KeNo's Housing and Economic Portal: Sunday October 10 Housing and Economic stories

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TOP STORIES:

California Budget Impasse Enters Fourth Month; IOU Option Looms - (www.bloomberg.com) California’s longest budget impasse entered its fourth month today as Governor Arnold Schwarzenegger and top lawmakers wrestled over pensions and corporate taxes to close a $19.1 billion deficit. Reining in state retirement costs and providing tax breaks for businesses remain sticking points, aides said as legislative leaders emerged from a four-hour meeting at the Republican governor’s Sacramento office last night. “We still have some issues that need to be resolved that are significant,” said Senate President Pro Tem Darrell Steinberg, a Democrat from Los Angeles. He said another meeting is scheduled today. California, the largest issuer of municipal bonds in the U.S., hasn’t had a budget since the fiscal year began July 1. Controller John Chiang may decide as soon as next week on when he might begin issuing warrants, or IOUs, to conserve cash for priority bill payments such as debt service, aides said. It would mark the second year in a row he’s had to pay with scrip because of a budget impasse.

Irish Crisis Shakes Europe - (online.wsj.com) Ireland scrambled to contain its financial crisis—and convince investors it won't need an emergency bailout by its European peers—by promising to pump billions more into its hardest-hit lenders. The move, coming after efforts two years ago to rescue the troubled banks, underscores Ireland's new and unwanted status as the center of Europe's continuing financial turmoil. The convulsions in Dublin are adding to concerns that Ireland and other stricken nations may need to tap a rescue mechanism for euro-zone members that was cobbled together to save Greece this spring. Ireland's latest bank rescue has sent its projected budget deficit for this year soaring to 32% of its economic output—the highest ever for a euro-zone country in the club's history. So, what happened? Ireland Thursday said the final cost for fixing its banks could reach as high as €50 billion over time—more than the €33 billion officials had already committed. In response, Ireland is taking all the pain at once—which is why its deficit is surging so much higher than the previously expected 12% of gross domestic product this year. The goal: To bring finality to its banking woes and get on the right side of rules for euro-zone members. Many economists expect the deficit to shrink next year, possibly to the low double-digits. Irish officials are trying to cut it to 3% by 2014, meeting a European Union requirement. But that will depend on three things: the performance of Ireland's fragile economy; how much investors charge the country to borrow; and how much Ireland's harsh austerity measures hurt consumers.

Loan Spreads Climb to Record as Issuance Hits Post-Crisis Peak - (www.bloomberg.com) Investors are demanding the highest risk premiums to buy leveraged loans as companies borrow at the fastest pace since the beginning of the credit crisis. New-issue spreads for high-risk, high-yield loans rated four to five steps below investment grade climbed to an average of 5.2 percentage points over lending benchmarks during the third quarter, beating the last record of 5 percentage points at the end of 2001, when the previous recession ended, according to Standard & Poor’s Leveraged Commentary and Data. Banks arranged $249.6 billion of leveraged loans during the first nine months of this year, more than 2.5 times the 2009 amount and the most since 2007, according to data compiled by Bloomberg, as companies paid down a so-called debt maturity wall and leveraged buyout volume more than doubled. Investor demand for higher coupons is supporting a rally and higher returns for loans raised in 2010 even as the U.S. economic recovery slows.

BREAKING: CNN Fires Rick Sanchez - (www.businessinsider.com) CNN just announced that Rick Sanchez has been canned over his controversial, anti-Semitic remarks made yesterday on CNN contributor Pete Dominick's Sirius radio show. A CNN spokeswoman just sent out the following statement: “Rick Sanchez is no longer with the company. We thank Rick for his years of service and we wish him well.“ We will broadcast CNN Newsroom from 3-5pm for the foreseeable future. Here's our earlier item. As a guest on Dominick's show yesterday, Sanchez, who is often the subject of ridicule on "The Daily Show," called Jon Stewart a "bigot." (Dominick used to work for Stewart at "The Daily Show.") Sanchez also "seemed to make the claim that Jews run CNN and the news business in general and that Stewart thus did not in fact know what it was like to feel the sting of prejudice," according to the radio host's website. You can hear the full remarks -- hardly the first outrageous ones Sanchez has made on the air -- over at Mediaite.

Here's How The SEC Blames This Guy For Flash Crash Without Actually Blaming Him - (www.businessinsider.com) Although they don't come out and say it's name, the SEC's new report on the causes of the May 6 Flash Crash blames Waddell and Reed's e-mini futures order for the crash. Here's where the SEC points out Waddell and Reed, and their CEO Henry Herrmann, in everything but name:

Against a backdrop of negative market sentiment and thinning liquidity, at 2:32 p.m., a large Fundamental Seller (a mutual fund complex) initiated a program to sell a total of 75,000 E- Mini contracts (valued at approximately $4.1 billion) as a hedge to an existing equity position. This large Fundamental Seller chose to execute this sell program via an automated execution algorithm (“Sell Algorithm”) that was programmed to feed orders into the June 2010 E-Mini market to target an execution rate set to 9% of the trading volume calculated over the previous minute, but without regard to price or time. The execution of this sell program resulted in the largest net change in daily position of any trader in the E-Mini since the beginning of the year. And just like that, they say that Waddell and Reed's e-mini futures trade was the single most extreme movement of the day, and thus it should be blamed for the flash crash. (We know it's Waddell because of reports from earlier this year.)

At the opposite end of the spectrum, is the NYSE, which the SEC names and says had no negative effect on the proceedings of that day on May 6. And they vindicate the NYSE for their "slowed" market making, caused by the exchange 's LRPs (liquidity replenishment points), which are exclusive to the NYSE.

OTHER STORIES:

Emerging Markets Head for Record Bond Sales as Yields Plunge - (www.bloomberg.com)

Japan Sold $25 Billion of Yen in Market Intervention- (www.bloomberg.com)

Stock Sales Fall to Five-Year Low Cutting Fees as Debt Booms - (www.bloomberg.com)

Stocks rise ahead of ISM manufacturing report - (finance.yahoo.com)

TARP Bailout to Cost Less Than Once Anticipated - (www.nytimes.com)

Chinese Manufacturing Growth Accelerates, Survey Shows - (www.bloomberg.com)

European Manufacturing Cools, Unemployment Stays at 12-Year High - (www.bloomberg.com)

Irish ‘Groundhog Day’ Leaves Lenihan Battling Deficit - (www.bloomberg.com)

Japan Deflation Eases, Jobless Down; Recovery Intact - (www.bloomberg.com)

Consumer Spending in U.S. Rose More Than Forecast - (www.bloomberg.com)

Fed Official Signals That More Asset Purchases Are Likely - (www.nytimes.com)