KeNo's Housing and Economic Portal: Sunday June 13 Housing and Economic stories

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TOP STORIES:

Payback Time - Padded Pensions Add to New York's Fiscal Woes - (www.nytimes.com) In Yonkers, more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working. One of the youngest, Hugo Tassone, retired at 44 with a base pay of about $74,000 a year. His pension is now $101,333 a year. It’s what the system promised, said Mr. Tassone, now 47, adding that he did nothing wrong by adding lots of overtime to his base pay shortly before retiring. “I don’t understand how the working guy that held up their end of the bargain became the problem,” he said. Despite a pension investigation by the New York attorney general, an audit concluding that some police officers in the city broke overtime rules to increase their payouts and the mayor’s statements that future pensions should be based on regular pay, not overtime, these practices persist in Yonkers. The city has even arranged for its police to put in overtime as flagmen on Consolidated Edison construction sites. Though a company is paying the bill, the city is actually reporting the work as city overtime to the New York State pension fund, padding future payouts — an arrangement at odds with the spirit of public employment, if not the law. The Yonkers experience shows how errors, misunderstandings and wishful thinking are piling hidden new costs onto New York’s public pension system every year, worsening the state’s current fiscal crisis. And the problem is not just in New York. Public pension costs are ballooning everywhere, throwing budgets out of whack and raising the question of whether venerable state pension systems are viable.

Crisis Imperils Liberal Benefits Long Expected by Europeans - (www.nytimes.com) Across Western Europe, the “lifestyle superpower,” the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II. Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism. Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. They have also translated higher taxes into a cradle-to-grave safety net. “The Europe that protects” is a slogan of the European Union. But all over Europe governments with big budgets, falling tax revenues and aging populations are experiencing rising deficits, with more bad news ahead. With low growth, low birthrates and longer life expectancies, Europe can no longer afford its comfortable lifestyle, at least not without a period of austerity and significant changes. The countries are trying to reassure investors by cutting salaries, raising legal retirement ages, increasing work hours and reducing health benefits and pensions. “We’re now in rescue mode,” said Carl Bildt, Sweden’s foreign minister. “But we need to transition to the reform mode very soon. The ‘reform deficit’ is the real problem,” he said, pointing to the need for structural change. The reaction so far to government efforts to cut spending has been pessimism and anger, with an understanding that the current system is unsustainable. In Athens, Aris Iordanidis, 25, an economics graduate working in a bookstore, resents paying high taxes to finance Greece’s bloated state sector and its employees. “They sit there for years drinking coffee and chatting on the telephone and then retire at 50 with nice fat pensions,” he said. “As for us, the way things are going we’ll have to work until we’re 70.” In Rome, Aldo Cimaglia is 52 and teaches photography, and he is deeply pessimistic about his pension. “It’s going to go belly-up because no one will be around to fill the pension coffers,” he said. “It’s not just me; this country has no future.” Changes have now become urgent.

Barney Frank's Conflicting Words on Housing - (www.cnbc.com) Representative Barney Frank, the House's point person on financial reform, said on "Power Lunch" this week that he never supported the expansion of home ownership: One of my biggest differences with the Bush and even with the Clinton administration was that they overdid that. I have always been critical of this effort to equate a decent home with homeownership. We should have done more to get affordable rental housing. My efforts have been towards affordable rental housing. I was very much in disagreement with this push into home ownership. I think the federal government should not be artificially doing that. (See video) Compare that to what he said back in 2005: This is a very important resolution, particularly at this time. Because we have, I think, an excessive degree of concern right now about home ownership and its role in the economy. Obviously, speculation is never a good thing. But those who argue now that housing prices are now at the point of a bubble seem to me to be missing a very important point. Unlike previous examples we have had, where substantial excessive inflation of prices later caused some problems, we are talking here about an entity, home ownership. Homes, where there is not the degree of leverage that we've seen elsewhere. This is not the dotcom situation, where you had problems when people invested in a business plan where there was no reality. People building fiber optic cable for which there was no need. Homes that are occupied may see ebb and flow of price at a certain percentage level, but you're not going to see the collapse that you see when people talk about a bubble. So those of us on our committee will continue to push for home ownership. (See video) These conflicting statements raise the following question: Why should we believe Congress gets financial regulation right this time around when a guy who is unanimously lauded as extremely smart (whether you like him or not) can be so wrong about housing? And so revisionist of where he stood on the expansion of home ownership?

Three-Month Dollar Libor Rises to Highest Since July - (www.bloomberg.com) The rate banks say they pay for three-month loans in dollars rose to a ten-month high as concern over counterparty risk and new regulation in the wake of the Greek fiscal crisis increased institutions’ reluctance to lend. The London interbank offered rate, or Libor, for such loans rose for a ninth straight day to 0.497 percent today from 0.484 percent yesterday, the British Bankers’ Association said. That’s the highest since July 24. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, widened to the most since Aug. 7. Libor has been climbing amid deepening concern about the quality of banks’ collateral amid the euro-region’s financial crisis. The rate may rise as high as 1.5 percent by September, exacerbated by regulatory uncertainty, said Neela Gollapudi, a strategist at Citigroup Global Markets Inc. in New York.

‘100% Protected’ Isn’t as Safe as It Sounds - (www.nytimes.com) BROKERS selling complex securities that they once contended were safe and sound have saddled individual investors with billions in losses since the credit bubble burst. Remember auction-rate securities? Those were peddled to investors as just as good as cash — until they no longer were after that market seized up in 2008. Questions about how Wall Street marketed yet another complex product, sold as solid and secure, are now emerging in investor arbitration cases. The instrument is named, inaptly as it turns out, “100 percent principal protected absolute return barrier notes.” These securities are essentially zero-coupon notes sweetened by tying the return, in part, to the performance of an equity index, like the Standard & Poor’s 500 or the Russell 2000. The securities promise to return an investor’s principal, typically at the end of 18 months, with the added gain from the index’s performance if that index trades within a certain range. Brokerage firms often issued these securities.

32 States Borrow $37.8 Billion Total to Make Unemployment Payments; CA Tops List at $6.9 Billion; Bill to Extend Benefits Until DEC in Congress - (Mish at globaleconomicanalysis.blogspot.com) Inquiring minds are reading the Economic Policy Journal for clues on how much states are borrowing to make unemployment insurance claims. The totals are not pretty. As of May 20, the total balance outstanding by 32 states plus the Virgin Islands is $37.8 billion.
The CINN Group accounts for $14 billion of it.
California $6.9 Billion
Illinois $2.2 Billion
New York $3.2 Billion
New Jersey $1.7 Billion
The worst 4 grouping accounts for $17 billion, nearly 45% of the total.
California $6.9 Billion
Michigan $3.9 Billion
New York $3.2 Billion
Pennsylvania $3.0 Billion
Other Notables
Florida $1.6 billion
Indiana $1.7 billion
North Carolina $2.1 Billion
Ohio $2.3 Billion
Texas $1.0 Billion
Wisconsin $1.4 Billion

I bet the entire amount is forgiven. Any takers?