KeNo's Housing and Economic Portal: Sunday August 9 Housing and Economic stories

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California’s fiscal charade - (www.ft.com) Monday’s agreement between Arnold Schwarzenegger, the governor of California, and state legislators seemed to promise a temporary resolution to an ongoing budget crisis. But before legislators had even had a chance to vote on it, Californians were indulging in that peculiar mix of sanctimony and surrealism which marks almost all political discourse in the state. “What about the children?” ran the headline over the letters section of the San Francisco Chronicle, as if the important divide in the state’s politics were between those who “care” and those who do not. Caring has nothing to do with it. California’s problems are those of “direct democracy”. The state’s laws are shaped by plebiscites to a degree unmatched outside of Venezuela. In voting on “propositions”, which sometimes touch on detailed budgetary matters, citizens of the Golden State have stood up consistently for two principles: the state should provide vastly more services to its citizens, and citizens should pay vastly less to the state. In 1978, Proposition 13 halved government’s take from property taxes; a decade later, Proposition 98 required the state to spend 40 per cent of its “general fund” on schools. Adding to the problem is the requirement of supermajorities for raising taxes. The present impasse reflects a problem of long standing, even if its severity is unprecedented. Ronald Reagan won the state’s governorship in 1966 by promising to do something about the budget deficit, which had by then risen to a calamitous $194m. Today, the state not only has a $26.3bn (£16bn, €19bn) budget gap but is constrained by all sorts of powerful institutions and laws from closing it. Until recently the state issued “revenue anticipation notes” but its contractors will no longer accept them. California’s bonds are the lowest-rated of any state. Facing insolvency, Mr Schwarzenegger and legislators have proposed selling off billions of dollars’ worth of state assets, cutting the state’s university budget by 20 per cent and releasing 27,000 inmates from prison. Already the state has given mandatory furloughs of three days a month to state employees. “Furlough” is a euphemism. It means you do not get paid. At least those are concrete steps. But much of the budget plan hammered out on Monday consists of accounting tricks. Unable to go to the banks to borrow, the state is borrowing billions from local counties and communities by simply not disbursing the money it is supposed to. If cities really want their programmes funded, they can try the credit markets themselves. A payday that was supposed to come next June has been pushed back into July, so that it will fall in the following fiscal year. Another trick is the accelerated withholding of state income tax. Instead of deducting 25 per cent of taxes per quarter, the state will deduct 70 per cent in the first six months of 2010, so that 20 per cent of revenues from the next fiscal year will be brought forward into this one. This is not a solution. This is changing your phone number so you can get some rest from the bill collectors who are dunning you.

Kuwait Financier Facing US Fraud Suit Found Dead - (www.cnbc.com) A brash Kuwaiti financier facing a fraud suit by U.S. authorities was found dead Sunday in an apparent suicide that sent shockwaves through the Gulf Arab financial sector. A security source told Reuters that Hazem Al-Braikan appeared to have died from a single gunshot wound to the side of the head, while a policeman standing outside Braikan's house said the well-connected financier, 37, had shot himself. Braikan was the chief executive of Al Raya Investment, which is 10 percent owned by Citigroup, and had been at the center of a financial scandal that erupted last week. "It's very sad news. This crisis has seen a lot of people in the Gulf and across the world fall from grace, and each person is different in terms of their ability to handle pressure," said Mohammed Yasin, chief executive of Dubai-based investment bank Shuaa Securities. The U.S. Securities and Exchange Commission filed a lawsuit against Braikan and two other finance firms last week, accusing them of having improperly earned millions of dollars from trades in two U.S. firms, Harman International Industries and Textron. A policeman at Braikan's two-storey villa in the Kuwait City neighborhood of al-Rawda told Reuters that Braikan's brother had called for help. An employee at Al Raya said Braikan, who was single, had not come to work Sunday, the start of the working week in the Gulf region. "We are shocked. Everybody is shocked," the employee said by telephone. "We called his brother, and he confirmed the news. "He was here at the office yesterday until 7 or 8 at night. I don't know why he decided to end it." Lack of Transparency: Braikan's death comes on the heels of another financial scandal that has rocked the Gulf region, involving two Saudi conglomerates. Regulators and bankers are grappling with the fallout from debt restructuring and fraud allegations at privately held Saad Group and Ahmad Hamad Algosaibi & Bros. Algosaibi has sued the head of Saad Group in a New York court for fraud in a case involving allegations of $10 billion in loan irregularities. Investors have been left largely in the dark on the case, the biggest blow to hit the Middle East since the financial crisis. The SEC's lawsuit, which also names a Bahrain bank and a state-linked Kuwaiti firm, will intensify focus on concerns about transparency and weak regulation in the Gulf region. OPEC member Kuwait is home to the Arab world's second largest bourse, yet it is the only Gulf Arab state without a stock market regulator, as plans have been stalled in parliament for years.

