KeNo's Housing and Economic Portal: Friday February 5 Housing and Economic stories

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Florida Unemployment tax rate jumps 1000% - (tampabay.bizjournals.com) Florida employers already have a lot to worry about in 2010 — a sluggish economic recovery first and foremost. Now, add to that an unemployment compensation tax rate hike that, in its worst case, could increase their minimum payment by more than 1,000 percent, from $8.40 per employee to $100.30 per employee. The rate change, which went into effect Jan. 1 unbeknownst to many employers, will cost them an additional $1.2 billion in 2010, according to David Daniel, vice president of government affairs at the Florida Chamber of Commerce. “To say that we’re very worried about it is mildly understating it,” he said. The new rate was calculated by the Florida Department of Revenue for Florida’s Unemployment Compensation Trust Fund, which uses automatic triggers to increase or decrease unemployment compensation taxes based on its current balance. When it reaches a low of 4 percent of the taxable payrolls, it goes up, and when it reaches 5 percent of the taxable payrolls, it goes down. When Florida’s unemployment rate spiked to 11.2 percent in October — the highest it’s been in 34 years — it triggered a tax increase. Employers are taxed a percentage of their employees’ first $8,500 in taxable wages. A number of factors determine what that percentage will be, but it starts at 2.7 percent for the first three years in business, and can go up or down after that, depending on the number of unemployment claims filed against the employer. Last year, the Florida Legislature increased the employee’s taxable wages from the first $7,000 to the first $8,500 to help shore up the trust fund, but that didn’t help enough. With all the other increases in costs, decreases to bottom lines and uncertainties about the future, Daniel said this is the absolute worst time for the government to increase the tax. That’s why the Florida Chamber is asking the Legislature to set the taxable wage back to $7,000 and to suspend the trigger to increase the unemployment tax rate — and is asking it to act quickly.

F.H.A. to Raise Standards for Mortgage Insurance - (www.nytimes.com) The Federal Housing Administration, which is supporting the housing market by insuring thousands of new mortgages every day, is expected to announce on Wednesday that it is tightening standards. Borrowers who get an F.H.A.-insured loan will soon have to pay a higher initial insurance premium. The new premium will be 2.25 percent of the value of the loan, up from 1.75 percent. Starting this summer, sellers will not be able to offer as much help to buyers to pay their closing costs. The maximum amount of assistance will drop to 3 percent of the value of the property, from the current 6 percent. Other changes will try to hold lenders who participate in the F.H.A. program more accountable by publicly reporting their performance rankings. The new measures are aimed at shoring up the agency’s finances while also screening out unprepared borrowers.

Unfunded Benefits Dig States’ $3 Trillion Hole: Orin S. Kramer - (www.bloomberg.com) Everyone seems to know the current path of federal fiscal policy is a deathtrap over the long term. What’s peculiar is the relative inattention to the balance sheets of state and local governments. Hidden behind accounting fictions, the politically unspeakable reality is that public employee pension systems are under-funded by more than $2 trillion. Add more than $1 trillion in unfunded health-care benefits for retired public employees, and state governments face protracted structural deficits ranging from challenging to insurmountable. Unfunded promises are the equivalent of government debt. The burden of promises made by state governments to their employees -- effectively an invisible wealth transfer from future taxpayers to current and prospective public-sector employees -- amounts to about one quarter of U.S. gross domestic product. The strength and durability of the current economic recovery are unknowable; that state and local governments, which employ one in nine workers, will be a drag on that recovery is certain.

Hedge Funds Hold Investors ‘Hostage’ After Decade’s Best Year - (www.bloomberg.com) Hedge funds’ best year in a decade is giving little comfort to Jason D. Papastavrou. The founder of New York-based ARIS Capital Management LLC, which has about $250 million invested in hedge funds, is still waiting to get back $155 million from 22 managers that restricted withdrawals in 2008. “We don’t object to the illiquidity,” Papastavrou said in an interview. “We object to how some managers are abusing the situation and holding investors’ money hostage to generate fees.” About $77 billion in hedge fund assets that were frozen during the credit crisis are still restricted, according to estimates by Credit Suisse Tremont Index LLC, even after the biggest stock-market rebound since the 1930s and a record rally in credit markets revived demand for some assets considered illiquid a year ago. D.E. Shaw & Co., Highland Capital Management LP and Harbinger Capital Partners LLC are among firms that have yet to return money to clients. The market recovery helped managers post returns of 20 percent last year after losing a record 19 percent in 2008, according to Chicago-based Hedge Fund Research Inc. The gains exclude some hard-to-sell assets, such as emerging-markets real estate or aircraft-engine securitizations. ‘Few Excuses’: “While I’m sympathetic to managers who weren’t able to sell assets back in October and November 2008 because bids were hard to come by, there are few excuses more than 12 months later,” said Michael Rosen, chief investment officer of Angeles Investment Advisors LLC, a Santa Monica, California-based firm that advises clients on investing in hedge funds.

King Says ‘Urgent’ Action Needed on Widening Global Imbalances - (www.bloomberg.com) Bank of England Governor Mervyn King said trade imbalances that helped push the global economy into its biggest recession since World War II are widening and “urgent” action must be taken to prevent more turmoil. “If countries do not work together to reduce the ‘too high to last’ imbalances, a crisis of one sort or another in financial markets is only too likely,” King said in a speech in Exeter, England late yesterday. Before the crisis, “no individual country faced strong incentives to alter its own choices, but the collective outcome was costly to everyone.” The growing importance of export-led economies such as China, India and Russia helped create unsustainable trade deficits in developed countries’ economies as they borrowed more to finance rising imports, King said. U.K. Chancellor of the Exchequer Alistair Darling late last year urged the Group of 20 nations to tighten cooperation on preventing future distortions and King said that the group needs to be more than just a talking shop for world leaders.

New York Fed “Very Sensitive” on AIG, E-Mail Says - (www.bloomberg.com) The Federal Reserve Bank of New York was “very sensitive” about explaining that bailout payments fully reimbursed American International Grou Inc.’s trading partners for bonds tied to subprime mortgages, according to an e-mail from one of the insurer’s executives to another. Elias Habayeb, former chief financial officer of the AIG division with the unit that sold bond protection to banks, wrote in a November 2008 e-mail to company executives that he wanted to clear up “a lot of confusion” about the price that the New York Fed would pay to retire $62.1 billion in derivatives. “The Fed offered all counterparties par,” Habayeb wrote. “I think we should be clear on that point. The total cost of terminating the credit-default swaps and buying the underlying super senior collateralized debt obligation bond held by the counterparty is par.” An explanation that the banks got 100 cents on the dollar was removed from a draft of an AIG regulatory filing, Bloomberg News reported on Jan. 7. The New York Fed, run by Timothy F. Geithner when the company was rescued in 2008, faces pressure to explain why banks including Goldman Sachs Group Inc. and Societe Generale SA were made whole on AIG guarantees and why the regulator asked the insurer to withhold information about the payments from filings. Geithner, now Treasury secretary, agreed to testify Jan. 27 before a House hearing. The New York Fed has been ordered to give Congress documents related to the bailout by today.