KeNo's Housing and Economic Portal: Sunday August 2 Housing and Economic stories

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CalPERS expected to report $56.8B loss (quarter of portfolio) - (www.latimes.com) The estimated drop at the U.S.' largest pension fund, the second annual loss in a row, would have a huge effect on what state and local governments must shell out to support retirees. The estimated $56.8-billion drop at the U.S.' largest pension fund, the second annual loss in a row, would have a huge effect on what state and local governments must shell out to support retirees. California's huge government pension fund is expected to report today a whopping annual loss of an estimated $56.8 billion, almost a quarter of its investment portfolio. The loss at the California Public Employees' Retirement System for the fiscal year ended June 30 is the second in a row for the country's largest fund. A year ago, CalPERS reported an $8.5-billion loss, as the severe recession began to take hold. The tremendous drop in value is expected to have a direct effect on the amount of money that the state and about 2,000 local governments and school districts must contribute in coming years to pay for pensions and healthcare for 1.6 million government workers, retirees and their families. As income from the pension investments fall, the governments would have to make up the difference to meet the state's pension and healthcare obligations. In the fiscal year that ended a year earlier, CalPERS' holdings in stocks, private equity, real estate and commodities positions were worth $239.2 billion. They fell to $182.4 billion on June 30, down 23.7%, according to daily postings on the fund's Internet site. CalPERS hit a record-high balance of $247.7 billion on June 30, 2007, and it earned double-digit returns for the five fiscal years from 2002-03 to 2006-07. Without those kinds of flush years, CalPERS could have a difficult time getting the average annual return of 7.75% that its actuaries say it needs to meet obligations to retirees without drastically raising employer contributions. To ease the damage on already cash-strapped cities and counties, CalPERS' board has approved a plan that would spread the last fiscal year's deep losses over the next 30 years, beginning in mid-2011. Also today, the country's second-largest public pension fund, the California State Teachers' Retirement System, will release its results for the 2008-09 fiscal year.

St. Regis Monarch Beach resort in Dana Point seized by Citigroup - (www.latimes.com) he resort, which will continue to operate under its current name, is an indicator of the troubles in the high-end hotel market. The seizure of the St. Regis Monarch Beach, where American International Group Inc. sponsored a luxury retreat just days after accepting a federal bailout, is the most dramatic sign yet of the deep troubles in the market for high-end hotels. Citigroup Inc. took over the Dana Point hotel and golf course Monday after months of negotiations over a $70-million loan that was in default. A foreclosure auction slated for today was canceled after the lender realized there would be no serious bids for the property, according to a knowledgeable person who was not authorized to discuss the situation publicly and spoke on condition of anonymity. The takeover comes at a time of severe contraction in the hospitality industry. Resorts such as the St. Regis, which cater to wealthy travelers and the high-end corporate retreat business, are experiencing some of the steepest declines in revenue as the recession hammers demand for business and leisure travel. As twilight fell one night last week, a single person lounged by the resort's main pool while only a few couples sat in the restaurants and a piano player performed for an empty lounge. A person knowledgeable about the resort and the negotiations with Citigroup said that only about 15% of the hotel's rooms had been rented this summer. Such low occupancy made it impossible for the resort to meet its all its debt obligations, which included payments on a $230-million first mortgage and the $70-million loan held by Citigroup, analysts said. With property values down in the recession, the resort complex was probably not worth much more than $100 million, said Alan Reay, a consultant with Atlas Hospitality Group. The hotel's place in an infamous recession-related scandal has made its problems worse, investment banker Donald Wise of Johnson Capital said. The taint arrived by association with AIG, the giant New York insurer that, because of massive wrong-way bets on the mortgage markets, became the largest recipient of bailout money from the federal government.

TARP Special Investigator Says Bailout Total May Reach $23.7 Trillion - (Mish at globaleconomicanalysis.blogspot.com) Some numbers are so large they simply become incomprehensible. Remember when costs of the bailout were projected to be $0.5 Trillion, then $1 Trillion, then $3 Trillion. Now, Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program says U.S. Rescue May Reach $23.7 Trillion. U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program. The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today. “TARP has evolved into a program of unprecedented scope, scale and complexity,” Barofsky said in testimony prepared for a hearing tomorrow before the House Committee on Oversight and Government Reform. Costs include $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae, Freddie Mac, credit unions, Veterans Affairs and other federal programs, he said. Barofsky offered criticism in a separate quarterly report of Treasury’s implementation of TARP, saying the department has “repeatedly failed to adopt recommendations” needed to provide transparency and fulfill the administration’s goal to implement TARP “with the highest degree of accountability.” As a result, taxpayers don’t know how TARP recipients are using the money or the value of the investments, he said in the report. Banks Fail to Make Adequate Loan-Loss Provisions. Moody's says Banks Fail to Make Adequate Loan-Loss Provisions. Banks have failed to make adequate provision for the losses on loans and securities they face before the end of next year, Moody’s Investors Service said. U.S. banks may incur about $470 billion of losses and writedowns by the end of 2010, which may cause the banks to be unprofitable in the period, the ratings company said in a report published today. “Large loan losses have yet to be recognized in the banking system,” Moody’s said. “We expect to see rising provisioning needs well into 2010.” Banks and financial firms worldwide have reported losses and writedowns of $1.5 trillion since the credit crisis began in 2007, according to data compiled by Bloomberg. New York-based Citigroup Inc. has reported $112 billion of writedowns, more than any other firm, the data show. “The fundamentals of financial institutions are still traveling on a downward slope,” Moody’s said. “No-one should consider recent improvements as assurance that the current rebound can be sustained.” Fed's Game is Delay and Pretend: In spite of writing off $112 billion, Citigroup is still sitting on $800 billion in SIVs, off its balance sheet, not marked to market. What's that worth? No one really knows and the Fed does not want anyone to find out either. That is why mark-to-market accounting is still suspended. Geithner's PPIP also masks price discovery (on purpose) given the public is on the hook for 93% of the losses. The PPIP encourages speculation (at best), and at worst is a purposely fraudulent scheme to dump assets on the backs of taxpayers to benefit bondholders.

