Wednesday December 31 Housing and Economic stories

TOP STORIES:

Bonuses tumble 80% at Goldman Sachs - (www.ft.com) Is it just me or does $400K still sound like a lot of cash for this kind of performance? Cash payout capped at $400,000. Partners at Goldman Sachs are set to see their bonuses fall by up to 80 per cent this year and the cash component of their year-end packages capped at $400,000. The rest of partners’ compensation packages will be paid half in stock and half in options, which will be priced based on the close of Goldman’s share price on Wednesday.

Funding For 2,000 CA Projects Axed – (www.sfgate.com) Casualties include drilling the fourth bore of Caldecott tunnel, affordable S.F. housing. California's financial leaders decided today to cut funds for at least 2,000 public works projects across the state, including drilling the fourth bore of the Caldecott tunnel, affordable housing in San Francisco and carpool lanes on Highway 101 in Sonoma County. The decision comes as state officials have failed to solve a $40 billion budget shortfall through mid-2010. The Senate and Assembly are expected to vote later today on a new budget plan by Democrats to solve $19 billion of that, according to a legislative source. The vote by the Pooled Money Investment Board - consisting of the state controller, treasurer and head of the finance department - will halt about $3.8 billion in funding through June of next year and could result in some projects being scuttled. California's state government, which could run completely out of money by the end of February, can now use the funds for other expenses.

States Squeeze Cities, Spreading the Pain - (online.wsj.com) The worst budget crisis in decades is forcing states to cut funding to cash-strapped cities, which already are slashing police, firefighters and other services. The worst budget crisis in decades is forcing states to cut funding to cash-strapped cities, which already are slashing police, firefighters and other services. Cities have limited options when presented with state cuts, but some are fighting back. Last month, the League of Arizona Cities and Towns sued the state over its demand for city funds. A group of California redevelopment agencies sued their state to block it from conducting a "raid" of $350 million in local redevelopment funds. States typically reduce city aid during budget shortfalls. Localities will be hurt more during this recession than when government finances turned down earlier in the decade, said Scott Pattison, executive director of the National Association of State Budget Officers. After the 2001 recession, sales and income taxes were squeezed, but property taxes -- the primary source of local-government funds -- held up relatively well.

More California Towns Face Bankruptcy - (online.wsj.com) A California state board voted to shut off $3.8 billion in financing to hundreds of infrastructure projects as the state confronts a huge deficit. California may soon have more bankrupt towns on its hands. The city of Vallejo, Calif., gained national attention earlier this year by filing for Chapter 9 bankruptcy protection. Now, two neighbors are fighting to avoid the same fate, as the state's economic crisis spreads. Isleton and Rio Vista, small towns roughly 50 miles northeast of San Francisco, say they have begun consulting with bankruptcy lawyers as they draw up plans to deal with their mounting budget crises. The towns' leaders say they hope to avoid bankruptcy, but concede the move may eventually be their only option. "We're strapped for cash and by the end of March or early April we may not have enough money to pay for payroll," says Hector De La Rosa, Rio Vista's city manager. A Rio Vista, Calif., street is empty after construction was halted at a housing development last month. California's troubled towns can't expect much help from the state. A state board voted Wednesday to shut off $3.8 billion in financing to hundreds of infrastructure projects to preserve cash, as the nation's most populous state struggles under a budget deficit that officials say could balloon to more than $40 billion over the next two years.

Calpers Losses Add to a City's Stress - (online.wsj.com) Pacific Grove, a coastal town south of San Francisco, already faces a budget crisis. Now losses by California's giant pension fund could make the pain worse. "Calpers could bankrupt us faster than anything else," says Mayor Dan Cort. City officials say other towns face financial stress unless the California Public Employees' Retirement System is able to quickly recover from its investment losses. Says Dan Davis, a former city councilman who has crunched the numbers for Pacific Grove: Other municipalities "are trying to live in denial." A welcome sign greets motorists as they arrive in Pacific Grove, Calif., by way of Holman Highway. In recent years, Pacific Grove has seen its annual pension costs soar, largely because of increased contributions to make up for losses caused by the last market downturn. Last month, residents voted to consider ditching Calpers as the town's pension provider and look into possible alternatives. But the window of opportunity may have shut. With the market's plunge this fall, the city would have to spend $10 million or more to pay off its widening obligations to vested retirees were it to pull out of Calpers.

Biggest Madoff loser eyes legal move on PwC - (www.ft.com) Victims look for deep-pocketed sources of compensation. The fund, believed to be the biggest single loser in Bernard Madoff’s alleged $50bn “Ponzi” scheme is considering suing PwC, its own accountants, for failing to detect the fraud, as victims start looking for deep-pocketed sources of compensation for their losses. Fairfield Greenwich, whose clients stand to lose $7.5bn invested with Bernard L Madoff Investment Securities, is considering the action after an auditor was named in a case brought by another victim. Mr Madoff was on Wednesday ordered to submit to electronic monitoring and given an overnight curfew in his Manhattan apartment. His wife was ordered to surrender her passport. An interactive guide to exposure of investors in Madoff’s venture. With three of the four biggest accountancy firms – PwC, KPMG and Ernst & Young – auditing the Madoff feeder funds, lawyers say the asset-rich firms are likely to be targeted for legal action. Madoff Securities was audited by a tiny operation in Rockland County, New York, with only three employees, making it an unlikely potential source of compensation for victims. The New York Law School this week named BDO Seidman, part of BDO International, the fifth-biggest auditor, in its legal action against Ezra Merkin and his Ascot Partners fund, which invested its money with Madoff. Ascot was audited by BDO.

