KeNo's Housing and Economic Portal: Thursday April 28 Housing and Economic stories

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25,000 out of 70,000 Illinois State Employees are on Workers' Comp - (Mish at globaleconomicanalysis.blogspot.com) It's not just the wage coverage while injured employees aren't working for months or even years, but the medical bills and often the settlement beyond that (all tax free, by the way). In fact, "even if the medical fee schedule were reduced by 30 percent, Illinois would still have the second highest rates in the nation, but our employers could save up to $500 million," acknowledges the governor's office. The startling statistics do not end there, unfortunately. State government is an employer, too, with approaching 70,000 full- and part-time workers. And from that pool there are currently 25,000 open workers' comp claims. That's a breathtaking number. It is impossible to believe all of those are legitimate. Apparently federal investigators have questions, too, as they've launched a criminal probe following reports by the Belleville News-Democrat of alleged abuses of the system at Menard Correctional Center in Chester, where more than half the staff - 389 people, most of them prison guards and including the warden - have been paid some $10 million for on-the-job injuries such as those occasioned by locking and unlocking cell doors. (Yes, you read that correctly.) Meanwhile, a quarter of the 32 arbitrators who decide injury claims for others have filed claims themselves, reported the paper.

The Fed Rescue Program Too Bizarre to Be True: Michael Lewis - (www.bloomberg.com) Last week the Federal Reserve bravely released 894 PDF files containing 29,346 pages that detailed its heroic actions during the financial crisis. These documents revealed how open-minded the Fed can be when it needs to be. Local governments in Belgium, Japanese fishing cooperatives, the Libyan government and many other unlikely parties received the Fed’s financial aid. Failing U.S. banks, such as Citigroup and Morgan Stanley (MS), were of course handed whatever they wanted, and permitted to post as collateral pretty much anything they could get their hands on: junk bonds, defaulted debt, volatile equities. To naive critics this came as just more evidence that the Fed had mistaken the wants of a handful of rich people for the needs of the wider society. Many Fed spokesmen have wisely declined to comment, many times. Upon seeing how incapable the public is of understanding its wisdom, the Fed judiciously elected to withhold a second, far longer document. This previously unexamined collection of 10,427 encrypted PDF files should no doubt offer not merely a record of financial heroism, but a snapshot of peerless financial leadership during a crisis.

$4-a-gallon gas fueling fears for recovery - (www.washingtonpost.com) Gasoline prices are soaring toward $4 a gallon, a threshold that some analysts say will damage the fragile economic recovery and crimp consumer spending just as families are planning their summer vacations. Higher prices saddle businesses with higher transportation costs, causing them to either swallow them or pass them along to already strapped customers. As gasoline costs go up, consumers are left with less money to spend elsewhere. And there is evidence that the hike at the pump is beginning to push drivers off the road. Gasoline prices, which are approaching record levels, “are going to have a very profound effect on the economy,” said Peter Morici, an economist at the University of Maryland. D.C. resident Amber Sutton, who drives 25 miles each way to her job in Woodbridge, said rising gasoline prices have caused her to cut back on restaurants and other entertainment. “I already was spending a ton on gas,” she said. “But now it’s absolutely ridiculous.”

US municipal bonds face tax reform threat - (www.ft.com) The $3,000bn US municipal bond market is facing a fresh threat: tax reform. After the heated fight over how to cut the US budget deficit almost resulted in the shutdown of the US government last week, the arguments over money are not likely to cool any time soon. Still on the agenda are numerous suggestions for eliminating tax benefits. US states, local governments and municipalities have been able to borrow cheaply for years, in part because most buyers do not have to pay tax on the interest paid on bonds. Removing this loophole would bring in extra revenues for the federal government – but would require a complete rethink of one of the biggest debt markets in the world. Without the tax break, the amount borrowers would need to pay for new bonds could be much higher because investors would ask a fundamental question: is it worth owning municipal debt if it does not offer a tax advantage? The debate comes at a time when buyers of municipal debt are already extremely jittery about credit risks. Strained public finances have raised concerns about mounting defaults in a bond market that has long been marketed as ultra-safe. Attempts to bring in international investors by creating new bonds that do not rely on tax perks have fizzled out. This means the individual American saver is still vital to the fate of the US municipal market.

Clinton's ‘Failed State’ Warning Threatens Libya as NATO Can't Stem Chaos - (www.bloomberg.com) U.S. Secretary of State Hillary Clinton’s early warning thatLibya may become a failed state risks turning into reality as three weeks of Western military intervention have failed to stem the chaos that’s split the country in half. Clinton on March 2 said Libya may become a “giant Somalia.” NATO Secretary General Anders Fogh Rasmussen on April 11 raised the possibility of a Libyan “failed state.” Moussa Koussa, Muammar Qaddafi’s lieutenant who defected last month, warned also that day of a Somalia-like collapse. “It looks like a very untenable situation,” Geoff Porter, an analyst at North African Risk Consulting, said in an interview from New York. “Where we are heading is a de facto partition, between Tripolitania and Cyrenaica,” the historic names for western and eastern Libya.