500,000 Will Exhaust Unemployment Benefits by September, 1.5 Million by Year-end - (Mish at globaleconomicanalysis.blogspot.com) The Emergency Unemployment Compensation (EUC) programbegan in June 30,2008. Benefits under the act have now been extended twice. Unless Obama extends the program a third time, it's the end of the line for many receiving unemployment benefits. Please consider First wave of jobless exhaust unemployment benefits. Thousands of jobless Pennsylvanians are joining the growing ranks of people around the country who are exhausting unemployment benefits, as some experts worry about another blow to a stumbling economy. Gov. Ed Rendell said 17,800 Pennsylvanians exhausted their jobless benefits in the week that ended Saturday, the first big wave of Pennsylvanians to do so. He urged legislators to pass a bill to extend the benefits. Around the country, the number of people exhausting their benefits is piling up. By the end of September, more than 500,000 people will exhaust their benefits checks, with the biggest groups in Pennsylvania, California and Texas, according to estimates by the National Employment Law Project, an advocacy group for low-wage workers based in New York City. That number will nearly triple by the end of the year, the group said. New York Qualifies For Extended Benefits: As some states exhaust extended benefits other now qualify. In New York, Benefits Extended As State Unemployment Numbers Rise. The number of jobless New Yorkers across the state jumped significantly during the month of June, according to state Department of Labor statistics released Thursday.
The unemployment rate increased from 8.2 percent in May to 8.7 percent in June. That's the highest level since October of 1992. In New York City, the rate increased from nine percent in May to 9.5 percent in June -- the highest level in more than a decade. That translates into more than 850,000 people out of work in the state. "Because of our 8.7 percent unemployment rate, we will qualify for an additional seven weeks of unemployment insurance benefits," said New York State Labor Commissioner M. Patricia Smith. "So right now New Yorkers will be eligible for 79 weeks of unemployment insurance benefits."

Schwab refusing to pay off clients in 'auction-rate' issues - (www.latimes.com) Instead of the carrot-and-stick approach, New York Atty. Gen. Andrew Cuomo on Monday used two sticks in his campaign to force Charles Schwab Corp. to pay off clients in those notorious auction-rate preferred securities. For stick No. 1, Cuomo threatened Schwab with a lawsuit if the discount brokerage fails to agree to buy back the offending securities. For stick No. 2 , Cuomo resorted to peer pressure: He announced that Schwab rival TD Ameritrade Inc. settled a similar case and will repurchase $456 million of the securities.The Securities and Exchange Commission also announced a settlement with TD Ameritrade, which won’t pay any fines as part of the deals. So far, Schwab isn’t budging. It issued a long statement defending itself and chastising Cuomo for deciding to "try cases in the press." Auction-rate securities, popular with many individual investors before the credit markets collapsed in 2008, were essentially long-term debt instruments masquerading as short-term securities. They were pitched by brokers to yield-hungry small investors as safe and easily redeemable -- which they were, until demand for all such engineered securities dried up. That left investors stranded in about $330 billion of auction-rate issues, unable to sell (although still earning interest). Cuomo, the SEC and other securities regulators have since negotiated buy-back settlements with 20 brokerages and other financial firms that were selling auction-rate preferred debt, includingGoldman Sachs, Merrill Lynch and Deutsche Bank. To compel settlements, regulators have asserted that the brokerages misrepresented the safety of the securities. In a letter to Schwab warning of a lawsuit, Cuomo excerpted from interviews his office did with Schwab brokers as part of his probe and from audio recordings of Schwab sales pitches. One broker allegedly told a client that getting into the securities "is the tough part. Getting out of it is easy as just selling." In its rebuttal, Schwab said that its brokers, "while trained to levels beyond industry standards, could not be expected to foresee and disclose market risks that even regulators and market experts did not foresee." Schwab asserts that the big brokerages that created the securities should have been forced to buy them back from all investors who purchased them, including investors who bought the issues from third parties such as Schwab. But Cuomo’s settlement with TD Ameritrade, following a settlement last year with Fidelity Investments’ brokerage unit, stands to put more pressure on Schwab. TD Ameritrade CEO Fred Tomczyk said the buyback was "the right thing to do for our clients."