So much for free markets - auto companies want rescue, too

The Wall Street Journal -- Top auto executives, including General Motors Corp. Chief Executive Rick Wagoner, will launch a lobbying push this week for billions in government loans to help beleaguered auto makers and their suppliers.

They aim to get as much as $50 billion in low-cost loans, and will try to play down the idea they are seeking a bailout, arguing that Washington has offered similar help to a range of other troubled industries, people familiar with the auto makers' lobbying plans said.

The auto makers and their Congressional supporters also will argue that they need funding to meet new fuel-economy standards imposed by Congress, and that the debt markets have broken down in the credit crisis, leaving them few other options, these people said.

Most analysts agree the new fuel-economy rules that take effect in the next decade will require billions of dollars in investment by the auto industry -- money the Detroit three don't have right now.Top auto executives, including General Motors Corp. Chief Executive Rick Wagoner, will launch a lobbying push this week for billions in government loans to help beleaguered auto makers and their suppliers.

http://online.wsj.com/article/SB122083515707008703.html

World Markets React to Bailout

U.S.Seizes Mortgage Giants

The federal government now owns the biggest piece of the $11 trillion mortgage market - Fannie and Freddie Mac.

In an stunning move, the feds seized Fannie Mae and Freddie Mac in its most dramatic market intervention in decades.

Treasury plans to replace the companies' CEOs and provide up to $200 billion as part of the rescue. What got us into this mess? Bad underwriting and sloppy management. In the end, will the government end up merging the two mortgage giants. Did I hear that Fannie + Freddie = Frannie ?

http://video.on.nytimes.com/?fr_story=dff152eea53ffd32f9f9c40373b7af2d342fd2d4

As Crisis Grew, a Few Options Shrank to One

The New York Times - For Freddie Mac, the beleaguered mortgage finance giant that was desperately trying to avoid a government takeover, the moment of truth came three weeks ago.

In a last-ditch effort to raise money to offset billions of dollars of losses, Freddie’s chief executive, Richard F. Syron, traveled to New York to huddle with potential investors at the headquarters of Goldman Sachs and a law firm, Davis, Polk & Wardwell.

Over a couple of days, he and his lieutenants made their pitch — only to have every option rejected, people briefed on the discussions said.

Empty-handed and crestfallen, Mr. Syron canceled plans to join his family at their weekend home on Cape Cod and returned to Washington to deliver the bad news to Treasury Secretary Henry M. Paulson Jr.: he still hadn’t found anyone willing to save Freddie Mac.

Mr. Paulson and a team at the Treasury had been working for months on plans to prop up both Freddie and its sister company, Fannie Mae, hoping they would never have to act. http://www.nytimes.com/2008/09/08/business/08takeover.html?ex=1378612800&en=6eef2eca18f4bb15&ei=5124&partner=permalink&exprod=permalink

What Bailout of Mortgage Giants Means

The New York Times - So what does the federal takeover of two mortgage finance giants mean to consumers?

Mortgage rates may fall a bit initially but probably not enough to halt the decline in home prices anytime soon. Some delinquent borrowers may have a better shot at modifying their loans and ending up with lower fixed payments. And the rules on new mortgages could slightly change.

Oh, and the federal government will help pay for it all, using your tax money.

These themes emerged over the weekend as mortgage specialists wrinkled their foreheads to determine what the federal bailout of the mortgage finance giants Fannie Mae and Freddie Mac will mean for consumers. They cautioned, however, that the unprecedented nature of the rescue makes it hard to know all of the ramifications immediately.

So first, what happened here, and why? In order to provide capital to banks that lend money to aspiring homeowners, Fannie and Freddie need to be able to sell the mortgages, packaged as securities, to investors around the world once the two companies have bought the loans from the banks.

All this worked fine until foreign investors got nervous about the housing market and the uncertainty over how a theoretical federal takeover might affect their holdings. When concerns emerged about the viability of Fannie and Freddie, the government thought it had no choice but to step in and take over.http://www.nytimes.com/2008/09/08/business/08consumer.html?ex=1378612800&en=1140cdecb05592d6&ei=5124&partner=permalink&exprod=permalink

That Student Loan, So Hard to Shake

The New York Times - MOST people struggling to pay off their student loans keep quiet about it. They do not want to acknowledge that, perhaps in a fit of naïve, youthful optimism, they borrowed more than they could handle.

Then there is Alan Collinge, who for years has described his struggle with tens of thousands of dollars in student loan debt to anyone who will listen. He has appeared on “60 Minutes” criticizing Sallie Mae, the nation’s largest student lender, and has been quoted in the pages of this and other newspapers attacking loan companies.

