KeNo's Housing and Economic Portal: Tuesday July 6 Housing and Economic stories

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Illinois pension fund uses derivatives in desperate attempt to recupe losses - (news.medill.northwestern.edu) Dale Rosenthal, a former strategist for Long Term Capital Management, the hedge fund known for its epic collapse in 1998, and a proprietary trader for Morgan Stanley, has seen his share of financial complexities. But when shown a seven-page list of derivatives positions held by the Illinois Teachers Retirement System as of March 31, obtained by Medill News Service through a Freedom of Information Act request, the University of Illinois-Chicago assistant professor of finance expressed disbelief. “If you were to have faxed me this balance sheet and asked me to guess who it belonged to, I would have guessed, Citadel, Magnetar or even a proprietary trading desk at a bank,” Rosenthal said. The fact that the sheet doesn’t belong to one of those high-flying hedge funds, but to the $33.72 billion pension fund that serves more than 355,000 full-time, part-time and substitute public school teachers and administrators working outside the city of Chicago, is perplexing to those interviewed for this story. How bad is it? After losing $4.4 billion on investments in fiscal year 2009, and 5 percent on investments in fiscal 2008, the teachers’ pension is now underfunded by $44.5 billion, or 60.9 percent, according to the Commission on Government Forecasting and Accountability’s March 2010 report. By comparison, only 20.3 percent of the Chicago Teachers’ Pension Fund is unfunded.

Spain plays high-stakes poker game with Germany as borrowing costs surge - (www.telegraph.co.uk) Spain has upped the ante in a high-stakes poker game with Germany, pushing for the release of EU stress test results for major banks in a move that risks precipitating a dramatic escalation of Europe's financial crisis. "We're not afraid of transparency," said the Spanish Banking Association (AEB), saying the full truth would put an end to rumours battering Spain's instutitions. El Pais reported that the government backs the initiative, putting it on a collision course with Germany which insists on secrecy. Josef Ackermann, head of Deutsche Bank, warned last week that it would be "very dangerous" to publish the results of each bank, fearing that it would trigger flight from weak lenders and set off a chain reaction. The Spanish authorities have little to lose by publishing the data given the near paralysis in the country's debt markets. Funding is frozen for much of the private sector. Spain was pummeled yet again on Tuesday as credit default swaps (CDS) measuring bond risk on Spanish debt jumped to 245 basis points, approaching an all-time high. Default insurance for Greece rocketed after Moody's downgraded it to junk on Monday, forcing bond indexes to sell up to €20bn of Greek debt. Ireland and Portugal also jumped sharply, with mounting credit stress in Belgium following the electoral triumph of Flemish separatists.

Soros Says 'We Have Just Entered Act II' of Crisis - (www.bloomberg.com) Billionaire investor George Soros said “we have just entered Act II” of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession. “The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.” Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak. Concern that Europe’s sovereign-debt crisis may spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $4 trillion from global stock markets this year. Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance, according to Bank of America Corp.

In jail for being in debt - (www.startribune.com) You committed no crime, but an officer is knocking on your door. More Minnesotans are surprised to find themselves being locked up over debts. As a sheriff's deputy dumped the contents of Joy Uhlmeyer's purse into a sealed bag, she begged to know why she had just been arrested while driving home to Richfield after an Easter visit with her elderly mother. No one had an answer. Uhlmeyer spent a sleepless night in a frigid Anoka County holding cell, her hands tucked under her armpits for warmth. Then, handcuffed in a squad car, she was taken to downtown Minneapolis for booking. Finally, after 16 hours in limbo, jail officials fingerprinted Uhlmeyer and explained her offense -- missing a court hearing over an unpaid debt. "They have no right to do this to me," said the 57-year-old patient care advocate, her voice as soft as a whisper. "Not for a stupid credit card." It's not a crime to owe money, and debtors' prisons were abolished in the United States in the 19th century. But people are routinely being thrown in jail for failing to pay debts. In Minnesota, which has some of the most creditor-friendly laws in the country, the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009, a Star Tribune analysis of state court data has found.

Chicago's Rogers Park neighborhood hit hard by condo foreclosures - (www.chicagotribune.com) It is hard to tell whether Traci Hargrove is moving on or staying put. On one day she tends the garden at her Rogers Park three-flat, preparing to plant impatiens. But the next day she removes the drapes in her den and takes down her ceiling fans, because she fears losing her home. Hargrove is caught in the middle. Below her is a foreclosed property and above her is a unit whose owner has stopped paying assessments. Like a lot of condo owners in Rogers Park, she has paid her mortgage and assessments on time, but has been forced to foot the heat, water and other maintenance bills for the building. "If it were my fault, I could handle it. But my livelihood and happiness is dependent on other owners in the building," she said. "I pay what I have, but it's not enough."