KeNo's Housing and Economic Portal: Friday November 6 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Armageddon in Alabama Proves Parable for Local U.S. Governments - (www.bloomberg.com) In its 190-year history, Jefferson County, Alabama, has endured a cholera epidemic, a pounding in the Civil War, gunslingers, labor riots and terrorism by the Ku Klux Klan. Now this namesake of Thomas Jefferson, anchored by Birmingham, is staring at what one local politician calls financial “Armageddon.” The spectacle -- a tax struck down, about 1,000 county employees furloughed, a politician indicted over $3 billion in sewer debt that may lead to the largest municipal bankruptcy in history -- has elbowed its way up the ladder of county lore. “People want to kill somebody, but they don’t know who to shoot at,” says Russell Cunningham, past president of the Birmingham Regional Chamber of Commerce. One target of their anger is Larry P. Langford, who was the county commission’s president in 2003 and 2004 and is now mayor of Birmingham. The 61-year-old Democrat goes on trial today, charged in a November 2008 federal indictment with taking cash, Rolex watches and designer clothes in exchange for helping to steer $7.1 million in fees to an Alabama investment banker as the county refinanced its sewer debt. Jefferson County’s debacle is a parable for billions of dollars lost by state and local governments from Florida to California in transactions done behind closed doors. Selling debt without requiring competition made public officials vulnerable to bankers’ sales pitches, leaving taxpayers to foot the bill for borrowing gone awry. Swaps Blew Up: Under Langford’s stewardship, the county bet on interest- rate swaps, agreements that a representative of New York-based JPMorgan Chase & Co. told commissioners could reduce their interest costs. Instead, the swaps -- covering more than $5 billion in all -- blew up during the credit crisis after ratings for the county’s bond insurers fell. JPMorgan, through spokeswoman Christine Holevas, declined to comment for this story. Thousands of public borrowers across the U.S. chose a similar strategy, and many are now paying billions of dollars to escape the contracts, said Peter Shapiro, managing director at Swap Financial Group in South Orange, New Jersey. Even Harvard University, the world’s richest academic institution with an endowment of $26 billion, fell for Wall Street’s financing in the dark: It paid $497.6 million to investment banks during the fiscal year ended June 30 because it chose to cancel $1.1 billion of interest-rate swaps.

Adam Storch, 29-Year-Old Goldman Guy Who Is Now COO Of The SEC - (www.businessinsider.com) hat sure didn't take long. Only a few moments ago we noted that we hadn't yet been able to track down a photograph of the 29-year-old Goldman Sachs vice president who has just been named the chief operating officer of the Securities and Exchange commission. And now we've got this photo. Storch graduated from SUNY Buffalo. During college he did a stint as a summer intern at Neuberger Berman and worked at Deloitte & Touche for two years after graduating. He then went to NYU's Stern School of Business. This lead to a job at Goldman, where he worked for the last five years. As we noted earlier, this will surely lead to people complaining that A VAMPIRE SQUID IS RUNNING THE SEC. Interestingly, Storch seems to be a big fan of Bill Clinton. At Stern, he created a website asking people to vote for Bill Clinton in the 2008 election. "Don't stand for the 22nd Ammendment!" the website implores.

