BLOGS in TOPBLOG

By Nadine Elsibai

April 8 (Bloomberg) — Democratic presidential candidate Barack Obama trails Hillary Clinton by 6 percentage points among Pennsylvania’s likely primary voters, a Quinnipiac University poll found.

Clinton, a New York senator, received 50 percent support compared with Obama’s 44 percent in the poll conducted April 3-6. That’s down from the 50-41 percent lead Clinton had in a similar poll released April 2. The biggest shifts for Obama, an Illinois senator, came among female and white voters, the poll found.

Obama is “knocking on the door of a major political upset in the Pennsylvania Democratic primary,” Clay Richards, assistant director of the Quinnipiac University Polling Institute, said in a statement. “Obama is not only building on his own constituencies, but is taking away voters in Senator Hillary Clinton’s strongest areas.”

Pennsylvania holds its contest April 22. The survey by Hamden, Connecticut-based Quinnipiac included 1,340 likely voters in Pennsylvania’s Democratic primary. The poll had a margin of error of plus or minus 2.7 percentage points.

To contact the reporter on this story: Nadine Elsibai in Washington at nelsibai@bloomberg.net.

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By Brian Swint
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April 7 (Bloomberg) — The Bank of England may be forced to cut its main interest rate this week as the credit squeeze spreads to the mortgage market, exacerbating the worst housing downturn since the last recession in 1991.

HSBC Holdings Plc, Nationwide Building Society and Royal Bank of Scotland Group Plc are raising loan rates or withdrawing their best offers in order to shore up balance sheets. That’s dulling the impact of the central bank’s two rate cuts since December and making it harder for policy makers to protect the economy.

“This is a panic,” said Nigel Welch, 54, director of mortgage broker TS Mackenzie in London’s fashionable Islington neighborhood. “Mortgages are more expensive and harder to get. I’ve had to turn away some people that I know won’t find the loan that they need.”

The mortgage market has tightened this month as banks scramble to conserve cash and stem a credit binge that fueled the country’s decade-long housing boom. The number of home-loan products on offer declined by 21 percent in the past two weeks to 4,499 on April 4, says Moneyfacts Group, a financial Web site.

The pound fell today against 14 of the 16 most-traded currencies today, including the dollar and euro, on speculation the Bank of England will cut its benchmark rate this week. The currency traded at $1.9885 and 79.06 pence per euro, as of 11:17 a.m. in London.

Rate Forecasts

Worsening credit conditions spurred economists at Deutsche Bank AG and Bank of America to change their forecast last week and predict the Bank of England will take action on April 10.

Forty-nine of the 61 analysts surveyed by Bloomberg News predict policy makers, led by Governor Mervyn King, will cut their benchmark rate by a quarter point to 5 percent this week. That would still be the highest among the Group of Seven nations and compare with the Federal Reserve’s main rate of 2.25 percent and the European Central Bank’s 4 percent.

The cost of borrowing pounds for three months was at 5.98 percent on April 4 after reaching 6.01 percent last week, the highest level since December.

More expensive mortgages are increasing the burden on consumers already shouldering a record 1.4 trillion pounds ($2.8 trillion) in personal debt.

`Horrible Shock’

“This has been a horrible shock,” said Sue Freeman, 43, a health researcher living in North London. She comes off a five- year mortgage rate of 4.65 percent next month and her lender wouldn’t offer a new deal below 7 percent. “I went into panic mode. I thought we’ll never be able to afford a mortgage again.”

HBOS Plc, the U.K.’s biggest mortgage lender, said April 4 that its Halifax unit will increase the interest rate payments for customers who provide a deposit of less than 25 percent. First Direct, the British online banking unit of HSBC, on April 2 suspended mortgage lending to new customers. Nationwide said March 27 it’s withdrawing some of its home loans and raising rates on others by as much as 0.57 percentage point.

The U.K. may nevertheless avoid the fate of the U.S., which is being dragged into recession by the housing market. British house prices, which have tripled in the past decade, have fallen just 0.8 percent since September, according to HBOS. In the U.S., prices dropped 9 percent in the fourth quarter, the Case-Schiller index shows.

Unemployment fell to the lowest since 1975 in February, retail sales unexpectedly rose and Bank of England policy makers said at their last rate decision in March that economic growth was more resilient than they expected.

Inflation Risk

The central bank’s task is compounded by faster inflation, restricting the scope for rate cuts. King said last month that price increases may exceed the government’s 3 percent limit this year after a surge in energy and food prices. Consumer prices rose 2.5 percent in February from a year earlier.

“We haven’t reached a crisis point yet and there are inflationary pressures,” said Philip Shaw, chief economist at Investec Securities in London. “But the economy will slow more sharply from here. If conditions don’t improve, the bank will have to be more aggressive.”

Bank of England policy makers have conceded the need to counter tighter credit conditions to prevent them dragging down the economy. Policy maker Paul Tucker said April 2 the central bank will need to cut rates “gradually.”

Growth Forecast

The U.K. central bank forecasts expansion will cool this year to an annual 1.6 percent rate in the fourth quarter, matching the slowest pace since 1993. Lehman Brothers Holdings Inc. forecasts the slowdown may be worse and says there’s a 35 percent chance of a recession in the next two years.

Royal Institution of Chartered Surveyors said March 11 the property market slumped in February to the worst since 1990, the eve of the nation’s last recession.

