Mean Street: In Vino Veritas at the White House

A one-act play performed by President Obama and his top advisers. The setting is the White House kitchen table. It’s 11 p.m. on July 30, 2009. Harvard Professor Henry Louis Gates and Cambridge police Sergeant James Crowley departed hours earlier.

Now President Obama, Treasury Secretary Tim Geithner, National Economic Council Adviser Larry Summers, OMB Director Peter Orszag and Chief of Staff Rahm Emanuel sit around drinking the leftover beer. They are all a little tipsy.

meanstreet

Obama: Well, all’s well that ends well. I couldn’t believe that we managed to get Skip and the cop to hug each other for the cameras. Is the photo up on Huffington Post yet?

Emanuel: Not yet, but I just spoke to Arianna.

Obama: Hey, Tim. How come you’re not drinking your beer? Your bad mood is getting me down.

Geithner: (Taking a sip and sighing) Well, it’s the Chinese. They really roughed me up when they were in town earlier this week. With $800 billion in our Treasurys, they’re now calling all the shots. Just look at the beer they’re making me drink. (He holds up a bottle of Tsingtao and looks at Orszag.) Peter, you better not let me down with that budget.

Orszag: (robotically but cheerfully) Hakuna matata, Tim. Hakuna, matata. Remember the $100 million budget cutting challenge from last April’s Cabinet meeting? We already got that one nailed. You can’t believe the savings you get from double-sided copying. (pauses meditatively). Hmmm…maybe Congress should pass a law requiring double-sided copying. All those trees…..I’ll ask the CBO to score it.

Emanuel: That’s a great idea! Nancy will love it. The Sierra Club will love it. But we’ll have to make sure it only applies to households earning at least $250,000 a year.

Geithner: (angry, in a shaking voice) Peter, Rahm, will you wake up! What about the $3.1 trillion deficit we’re running this year and next? The Chinese are freaking out. Didn’t you see the lousy results of yesterday’s Treasury auctions?
 
Orszag: Oh, that deficit? That will get much worse. Tim, you know it has to. Ten percent unemployment. No tax revenues. Much, much worse….but, hey, it’s not my fault. The forecasts we were given never made any sense.

(Orszag looks at Obama and silently motions his head in the direction of Larry Summers. Summers is slumped over and snoring)

But don’t worry I put off the mid-session budget revision until mid-August. Nobody will notice. Everybody will be on vacation in the Hamptons or Martha’s Vineyard.

Geithner: Not me. I can’t afford it. I still can’t unload my house in Westchester. (Mumbling into his beer) We really have to gin up that mortgage modification program.

Emanuel: No worries, Tim. Barney’s on top of that already.

Obama: You know, Rahm. I still don’t understand why we’re so dependent on Barney and Nancy and the rest of your old friends. This health-care thing is not looking too good. And once Peter’s deficit numbers come out….We’re screwed.

(The rest of the cast freezes. Spotlight on Obama. He stands up and looks at the audience.)

Wait, let me calibrate those words differently…


Wall Street Bonuses: What Are Your Chances of Being a Millionaire?

Being a millionaire ain’t what it used to be. But most Americans–median household income $50,000–would still relish the opportunity.

The Wall Street bonus numbers released today by New York Attorney General Andrew Cuomo show that the nine financial institutions that received Trouble Asset Relief Program rescue money counted at least 4,793 people receiving more than $1 million in bonus payments.

The companies employed 1,279,167 people overall, which means that any one employee’s likelihood of being a millionaire was at least 0.37%, or roughly one millionaire for every 270 bank employees. That still significantly understates the total number of millionaires because base compensation isn’t counted in the numbers. And it isn’t really the purest reflection of “Wall Street”–or what remains of it–because it includes tens of thousands of tellers, clerks and other back-office people who support the retail banking operations.

Still, by comparison, the income of the top 0.1% of taxpayers in 2007 (well before last year’s stock-market crash ) was just above $1 million. (See data from the Tax Foundation here. That means that there is one millionaire for every 1,000 taxpayers.

