KeNo's Housing and Economic Portal: Wednesday June 10 Housing and Economic stories

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TOP STORIES:

San Francisco Intruding on Free Markets Again, Pushing Forward Rent Restriction Laws - (www.sfexaminer.com) Landlords say proposed rental restrictions may cause vacancies to increase. Supervisor Chris Daly has introduced a package of legislation that he said is intended to provide relief to renters who are struggling to pay during the recession. The proposals would suspend any increases that would cause a tenant’s rent to exceed 33 percent of their income and valued assets. It would also allow tenants to add roommates without rent hikes. The Board of Supervisors Government Audit and Oversight Committee voted Thursday to send the legislation to the full board for a vote June 23. Landlords said that the restrictions would prompt some property owners to yank units off the market which would exacerbate the existing housing challenges for low-income tenants. Daly has dismissed those concerns as commonplace threats used whenever The City considers rent relief. Ted Gullicksen, head of the San Francisco Tenants Union, supported the proposals. “Rents have soared through the roof to the highest points in history,” he said. He added that what San Francisco really needs is “a rent rollback.” Supervisor Eric Mar supported the proposals, although he shared concerns about “unintended consequences of some of the measures, especially how vacant units might shoot up tremendously and might lead to further gentrification.” For the proposals to ultimately become law they would likely need eight votes by the Board of Supervisors. It takes eight votes to override a mayoral veto, and on Thursday Mayor Gavin Newsom said he would veto the bills. “You have the unintended consequence of landlords only renting to very wealthy people. That is not good public policy,” Newsom said.

Chicago To Cut Lifeguard/Swimming Hours 30%, Fine Swimmers When Lifeguards Not Present – (www.chicagotribune.com) Fees for lakefront fun are climbing in some suburbs as the city cuts its swimming hours to trim lifeguard costs. Nothing beats a cheap day at the beach. But in a sour economy, some local beaches are cutting back hours and others are not so cheap. Chicago has reduced its beach swimming hours by 30 percent, citing the cost of lifeguards. Some North Shore towns are reacting to higher demand by adding lifeguards or expanding beach swimming areas -- but they're also charging non-resident visitors more. Which adds up to an overcast outlook at the beginning of the Memorial Day weekend, the traditional start of the beach season. The Chicago Park District will save $700,000 over the summer by trimming hours for the city's 800 or so lifeguards, said Park District spokeswoman Marta Juaniza. Lifeguard times will be 11 a.m. to 7 p.m. instead of 9 a.m. to 8:30 p.m. Swimmers face fines if they enter the water when lifeguards are not present. Chicago's approach is unique for a major city and is "manifestly unwise," warned U.S. Lifesaving Association President B. Chris Brewster. "The reason you've had lifeguards providing services at the time they have is because that's when history shows they're needed," he said. "The failure or absence of lifeguards means potentially death or serious injury. It's a bit unrealistic to expect that laws are going to resolve your public safety problems." Juaniza said Park District statistics show the eliminated beach hours came at times when people weren't swimming, anyway. "We did do the research and discovered a lot of people weren't coming to the beach until noon," Juaniza said. Chicago expects 20 million visitors to its lakefront path and beaches this season, and opened a new beach Friday at 39th Street. Beaches in Lake Forest and Wilmette are under increasing demand, and that has prompted those communities to change policies. To pay for its increasingly burdened lifeguard staff, Lake Forest will charge a $10 flat fee to non-residents, officials say. It used to be free. And this summer, Wilmette's Gillson Park is adding two more lifeguard chairs to a popular beach that keeps expanding southward. Fees also went up by 5 percent for residents and non-residents, said Kathy Bingham, Wilmette superintendent of recreation. Along with shorter hours and higher fees, area beachgoers face the annual concern over high bacteria levels and closings. Among the factors that contribute to beach closings are rainy weather, in which water runoff gathers pet waste and bird droppings to feed bacterial colonies in the lake, said U.S. Environmental Protection Agency regional beach program manager Holly Wirick. Other factors include the heavy presence of birds, trash, warmer water and beach shape.

