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Prichard Alabama Files For Bankruptcy - (www.wkrg.com) Prichard Mayor Ron Davis released the following statement Wednesday morning: “I have looked at every opportunity available to obtain money to help fund the retirement plan for the City of Prichard. After careful review of all of our options, bankruptcy protection seems to be the only solution left at this time. Over the past 50 years, the pension plan was amended by the Legislature more than fifteen times, and always the economic burden on the City was increased. This has been a long term problem that was unfortunately inherited by this administration. After several lawsuits filed by pensioners, it has forced us to come to this decision, one that will protect the city and its residents. I hope that a solution can soon be found that will be fair to all. As Mayor, it is my duty to make sure that the City of Prichard continues to move forward by providing essential municipal services and to operate for the benefit of its citizens.” Tuesday 6:45 p.m.The city of Prichard's financial troubles have hit rock bottom. Late Tuesday afternoon the city filed for bankruptcy protection in Mobile County Circuit Court. The petition, which was filed at 4:54 p.m., comes one day before Prichard Mayor Ron Davis and Finance Director Rex Williams were scheduled to be depositioned in an ongoing pension dispute. Robert Hedge, who represents more than fifty retired city workers in a lawsuit filed in August, says Mayor Davis is "playing games." Hedge says under the bankruptcy protection, the city gets an "automatic stay" on the pending litigation. "The whole thing is a creature of the Mayor," said Hedge. "This is not going to deter us." Prichard city officials were not immediately available for comment.
“Not-So-Safe-Deposit Boxes: States Seize Citizens' Property to Balance Their Budgets” - (www.abcnews.go.com) The 50 U.S. states are holding more than $32 billion worth of unclaimed property that they're supposed to safeguard for their citizens. But a "Good Morning America" investigation found some states aggressively seize property that isn't really unclaimed and then use the money -- your money -- to balance their budgets.” “Not-So-Safe-Deposit Boxes San Francisco resident Carla Ruff's safe-deposit box was drilled, seized, and turned over to the state of California, marked "owner unknown." "I was appalled," Ruff said. "I felt violated." Unknown? Carla's name was right on documents in the box at the Noe Valley Bank of America location. So was her address -- a house about six blocks from the bank. Carla had a checking account at the bank, too -- still does -- and receives regular statements. Plus, she has receipts showing she's the kind of person who paid her box rental fee. And yet, she says nobody ever notified her. " “They are zealously uncovering accounts that are not unclaimed," Ruff said. To make matters worse, Ruff discovered the loss when she went to her box to retrieve important paperwork she needed because her husband was dying. Those papers had been shredded.” And that's not all. Her great-grandmother's precious natural pearls and other jewelry had been auctioned off. They were sold for just $1,800, even though they were appraised for $82,500. "These things were things that she gave to me," Ruff said. "I valued them because I loved her." “Bank of America told ABC News it deeply regrets the situation…” “…Ruff is not alone. Attorney Bill Palmer represents her and countless other citizens in a class action lawsuit against the state of California. "They figured the safety-deposit box was safer than keeping it under the mattress," Palmer said. "In the case of a lot of citizens, they were wrong, weren't they?" California law used to say property was unclaimed if the rightful owner had had no contact with the business for 15 years. But during various state budget crises, the waiting period was reduced to seven years, and then five, and then three. Legislators even tried for one year. Why? Because the state wanted to use that free money.” "That's absolutely correct," said California State Controller John Chiang, who inherited the situation when he came into office. "What we've done here over the last two decades has been dead wrong. We've kept the property and not provided owners with the opportunities -- the best opportunities -- to get their property back." Chiang now faces the daunting task of returning $5.1 billion worth of unclaimed property to people. Some states keep their unclaimed property in a special trust fund and only tap into the interest they earn on it. But California dumps the money into the general fund -- and spends it. "It's supposed to be segregated and protected," Palmer said.” "California has taken all of that $5.1 billion and has used it as a massive loan." “California became so addicted to spending people's money, that, for years, it simply stopped sending notices to the rightful owners.”