Of course, you knew banking was lucrative. But now you have a rough sense of just what the odds are: Even in Wall Street’s worst year, you are more than four times as likely to take home a million bucks–in bonus alone–than the general population.


Wall Street Compensation–’No Clear Rhyme or Reason’

Andrew Cuomo, New York’s Attorney General, just released a report breaking down compensation at the nine original TARP recipients.

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Associated Press

The report is part of Cuomo’s investigation into the causes of the financial crisis. Not surprisingly, that investigation led to Cuomo’s office examining the compensation practices in the U.S. banking system. And the investigation comes to a scathing conclusion:

“There is no clear rhyme or reason to the way banks compensate and reward their employees. In many ways, the past three years have provided a virtual laboratory in which to test the hypothesis that compensation in the financial industry was performance-based. But even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks’ financial performance.”

Below is a table of how many employees at each of the nine firms received bonus payments in excess of $3 million, $2 million and $1 million. Click here to see the full report. And click on the following names to see the compensation summaries for the individual banks: Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs Group, J.P. Morgan Chase, Merrill Lynch, Morgan Stanley, State Street, and Wells Fargo.

Bank Greater Than $3 Million Greater Than $2 Million Greater Than $1 Million
Bank of America  28  65  172 
Bank of New York Mellon  12  22  74 
Citigroup  124  176  738 
Goldman Sachs  212  391  953 
J.P. Morgan Chase  200*  1626 
Merrill Lynch  149  696 
Morgan Stanley  101  189  428 
State Street  44 
Wells Fargo  22  62 

*Over 200 employees at J.P. Morgan Chase received bonuses of $3 million or more.

Click on the following names to see the compensation summaries for the individual banks:
Bank of America
Bank of New York Mellon
Citigroup
Goldman Sachs Group
J.P. Morgan Chase
Merrill Lynch
Morgan Stanley
State Street
Wells Fargo


Goldman Sachs: The Cuomo Report’s Bonus Breakdown

Here is the breakdown for Goldman Sachs:

Tarp funds received: $10 Billion

2008 Earnings: $2.3 billion, or $4.47 a share.

2008 total bonuses: $4.82 billion (includes $2.24 billion in cash) (No employees received more than 884,193 in cash)

The top four received a combined $45.9 milion

The next four received a combined $40.81 million.

The next six received a combined $56.40 million.

Number of individuals that received more than $10 million: 6.

Number that received more than $8 million: 21.

Number that received more than $5 million: 78.

Number that received more than $4 million: 95.

Number that received more than $3 million: 212.

Number that received more than $2 million: 391.

Number that received at least $1 million: 953.

Total work force: 30,067.


J.P. Morgan Chase: The Cuomo Report’s Bonus Breakdown

Next up, here is the breakdown for J.P. Morgan Chase:

TARP funds received: $25 billion.

2008 earnings: $5.6 billion, or $1.37 a share.

2008 total bonuses: $8.693 billion ($5.908 billion in cash).

Top four recipients received a combined $74.80 million.

The next four received: $49.18 million.

The next six received: $60.96 million.

Number of individuals that received more than $10 million: 10

Number that received more than $8 million: 29

Number that received more than $5 million: 84

Number that received more than $4 million: 130

Number that received more than $3 million: More than 200

Number that received at least $1 million: 1,626

Total work force: 224,961.


Bank of New York Mellon: The Cuomo Report’s Bonus Breakdown

Next up, Bank of New York Mellon, where the top 5 executives went without bonuses in 2008, but the firm’s overall bonus payouts came close to matching the bank’s earnings, which is something Cuomo takes issue with in his report. Here’s a breakdown:

Tarp funds received: $3 billion

2008 Earnings: $1.4 billion, or $1.20 a share

2008 total bonuses: $945 million

Top five executives received no bonus

The next 12 executives each received an average of $1.3 million.

