airport garage, according to news reports. Wise and Silverado loomed large in the savings-and-loan scandals that rocked the financial world in the 1980s and cost taxpayers billions. Wise, 64, who recently had been living in Clearwater, Fla., leaped from the top level of a parking garage at Tampa International Airport on April 8, the Tampa Tribune reported. The leap was witnessed by a few people nearby, the Tribune said. Wise was taken to a nearby hospital, where he was pronounced dead. The local medical examiner's office ruled the death a suicide. Wise's link to Silverado and a separate Colorado fraud case did not emerge until Tuesday, when a reporter at the Emporia Gazette in Kansas, where he had once lived, linked him to the earlier events. Wise ran Denver-based Silverado, one of the S&L industry's biggest failures, having lost $1 billion. Silverado collapsed in 1988. Neil Bush -- son of former President George H.W. Bush and brother of former President George W. Bush -- sat on Silverado's board. Federal authorities charged Wise with using $500,000 of a Silverado loan for his own expenses. He was acquitted in 1993, but was banned from the banking industry for life. Later, however, Wise founded Cornerstone Private Capital Corp. of Aspen, a real-estate lending firm. He later was accused of stealing $8.7 million from Cornerstone investors during the late 1990s. He pleaded guilty to wire fraud in 1999, and was sentenced to 3-1/2 years at the Leavenworth federal penitentiary in Kansas, according to a 2002 Denver Business Journal report. He was released in 2002. Wise later joined CFIC Home Mortgage of St. Petersburg, Fla., owned by Nations Holding Co. of Kansas, the Wall Street Journal reported. CFIC shut down in 2007 after word came out of Wise's involvement in the company, the Journal said.
Wise's son was killed in a car wreck in 1997 and his wife died the following year.

S&P: Life Insurers Face “Unprecedented Stress” - (www.bloomberg.com) - U.S. life insurers, a group led by MetLife Inc. and Prudential Financial Inc., face “unprecedented stress” on holdings in bonds and commercial mortgages in the next 18 months, Standard & Poor’s said. “The U.S. is in the midst of perhaps its longest recession in a generation, and our economists believe it is just entering its most difficult phase,” the ratings firm said today in a statement. Life insurance stocks have lost more than half their market value in the past 12 months as declines in fixed-income holdings drained capital. Losses and profit declines have discouraged investors in the industry’s stocks and bonds and left life insurers waiting for a response from the Treasury on requests for federal bailout funds. MetLife, the biggest U.S. life insurer, has dropped 53 percent in the last 12 months of New York Stock Exchange composite trading, while No. 2 Prudential is down 64 percent over the same period. The 11-company S&P Supercomposite Life & Health Insurance Index has fallen 60 percent. “Insurers have been prevented from accessing the debt markets for additional liquidity,” S&P said. North American insurers posted more than $190 billion of writedowns and unrealized losses tied to the collapse of the housing market since the beginning of 2007. The industry lost $32 billion in surplus last year, according to Moody’s Investors Service. This year, carriers including New York-based MetLife, Prudential and Hartford Financial Services Group Inc. have been buffeted by ratings downgrades.

Foreclosure halted, but no one told the owner - (www.nctimes.com) Countrywide Financial, one of the nation's largest mortgage lenders, stopped foreclosure proceedings last year in hopes of modifying the loan for a small Escondido condominium after a national settlement with several states' attorneys general. On the surface, it sounds like a success story in the wake of massive, multibillion-dollar efforts to stem foreclosures. But there's one problem: The condo has been vacant for eight months. Instead of success, this condo illustrates the difficulties lenders face in keeping track of thousands upon thousands of foreclosures and the frustration many borrowers experience when they try to save their homes. The homeowner, Elba Coronado, received a notice of default ---- the first step in foreclosure ---- in June last year and moved out in August because she didn't want to go through the embarrassment of eviction. Since then, she has been renting a Vista apartment. At some point, Countrywide halted the foreclosure process. Coronado said Countrywide never told her she would be eligible for a modification of her loan. A Countrywide spokesman says Coronado never told them she had given up on the loan. "I don't know, maybe they don't have my number," said Coronado, who added that she would like to move back into the condo but didn't think it was possible after being laid off from her second job in advertising sales. Since she holds just one job, Coronado said the mortgage payment would need to come close to her rent payment of $845 per month. That's a tall order. Even if Countrywide reduced the interest rate on her mortgage, which initially carried a balance of $275,000, to 2.5 percent ---- the lowest level mentioned in the attorney general's settlement ---- Coronado's payment would exceed $1,000 per month.

