KeNo's Housing and Economic Portal: Saturday July 17 Housing and Economic stories

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US state budget crises threaten social fabric - (www.ft.com) The small southern California city of Maywood has hit on a unique solution to its budget crisis. Crushed by the recession and falling tax revenues, the city is disbanding its police force and firing all public sector employees. Maywood has opted for an extreme solution, by contracting out all public services, including the most basic, to save cash. But it is not alone. States around the US are cutting costs wherever possible as they prepare budgets for the fiscal year that starts this week for most of them. Their combined deficit is projected to reach $112bn by June 2011. Local government activities, such as funding police, school buildings, fire departments, parks and social programmes, are in the line of fire. “We are where the rubber meets the road,” said Sam Olivito of the California Contract Cities Association, which represents cities that outsource public services. “Local government is the fabric of our nation – it’s what keeps everything working properly.” The biggest state deficit is in California, which has a $19bn hole in its finances. A series of contentious spending cuts is being debated in the state. But for Maywood time has run out: the city’s insurance costs spiked because of long-running problems associated with its police department, while revenue from property and sales taxes declined. When city officials failed to respond to conditions imposed by its insurers, coverage was withdrawn.

Vancouver's Real Estate Bubble Trouble - (www.bloomberg.com) The Olympics are over, and the Village is for sale. The complex in Vancouver, British Columbia, that housed the athletes during the 2010 Winter Olympics has been converted into 1,100 luxury condos. About 450 have been pre-sold, and the sales of the remainder may well render a verdict on a mystery that looms over this city like Grouse Mountain: Did Canada prudently steer its way clear of the worst of the financial crisis only to be rewarded with a massive housing bubble of its own? On a bright, warm Saturday in late June, couples and families wandered through the empty village, which has been renamed Millenium Water. It opened for public tours last month and draws about 100 people a day. Millenium Water is a city of the future, built with enviro-touches like green roofs and automatic shades that moderate the temperature inside the apartments. An 815-square-foot, one-bedroom apartment is on sale for C$879,000, which works out to C$1,078 per square foot, or $12 higher than the average price in Manhattan, according to The Corcoran Report. (A Canadian dollar is currently worth about U.S. 96 cents.)

V.A. Loans Harder to Get - (www.nytimes.com) MILITARY veterans have long been accustomed to a relatively easy mortgage process. Even borrowers with no down payment or a low credit score were usually granted V.A. loans, in large part because theDepartment of Veterans Affairs insures a quarter of the loan amount. But about two years ago, lenders began limiting the conditions under which they would offer these mortgages, and industry executives say that since the start of the year, all the nation’s major lenders have followed suit. “It’s been a tightening across the board,” said Nathan Long, the chief executive of VAMortgageCenter.com, an online broker of V.A. mortgages. Lenders will still offer V.A. loans with no down payment, he said, but “if you have a credit score of 610, the best thing to do is work on your credit and try again in a couple of months, because you don’t really have any options.” Mr. Long says major lenders like Bank of America, Citigroup and JPMorgan Chase, typically will not offer V.A. loans to borrowers with credit scores below 610. Debora Blume, a spokeswoman for Wells Fargo, said the cutoff score for her bank’s V.A.-insured loans was 600.

British PM fears BP's "destruction" - (www.reuters.com) Fearing the "destruction" of BP Plc, British Prime Minister David Cameron said yesterday some clarity is needed over its costs from the Gulf of Mexico oil spill even as the company's stock plunged to a 14-year low. As cleanup and containment operations forged on, the first tropical depression of the 2010 Atlantic hurricane season formed yesterday in the western Caribbean, a development that could disrupt such efforts for days or weeks. And on the legal front, the Obama administration asked a U.S. appeals court to stay a ruling that lifted a temporary ban on deepwater oil drilling, its latest attempt to clamp down in the wake of the worst spill in U.S. history. The disaster in the Gulf has thrust itself to the top of the political agendas of U.S. President Barack Obama and Britain's Cameron, who gave his strongest comments yet on the subject ahead of expected talks between the two leaders on today at the the G8/G20 summits in Canada.

Why The US Will Never Have A Balanced Budget Again - (www.businessinsider.com) The United States government will never have another balanced budget again. Yes, you read that correctly. U.S. government finances have now reached a critical "tipping point" and things are going to spin wildly out of control from this time forward. Why? Spending on entitlement programs and interest on the national debt are now accelerating. Some time around 2020 they will eat up every single dollar of federal revenue that is brought in before a penny is spent on anything else. Of course the solution to all of this would be to radically cut entitlement programs, but no U.S. politician in his or her right mind would do that. After all, do you think elderly people (who vote in droves by the way) would vote for you after you just cut their Social Security checks in half? That is not the way the world works. You see, democracies always get into trouble once the people realize that they can vote for the candidates that promise them the largest gifts out of the public treasury. That is where the United States is at now.

Spain's Debt Maturity Wave Hits Next Month And It's Already Obvious They Don't Have Enough Cash - (www.businessinsider.com) Spain faces a confluence of events in July, whereby it will need to finance 21.7 billion euros within a single month. This combines shortfalls in its budget and a wave of scheduled government debt redemptions. Even if the Spanish government draws down its cash reserves, Goldman Sachs believes it will still be short 12.6 billion euros. Goldman: July: the government needs to finance €21.7bn (a €13.5bn cash deficit and a €8.2bn net redemption), of which only €9.1bn can be covered by cash reserves: the rest, €12.6bn, would then represent a potential shortage. This money will have to be raised through some sort of debt issuance. Here are Spain's options: Goldman: -) First, the cash deficit may be smaller than we have assumed, not least because the government, aware of the funding constraints, will minimise discretionary spending or delay payments to service providers, etc. In addition, the additional spending cuts adopted in May have been applied as of June and may result in lower deficits than we have assumed.