The other 30,521 employees receiving bonuses in 2008, received a combined $928 million in bonuses, averaging $30,424 a person.

Number that received more than $10 million: 0

Number that received more than $8 million: 0

Number that received more than $5 million: 0

Number that received more than $3 million: 12

Number that received more than $2 million: 22

Number that received at least $1 million: 12

Total work force: 42,900


Citigroup: The Cuomo Report’s Bonus Breakdown

Here is the breakdown for Citigroup:

Tarp funds received: $45 billion ($25 billion on the Capital Purchasing Program on Oct. 28, 2008, $20 billion on Dec. 30, under the Targeted Investment Program.

2008 Loss: $27.7 billion, or $5.59 a share.

2008 total bonuses: $5.33 billion in cash and stock ($4.6 billion of the mixed cash and equity bonuses were discretionary, and $704 million were guaranteed).

11 executives received a combined $77.25 million in cash, deferred cash, performance vesting stock and performance priced options.

The Senior Leadership committee (excluding members who are also executives) received a combined $126.26 million in cash, deferred cash and equity.

Top four recipients received a combined $43.66 million.

The next four received: $37.47 million.

The next six received: $49.81 million.

Number of individuals that received more than $10 million: 3

Number that received more than $8 million: 13

Number that received more than $5 million: 44

Number that received more than $4 million: 69

Number that received more than $3 million: 124

Number that received more than $2 million: 176

Number that received at least $1 million: 738

Total work force: 322,800.


Wells Fargo: The Cuomo Report’s Bonus Breakdown

Here is the breakdown for Wells Fargo, where the senior executive officers didn’t receive any bonuses:

TARP funds received: $25 billion.

2008 loss: $42.933 billion (includes losses from Wachovia, which it acquired in late 2008)

2008 total bonuses: $977.5 million.

Top four recipients received a combined $17.29 million.

The next four received: $12.63 million.

The next six received: $16.14 million.

Number that received a bonus of more than $5 million: 1

Number that received more than $3 million: 7

Number that received more than $2 million: 22

Number that received at least $1 million: 62

Total work force: 281,000.


State Street: The Cuomo Report’s Bonus Breakdown

Here is the breakdown for State Street:

TARP funds received: $2 billion.

2008 earnings: $1.811 billion, or $4.35 a share.

2008 total bonuses: $469.97 million ($376.7 million in cash).

Top four recipients received a combined $17.88 million.

The next four received: $8.52 million.

The next six received: $10.3 million.

Number of individuals that received more than $10 million: 0

Number that received more than $8 million: 0

Number that received more than $5 million: 1

Number that received more than $4 million: 2

Number that received more than $3 million: 3

Number that received more than $2 million: 8

Number that received at least $1 million: 44

Total work force: 28,475.


Morgan Stanley: The Cuomo Report’s Bonus Breakdown

Here is the breakdown for Morgan Stanley:

TARP funds received: $10 billion.

2008 earnings: $1.707 billion, or $1.45 a share.

2008 total bonuses: $4.475 billion.

Top four recipients received a combined $73.04 million.

The next four received: $51.08 million.

The next six received: $59.62 million.

Number of individuals that received more than $10 million: 10

Number that received more than $8 million: 15

Number that received more than $5 million: 40

Number that received more than $4 million: 59

Number that received more than $3 million: 101

Number that received more than $2 million: 189

Number that received at least $1 million: 428

Total work force: 46,964.


Merrill Lynch: The Cuomo Report’s Bonus Breakdown

And, here is the breakdown for Merrill Lynch:

TARP funds received: $10 billion (it was never drawn down by Merill, but give to Bank of America to help it offset the costs of taking over Merrill in January).

2008 Losses: $27.6 billion, or $24.82 a share.

2008 total bonuses: $3.6 billion.

Top four recipients received a combined $121 million.

The next four received: a combined $62 million.

The next six received: a combined $66 million.

