Thursday December 3 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

New York governor sees risk of California bond default - (www.latimes.com) Besides understanding his own state’s finances, New York Gov. David Paterson apparently has an excellent grasp of California’s fiscal situation. So much so, in fact, that Paterson feels confident speculating publicly about the probability of California eventually defaulting on its municipal bond debt. In a Bloomberg Radio interview on Thursday, Paterson described his plans for dealing with New York’s financial woes, and why it was important to avoid budget "gimmicks which grind up your credit rating." New York still has an "AA" credit rating from Standard & Poor’s, compared with California’s "A" rating, which is the lowest of any state. From there the governor, a Democrat, segued into California’s plight as he sees it: "Now many of the legislatures don’t understand what a downgrading in a credit rating is eventually going to do. They need to go spend a few weeks in California, it might be a good investment for us to send them there because California is in a state which, I don’t know, in spite of the valiant efforts of their governor, I don’t know that California can remain in a place where they don’t inevitably go into default." Did Paterson really mean to suggest that the largest state in the Union will stiff the investors who own tens of billions of dollars of its bonds? A spokesman said Thursday that "Gov. Paterson was simply expressing the fact that states face a variety of financial risks in the current economic and revenue environment. He did not say Californiawill go into default." But what do you suppose New Yorkers’ reaction would be if Gov. Arnold Schwarzenegger were to opine publicly that "I don’t know that New York can remain in a place where they don’t inevitably go into default"? For the record, the California Constitution mandates that state tax revenue must go first to pay education costs, and second to repay general-obligation bond debt. All other expenses are subordinate to those two. Tom Dresslar, a spokesman for California State Treasurer Bill Lockyer, said the treasurer would be "happy to have not just the legislature of New York but also the governor come out to California so we can show how we have a perfect record of paying investors in full and on time, and how we will maintain that spotless record." Plus, we have many empty hotels that would love the business of some free-spending New York pols.

Smart Banks to Prepay Incompetent FDIC for Bad Bank Failures Against Their Will - (www.washingtonpost.com) The Federal Deposit Insurance Corp. will collect $45 billion from the banking industry to cover the rising cost of bank failures, an unprecedented assessment that reflects the agency's projections that the current round of failures will not peak until next year. The FDIC's board voted Thursday to require banks to pay at the end of this year the amount they would owe the FDIC over the next three years. The agency collects insurance premiums from all banks, which it uses to reimburse depositors in failed banks. In the past two years, the FDIC has seized 145 banks, compared with only three in 2007. The casualties include four of the 10 largest failed banks in U.S. history. The agency projects that the cost of all failures resulting from the current crisis will reach $100 billion. The FDIC has already spent or set aside the money to cover more than half of those costs, but for the first time since the early 1990s, the agency said the regular premium payments wouldn't be enough to cover the costs looming on the horizon. Depositors don't run any risk, as the FDIC can always turn to the federal government for emergency funding. But FDIC officials have said that they prefer for the industry to pay the costs of the failures upfront to avoid the perception that taxpayers are funding another bailout. FDIC Chairman Sheila C. Bair thanked the industry for its support of that approach on Thursday. "I'm pleased but not surprised by the industry's willingness to step up to the task," Bair said. The money that the FDIC is collecting from banks legally is considered a prepayment of future premiums. That technicality is intended to avoid a hit to the industry's lending capacity.

