Thursday, December 10, 2009

Too Big To Fail: 2010

By Daniel Costello

The regional banking landscape has trimmed down considerably over the past year as many smaller banks have gone out of business with the help of the Federal Deposit Insurance Corp. Now many analyst are predicting a new wave of regional bank consolidation to help smaller the guys compete with still-huge national giants.

Proponents say "super regionals" could be a good thing for regional markets that have long needed more efficiency in their banking sectors. Critics say....well, I'm guessing you know what critics say.

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Thursday, December 10, 2009

Morning Report: Citi Expected To Pay Back TARP;

By Daniel Costello

Citigroup Inc. plans to raise $20 billion selling new equity to help the banking giant repay the $45 billion it got from the government's Troubled Asset Relief Program, or TARP, according to reports.

Citi was one of the largest recipients of government support in the wake of last year's financial crisis, leaving it 34% owned by taxpayers. Bank of America said Wednesday that it repaid the entire $45 billion it got from TARP

As expected, England's central bank left its key lending rate unchanged at a historic low and made no changes to its massive program to purchase government bonds.

Earlier Thursday, Switzerland's central bank left its key lending rate unchanged near 0.25% amid a continued negative economic outlook, but said it would halt its program of purchasing corporate bonds aimed at keeping interest rates low.

And housing foreclosures fell 8% in November, marking the fourth straight decline.

There were 306,627 filings last month, according to RealtyTrac, an online marketer of foreclosed properties. That decline follows a 3% drop in October, 4% in September and 1% in August.

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Wednesday, December 09, 2009

Podcast: Planet Money Goes To Copenhagen

A floating cube in Copenhagen shows video from the current Climate Conference. (Peter Dejong/AP)

On today's Planet Money:

Our own David Kestenbaum is currently on route to Copenhagen where he will be spending several days reporting at the UN Climate Change Conference. David gives us an early windup of what he expects to be looking out for, including details on how much money countries plan on putting up to modernize energy economies across the globe. Plus, one very passionate delegate from the Solomon Islands.

Download the podcast; or subscribe. Music: Nelly's "Hot In Herre." Find us: Twitter/ Facebook/ Flickr.

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Wednesday, December 09, 2009

Dubai World Crisis Hits Union Square

Another victim of the Dubai credit crisis. (Global Voyager/Flickr)

By Caitlin Kenney

The trendy W Hotel in Manhattan's Union Square was auctioned off yesterday for just $2 million. The purchase price is cheap, but the new owner of the hotel, LEM Mezzaine, will also be responsible for any defaulted loans that are in line ahead of its debt. The hotel was owned by Dubai World's private-equity arm, Istithmar World Capital, which paid $282 million for the property in 2006. This fall the company defaulted on $117 million of its debt. As the WSJ (subs req'd) reports the hotel was "the first major property asset of Dubai World to be foreclosed on since the government-owned fund's problems boiled over in late November."

Last month, Dubai World, a company owned by the government of Dubai, announced it was hoping to delay payment on $26 billion in debt. The stock market there has slumped since the announcement.

Meantime, the news here in New York has Washington Business Journal reporter Melissa Castro wondering about the fate of another W Hotel, the one in Washington, which is owned by Nakheel Hotels -- another arm of Dubai World.

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Wednesday, December 09, 2009

TARP Extended Until Late 2010

By Daniel Costello

Treasury Secretary Timothy F. Geithner today used his authority to extend the $700-billion Troubled Asset Relief Program, or TARP, until Oct. 3, 2010.

In a letter to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, Geithner said the administration was winding down its use of the controversial bailout fund but wanted the continued flexibility provided by the funds.

Under the law created last year at the height of the financial crisis, the program was set to end on Dec. 31 unless the administration requested a near-automatic extension.

Geithner told the congressional leaders that "the recovery of the financial system remains incomplete. And near-term shocks to that system could undermine the economic recovery we have seen to date."

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Wednesday, December 09, 2009

(Sex) Business As Usual at Climate Talks

By David Kestenbaum

Danish officials are worried people may be buying and selling more than carbon credits at the UN climate talks in Copenhagen.

According to the Copenhagen Post, the city council distributed postcards to hotels urging visitors for the climate talks to "Be sustainable: DON'T BUY SEX."

Some sex workers are striking back. The Copenhagen Post reports:

"A group of prostitutes has decided to offer free sex to delegates taking part in UN Climate Change Conference (COP15) in protest against the city's attempt to dissuade conference participants from visiting brothels."

I'll be at the climate talks this week, covering the carbon credits side of things.

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Wednesday, December 09, 2009

Health Shares Rise on Public Option Deal

By Daniel Costello

Shares of U.S. health insurers rose on Wednesday after Congressional leaders agreed to move away from creating a government-run insurance plan long viewed as damaging to the insurance industry.