Update: End of an Era for CFIC - (www.ml-implode.com) Update - 2009-04-15: The St. Petersburg Times reports that Michael R. Wise, the purported "head" of CFIC and former chairman of Denver's failed Silverado Banking, committed suicide on April 8, 2009. Security video caught Wise pacing on the 9th floor of a parking garage at the Tampa Bay International Airport before he "stepped off the side" as noted in the Denver Post. Authorities at the airport "ruled out any foul play or accident." Update, Sept 14.: This article points out that Michael Wise, the man running CFIC, was a convicted felon from the S&L bubble era. Apparently he embezzled $8 million+ from Silverado Banking and did 3 years in Leavenworth. But we understand--it must have been hard to find mortgage lending execs without a felony-level criminal record (in the financial services industry) a few years ago. The article also discusses how the company has fudged Wise's job title to avoid regulations--he is not listed as an officer of the company in Florida, for example.

US Treasury Spews $10 Bln More For Banks, Not People - (www.reuters.com) Six large U.S. banks could pocket nearly $10 billion in federal subsidies if they modify troubled home loans and are able to save homeowners from foreclosure, the Treasury Department said on Wednesday. The mortgage speciality arms of Citigroup (C.N), JPMorgan Chase (JPM.N) and Wells Fargo & Co. (WFC.N) would each earn over $2 billion for modifications that have long-lasting success, according to the Treasury's formula. The money is available through a $50 billion program to encourage mortgage servicers to ease the terms on troubled loans. Many more mortgage servicers will be eligible for the subsidies, the Treasury said.

The crisis is likely to make traders take riskier decisions to avoid losing money - (www.economist.com) IT HAS long been known in financial markets that people are so reluctant to lose money that they will take big risks to avoid it. If you give the average person a 90% chance of winning a little money or a 10% chance of winning a lot, he will most likely take the option that offers him at least a little bit of cash. But offer him a 90% chance of losing a little money or a 10% chance of losing a lot, and he will opt for the latter. A recent study finds that stress exacerbates this. Anthony Porcelli and Mauricio Delgado, psychologists at Rutgers University in New Jersey, set out to analyse the sorts of financial risks people were willing to take when calm or stressed. They knew finance could be stressful at the best of times. Stockbrokers, for instance, make important financial decisions in split seconds in conditions that are sometimes noisy, hot and socially tense, they noted in Psychological Science, a journal. Does this affect their judgment? The experiment involved students playing a gambling game. To stimulate stress, for part of the game half had their main hand in very cold water. The students faced financial decisions that varied in both the degree of risk and the amount of money that could be won or lost. They could choose between, say, an 80% chance of losing 75 cents and a 20% chance of losing $3 or an 80% chance of winning 75 cents and a 20% chance of winning $3. They could keep anything they won.

Goldman Accounting Gimmicks - (optionarmageddon.ml-implode.com) Lots of interesting things to report regarding Goldman Sachs today. In this post: accounting gimmickry, higher leverage (tangible assets/tangible common equity calculated below), and silence regarding AIG payments. In the next post: Goldman raises $5 billion in a sale of stock, which is good news. Accounting Gimmicks and Tangible Common Equity. With respect to their Q1 earnings announcement, it appears Goldman may have one-upped Wells Fargo in the accounting shenanigans department. As Floyd Norris blogged this morning, they ditched an entire month… Where’s December?: Goldman Sachs reported a profit of $1.8 billion in the first quarter, and plans to sell $5 billion in stock and get out of the government’s clutches, if it can. How did it do that? One way was to hide a lot of losses in not-so-plain sight. Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s earnings statement, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ended in February. The orphan month featured — surprise — lots of write-offs. The pretax loss was $1.3 billion, and the after-tax loss was $780 million. Would the firm have had a profit if it had stuck to its old calendar, and had to include December and exclude March?

Bankruptcy filings reach 10-year high - (www.signonsandiego.com) These days, it is one of the busiest offices in downtown's swank Emerald Plaza office tower. And one of the saddest. Day after day, and hour after hour, a relentless stream of debtors files through Room 630 to attend a first meeting with their creditors. On one day last month, there were 95 such meetings, nicknamed the “341 meeting” after the section of the bankruptcy code that requires it. For Brad Acevedo, 21, and his mother, Barbara Young, 48, their meeting was short and anything but sweet. The pair got into financial trouble after Young's boyfriend moved out and no longer contributed income to their El Cajon household. Acevedo juggled two part-time jobs and college, while Young worked an $11-an-hour job at Circuit City, but it wasn't enough to cover the $1,000 rent and other bills. Soon, mother and son were trying to cover expenses by taking cash advances on their credit cards. They got trapped in a cycle of payday loans, taking expensive cash advances on paychecks at triple-digit interest rates. Then Young lost her job at Circuit City, which filed for bankruptcy in November and ultimately closed its stores. “You had to take out a payday loan to pay the previous loan and it just snowballed,” said Young, who filed individual Chapter 7 bankruptcy, as did her son, to wipe out a collective $20,000 in credit card and loan debt. “It was a terrible, emotional decision for me to file bankruptcy, and terrible to have to watch my son do it at such a young age. But it was the only way we could survive,” she said. Before the end of the year, thousands of local consumers such as Young and Acevedo are expected to find their way to Room 630.