Filming of state milk ads is heading abroad to save moola - (www.latimes.com) Notice the bizarre tax on CA tax-payers to provide a tax credit to film/movie industry to film in US when it doesn’t make sense. This is just allowing unions and other film/industry employees to charge high costs and subsidize the filming in the state of CA. Let’s get rid of the tax credits, and let the free markets lower the costs of filming in CA. Unions are sour on The California Milk Advisory Board's plan to shoot "Happy Cow" commercials in New Zealand. The California Milk Advisory Board may have shot itself in the hoof. The board, which promotes the state's dairy farmers and is overseen by the California Department of Food and Agriculture, is again preparing to film commercials touting California milk from California cows -- in New Zealand. In January, it plans to shoot part of its new series of 10 California "Happy Cows" TV commercials in Auckland, taking advantage of that country's low production costs. It comes just after California began offering film tax incentives this summer to reverse so-called runaway production that has caused the loss of thousands of jobs in the Los Angeles area as other states and countries have siphoned off film and TV crews with lucrative financial incentives. Under the state's first film tax credit program, which took effect in July, California is offering $100 million in credits for about 50 film and TV projects. Commercials, however, were excluded from the program. "Obviously, the governor prefers that everyone produce their film, television and other projects in California," said Camille Anderson, spokeswoman for Gov. Arnold Schwarzenegger, who strongly backed the measure. Local union officials were cheesed off to learn that the state milk board was farming out TV work to foreign locales. "It's totally out of line," said Ed Duffy, business agent for Teamsters Local 399, which represents location managers, studio drivers and casting directors. "If they're promoting California products, they should be shooting in California." Milk board officials said the New Zealand shoot represented a "minor portion of production" and was a matter of simple economics. The board solicited bids from around the world, and the New Zealand site was the lowest, said Michael Freeman, the board's vice president of advertising. "It was a no-brainer," he said. "The dairy industry is facing the worst economic downturn since the Great Depression. We have a fiduciary responsibility to spend their hard-earned dollars as efficiently as we can. In this particular case, we found significant cost savings by shooting a portion of this product overseas." The board, which receives funding from dairy farmers, has been running TV ads promoting California's "Happy Cows" for nearly a decade. The latest series, which began last year, features New Zealand cows representing bovines from around the world auditioning to be the next California Happy Cow. Like "American Idol," TV viewers can then go on the board's website and vote for their favorite cow. Although Los Angeles remains the bread-and-butter capital for commercial shoots, it faces growing competition from foreign locales, including countries such as Argentina and New Zealand that offer substantial financial incentives. The New Zealand shoot will be filmed over three days on the same sound stage the board used for last year's TV campaign. Freeman stressed that all post-production work will be done in California, where it will take six to eight weeks to finish each commercial. Santa Monica-based Bob Industries is a producer, while the creative side is handled by ad agency Deutsche. Freeman declined to reveal the budget for the commercial shoot or how much the board is saving by filming in New Zealand. He added that any scenes involving California cows will be filmed in state. "We would never misrepresent California cows by shooting them elsewhere," he said.

Defaults pose risks to US housing agency - (www.ft.com) The Federal Housing Administration, the government agency that insured $360bn of US single-family mortgages last year, said on Thursday that its insurance reserves had fallen below its congressionally mandated threshold to their lowest level ever. Amid depressed house prices and mounting losses on insured mortgages, the FHA’s capital reserve ratio, which measures reserves after accounting for projected losses, fell to 0.53 per cent in the 12 months to September 30 – well below the 2 per cent cushion it is required by Congress to maintain. Last year its capital ratio stood at 3 per cent, and it was 6.4 per cent in 2007. Rising defaults on FHA loans have prompted fears that the agency will need a taxpayer bailout. Defaults on FHA-backed loans reached 8.24 per cent in September – up from 8.1 per cent in August and 6.1 per cent a year ago. Shaun Donovan, secretary for housing and urban development, whose office oversees the FHA, said the economy was worse than housing officials had expected. He projected that claims against the insurance fund would be higher than forecast and said action would be needed to shore up the agency’s reserves. The FHA’s total reserves were more than $31bn, or more than 4.5 per cent of the insurance it had written, the agency said. Mr Donovan said that in almost every economic situation examined in an actuarial study, the FHA still had enough reserves to cover projected claims on outstanding loans. However, if projected losses on insured mortgages are higher than forecast and the reserve fund dips below zero, the agency could need a taxpayer bailout for the first time in its 75-year history. David Stevens, commissioner of the FHA, said: “There are real risks to the FHA and we are aggressively addressing those real risks with real reforms.” Mr Stevens said the FHA had taken steps to enforce tighter standards and take action against lenders who violated origination and underwriting requirements.