Medicare Premiums to Rise 15 Percent as Costs Jump - (www.nytimes.com) The basic Medicare premium will shoot up next year by 15 percent, to $110.50 a month, federal officials said Monday. The increase means that monthly premiums would top $100 for the first time, a stark indication of the rise in medical costs that is driving the debate in Congress about a broad overhaul of the health care system. About 12 million people, or 27 percent of Medicare beneficiaries, will have to pay higher premiums or have the additional amounts paid on their behalf. The other 73 percent will be shielded from the increase because, under federal law, their Medicare premiums cannot go up more than the increase in their Social Security benefits, and Social Security officials announced last week that there would be no increase in benefits in 2010 because inflation had been extremely low. Kathleen Sebelius, the secretary of health and human services, urged the Senate to approve a bill, already passed by the House, to block the scheduled increase in Medicare premiums. “We are in tremendously difficult economic times, and seniors are being hit particularly hard,” Ms. Sebelius said. “The last thing seniors need right now is a substantial increase in their Medicare premiums, and many seniors will see such an increase if no action is taken.” Among those who face higher premiums next year are new Medicare beneficiaries, high-income people and those whose Medicare premiums are paid by Medicaid. Premiums can be as high as $353.60 a month, or more than $4,200 a year, for Medicare beneficiaries who file tax returns with adjusted gross income greater than $214,000 for an individual or $428,000 for a couple. The higher premiums will impose “an additional and significant burden” on states, which help pay Medicaid costs, along with the federal government. The House bill was passed, 406 to 18, on Sept. 24. Among those who voted against it was the Democratic leader, Representative Steny H. Hoyer of Maryland, who said he saw no need to help multimillionaires at a time when the nation was struggling to rein in entitlement programs.

Foreclosures Force Ex-Homeowners to Turn to Shelters - (www.nytimes.com) The first night after she surrendered her house to foreclosure, Sheri West endured the darkness in her Hyundai sedan. She parked in her old driveway, with her flower-print dresses and hats piled in boxes on the back seat, and three cherished houseplants on the floor. She used her backyard as a restroom. The second night, she stayed with a friend, and so it continued for more than a year: Ms. West — mother of three grown children, grandmother to six and great-grandmother to one — passed months on the couches of friends and relatives, and in the front seat of her car. But this fall, she exhausted all options. She had once owned and overseen a group home for homeless people. Now, she succumbed to that status herself, checking in to a shelter. “No one could have told me that in a million years: I’d wake up in a homeless shelter,” she said. “I had a house for homeless people. Now, I’m homeless.” Growing numbers of Americans who have lost houses to foreclosure are landing in homeless shelters, according to social service groups and a recent report by a coalition of housing advocates. Only three years ago, foreclosure was rarely a factor in how people became homeless. But among the homeless people that social service agencies have helped over the last year, an average of 10 percent lost homes to foreclosure, according to “Foreclosure to Homelessness 2009,” a survey produced by the National Coalition for the Homeless and six other advocacy groups. In the Midwest, foreclosure played a role for 15 percent of newly homeless people, according to the survey, reflecting soaring rates of unemployment — Ohio’s reached 10.8 percent in August — and aggressive lending to people with damaged credit. At a shelter for women and children run by the West Side Catholic Center in Cleveland, where Ms. West now lives, foreclosure accounted for zero arrivals in 2007, the center’s executive director, Gerald Skoch, said. Last year, two cases emerged. This year, the number has already reached four.

