Explaining Southern California's economy

Retired auto exec LaSorda to run struggling electric carmaker Fisker

Vanity Fair & Fisker Automotive Toast Dreamworks Pictures Golden Globes Best Drama Nominations "The Help" And "War Horse"

Charley Gallay/Getty Images for Vanity Fair

LOS ANGELES, CA - JANUARY 13: Marti Eulberg (L) and Ciara attend Vanity Fair & Fisker Automotive Toast Dreamworks Pictures Golden Globes Best Drama Nominations 'The Help' And 'War Horse' at Cecconi's Restaurant on January 13, 2012 in Los Angeles, California. (Photo by Charley Gallay/Getty Images for Vanity Fair)

I don't really think this is good news. Fisker Automotive, the startup electric carmaker, is really starting to huff and puff just as rival Tesla Motors is preparing to blast off. Founder Henrik Fisker has handed over the leadership reins to Tom LaSorda, a veteran of Detroit and specifically of Chrysler. But LaSorda labored at Chrysler during the automaker's failed marriage to Germany's Daimler. And when Daimler dumped Chrysler in to the arms of private-equity firm Cerberus Capital Management, LaSorda was content to play second banana to what I consider one of the least effective CEOs every to grace the Motor City, Robert Nardelli, who previously had caused all manner of problems for Home Depot.

It should be pointed out that Fisker only current vehicle, the Karma, isn't even a pure EV. It's a plug-in hyrbrid, with a drivetrain similar to the Chevy Volt. Unlike the Volt, which sells for roughly $41,000 (before tax credits of up to $7,500), the Karma goes for $103,000. A cheaper model, dubbed "Nina," is on the drawing board, but as the Wall Street Journal reports, Fisker lost the $529 million Department of Energy loan guarantee it need to move forward on the vehicle.

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California's debt crisis: We'll figure something out

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The California State flag.

California just kicked off a $2 billion municipal bond offering that will run through tomorrow. So far, it's looking pretty solid, according to the Wall Street Journal/Dow Jones Newswires, with $550 million sold so far to retail investors. Institutional investors will get their shot later this week. 

The bond sale highlights the paradox of the Golden State:

California's bond offering comes after Standard & Poor's sweetened its outlook on the state to positive from stable earlier this month. At the time, the ratings agency said it could upgrade the Golden State, depending on its ability to better align its cash performance and budget assumptions.

California is "the most heavily indebted state, but it also has the biggest economy," said Paul Montaquila, vice president of fixed-income trading at San Francisco-based Bank of the West, whose capital markets group has $10 billion of total assets under management. "For as bad as things may seem to be, the state always figures something out."

Montaquila said his firm's clients, which range from ultra high-net-worth individuals to mid-tier corporations, placed an order for California bonds. He added that the state's debt offered better yields than other similarly maturing fixed-income assets, like Treasurys.

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Strategic mortgage defaults: Nothing wrong with that!

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MIAMI, FL - NOVEMBER 10: Renzo Salazar, from Real Signs of Ace Post Holding Inc., places a bank owned sign on top of a for sale sign in front of a foreclosed home on November 10, 2011 in Miami, Florida.

The L.A. Times' Michael Hiltzik is appalled at the moralizing going on around "strategic defaults" — a default on a mortgage undertaken from a position of cold, hard financial calculation, rather than from some sentimental notion that a borrower should always, always pay, no matter what cards life deals him:

What often gets overlooked in the debate over walkaways is why it should matter. A default is a default, isn't it? [Old Dominion University's Michael J.] Seiler, for one, disagrees — he argues that defaults for noneconomic reasons have a uniquely corrosive effect on social behavior.

That's based on the notion that borrowers have a moral obligation to pay their debts. Yet a mortgage contract is a legal document, not moral catechism. It doesn't require you to make your payment regardless of your financial state; only that you recognize that if you don't, you might lose your house.

Mortgage lenders customarily try to price the likelihood of delinquency or default into the loan; that's why borrowers with the best credit scores typically pay the lowest interest rates. Nor is the credit score a gauge of moral purity — it's an empirical reflection of the borrower's debt load and bill-paying record.

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Warren Buffett is counting on 'hormones' to cure the housing market

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Warren Buffett, chairman of Berkshire Hathaway, attends the Allen & Company Sun Valley Conference.

Billionaire investor Warren Buffett released his annual Berkshire Hathaway shareholder letter over the weekend. As Marketplace's Heidi N. Moore reported on Monday, this is a much-anticipated and closely studied document. And as one of her sources pointed out, sometimes it's more interesting to focus on what went wrong in Buffett-land than on what went right — because Buffett provides engaging details on both outcomes.

For this letter, you want to zero in on the housing market, which in early 2011 Buffett figured would begin to recover in a "year or so." Wrong! Or to quote the Great Man himself: "dead wrong." Berkshire Hathaway has several housing-related companies in its portfolio, so Buffett would ultimately like to see the long-expected bounce-back. He's optimistic — because you can't fight human nature! Or more accurately, randy human hormones:

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Why your bank doesn't want you anymore: You're too poor

JP Morgan Chase Quarterly Profits Falls 4 Percent

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OAKLAND, CA - OCTOBER 13: A man walks his dog in front of a Chase bank office on October 13, 2011 in Oakland, California.

Controversial stuff from Bloomberg this morning about how banks are thoroughly unexcited about bread-and-butter customers who have less than $100,000 in deposits:

JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets, said about 70 percent of customers with less than $100,000 in deposits and investments will be unprofitable following regulations that cap lenders’ fees.
“I’m trying to give you a proxy for what the banking industry has to look forward to if you don’t take into account business bank clients and getting more of the affluent wealth wallet,” Todd Maclin, chief executive officer of consumer and business banking at the New York-based company, said today at an investor presentation.

The biggest U.S. banks are grappling with lost revenue from regulations such as those that cap debit interchange fees and overdraft charges, making customers with low deposits more expensive for lenders to manage. JPMorgan, run by CEO Jamie Dimon, sees its greatest opportunity with affluent customers that have more banking relationships with the company, Maclin said.

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