KeNo's Housing and Economic Portal: Wednesday July 15 Housing and Economic stories

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TOP STORIES:

El Monte California avoids bankruptcy after police union agrees to cuts - (www.sgvtribune.com) The city averted bankruptcy Tuesday night after all four of its employee unions, including the Police Officers Association, agreed to cuts in benefits to help eliminate the city's budget deficit. Though a round of applause spread through the City Council chambers after the last-minute announcement was made, many residents and staff members walked away from the meeting still frustrated by El Monte's dire financial situation. "City departments are working with skeleton crews, and we are being forced to concentrate on essential services," acknowledged City Manager Jim Mussenden. The council Tuesday approved a budget for the 2009-10 fiscal year, which began Wednesday, that includes massive cuts to city services and recreational programs. It also will result in the layoff of 100 employees and the closure of one of the city's four fire stations. The cuts totaled $12 million - more than one-fifth the city's total $49.3 million budget. The deficit is the result of falling sales tax revenues combined with retirement costs and deferred compensation benefits in employee contracts. Sales tax revenue has been dropping since 2007 and fell an estimated $5.5 million last fiscal year alone. It is expected to continue falling in the coming year, despite a half-cent sales tax increase voters approved in November. Sales tax in the city stands at 10.25 percent, one of the highest rates in the state and country.The added taxes are expected to produce $2 million this fiscal year. About 60 percent of the city's total general fund budget will go to police and fire services, while 18 percent will be spent on the city's administration, planning, maintenance, engineering, parks and recreation, senior services and other non-emergency departments. The remainder is for insurance, benefits for all employees, and "non-departmental" expenses. Mussenden has said residents can expect longer emergency response times, fewer recreational programs, and longer waits to get city help in the coming year. El Monte resident Virginia Beltran said she has already felt the impact of cuts. Every year she and two dozen of her neighbors host a giant block party on July 4th that draws hundreds of friends and neighbors to a blocked off part of Orchard Street. For the past eight years, Beltran has had to pay the city $100-$150 to block the road. This year, those fees more than doubled and Beltran said the city gave her a mountain of paperwork to fill out. She said she was willing to pay and file, but she couldn't find anyone to explain the process to her. "Nobody could tell me where to go, they couldn't give me direction on how you have to do this and that," she said. In the end, she gave up. The neighbors will hold their party without blocking off the street. "Everyone said we've read about all the budget cuts, but they are all disappointed," Beltran said.

Lear to File Bankruptcy After Lenders Agree to Terms - (www.bloomberg.com) Lear Corp., the world’s second- largest maker of automotive seats, is planning to file for Chapter 11 bankruptcy after reaching an agreement with representatives of secured lenders and bondholders. Lear is seeking support from other bondholders and lenders and plans to “commence shortly” with a restructuring under court protection, the Southfield, Michigan-based supplier said in a statement today. The company said it has commitment for $500 million in financing for the bankruptcy and exit from a syndicate led by JPMorgan Chase & Co. and Citigroup Inc. Lear will seek bankruptcy protection after low auto production globally by customers such as bankrupt General Motors Corp. cut into sales. More than 20 partsmakers have filed for bankruptcy this year, according to the Original Equipment Suppliers Association trade group. “The dramatic fall-off in the market has impacted suppliers large and small,” said Mike Wall, supplier analyst at industry consultant at CSM Worldwide in Northville, Michigan. Lear’s restructuring will protect customers and suppliers, and provide pay for the “vast majority of trade creditors in full,” the company said. “We intend to complete the restructuring as quickly as possible, and emerge as an even stronger and more competitive partner to our customers,” Chief Executive Officer Bob Rossiter said in the statement. Other Bankruptcies: Standard & Poor’s Ratings Services lowered its issue-level rating on Lear’s senior secured debt to ‘D’ from ‘CC,’ after the intended bankruptcy announcement, the New York-based ratings provider said in a statement today. Lear, which said on May 14 it sought to restructure debt outside of Chapter 11, tried to renegotiate its borrowing after getting a waiver through June 30 on some conditions and a 30-day grace period for $38 million in interest payments. The supplier would join Visteon Corp. and Metaldyne Corp. as major suppliers to file for bankruptcy protection this year.

Sweden’s Central Bank Cuts Key Rate to Record 0.25% - (www.bloomberg.com) Good to see it’s not just the US doing crazy things…. Sweden’s central bank unexpectedly halved its benchmark interest rate to a record low 0.25 percent and offered 100 billion kronor ($13 billion) of loans to revive credit flows from the country’s banks to households. The Stockholm-based Riksbank, founded in 1668, lowered the seven-day repo rate by a quarter of a percentage point from 0.5 percent and cut its economic forecast to a 5.4 percent contraction this year. Just one of 17 economists surveyed by Bloomberg predicted the rate reduction. “We saw the economy perform much worse than the Riksbank had expected this year,” said Sunil Kapadia, an economist at UBS AG in London, the only analyst to predict the rate cut. “It’s a quite good time for them to bolster consumer sentiment with a shot of adrenaline.” The largest Nordic economy sank into its first recession since 1992 last year as a global decline in trade eroded demand for exports, which Sweden relies on for about half its national output. The central bank, forecasting a deeper slump than in neighboring Norway, Finland and Denmark, will offer loans to banks totaling 100 billion kronor ($13 billion) at fixed interest rates with maturities of 12 months.