ABC News obtained a 1996 internal memo in which the lawyer for the Bureau of Unclaimed Property argued against expanding programs to notify rightful owners. He wrote, "It could well result in additional claims of monies that would otherwise flow into the general fund." Seizing More Than Safe-Deposit Boxes. It's not just safe-deposit boxes. A British man went to retire and discovered the $4 million in U.S. stock he had been counting on had been seized and sold for $200,000 years earlier -- even though he was in touch with the company about other matters. A Sacramento family lost out on railroad land rights their ancestors had owned for generations -- also sold off as unclaimed property. "If I had hung onto it, I would be a millionaire, multimillionaire," said John Whitley. "But that didn't happen because we didn't get to hold it." State Reforms. California's unclaimed property program was so out of control that, last year, the courts issued injunctions barring the state from seizing any more property until it made reforms.” “…all 50 states pay private contractors 10 to 12 percent commissions to locate and seize accounts for them. It's an inherent conflict of interest: the more rightful owners are found, the less money the contractors make.”
California’s Fiscal Health Continues to Deteriorate, Despite Many Deep Cuts - (www.nytimes.com) Just three months after Gov. Arnold Schwarzenegger cut, taxed and line-item-vetoed away a two-year budget gap of $26 billion, California faces billions of dollars in new shortfalls, with the problem likely to deepen in the next fiscal year. At a recent conference here on the condition of California’s fiscal health, the state treasurer, Bill Lockyer, called the budget “a train wreck.” And, he added, “It’s going to get worse.” California finance officials say the state is facing a shortfall of roughly $7 billion for the current fiscal year, which ends on June 30, and several estimates have that gap ballooning to between $10 billion and $20 billion the next fiscal year. Like many other states around the country, California is facing continued revenue shortfalls as personal income and corporate taxes falter. But California lawmakers are also facing the implosion of expected cost savings, as lawsuits and other factors have reduced or eliminated savings that were figured into the budget passed in July. For instance, the budget called for moving at least $1 billion earmarked for transportation uses into the general fund, a move challenged by transit advocates, who have prevailed in court. Further, the state was recently enjoined from making an $80 million cut to social service programs. Then there is the assumed revenue from the sale of part of the State Compensation Insurance Fund, a move that the state insurance commissioner, Steve Poizner, has filed a lawsuit to block. The story is much the same around the country, especially in states hit hard by the foreclosure crisis that had taken particularly desperate — or unrealistic — measures to shore up their budgets. Roughly $165 million of Arizona’s plan to close a $3 billion shortfall is not materializing. An effort to get $50 million in savings from new antifraud measures did not come to fruition because there were no real measures put in place to ferret out the fraud, and the assumption of $100 million received in upfront payments from private prison companies to operate nine of the state’s 10 prisons will almost certainly not come together this fiscal year, lawmakers there say. With other shortfalls, the state is facing a $2 billion deficit in the current year. In Colorado, Gov. Bill Ritter recently ordered state employees to take four furlough days in addition to the four the workers already were taking, as revenues there have continued to fall.
Home equity loan market remains very tight - (www.latimes.com) Not only are fewer credit lines and loans being granted despite improvement in the rest of the home loan market, the terms are a lot less attractive than before. Traditional 30-year mortgages these days are unusually affordable by historical standards, but if you're looking for a home equity line of credit, don't expect any deals. The market for such credit lines, which practically shut down as home prices tumbled, remains tight as a drum despite signs of life in the rest of the home loan market. And offers that let you pay only the prime rate or just above that benchmark are long gone. "The days of lenders falling all over themselves to help you empty the equity out of your home aren't coming back any time soon," said Keith Gumbinger, vice president at loan data tracker HSH Associates. Even for homeowners with plenty of home equity still available, "access to it is harder to come by," Gumbinger said. "You need to be a much higher-quality borrower now. And if you can get it, the terms are going to be a lot less attractive." Before the housing boom, home equity credit lines were a cheap way for homeowners to renovate their property, pay college tuition or buy a car. During the boom, they also were often used to make a down payment on a home or to finance a vacation or other indulgences. But banks are still reeling from huge losses on these credit lines, which -- as a type of second mortgage -- almost always become worthless when "underwater" borrowers slide into foreclosure. And the tide of losses is a long way from ebbing; Bank of America Corp., for example, wrote off $1.97 billion in home equity debt as uncollectable in the third quarter of this year, up $130 million from the second quarter.