Number of individuals that received more than $10 million: 14

Number that received more than $8 million: 20

Number that received more than $5 million: 53

Number that received more than $3 million: 149

Number that received at least $1 million: 696

Total work force: 59,000


Bank of America: The Cuomo Report’s Bonus Breakdown

Talk about your summer reading list.

Andrew Cuomo, New York’s Attorney General, has just released a report on Wall Street compensation practices. You kinda know where he’s going with it by the title: “No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture.”

Included in the report is a list of the 2008 compensation summary of the original nine banks that received funds from the U.S. government’s Troubled Asset Relief Program. Taking the list alphabetically, here is the breakdown for Bank of America:

Tarp funds received: $45 billion ($15 billion on the Capital Purchasing Program on Oct. 28, 2008, $10 billion on Jan. 9, under the Capital Purchase Program for Merrill Lynch; $20 billion on Jan. 16 under the Targeted Investment Program).

2008 Earnings: $4 billion, or 55 cents a share.

2008 total bonuses: $3.33 billion in cash and stock ($2.9 billion of the mixed cash and equity bonuses were discretionary, and $337 million were guaranteed).

Top four recipients received a combined $64.01 million.

The next four received $36.85 million.

The next six received $31.39 million.

Number that received more than $10 million: 4

Number that received more than $8 million: 8

Number that received more than $5 million: 10

Number that received more than $3 million: 28

Number that received more than $2 million: 65

Number that received at least $1 million: 172

Total work force: 243,000.


Secondary Sources: Next Bubble, Sluggish Wages, Peter and Doug

A roundup of economic news from around the Web.

  • The Next Bubble: Tim Duy of Fed Watch looks at the recipe for a new bubble. “Lacking a story that leads to strong wage growth in the near - or even medium - term, the Fed is almost certainly on hold at least through this year and likely well into 2010, allowing the size of the balance sheet to adjust according to the needs of the financial markets while keeping interest rates at rock bottom levels. That doesn’t mean all that easy money will not show up somewhere - technical analysts are looking for US equities to explode on the basis of recent market action. But will the Fed lean against such an explosion without clear and convincing evidence that the labor market is poised for strong, sustainable improvement? I doubt it - and for those looking for it, therein lies the ingredients for making the next big bubble.”
  • Sluggish Wages: On his Economist’s View blog, Mark Thoma notes that even when jobs start coming back, wages increases will likely take longer to show up. “There is a lot of expansion that can come from currently employed workers through expanded hours, reversing temporary shutdowns, eliminating forced furloughs, no longer allowing unpaid vacations, those sorts of things. These bring hours and other work conditions back to normal and hence do not place much if any upward pressure on wages. There is a lot of slack in hours alone that can be taken up before the existing workforce is fully utilized, and adding back hours that have been taken away does not require an increase in wages. (There are some cases where the wage rate was cut instead of hours, and even some cases where both happened, but because the proportion of firms that cut wages is relatively small, even if those wage cuts are reversed it would not have much of an effect on the overall wage rate, and it would be a one-time change in wages in any case, not continuous upward wage pressure)..”
  • Peter and Doug: Diane Lim Rogers of EconomistMom says that OMB Director Peter Orszag and CBO Director Douglas Elmendorf aren’t feuding despite signs of disagreement over CBO’s statements on health-care reform. “I honestly think Peter was just disappointed in/felt “stung” by CBO’s quantitative 10-year estimate (for savings of just $2 billion) and felt like getting defensive about it, and in the process he forgot halfway through his blog post that he was actually happy that Doug said that the IMAC concept had the potential to save significantly on health costs beyond the first ten years (and that Doug had even explained specific ways to structure IMAC to make those savings much more certain). I know people are getting bored because this health reform effort is stalling and it’s almost August recess, but sorry, these guys (Peter and Doug) aren’t the “drama kings” you might be hoping for.”

