Tuesday February 24 Housing and Economic stories

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TOP STORIES:

Congressional Junkets Defended - (online.wsj.com) As members of Congress fume over executives' inflated salaries and lavish travel, lawmakers are getting a raise, and making travel plans. Republican members of the House of Representatives took a break earlier this month from bashing the Democrats' $800 billion stimulus bill and journeyed here to the Homestead Resort, an 18th-century mountain spa, where the diversions include golf, skiing, skeet shooting and falconry. Republican lawmakers paid for their travel and lodging, mostly with campaign funds. Staffers' bills and the rest of the tab was picked up by the Congressional Institute, which is funded by 54 "patrons," including General Electric Co. and the National Association of Home Builders. About 45 lobbyists attended a dinner on opening night. House Republican Conference spokesman Matt Lloyd, said Republicans accept partial corporate funding of the retreat because "We don't believe in using taxpayer money." The Breakers Palm Beach, site of a coming Republican fund-raiser. A few days later, as the stimulus bill inched forward, Democrats held a two-day issues conference at the Kingsmill Resort & Spa in Williamsburg, Va., a property owned by brewer Anheuser Bush-Inbev NV and whose spa is known for its hops and chamomile massage. Taxpayers helped foot the bill, which was paid partly with money appropriated for congressional office expenses. "Our issues conference, especially this year, was a very serious working session," said Emily Barocas, spokeswoman for the Democratic Caucus. President Barack Obama took his maiden Air Force One voyage to rally support from fellow Democrats for the stimulus plan. The sour economy and public outrage have put a damper on corporate junkets to posh resorts, especially for banks that took taxpayers' money as part of the financial rescue plan. But as they fume over inflated salaries and lavish travel by executives whose companies are on the federal dole, members of Congress are getting a raise, and making travel plans. Last month, when 600,000 Americans lost their jobs, the House and Senate allowed themselves a $4,700 cost-of-living raise, bringing their annual salaries to $174,000.

With No Budget, California to Cut 20,000 State Jobs - (www.cnbc.com) California, which is on the brink of running out of cash, will notify 20,000 state workers on Tuesday their jobs may be eliminated, a spokesman for Governor Arnold Schwarzenegger said on Monday. The announcement came a day after California lawmakers narrowly failed to pass a $40 billion budget that would have plugged the state's deficit with a mix of tax hikes and spending cuts. "In the absence of a budget, the governor has a responsibility to realize state savings any way he can," said Aaron McLear, a spokesman for the Republican governor. "This is unfortunately a necessary decision." The layoff notices will affect about 20 percent of state workers, McLear said, adding the cuts would extend to every part of state government. The positions would be eliminated in June in preparation for California's next fiscal year, which starts in July. California, America's most populous state and the world's eighth biggest economy, has experienced a dramatic fall in revenues because of the housing downturn, rising unemployment and a sharp pullback in consumer spending.

Retailers' loss of revenue hammers city and state budgets - (www.usatoday.com) In the world of shopping centers, strip malls and the cities that house them, a closed Ann Taylor here or an out-of-business Circuit City there might not matter much. But the timing and immensity of the current downturn in retail are dire, and not just for the employees who lose jobs, the company shareholders and the shoppers who no longer can buy from their favorite stores. Cities — entire regions, even — that boomed as Americans shopped till they almost dropped for more than a decade are struggling mightily because spending has almost slammed to a stop. The resulting store closures (150,000 are expected this year), steep declines in sales taxes collected by cities and states, and the plethora of empty buildings are wreaking havoc on budgets, wrecking town center plans and ruining dreams for revitalization. Outside St. Louis, the decline of Crestwood Court mall, which is more than half vacant, is crushing the city's budget. About half of the city's $14 million in revenue in 2008 came from sales taxes, which were down almost 10% last year. Sears is the only major tenant left at Crestwood. Dillard's left the mall a couple of years ago, and many smaller stores have followed. The ultimate blow could be Macy's planned closing in April, but mall owner Centrum Properties is hoping to keep the existing tenants and perhaps use some of the other space for artists until it tries to convert the mall into an open-air center late next year or in 2011. Sixty-year-old roads may not get repaired; parks may not get improved; and property taxes may have to rise. "Most people would agree we were too heavily reliant on sales taxes for some time," says Jim Eckrich, city administrator. "But the city succeeded for a long time with those sales taxes."