Obama Should Tell California to Drop Dead - (Peter Schiff at www.safehaven.com) During the height of New York City's financial crisis in the 1970's, President Gerald Ford had the good sense to turn down Mayor Abe Beame's request for a federal bailout. The refusal prompted the famous New York Post headline, "Ford to City: Drop Dead." More than 30 years later, as California Governor Arnold Schwarzenegger makes a similar plea to Washington, I hope President Obama will show similar restraint. Unfortunately, given Obama's recent string of unwise economic decisions, it's hard to imagine that his judgment will suddenly improve. A federal bailout would spare California from having to make spending cuts needed to bring its budget into balance. The matter has become urgent since California voters rejected several tax-hiking ballot initiatives. Rather than taking the vote as a signal to dramatically curtail spending, the state turned to the feds. If they get a free pass, the politicians can avoid fixing any of their past mistakes or preparing California for the future. California, like many states, expended its bureaucracy as the nation's bubble economy inflated. When condos flipped like hamburgers and homeowners flush with equity spent like lottery winners, extra tax revenue flooded into Sacramento. However, instead of saving the money for a rainy day or paying off prior debts, the state government simply ballooned its spending. Now that the bubble has burst, and revenues are severely depleted, it is time for California to reconsider its excesses. Governor Schwarzenegger's claim that a federal guarantee is not a bailout is ludicrous. No one in the private sector will lend California any money because the state can't pay it back. Just like AIG and GM, it needs federal help to stay solvent. And although the Federal balance sheet is in far worse shape than California's, there is one crucial difference: Washington has a printing press, and Sacramento does not. With the ability to pay off debts with newly created funds, a federal default is not a concern. However, if Obama comes to the rescue, none of the needed cuts will be made. Instead, California will continue to operate its bloated bureaucracy and will be in constant need of more bailouts. In other words, if Schwarzenegger gets his bailout, look for him to utter his famous line - "I'll be back." But it's not just Schwarzenegger who will be back, but governors from all the other states as well. After all, if the Federal government bails out California, by what right can they deny similar aid to other states? The bailout will send a clear message that states do not need to cut spending. Similar to the reckless behavior that resulted from federally guaranteed mortgages, federal guarantees on state debt will counteract the market's attempt to force states to act responsibly. As the market accurately prices-in the heightened risk of default, California faces staggering increases in its borrowing cost. Under normal circumstances, this pressure would force the state to act prudently now to diminish the risk of a future default. However, by allowing California to evade the "bond market vigilantes," the stage will be set for much bigger losses. The moral hazards created by state bailouts are tremendous. With federal guarantees given to profligate states, those states that had shown greater fiscal responsibility will face higher interest rates - as their bonds lack a federal guarantee. This creates the perverse incentive for all states to act irresponsibly.

Fed May Alter Strategy As Long-Term Rates Surge - (www.cnbc.com) The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession. But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields. Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries. Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases. Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities. With officials still grappling to divine the factors steepening the yield curve, a speedy decision on whether to ramp up the Treasury debt purchase program or the related pl an to snap up mortgage-related debt seems unlikely. "I'm in wait-and-see mode," said one Fed official who spoke on the condition of anonymity. "We laid out the asset purchase plan and we're following it. That is going to have some affect on various interest rates, but together with a hundred other things. So I don't think we should be chasing a long-term interest rate," the official said. An important clue could come on when Fed Chairman Ben Bernanke testifies about the economy to U.S. lawmakers Wednesday morning. After lowering short term interest rates to near zero in 2008, the Federal Reserve said at its March meeting that it would buy up to $300 billion in longer-term Treasury securities over six months as part of its efforts to increase the money supply and ease the credit crunch of the past two years.