Student lending is a big business, one that has been the subject of many complaints over the past two years after revelations of questionable ties between lenders and colleges’ financial aid officers. More recently, tight credit markets raised the possibility that some students might not be able to borrow to go to college in the fall.

But much less attention has been paid to what happens to students after they borrow. Lenders who make loans guaranteed by the federal government can more easily take steps against borrowers — like garnishing wages and benefits — than they can with other kinds of unsecured consumer debts. And all student loans, federally guaranteed or not, are extremely hard to get rid of in bankruptcy proceedings, more so than credit card or other debt.

Why Journalists Never Get Wealthy Moving

The Wall Street Journal - If you're a true cheapskate, stay put.

Moving is expensive and wasteful. You spend thousands fixing up the home you sell, and then thousands more fixing up the home you buy. You throw out perfectly good packaged food in your old home, and then go out and buy that same food in your new home. You throw out drapes, and buy new drapes. You register vehicles in one state, and then register them again in another state. The list goes on and on and on.

I speak from experience. My wife and I have bought and sold four houses in the last 17 years, and we're now buying a fifth one in northern New Jersey. Each time the sale was prompted by a new assignment for The Wall Street Journal.

Career-wise, it has been worth it. But strictly in real-estate-investment terms, we usually would have come out ahead financially by staying put instead of moving to another city.http://online.wsj.com/article/SB122048108259596625.html

How Medical Marijuana is Transforming the Pot Industry

Most people think business reporting is boring and is about numbers and guys in suits. But a good business writer can write about anything - as long as it involves money. That is why this recent New Yorker piece is a great business story. Read on.

The New Yorker - July 28, 2008 - The Tibetan prayer flags suspended on a string over the sleeping body of Captain Blue rose and fell in fluttering counterpoint to the wheezy rhythm of his breath. Lifted by a gentle breeze off the Pacific Ocean, each swatch of red, white, yellow, or green cotton bore a paragraph of Asian script. Every time a flag flaps in the breeze, it is thought, a prayer flies off to Heaven. Blue’s mother says that when her son was an infant he used to sleep until noon, which is still the time that he wakes up most days, on his platform bed in a one-bedroom apartment overlooking Venice Beach, a neighborhood of Los Angeles.

I recently spent six months, off and on, with Blue—at his apartment, in private homes, on farms, in pot grow rooms, and in other places where “medical marijuana” is produced, traded, sold, and consumed in California. During that time, I saw thousands of Tibetan prayer flags. The flags identify their owners with serenity and the conscious path, rather than with the sinister world of urban dope dealers, who flaunt muscles and guns, and charge exorbitant prices for mediocre product. For Blue and tens of thousands of like-minded individuals, Proposition 215 presented an opportunity to participate in a legally sanctioned experiment in altered living. The people I met in the high-end ganja business had an affinity for higher modes of thinking and being, including vegetarianism and eating organic food, practicing yoga, avoiding prescription drugs in favor of holistic healing methods, travelling to Indonesia and Thailand, fasting, and experimenting with hallucinogenic drugs. Many were also financially savvy, working long hours and making six-figure incomes.
Full story can be obtained here: http://www.newyorker.com/reporting/2008/07/28/080728fa_fact_samuels?currentPage=all

Download PDF of story here: https://backup.filesanywhere.com/v.asp?v=%8Cjc%88%5Fa%AB%AA%AE%A2

Is College Worth the Cost

FBI Probes Home Buying Incentives - Was there fraud?

Like the Savings and Loan bust in the 1980s, allegations of questionable practices are now surfacing and may have contributed to the hyper growth in housing sales. Stay tuned.

The Wall Street Journal - When home sales began to slow at the start of the downturn, home builders offered buyers incentives -- instead of reducing prices -- to stimulate demand. The incentives included cars, tuition and credit-card payments, and even cash.

Now, federal investigators are questioning whether some of those incentives misled lenders and caused them to write mortgages that were artificially inflated, contributing to today's home-price crash.

Using incentives to sell homes has long been a marketing tool for builders. When properly disclosed and structured, the practice is legal. But the Federal Bureau of Investigation is looking into allegations that home builders, brokers and appraisers defrauded lenders by not disclosing unusually large incentives to buyers, which could have added as much as $100,000 to the price of a home. http://online.wsj.com/article/SB121884641242946145.html

Dollar's Rise Could Damp Inflation

The Wall Street Journal - The U.S. dollar marched higher again on Friday, continuing a development that could ease inflationary pressures but also could slow a U.S. export boom.