Retiree pensions are at risk - (www.detnews.com) General Motors Corp. and Chrysler LLC retirees and employees could lose $23 billion in pension benefits if the companies terminate their retirement plans in bankruptcy, the government's pension insurance agency warned Tuesday. Neither GM nor Chrysler plans to file for bankruptcy, but both are taking steps to prepare in case they are forced to do so in the coming weeks. While neither has said it plans to terminate its pension program, struggling steel companies and airlines have used bankruptcy to get out from under large pension obligations and turn them over to the government. GM and Chrysler combined provide pension benefits to about 630,000 retirees and dependents, and cover another 300,000 who haven't begun drawing benefits. The Pension Benefit Guaranty Corp. (PBGC) insures the pensions of 44 million Americans, including 1.5 million in Michigan. Its representatives have met repeatedly with the Obama auto task force on the impact of a GM or Chrysler pension plan termination, and have been making preparations for the possibility. PBGC acting director Vince Snowbarger said Tuesday that termination of either pension plan would have a major impact on retirees. "The fact is that people are going to see some reductions that obviously they hadn't planned for (if GM or Chrysler terminates its pension plan). They have had a promise made to them that is not being kept and all we can do is try to step in and help out a little bit," he said.



OTHER STORIES:

Say Hello to “Frannie”? - (www.ml-implode.com) - “It’s got to happen; we’re not going to put them back the way they were,” Whalen said of a merger. “The only way we’re going to ...
Mortgage Applications Slide Despite Lower Rates - (www.ml-implode.com) - Industry data released on Wednesday showed that mortgage application volume fell 11 percent last week, as refinance activity sli...
U.S. Program Lends a Hand to Banks, Quietly - (www.ml-implode.com) - " Banks have been benefiting from an indirect subsidy adopted by the federal government at the height of the financial crisis la...
Despite Falling Consumer Prices, Little Worry of Deflation - (www.ml-implode.com)

Bernanke’s P.R. Offensive - (www.ml-implode.com)
US suburban life coming to an end? - (www.ml-implode.com)
mortgage application volume slows for first time in six weeks - (www.ml-implode.com)
Mortgage Hedge Fund Ellington Plans IPO - (www.ml-implode.com)
Public Pension Managers Rethink Hedge Fund Ties - (www.ml-implode.com)
AIG’s Shrinking Swaps Unit Will Miss Shutdown Goal - (www.ml-implode.com)

Big Profits, Big Questions - (www.nytimes.com)
The Lessons of the Savings-and-Loan Crisis - (www.barrons.com)
U.K. Sales Fell in March Despite Tax-Cut Initiative - (online.wsj.com)
Retail and Price Data Show Continuing Economic Weakness - (www.nytimes.com)
Newspaper Ad Revenue Could Fall as Much as 30% - (www.nytimes.com)
Russia Risks Bad-Loan ‘Avalanche’ With 20% in Default - (www.bloomberg.com)
A 'Copper Standard' for the world's currency system? - (www.telegraph.co.uk)

The Coming Siege of Austerity - (www.jameshowardkunstler.typepad.com)
Goldman's Unexpected Earnings; Government's New Foreclosure Solution - (www.seekingalpha.com)
Where were the accountants? - (www.informationclearinghouse.info)
It's Lost Jobs, Not Mortgage Payments - (www.seekingalpha.com)
US Retail Sales "Unexpectedly" Drop as Jobs Evaporate - (www.bloomberg.com)
Roubini sees more job losses ahead - (www.pbs.org)
Where are the Best Cities for Job Growth? - (www.newgeography.com)
CA to enjoy housing's best price improvement, 50% off! - (www.lansner.freedomblogging.com)
Housing and Bad Assumptions - (www.patrick.net)
Tax day: Uncle Sam won't make ends meet - (www.biz.yahoo.com)
Tips for those who can't pay their taxes - (www.sfgate.com)

Solution to Chronic Homelessness Is Simple: Housing - (www.miller-mccune.com)
Irony For Dummies - (www.patrick.net)
Trillion Dollar Bailout - The Game - (www.addictinggames.com)

