KeNo's Housing and Economic Portal: Sunday February 6 Housing and Economic stories

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TOP STORIES:

Cantor: ‘No Federal Bailout of States’. - (online.wsj.com) House Majority Leader Eric Cantor ruled out any congressionally authorized bailouts for states struggling to balance their budgets under the weight of mounting entitlement costs and dwindling tax revenue. “There will not be a federal bailout of the states,” the Virginia Republican told reporters Monday afternoon. The new majority leader also opposes any push to grant states the right to declare bankruptcy, a move favored by many conservatives because it would give local politicians the leverage to re-work long-term compensation, retirement and health care benefits for state workers. Mr. Cantor argued that states have all “the requisite tools” to balance their budgets every one or two years, as many states require. He cited the examples of New Jersey and his native Virginia, where Republican Gov. Bob McDonnell wants to require all state employees to contribute to their retirement accounts. States with yawning deficits have seen the cost of paying off that debt rise in the last year. To appease the bond market, some have taken relatively drastic measures to increase revenue or cut spending. For example, Illinois recently increased its income tax from 3% to 5%, a 66% increase.

Obama Said to Call for 5-Year Federal Spending Freeze - (www.bloomberg.com) President Barack Obama will propose tonight a five-year freeze of non-security discretionary spending as a way to reduce the federal government’s budget deficit. Obama plans to offer the freeze in his annual State of the Union address to Congress, Melody Barnes, director of the president’s domestic policy council, said in a Bloomberg Television interview. It would extend a three-year freeze Obama proposed last year by an additional two years, to 2015. Obama will also look for savings in security and defense spending, and will endorse a proposal by Defense SecretaryRobert Gates to cut $78 billion from the Pentagon budget over five years, Barnes said.

Bank Valuations Stuck at 2009 Lows Shows No Recovery - (www.bloomberg.com) Valuations for U.S. financial stocks have fallen so far, it’s like the rebound from the worst crisis since the 1930s never happened. Banks, insurers and asset managers in the Standard & Poor’s 500 Index trade at 12.3 times estimated earnings, close to the lowest level since the bull market began in March 2009, according to data compiled by Bloomberg. The group is the second-cheapest among 10 industries in the gauge even as analysts say profits will rise 18 percent this year, exceeding the S&P 500, data compiled by Bloomberg show. While the biggest equity rally in more than five decades has lifted the S&P 500 above its level when Lehman Brothers Holdings Inc. collapsed in September 2008, the failure of price- earnings ratios to widen is a sign to Pioneer Investments and Gamco Investors Inc. that gains in banks may end when government stimulus ends. Bulls such as OppenheimerFunds Inc. say forecasts for a three-year economic expansion mean the stocks will prove bargains as earnings and dividends increase.

Sandy Weill: The Man Who Shattered Our Economy - (www.truthdig.com) Sandy Weill just picked up a humdinger of a wine vineyard estate in Sonoma, Calif., for a record $31 million, so the foreclosure crisis—which the former CEO of Citigroup did so much to create when he successfully lobbied then-President Bill Clinton to sign off on radical deregulation of the banking industry—must be over. After all, Weill wasn’t desperate for shelter, already being in possession of a 14-acre estate in über-exclusive Greenwich, Conn., and a 120-acre spread in New York state’s Adirondacks. Let’s also not forget the penthouse that he bought for $42.4 million in New York City in 2007 as the banking collapse he helped engineer was fast developing. Not too shabby for a guy who ran Citigroup into the ground by trafficking in what proved to be toxic mortgage-based securities. Thanks to legislation that Weill got President Clinton to sign off on, Citigroup was allowed to become too big to fail, and when fail it did, the taxpayers had to bail the humongous bank out—to the tune of $50 billion in a direct subsidy and $306 billion more for the housing mortgage- backed securities Citigroup was holding. The Treasury still owns a good chunk of Citigroup common stock, now trading at a paltry four dollars and change per share. However, like all of the other top dogs involved in this scandal, Weill has emerged from a housing crisis that has impoverished tens of millions of Americans with his own personal fortune intact. Indeed, as evidenced by his vineyard purchase, he has quite a bit of money to throw around. Although the value of most housing in Sonoma County, in the heart of the wine country, is down 30 to 50 percent, Weill was willing to pay close to the asking price for his new property. And why not? As the San Francisco Chronicle website quoted one Coldwell Banker real estate agent as saying, the sale “is not an indicator of an emerging real estate recovery, but rather the ability of the world’s wealthiest individuals to buy what they desire.”

California Trailer-Park Owners Fight to End Rent Control - (www.time.com) For the past 28 years in Goleta, Calif., manufacturing engineer Kenneth Tatro has lived in Rancho Mobile Home Estates, where he could afford to raise his four children in a beachside community in which home prices are typically out of reach for the middle class. He retired a few years ago to enjoy peaceful walks with his wife and his dog Kayla, but today Tatro — who is 71 years old and the president of his park's home-owners association — finds himself on the front lines of a war over California's nearly 5,000 mobile-home parks, where as many as 1 million people live under roofs they own but on top of land they rent. "They are going after the weakest and most vulnerable prey: our demographic, with our captive housing and financial position," explains Tatro of the battle, which pits low-income and middle-class people like him against wealthier opponents, the owners of the park land. "However, we are coming back at them straight up. They have not seen the fight we are [giving them] and will continue to give them."