Just a couple of months ago, policy makers were alarmed about how far the dollar had fallen. Now evidence is building that its seven-year slide may be ending.When a currency strengthens, it's usually a sign of health in the underlying economy. In this case, the dollar's rally is a sign of weakness in other economies. Reports in recent days showed that the economies of Japan and Europe contracted in the second quarter, and the U.K. slowed. It's now looking less likely that the rest of the world will be insulated from U.S. economic ills.

The dollar's latest rise is closely tied to recent declines in oil and other commodity prices. As economies in the rest of the world slow, demand for raw materials appears to be waning, which is taking pressure off commodity prices. These goods are typically priced in dollars. As the U.S. currency strengthens, commodity producers have less incentive to increase their prices, further easing the upward pressure on prices. http://online.wsj.com/article/SB121884105817145699.html?mod=hps_us_pageone

The Problem With Wall Street Analysts Research

New York Times - Frank P. Quattrone thinks Wall Street research has “proven to be a disaster, in my humble opinion.

You remember Mr. Quattrone, don’t you? He’s the mustachioed Silicon Valley banker who brought some of the biggest technology initial public offerings to market — Cisco Systems, Amazon, Netscape, just to name a few. His career was famously derailed by a four-year-long public battle against obstruction of justice charges at the height of the previous market bubble. The charges were ultimately dropped, and he’s now back in business.

“I do think the industry should petition to remove the Spitzer initiatives because ultimately they hurt the competitiveness of our country by denying small companies the access to research analysts,” he said, throwing a proverbial grenade into the auditorium.

Mr. Quattrone was referring, of course, to the former New York attorney general Eliot Spitzer’s landmark settlement in 2002, which forced the separation of investment banking from research. The settlement followed an investigation into whether some Wall Street analysts were providing misleading ratings of the companies they covered to bolster their firms’ investment banking business. Henry Blodget of Merrill Lynch and Jack Grubman of Citigroup were barred from the securities industry and others took their licks. (As an aside, Mr. Spitzer was not behind Mr. Quattrone’s prosecution.)

As a result, banks are no longer allowed to pay their analysts from any revenue derived from investment banking, only from trading operations. Beyond that, an investment banker can’t even call a research analyst at the same firm without a lawyer chaperoning the conversation.”http://www.nytimes.com/2008/08/12/business/12sorkin.html?ex=1376280000&en=d816fb300d1d487b&ei=5124&partner=permalink&exprod=permalink

Companies Tap Workers Pension Plans To Fund Executive Benefits

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.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.The background: Federal law encourages employers to offer pensions by giving companies a tax deduction when they contribute cash to a pension plan, and by letting the money in the plan grow tax free. Executives, like anyone else, can participate in these plans.

But their benefits can't be disproportionately large. IRS rules say pension plans must not "discriminate in favor of highly compensated employees." If a company wants to give its executives larger pensions -- as most do -- it must provide "supplemental" executive pensions, which don't carry any tax advantages.http://online.wsj.com/article/SB121761989739205497.html?mod=hpp_us_whats_news

Amid Turmoil, U.S. Turns Away From Decades of Deregulation

WASHINGTON -- The housing and financial crisis convulsing the U.S. is powering a new wave of government regulation of business and the economy. Federal and state governments alike are increasingly hands-on in their effort to deal with failing businesses, plunging house prices, worthless mortgages and soaring energy prices. The steps add up to a major challenge to the movement toward deregulation that has defined American governance for much of the past quarter-century since the "Reagan Revolution" of the early 1980s. In fact, some proponents today of a bigger oversight role for government are Republican heirs to the legacy of President Reagan.http://online.wsj.com/article_print/SB121694460456283007.html

Mortgage Rates Near a Year High

Home-mortgage rates are nearing their highest levels in a year, adding to pressures on the already weak housing market.

Rates on conforming 30-year fixed-rate mortgages rose by nearly 0.40 percentage point in the past week to an average of 6.71%, according to HSH Associates in Pompton Plains, N.J. Rates on jumbo loans, which are too big to be eligible for purchase by Fannie Mae or Freddie Mac, currently average 7.84%.

The higher rates are making it more difficult for borrowers to refinance and putting another crimp on weak home sales. "It's a tough market and rates going up isn't helping it," said Steve Walsh, a mortgage broker in Scottsdale, Ariz.

Mortgage rates typically move in line with rates on 10-year Treasurys. Treasury rates have risen, but so has the spread between rates on 30-year mortgages and 10-year Treasurys, said Nicholas Strand, a mortgage strategist at Barclays Capital. http://online.wsj.com/article/SB121677010658575383.html?mod=todays_us_money_and_investing