Saturday April 25 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Taxing Grandma to Subsidize Goldman Sachs - (www.businessweek.com) Financial wizards have managed to buy preferred treatment just as the sacrifices of American retirees help pay off Wall Street's losses. Monday afternoon, Goldman Sachs (GS) reported much larger than expected first-quarter profits on the heels of the strong earnings Wells Fargo (WFC) reported last week. No one should be surprised. The Federal Reserve has provided the banks with lots of cheap funds through various emergency lending facilities and quantitative easing. The Fed has permitted the banks and financial houses to park vast sums of unmarketable paper on its books—securities made nearly worthless by the misjudgment and avarice of bankers. In return, the Fed has provided these paragons of finance with fresh, cheap funds to lend at healthy rates on credit cards, auto loans, and even mortgages. While the Fed cuts the banks slack, the bankers are busy turning the screws on their debtors by raising credit card rates and fees, and harassing distressed borrowers with all the zeal the Roman army displayed sacking Palestine. Easy gravy in extra bank spreads: It takes good banking skills to borrow at 3%, lend at 5%, and make a profit. It takes much less business acumen to borrow at 2%, lend at 5%, and make a profit—which is exactly what has happened. The extra fees are just gravy. Increasing the spread for banks is akin to subsidizing parts purchases for car companies. The folks at GM (GM) would look like wizards if the Fed had been similarly generous to them. This all comes at a cost to someone—America's elderly. Many retirees depend on interest from certificates of deposit. Those rates are down dramatically and as CDs expire, retirees are compelled to reinvest their savings at lower rates and live on less income. They can take comfort that their sacrifices are helping pay off Wall Street's losses from the lavish bonuses that were paid bankers—for example, the $70.3 million Goldman doled out to CEO Lloyd Blankfein in 2007. lavish welfare for failing U.S. banks: The contrast between how the banks and car companies are treated is the product of political acumen, not financial skills, at Goldman Sachs and other banks. Having fed the campaign machines of both political parties and lavished speaking fees on future White House economic advisors, these financial wizards have managed to purchase preferred treatment in our capital. When times are good, their troops feast like a conquering Roman army. When they fail, Washington gives them welfare on the gold plates of emperors. Now the banks, led by Goldman, want to pay back the TARP funds and free themselves of federal restrictions on compensation. After all, as private concerns, they argue that what they pay will depend on what profits they can generate. Yet the Fed's lines of credit to banks, insurance companies, and such exceed $800 billion. Its monetary policy transfers income from retirees to the likes of Blankfein. Isn't this a great country?

Big Cracks Starting To Show In Commercial Real Estate - (www.cnbc.com) Commercial real estate could soon make big trouble for the market. It’s been linked to a string of negative developments and now REITs are tumbling. Shares of Boston Properties closed significantly lower on Tuesday as did Simon Property Group as well as the iShares Dow Jones US Real Estate ETF which tracks the sector. The moves come after Goldman Sachs blamed commercial real estate as a major factor for their most recent losses. And those losses could be mounting. Data released a few days back by real estate research firm Reis shows vacancies have soared at malls all around the nation. As a result asking rents dropped to $19.44 per square, down 0.6 percent, the largest single-quarter decline on Reis' records. If you watch Fast Money regularly you know Karen Finerman has been concerned about this trend. Apparently Deutsche bank is too. They estimate further price declines in commercial real estate could be as much as 45%! How is Finerman trading it? I’m short commercial real estate across the board, she says. I still think there’s room to go to the downside. I'd short Essex Property, Regency Centers, or Brookfield Properties. Or you can look at Acuity Brands, says Guy Adami. (They're a maker of light fixtures for commercial properties) If it gets up to $28 I’d get short.

N.Y. Pension Deals Seen as Focus of Wide Inquiry - (www.nytimes.com) New York State prosecutors and the Securities and Exchange Commission are investigating whether the Carlyle Group, one of the nation’s largest and most politically connected private equity firms, made millions of dollars in improper payments to intermediaries in exchange for investments from New York’s state pension fund, according to two people with direct knowledge of the case. The inquiry, which is examining the activities of a number of investment companies, focuses on what has been a widespread practice among hedge funds and private equity firms — paying so-called placement agents to gain business managing the pension funds run by states for public employees. Such payments often raise questions about conflicts of interest and concerns that they lead placement agents to bribe public officials. The Carlyle Group, which over the years has employed George H. W. Bush and the former British prime minister John Major, is among the most prominent of the firms under scrutiny, and manages $1.5 billion of the state’s pension assets. Carlyle’s efforts to gain pension business in other states have drawn criticism before, but company officials have never been charged with any wrongdoing.