Compiled by Phil Izzo


The Morning Leverage: A PE Revival! Or Maybe Not So Much

News: Okay, how does this make any sense? The Federal Deposit Insurance Corp., which is mulling rules that private equity executives say will keep them from investing in banks altogether (see Wilbur Ross’ strongly worded proposal here), has hatched a plan to drive more investment to the sector. Under the plan, the agency would split up failed banks into bad pieces and good pieces and would sell the bad pieces to private equity firms, “who may be more willing than traditional banks to take a flier on bad assets,” according to our colleagues at The Wall Street Journal. Traditional banks could bid on the good pieces. It seems to us that the FDIC is saying to private equity: here are our worst banks, which you can only invest in on terms that are less advantageous than those others are getting. Don’t push and shove as you get in line, there…

Investors in Terra Firma’s fund apparently have faith that the firm can turn troubled EMI Group around. They’ve approved a plan for the firm to inject GBP300 million more of equity into the company to help refinance its debt, the Financial Times reports.

Some well-known private equity executives took hits to their personal wealth in the Bernard Madoff scandal. Now it looks like a couple of private equity funds may also take hits. The New York Times reports that the trustee who is trying to recover money for Madoff’s defrauded investors has set his sights on some of Ruth Madoff’s money. Among the assets in his sights are payments Ruth Madoff made to private equity firm Sterling Equities and the Delta Fund.

Last year, Delaware Court of Chancery Judge Stephen Lamb ruled that an Apollo Management LP portfolio company intentionally breached its $6.5 billion merger agreement with Huntsman Corp., striking a blow against the private equity firm. Now, Lamb may find himself working with the private equity industry, as he has agreed to open a Wilmington, Del., office for New York law firm Paul Weiss Rifkind Wharton & Garrison LLP. Read the Wall Street Journal’s take here.

More than 1,900 objections were filed against Delphi Corp.’s pending sale to its lenders and former parent General Motors Co. Judge Robert Drain, the same judge who threw a wrench into Platinum Equity’s plans to buy Delphi, overruled almost all of them, says Bloomberg.

Bloomberg also reports that the Pension Benefit Guaranty Corp. has revoked contracts with BlackRock Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. to manage some $2.5 billion of alternative investments on its behalf. PBGC’s former head is being investigated by Congress over possibly improper relationships with money managers.

Point/counterpoint: The Economist says private equity is set for a revival. Our colleagues at Deal Journal say maybe not so much.

Deals of the Day: Is the Honeymoon Over for Yahoo’s Chief?

Deals of the Day gathers all the biggest news of the morning related to mergers and acquisitions, bankruptcies, financing and private equity. Deal Journal’s homepage is http://blogs.wsj.com/deals. You can see real-time updates of our posts and our favorite deal-related articles on other Web sites through our Twitter feed at http://twitter.com/wsjdealjournal.

Today in MicroHoo

MicroHoo: Microsoft’s deal to join forces with Yahoo in the search and ad businesses may help Steve Ballmer end the worst slump in his career at the helm of Microsoft. [WSJ]
Related: So much for the “boatloads of money” Carol Bartz wanted from Microsoft in return for a search deal. [WSJ]
Related: The search tie-up between Yahoo and Microsoft doesn’t affect Yahoo’s China properties. [PC World]
Related: The partnership adds to the management challenges facing Yahoo CEO Carol Bartz.
Related: The honeymoon is over for Bartz. [Bloomberg]
Related: The pact will likely face considerable scrutiny by federal antitrust regulators and lawmakers. [WSJ]
Related: Microsoft-Yahoo deal won’t put Google on red alert. [Computer World]

Mergers & Acquisitions

Easing Up on the Gas: Ford Motor has slowed the bidding process for its Volvo unit in an effort to get a better price for the Swedish car brand. [WSJ]

Merial: Sanofi-Aventis agreed to buy Merck & Co.’s half of a joint venture that makes drugs for animals for $4 billion. [WSJ]

