Bank execs on reform: What, me worry?

 Villaraigosa Threatens Layoffs And Furloughs (Los Angeles)  – With Los Angeles City Council members unable to reach agreement on where to make new budget cuts, Mayor Antonio Villaraigosa on Monday threatened to order a new round of furloughs and employee layoffs.  The council’s Budget and Finance Committee was unable to agree on a series of proposals to make up for a potential loss of $53 million in revenue because of the city’s inability to put together a lease-sale deal for its parking garages. The city is trying to cope with a $62million shortfall in this year’s budget and prepare for another $348 million deficit next year. It will bring to more than $1 billion the amount cut from the budget in the past four years…. As the council reviewed the various options to reduce budgets of individual departments, Councilman Bill Rosendahl asked for a report on how many city workers are paid more than $200,000 a year. He also asked if those making more than that amount would agree to a voluntary pay cut. City Council members are paid $178,000 a year.

Major, Bizarre Fish Die-Off Along Lakefront –  A bizarre scene is evolving on the Chicago lakefront, with Canada geese and mallard ducks gulping down dead or dying gizzard shad. A major die-off of what appears to be the 2010 class is happening in Chicago harbors. Thousands, perhaps far more than that, of dead gizzard shad in the 3- to 5-inch range are frozen in the ice of Chicago harbors or floating around in open patches of water.  Canada geese and mallards normally don’t eat fish, but, Greenberg said, “They are opportunistic.”

Plant will shut after $58m in state aid – Evergreen Solar Inc. will eliminate 800 jobs in Massachusetts and shut its new factory at the former military base in Devens, just two years after it opened the massive facility to great fanfare and with about $58 million in taxpayer subsidies.The company announced yesterday that it will close the plant by the end of March, calling itself a victim of weak demand and competition from cheaper suppliers in China, where the government provides solar companies with generous subsidies.

Report details Oakland Police Department attrition – The Oakland Police Department will confront an old problem in the New Year: how to staff an under-strength department in a city with a $32 million budget deficit. As of December 2010, OPD had 656 officers, 54 fewer than the authorized 723 officers, and well under the thousand officers Police Chief Anthony Batts says he needs to properly police Oakland. That number is expected to shrink even further following the City Council’s statement that the city only has money to pay for 637 officers in 2011.

Paterson mayor proposes laying off 150 cops to close budget gap – Mayor Jeffery Jones proposes laying off 150 police officers, demoting 51 others and shaving three hours off the work week in an attempt to close an unprecedented $54 million deficit. “This is not a smoke-and-mirrors situation where we tell you the sky is falling. It has fallen,” Jones said at a special meeting of the City Council on Tuesday evening. Residents would face a rise of nearly 50 percent in the municipal tax rate if no cuts are made, leading to much public angst over the city’s proposed $251 million spending package

State and Local Update: Illinois – The Illinois House passed a massive income-tax increase to help the state dig out of a $13 billion deficit, despite opposition from Republicans and business groups. The measure passed by a vote of 60 to 57 and was sent to the Illinois Senate, where it was expected to pass late Tuesday night or Wednesday morning. A new legislature, with narrower Democratic majorities in both houses, will be sworn in at noon. Among the increases in the bill, the individual income-tax rate would jump to 5%, from 3%. That would cost a family of three making $60,000 about $1,080 more each year in income taxes, according to figures from the Illinois Policy Institute, a nonpartisan free-market think tank. The corporation tax would also rise to 7% from 4.8%.

Illinois lawmakers pass massive tax hikes –  Illinois lawmakers on Wednesday approved major personal and corporate income tax hikes to bring the state’s budget back from the financial abyss. The state is facing a $13 billion budget deficit that must be resolved by the end of the fiscal year on June 30. This includes $6 billion in unpaid bills to social service agencies, schools, contractors and others. In addition, the state’s pension plan is severely underfunded. To address these shortfalls, the Illinois House and Senate approved:

  • Temporarily raising the personal income tax rate to 5%, from 3%.
  • Temporarily hiking corporate income taxes to 7%, from 4.8%.
  • Imposing a moratorium on new programs with spending growth capped at 2% per year, with the exception of increased school aid of more than $700 million.

Illinois Senate Clears the Way to Sell $3.7 Billion in Debt for Pensions – The Illinois Senate, facing the state’s worst fiscal crisis, cleared the way for the state to borrow $3.7 billion for this fiscal year’s payment into underfunded employee pensions.  The bond measure was approved 42-16 in the final hours of the legislative session, moments after the Senate gave final approval to a 67 percent increase in the income-tax rate. Governor Pat Quinn, a Democrat, has said he will sign the bill, which passed the state House of Representatives in May.  Illinois had $64 billion in pension assets to pay estimated liabilities of $126.4 billion to 723,000 retirees and beneficiaries, according to bond documents in June.

