Junk Spreads Tumble to Lowest Since ’07 as Fed Prints Cash

New York State Faces $14 Billion Deficit, Lieutenant Governor Ravitch Says – New York state would face a $14 billion deficit for the year starting April 1 if it measured with a more accurate system, Lieutenant Governor Richard Ravitch said. The state’s use of cash accounting, in which spending and revenue are recorded only as they occur, is “misleading,” Ravitch, 77, said today in an interview on Bloomberg Television.  New York should use a version of generally accepted accounting principles, in which expenditures and receipts are recorded as they are incurred or earned even though they may not have actually happened, he said. He made a similar proposal in March.
 

New York City Budget Deficits May Be Larger Than Mayor Predicted, Liu Says – New York City Comptroller John Liu said looming budget deficits in the most populous U.S. city will be bigger than Mayor Michael Bloomberg anticipates.  Although the city experienced less economic turbulence than most of the U.S. during the recession that began in December 2007, it faces budget gaps of $3.6 billion, $6 billion and $6.6 billion in the next three fiscal years, a report by the comptroller’s office said today.  Bloomberg’s Nov. 4 financial plan anticipated deficits of $2.4 billion, $4.8 billion and $5.6 billion in 2012, 2013 and 2014. The city’s fiscal year starts July 1.

Ind. may cut Medicaid services to check costs— The General Assembly likely will cut some optional Medicaid services rather than resort to raising taxes to check the overall growth in the government health insurance program at a time Indiana revenues still lag behind current overall spending, a key legislative budget writer said Wednesday. State Senate Appropriations Chairman Luke Kenley, R-Noblesville, said he and other members of the State Budget Committee were "speechless" after the state Medicaid actuary projected Indiana’s share of the program’s costs will rise by about 25 percent this fiscal year and next, or by $1.46 billion and $1.84 billion respectively, and by nearly 9 percent, or $2.00 billion, in the 2013 fiscal year unless some services are cut. Actuary Robert Damler of the private firm Milliman said the Legislature can cut some optional services such as chiropractors, podiatrists and adult dental services to reduce its overall Medicaid bill. .

New data from RealtyTrac shows that foreclosure activity last month fell to a level not seen since November 2008, after problems with paperwork prompted case reviews, foreclosure suspensions, and re-filings of affidavits by mortgage servicers.

Foreclosure filings nationwide in November dropped 21 percent from the previous month and 14 percent from a year earlier. For the first time since February 2009, RealtyTrac says the total number of filings for the month dipped below the 300,000 mark. The company tracked foreclosure filings – including default notices, scheduled auctions, and bank repossessions – on 262,339 U.S. properties during November.

9 TRILLION Dollars Missing from Federal Reserve,Fed Inspector General Can’t Explain Rep. Alan Grayson asks the Federal Reserve Inspector General about the trillions of dollars lent or spent by the Federal Reserve and where it went, and the trillions of off balance sheet obligations. Inspector General Elizabeth Coleman responds that the IG does not know and is not tracking where this money is.

Estate Tax Collections By State – A key component of the tax compromise bill being voted on today is the return of the estate tax. It’s a tax levied on the transfer of wealth from deceased persons to their heirs, and has a progressive structure: Most Americans are largely exempt because the tax only applies to wealth above a certain amount. This exemption has risen over time; during the most recent year in which the estate tax existed, 2009, it was $3.5 million, with a tax rate of 45% on wealth over the exemption. The compromise bill reduces the tax and raises the exemption considerably – 35% over an exemption of $5,000,000. This comparatively low tax (compared to the recent history of the estate tax) has become a sticking point with some more liberal House members and is something they may try to change before the final vote. So who pays the estate tax? What parts of the country are most affected by it? Here is a table that ranks the 50 states based on federal estate tax collections per capita for the year 2009:

 

Decade of the Living Dead – Barry Ritholtz expresses amazement at the way the Fannie-Freddie-CRA lie — the claim that gubmint bureaucrats forced all those poor bankers into making bad loans — not only persists, but seems to be growing in influence. But this story is hardly unique. Ever since I began writing for the Times — and probably before, but I wasn’t paying so much attention then — I’ve been struck over and over again by the unkillability of zombie lies. I mean, supply-side economics should have been killed by the Clinton years: he raised taxes on the rich, everyone on the right predicted catastrophe, and what followed was 8 years of rapid growth and surging revenues, with the budget actually moving into surplus for the first time in three decades. But no: the right interpreted all the good stuff as a lagged effect of the 1981 tax cut.
 