Forget Aloof, Bernanke Goes Barnstorming - (www.nytimes.com) Ben S. Bernanke, the chairman of the Federal Reserve, is on a publicity campaign with a message: the central bank is here to help, and it is not as mysterious or menacing as people might think. In a profound departure from the central bank’s tradition as an aloof and secretive temple of economic policy, Mr. Bernanke has plunged into the public spotlight to an extent that none of his predecessors would have contemplated. He has given a television interview to “60 Minutes” on CBS, including a tour of his hometown, Dillon, S.C.; held what amounted to a televised news conference; and written newspaper commentaries to explain the Fed’s efforts to fight the financial crisis. On Sunday, Mr. Bernanke reached another milestone in his evolution from Fed chairman to Fed showman, participating in a one-hour town hall-style forum here organized and moderated by Jim Lehrer of “The NewsHour” on PBS. Like a political candidate on the campaign trail — indeed, his four-year term expires in January — Mr. Bernanke fielded questions from local residents and tried to rebuff charges that the Fed was either conspiring with big banks, stifling free-market capitalism or possibly doing both at the same time. When a small-business owner asked Mr. Bernanke why the Fed helped rescue big banks while “short-changing” small companies, Mr. Bernanke answered that he had decided to “hold my nose” because he was afraid the entire financial system would collapse. “I’m as disgusted by it as you are,” he told the audience of 190 people. “Nothing made me more angry than having to intervene, particularly in a few cases where companies took wild bets.” It was a far cry from what any other Fed chairman has been willing to do, but it was just the latest example of Mr. Bernanke’s attempt to communicate directly with the public. Last week alone, Mr. Bernanke published a lengthy commentary in The Wall Street Journal, then testified before three separate Congressional committees and presided over a public Fed meeting to announce new regulations of credit card practices. Of course, the Fed had already become more open in the decade before Mr. Bernanke took the reins, and his predecessor, Alan Greenspan, achieved rock-star fame during his long tenure as chairman. But Fed officials still cloaked themselves with a mantle of technocratic detachment from both partisan politics and day-to-day business life. They almost never spoke in public outside the controlled confines of scheduled speeches or Congressional hearings.

Regulators shut 7 more banks, boosting the total to 64 for the year - (www.usatoday.com) Regulators have shut six banks in Georgia and a small bank in New York state, boosting to 64 the number of federally insured banks to fail this year. The Federal Deposit Insurance Corp. was appointed receiver of the banks: Six bank subsidiaries of Security Bank, based in Macon, Ga., and Waterford Village Bank of Clarence, N.Y. The six Security banks had total assets of $2.8 billion and deposits of $2.4 billion as of March 31. State Bank and Trust, based in Pinehurst, Ga., has agreed to assume all of the deposits and $2.4 billion of the assets, the FDIC said Friday. Evans Bank, based in Angola, N.Y., will assume all of the assets and deposits of Waterford Village Bank. The FDIC was appointed receiver of Waterford Village Bank,which had $61.4 million in assets and $58 million in deposits as of March 31. The FDIC said Evans Bank, based in Angola, N.Y., had agreed to assume all of the assets and deposits of Waterford Village Bank. Its Clarence office will reopen Monday as a branch of Evans Bank. In addition, the FDIC and Evans Bank signed an agreement to share losses on about $56 million of the failed bank's assets.

Sumner Redstone media empire faces an uncertain future - (www.latimes.com) Sumner Redstone could soon learn whether the fire sale of much of his family's movie theater chain will raise enough cash to make a looming debt payment -- or force him to resort to a Plan B to salvage his shrinking media empire. Bids for the U.S. theaters owned by Redstone's family firm, National Amusements Inc., are due Tuesday and offers for its British cinemas are expected next week, according to people familiar with the auction who asked not to be identified because the sales process is supposed to be confidential. The 86-year-old media mogul must come up with $500 million by October to help pay down his firm's $1.46-billion debt or find himself in default and at the mercy of his lenders. If he doesn't raise enough money from the auction, he could be forced to unload more stock in the media companies that he controls through National, Viacom Inc., which owns Paramount Pictures, MTV and Nickelodeon, and broadcast giant CBS Corp. Wall Street will be looking to an update on the auction when Viacom announces its earnings Tuesday. CBS releases its results next week. "For the stability of the empire that Sumner Redstone has spent his life building, he must successfully deal with National Amusements' near-term debt maturity," said media analyst Laura Martin of Soleil Securities. Redstone has been struggling to pare National Amusements' huge debt since last fall, when shares of Viacom and CBS fell as the stock market plummeted, causing National to violate debt covenants and forcing Redstone to sell shares in the two media companies. The sale further drove down the value of Viacom and CBS. In November, he dumped his stake in video game maker Midway Games for a mere $100,000 -- taking a tax write-off of nearly $800 million. National received a reprieve earlier this year from its lenders. The banks restructured Redstone's debt, spreading the payments over two years to give Redstone time for an orderly sell-off of assets. Since then, Redstone's position has improved slightly as both Viacom and CBS have gained value in the rising stock market.

OTHER STORIES:

Yen, Dollar Decline as Stocks Rise on Evidence Recession Ending - (www.bloomberg.com)

Emerging markets rush to issue debt - (www.ft.com)

Real Yields Highest Since 1994 Aid Record Debt Sales - (www.bloomberg.com)

Rally may cool on earnings reality check - (www.reuters.com)

China warns banks over fresh asset bubbles - (www.ft.com)

Beijing in uneasy embrace of the greenback - (www.ft.com)

King May Raise Rates Before Bernanke as U.K. Inflation Tops G-7 - (www.bloomberg.com)

China May Press Geithner on Dollar, Economy in Washington Talks - (www.bloomberg.com)

US, China facing economic, diplomatic flash points - (finance.yahoo.com)

Europe braced for rising credit card defaults - (www.ft.com)

South Korean Consumer Confidence Rises to a Seven-Year High - (www.bloomberg.com)