KeNo's Housing and Economic Portal: Sunday December 12 Housing and Economic stories

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California State Pension System Makes Madoff Proud - (www.biggovernment.com) Much has been written about The California Public Employees’ Retirement System (CalPERS) being underfunded by $500 billion due to massive investment losses over the last decade, but now we have video of a CalPERS Senior Pension Actuary, Kung-pei Hwang, describing how they intend to change basic assumptions in their financial model to (please allow me to mix my metaphors) Hide The Decline in their assets held for municipal, county, and state employee’s retirement. Through this statistical gimmickry, CalPERS can push the loss into later years and appear solvent today. Of course, at some point in the future it will need to raise funds from state and local governments to compensate for these losses. But for now, they seem content to hide the disastrous condition of their fund. As you can hear Mr. Hwang say in his presentation to the Huntington Park City Council last week, “that means we will defer most of the loss to future years.” “This means the city will realize another increase in future years. I hate to bring bad news, but those are the facts.”

Goldman Sachs Emergency Fed Loans Topped $24 Billion in Crisis - (www.bloomberg.com) Goldman Sachs Group Inc., which rebounded from the financial crisis to post record profit last year, was a regular borrower from two emergency Federal Reserve programs in 2008 and early 2009, new data show. The firm borrowed from the Fed’s Term Securities Lending Facility most weeks from March 2008 through April 2009, data released by the Fed today show. Two units of the New York-based firm borrowed as much as $24.2 billion from the Fed’s Primary Dealer Credit Facility in the weeks after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, the data show. Chief Executive Officer Lloyd Blankfein, 56, was quoted by Vanity Fair last year as saying the company might have survived the credit crisis without government help. The firm’s president,Gary Cohn, was more definitive, according to the magazine: “I think we would not have failed,” he was quoted as saying. “We had cash.” Treasury Secretary Timothy Geithner, who was president of the Federal Reserve Bank of New York during 2008 and 2009, has disputed such an assessment. “None of them would have survived,” without government help, Geithner said in an interview last December with Bloomberg Television’s “Political Capital with Al Hunt.”

Wayne County Michigan (Detroit + 35 Cities) Imposes Huge Wage Cuts on AFSCME Union Workers - (Mish at globaleconomicanalysis.blogspot.com) Wayne County Michigan, fed up with two years of failed negotiations on wages and benefits for public union workers, has decided to impose wage cuts on AFSCME union employees. The Wayne County News Release states "Wayne County will implement a 10% reduction the union refused to take in budget year 2009-2010, as well as the 10% reduction for the current 2010-2011 budget year." The wording is somewhat ambiguous as to whether the cut is 10% or 20%. The Detroit News reports 10% while the Detroit Free Press reports 20%.

‘Insolvent’ Portugal Needs Loans Soon - (www.bloomberg.com) Portugal is “insolvent” and will probably need soon to join the emergency-loan program from the European Union and the International Monetary Fund that’s available to Greece and Ireland, according to Willem Buiter, Citigroup Inc.’s chief economist. “The market’s attention is likely to turn to Portugal’s sovereign, which at current levels of interest rates and growth rates is less dramatically but quietly insolvent,” Buiter wrote in a report dated yesterday. “We consider it likely that it will need to access the European Financial Stability Facility soon.” “Despite the recent drama, we believe we have only seen the opening act, with the rest of the plot still evolving,” Buiter wrote. “Accessing external sources of funds will not mark the end of Ireland’s troubles. The reason is that, in our view, the consolidated Irish sovereign and Irish domestic financial system is de facto insolvent.” This means “either the unsecured non-guaranteed creditors of the banks, and/or the creditors of the sovereign may eventually have to accept a restructuring.”

Credit Squeeze Threatens to Swell March to Bankruptcy - (online.wsj.com) Many struggling companies tapped robust debt markets this year to stave off final reckonings. But a flurry of recent bankruptcy filings suggests the corporate carnage set off by the financial crisis isn't done yet. The U.S. default rate, which peaked at nearly 15% in November 2009, according to Moody's Investors Service, has since fallen below 4%. Credit markets are coming back, helping finance firms that seemed on the brink just 12 months ago. But many of these companies remain saddled with too much debt. Despite welcoming credit markets, smaller companies remain constrained, unable to tap new financing as easily as large corporations. These firms in some cases are more reliant on banks or other financial institutions to stay alive, a dependency that can prove difficult amid current market conditions. One looming question: Will interest rates remain low enough so that credit markets remain open, allowing companies to continue to refinance and avoid restructuring? November brought a number of new Chapter 11 filings, including studio Metro-Goldwyn-Mayer Inc., Yellow Pages publisher Local Insight Media Holdings Inc. and steakhouse owner CB Holding Corp.