Monday June 1 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Hooray For California, Propositions 1A-1E Go Down In Flames - (Mish at http://globaleconomicanalysis.blogspot.com) In April I hoped California, Please Send A Message! Today it happened. California voters soundly defeated Propositions 1A-1E in spite of teachers' unions and other misguided souls wasting millions of dollars in a last minute ad campaign to get Californians to tax themselves to death for the benefit of unions and other undeserving parties. California Ballot Propositions: Seven statewide ballot propositions were on a special May 19, 2009 election ballot in California. 1A-1E went down in flames according to the May 19, 2009, Proposition Results Map. 1F, a proposition to restrict legislative pay raises when there is a budget deficit overwhelmingly passed….. With this success (yes the failure to pass these propositions was a huge success) the budget deficit is $21 billion and counting. Had the measures passed, the deficit would have been $15 billion. At the time it was proposed, the propositions were supposed to close the deficit. The reality is California is losing $2 billion a month with no end in sight. Schwarzenegger is going to have no choice but declare another fiscal emergency. Let's see if the legislature can make some better choices this time, starting with reducing their own pay.

Automotive Pension Disaster; $42 Billion in Pension Promises Completely Unfunded - (Mish at http://globaleconomicanalysis.blogspot.com) Pensions are a critical unresolved issue in the upcoming GM bankruptcy. Either GM's unfunded pension obligations get dumped on taxpayers, GM pensioners see their benefits cut, or some combination thereof. Moreover, even though GM has yet to declare bankruptcy, note the Pension Benefit Guaranty’s Deficit Triples to $33.5 Billion. Pension Benefit Guaranty Corp.’s deficit tripled to $33.5 billion in the past six months as more companies canceled retirement plans amid the U.S. recession, according to the head of the government-owned corporation. The PBGC, set up to protect the employee pensions of bankrupt companies, will tell Congress that its financial condition may worsen amid the likelihood for more pension plan failures. In the first half of the fiscal year that began in October, the PBGC took on almost four times the number of participants as it did in all of 2008. The potential for General Motors Corp. and Chrysler LLC to end their plans has left the PBGC facing the prospect of adding 900,000 current and future beneficiaries. The PBGC, which pays retirement income to almost 44 million Americans, estimates that $77 billion of the automotive industry’s pensions are underfunded, with about $42 billion of that not funded at all. The PBGC’s board approved in February 2008 a new investment strategy to shift more money from safer Treasury securities to stocks, real-estate and private-equity with the potential for greater returns. The change was pushed by former Director Charles E.F. Millard, who is now under congressional investigation for his ties to Wall Street. “Millard’s actions were questionable and should be investigated further, but our main concern is that they are symptomatic of a much bigger problem,” Senator Herb Kohl, a Wisconsin Democrat and chairman of the Special Committee on Aging, said in a statement. “PBGC oversight structure is obviously inadequate if one person’s authority goes unchecked. At a time when we need PBGC more than ever, we have got to take concrete steps to strengthen the agency.”

Fed looks to supply for pointer on rates - (www.ft.com) The Federal Reserve is turning its attention to the impact of the economic crisis on the productive capacity of the US economy – an issue central to any assessment of when it might start tightening monetary policy again. Most officials think the crisis will have some impact on supply because of structural changes that make it difficult to reallocate workers to different sectors of the economy and restricted financing for new business projects. But the mainstream Fed view is that this impact will not be very large, possibly reducing trend growth from about 2.5 per cent to 2 per cent or fractionally higher for a few years. This relatively modest mark-down of the economy’s future supply potential suggests the Fed thinks that excess capacity will continue to put downward pressure on prices for an extended period even if a gradual recovery takes hold. This means the central bank may not be in any hurry to raise interest rates next year unless growth is stronger than it expects or inflation expectations independently move higher. However, the debate inside the Fed is still at an early stage and there is a range of views among policymakers about the supply-side impact of the crisis, which may be hinted at in forecasts released on Wednesday.

