KeNo's Housing and Economic Portal: Sunday June 14 Housing and Economic stories

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Public employee pension data must be open - (www.contracostatimes.com) DONNA IRWIN doesn't want us to know how much her public employee pension is. The former captain who worked in the Contra Costa Sheriff's Office for 37 years before retiring in 1992 with a base salary of about $68,000 a year now receives a pension of more than $100,000 annually. The question is, how much more? She doesn't want the retirement association to tell us and she's gone to court to try to block disclosure. The challenge pits her claims of privacy against the public's right to know how its money is being spent. The case, thought to be the first of its kind in the state, threatens to seal information critical to understanding how public employee pension systems work at a time when taxpayer costs are soaring and experts are warning that the system is financially unsustainable. Many readers have called or written in the past couple of months outraged after reading my reports on pension spiking. In past columns, I explained how Craig Bowen, the retired chief of the San Ramon Valley Fire Protection District, had converted his $221,000 annual salary into a yearly pension starting at $284,000. And how Peter Nowicki, the chief of the Moraga Orinda Fire District, converted a $185,000 annual salary into a $241,000 yearly pension. The reports were possible because I was able to obtain records from the Contra Costa County Employees' Retirement Association that documented the pension amounts and the underlying calculations. As a result, I was able to detail not only the exorbitant payments but also the methods used to obtain them. The retirement association released the information to me because of a 2007 state Supreme Court ruling in a case filed by the Contra Costa Times. In that ruling, the high court rejected a claim by current Oakland workers that disclosure of their names and salaries was an unwarranted invasion of privacy. "Counterbalancing any cognizable interest that public employees may have in avoiding disclosure of their salaries is the strong public interest in knowing how the government spends its money," wrote Chief Justice Ronald George. "... (P)ublic access makes it possible for members of the public 'to expose corruption, incompetence, inefficiency, prejudice and favoritism.'" In the case of the two fire districts, my recent columns have prompted community anger that has led the respective fire boards to review their compensation and pension rules. The retirement association's open-records policy, which was drafted to comply with the Supreme Court ruling, made that possible. Meanwhile, a taxpayer group, the California Foundation for Fiscal Responsibility, this year sought the list of all Contra Costa association retirees drawing pensions of more than $100,000 a year. Similar requests to the mammoth California Public Employees' Retirement System and the parallel systems for teachers and judges, have been honored. But some counties have balked. In Contra Costa's case, the retirement association planned to cooperate. But, before releasing the information, the association sent notice to roughly 450 people whose pensions exceeded the $100,000 threshold warning them that the records would soon be turned over. Irwin was one of the affected pensioners. She went to court last month seeking a restraining order. The case is expected to be heard July 2. Disclosure of the information, Irwin argues, would cause her "irreparable injury in that my name released in conjunction with my monthly pension benefits would place my safety at risk and my privacy rights will be jeopardized." It's almost exactly the same argument the Supreme Court rejected when it ruled in favor of release of salaries of active employees. Irwin is now asking the Superior Court to distinguish between release of information on current workers and those who have retired.