The Bank of England on April 3 said lenders expect the mortgage market to tighten further in coming months, which will put further pressure on a housing market the International Monetary Fund says is among the most vulnerable to a slump.

“My biggest fear is that when I try to re-mortgage it won’t be accepted,” said Robin Bingeman, 34, a product manager in southwest London, whose monthly payments are scheduled to rise to 2,600 pounds in May from 1,700 pounds. “I had to go back to my employer and say I need a raise in order to survive.”

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By Jesse Westbrook
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April 8 (Bloomberg) — Three former leaders of the U.S. Securities and Exchange Commission say the Bush administration’s proposed overhaul of financial regulation threatens to weaken the agency, a process that may already be under way with help from the SEC itself.

David Ruder, Arthur Levitt and William Donaldson, all former SEC chairmen, said a Treasury Department push for the agency to adopt the regulatory approach of the much smaller Commodity Futures Trading Commission would be a mistake.

It’s “not useful” for the SEC to have “a prudential-based attitude in which regulators solve problems by discussing them informally with market participants and ask them to change,” Ruder, a Republican SEC chairman under President Ronald Reagan, said in an interview. “We have to have an enforcement approach.”

Levitt, a Democrat who led the SEC from 1993 to 2001 under President Bill Clinton and who supports an SEC and CFTC merger, says the terms proposed by Treasury are “wrongheaded” because they would give the trading commission “primacy.”

SEC Chairman Christopher Cox, 55, hasn’t endorsed a merger between the two agencies, said SEC spokesman John Nester. “He would insist on a system of oversight that best protects investors, promotes fair markets and facilitates capital formation.”

Treasury’s proposal, issued in a March 31 report, comes as lawmakers question whether the SEC has already eased up in fighting fraud. The Federal Reserve now shares oversight of investment banks, and the SEC is moving to transfer some responsibilities for monitoring accounting rules and securities sales to overseas regulators.

Policy Change

Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Jack Reed, a Rhode Island Democrat, have asked government watchdogs to investigate why SEC sanctions against companies and individuals plunged 51 percent, to $1.6 billion, in the regulator’s most recent fiscal year. The agency also opened 15 percent fewer probes over the same period, according to its annual reports.

The drop in fines, Dodd and Reed said in a March 20 letter to the Government Accountability Office, “raises questions about whether changes have taken place in enforcement philosophy or scope of activity.” The two senators asked the GAO to review a policy change implemented last year by Cox that requires agency attorneys to get approval from commissioners before negotiating corporate fines.

Milken, Enron

Cox, in an April 1 letter to Dodd, said the SEC has demonstrated “vigorous enforcement of the securities laws.” He noted that the agency brought 655 cases in the fiscal year ended in September, the second-most in its history. The number of inquiries that resulted in enforcement actions within two years, however, fell to 54 percent last year, down from 64 percent in 2006, according to the agency’s annual reports.

The SEC was created by President Franklin Roosevelt to restore investor confidence after the 1929 stock market crash. It regulates brokers, stock exchanges, money managers and public companies, and sues them for violating securities laws.

The agency gained prominence in 1990 for its insider-trading probe of former Drexel Burnham Lambert Inc. bond trader Michael Milken and its collaboration with the Justice Department earlier this decade in investigating Enron Corp., the defunct energy trader accused of accounting fraud.

Liquidity Shortage

While Milken was never convicted of insider-trading, he served 22 months in prison for securities fraud and paid $1.1 billion in fines. Enron’s former chairman and chief executive officer were convicted of deceiving the company’s investors, and the SEC extracted more than $400 million in penalties from the bankrupt energy trader’s banks.

Oversight of Wall Street investment banks was primarily the SEC’s responsibility until rumors of a liquidity shortage at Bear Stearns Cos. triggered the firm’s near collapse and forced a sale to JPMorgan Chase & Co. on March 16. Cash and easy-to-sell assets plunged to $2 billion at New York-based Bear Stearns on March 13 from $12.4 billion a day earlier, according to the SEC.

The Fed, which orchestrated Bear Stearns’s takeover to prevent a market panic, is now lending money to securities firms for the first time since the Great Depression. The central bank also has examiners onsite at such companies as Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. to help the SEC scrutinize capital and liquidity.

Writing New Rules

Treasury Secretary Henry Paulson, who was previously Goldman’s chairman, wants to increase the Fed’s power further by giving the central bank a hand in writing rules for securities firms and making it responsible for monitoring risks that Wall Street poses to the U.S. economy.

His 218-page report, which was in the works before the credit crisis, also says the SEC should rely more on the $11.7 trillion mutual-fund industry to police itself. Most of the recommendations would require changes in legislation.

Donaldson, a Republican who stepped down as SEC chairman in June 2005, was also critical of Paulson’s approach. “Before you start rearranging the organization of the financial-regulatory agencies,” he said in an interview, “you must examine how all of this happened.” Congress needs to determine “whether new powers are needed or whether there were powers there that were not used.”

Even without legislation, the SEC is changing. Last year the agency dropped a requirement that overseas companies align their financial statements with U.S. accounting rules. It’s now considering letting American companies use international rules as part of a plan to move to global standards for accounting provisions. In doing so, said Levitt, the SEC risks relinquishing its oversight of how companies report profit and revenue under rules drafted by the Norwalk, Connecticut-based Financial Accounting Standards Board.

