Sunday January 17 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

School bills are due, but state won't pay - (www.suburbanchicagonews.com) Say the words out loud to get a feel for the size of it: Forty-five million, two hundred and six thousand, six hundred and fifty-four dollars, and sixty-one cents. That's how much the state is behind in payments to your local schools. When the quarterly payments came due at the end of the year, the state again missed its categorical and grant payments to all 871 Illinois school districts. This money is supposed to fund projects like school buses, special education, reading programs and early childhood development. But the money's not coming, instead getting added bill by bill to an already $4.5 billion IOU the state has for services from schools to homeless shelters. "Billion. With a B.," said comptroller spokesman Carol Knowles. "The bill backlog is just nearly beyond comprehension." But the same state that's no longer paying for these programs legally requires them. So to cover the missing money, school districts must either dig into reserves or, where there are no reserves, cut into other areas: repairs, programs not required by law, teachers. Unlike the usual budget bellyaching when political pressure can make money appear, this time is different, said state Rep. Linda Chapa LaVia, D-Aurora. There is no money. "This is not a false alarm. This is not someone pulling a fire drill. This is a fire," Chapa LaVia said.

Splurge. Borrow. Repeat. - (www.chicagotribune.com) You're a deadbeat, an astonishing $4.9 billion overdue in paying your bills. You owe much of that for services that were provided many months ago by people who, day in and day out, care for your ailing, handicapped and often helpless fellow citizens. You're also -- sorry to be blunt -- inept. You repeatedly spend more than you earn and borrow to fill the gap. This year you'll outspend your income by some $12 billion. In the process you've embraced debts that could plague your descendants after you're dead and gone. Examples: You've bizarrely promised your workers some $80 billion more in pension payouts than you can afford. What's more, you've promised them additional billions that you don't have for their health care after they retire. Sure, you can delude yourself and pretend these obligations belong not to you but to your faceless state government. That's bogus. State government is really a checking account; it collects, and spends, tax dollars. If you're an Illinois citizen, these massive shortfalls are your obligations. Halt right there. Ask yourself how many more billions in debt you'll blithely take on in the near future -- if you don't immediately change how you do business. That may mean you have to fire some people you hired to manage your money and provide for your most vulnerable fellow citizens. Your money managers are the politicians who run Illinois. Many of them have failed you spectacularly. What will you do now?

U.S. to Lose $400B on Fannie, Freddie - (www.$1,333 per citizen) - (www.businessweek.com) Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute. “The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said. The U.S. seized the two mortgage financiers in 2008 as the government struggled to prevent a meltdown of the financial system. The debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks grew an average of $184 billion annually from 1998 to 2008, helping fuel a bubble that drove home prices up by 107 percent between 2000 and mid-2006, according to the S&P/Case- Shiller home-price index. The Treasury said on Dec. 24 it would provide an unlimited amount of assistance to the companies as needed for the next three years to alleviate market concern that the government lifeline for Fannie Mae and Freddie Mac, the largest source of money for U.S. home loans, could lapse or be exhausted. Lax regulation of Fannie Mae and Freddie Mac led to the mortgage companies taking on too many risky loans, Wallison said.

Fannie, Freddie proving too big to shrink - (www.sfgate.com) The government's Christmas Eve pledge of unlimited financial aid to mortgage giants Fannie Mae and Freddie Mac is aimed at making sure the housing market doesn't take another turn for the worse and cause the economic recovery to unravel. This insurance policy taken out by the Treasury Department will help keep mortgage rates low, and may wind up being a gift of sorts to struggling homeowners and banks. But there's a catch: the housing crisis is now likely to cost taxpayers much more. The Obama administration's latest lifeline to Fannie and Freddie will cover unlimited losses through 2012, lifting an earlier cap of $400 billion. It also eases restrictions on the size of the companies' investment portfolios. That's a reversal of the Bush administration's September 2008 plan to shrink the size of the companies' holdings of mortgage-backed securities. The action, which didn't need the approval of Congress, could position Fannie and Freddie to get more aggressive in dealing with the housing crisis, perhaps taking troubled mortgage investments off banks' books. "They've cleared the decks to use Fannie and Freddie as a vessel for whatever they want," says Edward Pinto, a housing consultant who served as Fannie's chief credit officer in the late 1980s.

