KeNo's Housing and Economic Portal: Tuesday February 2 Housing and Economic stories

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TOP STORIES:

Illinois Careens Toward Bankruptcy - (www.nbcchicago.com) Illinois’ finances are in dire straights. Some fear the state is a hair’s breath from (gasp!) bankruptcy. "We would like all the stakeholders of Illinois to recognize how close the state is to bankruptcy or insolvency," Laurence Msall, president of the Civic Federation, a fiscal watchdog in Chicago told Crain’s Chicago Business. Bankruptcy is defined as an inability to pay debts out of current assets, and it’s no secret that Illinois can’t pay its bills. The latest count puts Illinois’ unpaid bills at around $5 billion – a contentious fact among the state’s gubernatorial hopefuls. The question is: what can Illinois do about its near-bankrupt status? Answer: not much. Federal bankruptcy protection doesn’t apply to states, so there's no way for Illinois to hide from its creditors. And none of Illinois politicians are willing to make the tough choices needed to close the budget gap, like raising taxes or cutting spending, Crain’s notes. Many foresee a governmental collapse in which vendors will stop bidding on contracts, investors will stop buying bonds and employees will be paid with IOUs, similar to what California has done. "I don't see any light at the end of the tunnel," Dan Strick, CEO of SouthStar Services, a Chicago Heights non-profit that helps people with developmental disabilities told Crain's. "It seems to be getting worse and worse, and the delays longer and longer."

Japan Airlines Set to File for Bankruptcy - (www.nytimes.com) Japan Airlines Corp. is set to file for one of the country's largest ever bankruptcies on Tuesday, marking the failure of the former state-owned carrier that once symbolised Japan Inc's international aspirations. JAL, Asia's largest airline by revenues, will remain in the skies under a state-backed restructuring plan as it tries to free itself from about $16 billion (9.75 billion pounds) in debt in exchange for slashing a third of its 47,000 staff and shedding unprofitable routes, sources have said. JAL, which has been bailed out by the Japanese government three times in the past 10 years, must now look to reinvent itself through painful operation cuts and tough decisions about foreign capital and alliances. The airline is expected to file for bankruptcy around 0800 to 0830 GMT (8:00 a.m. to 8:30 a.m. British Time), two sources familiar with the matter said. "I am not worried about the future of the carrier as I believe the government will strongly support it," said Yasuhiro Matsumoto, credit analyst at Shinsei Securities. "But whether it will be able to grow as a business is unclear. I can't see how JAL is going to build its network domestically and internationally."

Illinois enters a state of insolvency - (www.chicagobusiness.com) As Illinois' fiscal crisis deepens, the word "bankruptcy" is creeping more and more into the public discourse. "We would like all the stakeholders of Illinois to recognize how close the state is to bankruptcy or insolvency," says Laurence Msall, president of the Civic Federation, a fiscal watchdog in Chicago. "Bankruptcy is the reality that looms out there," Republican gubernatorial candidate Andrew McKenna Jr. says.While it appears unlikely or even impossible for a state to hide out from creditors in Bankruptcy Court, Illinois appears to meet classic definitions of insolvency: Its liabilities far exceed its assets, and it's not generating enough cash to pay its bills. Private companies in similar circumstances often shut down or file for bankruptcy protection. "I would describe bankruptcy as the inability to pay one's bills," says Jim Nowlan, senior fellow at the University of Illinois' Institute of Government and Public Affairs. "We're close to de facto bankruptcy, if not de jure bankruptcy." Legal experts say the protections of the federal bankruptcy code are available to cities and counties but not states. While Illinois doesn't have the option of shutting its doors or shedding debts in a bankruptcy reorganization, it seems powerless to avert the practical equivalent. Despite a budget shortfall estimated to be as high as $5.7 billion, state officials haven't shown the political will to either raise taxes or cut spending sufficiently to close the gap.

