Banks Take the Fed to School

Juiced up after six months of government bailout, Wall Street banks now are "reaping outsized profits" through their deals with the Federal Reserve, and this is raising questions "about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties," the Financial Times reports. The Fed currently is one of Wall Street's biggest customers, after wading into the securities market to shore up the faltering U.S. financial system. Alas (for us), the Fed could be getting gamed by the very banks it set out to protect. "In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price," the FT writes.

Banks aren't exactly slumming it over in the United Kingdom, either. The Guardian reports that it's back to bumper profits, "business as usual" for the likes of HSBC and Barclays with the latter posting pretax profits of nearly $5 billion in the first half of 2009. Neither U.K.-based institution accepted government bailouts last year. Not that all banks are bouncing back. CNN Money reports today that Texas thrift Guaranty Bank is on the verge of collapse. Its demise would be the biggest bank failure in the last year and follows the shuttering of five more regional banks last week at a cost of $911.7 million to the U.S. government. So far this year, the total cost for failed banks has hit $15.13 billion compared with $17.6 billion in 2008.

The Cash for Clunkers program could end as soon as Tuesday unless the Senate approves an additional $2 billion, the Wall Street Journal reports. The clunker effect has helped slash stocks of unsold vehicles at auto dealerships all over the United States and "is fueling hopes that the U.S. auto market is slowly turning a corner—which could give a broader economic boost if car makers and their suppliers start to build more vehicles," writes the WSJ. On Sunday, the National Automobile Dealers Association advised its members not to close any more deals until the program's fate is decided, reports CNN Money. Ford Motor Co. would certainly like to see it continued. Ford (F) is set to report that U.S. sales for July rose from a year ago on a late-month clunkers surge, another CNN Money story reports. Meanwhile, General Motors' (GMGMQ) new chairman, Edward E. Whitacre Jr., is set to convene his first board meeting of the resuscitated company, writes the WSJ. He's got his work cut out for him as he strives to help GM Chief Executive Frederick "Fritz" Henderson "turn around a company that spent 40 days in bankruptcy court while at the same time fend off political meddling from Washington," it writes.

There's yet another worrying development in America's real estate market, the WSJ warns this morning. It is the precarious state of REITs, those investment trusts that have been padding their commercial property portfolio on the cheap, triggering an impressive rally over the past half-year. "REITs, which own everything from office buildings to strip malls, have seen their shares rocket 60% since hitting an 18-year low on March 6," the newspaper writes. But is a fall about to occur? The WSJ points out, "Now REITs face at least two years of crushing debt maturities, sliding property values, dwindling occupancy and weakening earnings. These are major obstacles for their shares to overcome." The newspaper calculates REITs have a combined debt load of $152 billion that must be refinanced by 2013. With office space no longer at a premium, that could be one tall order to fill. Elsewhere in real estate, it's become apparent that the housing recovery has not lifted all sectors. One hard-hit area is high-end homes, the WSJ writes in a separate article. "Sales of low- and moderately priced homes are picking up and values have stopped falling in some parts of the nation. But on the upper end, sales remain mired in a deep slump and price declines are expected to accelerate," the newspaper reports.

Could the salvation of local news be YouTube? The New York Times leads off its business coverage today with a look at "News Near You," a new YouTube feature that aims to deliver relevant, targeted, and newsworthy videos to its users wherever they reside. YouTube parent, Google (GOOG), says it's already working with local TV stations to help them boost their news offerings with News Near You. The idea works like this: "News Near You feature ... senses a user’s location and serves up a list of relevant videos. In time, it could essentially engineer a local newscast on the fly. It is already distributing hometown video from dozens of sources, and it wants to add thousands more," the NYT writes. It's sure to be a tough sell. If News Near You really gathers pace, it could be considered more of a rival than ally, the newspaper points out—no doubt mindful of the impact Google and co. have had on newspapers' once-untouchable classifieds advertising business. While Google stakes out a piece of the broadcast-news business, Yahoo (YHOO), too, is looking at its next big play. The last big move—selling the search business to Microsoft (MSFT)—has not been a big hit with investors; shares are down 15 percent since the Yahoo-Microsoft announcement. Undaunted by the investor unrest, Yahoo CEO Carol Bartz said the deal has now freed up money for investment in display-ad, content, and mobile-services technology, the NYT reports.

Could it be the end for London's Observer, the world's oldest Sunday newspaper? The Times of London writes that speculation is rife about the fate of the Observer (which dates back to 1791) after its owner, Guardian Media Group, posted a $150 million loss in the last financial year and refused to deny that it was considering closing the paper.