Fannie, Freddie aid cost unclear: regulator - (www.reuters.com) It is unclear how much U.S. taxpayers will eventually have to shell out to help mortgage finance giants Fannie Mae and Freddie Mac, the regulator of the two companies said on Tuesday. "The actual cost I do not know," Federal Housing Finance Agency Acting Director Edward DeMarco said in response to a question from Kentucky Republican Senator Jim Bunning at a Senate Finance Committee hearing. Fannie Mae said on Monday it would need an additional $8.4 billion from the U.S. Treasury. The two firms have now tapped about $145 billion from the government and the Obama administration has said it will backstop losses, no matter how high they go, through 2012. As a result, some Republican lawmakers are pushing for Fannie Mae and Freddie Mac to be included among firms subject to a tax aimed at financial institutions that received government money during the financial crisis. Congress approved $700 billion in late 2008 for the Troubled Asset Relief Program (TARP), often referred to as the bank bailout. Many financial institutions have repaid their TARP commitments, and losses from TARP are now estimated to be around $90 billion. The proposed fee is designed to get that money back.
Illinois Budget Woes Come to a Boil - (online.wsj.com) Illinois lawmakers were in disarray Thursday as they groped for stopgap measures to address a $13 billion deficit equaling nearly half of the state's general-fund revenue. The state faces one of the nation's worst budget crises, spilled over in part from the broader national economic crunch, and its current bond ratings lag only California's. But the confusion in the legislature indicates that serious steps to fix state finances won't be taken until after the November elections—if then. House Minority Leader Tom Cross said "We are lucky in that we still can borrow," noting that lawmakers responded to rating-agency concerns last month by reducing pension benefits and lifting the retirement age for new state employees to 67 from 60. Lawmakers also are weighing the idea of postponing pension payments for the first half of the fiscal year until January, Mr. Trotter said. Mr. Quinn presented a budget in March that would still leave the state with a $10.6 billion deficit. His plan projected a deficit of $4.7 billion for the coming fiscal year beginning July 1—which he planned to cover through borrowing—and a $5.9 billion deficit carried over from the current budget. The governor also proposed cutting expenses by $1.5 billion and raising the state income tax 1.5 percentage points, to 4.5% from 3%. He said the tax hike would be used to avert tens of thousands of teacher layoffs. A different proposal to raise income-tax rates passed the state Senate last year but has stalled in the House.
Unionizing Your Home - (www.illinoispolicy.org) Does Governor Quinn work for the citizens of Illinois or for the union bosses? With free legal aid from National Right to Work Foundation attorneys, a group of home-based personal care providers filed a class-action lawsuit in federal court against Governor Pat Quinn and union officials for their efforts to force Illinois personal care providers under unwanted union boss control. The National Right to Work Foundation press release reads: The additional 4,500 home-care providers who are not yet under union control rejected union membership by a two-to-one margin in a mail-in vote. However, per Quinn’s executive order, the home-care providers may again be subject to out-of-state SEIU and American Federation of State, County, and Municipal Employees (AFSCME) union organizers making “home visits” attempting to organize the home-care providers through coercive “card check” unionization tactics. I spoke to Pam Harris (listen to that interview here), one of the home-care providers who filed the suit. She said, "The election should have been enough. I was told that the governor did not see any reason to withdraw or rescind the executive order." Harris was concerned before the workers voted that no one was responsible for informing the voters of their rights nor did the material informing them of the election tell the home health care workers that one option was to vote for no representation at all. She says it appeared that they had only to choose which union they wanted. "Now if I were working in a factory, there would be posters and meetings. There is nothing like that because we all work in individual homes in Illinois," Harris said. She took it upon herself to contact all of the homes with a two page flyer. She was also adamant that she contacted the National Right to Work Foundation and they assist, but do not lead, this effort. Harris claims that it would cost $140,000 annually to institutionalize her son, but that through a Medicaid program she gets $25,000 to look after him at home. Out of that she says she pays for his therapies and developmental training. The teacher's union, among other groups, is also against the withdrawal of the governor’s executive order. She wants the order rescinded and does not see that as an anti-union measure, but said of Quinn, “I am not going to see this man on my television saying, ‘Early to bed, early to rise, work like hell and organize.’”
