KeNo's Housing and Economic Portal: Sunday February 7 Housing and Economic stories

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California unemployment ticks up - (www.sacbee.com) The job losses returned to California in a significant way last month, driving statewide unemployment up to 12.4 percent. The U.S. Bureau of Labor Statistics today said the rate increased one-tenth of a point from November. In another bit of discouraging news, the state lost 38,800 payroll jobs during the month, the BLS said. Analysts had been hoping that the job losses in California had mostly run their course. Local unemployment rates will be released later this morning.

FDIC Chief Got Bank of America Loans While Working On Its Rescue: Agency Grants Sheila Bair Retroactive Ethics Waiver on Mortgages – (www.huffingtonpost.com) Sheila Bair, one of the chief regulators overseeing Bank of America’s federal rescue, took out two mortgages worth more than $1 million from the banking giant last summer during ongoing negotiations about the bank’s bailout and its repayment. In the weeks between the closings on her two mortgage loans, Bair met with Bank of America’s chief negotiator in the bailout talks. To avoid conflicts of interest, the Federal Deposit Insurance Corp., which Bair heads, prohibits employees from participating in “any particular matter” involving a bank from which they are seeking a loan. Bair did not seek or receive an exemption until last week, when her agency gave her a retroactive waiver from the rules after an inquiry by the Huffington Post Investigative Fund. FDIC officials said there was no link between Bair’s duties and her mortgages. They also contend that even without the waiver Bair violated no ethics rules. Moreover, the FDIC said, Bair received no preferential treatment for either loan, paying interest rates at or above the national average. However, the circumstances surrounding the mortgage on Bair’s house in Amherst, Mass., raise questions about whether she and her husband should have qualified for the terms they received.

Japan Faces ‘Uncontrollable Rise’ in Public Debt, Yosano Says - (www.bloomberg.com) Japanese Prime Minister Yukio Hatoyama is failing to rein in record deficits that threaten to send bond sales soaring and increase long-term interest rates, former Finance Minister Kaoru Yosano said. “We’re entering a phase of an uncontrollable rise” in government debt, Yosano, a member of the opposition Liberal Democratic Party, said in an interview at his office in Tokyo today. The ruling Democratic Party of Japan “doesn’t have a sense of crisis about this.” Hatoyama last month released his 2010 budget, and pledged to keep bond sales for the year beginning April 1 at 44 trillion yen ($489 billion). The Finance Ministry projects outstanding debt will reach 862 trillion yen by March 2011, almost double the size of gross domestic product. Japanese have funded state spending through their more than 1,400 trillion yen in savings, with banks, pension funds and insurance companies buying government bonds. Yosano said bond yields will likely rise as the difference between public debt and net household savings narrows.

Fannie, Freddie Losses May Hit U.S. - (online.wsj.com) The U.S. government's move to deepen its ties to mortgage-finance giants Fannie Mae and Freddie Mac by agreeing to absorb unlimited losses for the next three years is igniting a debate over whether it should bring the business operations of the companies onto its books. A decision on how the government treats Fannie and Freddie could have broader political implications. So far, the White House has resisted calls by Republicans to bring Fannie's and Freddie's obligations onto the government's books, a move that could boost the federal deficit by tens of billions of dollars. At a time when the deficit is already at a postwar high, that could create added urgency for Congress and the administration to address the companies' future. The Congressional Budget Office has reiterated its support for bringing the companies onto the federal budget—and onto the government books—which would effectively mean accounting for their operations in the federal budget as if they were federal agencies. "Recent events clearly indicate a strengthening of the federal government's commitment to the obligations of Fannie Mae and Freddie Mac," the CBO said in a report. The CBO pegged the government's total costs of bailing out the two companies at $291 billion and said the government's takeover could cost an additional $99 billion in the coming decade.

Obama's 'Volcker Rule' shifts power away from Geithner - (www.washingtonpost.com) For much of last year, Paul Volcker wandered the country arguing for tougher restraints on big banks while the Obama administration pursued a more moderate regulatory agenda driven by Treasury Secretary Timothy F. Geithner. Thursday morning at the White House, it seemed as if the two men had swapped places. A beaming Volcker stood at Obama's right as the president endorsed his proposal and branded it the "Volcker Rule." Geithner stood farther away, compelled to accommodate a stance he once considered less effective than his own. The moment was the product of Volcker's persistence and a desire by the White House to impose sharper checks on the financial industry than Geithner had been advocating, according to some government sources and political analysts. It was Obama's most visible break yet from the reform philosophy that Geithner and his allies had been promoting earlier. Senior administration officials say there is now broad consensus within the White House and the Treasury for the plan advanced by Volcker, who leads an outside economic advisory group for the president. At its heart, Volcker's plan restricts banks from making speculative investments that do not benefit their customers. He has argued that such speculative activity played a key role in the financial crisis. The administration also wants to limit the ability of the largest banks to use borrowed money to fund expansion plans.

Obama Proposal May Force JPMorgan, Goldman to Sell Buyout Units - (www.bloomberg.com) JPMorgan Chase & Co. and Goldman Sachs Group Inc. may have to sell some private-equity businesses and stop investing in buyouts under a proposal by President Barack Obama to limit bets made by banks with their own capital. Obama asked Congress yesterday to prohibit banks from owning or making investments in private-equity and hedge funds that “are unrelated to serving customers.” While financial institutions could still manage the assets on behalf of clients, they wouldn’t be able to invest in their own funds or those run by firms such as Blackstone Group LP and KKR & Co. The proposed rules may alter Wall Street’s role in private equity, where financial institutions and investors commit money to buy companies, real estate and other assets. U.S. banks account for 9 percent of private-equity capital, according to Preqin Ltd., a London-based research firm. “In a world where there is less capital available for private equity and hedge funds, this will take out another source of funding,” said Bruce Ettelson, head of the fund- formation group at law firm Kirkland & Ellis LLP in Chicago. Banks have raised more than $80 billion for their private- equity funds since 2006 and have invested $94 billion with other managers for clients, Preqin said today in a statement. JPMorgan may seek to divest its OneEquity Partners private- equity unit, according to a person familiar with the New York- based bank. OneEquity Partners manages $8 billion in direct investments, with holdings that include TV Guide.

Sacramento-area fitness clubs struggle with their bottom line - (www.sacbee.com) The local health coach sees it among her clients. The fitness club owner reads it in the bottom line. The local health coach sees it among her clients. The fitness club owner reads it in the bottom line. In a rugged economy, club members are taking a hard look at how they spend their money. Some have turned in memberships and taken their bicycles out of the garage, or traded a trip on the fitness center treadmill for a walk around the park. "If it comes down to paying the rent or going to the gym – you don't have that extra funding to spend," said Leah Cox, executive director of the Davis-based California Task Force on Youth and Workplace Wellness. In its just-released third quarter 2009 index of 19 leading health club companies representing nearly 550 facilities, the Boston-based International Health, Racquet and Sportsclub Association reported declines in several areas. Fitness companies' total revenue declined nearly 4 percent from the third quarter of 2008; revenue from member dues was down about 3 percent. Same-store non-dues revenue dropped nearly 10 percent. Data are not yet available for the 2009 fourth quarter. "Like every business in every industry, the economy has changed the game," said Dan Benning, a divisional president of San Ramon-based health club chain 24 Hour Fitness. "Everyone is very value-conscious right now. We understand that."