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Paulson Told Bankers to Take U.S. Taxpayer Aid or Be ‘Exposed’ - (www.bloomberg.com) Former Treasury Secretary Henry Paulson, describing nine U.S. banks as “central to any solution” of the credit crisis, told their leaders to take government aid or be forced to by regulators, according to a memo his staff prepared for a private meeting in October. “If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance,” Paulson’s one-page list of talking points for the session with the banks’ chief executive officers said. “We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed,” the memo said. Investing $125 billion in the financial institutions was a shift for the Bush administration, which had proposed buying troubled assets with $700 billion Congress approved 10 days earlier. The memo is among newly released Treasury Department documents containing details about the Oct. 13 meeting. “Most Americans are going to be uncomfortable with the government forcing the banks into this arrangement,” said Tom Fitton, president of Judicial Watch, a nonprofit research group in Washington that obtained the documents under a Freedom of Information Act request. Andrew Williams, a spokesman for the Treasury, didn’t return calls seeking comment.
Troubled trucker YRC to seek $1 bln pension bailout - (money.cnn.com) Says needs bailout money to cover pension debt, has $2B in obligations over next four years. YRC's chances of TARP bailout seen slim, shares fall 7 percent. Struggling No. 1 U.S. trucking company YRC Worldwide Inc plans to seek $1 billion in bailout money from the Troubled Asset Relief Program to help it cover pension obligations, a move analysts say is unlikely to succeed as the company has no financial charter. "YRC's chances (of a TARP bailout) are probably zero," Joshua Rosner, managing director of independent research firm Graham, Fisher & Co. said Friday "Without a financial charter in their holding company it will be impossible for YRC to obtain TARP funds." The U.S. Treasury Department's $700 billion TARP has thus far been devoted mainly to capital investments in financial firms, support for housing rescue program, backing for Federal Reserve lending companies and aid for the auto industry. The $35.6 billion allocated largely to prop up General Motors Corp and Chrysler LLC includes a $5 billion financing program for suppliers that is administered through the two automakers. YRC, which has been shedding jobs and closing facilities to cut costs in the face of the U.S. recession, faces an estimated $2 billion in pension obligations over the next four years. YRC will submit an application to the Treasury as early as Friday, a move that was first reported by the Wall Street Journal. The Treasury Department did not immediately respond to a request for comment. PENSION FUND PROBLEMS: Company Chief Executive Bill Zollars complained in the WSJ article that the Central States multi-employer pension fund that it pays into is unfair because YRC ends up paying for truckers who never worked for the company. Multi-employer pension funds were set up decades ago prior to the deregulation of the trucking industry to ensure that workers' pensions were protected even if they changed companies. Over the past 20 years, thousands of trucking companies have collapsed, leaving their pension obligations to be funded by those left in the fund. The Central States fund has been in trouble for years as a result of this problem. The world's largest package delivery company United Parcel Service Inc , which had more than 40,000 employees in Central States, paid a $6.1 billion fee to withdraw from the fund in 2007 and have those employees covered by a single-employer fund jointly managed by UPS and the Teamsters union. UPS' move was widely regarded by analysts as a smart one, given the poor condition of the Central States fund.
California treasurer asks U.S. to backstop state borrowing - (www.latimes.com) Bill Lockyer requests the federal government to in effect guarantee California's debt against default, so that investors would be willing to provide the financing at reasonable interest rates. California Treasurer Bill Lockyer on Wednesday formally requested federal help to backstop a wave of short-term borrowing the cash-strapped state will need to undertake this summer. In a letter to U.S. Treasury Secretary Timothy F. Geithner, Lockyer asked the government to in effect guarantee the state's debt against default, so that investors would be willing to provide the financing at reasonable interest rates. A Treasury spokesman in Washington said the department had no immediate comment on Lockyer's request. California will be forced to borrow at least $13 billion, and possibly much more, beginning in July to bridge the gap between the state's current cash needs and future tax revenue. In normal economic times these short-term municipal note sales are routine. But because of California's deepening budget woes and its low credit rating, Lockyer said investors are likely to demand exorbitant interest rates on the notes if they're sold without a third-party guarantee. Major banks typically provide that guarantee, but Lockyer said they aren't willing this time to do so on their own. "The enormous size of the required funding together with the state's current credit condition and the continued weakness of the municipal finance market . . make it highly unlikely that the state can access the short-term market for its borrowing based on its own credit," Lockyer told Geithner.