On Wall Street, Bonuses, Not Profits, Were Real - (www.nytimes.com) As regulators sift through the rubble of the financial crisis, questions are being asked about what role lavish bonuses played in the debacle. “As a result of the extraordinary growth at Merrill during my tenure as C.E.O., the board saw fit to increase my compensation each year.” — E. Stanley O’Neal, the former chief executive of Merrill Lynch, March 2008. For Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was $350,000, his total compensation was 100 times that — $35 million. The difference between the two amounts was his bonus, a rich reward for the robust earnings made by the traders he oversaw in Merrill’s mortgage business. Mr. Kim’s colleagues, not only at his level, but far down the ranks, also pocketed large paychecks. In all, Merrill handed out $5 billion to $6 billion in bonuses that year. A 20-something analyst with a base salary of $130,000 collected a bonus of $250,000. And a 30-something trader with a $180,000 salary got $5 million.

Madoff Scandal Shaking Real Estate Industry – (www.nytimes.com) Commercial brokers and developers had heavily invested with Bernard L. Madoff, whose business style mirrored the practices of the real estate world. Almost no segment of New York City’s real estate industry was spared in the Madoff scandal, which may be history’s largest Ponzi scheme: commercial brokers large and small, little-known developers and prominent families like the Wilpons and Rechlers all lost money to Bernard L. Madoff, industry executives say. The outsize impact on the industry may have resulted largely because Mr. Madoff (pronounced MAY-doff) managed his funds much the way that real estate leaders have operated successfully for decades: He provided little information and demanded a lot of trust. “You have a lot of wealthy people who made a lot of money on handshakes,” said Mark S. Weiss, a commercial real estate broker at Newmark Knight Frank, where several brokers had invested heavily with Mr. Madoff. There was “something about this person, pedigree and reputation that inspired trust,” he said. Across the city, industry executives said deals had been scuttled or jeopardized because of the scandal. Residential brokers are taking calls from Madoff investors who have had to put their apartments on the market. Many developers had pledged their investments with Mr. Madoff as collateral for projects, and are now worried that their banks will call in their loans.



OTHER STORIES:

Director dumps nearly half of Sears holdings - (www.chicagotribune.com) A director of retail giant Sears Holdings Corp. has dumped $51.8 million in Sears stock this week – almost half of his holding, according to regulatory filings. Hedge-fund operator Richard C. Perry, a Sears director since September 2005, disclosed in a Securities and Exchange Commission filing Tuesday that he had sold 530,000 Sears shares Monday at a blended price of $41.09 apiece, for a total of $21.8 million. Wednesday, Perry told the SEC in a separate filing that he had sold an additional 767,000 Sears shares at $39.08 each, for a total of $30 million. Perry, a onetime trader with investment banker Goldman Sachs, has since 1988 headed a private-investment firm now known as Perry Capital, which controls Perry Partners International. Perry Partners is formally listed in the two SEC filings as seller of the Sears shares.
Motorola Freezes Pension Plan; More To Come - (online.wsj.com) Motorola likely won't be the only major company to freeze its pension in 2009. Other struggling companies are expected to cut plans, and many businesses already are suspending 401(k) matches to slash expenses.
Dollar plunges in wake of Fed move - (www.ft.com) Zero rate spurs slide against euro and yen
State Dems plan to increase taxes - (www.latimes.com) A complex proposal would classify some taxes as fees, allowing them to be hiked with a simple majority vote. Discuss
L.A. council OKs $74m in midyear budget cuts - (www.latimes.com)
China may send warships to Somalia coast - (www.latimes.com)
Getty endowment drops 25%; hiring freeze ordered - (www.latimes.com)

Fox TV producers asked to trim budgets 2 percent - (www.boston.com)
Feds raid SoCal offices of The Ensign Group - (www.boston.com) Federal agents raided the headquarters of The Ensign Group Inc. and several other locations Wednesday in what company executives suspect is a probe into alleged Medicare fraud at the national chain of nursing homes. Agents raided several locations in Orange and Los Angeles counties, said FBI spokeswoman Laura Eimiller. She said the subject of the federal search warrant remains sealed and could not provide further details.

NZ government forecasts increased debt, deficits - (www.boston.com)
General Mills grows market share in second quarter - (www.boston.com)
Goldman agrees to Panasonic bid for Sanyo: sources - (www.boston.com)
BCE sues private equity group over failed deal - (www.boston.com)

Motorola freezes pension plans, cuts co-CEOs' pay - (www.chicagotribune.com)
Wal-Mart says it created $5.3 million in sales taxes with Chicago store - (www.chicagotribune.com)
Citibank customers regain access to accounts - (www.chicagotribune.com)
Oil prices fall despite huge cuts from OPEC - (www.chicagotribune.com)