Chicago’s Downgraded Bond Rating Means Trouble for O’Hare Modernization – Chicago’s debt problem is bringing down the lofty modernization plans for O’Hare. Moody’s Investors Service issued a warning, saying Chicago’s Aviation Deptartment took too big of a risk on paying its bills. The city’s bond rating has been downgraded. The airlines, and therefore customers, could get stuck paying for higher borrowing costs as a result. Moody’s said the city’s decision to postpone payment of interest and principal on construction bonds until 2018 will result in larger payments in the future.

Restaurants Could Be Food Stamp Option For Some – A slice of the county’s food stamp recipients soon may be able to redeem their benefits at area restaurants should a proposal supported by San Diego County Supervisors Bill Horn and Ron Roberts and initiated by a local restaurant association gain favor Tuesday. The number of people receiving food stamps countywide has spiked by 79 percent in two years to 210,000, according November 2010 figures provided by the county. Advocates for the poor have worked closely with the county to reform the program, which has been derided as inaccessible and inefficient.

Thousands of families to lose welfare benefits in Los Angeles — A dramatic budget cut by California Governor Jerry Brown would end welfare benefits for 37,000 families in Los Angeles County, authorities said Tuesday. Brown announced a balanced state budget on Monday that slashes state spending by 12.5 billion U.S. dollars and moves forward his plan to realign some government programs, giving cities and counties decision-making authority over certain services and programs. The slash, designed to address California’s 28-billion-dollar budget deficit, includes a proposed 1.5-billion-dollar reduction to CalWORKS, the state’s welfare-to-work program. As a result, the program will cut funding by 450 million dollars to Los Angeles County and take away benefits for 37,000 county families, according to the county’s CEO, William Fujioka.

Bobb’s ‘draconian’ plan: Shut half of DPS schools – The Detroit Public Schools’ emergency financial manager has submitted a sweeping plan that would close half of the district’s existing schools, increase high school class sizes to 62 and consolidate administration under the city or the countywide education agency. Robert Bobb’s plan to wipe out a $327 million deficit, submitted to the Michigan Department of Education on Monday, also calls for layoffs soon — the elimination of at least 249 positions this school year on the heels of a teacher shortage. The new plan would put DPS in the black by 2014 and assumes the district will lose another 20,000 students by 2013 – down to 58,570 from about 175,000 in 1999.

Portugal Debt Woes Grow As Economy Now Seen Shrinking In 2011 – Portugal’s prime minister Jose Socrates insists his country doesn’t need a bailout and is cutting its debt faster than promised. However, his comments fall on deaf ears as the country’s central bank now expects the country to fall back into recession next year. In its latest quarterly update, the Banco de Portugal says it thinks the economy will shrink 1.3% in 2011 as the far-reaching spending cuts announced by the government begin to take their toll. In the previous bulletin it said the economy would not grow this year.