Gains were likely muted by new measures in the deal that would expand Medicare eligibility to younger adults and new requirments for insurers to spend a certain amount of premiums on medical costs.

One provision would require the insurance companies to spend 90 percent of premium revenue on medical services and costs. Such measures, known as medical loss ratios, are closely watched by Wall Street to gauge company profitability.

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Wednesday, December 09, 2009

Morning Report: British Bankers Get A Bonus Haircut; AOL On Its Own Once More

By Daniel Costello

Britain announced plans Wednesday to impose a one-time tax of 50% on bankers' bonuses in a move that is sure to inflame the controversy surrounding resurgent banking bonuses on both sides of the Atlantic.

The British chancellor, Alistair Darling, presented the idea in front of a rowdy Parliament, saying the ban would only apply to those receiving bonuses of more than $40,000 U.S. dollars.

The Treasury estimates that the measure -- which comes into immediate effect and runs until April 5 next year -- will affect 20,000 bankers. It's estimated that 5,000 bankers earn more than one million pounds sterling, or $1.6 million. In a surprise, the government said the new levy will be paid by banks rather than individual bankers.

After a decade under the Time-Warner umbrella, AOL Inc. will once again stand on its own when the company spins out from its big media parent this week.

The new independent shares of AOL will begin trading Thursday. Onlookers are waiting to see if investors, who receive their allotment of stock on Wednesday, will stick with the company or dump their shares on fears about AOL's chances as an independent firm.

And, securities markets in Dubai fell sharply for a third session on Wednesday, as investors continued to sell shares on worries over the uncertainty around Dubai World's debt woes.

A big issue: it's unclear if Nakheel PJSC, the Dubai-owned developer whose parent is seeking to delay debt payments, will meet the Dec. 14 deadline to pay a $4 billion Islamic bond. Reports have said the company may offer investors of the Islamic bond, known as a sukuk, an 80 percent redemption, but rumors are rampant the pay out could be much lower.

Other big decliners were Emaar, a government-related entity in property development, and the Dubai-based builder Arabtec, both down 9.9%.

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Tuesday, December 08, 2009

Watch : Lost in Copenhagen

Climate art in Copenhagen ( Collectif Argos)

By David Kestenbaum

This time tomorrow I'll be on a plane to Copenhagen to cover the climate talks. I've mostly been focused on the economics and politics of the thing. It occurred to me today I have no idea what it will actually feel like to be there.

Then I found this amusing insider video tour of the Bella center where the negotiators are taking place. It's the Guardian's environment editor John Vidal walking around the place narrating as he goes, and at one point being forced to turn the camera off. There's a spaceship-like feel to the place.

The Guardian stirred up a fuss today by publishing a leaked draft agreement. But I don't think the contents are much of a surprise.

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Tuesday, December 08, 2009

SEC Charges California Mortgage Firm

By Daniel Costello

The Securities and Exchange Commission on Tuesday charged Irvine, Calif.-based Brookstreet Securities Corp. and its President and CEO Stanley C. Brooks with fraud for "systematically selling risky mortgage-backed securities to customers with conservative investment goals." The agency said the "fraud cost many Brookstreet investors their savings, homes, or retirement cushions, and eventually caused the firm to collapse."

The SEC alleges that Brookstreet and Brooks developed an internal program through which the firm's registered representatives sold particularly risky and illiquid types of Collateralized Mortgage Obligations (CMOs) to more than 1,000 seniors, retirees, and others for whom they were unsuitable. The SEC further alleges that Brookstreet continued to promote and sell risky CMOs to retail investors even after Brooks received numerous indications and personal warnings that these were "dangerous" investments that could become worthless overnight. One trader even called Brookstreet's program a "scam." Finally, in a last-ditch effort to save Brookstreet from failing during the financial crisis, Brooks allegedly directed the unauthorized sale of CMOs from Brookstreet customers' cash-only accounts, causing substantial investor losses.

Brookstreet Securities Corp, based in Irvine, California, had more than 650 independent contractor brokers before it closed in 2007.

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Tuesday, December 08, 2009

Neel Kashkari's 'Washington detox'

By Caitlin Kenney

Listener Thomas Youngs steered us to this Washington Post article about former bailout boss Neel Kashkari. It caught Youngs' eye because he remembered our interview with Kashkari's old classmate last October.

It's a great read about Kashkari's attempt to recover from his time as head of the federal bailout, a position he resigned last May. Here's a taste of Kashkari talking about step one of his "detox," building a shed:

"Seven hundred billion was a number out of the air," Kashkari recalls, wheeling toward the hex nuts and the bolts. "It was a political calculus. I said, 'We don't know how much is enough. We need as much as we can get [from Congress]. What about a trillion?' 'No way,' Hank shook his head. I said, 'Okay, what about 700 billion?' We didn't know if it would work. We had to project confidence, hold up the world. We couldn't admit how scared we were, or how uncertain."

