KeNo's Housing and Economic Portal: Saturday February 20 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Largest-ever federal payroll will hit 2.15 million - (www.washingtontimes.com) The era of big government has returned with a vengeance, in the form of the largest federal work force in modern history. The Obama administration says the government will grow to 2.15 million employees this year, topping 2 million for the first time since President Clinton declared that "the era of big government is over" and joined forces with a Republican-led Congress in the 1990s to pare back the federal work force. Most of the increases are on the civilian side, which will grow by 153,000 workers, to 1.43 million people, in fiscal 2010. The expansion could provide more ammunition to those arguing that the government is trying to do too much under President Obama. "I'm shocked that the 'tea party' hasn't focused on it yet, and the Obama administration only has a thin sliver of time to deal more directly with it, I believe," said Paul C. Light, who studies the federal bureaucracy as a senior fellow at the Brookings Institution and a professor at New York University. "When you talk about big government, you're talking about a big employer."

School Crisis In Nevada; Governor Seeks To Cancel Collective Bargaining With Schools Because The State Is Broke – (Mish at globaleconomicanalysis.blogspot.com) Nevada has an $881 million budget deficit and drastic cuts are on the horizon for education. Governor Gibbons is investigating options of canceling collective bargaining agreements with school districts. Unfortunately that maneuver is likely illegal. State revenue shortfall $881 million: It's official. The state government revenue shortfall that legislators and the governor must eliminate through spending cuts later this month is $881 million. State Budget Director Andrew Clinger said today that the shortfall has been formally calculated at $881.4 million, which would necessitate a 20.2 percent cut in state spending between March and June 30, 2011. Legislators so far have not said where they want to reduce spending. They are scheduled to meet with Gibbons' staff later today, when they will be given the governor's proposed list of cuts. So far, Gibbons has announced publicly he will support no more than a 6 percent cut in state employee salaries, a 10 percent reduction in public education spending, and layoffs of 300 state employees. He also wants to temporarily suspend collective bargaining rights for school employees and to close the Nevada State Prison in Carson City.

Moody’s warns US of credit rating fears - (www.ft.com) Moody’s Investors Service fired off a warning on Wednesday that the triple A sovereign credit rating of the US would come under pressure unless economic growth was more robust than expected or tougher actions were taken to tackle the country’s budget deficit. In a move that follows intensifying concern among investors over the US deficit, Moody’s said the country faced a trajectory of debt growth that was “clearly continuously upward”. Steven Hess, senior credit officer at Moody’s, said the deficits projected in the budget outlook presented by the Obama administration outlook this week did not stabilise debt levels in relation to gross domestic product. “Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating,” the rating agency added in an issuer note. This week, the White House forecast a $1,565bn budget deficit for 2010, which represents 10.6 per cent of gross domestic product and is the highest such ratio of debt to GDP since the second world war.

Greece unveils austerity measures - (news.bbc.co.uk) Greek Prime Minister George Papandreou has announced tough austerity measures aimed at cutting his country's soaring public debt. Mr Papandreou said a public sector pay freeze and fuel duty increases were essential because the economic crisis was propelling Greece towards a cliff. He said the EU was pressuring him to curb the budget deficit, which is four times higher than the 3% permitted. The European Commission will meet later on Wednesday to consider his measures. Earlier, one of the principal architects of the euro warned against any financial rescue of Greece, saying it could destabilise the currency. The German economist Otmar Issing told the BBC that after years of violating rules and cheating on its statistics, Greece had to reform its own economy without a bailout from Brussels. "These reforms which are needed will be blood and tears... but without that, Greece will never overcome the difficulties," he said. 'Unprecedented crisis': In a televised address on Tuesday, Mr Papandreou urged the public and his political rivals to support his austerity programme. "This is an effort to stop the country's course towards the cliff," he said.

