KeNo's Housing and Economic Portal: Saturday July 3 Housing and Economic stories

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Illinois suffers new credit rating blow - (www.ft.com) Illinois’ unwillingness to tackle its budget woes prompted Fitch on Friday to become the second agency in a week to downgrade the cash-strapped state, which is likely to push up the state’s borrowing costs as it prepares to issue new debt. Fitch lowered the rating on Illinois’ general obligation bonds from “A+” to “A” and assigned them a negative outlook, signalling it could downgrade the state further. The move came a week after Moody’s moved the state’s general obligation rating to A1 from Aa3. Standard & Poor’s rates Illinois “A+”. “Something significant needs to happen on either side of the budget – either cutting spending or raising revenues,” said Karen Krop of Fitch. “Now they are relying on deficit borrowing.” Ms Krop said Illinois has budgeted to raise more than $8bn with bonds in the current and next fiscal years. “There doesn’t seem to be an endgame,” she said. Illinois’ budget situation is among the worst in the US. The state faces a $13bn budget deficit for the financial year that begins on July 1. More than $6bn of that is unpaid bills from the current year, which have prompted state prisons to let out inmates early, and the state to cut 20,000 teachers and staff.

NY State Shell Game - Municipalities Borrow from Pension Fund to make Required Pension Fund Contributions - (Mish at globaleconomicanalysis.blogspot.com) When it comes to pension funding schemes, NY governor David Paterson and the NY legislature have taken can-kicking to ever increasing levels of absurdity. Please consider State Plan Makes Fund Both Borrower and Lender. Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund. And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund. As word of the plan spread, some denounced it as a shell game and a blatant effort by state leaders to avoid making difficult decisions, like cutting government spending or reducing pension benefits. “It’s a classic Albany example of kicking the can down the road,” said Harry Wilson, the Republican candidate for comptroller, who holds an M.B.A. from Harvard. Under the plan, the state and municipalities would borrow the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013. But Mr. Paterson and other state officials hope the stock market will have rebounded to such a degree by that time that the state’s overall pension contribution burden will have been reduced.

Banks set new store on building gold vaults - (www.ft.com) Some of the world’s biggest banks and security companies are building vaults to store gold bars and coins worth tens of billions of dollars, cashing in on resurgent demand and record prices. The growing interest in gold among investors worried about the global economy and Europe’s sovereign debt crisis has led to a shortage of long-term storage space. Bankers said that vaulting had become highly profitable. Rising bullion prices translate into higher storage fees, which are usually calculated as a percentage of the gold price. Gold prices this week rose to a nominal record of $1,251.20 a troy ounce, up 14.5 per cent since January. On Friday, bullion traded at $1,226. “Physical gold is being sought more than ever and that is causing all sorts of strains,” said Peter Hambro, chairman of Petropavlovsk, the gold miner.

New York Money Manager Chimay Charged With Larceny, Forgery - (www.bloomberg.com) New York money manager Guy Albert de Chimay was indicted in New York on grand larceny and forgery charges, according to the Manhattan District Attorney’s office. Chimay, 47, chairman and chief investment officer of Chimay Capital Management Inc., was arrested yesterday in Wrightsville Beach, North Carolina, on a New York state warrant, said Adam Kaufmann, chief of the investigation division of the Manhattan District Attorney’s office. The U.S. Securities and Exchange Commission sued Chimay yesterday, accusing him and his firm of fraud for touting investments he claimed were tied to the Chimay royal family of Belgium, and then stealing millions of dollars to pay his divorce lawyers and the mortgage on his house in the Hamptons on Long Island east of New York City. “He lied to investors, took their money and used it to support his lifestyle,” Kaufmann said in a phone interview.

TPG admits to big buy-out paper losses - (www.ft.com) TPG, the private equity firm, is sitting on billions of dollars in paper losses on some of its biggest investments during the buy-out boom, according to a report sent to its investors. The firm’s paper losses on just four buy-outs – of Energy Future Holdings, the former TXU, Freescale Semiconductor, Harrah’s Entertainment and Univision Communications – amount to nearly $2.9bn (€2.4bn). TPG invested $4.7bn in the deals. The estimated value of the investments was detailed in a report dated May 28 sent to investors in the TPG Partners V fund. Overall, the performance of the fund during the quarter ending 31 March was “relatively flat”, with an overall paper gain of $42m, the report said. The paper losses on the investments in TXU, Freescale, Harrah’s and Univision make it unlikely TPG will be able to cash out of these holdings and return any proceeds to investors soon. However, it will have many years to turn round the fortunes of the companies before it is obliged to reward investors. The firm has returned about $8bn to investors since the beginning of last year. TPG declined to comment.

Seven State Pension Plans will be Out of Money by 2020 - (Mish at globaleconomicanalysis.blogspot.com) In a system, gone completely loony, pension plans in seven state will be busted by 2020 yet the states keep hiring public workers. Please consider Pension Plans Go Broke as Public Payrolls Expand. Seven states will run out of money to pay public pensions by 2020. That hasn’t stopped them from hiring new employees. The seven are Illinois, Connecticut, Indiana, New Jersey, Hawaii, Louisiana and Oklahoma, according to Joshua D. Rauh of the Kellogg School of Management at Northwestern University. Combined, they added 9,700 workers to both state and local government payrolls between December 2007 and April of this year, says the U.S. Bureau of Labor Statistics. Generous and bloated are the terms that have been used to describe them; critics have set up websites to pillory those government retirees who enjoy $100,000-plus annual pensions and other goodies, such as health-care benefits for themselves and their families for life. “Are State Public Pensions Sustainable? Why the Federal Government Should Worry About State Pension Liabilities” is the title of Rauh’s recent study. It’s a provocative piece of work, especially for one of its tables, titled, “When Might State Pension Funds Run Dry?”