John Dizard: Geithner's and Citi's Days Numbered - (www.nakedcapitalism.com) Now I will admit my headline overstates John Dizard's current column in the Financial Times a hair, but only a hair. Dizard has a somewhat baroque way of presenting his messages, and the color can take the edge off his communiques. Nevertheless, he has cultivated contacts among central bankers as well as at the major financial firms, so he typically has good intelligence. The big messages are that Washington simply cannot make all the bank bondholders good, despite its pretenses it can. Citi is going to become a test case sooner than most realize. Dizard also says that the charade that the banks have a liquidity problem not a solvency problem, is wearing thin even on those who have good reason to play along (and as far as I can tell, there is absolutely no Plan B when the world wakes up and realizes what a crock Plan A was). Dizard's certainty that Geithner and Citi are goners comes through loud and clear even through his elaborate prose. From the Financial Times:
“That piece of shit up there, I never liked him. I never trusted him... But that’s history, I’m here, he ain’t.” Tony Montana (Al Pacino), watching a colleague hanged from a helicopter. Scarface (1981). It’s nearly time for some Washington careers to get the helicopter-noose treatment, particularly among the crowd of unvetted advisers and the tiny group of confirmed appointees at the Treasury Department. Politicos and policy hustlers have a style that differs slightly from Tony’s, but they’re about as sentimental. Secretary Timothy Geithner, not a bad or dishonest person, just a mediocrity who picked the wrong friends and trusted them for too long, can probably hear the rotor blades in the distance. Sadly, the prospective compensation packages for his next career are more modest than they would have been even a year ago… For the rest of us, the question is who can be the next to take the lead on the national workout. That is probably Sheila Bair, chairman of the Federal Deposit Insurance Corp. But the FDIC needs serious reinforcement of its talent, and a different capital structure, for this to work. You can pick out the likely geographical spot where the present bail-out wave will recede: 399 Park Avenue, the Citigroup HQ. Already, the Federal Deposit Insurance Corp’s resolution planners are circling the holding company’s shareholders, bondholders, and – at last! – top management. Even other Tarp financed Wall Streeters are getting tired of the pretence that the Treasury and its advisers are brilliant or that their schemes make sense. Vishwanath Tirupattur, a Morgan Stanley credit strategist, said on a conference call last week that “The policymakers think lack of liquidity and leverage is the main problem…they think prices are depressed more for technical than underlying reasons. There are clearly several asset classes where current prices are better explained by collateral performance.” “Collateral performance” means that the banking system’s real losses, not temporary mark to market losses, are overwhelming the capital injections finance-able by Federal bail-out appropriations. Congress won’t vote for any more, because they want to safely return home to their districts and maybe get re-elected. So who’s left? The receivers at the FDIC. They’re sort of like the Internal Revenue Service, though without the Service’s easygoing institutional nature and its agents’ good sense of humour. When there is a seizure, or “resolution”, of a bank, they take over as owner, guarantee deposits, and fight to take control of any assets. They are not customer-centric, relationship lenders. The FDIC is a corporation owned by the US government, but its costs are paid through levies on member banks. Before Sheila Bair puts up government buildings colour swatches on the wall of Mr Geithner’s office, though, she will want to decide whether it might make more sense to stay in her current position. Senate confirmation would not be a challenge for her. Maybe, though, having some other punching bag at the Treasury would be better, especially since the FDIC faces staff shortages. Managing that, as well as a leadership transition and a raft of resolutions, would be difficult. Also, while the Wall Streeters in Mr Geithner’s corner are demoralised enough to be brushed aside, and the big bank shareholders are either playing some derivative arb or totally out of it, the bondholders of the banks aren’t going to run away crying like little girls. Their basic implied threat is to withhold any further capital investment in big banks, which example would be followed by foreigners. That is less scary than it was before Hank Paulson’s crash.
GM Creditor Cracks Show as Bankruptcy Threat Looms - (www.cnbc.com) GM Bondholders Pursue Separate Bankruptcy Strategies. The prospect of General Motors avoiding bankruptcy is becoming "less likely," and that may be pushing bondholders to pursue separate bankruptcy strategies, two sources close to government talks said on Tuesday. The Obama administration's auto task force led by Steven Rattner is in its second week of talks in Detroit and is preparing a reduced term sheet for bondholders for about $28 billion of unsecured GM debt. Those creditors have expressed frustration over the lack of detail they are receiving directly from the U.S. government or from GM in their talks. A united front by the 10-member bondholder committee may be starting to show signs of strain, according to two sources familiar with the group. "Bankruptcy court is a big unknown, and saying that we'll be in and out within two months doesn't sit right," said one person close to the bondholder committee. "The goal is to have an honest negotiation and that's what we're holding out for," the source said, who declined to be named due to the confidential nature of the negotiations. "An out-of-court scenario is becoming less and less likely with each passing day." At least one large bondholder is preparing for potential bankruptcy by reviewing which courts may be most favorable to bondholders, and has ruled out the Eastern District of Michigan as being more favorable to the United Auto Workers union, according to a second source familiar with the talks. The perception is that GM and the union would have a home court advantage in Michigan, and that the issue may draw protests in Detroit and enflame emotional confrontations, as opposed to a potential filing in New York or Delaware, that person said.