U.S. Considers Stripping SEC of Powers in Regulatory Overhaul - (www.bloomberg.com) Scary, as the agency that was asleep at the wheel for so long and has caused the most damage (the Fed) is in position to get more power. The Obama administration may call for stripping the Securities and Exchange Commission of some of its powers under a regulatory reorganization that could be unveiled as soon as next week, people familiar with the matter said. The proposal, still being drafted, is likely to give the Federal Reserve more authority to supervise financial firms deemed too big to fail. The Fed may inherit some SEC functions, with others going to other agencies, the people said. On the table: giving oversight of mutual funds to a bank regulator or a new agency to police consumer-finance products, two people said. The 75-year-old SEC, chartered to oversee Wall Street and safeguard investors, has seen its reputation tarnished as some lawmakers blamed it for missing the incipient financial crisis and failing to detect Bernard Madoff’s $65 billion Ponzi scheme. Any move to rein in the agency is likely to provoke a battle in Congress, which would need to approve the changes, and draw the ire of union pension funds and other advocates for shareholders. “It would be a terrible mistake,” said Stanley Sporkin, a former federal judge and enforcement chief at the SEC. “Whatever the SEC has done or didn’t do, it is still the premier investor protection agency around.” Schapiro Determination: SEC Chairman Mary Schapiro’s agency has been mostly absent from negotiations within the administration on the regulatory overhaul, and she has expressed frustration about not being consulted, according to people who have spoken with her. She has pledged to fight any attempt to diminish the SEC, they said. Treasury Secretary Timothy Geithner was set to discuss proposals to change financial regulations at a dinner last night with National Economic Council Director Lawrence Summers, former Fed Chairman Paul Volcker, ex-SEC Chairman Arthur Levitt and Elizabeth Warren, the Harvard University law professor who heads the congressional watchdog group for the $700 billion Troubled Asset Relief Program.

California Rejects Schwarzenegger’s Budget Measures - (www.bloomberg.com) California voters rejected a package of budget-balancing measures that Governor Arnold Schwarzenegger said were needed to keep a $15 billion deficit from widening to $21 billion. A proposal to limit lawmaker pay passed. “I respect the will of the people who are frustrated with the dysfunction in our budget system,” Schwarzenegger said in a statement from Washington conceding defeat. “In order to prevent a fiscal disaster, Democrats and Republicans must collaborate and work together to address this shortfall.” Five of the propositions were failing with 64 percent of the votes counted, according to California’s elections office. The losing proposals would have capped spending and extended temporary tax increases, directed future surplus money to schools, authorized bonds backed by lottery profits and diverted already dedicated revenue to the budget. Lawmakers put the measures on the ballot in February as part of a compromise to close what was then a record $42 billion budget gap. Since then, the deficit re-emerged as California’s economy, which on its own would be the world’s eighth-largest, worsened amid the national recession. “The longer we wait, the worse the problem becomes and the more limited our choices will be,” Schwarzenegger said.

Bankruptcies Swell Deficit at Pension Agency to $33.5 Billion - (www.nytimes.com) The deficit at the federal agency that guarantees pensions for 44 million Americans more than doubled in the last six months to a record high, reaching $33.5 billion, largely as a result of the surging number of bankruptcies among companies whose pensions it must now take over. The Pension Benefit Guaranty Corporation, as of October, had faced a shortfall of $11 billion. But the combined effect of lower interest rates, losses on its investment portfolio and the increase in the number of companies filing for bankruptcy protection resulted in a deepening of its estimated deficit, officials said Wednesday. Because the agency has $56 billion in assets — most of which is invested in Treasury bonds — it is not facing any prospect of default in the short term, officials said. “The P.B.G.C. has sufficient funds to meet its benefit obligations for many years because benefits are paid monthly over the lifetimes of beneficiaries, not as lump sums,” the agency’s acting director, Vince Snowbarger, said in a statementWednesday. “Nevertheless, over the long term, the deficit must be addressed.” The agency, created by Congress in 1974, is now paying benefits of about $4.3 billion a year to about 640,000 people. Employers nationwide with so-called defined-benefit pension programs pay insurance premiums to the agency in return for a promise that it will take over their pension plan if a company fails. On Tuesday, for example, the agency announced that it had assumed the pension plan once run by the Lenox Group, a bankrupt maker of tableware, giftware and collectibles based in Eden Prairie, Minn. Assuming control of pensions for this company’s 4,300 workers will cost the agency an estimated $128 million — the difference between what Lenox had in its pension fund and what the total estimated obligations are. With the bankruptcy of Chrysler and a possible similar move by General Motors, the agency is facing a record surge in demand. The new deficit estimate takes into account both pensions it has taken over in the last six months, and others it believes it will have to assume control of soon.

