Tuesday, June 16, 2009

Required Reading: Tuesday, June 16th, 2009

Companies Compete for Government Cash, Not Customers – Minyanville, Andrew Jeffrey

As Washington expands its role in managing the day-to-day operations of American business, companies are increasingly turning their strategic focus to tapping federal cash and lending programs. And despite the strings often attached to government money, many are finding that Uncle Sam is the only game in town during these troubled economic times.

Perspective: Housing Bottom Nowhere in Sight – Minyanville, James Quinn

Pay No Attention To Morons Talking About "Money On The Sidelines" – Clusterstock

The stock market is obviously poised for a gigantic advance because there's a "ton of money on the sidelines."  Right?  All that money will soon come off "the sidelines" and "into" the market, and it will inflate the market like a gigantic hot air balloon, driving prices to the stars.


After all, that's why stock prices are low now, right?  All that money has "left the market" and is "hiding on the sidelines."

Actually, no.  That's just what everyone on CNBC says.  Fund manager John Hussman explains what really makes stocks go up and down…

Repurpose-Driven Life – The New York Times

A recent book, “Retrofitting Suburbia,” by Ellen Dunham-Jones and June Williamson, notes that in 1986, the United States had about 15 square feet of retail space per person in shopping centers. That was already a world-leading figure, but by 2003 it had increased by a third, to 20 square feet. The next countries on the list are Canada (13 square feet per person) and Australia (6.5 square feet); the highest figure in Europe is in Sweden, with 3 square feet per person. “Retrofitting Suburbia,” as its title suggests, is concerned with projects that address problems stemming from “leapfrog”-style development — the constant expansion of new housing, and new stores, farther away from city centers. As Dunham-Jones, an associate professor of architecture at Georgia Tech, told me when we spoke recently, one of those problems is that we’ve gotten “overretailed.”

This seems more obvious in a down economy, with chains like Circuit City and Linens ’n Things closing up shop all over the country. But in truth the spread of newer and bigger stores and malls caused an awful lot of retail vacancy even during the boom years…

Higher Mortgage Rates Sap Builder Confidence – The Wall Street Journal

Calif. Aid Request Spurned By U.S. – The Washington Post

The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy -- the state of California.

Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching "fiscal meltdown" caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California's fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states.

With an economy larger than Canada's or Brazil's, the state is too big to fail, California officials urge.

The administration is worried that California will enact massive cuts to close its deficit, estimated at $24 billion for the fiscal year that begins July 1, aggravating the state's recession and further dragging down the national economy.

After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.

These policymakers continue to watch the situation closely and do not rule out helping the state if its condition significantly deteriorates, a senior administration official said. But in that case, federal help would carry conditions to protect taxpayers and make similar requests for aid unattractive to other states, the official said. The official did not detail those conditions.

Little relief in new foreclosure law – The Contra Costa Times

But don't expect automatic or immediate relief under the law, which was authored by state Sen. Ellen Corbett, D-San Leandro.

Lenders and loan servicers that already have a comprehensive and systematic loan modification program in place are exempt from the law. Such programs call for loans to be modified by lowering interest rates for at least five years, deferring or reducing part of the principal, or providing up to 40 years to repay the loan.

"The vast majority of them are already in compliance with some regulation or requirement, either through federal laws or voluntary efforts," said Chris George, president of San Ramon-based CMG Mortgage Services and a board member of the California Mortgage Bankers Association.

By applying for an exemption, lenders will automatically receive a 30-day stay during which state officials will determine whether the company has a proper loan modification program in place.

California Law Freezes Foreclosures, Burns Servicers – Housingwire

To qualify for exemption from the mandatory freeze, the servicer’s modification program must target California residents with the goal of a 38% housing-related debt-to-gross income ratio. The program must include some combination of the following: an interest rate reduction for at least five years, an extension of the amortization period, a deferral of some portion of the principal amount of the unpaid principal balance until maturity of the loan, a reduction of principal and/or compliance with a federally mandated loan modification program.

Housing Starts May – Calculated Risk

Credit Bailout: Issuers Slashing Card Balances – The New York Times

As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.

The practice started last fall as the economy worsened. But in recent months, with unemployment topping 9 percent and more people having trouble paying their bills, experts say this approach has risen drastically.

They say many credit card issuers have revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.

Only a few creditors are willing to confirm the practice. Bank of America and American Express say they decide on a case-by-case basis whether to accept less than the full balance. Other card companies refuse to discuss the subject, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.