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STORIES:
Cities at Tipping Point Tear Up Contracts to Stay Solvent -
(www.bloomberg.com) Philadelphia, which may close
a quarter of its schools by 2017 to save cash, has to boost pay for
firefighters even though the city’s fiscal overseer says that would “blow up
the budget.” An arbitration award means the estimated $238 million cost of the
wage and benefit increase through 2017 must be borne by the city where a quarter of
residents live in poverty, double the state rate. The burden of personnel
expenses shouldered by Philadelphia also bears down on cities across the U.S.
as tax revenue fails to keep pace with
labor costs. Municipal leaders now regard steps that were considered drastic,
such as imposing unpaid time off and using IOUs, as reasonable options, said Gary
Chaison, who teaches industrial relations at Clark
University in Worcester, Massachusetts.
He called it a “tipping point.” “So many cities are under financial siege that
they are ready to abandon their collective-bargaining agreements even if they
have emergency procedures in place like Detroit,
and even if it means antagonizing completely, and probably permanently, their
public-sector unions,” Chaison said. Some, such as Central
Falls, Rhode Island, have used bankruptcy to break
labor contracts.
Big banks' glory days feared to be gone for good - (www.reuters.com) The summer of 2012 may be
remembered as the time when regulation, scandals and a protracted slow-growth
economy finally caught up with big American banks. Ever since the financial
crisis, U.S. banks and their investors have held out hopes of a return to the
good times, when lending profits steadily rose and commercial and investment
banking flourished together. But analysts and investors are now questioning
whether things have changed for good. "My gut says all these megabanks are
worth more separately than combined," said Bill Black, managing partner of
Consector Capital, a hedge fund that focuses on bank trading. Smaller, more
focused banks could attract investors, satisfy regulators and increase
depressed stock prices, he said.
Mortgaging
your way to a college education - (www.doctorhousingbubble.com) In California, many of those
buying these $500,000 homes with low interest rates think they got a major
deal. It is likely they are middle class so they are unlikely to qualify
for many grants and aid. So many of these home buyers with kids are
“school obsessed” so they are likely aiming for elite public universities or
top private schools that cost upwards of $50,000 per year. As you can see
from the above chart, many parents are co-signing the loans for their
children. A student going to a private school might end up having $100,000
or more in debt when they are done and many are moving back home. That
co-signer is on the hook as well. The data shows growing default rates: There
is no guarantee of a good paying job in this market even with a college
degree. The unemployment rate of those with private student loans is 16
percent (twice the nationwide headline figure). Of those with a bachelor
degree the unemployment rate was 11 percent. As previously noted, more
private student loan debt is going to for-profit institutions so this is likely
to push the unemployment rate even higher than the headline unemployment
rate. So you have to wonder how eager will these young graduates be to
purchase that first home and take on more debt?
Second
mortgages hold short sellers hostage - (www.ochousingnews.com) Why do short sales take so
long? Basically, banks don’t want to take a loss, and short sales cause them to
lose money — a lot of money. Short sales
come in two basic varieties; properties with second mortgages and properties
without. If a property does not have a second mortgage, short sales are
generally quicker and easier to approve. The first mortgage is often covered by
mortgage insurance, and as a percentage of the total loan amount, any losses
are generally small. If a property has a second mortgage — and millions do —
then the situation becomes much more complicated. In lien priority, when a property sells in a
short sale, the first mortgage holder gets paid in full before the second
mortgage holder gets a penny. There is no sharing of losses by law. Therefore,
if the first mortgage is underwater, the second mortgage has no collateral
backing, and if the property goes to foreclosure, the mortgage is worth nothing
— a 100% loss. During the housing bubble, banks often held second mortgages on
HELOCs on their own books and sold off the first mortgage to MBS pools. As a
result, the major banks hold billions of dollars in underwater second mortgages
worth basically nothing. Of course, thanks to mark-to-fantasy accounting,
that’s not how they record them on their books.
Obama
still trying to explain 'you didn't build that' comment - (www.washingtontimes.com) Amid signs that Republican Mitt Romney’s attacks on President Obama’s
economic views are having an impact, Mr. Obama is trying for the second
straight week to clarify his comments that self-made entrepreneurs aren’t
entirely responsible for their own success. At a campaign event in California
Monday night, Mr. Obama accused the Romney campaign of “splicing and dicing”
his controversial comments for partisan gain. And he tried to emphasize his
belief in American entrepreneurship. “I believe with all my heart that it is
the drive and the ingenuity of Americans who start businesses that lead to
their success,” Mr. Obama told supporters at a rally in Oakland. “I always have
and I always will. The ability for somebody who’s willing to work hard, put in
their sweat and their sacrifice to turn their idea into a profitable business,
that’s the nature of America. That’s what helped make our economy the envy of
the world.”
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