The Looting of America: How Wall Street Fleeced Millions from Wisconsin Schools - (www.alternet.org) Wall Street investment houses went after the $100 billion saved in school-district trust funds like Whitefish Bay's, and made a killing. The Hooking of Whitefish Bay: The great economic crash of 2008 tore right through Whitefish Bay, Wisconsin, population 13,500—though you’d never guess it from looking around town. Located just a few miles north of Milwaukee, this golden village exudes the hopeful self-confidence of the early 1960s. Whitefish Bay’s stately mansions offer breathtaking views of Lake Michigan from cliffs that rise a hundred feet above the shoreline. As you head inland on its tree-lined streets, the houses slowly shrink back into sturdy, middle-class neighborhoods. The stores on Silver Spring Drive, its main shopping strip, have survived despite fierce competition from the nearby Bayshore Mall (a self-contained ultramodern shopping village with faux streets, a faux town square, and real condos). Whitefish Bay also supports an art deco movie theater that serves meals while you watch the show, and a top-notch supermarket, fish market, and bakery. Nothing is out of place—except you, if you happen to be brown or black. Whitefish Bay is 94 percent white and only 1 percent black. There’s a reason the town’s unfortunate moniker is White Folks Bay. Yet this white-collar town voted for Obama—and has always voted for its schools, which are considered among the best in the state. Its residents’ deep pockets supply the school system with all the extras: In 2007, $700,000 in donations provided “opportunities, services and facilities for students.” The investment has paid off. An average of 94 percent of Whitefish Bay’s high school graduates go on to college immediately. And the school dropout rate is less than half of 1 percent. The school district takes its fiscal responsibilities seriously. It has set up a trust fund to pay benefits, primarily health insurance, for retired school employees. When these benefits (called “Other Post-Employment Benefits” or OPEB) were originally negotiated, the expense was modest. But then health care costs exploded. What’s more, accounting rules now require that school districts amortize these costs and post them on their books as a liability each year. Whitefish Bay, like many other school districts, became worried about how to meet these liabilities. Whitefish Bay is a town full of financially sophisticated residents, including its school managers. They sought to pump up the OPEB trust fund quickly so they could keep their promises to retirees. As responsible guardians of the town’s resources, they looked for the highest rate of return at a minimal risk to the fund’s principal. As Shaun Yde, the school district’s director of business services, put it, the goal was to “guarantee a secure future for our employees without increasing the burden on our taxpayers or decreasing the funds available to our students to fund their education.” Meanwhile, Wall Street investment houses had set their sights on school-district trust funds like Whitefish Bay’s. They hoped to persuade districts to stop stashing this money—valued at well above $100 billion nationwide in 2006—in treasury bonds and federally insured certificates of deposit (CDs). Wall Street’s “innovative” securities could provide higher returns—not to mention more lucrative fees for the investment firms. So an old-fashioned financial romance began: Supply (Wall Street’s hottest financial products) met Demand (school districts seeking to build up their OPEB trust funds). It looked like a perfect match. In the Milwaukee area, Supply was represented by Stifel Nicolaus & Company, a venerable, 108-year-old financial firm, which promised to put “the welfare of clients and community first” as it pursued “excellence and a desire to exceed clients’ expectations . . .” As a national firm based in St. Louis, Stifel Nicolaus was fortunate to be represented in Milwaukee by David W. Noack. According to the New York Times, “He had been advising Wisconsin school boards for two decades, helping them borrow for new gymnasiums and classrooms. His father had taught at an area high school for 47 years. All six of his children attended Milwaukee schools.” School boards repeatedly referred to him as their “financial advisor”—a label he never refuted. In 2006, Mr. Noack, an avuncular, low-key salesman (he preferred to be called a banker), urged the Whitefish school board and others in Wisconsin to buy securities that offered higher returns than treasury notes but were just about as safe. He had recently attended a two-hour training session on these new financial products, so he was confident when he assured the officials that they were “safe double-A, triple-A-type investments.” None of the investments included subprime debt, he said. And the deal conformed to state statutes, so the district would be erring on the conservative side. In fact, Noack said, the risk was so low that there would have to be “15 Enrons” before the district would be affected. For the schools to lose their investment, “out of the top eight hundred companies in the world, one hundred would have to go under.” As in many romances, one party seduces and the other is seduced. Noack certainly came across as a caring, considerate suitor. He started his sales drive by inviting area school administrators and board members to tea, “with food and beverage provided by Stifel Nicolaus,” making the gathering seem more like a PTA fund-raiser than a high-powered investment pitch. He merely wanted to introduce the local officials to these new “AA-AAA” investments, as the invitation pointed out. In a series of video- and audiotapes recorded by the Kenosha school board—which later joined forces with Whitefish Bay and three other nearby school districts to invest with Noack—you could discern a pattern to his pitch. First he would stress the enormity of the financial problems the school districts faced in meeting their long-term retiree liabilities. For example, during a seventeen-minute spiel recorded on July 24, 2006, he reminded school board members that, based on Stifel’s actuarial computations, the district had an $80-million post-retiree liability. (In an “updated” Stifel study presented a year later, the estimate rose to $240 million.) In fact, Noack spent much more time describing the extent of the liability and how the district would have to account for it than he did explaining his proposed multimillion dollar investments and loans. Not to worry. He said that he had “spent the past four years” developing investment solutions for such liability problems. Next Noack stressed that he was not about to take unacceptable risks with the schools’ money. His recommended investments were extremely conservative, his approach cautious. As he put it in the July meeting, “our program ... is using the trust to a certain degree [and] a small portion of the district’s contribution, investing the money, making the spread in double-A, triple-A investments and funding a little bit at a time over a long period of time ... and what we make is as risk-free as we can get. . .”