Portugal: The next chapter – The Portuguese government almost certainly has the ECB to thank for being able to borrow 10 year debt from the markets this morning at an interest rate of around 6.7%. But even with this auction, most now consider it a question of when, not if, Lisbon will join the list of eurozone governments turning to Europe and the IMF for emergency support. Today’s much anticipated auction will come as a relief. But Portugal’s government needs to borrow around 20bn euros from the markets this year – a big chunk of it in the first few months. It is not plausible to anyone that they will finance that debt at an interest rate even close to 7%.By my (very rough) reckoning, its long-term cost of borrowing needs to move below 6%, for it to have a chance of stabilising the stock of government debt relative to GDP within the next few years.
  Portugal Aid, Buybacks, Debt Rules Weighed in EU Plan – European governments are considering aid for Portugal, debt buybacks, lower interest rates on rescue loans and guarantees against excessive debt as part of a package to quell the financial crisis, according to four people with direct knowledge of the talks.The plan, which may include a loan to Portugal of about 60 billion euros ($78 billion) and purchases of outstanding Greek debt, would mark an attempt to contain a crisis that has frustrated unprecedented efforts by policy makers to calm markets and raised questions about the health of the 17-nation euro economy. Euro-area finance ministers will discuss elements of the package next week, though the debate is so sensitive in Germany that decisions may wait until a scheduled summit of political leaders on Feb. 4, said the people, who declined to be named because the deliberations are private.
Barroso Urges Broadening of Euro Zone Bailout Fund – As Portugal gained some breathing room Wednesday with strong demand for its bonds, European officials pushed for a longer-term solution to the euro-zone debt crisis, setting a deadline of less than a month to agree on expanding the size and reach of the bailout fund.  The bailout fund’s “financing capacity must be reinforced and the scope of its activities widened,” José Manuel Barroso, the commission president, told a news conference. He said it was “perfectly possible” to come to a decision by Feb. 4, when European Union leaders are scheduled to meet. European officials say Mr. Barroso sees an opportunity, after Portugal’s relatively successful bond sale, to end a cycle in which the 17 euro zone countries have been forced into crisis management, bailing out first Greece then Ireland under duress from bond traders.
Pyrrhic Bond Auctions – Krugman – I’m with Calculated Risk here: it says something about the sheer desperation of the European situation that Portugal’s ability to sell 10-year bonds at an interest rate of “only” 6.7 percent is considered a success. If you think about the debt dynamics here — the burden of growing interest payments on an economy that is likely to face years of grinding debt deflation — an interest rate that high is little short of ruinous. But it is, indeed, not as bad as people were expecting last week; hence, success. A few more successes and the European periphery will be destroyed.
That’s yuan way to adjust – AHEAD of a looming Sino-American summit, it’s once again time for newspapers to allocate ink to coverage of the spat over the value of China’s currency. Tim Geithner (who, bless him, once got in trouble for saying that the dollar needed to decline) declared today that the yuan is "substantially undervalued" and needs to strengthen. But he later elaborated: “This is a pace of about 6 percent a year in nominal terms, but significantly faster in real terms because inflation in China is much higher than in the United States,” Geithner said. Taking inflation into account, the yuan is rising at a rate of about 10 percent a year, “so if that appreciation was sustained over time, it would make a very substantial difference,” he said in response to a question after the speech. Yes, China continues to manipulate its currency. This much is clear from the latest data on Chinese reserve accumulation.
Does QE2 Promote Global Economic Rebalancing? – Ryan Avent writes: Chinese inflation is running consistently higher than American inflation, which is scarcely above 1%. That translates into rapid real appreciation despite the slow movement in the nominal exchange rate. And that should produce a decline in Sino-American imbalances, which seems to be emerging. Ryan Avent can correct me if I am wrong, but I suspect some of that run up in Chinese inflation is the result of QE2.  Chinese monetary authorities are forced to create more yuans to buy up the new QE2 dollars in order to maintain the crawling yuan-dollar peg.  The actual and expected increase in yuan, in turn, is contributing to the rise in China’s inflation rate. In short, China is importing the Fed’s QE2-driven monetary policy.  If this real appreciation actually leads to meaningful rebalancing in the global economy, then QE2 may be what ends Bretton Woods 2.

Geithner’s China Concerns – Timothy F. Geithner, the Treasury secretary, gave a speech on China Wednesday  morning that did not contain news but was somewhat feistier in tone than the Obama administration has been in the past. This approach — respectful yet blunt — strikes me as more promising than the deferential stance the administration has sometimes adopted before. Excerpts from the speech follow:
Why do we have a debt ceiling? – Can someone please explain to me why we have a debt ceiling at all? Its existence seems to violate every tenet of risk management and good governance. James Hamilton put it well back in 2006: One of the peculiar embarrassments of the American political process is the fact that Congress votes separately on the deficit and debt, as if they were two different decisions… If the government is (a) required by the deficit legislation to spend, and (b) precluded by the debt legislation from borrowing, the Treasury would be forced into default. The greater the likelihood markets attach to such an event, the higher will be the interest rate the government has to pay on Treasury debt.. Looked at another way, this has very little to do with hypocrisy or the voting records of individual legislators. Instead, it’s a built-in systemic stupidity: the existence of the debt ceiling can cause lots of harm, while it does no good whatsoever. As a result, at the margin it will always needlessly raise US borrowing costs, at least by some small amount.
The Future of Foreclosure – For all that I said that the legal issues involved in the foreclosure mess are surpassingly difficult for a non-lawyer to understand, the Levitin piece I linked is still worth reading.  One paragraph in particular should strike a chill into peoples’ hearts: In theory, these loans should be put-back to the seller. Will that happen? I’m skeptical. If not, that means that investors will be eating the loss. The servicer and the trustee aren’t necessarily getting off scot free, though. They might get hit with Fair Debt Collection Practices Act and Fair Credit Reporting Act suits from the homeowners (plus anything else a creative lawyer can scrape together). And mortgage insurers might start using this case as an excuse for denying coverage. REO purchasers and title insurers should be feeling a little nervous now, although I doubt that anyone who bought REO before Ibanez will get tossed out of their house if they are living in it. Going forward, though, I don’t think there’s a such thing as a good faith purchaser of REO in MA.

Home price drops exceed Great Depression: Zillow (Reuters) – Home prices fell for the 53rd consecutive month in November, taking the decline past that of the Great Depression for the first time in the prolonged housing slump, according to Zillow. Home prices have fallen 26 percent since their peak in 2006, exceeding the 25.9 percent drop registered in the five years between 1928 and 1933, the housing data company said in a report on Monday. Prices fell 0.8 percent over the month. It is a dubious milestone for the U.S. housing market which has failed to gain much traction despite a host of government programs to reduce delinquencies and encourage demand with temporary tax credits and lower interest rates.

This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s