Overseas Regulators

“That proposal does more violence to protecting America’s investors from the standpoint of transparency as anything in the Paulson proposal,” said Levitt, who is now a senior adviser at Carlyle Group Inc. and a board member of Bloomberg LP, the parent of Bloomberg News.

Cox, in a January speech, said the SEC is doing “everything within our power to ensure that financial-reporting information from different countries is comparable and reliable.” He said the SEC and overseas regulators have to “harmonize our differing sets of rulebooks” to respond to growing public demand for cross-border investing.

Separately, the SEC is also considering easing its rules to allow foreign stock exchanges and brokerages to sell securities directly to U.S. investors. The plan would permit transactions under the watch of overseas regulators who have rules that are similar to those in the U.S.

Reed, who heads the Senate Subcommittee on Securities, Insurance and Investment, said he will hold hearings on the proposal. “No other regulator,” he said in an April 1 speech, “no matter how conscientious, is likely to share our same commitment to protecting U.S. investors.”

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

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By Kathleen Chu
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April 9 (Bloomberg) — Akira Mori, Japan’s richest man, spent a record 231 billion yen ($2.3 billion) buying Tokyo’s Toranomon Pastoral Hotel last September. He now says it’s worth closer to 200 billion yen.

“The boom we’ve enjoyed for the past few years is over,” said the 71-year-old chief executive officer of Mori Trust Co., who teamed with K.K. DaVinci Advisors, a 1.2 trillion yen Tokyo- based property fund, for the acquisition. “Investors were convinced that prices would keep rising, so in about six months, they’ll probably rush to get out regardless of price.”

Global real estate financing has evaporated as defaults by U.S. homeowners saddled banks and securities firms with $232 billion of losses and asset writedowns. Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, reduced property loans by 7.7 percent as of Sept. 30 from a year earlier. Regulators have sought to prevent a bubble like the one that burst in 1991, leading to 15 years of falling land values.

“People who bought properties last year at a very high price, they’re in trouble,” said Toshio Masui, president of Japan operations for Los Angeles-based buyout firm Colony Capital LLC. “Everybody was overpaying. People with a bunch of stuff in their portfolio are now running around trying to get refinancing, and they won’t get it.”

Cracks are emerging in a market that generated annual returns averaging 14 percent since 2003. The Tokyo Stock Exchange REIT Index dropped 16 percent this year and 40 percent from its peak in May. Twenty-six of 42 property trusts are trading below their initial public offering price, according to data complied by Bloomberg.

Lone Star

The purchase price for the Pastoral in Tokyo’s central Minato ward was the highest paid anywhere in the world for a hotel last year, according to New York-based research firm Real Capital Analytics Inc. The 313-room hotel now is worth about 13 percent less, Mori said in a March 24 interview. The buyers plan to redevelop the site, which is close to nine other buildings owned by Mori Trust.

Lone Star Funds, the Dallas-based buyout firm led by John Grayken, scrapped plans last month to sell a group of Japan hotels after bidders reduced their offers by as much as 25 percent between December and March as financing conditions deteriorated, said two people with direct knowledge of the matter.

“We should be prepared for another round of real estate deflation that may last for some time,” said Akiyoshi Inoue, president of Tokyo-based Sanyu Appraisal Corp.

Financing Costs

Reicof Co., an Osaka-based real estate investor, filed for court protection from creditors last month, saying it was struggling to obtain bank loans and selling properties because of contagion from the U.S. subprime collapse.

Funding costs for investment banks climbed at least 2 percentage points in the past six months, said Yukio Egawa, head of Japan securitization research at Deutsche Bank AG in Tokyo.

“The credit market started demanding a substantial credit premium from U.S. investment banks,” Egawa said. “It doesn’t make economic sense for them to extend new loans for real estate investment funds when funding costs have risen substantially.”

Morgan Stanley, the biggest issuer of commercial mortgage- backed securities in Japan, plans to cut as many as 40 employees in its securitization unit. Merrill Lynch & Co., the largest U.S. brokerage, closed its Japan property funding unit, eliminating 11 jobs. Both Morgan Stanley and Merrill are based in New York.

“There are now fewer lenders providing higher-leverage loans,” said Douglas Smith, managing director of commercial real estate at Deutsche Bank in Tokyo. “Not because they necessarily are taking any particular view on the prospects for the Japanese real estate market, but because of events outside this market affecting their ability or willingness to provide lending.”

Condominium Slump

While total returns for real estate investments in Japan, including capital gains and rental income, have been positive since 2002, according to the MTB-IKOMA Real Estate Index produced by K.K. Ikoma Data Service System and Mitsubishi UFJ, the housing market has been showing signs of strain.

Condominium sales are set to fall for a third year in 2008 after a new building code slowed project approvals and construction costs soared. Total condo sales dropped 14 percent to 133,000 units in 2007, according to the Tokyo-based Real Estate Economic Research Institute.

Commercial property has held up better. Prime office rents in Tokyo rose 16 percent last year, and have almost doubled since 2004, according to real estate broker Jones Lang LaSalle Inc. Prices for commercial buildings in the center of the city jumped 20 percent in 2007, helping swell Mori’s wealth to $7.5 billion, the most among Japan’s 24 billionaires, according to Forbes magazine.