California Budget Deficit Resurfaces as Voters Weigh Options - (www.bloomberg.com) California faces a resurgent $15 billion deficit and unprecedented cash shortage that may leave the most-populous U.S. state unable to pay its bills for the second time since January. Governor Arnold Schwarzenegger, a Republican, is scheduled today to release his annual May revision to the budget, in which he will detail how he intends to close the deficit. He said May 11 that the gap would swell to $21 billion if voters on May 19 reject a package of measures, including one to borrow $5 billion of bonds backed by lottery profits. Polls show the proposals heading for defeat. “We’re steering away when the deficits are growing and it looks like it’s going to get worse down the road,” said Robert Millikan, who manages $5 billion in bond investments for BB&T Asset Management Inc. in Raleigh, North Carolina, referring to California debt. The state’s immediate financial needs were underscored by Treasurer Bill Lockyer, who in a letter to Treasury Secretary Timothy Geithner yesterday asked that the federal government become a standby purchaser of short-term notes in the event of default. Such a guarantee makes it easier for states to purchase the bond insurance policies needed to attract investors. “If we cannot obtain our usual short-term cash-flow borrowings, there could be devastating impacts on the ability of the state or other governments to provide essential services to their citizens,” Lockyer said.
California's Budget Deficit: What The Hell Is It? - (Mish at http://globaleconomicanalysis.blogspot.com) Inquiring minds are asking "What the Hell is California's budget deficit?" That's a good question so let's see if we can answer it. On Thursday in California is a Complete Basket Case; Treasurer Requests Tarp Funds; LA Mayor Declares Emergency I noted the following: California Treasurer Bill Lockyer estimated that California's cash flow shortfall in fiscal 2009-2010 will be more than $13 billion. Governor Schwarzenegger has sent a letter asking the feds to reconsider, noting the cuts were taken in response to "an unprecedented fiscal crisis." Even now the state faces an estimated cash-flow problem of some $17 billion by July. Today I see California ordering layoffs to cover $15.4B deficit. California Gov. Arnold Schwarzenegger says thousands of state employees must be laid off and billions of dollars must be slashed from the budget to deal with the state's latest budget deficit. Schwarzenegger said Thursday he has no choice but to order layoffs and cut spending, and added that more cuts may be needed within days. The state approved billions in budget cuts and revenue increases earlier this year but they were not enough to keep up with a sharp drop in tax revenue as the recession batters the state's economy. California still faces a deficit of $15.4 billion in the fiscal year that starts July 1. That will grow to $21.3 billion if voters reject budget-related measures during a special election next week. Let's Do The math: According to Schwarzenegger, California faces a deficit of $15.4 billion (growing to $21.3 billion if voters reject the propositions). Also according to Schwarzenegger, California faces a $17 billion shortfall by July (with assumptions unknown as to the propositions). If you prefer, Treasurer Bill Lockyer estimates the cash flow shortfall in fiscal 2009-2010 will be more than $13 billion. Note that propositions 1A through 1F are supposed to raise $16 billion. However, it's important to remember that the $16 billion supposedly raised by the propositions will be spread over 4 years to miraculously end at that point in time as if every California problem will be cured. How much of this is front loaded is anyone's guess. If you can untangle that mess, please be my guest. I have been tracking California for quite some time and this is how I look at the situation: California is sinking further into the hole at a rate of $2 billion per month. I see no end in sight to the carnage. Thus, if California passes the propositions raising $16 billion, it will need another $24 billion (minimum) a year from now. The solution is not more taxes, the solution is more spending cuts. If you vote for these propositions you are nuts. Schwarzenegger's layoffs are cleverly timed to persuade voters to increase taxes. Don't fall for it.