Aircraft repair jobs sold to foreign workers, resumes not important - (Mish at globaleconomicanalysis.blogspot.com) Here's something to think about when the unemployment numbers come out Thursday Morning: Aircraft repair jobs sold to foreign workers, resumes not important. A News 8 investigation found that hundreds of aircraft mechanics have been brought into the United States to work at aircraft repair facilities. Insiders say the companies that are importing the mechanics are so eager to save money, they’re overstating their qualifications. The result may be a threat to safety, abetted by lax enforcement of immigration law. At daybreak any morning at San Antonio Aerospace, hundreds of workers amble through the gates for the day shift. They repair big jets like Airbuses, Boeing 757s and MD-11s. Jada Williams used to work for one of the contracting companies, Aircraft Workers Worldwide (AWW), based in Daphne, Alabama. AWW supplied workers for two facilities, Mobile Aerospace Engineering (MAE) in Mobile, Alabama and San Antonio Aerospace, which are both controlled by ST Aerospace. San Antonio Aerospace is a division of ST Aerospace, the largest aircraft repair company in world. "They’ve employed over 200 since I left,” said Williams, who said she was unfairly fired by the contractor last fall. "And I know we had over a hundred when I was in there, just in Mobile.” San Antonio Aerospace uses several contracting companies to supply it with workers. It can be a high-profit business for the contractors. They can make $3 to $12 an hour for every worker hired by SAA, contractors say. The drive for profits is so big, Williams and other insiders said, that the contractors often falsify the qualifications of the imports. "We had two,” she said. “One of them was a female. She was about 16. It was a brother and a sister. One guy was a grocery bagger, one was a security guard in Puerto Rico. Their ages were between 18 and 22.” Their ages are important because it takes years of experience or schooling to learn how to repair a big jet, experience they couldn’t have had. One former SAA mechanic, who spent years learning his trade before being laid off, said foreign workers got their training on the job from the Americans they worked with. "The more experienced mechanics, we would get paired up with either one or two of these guys,” he says. “And they would watch us for a month or so. And that’s how they would get their training.” Williams is suing her former boss, Daniel Harding, for unlawful termination and racial discrimination. She has a computer full of company documents that were acquired accidentally when AWW got new computers for its office and gave her an old one. Spreadsheets, resumes and payrolls revealed many company practices, from interviews, to trips to the U.S. Embassy in Mexico City for visas, charts marked the progress of Mexican workers to the United States. Documents also showed workers were charged $3,500 each by AWW to get into the United States. Williams also has an e-mail trail from AWW president Harding to Moh Loong Loh, the President of San Antonio Aerospace. He described one candidate as having “ 25 percent English skills.”

'Rogue' PVM Oil Broker Costs Firm $10 Million - (www.cnbc.com) Yes, another company blames their losses on a lone “rogue” trader, not a trading group or their internal risk management processes J

London-based oil broker PVM Oil Futures is investigating unauthorised trades that left it with losses of almost $10 million, the company said on Thursday. "PVM Oil Futures Ltd can confirm that it was the victim of unauthorised trading on Tuesday 30th June," PVM said in a statement. "As a result of a series of unauthorised trades, substantial volumes of futures contracts were held by PVM. When this was discovered, the positions were closed in an orderly fashion. PVM suffered a loss totalling a little under $10 million," PVM said. The trade on Tuesday caused global crude prices to spike. It was not immediately clear how long PVM's internal checks would last and what likely course of action would be taken. PVM declined to comment for legal reasons on who had carried out the trades and whether the person had since left the company. Trade sources said PVM had told clients it was investigating unauthorised trades by a 'rogue' broker, sending rumours buzzing round oil markets in London and Asia over the past two days. "I heard it from a PVM broker this morning. They called one of their own 'rogue' and said the broker lost money," said a Singapore-based trading source, who asked not to be named. PVM has informed the UK Financial Services Authority (FSA) and the InterContinental Exchange (ICE) where the majority of Brent crude futures trade.