Citigroup: Sumitomo said it will buy a 98.55% stake in Citigroup’s asset management unit in Japan for 112.4 billion yen. [WSJ]
Related: Vikram Pandit says Citigroup is moving very quickly on asset sales. [Bloomberg]

Royal Bank of Scotland Group: RBS will announce the sale of its Taiwan banking assets to Australia and New Zealand Banking Group as early as next week. [WSJ]

This Bud’s for…: CVC Capital Partners has made the only bid for Anheuser-Busch InBev’s Central and Eastern European assets. [Reuters]

National Australia Bank: The bank will take a majority stake in Goldman Sachs JBWere’s private wealth-management business in Australia and New Zealand. [WSJ]

Taqa Energy: The firm agreed to buy a North Sea oil and gas unit from Amsterdam’s DSM for $403 million. [WSJ]

American International Group: Lightyear Capital and Lovell Minnick Partners are the final bidders for the AIG Advisor Group. [Investment News]

Financial Institutions

Anyone Want to Buy a Bank? Anyone? The FDIC is poised to split failed banks into good and bad pieces in an attempt to lure prospective buyers. [WSJ]

Mortgage Market Meltdown Probe: A Senate panel subpoenaed financial firms, including Goldman Sachs Group, seeking evidence of fraud in the mortgage market meltdown. [WSJ]

Turning Positive on GE: Goldman Sachs upgraded its equity recommendation on General Electric to ‘buy’ from ‘neutral. [Dow Jones Newswires]

Shinsei: The Japanese lender’s finance chief said he doesn’t see the need for an injection of public funds now but may reconsider its capital requirements in the future. [WSJ]

Buyside

RAB Capital: Last year the hedge fund was one of the hardest hit victims financial crisis. This year it is looking to expand through new hires and acquisitions. [FT.com]

Kion: Kohlberg Kravis Roberts and Goldman Sachs Capital Partners will provide Kion with $140 million in new funding as part of a deal with its banks to ease the terms of its debt. [FT.com]

Yoshimoto Kogyo: Japan’s 97-year-old talent agency Yoshimoto Kogyo is planning to go private in a deal valued at $420 million to $525 million. [Variety]

People & Players

David Frankel: Mayor Michael Bloomberg is tapping the Morgan Stanley executive to be his new finance commissioner. [Associated Press]


John Chachas: The Lazard Banker Who Would Be Nevada’s Senator

Shira Ovide reports:

What’s the difference between a Wall Street banker and a U.S. Senator?

A punchline may come in handy if veteran media banker John Chachas runs for the Nevada Senate seat currently held by Majority Leader Harry Reid.

Chachas, co-head of Lazard’s media and digital-content practice, has filed the necessary paperwork to become a Republican Senate candidate. People working on behalf of Chachas are having conversations with GOP officials to determine whether he is a viable candidate. A Lazard spokesman declined to comment.

Chachas, 44 years old, has more than 20 years of Wall Street experience, including stints with Merrill Lynch and Credit Suisse First Boston. He advised on the $18 billion buyout of Clear Channel Communications, Walt Disney’s 2006 sale of its ABC radio business and Lee Enterprises acquisition of Pulitzer newspapers. Lazard and Chachas also have become active restructuring advisers for struggling media companies.

Chachas, a third-generation Nevadan from rural Ely, is among a raft of Republicans who may chase after Reid’s Senate post. One of the leading potential candidates being floated is Rep. Dean Heller.

If Chachas were to win the Republican nomination, he would have an uphill fight to defeat the incumbent, though Reid’s approval numbers have sunk recently as opinion of Congress wanes. Democrats have said they are confident of their chances in 2010, and Reid is assembling a considerable war chest.

Still, Chachas may have a leg up on fund-raising thanks to his deep Rolodex on Wall Street and beyond. His friends are organizing events in Los Angeles, East Hampton and elsewhere to raise money for a potential Senate run.