U.S. consumer sentiment falls in November - (www.reuters.com) U.S. consumer sentiment fell in early November to the weakest in three months amid grim expectations for job and income prospects, a survey showed on Friday. The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for November fell to 66.0, the lowest since August, from 70.6 in October. This was well below economists' median expectation of a reading of 71.0, according to a Reuters poll. The index of consumer expectations fell to 63.7 in early November from 68.6 in October. "Confidence tumbled in early November due to the grim financial realities faced by consumers as well as weaker economic prospects for the year ahead -- importantly, the decline in confidence was already in place before the announced increase in the unemployment rate to 10.2 percent on November 6," the Reuters/University of Michigan Surveys of Consumers statement said. Within the survey, the 12-month economic outlook index fell to 67, the lowest since April, from 81 in October. The 1-year inflation expectation eased to 2.8 percent from 2.9.

A Lack of Rigor Costs MBIA - (www.nytimes.com) MBIA, the financial insurance company, used to hold itself out as a paragon of hard work and number crunching. “Each transaction guaranteed by MBIA needs to pass a rigorous underwriting process proving no losses will arise under the worst probable case scenario,” the company said in a typical investor presentation just three years ago. It added that its payouts for claims over 32 years came to less than $10,000 a year for every $100 million of insurance it wrote. “We expect,” the company added, “to remain at that level or better.” That expectation was wrong. MBIA’s once pristine AAA-rating has now turned into junk and no one wants to buy insurance from the company. MBIA insists it is in much better shape than investors realize, but in making that case it assumes it will be able to collect at least $1.2 billion from Wall Street firms that it says swindled it. If it were to win all its pending suits, it could collect billions more. MBIA is suing Merrill Lynch, which paid MBIA to insure securities backed by extraordinarily complex securities, among them collateralized debt obligations secured by collateralized debt obligations secured by collateralized debt obligations that were secured by mortgage-backed securities. Such a thing is known as a C.D.O. cubed, by the way. In the suit, filed in state court in New York, MBIA details its underwriting process, which does not sound very rigorous. “The due diligence standard for a monoline insurer, which MBIA followed,” did not involve looking into the quality of the securities underlying the securities being insured, MBIA said in its suit. Instead, it primarily relied on assurances by Merrill Lynch and on credit ratings by Moody’s and Standard & Poor’s. And, MBIA added, Merrill knew that the rating agencies also would not bother to look at the performance of the underlying loans in issuing their ratings.

OTHER STORIES:

Obama to press Asia to open markets and buy more U.S. imports - (www.latimes.com) We have plenty of good items to provide to China, like Personal Trainers, Wedding Planners, Motivational Speakers, Financial Engineers, and other important tradesmen.

Two potential buyers closing in on Playboy - (www.latimes.com)

Fox confirms Emma Watts as production president - (www.latimes.com)

Video game sales suffer 19% drop in October - (www.latimes.com)

Stocks gains as retailers lift holiday sales hopes - (www.bloomberg.com)

Ex-Bankers Form 'Blind Pools' in Bid for Failed Lenders - (online.wsj.com)

Hu Says China to ‘Vigorously’ Boost Consumer Demand - (www.bloomberg.com)

Europe’s Economy Emerges From Recession on Exports - (www.bloomberg.com)

Yuan ‘Straitjacket’ Risks Inflating China Bubbles - (www.bloomberg.com)

Dollar Drop Too Powerful for Brazil as Reserves Rise - (www.bloomberg.com)

Bernanke May Cause Next Crisis, Hong Kong’s Tsang Suggests - (www.bloomberg.com)

German Economic Recovery Accelerated in Third Quarter - (www.bloomberg.com)

Hong Kong Is New Target of U.S. Crackdown on Taxes - (www.bloomberg.com)

Consumer Sentiment in U.S. Unexpectedly Decreased - (www.bloomberg.com)

Trade Deficit in U.S. Increases by Most Since 1999 - (www.bloomberg.com)