Sunday January 25 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Revenge of the Girly-Men - (optionarmageddon.ml-implode.com) Great old clip of Arnold after he won election and raising spending from $104B to 140B and asking his naysayers not to be economic girly-men. A little pessimism might have served Ahhnold well. Instead he CA’s state budget blew up from $104 billion to nearly $140 billion on his watch. Now he can’t pay tax refunds. AP: California’s controller says he will begin a 30-day delay on tax refunds and other payments starting Feb. 1 because the state is running out of money. Controller John Chiang said Friday he must delay $3.7 billion in payments next month because lawmakers have failed to address California’s growing deficit. With a $41.6 billion shortfall over the next year-and-a-half, the state is on the brink of issuing IOUs. Chiang says his office must continue education and debt payments but will defer money for tax refunds, student aid, social services and mental health programs. A severe drop in revenue has left the state’s main bank account depleted. The state had been relying on borrowing from special funds and Wall Street investors; those options are no longer available.

Big Slide in 401ks Spurs Calls for Change - (online.wsj.com) The stock-market rout has ignited a crisis of confidence for millions of Americans who manage their own retirement savings through 401(k) plans. After watching her account drop 44% last year, Kristine Gardner, a 35-year-old information-technology project manager in Longview, Wash., feels no sense of security. "There's just no guarantee that when you're ready to retire you're going to have the money," she says. "You either put it in a money market which pays 1%, which isn't enough to retire, or you expose yourself to huge market risk and you can lose half your retirement in one year." Many retirement experts have come to a similar conclusion: The 401(k) system, which has turned countless amateurs like Ms. Gardner into their own pension-fund managers, has serious shortcomings. "This is the biggest test that the 401(k) plan has seen to date, and it has failed," says Robyn Credico, head of defined-contribution consulting at Watson Wyatt Worldwide, noting that many baby boomers are ready to retire. "We've put people close to retirement in a very challenging position." The most obvious pitfall is that 401(k) plans shift all retirement-planning risks -- not saving enough, making poor investment choices, outliving savings -- to untrained individuals, who often don't have the time, inclination or know-how to manage them. But even when workers make good choices, a market meltdown near the end of their working careers can still blow their savings to smithereens. "That seems like such a fundamental flaw," says Alicia Munnell, director of Boston College's Center for Retirement Research. "It's so crazy to have a system where people can lose half their assets right before they retire." Congress has begun looking at ways to overhaul the 401(k) system. At hearings in October, the House Education and Labor Committee heard from a variety of witnesses. Some proposed setting up "universal" retirement accounts, which would cover all workers. One such plan called for establishing accounts that would receive annual contributions from the federal government, and would offer a guaranteed, but relatively low, rate of return. Another proposed automatically investing contributions in an index fund that holds stocks and bonds, with the mix getting more conservative as workers approach retirement. Other witnesses proposed less drastic changes, such as providing better education.

Calif. jobless benefit system overwhelmed – (www.upi.com) A flood of telephone calls, an antiquated computer system and dwindling funds are overwhelming California's jobless benefits delivery system, officials say. At the same time as the state's unemployment insurance fund is running low, California's unemployment rate is approaching a 15-year high, the Los Angeles Times reported Sunday. The jobless rate hit 8.4 percent in November, up from 8.2 percent in October. Millions of telephone calls to unemployment insurance processing centers are not being answered and the operation's computer system is 30 years old. Similar problems are occurring in at least 10 other states. Ingrid Evans, director of unemployment insurance for the National Association of State Workforce Agencies in Washington, told the Times "calls are coming in fast and furious in all the states." "The magnitude of it cannot be overstated," she said.

China Not A Limitless Sponge For U.S. Debt - (www.forbes.com) Growth of Chinese foreign exchange reserves slows at a time when Washington needs Beijing to buy Treasuries more than ever. In the past few years, the ballooning of China's foreign exchange reserves seemed a given, the yin to the yang of rising U.S. debt. But growth of the country's reserves slowed last year for the first time in nearly a decade, leading many to wonder if Beijing will slow its Treasury purchases as the U.S. government seeks to ramp up debt issuance to fund stimulus spending. China's foreign exchange reserves climbed by 27.3% in 2008, to $1.9 trillion, down sharply from growth of 43.3% in 2007, based on central bank figures quoted by state news agency Xinhua last week. The Xinhua report attributed the yearly slowdown--the country's first since 2000--to shrinking trade surplus, an outflow of speculative capital and plunging foreign direct investment.