What Happens When California Defaults? - (www.newgeography.com) The California Legislative Analyst’s Office recently reported that the State faces a $21 billion shortfall in the current as well as the next fiscal year. That’s a problem, a really big problem. My young son would say it was a ginormous problem. In fact, it may be an insurmountable problem. Our governor and legislature used every trick in their books when they created the most recent budget. They even resorted to mandatory interest-free loans from the taxpayers. Now, they have no idea where to go. The Democrats have declared that they will not allow budget cuts. The Republicans will not allow tax increases. They have probably run out of smoke and mirrors, although their ability to engage in budget gimmickry is enough to make an Enron accountant blush. No one is considering raising revenues by increasing economic activity. In my opinion, California is now more likely to default than it is to not default. It is not a certainty, but it is a possibility that is increasingly likely. Then what? Ideally, we’d see a court-supervised, orderly bankruptcy similar to what we see when a company defaults. All creditors, including direct lenders, vendors, employees, pensioners, and more would share in the losses based on established precedent and law. Perhaps salaries would be reduced. Some programs could see significant changes. This is distressing, but it is better than other options. Unfortunately, a formal bankruptcy is not the likely scenario. There is no provision for it in the law. Consequently, absent framework and rules of bankruptcy, the eventual default is likely to be very messy, contentious and political.

OTHER STORIES:

Construction Spending in U.S. Decreased 0.6% in November - (www.bloomberg.com)

Manufacturing index rises to nearly 4-year high - (www.marketwatch.com)

U.S. growth prospects deemed bleak in new decade - (www.reuters.com)

U.S., China locked in trade disputes - (www.washingtonpost.com)

Fed’s Tools for Easing Stimulus Include Asset Sales, Kohn Says - (www.bloomberg.com)

Weill faults Prince, management for Citi woes: report - (www.reuters.com)

Next Up on Cable TV, Higher Bill for Consumers - (www.nytimes.com)

Deficit, Budget Woes Need Solutions as U.S. Nears the Precipice - (online.wsj.com)

Beware the crisis around the corner - (www.ft.com)

Since when does inflation make people richer? - (www.guardian.co.uk)
Real Estate in Cape Coral, FL, Is Far From Recovery - (www.nytimes.com)

Foreclosures add honesty to house appraisals - (www.sfgate.com)

Foreclosure Leading To... Happiness! - (www.patrick.net)

Living In A Real Housing Bubble - (www.nytimes.com)

One Million is the new Two Million - (www.calculatedriskblog.com)

Landlords lowering apt rents in Las Vegas - (www.lvrj.com)

Mortgage Modifications Are Seen as Adding to Housing Woes - (www.nytimes.com)

Twenty years on, Japan is still paying its housing bubble bills - (www.economist.com)

Low rates didn't cause bubble, Bernanke says - (www.marketwatch.com)

A critique of Ron Paul's 'End the Fed' - (www.curiouscapitalist.blogs.time.com)

How Goldman Made Billions Destroying US In 4 Easy Steps - (www.theeconomiccollapseblog)

For the feds, some Wall Street firms are too big to punish - (www.mcclatchydc.com)

English PM Says Tax Hikes on Wealthy Will Halve Deficit in 4 Years - (www.businessweek.com)

Bill Gates' Father On Estate Taxes - (www.wealthforcommongood.org)

It's Always the End of the World as We Know It - (www.nytimes.com)

Islam Motivated Detroit Terrorist And Attack On Danish Cartoonist - (www.faithfreedom.org)