Banks in Europe Fail Market Tests for Stress With No Authority

Texas Borrows to Pay Unemployment Benefits as Spread Narrows – Texas, the second most-populous U.S. state, avoided paying higher interest rates on federal obligations with the sale of $854.7 million in debt to cover unemployment benefits.  The so-called spread on a similar borrowing Nov. 18 narrowed even as rates in the broader municipal market rose to their highest since Nov. 19 along with U.S. Treasury yields yesterday. President Barack Obama’s accord with Republican leaders to extend tax cuts led investors to dump bonds, said John Bonnell, who helps oversee $6.9 billion including munis at USAA Investment Management Co. in San Antonio.  Texas, which is borrowing through the Texas Public Finance Authority, didn’t expect the selloff in yesterday’s market to affect plans to offer no more than 3 percent, said Dwight Burns, the agency’s executive director.

 Video Reveals Gimmicks Used by CalPERS to Hide Its Decline in Assets – CalPERS financial sleight of hand is reminiscent of Bernie Madoff’s lying to his investors through phony statements designed to mask losses and outright fraud. Much has been written about The California Public Employees’ Retirement System (CalPERS) being underfunded by $500 billion due to massive investment losses over the last decade, but now we have video of a CalPERS Senior Pension Actuary, Kung-pei Hwang, describing how they intend to change basic assumptions in their financial model to (please allow me to mix my metaphors) Hide The Decline in their assets held for municipal, county, and state employee’s retirement. Through this statistical gimmickry, CalPERS can push the loss into later years and appear solvent today.  Of course, at some point in the future it will need to raise funds from state and local governments to compensate for these losses.  But for now, they seem content to hide the disastrous condition of their fund.

Bank of America Deal in Muni Case May Be `Tip of the Iceberg’ – Bank of America Corp.’s agreement to pay $137 million in restitution for taking part in a nationwide bid-rigging conspiracy for municipal-investment contracts may soon be followed by more settlements to repay the scheme’s victims, the Justice Department’s Antitrust Division head said.  “Stay tuned to this channel — I think you will see a lot more activity in the coming weeks and months,” Christine Varney, the antitrust chief, told reporters yesterday. “We are committed to getting restitution, full restitution, to all the municipalities that were victims of this scheme.”  Bank of America, which has assisted the government probe of the $2.8 trillion municipal-bond market since at least 2007 in return for leniency, has provided documents, e-mails and recordings of phone calls, according to court records of civil suits. In September, Douglas Lee Campbell, formerly employed by the bank’s municipal derivatives group, pleaded guilty to taking part in a conspiracy to pay state and local governments below- market rates on investments purchased with bond proceeds.

The Hard (Money) Men – krugman – There’s a widespread impression that Keynesian fiscal policy has failed. I would argue that this impression is wrong — that the truth is that it was never tried. But surely one clear lesson of recent events is the macroeconomic value of currency flexibility: Poland, Iceland, Sweden have all benefited from currency depreciation during the worst times.  But Republicans want the Fed both to abandon concerns about employment and to focus on keeping the dollar strong: Reps. Paul Ryan of Wisconsin and Indiana’s Mike Pence both repeated calls for an end to the central bank’s dual mandate to promote both jobs and maintain price stability. “It’s time that the Fed focus solely on price stability and the dollar,” Pence said. He said the Fed’s plan to buy $600 billion in Treasury securities to goose the economy — generally known as “QE2″ — is an example of the central bank overstepping its bounds. Oh, and this: “The time has come to have a debate on the role of gold,” Pence said. In other news, Republicans have demanded that doctors consider reintroducing the practice of treating illness by bleeding their patients.
The Job Openings Paradox – Actual new hires and employment growth have only edged up mildly. In other words, good labor demand has not translated into actual hires… What is going on here? There are three possibilities: Mismatch, offshoring, and lags. Mismatch says that companies would like to hire, but can’t find the right people. Offshoring says that companies have openings, but they are filling them overseas. Lag would say that companies have openings, but it’s taking them time to pull the trigger, given the overall uncertainty. I’m going to vote for a combination of offshoring and lag. I’m sure that some job openings are going overseas. But the statistics also suggest that hiring pressure is building up in some sectors of the economy. If that’s so, 2011 may be a better year for the labor market than people expect.
The ECB’s bad poker – THE New York Times has a piece today tracking the latest dynamic in European bond markets, in which the European Central Bank buys the debt of troubled countries in an effort to convince traders there’s no money to be made betting against those countries. And yet the traders keep on betting against those countries! But the amount of intervention so far is far smaller than many investors and economists think is necessary to calm markets. And the markets continue to probe that discomfort. Pimco, for example, sold the vast majority of its holdings of Greek, Irish, Portuguese and Spanish government bonds late last year and early this year, When markets attack a currency peg, as they did Britain’s in 1992, there is a real question as to whether the country has the resources to defend its peg. When the Treasury ran out of reserves to buy the sterling George Soros was furiously selling, the jig was up. But the ECB can’t run out of money. All it has to do to convince markets that they shouldn’t bet against Portuguese debt is…convince markets that they shouldn’t bet against Portuguese debt.
What Costs $919 Billion But Isn’t Likely to Create Many Jobs? – Could the answer to this question be the just announced tax deal and the so-called "doc fix"?  Here are the arguments that might be made for why these two separate actions by the lame duck 111th U.S. Congress might have succeeded in spiking the job market in 2011.  First, we’ll consider the tax bill compromise between the Obama administration and the Republican minority in the U.S. Congress. The bill, at first glance, would appear to contain a number of provisions that would tend to promote job creation, but not as much as you might think on first glance, such as:
Food Stamp Rolls Continue to Rise – More people tapped food stamps to pay for groceries in September as the recession and lackluster recovery have prompted more Americans to turn to government safety net programs to make ends meet. Some 42.9 million people collected food stamps last month, up 1.2% from the prior month and 16.2% higher than the same time a year ago, according to the U.S. Department of Agriculture. Nationwide 14% of the population relied on food stamps as of September but in some states the percentage was much higher. In Washington, D.C., Mississippi and Tennessee – the states with the largest share of citizens receiving benefits – more than a fifth of the population in each was collecting food stamps. Click on the top of any column to resort the chart.