California is a Complete Basket Case; Treasurer Requests Tarp Funds; LA Mayor Declares Emergency - (Mish at http://globaleconomicanalysis.blogspot.com) MarketWatch is reporting California formally asks Geithner for TARP assistance. California Treasurer Bill Lockyer asked U.S. Treasury Secretary Timothy Geithner on Wednesday to authorize assistance for his state from the federal Troubled Asset Relief Program, warning that depressed tax revenues may cut into basic services and halt the building of infrastructure. In a letter, Lockyer asked Geithner for TARP assistance for California and "other financially strapped states and local governments which face a severe cash flow crunch." "If we cannot obtain our usual short-term cash-flow borrowings, there could be devastating impacts on the ability of the State or other governments to provide essential services to their citizens," Lockyer wrote. In addition, Lockyer warned in the letter that California's cash flow problems may lead to trouble accessing the long-term bond market, which could "eventually even halt our infrastructure construction programs." Lockyer estimated that California's cash flow shortfall in fiscal 2009-2010 will be more than $13 billion. A $13 Billion Deficit? Who does Lockyer think he is fooling? California has not yet passed and should not pass $16 billion in Propositions 1A through 1F as noted in California, Please Send A Message! Note that the proposed $16 billion in tax hikes was supposed to plug the budget but it is already another $8 billion in the hole. And judging from what Lockyer said, it appears the gap is up to $13 billion, assuming California passes those hikes. I am betting California does not pas those propositions. Moreover I encourage California to not pass those propositions or they will be taxing themselves to death. Assuming the hikes do not pass, California will be $29 billion in the hole, and counting, with the important phrase being "and counting". California is going $2 billion more in the hole every month like clockwork and I see no reason for that to stop now. LA Mayor To Declare Fiscal Emergency: Meanwhile, Villaraigosa calls on City Council to declare a fiscal emergency. With Los Angeles facing a $529-million budget deficit, Mayor Antonio Villaraigosa on Tuesday urged the City Council to declare a fiscal emergency that would grant him the authority to lay off and furlough thousands of city workers. The request signals a more hard-line tack by the mayor to win salary and benefit concessions from the city's public employee unions, which had soured on Villaraigosa's call for a salary freeze, furloughs and increased benefit costs to save $230 million and avert the need for layoffs. Villaraigosa said the worsening economy and an expected $300-million drop in city tax revenue gave him "very few options." L.A.'s budget gap is expected to grow to $1 billion in the 2010-2011 fiscal year because of investment losses in the city's pension systems, which the city is required to keep solvent. "The gravity of the fiscal emergency that we face is enormous," Villaraigosa said in his letter to the council. "Unless we act with urgency, the city will face a cash flow crisis, raising the prospect of running out of cash between November and February." The city council is required to have a balanced budget by July 1. Good luck with that. My plan for LA is simple: declare bankruptcy just like Vallejo did and hope the unions get what they deserve in court, nothing. Unions Hold California Hostage: Are unions out of their minds in this environment to object to a wage freeze? On the surface it would appear so. However, unions may be emboldened by the Obama Administration's willingness to bend over backwards for union demands. Please consider Demoting California. One of the biggest stories in politics earlier this year was about California's budget teetering on the edge of a $42-billion deficit abyss. It only staved off insolvency when its legislature ended three months of gridlock to pass a budget with steep tax hikes and spending cuts. Guess what the Obama Administration is doing? It is telling Governor Arnold Schwarzenegger that it will revoke nearly $7 billion in federal stimulus money unless the state restores legislated wage cuts for unionized health-care workers. Governor Schwarzenegger has sent a letter asking the feds to reconsider, noting the cuts were taken in response to "an unprecedented fiscal crisis." Even now the state faces an estimated cash-flow problem of some $17 billion by July. Restoring the union money will require a two-thirds vote of the Legislature, a task in California somewhat akin to moving the Sierra Nevadas. Still, it's worth noting where the Obama team ranks the political authority of a legislative enactment by the state of California versus the political clout of a union. Come to your senses California. If you are dumb enough to pass Propositions 1A through 1F, expect yet another round of tax hikes to follow.
OTHER STORIES:
Consumer price drop is biggest since '55 - (money.cnn.com)
Oil demand seen dropping at fastest pace since '81 - (finance.yahoo.com)
Treasury asks for control of derivatives market - (news.yahoo.com/s/ap)
GM whacks 1,100 dealers - (money.cnn.com)
U.S. seeks crackdown on loosely regulated derivatives - (www.washingtonpost.com)
Slow Start to Federal Plan for Modifying Mortgages - (www.nytimes.com)
NWeber, Kranjec Clash a Week After Trichet Calls Truce - (www.bloomberg.com)
Toyota Cuts Dividend, Forecasts Loss on Lower Sales - (www.bloomberg.com)
Spanish Economy Shrinks Most in 40 Years in First Quarter - (www.bloomberg.com)
Insurer to Treasury: No thanks on TARP - (money.cnn.com)
Chinese Stimulus, Lending May Drive Rebound as Exports Slide - (www.bloomberg.com)
Thriving Norway Provides an Economics Lesson - (www.nytimes.com)
U.S. Producer Prices Rose 0.3% in April as Food Costs Jumped - (www.bloomberg.com)
Jobless Claims in U.S. Increase More Than Forecast - (www.bloomberg.com)
Obama Administration Expands Housing Plan - (www.time.com)
Fewer will be flying - but expect full planes - (money.cnn.com)
Wal-Mart posts flat quarterly profit - (www.reuters.com)
Banks Sue MBIA Over $5 Billion Restructuring - (www.cnbc.com)
SEC staff recommends civil fraud charges against Mozilo of Countrywide - (www.latimes.com)
As trucking goes, so goes the economy - (www.msnbc.msn.com)
Stocks tumble at end of tough week | Oil falls - (money.cnn.com)
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