KeNo's Housing and Economic Portal: Saturday February 19 Housing and Economic stories

Friday, February 18, 2011

Saturday February 19 Housing and Economic stories

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Governors from both parties plan painful cuts amid budget crises across the U.S. - (www.washingtonpost.com) Faced with the most severe budget crisis since the Great Depression, governors across the ideological spectrum are embracing the politics of austerity in a desperate effort to balance the books. Democratic and Republican governors alike are sounding similar themes, as they slash once sacrosanct programs such as those covering education, health care for the poor and aid to hard-pressed local governments. Cutbacks on the state and local levels are expected to be a major drag on the economic recovery. Some of the deepest and most politically painful reductions have been proposed by Democratic governors in traditionally liberal states that offer a wide range of programs for the poor and generous benefits for public employees. With federal stimulus money being phased out and state tax receipts only beginning to recover from the steep economic downturn, these governors say they have been left with little choice. "You are seeing some interesting scrambling of partisan politics," said Susan K. Urahn, managing director of the Pew Center on the States. "Governors do not have the luxury of being ideological, particularly when they have huge budget gaps to close." Last week, New York Gov. Andrew M. Cuomo (D)called his state "functionally bankrupt" as he proposed closing most of a $10 billion budget gap by reducing funding for education and Medicaid.

US bond auction puts debt fragility in focus - (www.ft.com) The US government will auction $32bn of new three-year bonds today: the first tranche of $72bn to be raised this week. The sales come at a time when the “core” sovereign debt complex is looking increasingly fragile. Yields on the benchmark US 10-year note have moved with German and UK peers to multi-month highs, breaking above long-term downtrends as some investor perceptions morph from a “reflation” strategy to an “inflation” one. Markets like round numbers – they provide excuses – and the benchmark yield has got within 15 basis points of breaching the 4 per cent level four times since the summer of 2009. It is now about 35bp away. Piercing that level could spook stock investors if they feel it goes beyond signalling improved economic growth prospects and also points to inflationary pressures that require a stronger than expected monetary response.

Meredith Whitney's Muni Prediction Draws Scrutiny - (www.cnbc.com) If one stock-picker emerged intact from the wreckage of the financial crisis, it was Meredith Whitney. With a prescient warning about bank stocks in 2007 — as well as a gift for the perfect sound bite — she became a media darling, celebrated in a Fortune cover article and in frequent television appearances as a market seer. Until now, that is. These days, Ms.Whitney, 41, finds herself pilloried in the news media and by colleagues for predicting a calamity in municipal bonds. Critics say the call is overstated, but it has alarmed investors in that usually sleepy market. Ms.Whitney is also drawing scrutiny from Washington, where a Congressional panel will meet on Wednesday to examine the turmoil in the muni bond market, including whether Ms.Whitney’s call has fed the volatility and allowed some investors to profit unfairly. Citing scheduling conflicts, Ms.Whitney has declined an invitation to appear before the panel of the House Oversight and Government Reform. But the subcommittee’s chairman, Representative Patrick T.McHenry, Republican of North Carolina, said that would not dissuade him from investigating her record. “This isn’t a gotcha thing, but she’s going to be part of the hearing, whether or not she participates,” he said. “If she doesn’t want to come forward in a venue like this, that makes a statement.”

US May Cut Support for Mortgage Market to Below 50% - (www.cnbc.com) The Obama administration is considering reducing government support for the mortgage market to below 50 percent over time, according to sources familiar with a White House plan to revamp the housing finance system. The administration is under pressure to figure out what to do with Fannie Mae and Freddie Mac, the government-controlled companies that provide liquidity to the mortgage market by buying mortgages from lenders and repackaging them as securities, which they guarantee. The government currently backstops more than 85 percent of the mortgage market. Republicans have called for winding down the companies and eliminating federal guarantees of mortgages, forcing a reliance on the private market to finance housing.

Islamic Militants Are Attacking Egyptian Security Forces In Sinai - (www.businessinsider.com) Militant groups in the Sinai Peninsula are taking advantage of the political breakdown in Cairo to push the desert peninsula further into lawlessness. Members of the radical Islamic group Takfir wal-Hijra clashed with Egyptian security forces in a two-hour battle on the Gaza border Monday, according to the Ma'an News Agency. The attack comes just days after Bedouin tribesmen set off an explosion at a Sinai natural gas plant, temporarily disrupting the flow of gas to Israel and Jordan.