`Peaking or Pausing’

“Nobody knows whether the market is peaking or pausing, but it’s definitely doing one or the other,” said James Fink, senior managing director of property consulting firm Colliers Halifax in Tokyo. “We have come very far, very fast.”

Japan’s previous property boom lasted 16 years, making Mori’s father Taikichiro Mori the world’s richest individual in 1991, according to Forbes.

Australia’s government sold half of its Tokyo embassy plot in the late 1980s and booked a profit of at least A$500 million ($463 million), even after building a new compound that includes 40 staff apartments, said Bill Jackson, Minister-Counsellor at the embassy.

The crash was equally spectacular as Tokyo commercial land prices plunged more than 50 percent in five years and the Nikkei 225 Stock Average lost three quarters of its value.

Rents in Marunouchi, Tokyo’s most expensive business district, peaked at 100,000 yen per tsubo in 1991 before dropping to as low as 35,000 yen in 2003, according to Colliers Halifax. The rate averaged 65,000 yen last year. A tsubo, the standard measure of property in Japan, is 3.3 square meters, or 35.5 square feet.

Family Fortune

When Taikichiro Mori died in 1993, the family’s $15 billion fortune had been cut in half in just two years, Forbes reported.

“Japanese investors suffered a severe shock when the last bubble burst, and because they lived through the crash, they’re bound to be cautious now,” said Junko Miyakawa, a senior analyst at Tokyo-based Shinsei Securities Co.

Regulators at the Tokyo-based Financial Services Agency may have sought to curb lending to prevent a new bubble from forming, said Katsuya Takanashi, CEO of Secured Capital Japan Co., which manages about 550 billion yen of real estate assets.

“The FSA doesn’t want to repeat the bad-loan problem that trapped Japan’s economy for such a long, long time,” he said.

Soured property loans devastated Japanese lenders in the 1990s, forcing the government to spend more than 9 trillion yen on an industry bailout. Tumbling real estate prices helped trigger a decade of deflation that the world’s second-biggest economy has yet to fully shake off.

Buying Opportunity?

Global investors led by General Electric Co. and Morgan Stanley sense a buying opportunity in a nation where Real Capital Analytics estimates the value of transactions was just 7 percent that of the U.S. last year.

GE’s real estate unit may buy as much as $10 billion of Japanese property this year, anticipating tighter credit and rising borrowing costs will prompt local trusts to accelerate asset sales and drive down prices. GE uses its own cash to invest in property, unlike REITs and private funds that borrow money.

“The market is very favorable to GE,” Tomoyuki Yoshida, head of Japan operations for the real estate unit of the Fairfield, Connecticut-based company, said last month. “Small and medium-sized fund managers have a huge issue about getting financing. They have to dispose of a lot of properties.”

Morgan Stanley, the second-biggest U.S. securities firm by market value, has invested more than 2 trillion yen in Japanese property, spending more than a 10th of that amount last April to acquire 13 hotels from All Nippon Airways Co. in Japan’s largest real estate purchase. Morgan Stanley also bought office buildings from Citigroup Inc. and Shinsei Bank Ltd. in the past two months.

Secured Capital, based in Tokyo, is seeking at least $3.5 billion from investors for property acquisitions.

“We think the next few years will offer really good investment opportunities,” Takanashi said.

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net.

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By Shobhana Chandra and Kristy Scheuble
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April 9 (Bloomberg) — Economic growth in the U.S. will come to a halt in the first six months of 2008 as consumer spending cools, a Bloomberg News survey showed.

The world’s largest economy will not expand at all from January through June, according to the median estimate of 62 economists surveyed from April 2 to April 8. A majority now projects the U.S. is, or will soon be, in a recession.

Job losses, falling home values and credit restrictions are plaguing consumers already burdened by soaring food and gasoline bills. Federal Reserve Chairman Ben S. Bernanke, who conceded for the first time last week that the economic expansion may end, will cut interest rates again, the poll showed.

“The economy is not going anywhere in the first half,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. “The American consumer is pretty dismal right now. We’re in the middle of a recession and we’ve got another three to six months to work our way out of it.”

The deepest reductions came in the outlook for the second quarter as economists slashed the growth estimate to zero from last month’s projected 0.5 percent annual pace.

Increases in fuel prices and the unexpected pickup in firings since the start of the year explain the downgrade.

“Those two things are hitting the consumer hard,” said Stephen Stanley, chief economist for RBS Greenwich Capital Markets in Greenwich, Connecticut. “Demand is deteriorating rapidly.”

Consumer Outlook

Consumer spending, which accounts for more than two-thirds of the economy, will rise at an average annual pace of 0.5 percent in the first half of the year, the survey showed. That would be the smallest two-quarter gain since dropped in the six months that ended March 1991.

Spending will pick up in the latter half of 2008 as Americans receive tax-rebate checks under the $168 billion stimulus package passed by Congress and the administration. Still, the plan is unlikely to have a lasting effect as debt- ridden consumers will probably use some of the money to pay off loans or shore up savings.

“The consumer has virtually ground to a halt,” said Nariman Behravesh, chief economist at Global Insight Inc., a forecasting firm in Lexington, Massachusetts. “We may see a bump up in third- and fourth-quarter growth, then a drop-off before a real recovery kicks in.”

The odds the economy will be in a recession in the next 12 months jumped to 70 percent from 50 percent in the March survey, according to the median forecast.

