House Price Bubble Redux

After a resurgent summer buying spree, the rally in house prices is about to run out of steam, the nation's business press glumly report this morning. Yes, there was some good news on Tuesday as the closely watched Standard & Poor’s/Case-Shiller home-price index registered a seasonally adjusted 1 percent increase in August. "That was the first time since early 2006 that the widely watched measure of 20 metropolitan areas put together three consecutive increases," the New York Times writes; the Wall Street Journal counts four consecutive months of house-price rises, but it, too, agrees on where the market is heading. The consensus is that the party appears to already be over. "Plenty of pain yet to come," is how Joshua Shapiro, chief U.S. economist for MFR, described his forecast to the NYT. He is predicting an imminent resumption of price declines. Robert Schiller himself, who is loath to make forward-looking statements about the housing market, told Reuters that home prices in certain regions, such as Minneapolis and San Francisco, appear to be in "bubble territory." He adds: "It is a time of great uncertainty."

GMAC Financial Services has gone back to Uncle Sam for a third helping of federal aid, the WSJ reports this morning. Citing sources, the newspaper writes, "The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008." If the aid goes through, the government would very likely gain a larger ownership stake in the financier—perhaps a full majority stake, the NYT reports; it now stands at 34.5 percent. The willingness of the Treasury to sink yet more taxpayer money into the firm reflects just how important it is seen in the overall recovery of the auto industry. Speaking of survival in the automotive industry, Ford lost a crucial union vote on Tuesday to cut labor costs. According to the NYT, "members of at least five local chapters of the United Automobile Workers union have turned down the proposed changes, which include a six-year wage freeze for newly hired workers, some job-classification changes and a provision that bars the union from striking over demands for better pay and benefits through 2015."

The criminal treasure chest that is the Galleon investigation has ensnared the ex-chief of chip-maker AMD, the WSJ reports. Hector Ruiz (who is not a defendant, it should be stressed) is alleged to have shared confidential information about AMD with a defendant in the expanding insider-trading case. According to the WSJ, Ruiz shared confidential information with Daniele Chiesi (a defendant in the Galleon case), who then worked at the hedge fund New Castle partners, about a 2008 reorganization of AMD. "Galleon and New Castle bought AMD shares in hopes of profiting when the deal was announced, according to the criminal complaint and a civil action by the Securities and Exchange Commission," notes the WSJ, though they didn't profit because the stock market slumped.

Operation Stick It to the Bankers continues apace with the Obama administration proposing new legislation that would give government "broad new powers to shift the cost of rescues of big, troubled financial institutions from taxpayers to other large companies," (read: financial companies) the NYT writes. The legislation, drafted in collaboration with Barney Frank, head of the House financial services committee, would "create a special fund, paid by assessments on financial companies with more than $10 billion in assets, to bear the costs of big firms that fail."

And finally, Bank of America (BAC) originally had hoped it would have a leading candidate or two by now to replace retiring CEO Ken Lewis. According to the WSJ's sources, the selection committee has hit some snags, though, "as directors sift through outside candidates that are in short supply." The main hurdle is that influential shareholders cannot reach a consensus on which type of candidate would be best for the job: an outsider with a strong pedigree or a taint-free insider.