Why are the banks in crisis again? - (www.ft.com) The ugly downward lurch of US and European banks in the past 10 days is unsettling, if not wholly unexpected. What is behind it? And where do we go from here? One likely answer to the first question is that with year-end window dressing out of the way, the banks are starting to confront reality. Citigroup has switched abruptly from defending its conglomerate structure to breaking it up. Barclays has stopped talking about hiring investment bankers and is firing 2,100 instead. And so forth. In essence, the banks are staring down the twin barrels of a shotgun. The old problems of rancid assets remain, and the new ones of recession are kicking in. As a result, the system looks like it will stay glued up for a while. The recent fall in interbank rates might suggest otherwise but as Richard Portes of the London Business School points out, they are not the whole story. In Europe, he puts the amount parked by the banks with the European Central Bank at well over €300bn. They are losing money on those deposits. But that is evidently preferable to risking the cash by putting it to work. In the US, that problem might seem less severe. Note, though, that Bank of America’s main justification for its latest government bail-out was that Merrill Lynch’s balance sheet turned out to be unexpectedly horrible on closer inspection. What better excuse for banks to distrust each other as counterparties – or for investors to shun banking stocks? The BofA-Merrill saga illustrates another truth. One natural remedy for the banks is consolidation. But it has to be conducted along specialist lines rather than to create gigantic organisations. Some of the big government-sponsored shotgun weddings – BofA/Merrill, JP Morgan/Washington Mutual, Lloyds/HBOS – have massive scope to go wrong.

Buffett says US is in 'economic Pearl Harbor' - (www.startribune.com) Billionaire investor Warren Buffett says the U.S. is engaged in an "economic Pearl Harbor." In an interview that aired Sunday on "Dateline NBC," the chairman and CEO of Berkshire Hathaway Inc. said the nation's economic situation is not as bad at World War II or the Great Depression, but it's still pretty severe. Buffett said Americans are in a cycle of fear, "which leads to people not wanting to spend and not wanting to make investments, and that leads to more fear. We'll break out of it. It takes time."

Citizens forced to swim in shark-infested waters to benefit economy - (ashizashiz.blogspot.com) The newest idea---that of creating "bad banks", government institutions that simply buy up everyone's bad assets---signals the beginning of the end. We have moved from the regime of the delusional into the regime of the completely insane. No, not simply insane: Criminally Insane. Ben Bernanke will pursue his White Whale without any care for the lives of his crew, US! Bernanke's "bad banks" will spend trillions upon trillions of dollars to buy up all of the toxic assets that are secretly housed in the vaults and on the hard drives of the nation's banks. Once all of these institutions have balance sheets that appear healthy, Bernanke and his Friedmanite friends assume that commerce and trading and lending and borrowing will recover and our economy will begin to grow anew. But it won't---unless of course the federal government holds a gun to the heads of everyone involved---banks and citizens alike---and tells us all to lend and borrow and spend, or else. And even then it will take a helluva lot of guns to make even a teeny weeny dent in the situation. But they'll try nonetheless, because saving the system is simply more important to them then are the lives of the millions who will perish during this the most grand coercion in the history of history. It reminds me of the scene in the movie JAWS, in which the mayor of Amity Island forces citizens to swim in shark-infested waters because, if they don't he argues, the economy will suffer. And as we all know, as few legless swimmers and dead kids is a small price to pay for economic growth. But why, you ask, won't the economy begin to grow once the banks and other financials have their balance sheets cured of the toxicity that currently poisons the corpus? Here's why: 1. A nuclear explosion of global unemployment will leave most folks unable to service any new debt.


OTHER STORIES:

Cost of Borrowing Zooms Up for Corporations - (www.nytimes.com)
Jim Rogers Says Worried About Dollar, Favors China - (www.bloomberg.com)
‘Time to Sell’ Treasuries, Biggest Korean Fund Says - (www.bloomberg.com)
No sign of Florida financier or his clients' millions - (www.usatoday.com)
UK unveils second bank rescue - (www.ft.com)
Britain Announces New Bank Bailout - (www.nytimes.com)
British Banks, After Bailout, in Line for More - (www.nytimes.com)

Obama Advisers Say They Will Aim TARP Funds at Widening Credit - (www.bloomberg.com)
Report: New York to lead US cities in job losses - (finance.yahoo.com)
California Finds Public-Works Spending No Unemployment Cure-All - (www.bloomberg.com)
RBS expects full-year loss up to 28 billion pounds - (finance.yahoo.com)
Prepare to bury the fatally wounded big banks - (www.ft.com)
Book says inflation rates of 1970s could return - (www.usatoday.com)

A weak housing market is good for me - (property.timesonline.co.uk)
California's budget crisis may delay tax refunds - (www.marketwatch.com)
High-income Debtors Being Foreclosed On In California - (www.washingtonpost.com)
Obama team weighs government bank to push bad debts onto taxpayers - (finance.yahoo.com)
Federal Mortgage Banks Already Burning Taxpayer Money Rapidly - (www.washingtonpost.com)
Lessons from when the bubble burst in Japan - (search.japantimes.co.jp)
Maybe the bond market is right - (www.seekingalpha.com)
Interest Rate Drop Has Dire Results for Legal Aid - (www.nytimes.com)

Rents falling nationally - (www.marketwatch.com)
Loan Fraud Seen on the Rise - (www.nytimes.com)
Yet another hedge fund manager missing - (www.bloomberg.com)
Hedge-Fund Managers Bullish on MREs, Guns, Inflatable Lifeboats - (www.boingboing.net)
Foreclosure aid likely to help 4 foolish states, hurt everyone else - (www.businessweek.com)
Foreclosure Heat Map - (www.ritholtz.com)
Bailout Is a Windfall to Banks, Not Borrowers - (www.nytimes.com)
Bankers First - (www.portfolio.com)