Fed Less Optimistic

Minutes of the Fed’s March 18 policy meeting released yesterday showed policy makers and staff economists at the central bank are even more pessimistic.

“Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,” the minutes said. “Some believed that a prolonged and severe economic downturn could not be ruled out.”

Fed staff economists told policy makers they had “substantially revised down” their forecast to show a first- half contraction in gross domestic product.

Bernanke echoed their concern when he told Congress on April 2 that the economy is going through a “very difficult period.”

The Fed will trim the benchmark rate by a half point to 1.75 percent by June and keep it there the rest of the year, the Bloomberg survey showed. Policy makers lowered the rate three- quarters of a point in March, bringing the total reduction so far this year to 2 percentage points, the fastest drop in borrowing costs in two decades.

`Aggressive’ Fed

“The Fed will stay on the side of being aggressive, doing more rather than less,” RBS Greenwich Capital’s Stanley said.

The S&P/Case-Shiller index showed property values in 20 metropolitan cities fell by the most on record in January as the residential real estate slump extended into its third year.

Consumer confidence as measured by Reuters/University of Michigan dropped to a 16-year low in March and the average price of regular gasoline reached a record $3.34 a gallon this week.

Employment, formerly the main pillar of support for consumers, is now a liability. Payrolls fell by 80,000 in March, the most in five years, and the jobless rate jumped to 5.1 percent. Unemployment is likely to reach 5.5 percent by the end of the year, the survey showed.

“This is really the most challenging environment we’ve faced in recent memory,” said Gary Schlossberg, a senior economist at Wells Capital Management in San Francisco. “The weakness seems to be broad based.”

To contact the reporters for this story: Shobhana Chandra in Washington at schandra1@bloomberg.netKristy Scheuble in Washington at kmckeaney@bloomberg.net

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Unlike the Koreans, the Japanese are preparing to embrace our new robot overlords. In fact the Japanese are preparing to hand over their jobs to a mechanical work force. The Machine Industry Memorial Foundation, a Japanese think tank, says that by 2025 robots could be filling 3.5 million jobs formerly filled by a human.

This isn’t necessarily bad thing for friends across the Pacific. It seems that much of Japan’s population is getting older. In fact researchers expect to see a drop in the Japanese work force of about 16 percent by 2030, and filling positions as citizens retire is just part of the problem. The number of elderly people in the country is ballooning, and caring for these citizens may be one of the major industries that robots play an important role in.

The Machine Industry Memorial Foundation doesn’t see robots completely replacing humans, but allowing people the time to focus on more important things. Robots could clean house, monitor the health of the elderly, bathe them, read to your kids, and of course, deliver you a beer.

Researchers expect 40 percent of Japan’s population to be over 65 by the year 2055, making the robot workforce a pressing concern.

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Larry Ellison, the billionaire head of Oracle Corp., spent at least $200 million to build a house on his 23-acre Silicon Valley estate south of San Francisco.

When San Mateo County tax officials valued the residence, a reproduction of a 16th-century Japanese emperor’s country house, at $166 million, Ellison protested. He argued, through his attorney, that the property was so elaborate no one else would pay that much for it.

After more than two years, Ellison won his case before a county appeals panel, receiving a $3 million tax refund. Now local schools and parents are the ones protesting.

“He’s essentially taking money away from the education of the kids of this county,” said Maren Christensen, 46, parent of a second-grade student at Ormondale school in Portola Valley, California, near the town of Woodside, where Ellison’s estate is located.

The Portola Valley School District estimates it will lose as much as $300,000 from its $10 million budget because of the decision.

“For us, it’s the worst case scenario,” said Tim Hanretty, assistant superintendent. “We’ll survive. This community and school district will rally.”

The school district, with more than 700 students, probably will have to cut six non-teaching jobs from its 120-person staff because of the ruling, Hanretty said.

$25 Billion

Ellison, Oracle’s 63-year-old chief executive officer, is the world’s 14th-richest person, with a net worth of $25 billion, according to Forbes Magazine.

William Bennett, Ellison’s lawyer in the appeal, and Deborah Hellinger, a spokeswoman for Redwood City, California- based Oracle, didn’t return messages seeking comment.

California schools already face budget cuts. Governor Arnold Schwarzenegger earlier this year proposed to trim spending by as much as 10 percent from all state agencies to fill a deficit that reached as high as $16 billion in February, caused by the loss of tax revenue amid the worst housing slump in the U.S. in 26 years.

The state’s top education official said an estimated 20,000 teachers and school support staff may lose their jobs as a result.

In its ruling, the San Mateo county assessment appeals board reduced the taxable value of the property belonging to Ellison by $100 million. After that decision, at the existing rate of 1 percent property tax, Ellison would owe $646,770 for tax year 2005, the year he appealed the value of his home through his Octopus Holdings LP.

Fielding Complaints

“Legally, Larry Ellison had every right to do what he did, but it would have been nice if he considered the impact to the Portola Valley School system,” said Angela Schillace, 40, who has two school-aged children in the area.

The school district is trying to make up for the loss of money by asking a local foundation to donate unallocated funds, leaving some jobs unfilled, and exploring cost-saving measures with other area schools. In addition to state-wide cutbacks, the school will face an increase in the enrollment of kindergarten students next year, requiring more teachers to handle the class load, Hanretty said.