Open-house thefts like a tale out of Dickens - (www.thestar.com) Woman accused of using children to help steal: She came to the open house with a big black purse and two boys – one about 8 years old, the other 10. The younger boy clung to her as realtor Ray De Ridder showed them the house in north Brampton. The older boy stayed with De Ridder in the dining area while the mother and younger child toured the house. "Almost as if he was keeping an eye on me," said De Ridder. The boy was doing just that, while the woman stuffed a digital camera, Nintendo Wii video-game console, cash and jewellery into her bag. Later that day, April 26, the home's frantic owners told De Ridder about the missing items. "I was shocked," said De Ridder, who works with ReMax Real Estate Centre Inc. in Brampton. "It's never happened before." Peel police have charged a 36-year-old woman in connection with thefts at seven open houses in April and May, and said yesterday they have never heard such a Dickensian tale, of someone using children to steal at open houses. "This type of theft ... never heard of something like this," said Const. Wayne Patterson. Two young boys were also arrested, and later released. Their identities are protected under the Youth Criminal Justice Act. Patterson said the Brampton woman, who is accused of stealing jewellery, electronics and cash, may have nicked goods from several more homes.

Grand Theft Auto: How Stevie the Rat bankrupted GM While Paying a Few Privileged Lenders (Morgan Stanley, Citibank, etc.) get 100% of Loans Back - (www.mwcnews.net) Screw the autoworkers. They may be crying about General Motors' bankruptcy today. But dumping 40,000 of the last 60,000 union jobs into a mass grave won't spoil Jamie Dimon's day. Dimon is the CEO of JP Morgan Chase bank. While GM workers are losing their retirement health benefits, their jobs, their life savings; while shareholders are getting zilch and many creditors getting hosed, a few privileged GM lenders - led by Morgan and Citibank - expect to get back 100% of their loans to GM, a stunning $6 billion. The way these banks are getting their $6 billion bonanza is stone cold illegal. I smell a rat. Stevie the Rat, to be precise. Steven Rattner, Barack Obama's 'Car Czar' - the man who essentially ordered GM into bankruptcy this morning. When a company goes bankrupt, everyone takes a hit: fair or not, workers lose some contract wages, stockholders get wiped out and creditors get fragments of what's left. That's the law. What workers don't lose are their pensions (including old-age health funds) already taken from their wages and held in their name. But not this time. Stevie the Rat has a different plan for GM: grab the pension funds to pay off Morgan and Citi. Here's the scheme: Rattner is demanding the bankruptcy court simply wipe away the money GM owes workers for their retirement health insurance. Cash in the insurance fund would be replace by GM stock. The percentage may be 17% of GM's stock - or 25%. Whatever, 17% or 25% is worth, well ... just try paying for your dialysis with 50 shares of bankrupt auto stock. Yet Citibank and Morgan, says Rattner, should get their whole enchilada - $6 billion right now and in cash - from a company that can't pay for auto parts or worker eye exams. Preventive Detention for Pensions: So what's wrong with seizing workers' pension fund money in a bankruptcy? The answer, Mr. Obama, Mr. Law Professor, is that it's illegal. In 1974, after a series of scandalous take-downs of pension and retirement funds during the Nixon era, Congress passed the Employee Retirement Income Security Act. ERISA says you can't seize workers' pension funds (whether monthly payments or health insurance) any more than you can seize their private bank accounts. And that's because they are the same thing: workers give up wages in return for retirement benefits. The law is darn explicit that grabbing pension money is a no-no. Company executives must hold these retirement funds as "fiduciaries." Here's the law, Professor Obama, as described on the government's own web site under the heading, "Health Plans and Benefits." "The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits." Every business in America that runs short of cash would love to dip into retirement kitties, but it's not their money any more than a banker can seize your account when the bank's a little short. A plan's assets are for the plan's members only, not for Mr. Dimon nor Mr. Rubin. Yet, in effect, the Obama Administration is demanding that money for an elderly auto worker's spleen should be siphoned off to feed the TARP babies. Workers go without lung transplants so Dimon and Rubin can pimp out their ride. This is another "Guantanamo" moment for the Obama Administration - channeling Nixon to endorse the preventive detention