KeNo's Housing and Economic Portal: Monday July 27 Housing and Economic stories

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TOP STORIES:

Schwarzenegger warns of 2,000 more layoffs in California - (finance.yahoo.com) Gov. Arnold Schwarzenegger told state employee unions Tuesday his administration would cut another 2,000 jobs to help close California's $26.3 billion budget deficit. Meanwhile, Moody's Investor Services downgraded California bonds to near-junk status, from A2 to Baa1, and placed the state's credit rating on watch for possible further reductions. Moody's said the budget deadlock had put constitutionally required payments to bond holders at risk. "If the state gets to a position where it is unable to make priority payments, a multi-notch downgrade may result," Moody's said in a statement. The state's cash crisis has forced state Controller John Chiang to issue nearly 130,000 IOUs worth a total of $436 million to state vendors so far. The administration previously sent layoff notices to 4,600 state employees, but it was unclear how many workers will actually lose their jobs because many still have an opportunity to move into special-fund posts that weren't covered by the layoffs. The layoffs won't take effect until September, said Lynelle Jolley, a spokeswoman for the Department of Personnel Administration. Jim Zamora, a spokesman for Service Employees International Union Local 1000, the largest state employee union, questioned the timing of Schwarzenegger's announcement Tuesday of another 2,000 job cuts. The move came as budget talks resumed between the Republican governor and the four top legislative leaders. "We recognize the seriousness of the budget crisis, but we also wonder if this is just another ploy by the governor to use state workers as pawns in his budget negotiations," said Zamora, whose union represents about 95,000 state employees. Schwarzenegger has also imposed three furlough days a month for many workers and proposed a 5 percent pay cut for state workers that would have to be agreed on as part of budget negotiations. Some of the latest job cuts will come through attrition, said Victoria Bradshaw, the governor's cabinet secretary. She said the governor's recent addition of the third furlough day might work as an incentive for senior staffers to retire because some will now earn less working than they would from their pensions. The three furlough days brings the total pay cut to about 14 percent. The Legislature has until the end of August to balance the budget for the current fiscal year before jeopardizing paychecks for government employees and others.

French workers threaten to blow up plant - (www.ft.com) Workers at a failed French car parts supplier are threatening to blow up their factory unless the company’s two biggest clients – Renault and PSA Peugeot Citroen – stump up extra compensation. Employees of the engine parts maker New Fabris have rigged up a series of gas canisters inside a factory workshop which they say will be detonated on July 31 if the two carmakers fail to pay €30,000 to each of the 366 workers facing unemployment. The company, which went into receivership for the second time in two years last month, holds an estimated €2m of stock ordered by the two carmakers, as well as a machine belonging to Renault valued at about €2m. The threat could still be an empty one as government officials said there appeared to be some doubt as to whether the gas canisters were full. Nonetheless, the government is taking the threat seriously, fearful that the lastest hold up marks a significant increase in labour tensions that have been present for several months. The fire brigade has been put on stand-by and emergency service reinforcements sent to the area near the factory in Châtellerault in western France, according to a news agency report. Earlier this year France was hit by a wave of boss-nappings, where workers held factory managers hostage, sometimes for several days, to force better redundancy payoffs or protest at factory closures. Most ended without violent incident. However there is real concern within the government that tensions could rise in the autumn, when unemployment and company failures are expected to increase sharply, especially in the car parts sector - hard hit by the automobile crisis. There is already widespread resentment at bailouts for banks and carmakers, while the government has refused to consider a fiscal stimulus package to boost consumer spending. Christian Estrosi, industry minister, had invited the workers to meet him to discuss the situation, but on Monday withdrew the invitation saying he would not negotiate while the threat of explosion remained in place. Guy Eyermann, member of the hardline CGT union that appears to be leading the protest, insisted that the battle would not be abandoned. “”Are we capable of blowing up the factory? Yes we are,” he told a gathering of about 100 workers yesterday. “Renault and Peugeot have killed us. We want a share of the cake. They have been helped by the state.” Both Renault and Peugeot also insisted that they would not give in to the threats from New Fabris workers. “It is not for us to pay,” said a Renault spokeswoman. Both companies said they had had contributed financially ever since New Fabris ran into difficulties last autumn, with early advances and some wage payments. “We have done all we could,” the Renault spokeswoman said. “In a way it is understandable. We have not seen a crisis like this before. But in this case they are knocking on the wrong doors.”

Options dwindle for cashing California IOUs - (finance.yahoo.com) Thousands of California business owners are starting the week without the safety net of having major banks accept the state's IOUs. On Monday, U.S. Bancorp became the latest to reject the pay-you-later warrants, joining Bank of America Corp. and Wells Fargo & Co. The state began issuing IOUs at the beginning of the month as a way to save cash amid a $26.3 billion deficit. It's too early to tell whether state contractors that receive the warrants are feeling a financial squeeze. But Tom Dresslar, spokesman for the state treasurer's office, says the decision creates more uncertainty and potential hardship. California Bankers Association spokeswoman Beth Mills says the banks had hoped their decision would force lawmakers to agree on a budget-balancing plan.

