Thursday April 30 Housing and Economic stories

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TOP STORIES:

Lose California public pensions billions, get a bonus! - (www.sacbee.com) California's two biggest public employee pension funds handed out millions of dollars in bonuses last year to their top executives and investment managers, despite losing billions of dollars. The biggest bonus check, $322,953, went to Christopher Ailman, chief investment officer of the California State Teachers' Retirement System. It nearly doubled his base pay of $330,000 for fiscal 2007-08. Ailman's counterpart at the California Public Employees' Retirement System, Russell Read, received a $208,677 bonus to his $555,360 base pay in August, more than a month after he had resigned from the fund's top investment job. Despite continued losses in the market, both funds expect to cut more bonus checks, which they call "incentive awards," this summer. Retirement fund officials say bonuses like those paid to Ailman and Read help attract and retain top talent. It's also cheaper than hiring outside help to manage investments, they say. Still, the practice has its critics. "Paying bonuses – especially right now – it just doesn't look good," said James McRitchie, a retired state worker and publisher of the Elk Grove-based PERSwatch.net. "It just doesn't go over well with the public." Assemblyman Anthony Portantino, D-Pasadena, is pushing legislation to freeze pay for state workers who make more than $150,000 annually until 2012. The bill, AB 53, initially included a freeze on bonuses, but those provisions were removed "over concerns of breaking existing contracts," said Portantino spokesman Michael Tamariz. CalPERS has opposed the bill, saying that the mere whiff of limiting state employee pay has already hobbled its ability to compete for the best talent. "(We've) lost two potential investment candidates in recruitments lately due to the uncertainty of pending legislation that would affect incentives," said CalPERS spokeswoman Pat Macht. Nationwide, funds losing: The CalPERS and CalSTRS boards approve their respective funds' bonus plans, which reward employees depending on how investments fare compared to other portfolios or market benchmarks. So when the losses pile up – and both funds have lost billions of dollars since late 2007 – employees can still win bonuses if they lose less money than their benchmarks. Over the past 18 months, public pension plans nationwide have lost a combined $1.3 trillion, according to the Center for Retirement Research. A recent study of state pension funds found that obligations outpace assets by $237 billion.

Rising Risks in Municipal Bonds Worry Investors - (www.time.com) Municipal bonds have long been a no-brainer investment. But not any more. A growing number of analysts and financial planners are raising doubts about the bonds of local and state governments. They worry that a weakened economy, along with rising cost of benefits for city workers, will make it tougher for local governments to meet their obligations. "Munis don't offer the same sleep-at-night safety they used to," says Christopher Cordaro, a financial planner at Regent Atlantic in Morristown, NJ. Earlier this year, Cordaro, who has been a planner for 22 years, began advising clients for the first time in his career to trim their muni bond holdings. "Municipalities across the country are in rough shape." (See TIME's "25 People to Blame for the Financial Collapse") Cordaro isn't the only one having doubts. Last week, ratings agency Moody's lowered its outlook for the debt of local governments to 'Negative.' In its report, the ratings agency said local governments face "unprecedented fiscal challenges," over the next 18 months. The report also noted that this was the first time Moody's analysts were broadly worried about the ability of local governments to pay back their debts. Among the places Moody's finds to be most troubled are cities in Florida and California, because of the real estate bust, Indiana, Michigan and Ohio, which are being hurt by the drop in manufacturing, and Connecticut, New Jersey and New York, due to the financial crisis.

Some houseowners see giving up as best option - (www.msnbc.msn.com) Teresa Bondora and her family abandoned their two-story brick home in Atlanta rather than fall behind on their mortgage and $30,000 worth of home renovation debt. The decision was tough for Bondora, a home-schooling curriculum developer raised to believe that preserving good credit and paying bills on-time were key adult responsibilities. “I was willing to walk away and live with someone else while we get out of debt,” Bondora says. “I’m not worried about anything anymore.” Bondora isn’t the only homeowner making an about-face in her approach to the stigma of foreclosure; if anything, homeowners like her see that efforts to prevent foreclosure may make them more financially vulnerable than succumbing to it and starting anew. Despite new refinancing and loan modification programs made available under the Obama administration, mortgage experts say that many homeowners still face difficult choices in the short run. The latest options may not affect the market for a few more quarters, they say. When the real estate market first showed signs of weakness in fall 2006 — right when the Bondoras listed their home for $170,000 — the family faced tough circumstances. They watched at least a dozen seemingly qualified buyers fail to secure financing, and as Bondora’s husband, a contractor, began to see work evaporate. Buyers’ financing troubles continued over the course of the next nine months, even when the Bondoras dropped their price to $130,000 — a money-losing proposition for the family. With credit card debt mounting and no sale in sight, they borrowed from extended family to pay bills. Bondora began suffering panic attacks.