Boston gets $13.6 million to buy foreclosed homes - (www.boston.com) The City of Boston has been awarded $13.6 million in federal funding to help buy and renovate hundreds of foreclosed homes, part of $47.9 million in competitive awards issued in the state this week. The US Department of Housing and Urban Development announced the grants yesterday, which are included in a $2 billion economic stimulus package for states, local governments and nonprofit housing developers. In addition to the money awarded to Boston, the Massachusetts Housing Investment Corp., a private lender that specializes in affordable housing, was given $21.8 million, and Community Builders Inc., a nonprofit developer based in Boston, is receiving $12.5 million, according to federal officials. Boston Mayor Thomas M. Menino said the funding will accelerate the city's ability to deal with the foreclosure crisis that has plagued some neighborhoods. There are about 860 bank-owned properties in parts of Dorchester, East Boston, Roxbury, Hyde Park and Mattapan. The city has already purchased 17 foreclosed properties and is in the process of closing deals on 44 more, with plans to renovate and sell them in partnership with buyers, nonprofits and developers.

Banks pull another billion from small biz - (money.cnn.com) The nation's biggest banks cut their collective small business lending balance by another $1 billion in November, according to a Treasury report released late Friday. The drop marked the seventh straight month of declines. The 22 banks that got the most help from the Treasury's bailout programs have cut their small business loan balances $12.5 billion since April, when the Treasury began requiring them to file monthly reports on the tally. The banks' total lending has fallen 4.6% in that seven-month period, to $256.8 billion. As Wall Street megabanks return to health -- and celebrate with lavish bonuses -- President Obama and his administration have been pushing financiers to help spur a Main Street recovery. Small business owners are still reporting difficulty finding banks willing to extend the credit they need to launch, run and grow their ventures.

Housing Agency Walks Tightrope - (online.wsj.com) David Stevens bought his first home almost 25 years ago, paying just 3% down with a loan backed by the Federal Housing Administration. "I had no money in the bank," he says. "If it weren't for the FHA, I wouldn't have gotten that home." Now, as FHA commissioner, Mr. Stevens has to decide how many others to let through that door. Souring FHA-insured mortgages are threatening the agency's finances. Congress is pressuring him to tighten the easy-money standards that once helped people like him, and he is expected to announce revisions as early as this week. But raising the credit bar could have a dangerous side effect. In many of the nation's hardest-hit housing markets, the FHA backs around half of all new home loans. If the agency pulls back too quickly, the nascent housing recovery could fizzle, endangering the economy. The dilemma puts the 52-year-old former mortgage banker squarely in the middle of the debate over how much the government should do to prop up the housing market, and how much risk taxpayers should take on to do it. "How big a role do we need to play to keep the housing system functioning?" says Mr. Stevens, referring to the FHA. "Overcorrecting in either direction would be a terrible thing to do right now."

OTHER STORIES:

Stalled upgrade delays unemployment checks - (www.sfgate.com) At a time when nearly 800,000 jobless Californians depend on timely unemployment checks, the state has been sitting on more than $50...

Recovery killer? Greece is the word - (money.cnn.com)

Chrysler issues recall over possible brake failure - (money.cnn.com)

Swiss Banker Blows Whistle on Tax Evasion - (www.nytimes.com)

An Antitrust Complaint for Google in Germany - (www.nytimes.com)

Ohio State is No. 1 - in president's pay - (money.cnn.com)

Profits and losses and banks. Oh my! - (money.cnn.com)

Talkback: How do you plan to invest this year? - (money.cnn.com)

Poll: Californians down over finances again - (www.sfgate.com)

Automakers begin hiring in hopes of better year - (www.sfgate.com)

Ship traffic for Tuesday, Jan. 19, 2010 - (www.sfgate.com)

Bay Area investment adviser sentenced - (www.sfgate.com)

Hackers Said to Breach Gmail Accounts in China - (www.nytimes.com)