Contractor wants to foreclose on PH Towers Westgate; developer disputes claims - (www.lasvegassun.com) The developer of the new PH Towers Westgate timeshare and hotel development in Las Vegas on Tuesday disputed allegations it owes the general contractor $19.3 million for construction costs — and said it’s the builder that owes the developer millions of dollars. Tutor-Saliba Corp. filed a foreclosure lawsuit in Clark County District Court on Monday against Westgate Planet Hollywood Las Vegas LLC, charging $19.3 million is due under a 2007 contract valued at about $495 million for the 52-story, 1,200-room development linked to the Planet Hollywood resort and Miracle Mile Shops mall. The lawsuit says Tutor-Saliba on April 8 filed a lien against the property for the $19.3 million, that the lien was served upon Westgate and that Tutor-Saliba is now entitled to foreclose on the project and that its claim is superior to claims of lenders against the project. Clark County Recorder Office records show the Tutor-Saliba lien is one of at least five active liens filed against the project since November 2009.
Morgan Stanley’s Gorman Says No Substance to CDO Allegations - (www.bloomberg.com) Morgan Stanley Chief Executive Officer James Gorman denied allegations the U.S. bank misled investors about mortgage derivatives it sold them. The firm is being probed by U.S. prosecutors over whether the bank misled clients when it sold them collateralized debt obligations as its own traders bet that the value of the securities would drop, the Wall Street Journal reported today. The New York-based firm hasn’t been contacted by the Justice Department, Gorman told reporters in Tokyo today. Wall Street firms are facing unprecedented scrutiny from lawmakers and prosecutors over whether they improperly sold CDOs linked to the subprime mortgages that caused the credit crisis. Goldman Sachs Group Inc. is fighting a lawsuit from the U.S. Securities and Exchange Commission, which alleges the firm misled investors about a mortgage-linked security in 2007.
U.S. Probes Morgan Stanley - (online.wsj.com) Federal prosecutors are investigating whether Morgan Stanley misled investors about mortgage-derivatives deals it helped design and sometimes bet against, people familiar with the matter say, in a step that intensifies Washington's scrutiny of Wall Street in the wake of the financial crisis. Morgan Stanley arranged and marketed to investors pools of bond-related investments called "collateralized debt obligations," or CDOs, and its trading desk at times placed bets that their value would fall, traders say. Investigators are examining, among other things, whether Morgan Stanley made proper representations about its roles.
Schwarzenegger Preps ‘Terrible Cuts’ to Close Deficit - (www.bloomberg.com) California Governor Arnold Schwarzenegger will seek “terrible cuts” to eliminate an $18.6 billion budget deficit facing the most-populous U.S. state through June 2011, his spokesman said. Schwarzenegger, 62, who will introduce his revised budget plans on May 14, has said he won’t seek tax increases to bolster California’s finances. The Republican’s forecast for the budget gap may rise after revenue fell short of his targets last month. “We can’t get through this deficit without very terrible cuts,” Schwarzenegger spokesman Aaron McLear told reporters in Sacramento. “We don’t believe that raising taxes right now is the right thing to do.” California’s revenue in April, when income-tax payments are due, trailed the governor’s estimates by $3.6 billion, or 26 percent. The gap wiped out gains from the previous four months, leaving collections $1.3 billion behind projections for the budget year that ends in June. Schwarzenegger’s newest plan will revise the proposals introduced in January to account for the tax-collection shortages. In January, the governor said California may have to eliminate entire welfare programs, including the main one that provides cash and job assistance to families below the poverty line, without an influx of cash from the federal government.
Governments up the stakes in their fight with markets - (www.ft.com) Governments are playing double or quits in their game with financial markets. The package they announced last weekend is dramatic. But the question is whether it is more than a temporary solution. The answer is: no. As initially designed, the eurozone has failed. It will succeed only if radically reformed. What is the plan ? First, European governments have committed €500bn (€440bn in loan guarantees to eurozone members in difficulties, and a €60bn increase in a balance of payments facility). Second, the International Monetary Fund will, it appears, put up an additional €250bn ($320bn, £215bn). Third, the European Central Bank has, to the chagrin of Axel Weber, president of the Bundesbank, decided to purchase the bonds of members under attack. Finally, the US Federal Reserve has reopened swap lines, to provide foreign banks with access to dollar funding. This is a panic-driven response to market panic. It reminds us of the autumn of 2008. Will the plan work? On the assumption that it is ratified, the answer should be yes, as markets concluded (see chart). It greatly increases the cost of betting against the debt of weak governments. The public debt of the eurozone is slightly lower than that of the US, relative to gross domestic product. If the creditworthy governments decide to support the less creditworthy ones, they can do so, for now.