While San Mateo County’s Board of Supervisors is fielding complaints from residents, there’s nothing it can do, said Bill Chiang, a spokesman for its president, Adrienne J. Tissier. “This whole thing has little to do with the board,” he said. “It’s not something we allow or don’t allow.”

Residents have called expressing emotions ranging from “upset to outrage,” said Richard Gordon, a member of the board of supervisors.

“Perhaps Mr. Ellison would like to be directed to one of the school foundations” to make a donation, Gordon said.

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Thanks to Spain’s slumping property market, house buyers are as popular as movie stars — and they can cause even more excitement.

Reporters outnumbered bidders as lot No. 1 hit the slate in Europe’s first “Dutch auction” for real estate last weekend in Madrid. Of 216 lots, 194 were withdrawn when they weren’t purchased at the reserve price. One man, investor Manuel Sainz, bought almost half of everything sold.

“Next stop Hollywood!” laughed Sainz, head of property company Las Terrazas de San Blas SA, as he fought off the press after buying 10 properties at discounts of as much as 30 percent.

The event shows the depth of Spain’s housing bust after prices tripled in the past decade. In January, the government’s housing policy director, Rafael Pacheco, called the slowdown “moderate and orderly” after January sales volume fell 27 percent from a year earlier as the global credit shortage forced banks to reduce lending.

“Official figures are one thing and reality is something else entirely,” said Alberto Espelosin, a strategist at Zaragoza, Spain-based Ibercaja Gestion, which manages $12 billion. “It’s really difficult for people to afford a home with the credit restrictions.”

For Tulipp Showrooms and Auctions SA, set up in September, the Madrid auction was the first in a series of monthly events taking place in Malaga, Barcelona and London over the summer.

Dutch Auction

The Dutch auction, developed in 17th century Amsterdam after the collapse of the tulip bubble and used today to sell fish in Spanish ports, starts with the seller’s asking price and then moves down until the property finds a buyer.

“Six months ago if people made an offer below the list price then developers took offense,” said Tulipp managing director Jorge Zanoletty, whose father established Spain’s first regular property auctions 16 years ago. “Now they are in the mood to be more open.”

As higher borrowing costs and rising unemployment deters buyers, Tulipp aims to profit from the slump by providing a new way to negotiate a price.

“People are hanging on and hanging on and when they can’t hang on any longer they have to sell at whatever price,” Espelosin said.

Still, developers in the Tulipp auction capped their discounts at 30 percent off the original sale prices for properties ranging from beachside apartments to family homes in the Madrid suburbs.

Constitutional Right

“We expected that nothing would be sold because the idea is so new,” Zanoletty said. “Now we hope that with the media exposure this is a formula that individuals will get comfortable with.”

Spaniards’ real estate obsession — the right to “a decent and fitting home” is in the constitution — helped drive a 15- year economic boom that saw the economy almost triple to 1.1 trillion euros as the country overtook Italy in income per head.

House prices began their surge in 1998 spurred by falling interest rates as Spain prepared for euro membership. Spain has built about 5 million new homes since then, attracting immigrant labor from Eastern Europe and Latin America to fuel a boom that peaked in 2006.

Now the turmoil in global credit markets is cutting demand.

The world’s biggest financial companies have reported about $232 billion in credit losses and writedowns since the start of 2007 and the credit shortage is filtering through to Spain.

Mortgage Slowdown

In January, mortgage lending in Spain fell 28 percent from a year earlier, according to the government statistics office. House prices rose 4.8 percent in the fourth quarter, the slowest pace since 1998.

“Clients are having problems with financing,” said Eustaquio Moleon, head of Moleon Construcciones, a family construction business in Granada, southern Spain. “Right now you have to try anything.”

With Spain facing the slowest economic expansion in 15 years, even a 30 percent price cut wasn’t enough to persuade most buyers that they were getting a bargain at the Madrid auction.

“We’ve picked out a few properties we like but at the moment we just want to see if there are some good discounts,” said Eva Suarez, who visited the auction with her baby. “If the apartments we like aren’t sold in the auction we’ll talk to the developers and see if we can do a deal.”

Still, for developers such as Madrid-based Sainz, the time to pick up bargains has already arrived. His investments included a 117 square-meter (1,259 square-feet) top-floor apartment on the Costa del Sol with views of the sea. He paid 396,000 euros compared with a sticker price of 565,800 euros.

“I’m a developer and I’ve bought these apartments to sell them,” Sainz said. “Not now, but perhaps in a year or a year and a half, once the crisis has past.”

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April 4 (Bloomberg) — The collapse of the $330 billion auction-rate securities market has brought debt sales by U.S. public student-loan agencies to a halt.

No municipal bonds backed by student loans were sold in the first quarter, the first time that happened in almost 40 years, according to Thomson Financial. The inability to obtain financing differs from states, cities, schools and hospitals, which sold $82 billion of bonds to fund public works and replace failed auction debt that stuck them with penalty rates as high as 20 percent.

Public lenders from Texas to Pennsylvania to Illinois relied on auction-rate bonds to raise money so they could make or buy student loans. Since mid-February, when Wall Street firms that supported the market for more than 20 years stopped buying securities investors didn’t want, almost all of the debt has failed to find buyers, according to data compiled by Bloomberg.

“The not-for-profit agencies have not raised significant money that I’m aware of in the past few months,” Andrew Davis, executive director of the Illinois Student Assistance Commission, said in an interview from Springfield. “The industry had grown so comfortable with the auction-rate securities.”