How to Puff Up Earnings, Goldman Sachs Style - (www.ritholtz.com) Leave it to the clever boys at Goldman Sachs to turn dross into gold: They have come up with a way to hide massive losses so clever, it requires special comment: The Orphan Month. Yesterday, we noted that the bulk of their profits had come from AIG transfer payments — the theft from taxpayers AIG 100% payouts funded via bailout monies that saw Goldie as one of the largest recipients. Floyd Norris notes that most of the AIG effect was in December. “For the first quarter, the total A.I.G. effect on earnings was, in round numbers, zero.” How is it possible that this occurred? Isn’t GS on a December to February calendar? Well, there is a small asterisk about that. It seems that GS is moving from a December to a quarterly calendar. Meaning their latest Q is January thru March. But what of December, with all t he AIG monies and the comparison to the strong December 2007 and all? In a word, Orphaned: Goldman’s 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman’s news release, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ending in February. The orphan month featured — surprise — lots of writeoffs. The pre-tax loss was $1.3 billion, and the after-tax loss was $780 million. Would the firm have had a profit if it stuck to its old calendar, and had to include December and exclude March? Truly astounding . . . the word Chutzpah simply does not do it justice . . .

Singapore devalues currency after GDP plunge - (business.timesonline.co.uk) Singapore’s central bank effectively devalued the city state’s currency yesterday as its Government warned that the global economic crisis would bring the worst economic plunge on record. Singapore’s unprecedented contraction between January and March was described by analysts as “horrendous”. First-quarter GDP shrank by 11.5 per cent compared with a year earlier, far outstripping analysts’ predictions. But worse was the Government’s dramatic revision of GDP forecasts for the full year, said traders in Singapore dealing rooms. Previous forecasts of a 5 per cent contraction were revised to one of between 6 per cent and 9 per cent. It was the third time forecasts have been adjusted in the past five months. Economists rushed to recalculate their outlooks for Singapore and what one told The Times were the “diminishing prospects of an early recovery”. The Trade Ministry said that recent, tentative signs of stability in, for example, the US housing market, did not yet amount to clear signs of a turnaround. The Monetary Authority of Singapore (MAS) — the central bank — said that “considerable downside risks to growth remain”. That was one of the reasons the MAS gave for easing monetary policy for only the second time since 2003.

Fiat Could Scrap Chrysler Talks Because of Unions - (www.cnbc.com) Italian car maker Fiat will abandon partnership talks with ailing Chrysler unless unions agree to cuts in labor costs, Fiat Chief Executive Sergio Marchionne said. Sending a clear warning to U.S. and Canadian unions, Marchionne told Wednesday's Globe and Mail newspaper the deal with the U.S. automaker had only a 50-50 chance of completion because of lack of progress in talks with union leaders. Canadian unions were especially resistant, he said. "Absolutely we are prepared to walk. There is no doubt in my mind," Marchionne said in the interview posted on the Toronto newspaper's website. "We cannot commit to this organization unless we see light at the end of the tunnel." Fiat and Chrysler are in talks with Chrysler's unions and bondholders to agree a partnership before an April 30 deadline set by the U.S. government. Washington has warned that Chrysler would go into bankruptcy if they fail to complete the deal, designed to save the smallest of Detroit's Big Three car makers. Chrysler also stands to get up to $6 billion in additional funding from the government if a deal is reached. Short of having Fiat inject cash into Chrysler, he said he would do whatever it took to save the car maker, including becoming chief executive.





OTHER STORIES:

Government to Report on Health of Top Banks - (www.cnbc.com)
UBS Posts Loss, Cuts Jobs - (www.cnbc.com)
Foreclosures Ramp Up - (www.cnbc.com)
Fed Weighs Holding Press Conferences - (www.cnbc.com)
Banks 'Virtually Laughing' at Loan Seekers: Trump - (www.cnbc.com)
BlackRock to Raise Up to $7 Billion for Toxic Assets - (www.cnbc.com)

U.S. Producer Prices Fall in March; Core Unchanged - (www.bloomberg.com)
U.S. Retail Sales Unexpectedly Drop as Jobs Evaporate - (www.bloomberg.com)
Fed’s Fisher Forecasts Steep Contraction in U.S. GDP - (www.bloomberg.com)
Workers’ Confidence About Retirement at Record Low, Survey Says - (www.bloomberg.com)
Intel Profit Declines 55% on Falling Chip Demand - (www.bloomberg.com)
Goldman Sachs Raises $5 Billion in Sale to Repay TARP Funds - (www.bloomberg.com)

Global Ad Spending to Drop Most in 29 Years, Hurting TV, Print - (www.bloomberg.com)
Stocks Spooked by Signs that Economy Remains Weak - (www.cnbc.com)
Yahoo to Cut Hundreds of Jobs: Source - (www.cnbc.com)
Pirates Seize 4 More Ships, 60 Crew Members - (www.cnbc.com)
SEC to review whether BofA broke the law - (www.ft.com)
Glamour Dims as Hecklers Hit the Auto Show - (www.nytimes.com)
Delta, AMR May Lead U.S. Airlines to $2 Billion Quarterly Loss - (www.bloomberg.com)
Brand Names Live After Stores Close - (www.nytimes.com)
Lehman Sitting on Bomb’s Worth of Uranium Cake as Prices Slump - (www.bloomberg.com)