Daily Show Gets Some Laughs Out of Geithner’s Home Troubles

Last night The Daily Show had some fun with the difficulty Treasury Secretary Timothy Geithner is having in selling his Larchmont, NY home, calling it a “toxic asset” and referring to his blue tile bathroom as “ghastly.” It also makes jokes that Mr. Geithner’s woes are the result of Fed policies “he helped to implement.”

Mr. Geithner, only a few months into his term, has already been through his share of late-night lampoonings, including this Saturday Night Live segment.

The Daily Show piece struck a little closer to home, literally. It starts by describing the thawing real estate market but noting a “tragic tale” about “a family forced to move when the father had to take a job in a different city, and now their well-appointed home remains unsold.” The house, of course, is Mr. Geithner’s.

The Daily Show interviews a real estate agent who says Mr. Geithner priced his house “way too high” but didn’t want to take a price reduction. According to the piece, Mr. Geithner bought his house during the 2004 peak for $1.6 million but, despite the subsequent falloff in prices, listed it for slightly more.

The Daily Show drags out Yale Economist Robert Shiller for a little perspective on the matter.

“Is it not like hiring a personal trainer who is morbidly obese?” Daily Show correspondent John Oliver asks Mr. Shiller, about hiring a Treasury secretary who can’t seem to navigate the real estate market.

“Its not that bad…but yes, it is bad,” Mr. Shiller says, in an interview where it’s not clear if he’s talking about the Treasury secretary or the broader real estate market.

And then it just gets silly, with Mr. Shiller critiquing the blue tile in Mr. Geithner’s bathroom and suggesting a piece of “accent furniture.”


Economists React: More Evidence U.K. Housing Has Bottomed

House prices have a “reasonable chance” of ending 2009 up for the year, the Nationwide Building Society said, as data showed U.K. prices rose for a third straight month. Nationwide said the average price rose increased 1.3% to £158,871 (about $260,000) following a revised 1.0% gain in June. Below, economists react.

Once again the report has attributed the increase in prices to lack of stocks of property for sale, consistent with reports from other housing indicators. Overall, [it is] yet further evidence that the housing market has bottomed, helping to remove some of the downside risks facing consumer spending. – Alan Clarke, BNP Paribas

While it looks increasingly likely that February marked the trough in house prices, we suspect that they will be prone to relapses over the coming months and we certainly do not think that a sharp sustained upward trend in house prices is in the process of developing. The average 7.5% rise in house prices since February means that affordability pressures are increasing anew at a time when the economic climate of recession, sharply rising unemployment and slowing wage growth is largely negative for the housing market. — Howard Archer, IHS Global Insight

It is fair to argue that the improvement in the level of prices recorded here partly reflects a low turnover market with a significant number of potential purchasers being rationed out of the ability to buy. Even so, it is impressive that prices have managed to generate some upward momentum despite that constraint on demand. As we wrote up in a [recent] note …, we have viewed the upswing in prices as in part payback for the sharp declines seen in the late part of next year, while expecting monthly prices to move back into modest declines over the rest of 2009. This first report of the July data challenges that view. — J.P. Morgan

We have changed our view on [Bank of England's quantitative easing] on the back of this morning’s Nationwide house price index…. This is the fourth rise in five months and according to this index, house prices are now 4.4% higher than they were at the trough in February. This does not necessarily mean that house prices are now on the way up in the medium term … . However from the point of view of short-term monetary policy decisions we feel that the run of better housing market data may well have an impact on the [monetary policy committee’s] collective thoughts. Accordingly we are now forecasting that the committee will leave the asset purchase target at £125bn at next Thursday’s meeting. – Philip Shaw, Investec Securities


Evening Reading: MicroHoo and the Problem of Integration

MicroHoo: Integration. Integration. Integration. Perhaps more than anything else integration is key to assuring that a deal becomes successful. That does not bode well for the new Microsoft-Yahoo partnership, according to 24/7 Wall Street. “The partnership between Yahoo! and Microsoft to integrate their search operations is even more complicated than was rumored. It is so complicated, as a matter of fact, that the execution risks will be tremendous for two companies with radically different cultures. The transaction is made more obtuse by the fact that Yahoo! and Microsoft will continue to compete aggressively in businesses including internet content, e-mail, and instant messaging, which muddies the waters and raises the question of each company’s motives to make the deal a success going forward.”