of retiree health insurance. Filching GM's pension assets doesn't become legal because the cash due the fund is replaced with GM stock. Congress saw through that switch-a-roo by requiring that companies, as fiduciaries, must "...act prudently and must diversify the plan's investments in order to minimize the risk of large losses." By "diversify" for safety, the law does not mean put 100% of worker funds into a single busted company's stock. This is dangerous business: The Rattner plan opens the floodgate to every politically-connected or down-on-their-luck company seeking to drain health care retirement funds. House of Rubin: Pensions are wiped away and two connected banks don't even get a haircut? How come Citi and Morgan aren't asked, like workers and other creditors, to take stock in GM? As Butch said to Sundance, who ARE these guys? You remember Morgan and Citi. These are the corporate Welfare Queens who've already sucked up over a third of a trillion dollars in aid from the US Treasury and Federal Reserve. Not coincidentally, Citi, the big winner, has paid over $100 million to Robert Rubin, the former US Treasury Secretary. Rubin was Obama's point-man in winning banks' endorsement and campaign donations (by far, his largest source of his corporate funding). With GM's last dying dimes about to fall into one pocket, and the Obama Treasury in his other pocket, Morgan's Jamie Dimon is correct in saying that the last twelve months will prove to be the bank's "finest year ever." Which leaves us to ask the question: is the forced bankruptcy of GM, the elimination of tens of thousands of jobs, just a collection action for favored financiers? And it's been a good year for Señor Rattner. While the Obama Administration made a big deal out of Rattner's youth spent working for the Steelworkers Union, they tried to sweep under the chassis that Rattner was one of the privileged, select group of investors in Cerberus Capital, the owners of Chrysler. "Owning" is a loose term. Cerberus "owned" Chrysler the way a cannibal "hosts" you for dinner. Cerberus paid nothing for Chrysler - indeed, they were paid billions by Germany's Daimler Corporation to haul it away. Cerberus kept the cash, then dumped Chrysler's bankrupt corpse on the US taxpayer. ("Cerberus," by the way, named itself after the Roman's mythical three-headed dog guarding the gates Hell. Subtle these guys are not.) While Stevie the Rat sold his interest in the Dog from Hell when he became Car Czar, he never relinquished his post at the shop of vultures called Quadrangle Hedge Fund. Rattner's personal net worth stands at roughly half a billion dollars. This is Obama's working class hero. If you ran a business and played fast and loose with your workers' funds, you could land in prison. Stevie the Rat's plan is nothing less than Grand Theft Auto Pension. It doesn't make it any less of a crime if the President drives the getaway car.

Suicide Loans With 0% Down: Now Sponsored By Government! - (www.businessweek.com) The days of home buying with little or no money down may be back—this time thanks to Uncle Sam. Blamed for contributing to the housing bubble, zero-down-payment loans largely vanished when the market crashed and Congress blocked seller financing for government-backed loans. Now the federal government will be forking over cash at closing. Buyers who haven't owned a home for three years or longer are eligible for an $8,000 tax credit, thanks to a provision in this winter's stimulus package. Now, under a little-noticed program announced May 29, the Federal Housing Administration will steer the funds to cover closing costs directly—in some cases even offsetting the 3.5% minimum down payment FHA loans require. That's enough to cover most or all of the down payment and fees for homes up to the U.S. median price, now about $169,000. Officials hope "monetizing" the tax credit will help revive the housing market, because meeting closing costs is one of the biggest hurdles for new home buyers. The National Association of Home Builders predicts it will add 40,000 to the 160,000 sales originally expected to be spurred by the tax credit. Supporters say the move avoids the worst effects of seller financing, in that the credit is essentially the buyer's money, and government assistance doesn't give sellers a perverse incentive to inflate prices in an unsustainable manner. DOES DOWN PAYMENT AID BOOST DEFAULTS? But while seller financing is riskiest, buyers who get down payment help have higher default rates, whether the money comes from government or other sources. That was shown in research by Austin Kelly—who oversees risk modeling at Fannie Mae and Freddie Mac for the Federal Housing Finance Agency—published late last year in the Journal of Housing Research. FHA data on foreclosures show the same pattern.