CoreLogic: House Prices declined 1.9% in October – From CoreLogic: Home Price Index Shows Decline for Third Straight Month, October Home Prices Declined 3.93 Percent Year Over Year  CoreLogic … today released today released its October Home Price Index (HPI) which shows that home prices in the U.S. declined for the third month in a row. According to the CoreLogic HPI, national home prices, including distressed sales, declined by 3.93 percent in October 2010 compared to October 2009 and declined by 2.43 percent* in September 2010 compared to September 2009. Excluding distressed sales, year-over-year prices declined by 1.5 percent in October 2010 compared to October 2009. …This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.
The index is down 3.93% over the last year, and off 30.2% from the peak. The index is 2.2% above the low set in March 2009, and I expect to see a new post-bubble low for this index – possibly as early as next month or maybe in early 2011.
Jeff Masters: Hot Arctic-Cold Continents — Hemispheric Impacts of Arctic Change by Jim Overland – One talk I attended yesterday was called, "Hot Arctic–Cold Continents: Hemispheric Impacts of Arctic Change.” The talk was given by Dr. Jim Overland of NOAA’s Pacific Marine Environmental Laboratory, one of the world’s experts on Arctic weather and climate. Dr. Overland discussed the remarkable winter of 2009–2010, which brought record snowstorms to Europe and the U.S. East Coast, along with the coldest temperatures in 25 years, but also brought the warmest winter on record to Canada and much of the Arctic. He demonstrated that the Arctic is normally dominated by low pressure in winter, and a “Polar Vortex” of counter-clockwise circulating winds develops surrounding the North Pole. However, during the winter of 2009–2010, high pressure replaced low pressure over the Arctic, and the Polar Vortex weakened and even reversed at times, with a clockwise flow of air replacing the usual counter-clockwise flow of air around the pole. This unusual flow pattern allowed cold air to spill southwards and be replaced by warm air moving poleward. This pattern is kind of like leaving the refrigerator door ajar – the refrigerator warms up, but all of the cold air spills out into the house.

Geithner: Pay Incentives Need More Changes – Treasury Secretary Timothy Geithner told the Congressional Oversight Panel that there hasn’t been “enough change” in the way financial-sector employees are paid, particularly after widespread criticism following the financial crisis. Mr. Geithner said there had been some “shift” away from risky behavior, but that companies have more work to do.“I would not claim that we have seen enough change in the structure of compensation,” Mr. Geithner said. A major criticism during the financial crisis was that lenders and traders were given financial incentives to take big risks that led some companies to fail or necessitated government bailouts. Many financial companies have resisted government interference in their pay packages, but some have altered their plans in recent months.

Foreclosures Fall to Lowest Level Since 2008 on Robo-Signing Delays – That equates to one in every 492 U.S. homes hit with a foreclosure notice or taken back by the lender during the month, compared to one in every 389 homes during October.  James Saccacio, RealtyTrac’s CEO, said “While part of the decrease can be attributed to a seasonal drop of 7 to 10 percent that typically occurs in November, fallout from the foreclosure robo-signing controversy forced lenders and servicers to hit the pause button on many foreclosures while they scrambled to revamp their internal procedures and revise or resubmit questionable paperwork.” According to RealtyTrac’s report, a total of 78,955 properties received default notices in November, a 21 percent decrease from the previous month and a 31 per-cent decrease from November 2009. While the robo-signing scandal may have impacted the short-term numbers, this marked the 10th straight annual decline in default notices.

ECB Boosts Capital Base by $6.6 Billion to Protect It From Losses on Bonds – The European Central Bank will almost double its capital base to help protect it from losses as the institution buys bonds of governments from Portugal to Ireland to fight the sovereign-debt crisis.  The Frankfurt-based central bank will boost its capital by 5 billion euros ($6.6 billion) to 10.76 billion euros, it said in a statement today. The change will take effect from Dec. 29.  The capital increase suggests the ECB is concerned that its program to buy bonds of strained governments, which now totals 72 billion euros, may saddle its balance sheet with losses. Policy makers have increased pressure on governments to do more to end Europe’s debt crisis on concern the ECB is shouldering too much of the burden.

Junk Spreads Tumble to Lowest Since ’07 as Fed Prints CashRelative yields on junk bonds narrowed to a three-year low as investors gained confidence in Federal Reserve Chairman Ben S. Bernanke’s efforts to stimulate the economy.  The extra yield investors demand to own high-risk debt rather than government bonds has dropped 82 basis points this month to 540 basis points, or 5.4 percentage points, the lowest since Nov. 16, 2007, according to Bank of America Merrill Lynch’s U.S. High-Yield Master II index.  Goldman Sachs Group Inc. and JPMorgan Chase & Co. are advising clients to buy speculative-grade debt in 2011, even after gains of 14 percent this year and a record 57.5 percent in 2009. Economists are boosting growth forecasts after President Barack Obama agreed to extend tax cuts enacted by his predecessor and as Bernanke seeks to reduce unemployment and avert deflation by buying Treasuries.

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