KeNo's Housing and Economic Portal: Friday October 11 Housing and Economic stories

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Federal Housing Administration Said to Take Taxpayer Subsidy - (www.bloomberg.com) The Federal Housing Administration will take a taxpayer subsidy for the first time in its 79-year history after efforts to improve its bottom line failed to offset losss on loans it backed during the housing bubble, according to three people familiar with the matter. The government mortgage insurer will draw the money from the U.S. Treasury to shore up its insurance fund by Sept. 30, the end of the current fiscal year, said the people who asked not to be identified because the action hasn’t been announced. Federal budget officials are working to determine the exact size of the cash infusion, the people said. White House officials projected in April that the FHA would need about $1 billion. The agency, which is required to keep enough money on hand to cover all projected future losses, has authority to take the money without prior approval from Congress. The FHA’s need for aid could spur Congress to move more quickly to shrink the agency’s risk and footprint in the mortgage market. Representative Jeb Hensarling, the Texas Republican who leads the House Financial Services Committee, urged swift passage of his bill to largely limit FHA coverage to first-time borrowers purchasing moderately priced homes.

Undisclosed Pension Extras Cost Detroit Billions - (www.nytimes.com) Detroit’s municipal pension fund made undisclosed payments for decades to retirees, active workers and others above and beyond normal benefits, costing the struggling city billions of dollars, according to an outside actuary hired to examine the payments. The payments included bonuses to retirees, supplements to workers not yet retired and cash to the families of workers who died too young to get a pension, according to a report by the outside actuary and other sources. How much each person received is not known because payments were not disclosed in the annual reports of the fund. Detroit has nearly 12,000 retired general workers, who last year received pensions of $19,213 a year on average — hardly enough to drive a great American city into bankruptcy. But the total excess payments in some years ran to more than $100 million, a crushing expense for a city in steep decline. In some years, the outside actuary found, Detroit poured more than twice the amount into the pension fund that it would have had to contribute had it only paid the specified pension benefits.

Congressman Cummings, 'AIG Can Crush You Like a Bug' - Janet Tavakoli -(www.huffingtonpost.com) AIG was in serious financial trouble, and its employees didn't deserve bonuses for 2007, much less 2008. That's how capitalism works when a company is in trouble. Capitalism doesn't reward failure. U.S. taxpayers bailed out AIG and its counterparties (who didn't deserve bonuses, either). Employees earned huge partial bonuses anyway, and no one went to jail. Now, five years later, AIG's new CEO, Robert Benmosche, is acting like a big smug guy who got away with something, because AIG did. Benmosche didn't like that the government criticized AIG for paying lavish "partial" bonuses to hundreds of employees. He said only 10 employees were behind the bad trades. But that's how capitalism works. If your problems are so severe that it damages the entire company, employees don't get paid. Ill-managed companies in deep financial trouble aren't supposed to pay lavish compensation.

Wal-Mart Cutting Orders as Unsold Merchandise Piles Up - (www.bloomberg.com) Wal-Mart Stores Inc. is cutting orders it places with suppliers this quarter and next to address rising inventory the company flagged in last month’s earnings report. Last week, an ordering manager at the company’s Bentonville, Arkansas, headquarters described the pullback in an e-mail to a supplier, who said others got similar messages. “We are looking at reducing inventory for Q3 and Q4,” said the Sept. 17 e-mail, which was reviewed by Bloomberg News. U.S. inventory growth at Wal-Mart outstripped sales gains in the second quarter at a faster rate than at the retailer’s biggest rivals. Merchandise has been piling up because consumers have been spending less freely than Wal-Mart projected, and the company has forfeited some sales because it doesn’t have enough workers in stores to keep shelves adequately stocked.

J.C. Penney Plummets as Goldman Raises Liquidity Concerns - (www.bloomberg.com) J.C. Penney Co., the retailer trying to reverse $1.6 billion of losses in the past year, sank the most in almost seven months after Goldman Sachs Group Inc. said its liquidity will be strained this quarter. The shares fell 15 percent to $10.12 at the close in New York for the biggest one-day since Feb. 28, the day the department-store chain reported the lowest annual sales since at least 1987. “Weak fundamentals, inventory rebuilding, and an underperforming home department will likely challenge J.C. Penney’s liquidity levels in the third quarter,” Kristen McDuffy, at New York-based analyst for Goldman, wrote yesterday in a note to clients. “In order to safeguard against a potentially poor fourth-quarter holiday season, it is likely that management will look to build a bigger liquidity buffer.”

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