Recession knocks VC funds to 5 1/2-year low - (www.sfgate.com)
Carry Trade Comeback Means Biggest Gains Since 1999 - (www.bloomberg.com)
The Student Loan Industry Pushes Back - (www.wasingtonpost.com)

Friday April 24 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Fed Orders Bank Silence Over Stress Tests - (www.bloomberg.com) The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said. The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month. “If you allow banks to talk about it, people are just going to assume that the ones that don’t comment about it failed,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia. Regulators are using the tests to determine whether the 19 biggest banks have enough capital to cover loan losses during the next two years if the economy shrinks, unemployment surges and housing prices keep declining. The tests are a linchpin of the plan Treasury Secretary Timothy Geithner announced in February to bolster confidence in the nation’s banks and restore financial-market stability. Geithner has likened the stress tests to those used by doctors to evaluate a patient’s health. They’re designed to mesh with the administration’s effort to remove distressed mortgage assets from banks’ balance sheets. The Fed is overseeing the administration of the tests, people briefed on the matter say.

Marc Faber: Market in Rebound - (www.bloomberg.com) The Standard & Poor’s 500 Index may rise 17 percent to 1,000 in the next three months as government spending boosts bank profits, investor Marc Faber said. U.S. stocks probably reached their bear market low when the S&P 500 fell to 666.79 during trading on March 6, Faber, who publishes the Gloom, Boom and Doom report, told Bloomberg Radio in an interview from Thailand. Financial shares may increase further after the S&P 500 Banks Index jumped 25 percent on April 9, the biggest rally since at least 1989. Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among more than 30 S&P 500 companies scheduled to announce results this week. “You have essentially a government that gives financials free money at the expense of the taxpayer,” Faber said. “With this free money, they may actually have decent earnings in the near future.”

Job Market Especially Cruel for Older Workers - (www.latimes.com) More Americans 55 and older are working longer, and those who are looking for jobs face a technologically transformed market where potential employers may deem them overqualified. Their savings in shambles from the economic downturn, jobless seniors are dusting off their briefcases and trying to head back to work. Many, like Jim Mitchell, a 63-year-old former sales executive, are finding a merciless job market where decades of experience aren't necessarily an asset. The Long Beach resident rises daily before dawn and dresses neatly in business attire to keep himself motivated. He pops in brilliant blue contacts to brighten his eyes and combs back his graying hair to look more youthful. Not that it matters. He's not getting much face time. Many recruiters these days want only e-mail applications and refuse to take phone calls. Mitchell is at sea when it comes to using online sites such as LinkedIn and Facebook for networking. He leaves his college graduation date off his resume. But in two years of full-time job hunting, he hasn't gotten a single callback."I don't want to think it's about age, but sometimes you suspect it is," he said. "But 60 is supposed to be the new 40. I just want a fair hearing."

New City in Florida to Run on Solar Power - (www.miamiherald.com) A new city will be powered by solar energy -- and cost the average Florida Power & Light customer about 31 cents a month. A Florida developer announced an ambitious plan Thursday for a 19,500-home city with energy-efficient buildings that will be ``the first city on earth powered by zero-emission solar energy.'' The new city, Babcock Ranch, will be developed by Kitson & Partners on 17,000 acres northeast of Fort Myers. It will include the world's largest photovoltaic power plant, which will be operated by Florida Power & Light. Buildings will be certified green and surrounded by thousands of acres of open space.

Nationwide, 1 in 9 Homes Sit Empty - (www.usatoday.com) The white notice taped to the front window of a luxury home in the Vasaro subdivision is a telltale sign. "Bank-owned," says real estate agent John Groves, without skipping a beat. There are other clues. Dirt where a lush lawn should be. Vacant lots on either side. And the sale price: $729,900 for a never-lived-in, 5,500-square-foot, five-bedroom, 3.5-bath custom home that about a year ago was listed for more than $1.2 million. In a nearby subdivision of this community of 246,000, one of the largest suburbs in metropolitan Phoenix, a foreclosure sign in the front yard of a more modest house signals yet another financially troubled home needing a buyer. Multiply that scenario hundreds of thousands of times. From Maine to Hawaii, millions of new McMansions, post-World War II bungalows, modern downtown lofts, exurban town homes and inner-city row houses sit empty. This unprecedented glut of vacant homes — one in nine homes across the USA, according to the Census Bureau — will change the real estate landscape for years. Already, rock-bottom prices in the hardest-hit markets are attracting first-time home buyers who could not afford a home during boom times. Some areas may see real estate values stabilize by the end of this year, as buyers seeking bargains begin to reduce the backlog of homes for sale. At the same time, the availability of rental housing will widen, potentially pushing down the cost of renting. "We overproduced by 1 million new units," says Edward Glaeser, economist at Harvard University. "Now we have to work our way through the stock." What happens to the 14 million empty houses, condominiums and apartments and the 9.4 million that are for sale? How long will it take to absorb this massive and unprecedented oversupply of housing? "Two more years," Glaeser says. His is one of the more optimistic estimates. Projections by housing analysts range from as early as this year in some areas to as late as 2014 in others.