Private Equity IPOs Slump as Goldman, Citigroup Can’t Sell AEI - (www.bloomberg.com) Investors suffering the worst returns on initial public offerings in at least 14 years are shunning companies laden with debt, forcing bankers to pull one sale and cut the price of others. The postponement of an $800 million offering by AEI, a former Enron Corp. unit with $2.9 billion of net debt, followed reduced sales by RailAmerica Inc. andSelect Medical Holdings Corp., both owned by private-equity firms. AEI’s IPO unraveled last week after Ashmore Group Plc, the London-based fund manager that controls the company, withdrew when institutional buyers refused to pay the $16-a-share it sought for the deal. “Investors are more focused than ever before on buying healthy balance sheets,” said Timothy Monfort, head of U.S. equity capital markets at Jefferies & Co. in New York. “They don’t want to see a stop-gap measure and they want to know that the equity investment offers a complete solution for the company.” IPOs deteriorated as the Standard & Poor’s 500 Index suffered its first monthly decline since February and the benchmark gauge for U.S. stock-market volatility surged the most in a year. With $4.2 billion of private-equity sales in the pipeline, companies burdened by debt from leveraged buyouts are being forced to lower offering prices, limiting gains that can be passed on to their investors after $3.7 billion was raised through U.S. share sales in the past six months. ‘Bloodletting’: A “bloodletting” for LBOs that will damp the economic recovery may be coming, according to billionaire investor George Soros. “In commercial real estate and leveraged buyouts, the bloodletting is yet to come,” Soros said on Oct. 30 during a lecture organized by the Central European University in Budapest, where he was born. “These factors will continue to weigh on the American economy, and the American consumer will no longer be able to serve as the motor for the world economy.” Stocks are slumping as buyout firms count on IPOs to exit some of the $2.1 trillion in LBOs they made since the start of 2004 and return cash to investors. Distributions to their clients fell by two-thirds to $63 billion in 2008 from the previous year, according to London-based researcher Preqin Ltd. AEI, an operator of power plants and natural-gas pipelines in emerging markets acquired by Ashmore in 2006, would have been valued at $3.9 billion, or 1.3 times net debt, had its shares sold at the midpoint of its original range, according to data compiled by Bloomberg. Underwriters led by New York-based Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co. and Credit Suisse Group AG in Zurich dropped the sale Oct. 29.
Possible Credit Dislocation: Be Warned - (www.market-ticker.denninger.net) I have reason to suspect that the "monetary transmission mechanism" is full of rocks (again), and we are about to have another instance of what could colloquially be called "fun." (Yes, that's sarcasm.) Here's what we know and what I can deduce from it:
· JP Morgan's "cash position" was analyzed by a writer who published on SCRIBD, which showed that actual cash held has deteriorated radically. By more than half in the last year. The deterioration is continuing, not slowing.
· I am hearing repeated anecdotes from multiple areas that foreclosed property held by banks with multiple full-price offers that include a financing requirement are being sold instead to people with actual cashat radical reductions from that price. This implies that these financing contingencies are regarded as not only potentially no good but factually no good, as if the banks know for a fact that the credit pipelinewill (not might), within weeks or months (in the time required to close), disappear. There is no other rational explanation for this behavior.