CIT in ‘Active’ Talks for State Aid as Bonds Tumble - (www.bloomberg.com) CIT Group Inc. rose in New York trading and the cost to protect its debt against default fell after the lender said it’s in talks with regulators about a rescue. The lender’s stock jumped 36 cents, or 27 percent, to $1.71 at 9:42 a.m. in New York Stock Exchange composite trading, boosted by CIT’s statement that it was in “active discussions” with regulators about federal aid. CIT has $1 billion of bonds maturing next month, and the firm so far has been unable to persuade the U.S. to back its debt sales. Those talks continued yesterday, said Curt Ritter, a CIT spokesman. A Wall Street Journal report said that U.S. officials are “in advanced talks” about aid for New York-based CIT, citing unidentified people familiar with the matter. “They’re on life-support right now,” said David Hendler, an analyst at debt research firm CreditSights Inc. in New York. The financial system is in a “once-in-a-lifetime meltdown” and CIT “went into it in a weakened position,” he said.

Don't Buy Brown and Sarkozy's Oil 'Speculations' - (www.realclearmarkets.com) In the Wall Street Journal last week, French president Nicolas Sarkozy teamed up with U.K. Prime Minister Gordon Brown on a piece meant to reduce oil-price volatility. Given their shared view that oil volatility "damages both consumers and producers", they have called upon the International Organization of Securities Regulators "to consider improving transparency and supervision of the oil futures markets in order to reduce damaging speculation." Sadly, for those around the world reliant on stable oil prices, their alleged solutions completely miss the point. And they'll do nothing to reduce substantial volatility when it comes to the price of oil. For one, implicit in their argument is the logical impossibility that traders engaging in "excessive speculation" can somehow move the market for anything. What they ignore is the basic truth that there are two sides to every trade. In order for traders to speculate on oil in any direction, there must be an individual on the other side of each trade who assumes the exact opposite. Put simply, if there's "excessive speculation" that the price of oil will rise, there's an equal amount of speculation that oil's price will fall. If we assume the impossible, that a collection of traders or speculators can control the price of oil in ways that OPEC (despite gargantuan amounts of money at its members' disposal) never could, we must then ask what explains the stupendous drop in crude over the past year. Last July oil hit an all time high of $145, but by the fall it fell to modern lows of $33/barrel. Were the alleged speculators simply feeling generous at the time? And with the price of oil back up to roughly $60/barrel, are we now to assume that "greedy" speculators have decided to increase crude's price just a bit? Will they adjust it downward closer to Christmas with the health of "consumers and producers" in mind? The very idea is laughable, but in a policy environment like today's where the notion of government "stimulus" is actually taken seriously by politicians and economic experts alike, anything's possible. Indeed, to read Brown and Sarkozy's op-ed is to understand more clearly why world markets are so uncertain. They are because our political leaders continue to show how lacking their knowledge is about basic economics. As Brown and Sarkozy see it, oil volatility can be licked if we merely empower the "Expert Group of the International Energy Forum" to "take the lead in establishing a common long-term view on what price range should be consistent with the fundamentals." A nice platitude for sure, but one totally divorced from reality in much the same way that seemingly all politicians think the wonders of prosperity are simply delivered upon us by some benevolent sole in the sky. Back in the real world, the mildly sentient among us understand that even if the massive entity that is the oil market could be tamed by government decree, this would be a bad thing. Simplified, when governments seek to control the price of anything, shortages always reveal themselves.

OTHER STORIES:

Mortgages Are Now a Bank’s Best Friend - (www.nytimes.com) Mortgages have switched from a bane to a boon for banks in the second quarter because of a refinancing wave.

Derivatives Are Focus of Antitrust Investigators - (www.nytimes.com) Markit, a data warehouse controlled by several big banks, said it had been notified that it was the subject of an inquiry.

Calpers Sues Over Ratings of Securities - (www.nytimes.com) The public pension fund has filed suit in California in connection with $1 billion in losses that it says were caused by “wildly inaccurate” credit ratings from the three leading ratings agencies.

To Shrink a U.S. Car, Chrysler Goes to Poland - (www.nytimes.com) Engineers from Chrysler, looking for guidance, have been visiting a Fiat plant in Poland that is churning out autos and profits.

Intel’s Results Give Hope to Industry - (www.nytimes.com) The chip company reported second-quarter sales of $8 billion, which analysts say indicate how well the overall computer industry is doing.

Germany Has Been Slow to Fix Its Banks - (www.nytimes.com) Companies want to be prepared when the global economy rebounds, but say lenders are squeezing them on credit.

Office to Aid Consumers Draws Fire and Support - (www.nytimes.com) At a Senate hearing, critics cited the broad powers of the president’s proposed regulatory agency, and backers said regulation is needed.

Medical School Says Former Army Surgeon Hid Ties to Medtronic - (www.nytimes.com) Dr. Timothy R. Kuklo did research on the company’s bone-growth product Infuse and is now facing separate investigations.

Credit Swaps Investigated by U.S. Justice Department - (www.bloomberg.com)

DoJ demands CDS trading data from dealers - (www.ft.com)

Geithner promises to defend dollar - (www.ft.com)

Oil's Puzzling Spring Surge Reignites Debate About Speculators - (www.washingtonpost.com)

China Builds High Wall to Guard Energy Industry - (www.nytimes.com)

China Money-Market Rates Rise to Highest This Year; Yuan Stable - (www.bloomberg.com)

Euro industry output down 17 pct in May - (finance.yahoo.com)

Gray Areas Loom Large in China’s Steel Industry - (www.nytimes.com)

Mexico Faces ‘Unsustainable’ Gap, Morgan Stanley Says - (www.bloomberg.com)

China Needs to Keep Reining in Loans, Researcher Says - (www.bloomberg.com)

Drawing Critics, China Seeks to Dominate in Renewable Energy - (www.nytimes.com)

Singapore Raises GDP Forecast as Recession Recedes - (www.bloomberg.com)