Change: Obama and Habeas Corpus -- Then and Now - (www.salon.com) Back in February, the Obama administration shocked many civil libertarians by filing a brief in federal court that, in two sentences, declared that it embraced the most extremist Bush theory on this issue -- the Obama DOJ argued, as The New York Times's Charlie Savage put it, "that military detainees in Afghanistan have no legal right to challenge their imprisonment there, embracing a key argument of former President Bush’s legal team." Remember: these are not prisoners captured in Afghanistan on a battlefield. Many of them have nothing to do with Afghanistan and were captured far, far away from that country -- abducted from their homes and workplaces -- and then flown to Bagram to be imprisoned. Indeed, the Bagram detainees in the particular case in which the Obama DOJ filed its brief were Yemenis and Tunisians captured outside of Afghanistan (in Thailand or the UAE, for instance) and then flown to Bagram and locked away there as much as six years without any charges. That is what the Obama DOJ defended, and they argued that those individuals can be imprisoned indefinitely with no rights of any kind -- as long as they are kept in Bagram rather than Guantanamo. Last month, a federal judge emphatically rejected the Bush/Obama position and held that the rationale of Boudemiene applies every bit as much to Bagram as it does to Guantanamo. Notably, the district judge who so ruled -- John Bates -- is an appointee of George W. Bush, a former Whitewater prosecutor, and a very pro-executive-power judge. In his decision (.pdf), Judge Bates made clear how identical are the constitutional rights of detainees flown to Guantanamo and Bagram and underscored how dangerous is the Bush/Obama claim that the President has the right to abduct people from around the world and imprison them at Bagram with no due process of any kind (click image to enlarge):



OTHER STORIES:

GOP Admits it "Owns" Fox - (www.dailykos.com)
China Slows Purchases of US & Other Bonds - (www.nytimes.com)
Harry Schultz: Flation - (www.marketwatch.com)
Business Week: It's Now a Renter's Market! - (www.businessweek.com)
The End of the Boston Globe - (www.nytimes.com)
Average College Credit Card Debt Rises - (www.usatoday.com)
Ellen Brown's Open Letter to Obama: Bring Back the Greenback - (www.commondreams.org)
Caller to C-Span: 'Why do you keep bringing these neocons on?' - (www.thinkprogress.org)

Squatters Increasingly Call Foreclosures Home - (www.nytimes.com)
Pentagon Prepares for Economic Warfare - (news.yahoo.com/s/politico)
Job Market Especially Cruel for Older Workers - (www.latimes.com)
New Worries Over Japanese Banks - (www.forbes.com)
Japan Plans $153 Billion in New Stimulus - (www.bloomberg.com)
Do or Die Time for Japan - (www.bloomberg.com)

SEC to review whether BofA broke the law - (www.ft.com)
Glamour Dims as Hecklers Hit the Auto Show - (www.nytimes.com)
Delta, AMR May Lead U.S. Airlines to $2 Billion Quarterly Loss - (www.bloomberg.com)
Brand Names Live After Stores Close - (www.nytimes.com)
Lehman Sitting on Bomb’s Worth of Uranium Cake as Prices Slump - (www.bloomberg.com)
The Global Financial Crisis: How bad will it get - (www.debtdeflation.com)
What’s the tab for the bailout? Take your pick - (www.msnbc.msn.com)
Fed’s Fisher Forecasts Steep Contraction in U.S. GDP - (www.bloomberg.com)
Fed Buys $7.37 Billion in U.S. Debt Due in Two to Three Years - (www.bloomberg.com)
Workers’ Confidence About Retirement at Record Low, Survey Says - (www.bloomberg.com)
Bankruptcies surge despite law meant to curb them - (finance.yahoo.com)
Oregon's jobless rate soars to 12.1% in March - (seattletimes.nwsource.com)
GM Bonds Fall to All-Time Low Following Ratings Cut at S&P - (www.bloomberg.com)
N.Y. Pension Deals Seen as Focus of Wide Inquiry - (www.nytimes.com)
Recession knocks VC funds to 5 1/2-year low - (www.sfgate.com)
Carry Trade Comeback Means Biggest Gains Since 1999 - (www.bloomberg.com)
The Student Loan Industry Pushes Back - (www.washingtonpost.com)
More Hotels Facing an Uncertain Future - (www.nytimes.com)