Japan’s Economy Shrank Record 15.2% Last Quarter - (www.bloomberg.com) Japan’s economy shrank at a record 15.2 percent annual pace last quarter as exports collapsed and consumers and businesses cut spending. The contraction followed a revised fourth-quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. Gross domestic product fell 3.5 percent in the year ended March 31, the most since records began in 1955, confirming that the recession is Japan’s worst in the postwar era. Exports plunged an unprecedented 26 percent last quarter, forcing companies from Toyota Motor Corp. to Hitachi Ltd. to cut production, workers and wages. Stocks have gained 32 percent since reaching 26-year low in March on speculation worldwide interest-rate reductions and spending by governments will halt the slide in the world’s second-largest economy. “There was a collapse across the board,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. Still, he added that there’s “light at the end of the tunnel” and the economy will resume growing this quarter as companies replenish inventories and stimulus plans at home and abroad take effect. The yen traded at 95.71 per dollar at 11 a.m. in Tokyo from 96.16 before the report was published. The Nikkei 225 Stock Average rose 0.4 percent. The first-quarter contraction was the most severe since records started 54 years ago. Economists predicted the economy would shrink 16.1 percent.




OTHER STORIES:

Southern California median home price falls to $247,000 in April - (www.latimes.com)
Housing: Recovering or Not? - (www.businessweek.com)
Derivatives Market Declines for First Time on Record - (www.bloomberg.com)
Home Depot is ready, but shoppers aren't yet - (money.cnn.com)
U.S. housing starts, permits plumb record lows - (www.reuters.com)

World stocks lackluster after mixed US trade - (news.yahoo.com/s/ap)
Crude trades over $60 before inventories data - (www.marketwatch.com)
Euro up against the dollar to $1.3661 - (finance.yahoo.com)
U.S. Stock-Index Futures Gain as Exxon, Bank of America Advance - (www.bloomberg.com)
Another Bottom for Stocks Coming: Rogers - (www.cnbc.com)
U.S. May Add New Financial Watchdog - (www.washingtonpost.com)
U.S. Weighs How to Let Banks Give Money Back - (www.nytimes.com)
Fed offers spur to buy bubble-era securities - (www.ft.com)
Senate Passes Bill to Restrict Credit Card Practices - (www.nytimes.com)
VIX Falls to Lowest Since Lehman Bankruptcy as VStoxx Drops 32% - (www.bloomberg.com)
Japan’s Economy Shrank Record 15.2% Last Quarter - (www.bloomberg.com)
China tightening controls on bank lending - (finance.yahoo.com)
In Japan, Secure Jobs Have a Cost - (www.nytimes.com)

U.S. Economy: April Housing Starts Drop on Apartments - (www.bloomberg.com)
Mortgage applications rose 2.3% last week: MBA - (www.marketwatch.com)
Southern California median home price falls to $247,000 in April - (www.latimes.com)
Bank of America Raises $13.5 Billion in Sale of Stock - (www.bloomberg.com)
Hewlett-Packard Drops After Saying Slump Will Persist - (www.bloomberg.com)
New Auto Standards vs. Old U.S. Preferences - (www.washingtonpost.com)
Jamie Dimon on the ‘Traumatic TARP Experience’ - (www.nytimes.com)