KeNo's Housing and Economic Portal: Thursday January 28 Housing and Economic stories

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TOP STORIES:

California Creditors See IOUs With Schwarzenegger Missing Obama - (www.bloomberg.com) California’s hopes are fading for federal help in closing a projected $19.9 billion deficit that has caused the lowest-rated state’s borrowing costs to rise 24 percent in three months. “We recognize they have enormous problems,” David Axelrod, senior adviser to President Barack Obama, said in an interview. “But we can’t solve all of those problems from Washington.” Investors are growing more concerned that California, the world’s eighth-largest economy, will repeat last year’s fiscal crisis that forced it to use IOUs to pay bills. With Governor Arnold Schwarzenegger seeking $6.9 billion in federal assistance to narrow the deficit, the extra yield paid on the state’s 10- year bonds over AAA-rated municipal securities rose to 1.31 percentage points yesterday from 1.06 points in three months, according to Bloomberg fair market value index data. Schwarzenegger’s plea for help may become a test case for Obama, who last year called the 62-year-old Republican governor “an outstanding partner with our administration.” Dozens of states face budget shortfalls amid the worst recession since the Great Depression, and at least 36 have already reduced fiscal 2010 expenditures, according to the National Association of State Budget Officers.

Controller says he'll restore guards' pay; governor vows furlough fight – (www.sacbee.com) And the deficit gets bigger as the judges, controller and others remove budget cuts one-by-one, setting the stage for a massive budget deficit in coming years. Time for CA to face reality and deal with their deficits. Picking a fight with Gov. Arnold Schwarzenegger, Controller John Chiang said Tuesday he's going to restore full pay to California's correctional officers for the state government's January pay period. The Schwarzenegger administration immediately declared the controller's maneuver illegal and vowed to fight it in the courts this morning. Chiang and his chief attorney, Richard Chivaro, are arguing that the controller must make the move to comply with an Alameda County judge's mid-December decision in a heated furlough case pitting the governor against the California Correctional Peace Officers Association. The administration will file papers in the 1^st District Court of Appeal in San Francisco this morning to "prevent this illegal action by the controller," Department of Personnel Administration spokeswoman Lynelle Jolley said Tuesday night. Jacob Roper, a spokesman for Chiang, said the controller is taking this action because he feels obliged to comply with the Dec. 17 court decision issued by Alameda County Judge Frank Roesch and thus avoid possible contempt-of-court charges in the future. Chiang plans to get his office to make changes to the state's payroll system to eliminate the pay cuts resulting from the three furlough days a month ordered by Gov. Arnold Schwarzenegger.

Derivatives Exemption Helps Big Wall Street Banks, Gensler Says - (www.bloomberg.com) “Big Wall Street banks” benefit from a provision in derivatives legislation that has been promoted as aid for companies hedging their own risks, Commodity Futures Trading Commission Chairman Gary Gensler said. “It is the Wall Street banks that benefit from the so- called end-user exemption from transparency, not the businesses that use derivatives,” Gensler said yesterday in a speech to the Atlantic Council in Washington criticizing the provision. The House of Representatives passed legislation on Dec. 11 designed to shed more light on the $605 trillion over-the- counter market for derivatives contracts such as swaps, options and futures. The measure would exempt from many of the rules so- called corporate end-users, businesses such as oil companies and airlines that use derivatives to hedge operational risks. As the financial crisis “appeared to stabilize, Wall Street has been able to be more successful” in moderating the legislation, Gensler said. “The Senate is another venue.” While the House bill, which the Senate has yet to consider, applies to standard contracts between broker dealers such as Goldman Sachs Group Inc. andJPMorgan Chase & Co., it wouldn’t regulate transactions between those banks and end-users.

Economic stimulus has created or saved nearly 2 million jobs, White House says - (www.washingtonpost.com) The bogus report is out. The $787 billion economic stimulus package has created or saved between 1.7 million and 2 million jobs, but its impact on the economy ebbed slightly in the final quarter of 2009 compared with prior months, the White House said Tuesday night. Releasing the administration's second quarterly report to Congress on the stimulus's impact, Christina Romer, chairman of the Council of Economic Advisers, said a third of the tax cuts and spending in the package is out the door. Her office estimates that the stimulus added between 1.5 and 3 percentage points to the growth in gross domestic product in the final quarter of 2009. That estimate, which is in line with other analyses, is lower than her office's estimate of stimulus-related impact in the third quarter, between 3 and 4 percentage points.

Venezuelans Brace for Rolling Blackouts as Power Output Falters - (www.bloomberg.com) Venezuelans will face rolling blackouts for the next five months starting today as the worst drought in 50 years threatens to shut the nation’s biggest hydroelectric plant and collapse the power grid. The government will cut electricity for four hours every other day across the country after previous measures failed to slow the drop in water levels behind the Guri hydroelectric plant, which supplies 73 percent of Venezuela’s power, Electricity Minister Angel Rodriguez said yesterday on state television. The blackouts are another economic blow after President Hugo Chavez devalued the nation’s currency by as much as 50 percent on Jan. 8 as he struggled with an outflow of dollars and growing budget deficit. The economic drag caused by the shortage, combined with a likely surge in inflation from the devaluation, may keep Venezuela mired in recession and erode Chavez’s popularity in the run up to legislative elections in September. “The drought has exposed what was already a seriously overstretched grid and years of underinvestment,” said Patrick Esteruelas, a New York-based analyst at Eurasia Group. “The government is going to try to soften the blow by spending very aggressively from now until voters go to the polls.”

Moody’s Says Greece, Portugal May Face ‘Slow Death’ - (www.bloomberg.com) The Portuguese and Greek economies may face a “slow death” as they dedicate a higher proportion of wealth to paying off debt and investors demand a premium to hold their bonds, Moody’s Investors Service said. While the two countries can still avoid such a scenario, their window of opportunity ’’will not be open indefinitely,’’ Moody’s said in a report today from London. Portugal, with a negative outlook on its Aa2 rating, has more time “to reverse this trend” while Greece “has significantly less time.” Moody’s cut Greece’s rating to A2 from A1 on Dec. 22. The premium that investors demand to hold Greek debt instead of German equivalents is six times more than it was two years ago, and the spread has doubled since 2008 in the case of Portugal. Greece had the largest budget deficit in the euro region last year, more than four times the European Union limit of 3 percent of gross domestic product. Portugal’s debt load will account for 85 percent of GDP this year, according to the European Commission.