NY City Apartment Sales Down Over 50%: Reports - (www.cnbc.com) Manhattan apartment sales plunged more than 50 percent and the average price dropped 21.4 to 24 percent from a year ago, as the U.S. recession forced many who own a piece of the Big Apple to eat humble pie, several reports said. The average price of Manhattan apartment in the second quarter slid to $1,312,920 down from $1,669,729 a year earlier, according to a Prudential Douglas Elliman Real Estate report released Thursday. Most of the year-over-year decline occurred in the fall, when the credit crisis brought the market to an abrupt halt, said Jonathan Miller, president and chief executive of Miller Samuel Real Estate Appraisers and the author of the report. "What this is telling us is that the market continues to slide but not at the rate as it was last fall and that we're probably not done yet," Miller said. Tougher mortgage requirements, rising unemployment and the recession took its toll on the market that had for more than three years had been the notable exception to the U.S. housing market crash. But the Manhattan market dropped precipitously as Wall Street and the rest of the New York's private industries shed jobs.

'We're in the Middle of a Crash': Black Swan - (www.cnbc.com) The financial system is crashing and action must be taken by the US government to convert debt into equity to produce a more stable environment, Nassim Taleb, author of "The Black Swan," told CNBC Thursday. "You may have green shoots, whatever you want to call them, you may have temporary relief, but you are still in a world that's breaking," Taleb said on "Squawk Box." Anything that's fragile like the financial system will eventually crash, he said. "We're in the middle of a crash," Taleb said. "So if I'm going to forecast something, it is that it's going to get worse, not better." The government needs to deleverage debt and not try stimulus packages that will inflate assets, he said. "What makes me very pessimistic in not seeing any leadership or awareness on parts of government on what has to be done, which is deleverage $40-to-$70 trillion," Taleb said. "The monkey on our back is debt," he added. As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property. "People would be able to start from scratch on a healthy basis. You don't want to wait for foreclosure," he said.

California Budget Crisis Worsens, State To Issue IOUs - (www.cnbc.com) California's controller will start paying many of the state's bills with IOUs as soon as Thursday after lawmakers failed to close the state's worsening budget deficit, adding a new measure of indignity to a state sinking deeper into dysfunction. Lawmakers' failure to act on Tuesday, the end of the fiscal year, also widened California's deficit from what already had been a whopping $24.3 billion -- more than a quarter of its general fund. The failure to balance the state's main checkbook and the looming IOUs prompted Gov. Arnold Schwarzenegger on Wednesday to declare a fiscal state of emergency. Under the declaration, state offices will be closed three days a month to conserve cash. If the Legislature fails to solve the deficit within 45 days, it cannot adjourn or act on other bills until the crisis is resolved. The partial government shutdown also will lead to a third furlough day for 235,000 state employees, bringing their total pay cut this year to about 14 percent. "California needed the Legislature to act boldly and with conviction. Their response was not a solution to California's budget problem but an invitation to actually a bigger financial crisis," Schwarzenegger told reporters Wednesday. On Tuesday, as the previous fiscal year was drawing to a close, the Senate rejected three bills designed to save $5 billion, including $3.3 billion in education funding cuts that had to be enacted. Passing those bills would have given the Legislature time to work out a broader solution to the deficit and delayed the need for IOUs. Instead, the budget shortfall is set to grow even wider because of California's complicated school funding formula, meaning the state will not have enough money to pay all its bills. State Controller John Chiang said his office is prepared to issue IOUs totaling $3.3 billion in July. Senate Minority Leader Dennis Hollingsworth said neither he nor his Republican colleagues wanted to see California resort to IOUs to pay its bills, but he said Democrats had refused to make sufficient spending cuts to solve the shortfall.

OTHER STORIES:

Economy Sheds 467,000 Jobs; Unemployment Rate at 9.5% - (www.cnbc.com) Employers cut far more jobs than expected, while the unemployment rate rose to a 16-year high, as the labor market continuing to struggle with a deep recession.

IMF Board Authorizes Debut Bond Issuance to Fund Aid - (www.bloomberg.com)

Charge! Credit Card Companies Outlasting Economic Storm - (www.cnbc.com)

Euro Zone May Unemployment Hits 10-Year High - (www.cnbc.com)

India labours to bridge the infrastructure gap - (www.ft.com)

As deficit grows, Calif. prepares to issue IOUs - (finance.yahoo.com)

Aspiring Lawyer Finds Debt Is Bigger Hurdle Than Bar Exam - (www.nytimes.com)

In Skittish Hollywood, Stars Can’t Save ‘Moneyball’ - (www.nytimes.com)

Credit Card Issuers Raising Rates Ahead of New Law - (www.washingtonpost.com)

Exelon Raises Bid for NRG Energy to $8 Billion - (www.cnbc.com)

GM Plans ‘Garage Sale’ for Toxic Plants, New Jersey Golf Course - (www.bloomberg.com)

Risk Cuts at Morgan May Lead to a Loss - (www.cnbc.com)

Euro Rates Stay 1%, Trichet Downplays Deflation Risks - (www.cnbc.com)