Without the ability to finance, public authorities in Michigan, Missouri, New Hampshire, Texas, Pennsylvania and Iowa have suspended or limited their origination of loans, according to an April 1 report from UBS AG.

Fewer Options

The squeeze means students and parents have fewer options to fund college educations. University financial-aid offices are scrambling to update lists of active lenders and help students find less costly private loan alternatives, said Phillip Day, head of National Association of Student Financial Aid Administrators in Washington.

Of the top 10 largest issuers of auction-rate debt among municipal issuers tracked by Thomson from 2000 through 2007, half were student lenders. The two biggest borrowers, Brazos Higher Education Authority of Waco, Texas, and the Pennsylvania Higher Education Assistance Agency, decided in the past two months to stop making new loans. The Illinois loan agency, 10th among issuers, will continue the business, officials said.

“We believe we have liquidity lined up that will take us through most of our needs, but not all of them, for the year,” said John Sinsheimer, chief financial officer of Illinois Student Assistance.

No New Loans

CIT Group Inc., based in New York, and NorthStar Education Finance Inc., a nonprofit organization in St. Paul, Minnesota, said this week that they will stop making new loans to U.S. students after their costs soared.

Auction-rate securities backed by student loans made up about $86 billion of the $330 billion market at the beginning of the year, according to Moody’s Investors Service. The market faltered in February, after dealers stopped acting as buyers of last resort when investor demand flagged.

On April 2, 115 tranches of student-loan bonds came up for auction and 114 failed, based on data compiled by Bloomberg from four major auction agents, including Deutsche Bank AG. The same day, there were 353 failed auctions, or 63 percent, involving a total of 563 municipal issues. Almost all auction-rate securities issued by closed-end mutual funds also failed.

Pegged to Formulas

When auctions fail, investors are unable to get their money and the rate resets to a high level or one based on a formula in the original bond documents and often pegged to money-market benchmarks such as the London interbank offered rate.

The latter situation is typical of student-loan debt, giving investors less of an incentive to buy, because benchmarks like Libor have declined, said Matt Fabian, managing director at research firm Municipal Market Advisors, based in Concord, Massachusetts. The one-month London interbank offered rate fell to 2.74 percent this week from 4.57 on Jan. 2.

“They fail to rates that are pretty low,” Fabian said.

Illinois Student Assistance is paying a taxable rate of 4.20 percent on $70 million of its $885 million in auction debt, compared with a 5.35 percent average during the past year, Bloomberg figures show.

Lender profitability suffered after the U.S. government last year slashed subsidies on guaranteed student loans made through the Federal Family Education Loan Program that back most student-loan auction bonds, according to UBS.

Liquidity `Extremely Expensive’

“The origination of new paper is the problem,” Fabian said. “Liquidity has become extremely expensive, it’s doubled or tripled, and the auction market is broken.”

Missouri’s student loan agency said in February that it would stop making private loans, or those not guaranteed by the federal government, and consolidation loans, which combine different student debts.

“We are non-profit; we operate on a razor-thin margin,” said Will Shaffner, director of business development for the Missouri Higher Education Loan Authority in Chesterfield. “It just doesn’t make sense to issue any debt at these prices and under these conditions.”

To contact the reporter on this story: Jeremy R. Cooke in New York at

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By Bob Ivry
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April 4 (Bloomberg) — Banks are so overwhelmed by the U.S. housing crisis they’ve started to look the other way when homeowners stop paying their mortgages.

The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on.

Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody’s Economy.com, a unit of New York-based Moody’s Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.

“We don’t have a sense of the magnitude of what’s really going on because the whole process is being delayed,” Zandi said in an interview. “Looking at the data, we see the problems, but they are probably measurably greater than we think.”

Lenders took an average of 61 days to foreclose on a property last year, up from 37 days in the year earlier, according to RealtyTrac Inc., a foreclosure database in Irvine, California. Sales of foreclosed homes rose 4.4 percent last year at the same time the supply of such homes more than doubled, according to LoanPerformance First American CoreLogic Inc., a real estate data company based in San Francisco.

Reluctant Banks

“Some people stay in their houses until someone comes to kick them out,” said Angel Gutierrez, owner of Dallas-based Metro Lending, which buys distressed mortgage debt. “Sometimes no one comes to kick them out.”

Banks are reluctant to foreclose on homeowners for a variety of reasons that include the cost, said Peter Zalewski, real estate broker and owner of Condo Vultures Realty LLC, a property consulting firm in Bal Harbour, Florida.

Legal fees and maintaining a vacant property while paying the mortgage, insurance and taxes can add up to as much as 15 percent of the value of the home, and it may take months for the foreclosure to work through the legal system, he said.

“The end result is taking back a property that the bank will have to manage, rent out and or sell,” Zalewski said.

In many cases, lenders also have to foot the bill for fixing up vacant homes that have been vandalized.

Empty Houses

Real estate broker Georgia Kapsalis is offering a home for sale in Birmingham, Michigan, a Detroit suburb, where the owner last wrote a mortgage check in July. He still lives in the house, she said.

“Some of the banks just don’t want the houses to be empty, especially if it’s in an area where there’s a lot of theft or there are five other houses empty on the street,” said Kapsalis, who works at Added Value Realty LLC in Livonia, Michigan, another Detroit suburb. “They’ll lose toilets, plumbing, appliances, everything. Banks are getting wise and allowing people to live there longer.”

