KeNo's Housing and Economic Portal: Tuesday June 2 Housing and Economic stories

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Puerto Rico’s Debt Payments Set to Take Up 16% of Next Budget - (www.bloomberg.com) Puerto Rico Governor Alejandro Garcia Padilla proposed a $9.8 billion budget for the fiscal year beginning July 1 that includes the largest chunk allocated for debt repayment in more than a decade. Principal and interest costs are set to reach $1.5 billion, or almost 16 percent of the spending plan, up from 12 percent this year, Luis Cruz, the junk-rated commonwealth’s budget director, said Thursday in a press conference in the capital San Juan. The allocation would be the most since at least fiscal 2004, he said. The U.S. territory’s 3.5 million residents will have to make sacrifices as government services decrease because selling debt to finance spending isn’t an option, Victor Suarez, Garcia Padilla’s chief of staff, said during the conference. “We no longer have the ability to continue financing our operational budgets with deficits paid for by borrowing,” Suarez said. “It will require some sacrifice on the part of citizens. Some government offices will have to close and people will have to travel to a neighboring municipality, county, to receive services.”

Hedge Fund Vultures to the Rescue in Puerto Rico - (www.bloomberg.com) Hedge funds aren’t popular, but they’re perceived in some circles as the last, best hope for the island. Bring ice skates on your next trip to Puerto Rico. There’s a sweet public rink in Aguadilla that claims to be the only place to skate year-round in the Caribbean. “This is a great way to spend some time,” one tourism website says, “especially if it is raining, or it is too hot, or you are too sunburned to go to the beach.” It takes a lot of energy to maintain a skating rink in the tropics, but that’s not a problem: The city of Aguadilla isn’t paying for its electricity. The Puerto Rico Electric Power Authority provides power to Aguadilla and other municipalities in lieu of paying taxes. It bills them when the value of the electricity exceeds what it owes in lieu of taxes, as has happened for the past several years. But the towns aren’t paying. Starved for revenue, Prepa is at risk of default on $9 billion in debt.

Rigging of Foreign Exchange Market Makes Felons of Top Banks - (www.nytimes.com) For the world’s biggest banks, what seemed like the perfect business turned out to be the perfect breeding ground for crime. The trading of foreign currencies promised substantial revenues and relatively low risk. It was the kind of activity that banks were supposed to expand after the 2008 financial crisis. But like so many other seemingly good ideas on Wall Street, the foreign exchange business was vulnerable to manipulation, so much so that traders created online chat rooms called “the cartel” and “the mafia.” No one government agency is responsible for policing the currency market, leaving it up to committees, some run by the banks themselves, to set guidelines. And even when federal authorities adopted rules to rein in Wall Street a few years ago, they exempted certain foreign exchange transactions, a little-noticed concession to banks.

Broke Kansas To Tax Poor People By Placing $25 Limit On ATM Withdrawals - (www.zerohedge.com) On Saturday, May 2, Kansas Gov. Sam Brownback left Boss Hawg’s Bar-B-Q without leaving a tip for waitress Chloe Hough. It wasn’t that Brownback intended to shortchange his server, but rather when he received his credit card voucher, Hough had marked through the tip line and scribbled the following message to the Governor: “Tip the schools.” If, as the above suggests, the Governor was already unpopular with low-income Kansans, the situation isn’t likely to improve anytime soon because as The Washington Post reports, the state will now place a $25 daily limit on ATM withdrawals using a state-issued benefits card.

Via WaPo: Legislators in Kansas, not trusting the poor to use their money wisely, have voted to limit how much cash that welfare beneficiaries can receive, effectively reducing their overall benefits, as well. The legislature placed a daily cap of $25 on cash withdrawals beginning July 1, which will force beneficiaries to make more frequent trips to the ATM to withdraw money from the debit cards used to pay public assistance benefits. Since there's a fee for every withdrawal, the limit means that some families will get substantially less money. It's hard to overstate the significance of this action. Many households without enough money to maintain a minimum balance in a conventional checking account will pay their rent and their utility bills in cash. A single mother with two children seeking to withdraw just $200 in cash could incur $30 or more in fees, which is a big chunk of the roughly $400 such a family would receive under the program in Kansas.

The Government's Message For Heavily Indebted Students: Don't Pay Us Back – (www.zerohedge.com) Over the course of several years, we’ve chronicled virtually all aspects of America’s $1.3 trillion student loan bubble. We’ve discussed, for instance, the Treasury’s projections of a $3.3 trillion student debt nightmare by 2025. We’ve also outlined why the official data on delinquencies almost assuredly understates the case. The numbers you see, have been adjusted twice. Instead of taking the number of delinquent borrowers over the number of borrowers in repayment, the official figures instead report the number of delinquent borrowers over total borrowers, even those in deferment and forbearance, which ensures the delinquency ratio will be far lower than it would otherwise be. But that’s not all. Borrowers making no monthly payments due to their enrollment in the government’s Income Based Repayment program are not counted as delinquent because in a society built on debt, a “payment” of $0 counts as a “qualified payment” towards the 300 monthly installments needed for the government to “forgive” the balance of the loan. The delinquency data has effectively been “Liesman’d”. Moody’s (when they aren’t busy sparking bank runs) has warned that the proliferation of $0 Income Based Repayment plans threatens to plunge billions in student loan-backed ABS into default and based on the following official Department of Education letter that’s sent to students coming off of the 6-month post-graduation grace period, we can see why the ratings agency is concerned because as you can see, the government can’t wait to tell students how they can avoid repaying their debt.

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