Government pension agency braces for recession - (www.latimes.com) The deepening recession spells trouble for a little-known government corporation that insures the pensions of 44 million workers and retirees. The Pension Benefit Guaranty Corp. already has an $11 billion deficit that seems sure to grow larger as Corporate America suffers through the worst economic crisis since the Great Depression. With companies reporting shortfalls in their pension funds, it's all but certain that the PBGC will be forced to take over the pension plans of a rising number of bankrupt businesses. That means more red ink at the corporation before things possibly can improve. The future financial health of the agency is hard to forecast. It is hinged on interest rates, the length of the recession and the PBGC's own luck in playing the market, where it has billions invested. The agency has $63 billion in assets. But it is obligated to spend $74 billion on pension benefits in the coming years. The PBGC might have time to rebound, but over the long term it might become insolvent and require a bailout. "Someday -- probably more than 20 years from now -- there's a significant chance that somebody is going to have to pay the piper," said former PBGC Director Charles E.F. Millard, a Bush administration appointee who stepped down on Jan. 20 when Barack Obama became president. "In the near- to medium-term, there will be no need for a bailout of PBGC."

Comrade Obama May Press Banks to Cut Mortgage Payments - (www.nytimes.com) Comrade Barack Obama, is trying to force banks to cut mortgage payments. President Obama’s plan to reduce the flood of home foreclosures will include a mix of government inducements and new pressure on lenders to reduce monthly payments for borrowers at risk of losing their houses, according to people knowledgeable about the administration’s thinking. The plan, to be announced Wednesday, is expected to include government subsidies for reducing a borrower’s interest rate, which a lender would have to match with its own money. But officials cautioned that subsidies for lower interest rates would not in themselves help many troubled homeowners, because lenders were still likely to view many of those borrowers as bad risks and refuse to restructure their loans. As a result, they have been casting about for sticks as well as carrots to persuade the lenders to take part. Exactly what kind of pressure Mr. Obama would bring to bear remains unclear. One possibility is a stepped-up effort to enact legislation that would give bankruptcy judges new power to restructure mortgages and reduce a borrower’s payments.

Kansas suspends income tax refunds, may miss payroll - (finance.yahoo.com) Kansas has suspended income tax refunds and may not be able to pay employees on time, the state's budget director said Monday. The state doesn't have enough money in its main budget account to pay its bills, prompting Democratic Gov. Kathleen Sebelius to suggest transferring $225 million from other accounts throughout state government. But the move required approval from legislative leaders, and Republican leaders refused Monday. Budget Director Duane Goossen said that without the money, he's not sure the state can meet its payroll. State employees are scheduled to be paid again Friday. Goossen said the state stopped processing income tax refunds last week

Politically, Stimulus Battle Has Just Begun - (www.washingtonpost.com) Thanks to the party-line nature of Congress's votes on the economic stimulus package, the plan to turn around the worst financial crisis facing the country in more than 50 years now carries not only enormous fiscal stakes but also political stakes that are nearly as large. View Only Top Items in This StoryPresident Obama's advisers are betting that the historic legislation he will sign tomorrow will bear fruit quickly, and they plan to do everything they can to highlight evidence of it creating the jobs he has promised. That public relations effort kicks off tomorrow as a two-day swing through the West begins. But the Republican Party has made its own bet: that the stimulus package that Democrats rushed through Congress will have been deemed a failure by the time the 2010 elections arrive, leading voters to rebuke Obama and reward the GOP with much-needed victories. Whichever side proves to be right, the sharp, partisan lines over the stimulus bill make it plain that both parties intend to exact a political cost over last week's votes. And their leaders are looking to history for inspiration as they consider how to maneuver in the weeks and months ahead. For Democrats, the guide is Franklin D. Roosevelt, who even with unemployment still above 20 percent led House Democrats to pick up nine seats in the 1934 midterm elections. Senate Majority Whip Richard J. Durbin (D-Ill.) carries with him "Traitor to His Class," a new biography of how FDR built the Democratic domination that endured for three decades. But Rep. Eric Cantor (Va.), the House minority whip who led the fight to deny Obama every GOP vote for the plan, is studying Winston Churchill's role leading the Tories in the late 1930s, a principled minority that was eventually catapulted into power over the Labor Party. He calls the stimulus bill "a stinker." If the economy turns around, Obama could eventually benefit much as President Bill Clinton did after pushing his economic recovery plan through Congress in 1993 with little Republican support.