Alexis McGee, president of Internet database Foreclosures.com in Sacramento, California, said she toured a property where the departing resident tried to make off with the outdoor air conditioning unit by sawing the metal legs off its concrete apron.

“People take what they want to take,” McGee said. “They feel that they’re owed.”

Flooded Market

With home sales dropping and national inventories rising, the lenders have another reason to delay foreclosures, said Howard Fishman, a real estate investor based in Minneapolis.

“What are the banks going to do?” Fishman said. “They don’t want the house. They have a mortgage for $1 million and the house is worth $750,000.”

In February, 5 million existing homes were sold on a seasonally adjusted, annualized rate, down 31 percent from the peak of 7.25 million in September 2005, data compiled by the Chicago-based National Association of Realtors show. More than 4 million existing homes were on the market in February, 53 percent more than the 2.6 million average of the past nine years, the Realtors reported.

“Excess inventories pose the biggest risk to the market,” Michelle Meyer and Ethan Harris, New York-based economists at Lehman Brothers Holdings Inc., wrote in a report last month. “As long as inventories are high, home prices will fall.”

New Foreclosures

Growing inventory pulled median home prices down to $195,900 in February, a 15 percent drop from the peak of $230,200 in July 2006, the Realtors said.

New foreclosures rose to 0.83 percent of all home loans in the fourth quarter from 0.54 percent a year earlier, according to the Mortgage Bankers Association.

The civil court in St. Lucie County, Florida, is getting about 44 foreclosure cases to file every day. That’s the same number it averaged in a typical month in 2005, said Clerk of the Circuit Court Ed Fry.

“It’s pretty overwhelming,” he said.

Fry said he has 12 full-time employees and two temporary workers he just hired handling nothing but foreclosures. Still, the 50-page filings sit in cardboard boxes for three weeks before the court staff can process them, Fry said. Then it takes another two months to get a date on the court docket, he said.

Mortgage servicers, who collect monthly payments and are responsible for starting the foreclosure process, also were caught short-staffed, said Grant Stern, a mortgage broker and owner of Morningside Mortgage Corp. in Miami Beach, Florida.

`Moral Hazard’

“The most experienced people you can bring in are origination people,” Stern said. “But for a bank it’s a moral hazard to have the same people who originated the loans now modifying those loans. That wouldn’t be desirable. Once around is enough.”

The five largest servicers — Countrywide Financial Corp., Wells Fargo & Co., CitiMortgage Inc., Chase Home Finance Inc. and Washington Mutual Inc. — together manage more than half the home loans in the U.S., according to New York-based National Mortgage News, an industry publication.

While more than 100 mortgage originators have suspended operations, closed or sold themselves since the beginning of 2007, mortgage servicing units are expanding.

Chase Home Finance, a unit of New York-based JPMorgan Chase & Co. and the fourth-largest U.S. servicer, expects to spend $200 million more servicing loans in 2008 than it did last year, said spokesman Thomas Kelly.

Delayed Foreclosure

Kelly wouldn’t say how many Chase borrowers have quit paying their mortgages and remain in their homes.

Efforts to keep borrowers paying their bills have slowed the foreclosure process, Mark Rodgers, a spokesman at CitiMortgage, a division of New York-based Citigroup Inc., said in an e-mail message.

“In a number of cases, we have delayed foreclosure proceedings to allow our loss mitigation teams additional time to explore potential solutions to keep distressed borrowers in their homes,” Rodgers said.

Joe Ohayon, vice president of community relations for Wells Fargo Home Mortgage in Frederick, Maryland, a unit of San Francisco-based Wells Fargo, said trying to modify loan terms case by case adds time to the foreclosure process.

“Foreclosure is only a last resort after all available options for keeping the customer in the home have been exhausted,” Ohayon said in an e-mail message.

Affordable Payments

Olivia Riley, a spokeswoman at Seattle-based Washington Mutual, said in an e-mail that the company’s goal is to keep customers in their homes “with payments they can afford.”

Representatives for Calabasas, California-based Countrywide, the biggest U.S. mortgage servicer last year, didn’t respond to requests for comment.

Few mortgage companies will admit they allow homeowners to stay in their homes without paying their bills.

“No servicer will say you can live rent-free for six months, go ahead,” said Paul Miller, a mortgage industry analyst at Friedman Billings Ramsey & Co. in Arlington, Virginia. “Eventually, the servicers will clear these guys out.”

Homeowners usually get 90 days to resume paying before foreclosure proceedings begin with the filing of a complaint or notice of non-payment.

State laws determine the length of time between the filing and an auction of the house. In most states, it’s two to six months, according to Foreclosures.com. In Maine, it can be up to a year and in New York, 19 months; in Georgia, it’s as quickly as one month, and in Nevada, it can be 35 days, according to the database.

Borrowers in California who fight foreclosure can stretch the process to 18 months, said Cameron Pannabecker, chapter president of the California Association of Mortgage Brokers and president of Cal-Pro Mortgage Inc. in Stockton.

That doesn’t take into account the woman he knows who hasn’t made a mortgage payment in eight months and hasn’t heard from her lender, Pannabecker said.

“Now she’s afraid to mail in a payment for fear it’ll come to somebody’s attention,” he said.

To contact the reporter on this story: Bob Ivry in New York at

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