Start-up funding scarce. Who was to blame? – (www.latimes.com) Hattie Bryant and Bruce Camber said they were thrilled when John Garcia told them he had made a fortune as an entrepreneur and could help their company make it big too. Swayed by his sales pitch -- including his claim that he had scores of people lined up to invest in promising companies like theirs -- the Irvine couple said they paid Garcia $50,000 in fees and then waited for the money to roll in. But in the end, the married couple claimed, Garcia didn't find funding and tech support for their 14-year-old company, Small Business School, which produces videos for public television stations. "When you hear his story, you go, 'Wow, he would be a great partner,' " Camber said. "But we learned that if anything seems too good to be true, it is." Garcia, a well-known figure in Orange County entrepreneurship circles, disputes the couple's claim as an attempt to blame him when their business suffered in the economic slump. He said he helped them find the partners, including board members, that they were seeking. But in interviews with The Times, more than a dozen people said they had paid Garcia tens of thousands of dollars in fees with few results to show for it. "Eventually, we couldn't waste any more time with him," said Richard Knapp, who runs a Manhattan Beach security software company called Avanton. Knapp said he retained Garcia in 2005, paying him about $15,000 and giving him a 5% stake in the enterprise. Garcia spent most of his time bragging about his past successes, yet he never produced any funding, Knapp claimed. Garcia, 55, of Santa Ana, disputed the accusations made by Knapp and other dissatisfied clients, and said that he had introduced them to contacts and had consulted with them on their businesses as agreed.

Retired couple have work cut out for them - (www.latimes.com) Joel and Jessica Soffer feel fortunate. The Long Beach residents were able to retire early and still live comfortably enough to provide help for their two adult children while taking annual vacations to such places as Shanghai and Edinburgh, Scotland. When at home, Jessica, 59, volunteers for the American Cancer Society and Joel, 63, rakes leaves at the Japanese Garden at Cal State Long Beach. But after the market downturn last fall, they know they can't continue to live the way they have been living. They are cutting expenses, looking for ways to increase their income and hoping they won't be forced to start punching the clock again. "If we had to, we would go back to work," Jessica said. "But the thought of being accountable every Tuesday, Wednesday and Thursday at 10 a.m. has become unappealing." Since last fall, Joel's retirement portfolio has dropped from $550,000 to $380,000. That was the main source for funding their trips, in addition to their daily living expenses. If the portfolio appreciated 10% in a year, for instance, Joel would sell enough stock to give the couple an equivalent amount in cash. "I can no longer rely on appreciation," said Joel, a former branch manager at Bank of America. The steep losses in the portfolio were mostly the result of his decision to keep 80% to 90% of his retirement savings in stocks and equities when the market started taking a downward spiral last fall, said Donald Hance, a financial planner and founder of Glenmore Financial in Pacific Palisades. "At this stage in his financial life cycle, he shouldn't have exposed himself to so much risk," Hance said. Had Joel kept less than half of his savings in stocks, Hance said, he would have lost half as much as he did. Joel has since parked his savings in a money market fund earning less than 1%. He spends time daily reading financial newsletters and websites and wondering when to reenter the market. "That's what [I] and others do," he said. "We chase the yield. It worked for quite a while." Hance suggests that Joel stop looking to his investments for their "entertainment value" and develop an appetite for boring investments. Selected strategically, he said, these could provide the Soffers with a reliable income stream and keep them from having to go back to work. But they must reduce expenses for the next three years, he said, until Jessica's Social Security income kicks in. "Their portfolio is going to run out," Hance said, "but hopefully we can extend it for as long a period as possible." With a net worth of $1.4 million, the Soffers have enough for the future. Most of it, however, is tied up in the estimated $900,000 value of their home, which they remodeled in 2001. Rather than sell the home and downsize, they wanted to stay there. In addition to Joel's individual retirement account, Jessica has $67,000 in retirement savings. The couple have an additional $41,900 in regular savings. Earnings from those accounts, as well as from Social Security, the Department of Veterans Affairs and other sources, give them a monthly income of $7,200. They have a $6,000 balance on one credit card and owe $8,000 on a home equity line of credit.