Dead End in Detroit - (www.nytimes.com) For all the ups and downs, and more downs, that white-collar workers here have lived through, they have always managed to put on a brave face, assuring one another that the American auto industry will come back stronger than ever. Skip to next paragraphBut now that resolve has given way to grim resignation, as General Motors, Ford Motor and Chrysler have announced wave upon wave of job cuts. After closing plants and shrinking their blue-collar work force, Detroit’s troubled Big Three are cutting white-collar jobs in their hometown at an unprecedented pace — more than 15,000 in the last year, with more to come. Unlike union workers laid off from idled factories, salaried workers have no safety net of health care or guaranteed income for a year. At best, it’s a small severance or buyout, and a voucher for a discount on one of the hundreds of thousands of unsold cars that G.M. or Chrysler has sitting in inventory.

States and Cities in Scramble for Stimulus Cash - (www.nytimes.com) Well before President Obama’s stimulus package completed its tortuous path through Congress last week, state and local officials facing multimillion-dollar budget deficits, crumbling infrastructure and the prospect of massive reductions in services were already jockeying for the upper hand in deciding how the money should be spent. In Missouri, the Department of Transportation says that within 180 days of Mr. Obama’s signing the legislation it is prepared to begin 34 transportation projects, costing $510 million and with the promise of 14,000 jobs. Echoing the thoughts of many political leaders across the country, Mayor Frank C. Ortis of Pembroke Pines, Fla., says simply, “We have a wish list.” And high on that list is money to repair aging sewer pipes in his city of 150,000. When Mr. Obama signs the stimulus bill in Denver on Tuesday, it will release the biggest influx of federal dollars since the days of President Lyndon B. Johnson’s Great Society program. But it also is expected to set off a multitude of political battles across the map: between governors and legislatures, state capitols and city halls, and even between neighboring municipalities. Because the effectiveness of any stimulus plan depends on the money being quickly spent, whether state and local governments can work through the rules and resolve any disputes will have a large impact on the success Mr. Obama’s plan has in lifting the economy.

UBS Predicts Hedge-Funds Assets to Sink 35% - (www.cnbc.com) Global assets of hedge funds may drop to $1.2 trillion by the end of the first quarter, down 35 percent from 2007 as the number of managers decline and funds rely less on strategies that use leverage, a UBS executive said on Tuesday. "We are gonna see a reduction in hedge fund assets, we are gonna see decline in the number of hedge funds, we are gonna see some strategies that will not work in this environment," Timothy Bell, global head of hedge funds advisory at UBS Wealth Management, told reporters in Singapore. Hedge funds had assets worth $1.9 trillion at the end of 2007, which peaked at $1.93 trillion in the middle of 2008, according to data from Chicago-based Hedge Fund Research. These assets dropped to $1.4 trillion at the end of 2008.

OTHER STORIES:

Banks Are Heading Towards Nationalization - (www.cnbc.com)
Clinton Talks Policy 'Harmony' During Japan Visit - (www.cnbc.com)
Japanese Confidence Skids, Aso Takes Another Hit - (www.cnbc.com)
Japan Finance Minister to Step Down After G7 Furore - (www.cnbc.com)
Santander Raises Madoff Compensation: Report - (www.cnbc.com)

S&P sees new systemic risk in CLO defaults - (www.ft.com)
Gold’s glitter attracts investors - (www.ft.com)
Stanford’s Bank Cuts Financing as U.S. Probes Related Broker - (www.bloomberg.com)
Japan Economy Shrinks 12.7%, Steepest Drop Since 1974 Oil Shock - (www.bloomberg.com)
Japan growth plunges to a 35-year low - (www.ft.com)
Russian industrial output falls 20% - (www.ft.com)
Japan’s politicians lose their way at a bad time - (www.ft.com)
Japan's Prime Minister Aso Faces Ugly Economic Truths - (www.time.com)
India warns of growing fiscal deficit - (www.ft.com)
Asia looks to turn latest crisis into opportunity - (www.reuters.com)
Russia's super-rich are super-losers, too - (finance.yahoo.com)
China shares hit 5 1/2-month high - (finance.yahoo.com)
California Lawmakers Reconvene, Remain Apart on Solving Budget - (www.bloomberg.com)
California Lawmakers Fail to Pass Budget Package by One Vote - (www.bloomberg.com)
Obama Opts Against ‘Car Czar’; Geithner, Summers to Head Team - (www.bloomberg.com)
Clinton suggests Tarp go green - (www.ft.com)

Obama to appoint panel for auto recovery - (www.chicagotribune.com)
Honda sees soaring demand for cheapest hybrid - (www.chicagotribune.com)
Declining luxury sales weigh on L’Oréal - (www.ft.com)
Deere in the crosshairs as recession hits farmers - (www.reuters.com)
Decade at Bernie’s - (www.nytimes.com)