At the Home Depot checkout counter, Kashkari pays $157 for his lumber. He loads it onto his truck and drives into the Tahoe National Forest, climbing to 6,500 feet. The paved road turns to dirt at his cabin.

He rounds a corner and there stands the shed, in an old horse corral. He began designing it in his mind on Christmas Eve when incoming Treasury secretary Tim Geithner asked him to stay for the new administration. Kashkari didn't have anything to store in a shed but he knew, right then, that he needed to build it:

"I had to do something with my hands. It's a big amorphous unknown -- what's going to happen to our economy. And the shed is solid, measurable. I can see it, I can touch it. It's going to be around for the next 30 years. It's the opposite of amorphous."

Shortly after we tweeted a link to the article, Twitter pal @justgregrit pointed out that Kahskari's got a new gig overseeing new investment initiatives for PIMCO.

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Tuesday, December 08, 2009

GM Says No More Jobs Cuts

By Daniel Costello

After years of downsizing, General Motors Co. said this morning that it does not plan any job cuts in the immediate future.

"We have no plans for that right now," Mark Reuss, the company's new president of North America, said this morning in a call with reporters. "We are going to be focused on generating revenue, and we are not going to save our way into any kind of successful activity doing that."

The news is a turnaround from comments made last month by former President and CEO Fritz Henderson who said GM still had too many hourly workers and could slash some of the 6,000 to 7,000 workers currently on layoff. This year, GM has cut about 13,000 hourly workers as part of its court-ordered restructuring

Here is some audio from the call with Mark Reuss and Susan Docherty, the new vice president of sales, service and marketing.

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Tuesday, December 08, 2009

Morning Report: Bernanke Signals Continued Low Rates; Greece Gets More Bad News

By Daniel Costello

Fed Chairman Ben Bernanke dampened speculation of an early U.S. interest rate rise, saying the economic recovery still faced "formidable headwinds" and the central bank was sticking to its pledge to hold benchmark rates at exceptionally low levels for an "extended period."

The announcement signaled the Federal Open Market Committee will probably maintain its outlook for a long period of low interest rates next week as tight credit and high unemployment continue to weigh on the economy.

Nonetheless, stocks opened weaker this morning as investors seek safe-haven assets like U.S. Treasury and the dollar as signs the global economy is still struggling continue.

On Tuesday, new reports in Britain and Germany showed that manufacturing remains weak, while Japan's government approved $81 billion of new stimulus to keep its economy out of recession

Meanwhile, Fitch Ratings Inc. cut Greece's credit rating to BBB+ from A- Tuesday, highlighting "concerns over the medium-term outlook for public finances" given the weak credibility of fiscal institutions and the policy framework in Greece. The move is the latest blow to the troubled euro zone country, and pushed its bonds, banking shares and the euro itself lower.

And it's baaaaaack. According to the Wall Street Journal, house flipping has returned just four years after the bust of the American housing bubble -- but this time it's looking a bit different.

During the housing boom, millions of Americans tried to make money by buying and then quickly reselling new houses and condominiums. That kind of flipping stopped several years ago as home sales stalled amid a surge in foreclosures and curtailed lending.
Now, a different breed of flipper is proliferating: one who seeks bargains at foreclosure auctions. Unlike the boom-time flippers, the latest generation needs cold cash, lots of local-market knowledge and strong nerves.

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Monday, December 07, 2009

Podcast: The Folly Of Economic Forecasts

Can economists really predict the future? (Bob Jagendorf/Flickr)

On today's Planet Money:

As the old joke goes, an economist and two dollars will get you a nice cup of coffee. Russ Roberts, George Mason University economist and host of EconTalk, explains why he thinks is economics is an imperfect science.

Roberts says he has come to believe it's impossible to predict future economic conditions because good data is so hard to come by and even harder to compare. So what about all his fellow economists who seem to have an opinion on almost any topic? Roberts says they should come out and tell the truth -- that their policy recommendations are based on philosophy and ideology, not on empirical data.

BONUS LISTENING: Adam explains why the administration changed its cost estimate for the TARP.

Download the podcast; or subscribe. Music: Crooked Fingers' "Your Control." Find us: Twitter/ Facebook/ Flickr.

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Monday, December 07, 2009

Consumer Debt Falls Again

By Daniel Costello

U.S. consumers' outstanding credit debt fell for the ninth month in a row in October, but the decline was lower than it has been in most previous periods this year, the Federal Reserve said Monday.

Outstanding balances of consumer credit fell by $3.51 billion, or 1.7% annualized, in October to $2.482 trillion. Revolving credit - mostly credit cards - fell by $6.95 billion, or 9.3% annualized, to $888.1 billion. Nonrevolving credit, such as auto loans or student loans, rose by $3.44 billion, or 2.6%, to $1.595 trillion.

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