KeNo's Housing and Economic Portal: Tuesday February 9 Housing and Economic stories

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U.S. Life Insurers May Face More Real Estate Losses - (www.bloomberg.com) U.S. life insurers, a group led by MetLife Inc. and Prudential Financial Inc., may face $15 billion in additional commercial real estate losses, most of which will be recognized in the next two years, Fitch Ratings said. The life insurers have already booked about $5 billion in such losses since the economic crisis began, bringing the expected total to $20 billion, Douglas L. Meyer, a Fitch analyst, said today in an interview. Most future losses will be taken this year and in 2011, he said. “The U.S. life industry has a large exposure to CRE- related assets through direct mortgage origination, investments in commercial mortgage-backed securities, and to a lesser degree, investment in real estate equity,” Fitch wrote in a note to clients. The default rate for commercial mortgages bundled and sold as bonds rose 0.42 percentage point to 4.71 percent last month and may climb to 12 percent in 2012, Fitch said on Jan. 11. MetLife, the largest U.S. life insurer, has about $50 billion of its $338 billion portfolio in commercial property loans and CMBS.

Geithner Spoke to Buffett, Blankfein on AIG Aid Day - (www.businessweek.com) Treasury Secretary Timothy F. Geithner spoke with Berkshire Hathaway Inc. Chief Executive Officer Warren Buffett, JPMorgan Chase & Co. CEO Jamie Dimon and Goldman Sachs Group Inc. CEO Lloyd Blankfein on the day of the bailout of American International Group Inc., phone logs show. Geithner ran the Federal Reserve Bank of New York, which helped organize AIG’s rescue, on Sept. 16, 2008, when the calls took place. The logs were submitted by the New York Fed in response to a subpoena last week from the House Oversight and Government Reform Committee. Goldman Sachs and JPMorgan tried unsuccessfully to arrange a loan to prop up AIG in 2008 before the insurer turned to the government for a bailout that swelled to $182.3 billion. Buffett has said he was also approached by New York-based AIG about an investment in the days before the government rescue. “It wasn’t very tough,” to resist an investment, Buffett said in an interview with Bloomberg Television last year. “They needed more than we could supply by far. I didn’t know the extent of it, but I knew that.” Geithner also spoke that day with Citigroup Inc. CEO Vikram Pandit, Federal Reserve Chairman Ben S. Bernanke and Henry Paulson, who was then Treasury secretary. Another call was with European Central Bank President Jean-Claude Trichet. Buffett fielded a phone call from AIG’s then-Chief Executive Officer Robert Willumstad on Sept. 12, 2008, and opted not to bid on part of the insurer’s U.S. property-casualty operation, the Berkshire chairman said in the interview in March 2009. On Sept. 14, 2008, a second offer to participate in a transaction fell apart when a cash injection by a private group didn’t materialize, he said.

Buffett lets public down -- again - (blogs.reuters.com) The public has always seen in Warren Buffett a different kind of capitalist, an honest observer providing sound financial advice regardless of his personal interests. But is he? When it comes to his own holdings Buffett seems to use a carefully cultivated reputation for financial rectitude to feather his own nest. On Wednesday he came out against Obama’s proposed bank tax, but his comments were inconsistent. On one hand he’s always maintained banks needed to be bailed out, yet he opposes ways to make them pay for it. At this point, financial giants in which Buffett has large stakes — Wells Fargo, Goldman Sachs and General Electric — all benefit from an implicit too-big-to-fail government insurance policy. How can Mr. Buffett, an insurance executive, argue that it’s inappropriate to charge them for it? This is just the latest example of Buffett talking his book. Buffett also lobbied for and profited greatly from the bailouts. He invested in Goldman, he said, with the expectation that Congress would “do the right thing” by passing the Troubled Asset Relief Program. In other words, it was a bet on a bailout. Later he mocked the stress test, which forced over-leveraged banks to raise needed capital. This was bad for Buffett because it diluted his stakes in banks.

Housing bust keeps consuming California jobs - (www.latimes.com) California employers cut more workers in December, capping a dismal year in which the state lost more than half a million jobs. Payrolls shrank by 38,800, marking the worst month for job losses since September. The unemployment rate remained flat at 12.4%, but only because more than 100,000 workers left the labor force and are no longer counted. Many of them have given up looking for work or have moved out of state. Economists expect the state's labor market to remain weak this year largely because the bellwether housing sector continues to struggle. Over the last two years, California has lost more than 1 million jobs. "It's a discouraging report," said Bill Watkins, executive director of the Center for Economic Research and Forecasting at California Lutheran University. "The recovery is not as robust as we'd like to see." The bursting of the housing bubble has battered California, which has seen tens of thousands of related jobs in financial services, retail and the building trades vanish. The construction sector has been pummeled particularly hard. California has shed more than 300,000 construction jobs -- nearly one-third of the industry's labor force -- since the sector peaked at 948,500 jobs in February 2006, according to state figures.

Kansas Budget Deep In The Hole and Unemployment Insurance "Trust Fund" About To Run Dry - (Mish at http://globaleconomicanalysis.blogspot.com) Add Kansas to the list of states with huge budget problems about to get worse. Please consider Unemployment Woes Complicate Kansas Budget Debate. A need for Kansas to raise money to cover payments to unemployed workers has created a new problem for legislators and groups hoping to prevent budget cuts across state government by raising taxes. The state expects its Unemployment Insurance Trust Fund to run out of money by mid-February and to borrow funds temporarily from the federal government to keep benefits flowing. Kansas law requires businesses to refill the fund, which triggered a $209 million increase in their payments for this year. Meanwhile, Democratic Gov. Mark Parkinson and the Republican-controlled Legislature are wrestling with a projected budget shortfall of nearly $400 million for the fiscal year that begins July 1. The unemployment fund isn't part of the state's general operating budget, but its problems are dampening enthusiasm for increasing taxes to close the gap. It's also bolstering the resolve of legislators and groups opposed to higher taxes.

Further Proof Of Insanity In California - (Mish at http://globaleconomicanalysis.blogspot.com) If this was a football game, the referees might throw a flag on me for "piling on". Nonetheless, those needing further proof of how deeply insane some California politicians are can find it in Democrats revive single-payer health care in California. A key legislative committee in California has revived a bill that would create a government-run health care system in the nation's most populous state. The Senate Appropriations Committee released the bill Thursday for a vote by the full Senate next week. The legislation had been held over from last year. Creating a single-payer system would cost an estimated $210 billion in its first year. That's roughly double the size of the total state budget. The bill by Sen. Mark Leno, D-San Francisco, would create a commission to decide how to pay for it. Mark Leno is clearly unfit for office.