Fireman's Fund employees blame company for investments with jailed advisers - (www.contracostatimes.com) Fireman's Fund Insurance Co. has been sued for more than $30 million in damages by 46 former and current employees, many of whom say they lost their life savings due to the company's negligence. The suit alleges that from 1996 to 2007, Fireman's Fund encouraged its employees to attend investment seminars conducted by a group of investors who last week were arrested and charged by Attorney General Jerry Brown with "callously swindling thousands of individuals out of $200 million." Two of the men arrested, Gary T. Armitage, 59, of Healdsburg, and James Stanley Koenig, 57, of Redding, each remain in custody on $5 million bail. In 1986, Koenig pleaded guilty to two counts of mail fraud and was sentenced to two years and six months in a federal penitentiary. Allianz SE of Munich, Germany, one of the world's largest providers of property and casualty insurance, acquired Fireman's Fund Insurance Co. in 1991. Fireman's Fund, which as recently as 2001 employed about 2,400 people in Marin, currently has 950 Marin employees. According to the suit, filed Tuesday in Marin County Superior Court, Fireman's Fund Insurance Co. began to shrink its United States employee base during the mid-1990s. "To accomplish this," the suit says, "Fireman's Fund encouraged its employees to retire early. Fireman's Fund selected and retained investment advisors to deliver this message and promoted those advisors to its employees." The suit alleges that Fireman's Fund selected the company operated by Armitage, AGA Financial, "over other, more reputable companies," such as American Express. The suit says that Fireman's Fund promoted AGA Financial's seminars to its employees via flyers, brochures and e-mail messages, encouraging employees to attend them "in order to receive advice on early retirement in light of the changes in the Fireman's Fund's pension plan." Val Hornstein, the San Francisco lawyer who filed the suit, said that during this time some employees were switched from a defined benefits plan to a cash balance plan, which was less lucrative for older employees. Employees vested in cash balance plans may access their account balance in a lump sum at any time. The suit says that employees were allowed to sign up for the seminars using computer kiosks in the insurance company's offices, and that seminars were conducted at the company's offices in Novato. The suit also says that members of Fireman's Fund's human resources staff were assigned to assist the AGA Financial team with its administrative needs during the seminars. In a press release, Fireman's Fund spokeswoman Susan Murdy responded, "We contracted with a national vendor to offer voluntary retirement planning training. That vendor was responsible for bringing local instructors to Novato to conduct the training. Individuals associated with AGA were among these local instructors. Our contract required the use of standard generic training material that did not endorse particular products." Murdy added, "We continue to believe that we are not responsible for these losses." According to the suit, the AGA Financial team encouraged the insurance company's employees to "retire earlier than previously planned; take lump sum distributions of their retirement benefits; take early and high distributions from their IRAs; take out mortgages or home equity lines of credit on their properties and invest them in unsuitable, high risk, undiversified, imprudent investments," which "were part of a Ponzi scheme."

OTHER STORIES:

General Motors Seen Filing For Bankruptcy Monday Morning - (www.cnbc.com) General Motors and the U.S. government finalized plans for America's largest-ever industrial bankruptcy and a new era for the auto maker.

Bondholders Approve Offer - (www.cnbc.com)

For GM, Bankruptcy Filing Carries Plenty of Risks - (www.cnbc.com) GM's reorganization could be several times harder than Chrysler's because of its global reach and number of investors and suppliers.

Fed May Alter Strategy As Long-Term Rates Surge - (www.cnbc.com)

Students Relying on Loans Wonder Whether Forgiveness Will Last - (www.nytimes.com)

Rise in risk appetite, U.S. deficit fear slam dollar - (www.cnbc.com)

Governor and Comptroller Clash on Pension-Fund Help - (www.nytimes.com)

London Luxury-Home Prices Decline 20% as Banking Jobs Are Cut - (www.bloomberg.com)

Unemployment Probably Topped 9% in May: U.S. Economy Preview - (www.bloomberg.com)

Has economic twilight fallen on nation's Sun Belt? - (news.yahoo.com/s/ap)

California Scrambles Again to Avoid Cash Crunch - (www.cnbc.com)

Geithner wields little leverage in China talks - (finance.yahoo.com)

Zoellick Warns Stimulus ‘Sugar High’ Won’t Stem Unemployment - (www.bloomberg.com)

Antiques dealers lament sales slowdown - (news.yahoo.com/s/ap)

Bankruptcy looms for GM; Chrysler awaits fate - (news.yahoo.com/s/ap)