California unemployment rate highest since 1941 - (www.sfgate.com) The state unemployment rate soared to 11.2 percent in March, the highest since before World War II, leaving a record 2.1 million Californians out of work, according to a report issued Friday. Employment Development Department spokeswoman Patti Roberts said the March figure surpasses the 11 percent rate that occurred during the 1980s recession and brings California close to the jobless level of January 1941, when unemployment stood at about 11.7 percent. Roberts said unemployment is estimated to have been as high as 25 percent during the Great Depression. The highest reliable figure in state archives is the 14.7 percent rate in October 1940. The U.S. unemployment rate for March stood at 8.5 percent. "California's higher rate of job loss is primarily the result of greater exposure to the housing downturn," said Stephen Levy, with the Center for the Continuing Study of the California Economy in Palo Alto.

CNN Misses the Tea Party Point - (www.optionarmageddon.ml-implode.com) CNN and other left wing media organizations tried to write-off the “tea party” protests as some sort of manufactured right-wing conspiracy. They totally missed the point. Sure, lots of right-wing organizations promoted the tea parties, but listen to the message. The people who attended are sick of big government period. Many (most?) blame Republicans and Democrats equally. The lefties and the righties are still so blinded by their hatred of each other, they don’t see the emerging super-majority in the middle. They don’t see (yet) that they are actually in violent agreement, incensed as they are with nonstop government spending, in particular the bank bailouts. Anger over the bank bailouts unites virtually the entire country. And how very ironic that this inchoate union of right and left is forming in opposition to Mr. Post Partisan himself, Barack Obama. Anyway, this is a great video. It captures very clearly CNN’s editorial viewpoint of the affair. The reporter actually argues with the protester in the segment that was aired. It then features (at the 2:15 mark) a highly revealing confrontation with the CNN reporter and an articulate protester who shows why CNN’s viewpoint is totally misguided.

Fed Mulls Literal Destruction Of Your Savings - (www.nytimes.com) WITH unemployment rising and the financial system in shambles, it’s hard not to feel negative about the economy right now. The answer to our problems, however, could well be more negativity. But I’m not talking about attitude. I‘m talking about numbers. Let’s start with the basics: What is the best way for an economy to escape a recession? Until recently, most economists relied on monetary policy. Recessions result from an insufficient demand for goods and services — and so, the thinking goes, our central bank can remedy this deficiency by cutting interest rates. Lower interest rates encourage households and businesses to borrow and spend. More spending means more demand for goods and services, which leads to greater employment for workers to meet that demand. The problem today, it seems, is that the Federal Reserve has done just about as much interest rate cutting as it can. Its target for the federal funds rate is about zero, so it has turned to other tools, such as buying longer-term debt securities, to get the economy going again. But the efficacy of those tools is uncertain, and there are risks associated with them. In many ways today, the Fed is in uncharted waters. So why shouldn’t the Fed just keep cutting interest rates? Why not lower the target interest rate to, say, negative 3 percent?

Stiglitz Says Ties to Wall Street Doom Bank Rescue - (www.bloomberg.com) The Obama administration’s bank- rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said. “All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.” The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street. “We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said. The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.” Rather than continually buying small stakes in banks, the government should put weaker banks through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said.




OTHER STORIES:

Warren Buffett Resolves 'Mystery' of BofA Stake - (www.cnbc.com)
Why Buffett Likes Wells Fargo: It Wasn't 'Dumb' - (www.cnbc.com)
US May Not Need More TARP Funds to Shore Up Banks - (www.cnbc.com)
Oracle Deal With Sun Micro Surprises Tech-Watchers - (www.cnbc.com)
Recession Likely to Go Through Summer: Conf. Board - (www.cnbc.com)
Economy Difficult, but Signs of Firming Seen: GE CEO - (www.cnbc.com)

Banking insiders protect themselves through control of government - (www.solari.com)
Ken Lewis' ouster as Bank of America chairman urged - (www.latimes.com)
US Global Hegemony - The Beginning and the End - (www.midasletter.com)
'Unhappy China' bestseller claims Beijing should 'lead the world' - (www.telegraph.co.uk)
You give bankers 1.3 trillion and do they say thank you? - (www.guardian.co.uk)

Volcker Says Feds Authority Probably to Be Reviewed - (www.bloomberg.com)
What Good Are Economists Anyway? - (www.businessweek.com)
Brooklyn real-estate prices continues to improve for buyers - (www.brooklynpaper.com)
Personal Finance Columnist Caught Up in Fraud - (www.nytimes.com)

Silicon Valley Foreclosures, Mar'09 Data - (www.viewfromsiliconvalley.com)
Top Ten Enemies of Single Payer Healthcare - (www.healthcare-now.org)
Navy SEALs begin pirate patrols on Wall Street? - (www.thebarricadeblog.com)
House Staging with Photoshop! - (www.harrisonburghomes.com)