Weekly Economic Potpourri October 31, 2008

Every week there are a numerous headlines that are worthy of mentioning but I simply run out of time. I will handle this situation in a weekly wrap-up with a few comments. Here goes.

US eyes anti-foreclosure plan worth up to $600 bln

Oct 29 (Reuters) - U.S. regulators are working on a new federal program worth up to $600 billion that would provide government guarantees of home mortgages to help prevent foreclosures, a source familiar with the discussions told Reuters on Wednesday.

The Federal Deposit Insurance Corp and the U.S. Treasury Department were hammering out the foreclosure prevention program, which could provide guarantees for up to 3 million at-risk mortgages, the source said.

Chinese planes bound for US market

China will sell 25 jets to a US company in a "breakthrough" deal that marks the country's entry into the big-plane market dominated by European and US players. The Commercial Aircraft Corporation of China (CACC), which developed the ARJ21-700 regional aircraft independently, will sign a 5-billion-yuan ($735 million) contract on Tuesday, the Guangzhou Daily said Thursday.

The ARJ21-700 has a maximum range of 2,000 nautical miles, and is scheduled to take its first commercial flight by the end of November, Xinhua said.

Lights to go out any day at mall in Akron

Rolling Acres mall is closing. Management of the property, which does not include the anchor stores Sears and J.C. Penney, notified the eight remaining tenants inside the mall on Monday that it would be closing as soon as possible.

Tenants received written notices telling them the electricity for the mall would be shut off between Monday and Friday. In addition to a past-due utility bill, the mall is in arrears for property taxes. Tim Dimoff, whose company, SACS Consulting, is managing Rolling Acres and has been negotiating for its sale for years, said the owner of the mall gave him no other reason for the closing except "the economic conditions."

Frank Says Bonuses, Acquisitions Violate Bailout Plan

House Financial Services Committee Chairman Barney Frank said banks using cash from the $700 billion U.S. rescue plan for bonuses, acquisitions and other purposes unrelated to lending are in ``violation'' of the law.

"I am deeply disappointed that a number of financial institutions are distorting the legislation," Frank, a Massachusetts Democrat, said in a statement today. "Any use of these funds for any purpose other than lending -- for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. -- is a violation of the terms of the act."

Commodities collapse hits Canadian Canaccord

Pink slips are being handed out at an accelerating pace on Bay Street, with Canada's biggest independent investment dealer, Canaccord Capital Inc., joining the list by cutting a layer of staff and reducing senior management salaries by as much as 20%.

Despite the cash-preserving plans revealed by Canaccord yesterday, TD Newcrest analyst Doug Young suggested this week that the firm, which is also faced with weak equity financing and trading in the UK, may be forced to cut its dividend by as much as 64%.

U.S. Commercial Paper Soars Most on Record as Fed Becomes Buyer

Corporate borrowing in the commercial paper market soared the most on record after the Federal Reserve began buying the debt directly from issuers.

U.S. commercial paper outstanding rose by $100.5 billion, or 6.9 percent, to a seasonally adjusted $1.55 trillion for the week ended Oct. 29, the Fed said today in Washington. It was the first gain in seven weeks, reversing a 20 percent decline during the previous six weeks. Financial paper led this week's gain, rising $69.4 billion, or 12.4 percent, to $628.8 billion.

[Mish: The Fed becomes the Commercial Paper lender of only resort with this foolish action]

Stalled Projects in Seattle and Bellevue

More than two dozen office and residential projects in downtown Seattle and downtown Bellevue have been delayed or are on hold, many because of credit and other financial problems. This list may not be comprehensive.

Avis cuts 700 jobs and records $1 billion loss

Car rental company Avis Budget Group Inc (CAR) cut 700 jobs in the third-quarter and recorded a loss, before taxes, of more than $1 billion after writing down the value of certain assets, it said on Monday.

The company, which has been hit hard by slowing travel amid a weakening economy, also said 2008 revenue and profit would be "significantly lower" than previous estimates due to a drop in vehicle rentals.

"Declining travel volumes made the third quarter a more challenging operating environment than expected," Avis Chairman and Chief Executive Ronald Nelson said in a statement.

GMAC Added to Commercial Paper Plan, May Become Bank

GMAC LLC, the money-losing auto finance and home-loan lender, is seeking to become a bank holding company after gaining access to the Federal Reserve's new program designed to unlock short-term commercial credit markets.

The Fed began buying commercial paper from companies this week to reduce interest rates and lure investors back to the market for short-term debt, which seized up last month following the bankruptcy of Lehman Brothers Holdings Inc. Detroit-based GMAC said yesterday it was approved to participate in that program.

Becoming a bank holding company would make it easier for GMAC, the primary lender to customers of General Motors Corp., to participate in the Treasury Department's banking-industry rescue and quell doubts about the lender's survival. The firm could also get direct loans from the central bank and temporary debt guarantees from the Federal Deposit Insurance Corp.

[Mish: GMAC wants to become a bank so that it can become the fastest bank to go bankrupt in history?]

N.Z. to Guarantee Global Funds' Wholesale Deposits

New Zealand will guarantee overseas debt sales by the nation's banks to help maintain access to international wholesale funding, Finance Minister Michael Cullen said.

The guarantee will be available for investment-grade institutions seeking funds in all the major currencies, according to the nation's Treasury. Institutions opting into the program will be charged a fee based on their credit rating and the term of the issue. It won't be available for corporate borrowers.

Canada May Act Further to Aid Banks, Pensions, Flaherty Says

Canada's government may double its purchases of distressed loans among steps being considered to aid banks and private pension funds amid the worst financial crisis since the Great Depression, Finance Minister Jim Flaherty said.

The government is willing to buy more mortgages from commercial banks, after agreeing this month to purchase as much as C$25 billion ($21 billion) in real estate loans.

"We can do more dollar value if necessary," Flaherty said in an interview late yesterday in New York. "We can go another C$25 billion; if we have to do more we will do more."

Bank of Japan Cuts Key Interest Rate and Lowers Growth Forecast to Zero

The Bank of Japan cut its benchmark interest rate on Friday for the first time in seven years, joining earlier moves by the Federal Reserve in the United States and other central banks to blunt the global financial downturn.

The bank�s policy board voted to lower the overnight lending rate between banks by 0.2 percentage points, to 0.3 percent, reducing borrowing costs to try to rekindle growth in Asia�s largest economy.

As an additional measure, the bank said it would start paying interest on some of the reserves that commercial banks keep at the central bank, a step that would provide more cash to lenders. The unorthodox size of the rate cut, which the bank usually makes in quarter or half percentage-point steps, seemed to reflect a desire to maintain as much flexibility as possible if additional cuts were needed, economists said.

[Mish: As if saving .05 means a damn thing. If anything this ploy ought to panic everyone over the sheer ridiculousness of it all]

The odds of this global economic mess straightening out anytime soon are virtually zero.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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