Meanwhile, despite the reams of text from Yahoo about the partnership, a few question still remain unanswered. VentureBeat takes a look.

Short selling the shorts: Few activities have garnered as much attention and attacks as short selling. All the complaints of certain CEOs at financial firms even led to a brief ban. Robert Teitelman over at Dealscape has a piece on the SEC’s new rules that provide more disclosure and limitations on shorting. His conclusion: “The truth here is that the SEC realizes the markets need a certain amount of shorting to keep everyone honest. Shorting is like free trade: The more you know, the more you realize its importance. You can easily overstate this, but the truth is the shorts were one of the few bulwarks against a bubble mentality, but because the bull market went on for so long, their resistance flagged. The last few years of the bubble may have been the worst: There were more and more obvious targets, but markets kept rising anyway.”

Did Michael Moritz force Zappos’s CEO to sell to Amazon? The Internet has been abuzz with this rumor since the deal was announced last week. Michelle Leder takes a look at the S-4 filing and her conclusion? There is probably enough ammunition in the filing to support the view that Moritz did. Bill Gurley at his blog abovethecrowd.com isn’t buying the conspiracy. First Gurley points out that it is very unlikely Michael Moritz had any “mechanism” to “force” a sale of the company. And second and more importantly, “the CEO of Zappos, the remarkably successful and talented Tony Hsieh, had several mechanisms to block a deal if he in fact was not in favor of it.”

GE and its Finance Units: Earlier this month Harley Davidson said that it is reviewing “strategic options” for its loss-making finance arm. And plenty have called for the GE to spin off GE Capital. So the question is should commercial companies be allowed to keep their financial arms? The Obama administration wants tighter regulation of financial firms so that financial industry can reduce the likelihood that any one company’s potential failure would hurt the broader markets and economy. Yet in good news for GE, Congressman Barney Frank, who is central to transforming Obama’s plan into legislation, said GE and others should be allowed to keep their finance arms. Frank told Bloomberg that companies that already have finance arms or industrial loan businesses known as ILCs should be able keep them without being subject to Federal Reserve oversight of their manufacturing operations. Frank also said there was concern that firms such as Fidelity Investments and Berkshire Hathaway could have been fallen under this portion of the regulations.


Make It A Genesee. And Make It Private Equity.

A while back, we told you about one buyout firm portfolio company’s attempt to capitalize on the popularity of a newly-elected President Barack Obama. Now, another buyout-backed company wants to make hay from a well-publicized brouhaha that the president has found himself involved in.

genesee_E_20090729184353.jpgCourtesy Genesee Brewing Co.

The Genesee Brewery, part of North American Breweries, which KPS Capital Partners LP purchased earlier this year, wants to be part of that much-discussed “beer summit” of three - President Obama, Harvard University professor Henry Louis Gates Jr. and Sgt. James Crowley of the Cambridge, Mass. police department - taking place at the White House Thursday.

“We think it’s great that the President is getting together over beers to have an important discussion. A lot of good solutions have surfaced when people can relax and talk over a couple cold ones,” Rich Lozyniak, chief executive of Rochester, N.Y.-based Genesee, said in a statement entitled “Make It a Genny Mr. President. “We just hope the next time the President has a beer, he chooses an American beer, made by American workers, at an American-owned brewery like Genesee.”

Too bad the White House has apparently already selected Bud Light. But if Genesee were to make it into the building, perhaps KPS could slip some propaganda material on the beneficial nature of private equity to the economy in with one of the six-packs. Genesee slipped some of that in with its press release, which says that the KPS purchase saved nearly 400 American jobs in upstate New York, and that the brewery has received nearly $16 million worth of investments since then.