 Calpers Aristocracy (Video posted at CNBC)

America Laughs As Jon Stewart Explains How Ben Bernanke Is Robbing It Blind

Plunging Home Prices Fuel Property Tax Appeals Swamping U.S. Cities, Towns – A fiscal flood that threatens to swamp local government budgets across the U.S. overflows from file cabinets in the office of Patty Halm, chair of the Michigan Tax Tribunal.  The backlog of cases from taxpayers seeking to lower property-tax bills of more than $100,000 shot up to 14,236 this year from an annual average of about 6,000 during the past decade. The backlog of smaller claims was at 28,558 at the end of September, eight times higher than a decade ago, according to records at the tribunal, a Lansing-based administrative court.  From Los Angeles to Atlantic City, the New Jersey gambling resort whose credit rating Moody’s Investors Service cut by three levels last month, property owners are demanding lower taxes after real-estate values plunged. The disputes over billions in dollars come as municipalities are already slashing services such as police and fire protection and may depress revenue further as communities try to recover from the longest recession since the 1930s. In Michigan, Governor-elect Rick Snyder has warned that hundreds of towns face financial crises

Robo-Signing Scandal Dampens Housing Recovery Hopes – Recent bank scandals involving robo-signing foreclosure documents and improprieties in the lending process have weakened consumer confidence about housing market recovery prospects. More than half of adults report that robo-signing disclosures account for less faith in mortgage lenders, banks, and government, according to a recent study by Trulia and RealtyTrac. Thirty-five percent believe the robo-signing issue will delay housing market recovery, and only six percent think the robo-signing issue will have no impact on recovery. RealtyTrac and Trulia conduct a semi-annual survey about foreclosures and consumer sentiments attached to the housing market. “More and more, American homeowners, -sellers and -buyers are tamping down their expectations for a swift recovery in the housing market and bracing themselves for a long, slow climb back to a healthy real estate market.  Fifty-eight percent believe recovery will happen after 2012 and more than one in five U.S. adults believe recovery won’t happen until 2015 or later,”

Banks in Europe Fail Market Tests for Stress With No Authority— In the five months after the U.S. published results of its 2009 bank stress tests, the Standard & Poor’s 500 Financials Index rose 25 percent. Five months after the European Union released its version, the Bloomberg Europe Banks and Financial Services Index is down 4 percent.The failure of the EU tests to restore confidence in the region’s banks was underscored last month when Ireland directed its two biggest lenders, both of which passed the exams, to raise additional capital. Since July 23, when the results were disclosed, the average cost of insuring the senior debt of 110 European banks against default has surged 114 basis points, or 1.14 percentage points, more than 30 times as much as for the 34 largest U.S. banks whose credit-default swaps are tracked, according to data compiled by Bloomberg. Now, amid a widening European debt crisis, regulators from 27 nations are searching for ways to improve the tests, which will be repeated next year. That won’t be easy as long as national leaders and central banks remain unwilling to cede bank oversight to a central authority

Euro Area in ‘Final Countdown’ to Debt Restructuring, M&G Says – The euro area is in a “final countdown” before lenders and some nations need to revise terms of outstanding debt, M&G Investments said. “I can’t see any solution other than debt restructuring for banks and very likely a number of sovereigns in the long term, and that’s not going to be pain-free to put it mildly,” money manager Michael Riddell said yesterday in his blog on the company’s website. M&G had more than 190 billion pounds ($298 billion) under management as of Sept. 30, the company said on its website. The prospects for creating a fiscal union and a single European debt agency are “exceptionally unlikely,” he wrote. “Similarly, increasing the size of the stability fund is unlikely to prove popular with core countries.”







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