Greek officials strike over cuts - (news.bbc.co.uk) Customs officials and tax inspectors in Greece are holding a two-day strike to protest against government austerity measures, including wage cuts. The strike is disrupting Greece's import market, with lines of trucks being held at the country's borders. The austerity measures have been introduced to try and tackle Greece's huge budget deficit and national debt. The EU approved the plan on Wednesday, but insisted on inspecting Greece's notoriously unreliable accounts. Part of the government's plan relies on tax collectors recovering billions of euros lost to tax evasion. The BBC's Malcolm Brabant in Athens says the tax inspectors are the most feared people in Greece, with the power to descend on any business without warning and go through the books. They have a vital role in Greece's economic recovery, which is contingent on clawing back as much tax as possible, adds our correspondent. On Tuesday, Greek Prime Minister George Papandreou announced a public sector salary freeze, a higher retirement age and a hike in petrol prices. Other measures already announced include the non-replacement of departing civil servants and the tax crackdown. Greece is one of several EU countries struggling with a gaping deficit and heavy debt, preventing them from spending their way out of recession.

UK halts $320bn stimulus scheme - (news.bbc.co.uk) The Bank of England has decided against further quantitative easing (QE), the policy designed to stimulate growth in the UK economy. Under QE, the Bank has pumped new money into the economy by buying assets such as government bonds, as a way to boost lending by commercial banks. Last week, it revealed it had spent all of the £200bn it created for QE. The Bank also kept interest rates on hold at a record low 0.5% for the 11th consecutive month. 'Further purchases': While halting QE, the Bank said the £200bn already injected into the economy through the programme would "continue to impart a substantial monetary stimulus to the economy for some time to come". But it did not close the door on further spending. "[The Bank] will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them." One area that it will be looking at is banks' lending to businesses and consumers, as QE was designed to help boost lending.

Not Another Wall Street Conspiracy Theory, These are Facts - (www.moneymorning.com) What the House Committee heard, overwhelmingly, on Wednesday was that AIG had to be bailed out because if it wasn't, the financial implosion that would result would send unemployment to 25% and America into the tailspin of another Great Depression. U.S. Treasury Secretary Timothy Geithner and former Treasury Secretary Henry M. "Hank" Paulson Jr. both testified that the systemic risk resulting from the bankruptcy of AIG would destroy the company's insurance businesses, devastating millions of Americans and resulting in economic ruin. Let's start there. The reality is that at the time of the government's initial $85 billion infusion into AIG on Sept. 16, 2008, for which it received a 79.9% ownership interest, there was no mention of AIG's endangered insurance subsidiaries. In fact, New York Insurance Superintendent Eric Dinello, who oversaw AIG's insurance businesses, was confident enough in the subsidiaries to consider transferring $20 billion in excess reserves from the insurance subsidiaries to their AIG parent. What was really sucking the life out of AIG were collateral demands - in other words, margin calls. A wholly owned, London-based financial-products subsidiary of AIG had written hundreds of billions of dollars ofcredit-default-swap contracts on exotic collateralized debt obligations (CDOs). The derivative swaps on the CDOs were insurance policies that would protect the buyers of those CDOs against losses on underlying subprime mortgage pools. As losses on subprime mortgages mounted, the insured parties demanded more collateral from AIG. AIG ran out of cash to make the collateral calls.

OTHER STORIES:

Sovereign debt worries rattle investors - (www.ft.com)

China curbs companies’ capital raising - (www.ft.com)

Shanghai Bad-Loan Ratio Would Triple With 10% Home Price Drop, CBRC Says - (www.bloomberg.com)

New Zealand Unemployment Rate Soars to 7.3%, Highest in More Than 10 Years - (www.bloomberg.com)

Banks concede reform is inevitable - (www.ft.com)

Cisco data signal ‘second phase of recovery’ - (www.ft.com)

Airbus, Boeing Forecast Plane Sales to Slump Until 2012 on Global Slowdown - (www.bloomberg.com)

Pacifica, CA Property Values Plummet - (www.pacificariptide.com)

Observations on SF East Bay Housing Market - (www.taxhome.blogspot.com)

Hawaii bankruptcy filings up 32.7% compared with January 2009 - (www.starbulletin.com)

Rising FHA default rate foreshadows a crush of foreclosures - (www.washingtonpost.com)