· Citibank's credit-card terms change implies a willingness to accept and even provoke a complete and intentional destruction of their credit card business as a very high probability outcome, given that nobody in their right mind will accept a 30% interest rate who has an alternative. The obvious implication is that only those who can't transfer balances out will remain and if your credit is that impaired there's a good chance you will default - either intentionally or otherwise. This too implies foreknowledge of a near-complete impending freeze in the credit markets.
· The change in terms on credit accounts is NOT confined to Citibank. I have received a fax from a customer of Infibank with substantially identical terms, in which both the standard and penalty rate was adjusted to 29.99%. This strongly implies that whatever Citibank smells the problem is not confined to them.
· Both of these credit card "adjustment" letters are of course marginal rate changes. That is, they are both based off the PRIME rate. The importance of that is missed by many. Don't be one of them (more on that below.)
· I recently received a back channel communication indicating that The Fed is aware that this has been and still is a solvency problem and has so briefed certain members of Congress. This from a source believed reliable, but which cannot be independently confirmed.
This data is not conclusive. But - if you are dependent on credit access and these anecdotes are in fact indicative of actual knowledge of an impending lock-up you are at grave financial risk. Note that "margin" type rates that are based on the PRIME rate could hurt you far worse than you believe. With PRIME at historic lows should any such dislocation spike the prime rate your interest rate could go muchhigher with little or no notice or ability to do anything about it. IF this is going to manifest as a dislocation of some sort it will probably occur within the normal closing window for real estate transactions, since the anecdotes related to that have the best-defined "reach", and the discounts being accepted to avoid this risk are massive to the point of denoting near-certainty of this event in the minds of the market participants who are electing to accept these cash-discounted offers. Therefore, if you are dependent on such credit access I would take immediate action to do whatever is necessary to mitigate, to the extent you are able, the consequences of such a dislocation. Consider how you survive returning to what essentially amounts to a cash economic posture in your business and personal life. Note that the indications above are far stronger than what we saw going into last fall before the wheels came off. As a consequence if these actions are those of people with real knowledge (and this is not a guess on their part) I would expect the outcome to be worse than what we saw last fall in terms of economic impact. Those who are short dollars (synthetically or in the actual market) need to beware - if I am reading this correctly you're about to get a really ugly surprise. If you want to speculate on this outcome levered bets on radical dollar appreciation look like one of the best choices out there, followed closely by bearish levered bets on commodities. I would not consider such a speculative play that is not characterized by defined risk, as this analysis is based on nothing more than observation of behavior by market participants that all point toward their foreknowledge of an event that might happen in the reasonably-near future and is not, at present, backed up with actual significant credit-spread widening or other objective criteria.
OTHER STORIES:
US Senate to introduce draft financial bill - (www.ft.com)
Global Crisis Highlights East’s Transition Imbalances - (www.bloomberg.com)
U.K. October House Prices Gain for Third Month, Hometrack Says - (www.bloomberg.com)
Manufacturing in the U.S. Expanded at a Faster Pace in October - (www.bloomberg.com)
Fed’s Mortgage Buying Aids Corporate, Riskier Debt - (www.bloomberg.com)
Pending Sales of Existing Homes in U.S. Rose 6.1% in September - (www.bloomberg.com)
Fed's Path to Higher Interest Rates Begins to Take Shape - (online.wsj.com)
Fed seen on hold as outlook uncertain - (www.reuters.com)
No hints, winks, nods from Fed about rate hikes - (www.marketwatch.com)
Ford Posts $997 Million Profit, Projects Solid Income for 2011 - (www.bloomberg.com)
Retail faces uncertainty as CIT enters bankruptcy - (news.yahoo.com/s/ap)
Pandit ‘Near Death’ Cash Hoard Signals Lower U.S. Bank Profits - (www.bloomberg.com)
Ford Raising $3 Billion, Paying Down Revolving Credit Line - (www.bloomberg.com)
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