KeNo's Housing and Economic Portal: Thursday January 14 Housing and Economic stories

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Michigan Forces Business Owners Into Public Sector Unions; Detroit's Aura of Hopelessness - (Mish at globaleconomicanalysis.blogspot.com) Not satisfied with wrecking the auto sector and most of the state itself, unions and the state of Michigan conspired to force small business owners into unions the businesses want no part of and did not even vote for. Disgusted minds are reading how Michigan Forces Business Owners Into Public Sector Unions. Michelle Berry runs a private day-care service from her home on the outskirts of this city, the birthplace of General Motors. "The Berry Patch," as she calls the service, features overstuffed purple gorillas, giant cartoon murals, and a playroom covered in Astroturf. Her clients are mostly low-income parents who need child care to keep their jobs in a city that now has a 26% unemployment rate. Ms. Berry owns her own business—yet the Michigan Department of Human Services claims she is a government employee and union member. The agency thus withholds union dues from the child-care subsidies it sends to her on behalf of her low-income clients. Those dues are funneled to a public-employee union that claims to represent her. The situation is crazy—and it's happening elsewhere in the country. A year ago in December, Ms. Berry and more than 40,000 other home-based day care providers statewide were suddenly informed they were members of Child Care Providers Together Michigan—a union created in 2006 by the United Auto Workers and the American Federation of State, County and Municipal Employees. The union had won a certification election conducted by mail under the auspices of the Michigan Employment Relations Commission. In that election only 6,000 day-care providers voted. The pro-labor vote turned out. Many of the state's other 34,000 day-care providers never even realized what was going on. Ms. Berry tells us she was "shocked" to find out she was suddenly in a union. The real dirty work, however, had been done when the state created an "employer" for the union to "organize" against. Of course, Michigan's independent day-care providers don't work for anybody except the parents who were their customers. Nevertheless, because some of these parents qualified for public subsidies, the Child Care Providers "union" claimed the providers were "public employees." Michigan's Department of Human Services then teamed with Flint-based Mott Community College to sign an "interlocal agreement" in 2006 establishing a separate government agency called the Michigan Home Based Child Care Council. This council was directed to recommend good child-care practices—and not coincidentally, to serve as a "public employer." Although the council had almost no staff, no control over the state subsidies and no supervision of the providers' daily activities, it became the shell corporation against which the union could organize. Thus the state created an ersatz employer and an ersatz "bargaining unit" against which what was essentially an ersatz union could organize. Today the Department of Human Services siphons about $3.7 million in annual dues to the union—from the child-care subsidies. The money should be going to home-based day-care providers—themselves not on the high end of the income scale. Ms. Berry now sees money once paid to her go to a union that does little for her. She says she is "self employed and wants nothing to do with the union." Shielded from market pressures, public employee unions have driven up taxpayer costs for decades. Now labor leaders are shanghaiing entrepreneurs such as Ms. Berry and Ms. Loar into government unions because their clients receive government aid. Who will be next? Grocers? Landlords? Doctors?

Vietnam to put an end to gold trading - (www.ft.com) Vietnam has ordered all gold trading floors to close by the end of March, putting an end to a business which turns over $1bn a day but which the government feared was spinning out of control. “Both the owners of the gold-trading floors and traders are doing their transactions on a fragile foundation that lacks legal, economic and technical frameworks and knowledge,” the government said in a statement. The order also bans using overseas accounts, but does not affect jewelry or retail gold sales. The government said it was particularly concerned that some investors had been drawn into overleveraging their positions by low interest rates and the ever-increasing price of gold, which has risen from $660/oz when the first trading floor was started in 2007 to almost $1,100/oz today. The government said that in some cases, investors had only been required to put up 7 per cent of the value of their portfolio. The regulation will affect around 20 gold trading floors, but it is unclear if the government is intending to re-write the regulations and allow the floors to re-open or if the move is long-term. The trade has become a lucrative source of income for many of the banks and trading houses which have opened the exchanges, and the ban could hit profits. But analysts say it could free up liquidity that might flow back into the stock markets, lifting the index.

Vietnam devalues the dong and raises rates - (www.ft.com) Vietnam devalued its currency by 5.4 per cent against the dollar yesterday and raised interest rates by a full percentage point in an effort to cut inflation and underpin the beleaguered dong. The dong has come under pressure recently as inflation started climbing and domestic demand, driven by the country's $8bn stimulus programme, drove the current account deficit to close to $2bn a month. It was trading on the grey market at 19,800 to the dollar on Tuesday but came back to 19,500 after the government move. Analysts, however, questioned whether financial markets would believe the latest move had put a floor under the dong. "The decision poses further challenges to the central bank's credibility," said Tai Hui, Standard Chartered Bank economist. "The risk is that local investors will pay little attention to official comments going forward, which may exacerbate devaluation pressure on the currency." For weeks, the government had insisted that it would not give in to pressure on the dong. "Vietnam will not devalue our currency," Nguyen Minh Triet, president, said in Singapore last week. "We will take cautious steps on our monetary policy." Yesterday's move cut the mid-point of the currency's managed float range from 17,034 dong to the dollar to 17,961, while narrowing the daily trading range from 5 per cent to 3 per cent either side. The benchmark interest rate was increased from 7 per cent to 8 per cent.

