Morning Scan

Wednesday, August 25, 2010

Receiving Wide Coverage ...

Ugly Housing Data: The National Association of Realtors' report of a steep drop in existing home sales in July "punctuated a wave of bad news that has been building all summer" in the "latest sign that the economy is losing steam," the Post said. The Times quoted one analyst who described the 27% nosedive as "truly gut-wrenching," and the paper noted that most seers had predicted a decline of about half that. Still, economists cautioned against panicking, the Times said, noting that just as the now-expired homebuyer tax credit "had artificially buoyed the market, the end of the credit was artificially depressing it." Wall Street Journal, New York Times, Washington Post

"Heard on the Street" in the Journal said the weak home sales report should have come as no surprise since the homebuyer tax credit, which was gone by the end of June, "pulled forward demand." The column predicted that the real estate market's softness will start to show in the closely-watched S&P/Case-Shiller price index come October.

In an op-ed in the Journal, Republican Congressmen Darrell Issa and Jim Jordan recount the many problems with the administration's Home Affordable Modification Program and pronounce it "a costly failure [that] should be shut down."

… and the Journal's editorial page took aim broadly at administration policies designed to prop up the housing market without more fundamental improvement in the economy. Aside from price bubbles fueled by easy money, "rising home prices are merely a symptom of a vibrant economy, not a cause," the editorial says. In programs like Hamp, "Washington … participates in spreading the fiction that recovery depends on keeping people in homes they can't afford."

Surprise Exit at FASB: Robert Herz is retiring two years before his term ends as chairman of the group that sets U.S. accounting standards. The Journal's main story said his sudden departure created "new uncertainty over highly contentious accounting issues." "Heard on the Street" made a bolder assertion: that Herz leaving hands banks "an unexpected advantage" in the fight over mark-to-market accounting. They can "push for a successor who is more friendly to their views" on the matter. The columnist, however, hopes they don't succeed, arguing that the mark-to-market compromise that Herz backed would arm investors with more information, which is "exactly what accounting should be doing."

Wall Street Journal

Strategic default isn't just for everyday homeowners. "The Property Report" notes that commercial real estate companies like Macerich, Vornado and Simon Property have stopped making mortgage payments on underwater shopping malls to pressure banks to restructure their loans. The story notes that throughout the housing crisis, bankers "have argued that homeowners have a moral obligation to pay their debts even when it seems to make good business sense to default." Yet "in the business world, there is less of a stigma even though lenders … get stuck holding a depressed property in a down market." To drive home the parallels, the headline in the print edition includes the phrase "jingle mail," a term home lenders use for when consumers give up on their homes and send the bank their house keys. Somehow we imagine it isn't quite so simple for property barons like Taubman Centers, which defaulted on its $135 million mortgage on the Piers Shops at Ceasars in Atlantic City.

New York Times

An editorial on questionable credit card practices says the Fed needs to stop coddling the industry and work to ensure that the provisions of the Card Act get enforced as Congress intended. "Time and again, the credit card industry has demonstrated its disdain for its customers. The Fed needs to press these companies to live up to the law."

The IRS will soon end a loophole allowing many large companies to possibly skirt their responsibilities by not revealing their uncertain tax positions ("whether they have reduced their tax bills by using questionable accounting strategies"). Starting next year, the agency plans to require that corporations, in addition to setting aside money if their claims are found to be improper, "also provide a brief description of their uncertain tax positions and their rationale, offering essentially a road map for its auditors." The Times said "the stakes are enormous," and listed among the top companies who had reserves set aside to deal with uncertain tax positions Bank of America ($5.2 billion), AIG ($4.8 billion) and Goldman Sachs ($1.9 billion).

Washington Post

Rep. Barney Frank said he plans to hold a hearing to examine if regulators are strict enough in limiting executive pay at Wall Street. The Post said Frank was not "impressed with how Wall Street executives have restrained themselves." Nor was he "convinced that all regulators favor more restrictive pay practices."


, with contributions from Christopher Wood and Rachel Witkowski.