Muni Market Faces $11.3 Billion in New Issues, Most Since June - (www.bloomberg.com) The municipal market tackles its biggest week for new bond issues since June, as Minnesota and Denver-based Catholic Health Initiatives lead about $11.3 billion in fixed-rate offerings. Minnesota, home of Cargill Inc. and 3M Co., intends to bring $906 million of general obligation bonds to market. CHI, the second-largest Catholic health-care system in the U.S. after Ascension Health, seeks buyers for more than $1 billion of tax- exempt debt in three states. Both issues will refinance debt and finance new capital projects. States, local governments and nonprofit hospitals are pressing forward with borrowing plans after a buyer’s strike the past two weeks boosted benchmark tax-exempt yields from 42-year lows. The weekly Bond Buyer 20 yield index rose since Oct. 1 by 38 basis points, or 0.38 percentage point, to 4.32 percent. The gauge of 20-year general obligation bonds remains lower than it was from February 2008 through mid-September 2009. “Keep a sharp eye out for sizeable new-issue offerings that may be ‘priced to move’ in a difficult market,” John Dillon, a fixed-income credit strategist at Morgan Stanley Smith Barney in Purchase, New York, said in a report late last week. Weekly sales of fixed-rate municipal bonds reached $11 billion twice in the past four months, and totaled $11.9 billion for the period ended June 12, according to data compiled by Bloomberg. Following are descriptions of some pending sales of municipal bonds; the timing and amounts may change. CATHOLIC HEALTH INITIATIVES plans to sell about $1.1 billion of fixed-rate bonds as soon as this week in tax-exempt deals arranged by state agencies in Colorado and Kentucky, and by Ohio’s Montgomery County. The money raised will be used to pay off variable- and auction-rate debt as well as reimburse the system for previous capital spending and fund new projects. Morgan Stanley will lead banks marketing the bonds, which are rated AA by Fitch Ratings and Standard & Poor’s, and Aa2 by Moody’s Investors Service. The Denver-based health-care system operates 78 hospitals in 20 states and has annual revenue of $8.2 billion, according to its Web site. (Added Oct. 19) MINNESOTA will negotiate the sale of $906 million of general obligation bonds through a group of underwriters led by Barclays Plc this week. The proceeds will refinance debt and fund projects for parks, education, pollution control, transportation, natural resources and agriculture. The state’s full faith, credit and taxing power pledge carries S&P and Fitch’s top rating of AAA and Moody’s second-highest grade, Aa1. (Added Oct. 19) PENNSYLVANIA TURNPIKE COMMISSION, operator of the state’s toll roads, plans to issue $524 million of revenue bonds through Goldman Sachs Group Inc. this week. The commission is financing a payment, set by a 2007 law called Act 44, to the Pennsylvania Department of Transportation for capital projects. The debt, secured by a subordinate lien on turnpike revenue, is rated A2 by Moody’s and A- by S&P. (Added Oct. 19) CALIFORNIA PUBLIC WORKS BOARD plans to offer $820 million of bonds backed by lease payments appropriated this week. Underwriters led by Morgan Stanley and Royal Bank of Canada’s RBC Capital Markets unit will take orders from individual investors tomorrow and set final prices and yields on the debt Oct. 21, when institutions can buy. A portion of the deal will be taxable Build America Bonds, with the rest tax-exempt. The proceeds will fund various capital projects, including a prison in Monterey County near Soledad. Fitch grades the bonds BBB-, one level above high-risk, high-yield junk status. Moody’s rates them one level higher at Baa2. S&P assigns its A- rating, the fourth-lowest investment grade. (Updated Oct. 19)

OTHER STORIES:

Senate Bill Would Curtail Bank Overdraft Charges - (www.nytimes.com) The legislation would establish a limit of one overdraft fee in a month, with a maximum of six in a year.

Icahn Offers $6 Billion To Help CIT - (www.nytimes.com) The billionaire financier says a loan could help the CIT Group, a business lender, avoid bankruptcy.

DealBook: As Icahn Pitches CIT Investors, Egan-Jones Urges Rejection - (www.nytimes.com)

British Regulator Proposes Tighter Rules for Mortgages - (www.nytimes.com)

U.S. Said to Target Wave of Insider-Trading Cases After Galleon - (www.bloomberg.com)

Central banks fuel risky assets - (www.ft.com)

Gold at $2,000 Becomes Inflation-Adjusted Bullseye for ‘80 High - (www.bloomberg.com)

Won Crushes Yen as Dollar Substitute in Asian Rally - (www.bloomberg.com)

Japan Economy Improves in All Nine Regions, BOJ Says - (www.bloomberg.com)

Crisis Created ‘Moral Hazard,’ Former RBA Chief Says - (www.bloomberg.com)

U.S. Plans to Charge 10 More After Rajaratnam Arrest - (www.bloomberg.com)

Greenlight's Einhorn holds gold, says U.S. policies poor - (www.reuters.com)

Armageddon in Alabama Proves Parable for Local U.S. Governments - (www.bloomberg.com)

Muni Market Faces $11.3 Billion in New Issues, Most Since June - (www.bloomberg.com)