Huffington Post targets big banks‎ - (www.latimes.com) A blog post urges clients of BofA and others to move deposits to community banks and credit unions to protest what the blog calls a return to risky practices by the big banks. There can be few institutions more despised as 2010 begins than big U.S. banks, but what can the average person do about it? The answer, according to author and Huffington Post website co-founder Arianna Huffington: Withdraw your money. In a widely read blog post this week, Huffington and former Senate Banking Committee chief economist Rob Johnson try to stir up a popular revolt by encouraging bank customers to yank their deposits from Bank of America, Wells Fargo Bank, Chase and Citibank and move them to community banks and credit unions. The broadside complains that the big banks, after being propped up by taxpayer money and government guarantees, have returned to the high-risk activities that torpedoed the economy in the first place, while cutting back on lending to businesses and spending hundreds of millions of dollars to water down proposed restrictions on their operations. "The government policy of protecting the Too Big and Politically Connected to Fail is badly hurting the small banks, which are having a much harder time competing in the financial marketplace," write Huffington and Johnson, who is also a former managing director at hedge fund operator Soros Fund Management. "As a result, a system which was already dangerously concentrated at the top has only become more so." The Business Roundtable, a lobbying group for major financial institutions, said Huffington and Johnson were oversimplifying the situation. "It's easy to demagogue the industry and paint institutions large, medium, and small with broad brush strokes," the trade group said in a statement. "In the end, sound financial advice dictates that consumers should select the financial institution that offers the mix of products and services that best serves their individual financial needs." Community banks traditionally have catered to small businesses and well-off individuals, charging more than their mass-market brethren but priding themselves on better service. But many people want services -- such as large, free networks of automated teller machines -- that the community banks don't provide. (Some small banks reimburse ATM transaction costs for their best customers.)

In Spain, a Soaring Jobless Rate for Young Workers - (www.nytimes.com) Like hundreds of thousands of other young people, Jesus Pesquero Peñas dropped out of school to go to work when the Spanish economy was booming. But since he was laid off from his construction job two years ago, he has been living on unemployment benefits. Now Mr. Peñas finds himself part of a lost generation in Spain, where unemployment among people ages 16 to 24 is 42.9 percent, the highest in Europe, and more than double the overall rate. “I went to work because the money was good, the lifestyle was good and I really wanted to get out of school,” Mr. Peñas, 25, said as he waited on a long line snaking down the block from an employment office in suburban Madrid. “I totally regret it now,” Mr. Peñas said, who has a 5-year-old daughter by a former girlfriend who is also out of work. Spain is the extreme, but the experience of younger workers here reflects similar problems in the United States, as well as other European countries still struggling to emerge from the recession. In the last 12 months, the jobless rate in the United States among workers ages 16 to 24 has risen to 19.1 percent from 13.9 percent. Economists expect the rate to remain high even as the overall jobless rate in the United States — now 10 percent — begins to shrink.

Congressional Legislation Introduced By Barney Frank Pre-Approves $4 Trillion For Next Crisis - (Mish at globaleconomicanalysis.blogspot.com) Barney Frank introduced H. R. 4173 purportedly "To provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes." The bill is 1,279 pages long. I did not read it in entirety but Bloomberg columnist David Reilly did. It is amazing the things Barney Frank buried in a bill that is supposed to protect consumers. The bill does nothing for consumers, but does allocate $4 trillion to fighting the next financial crisis. Please consider Bankers Get $4 Trillion Gift From Barney Frank: David Reilly. To close out 2009, I decided to do something I bet no member of Congress has done -- actually read from cover to cover one of the pieces of sweeping legislation bouncing around Capitol Hill. Hunkering down by the fire, I snuggled up with H.R. 4173, the financial-reform legislation passed earlier this month by the House of Representatives. I quickly discovered why members of Congress rarely read legislation like this. At 1,279 pages, the “Wall Street Reform and Consumer Protection Act” is a real slog. Here are some of the nuggets I gleaned from days spent reading Frank’s handiwork: For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system. Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule. Oh, hold on, the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well. The bill also allows regulators to “prohibit any incentive-based payment arrangement.” In other words, banker bonuses are still in play. The bill isn’t all bad, though. It creates a new Consumer Financial Protection Agency, the brainchild of Elizabeth Warren, currently head of a panel overseeing TARP. And the first director gets the cool job of designing a seal for the new agency. My suggestion: Warren riding a fiery chariot while hurling lightning bolts at Federal Reserve Chairman Ben Bernanke. Best of all, the bill contains a provision that, in the event of another government request for emergency aid to prop up the financial system, debate in Congress be limited to just 10 hours. Anything that can get Congress to shut up can’t be all bad. There's much more in Reilly's article. I was hoping this was a spoof, but sadly it is not. Here is the section of H. R. 4173 allocating up to $4 trillion.