KeNo's Housing and Economic Portal: Saturday August 6 Housing and Economic stories

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States have no place to hide from debt crisis - (www.reuters.com) The weeks-old negotiations in Washington over enlarging the federal government's borrowing authorization are so scattered and twisted that state officials reliant on federal monies for large portions of their budgets can't handicap the outcomes. "A complete unknown at this point ...," said H.D. Palmer, spokesman for California's finance department of the standoff. "We just don't know where things are going to end up." Officials in Maine, and in Virginia, which was one of five AAA-rated states called out for possible ratings cuts last week by Moody's Investors Service because of the debt face-off, said they can't plan adjustments because outcomes were so clouded. "We have been examining areas where we think there could be impacts, but cannot make any firm contingency plans because of the uncertainty of what impacts we may see ...," said Jeff Caldwell, spokesman for Virginia Gov. Bob McDonnell. Some state and local governments, which together got $478 billion from the federal government in 2010, said they will tap reserves or borrowings and use other funds to make up for any short-run losses of federal monies. Some state finance officials have shifted bond sales because of the federal standoff and others are bracing for possible downturns in sales tax revenues if Social Security and other payments to individuals are interrupted. In Wisconsin, where federal revenue is about 29 percent, or $9.3 billion, of the annual budget, the state has enough money to fund federal programs for at least three months due to proceeds from a recent $800 million note sale and the state's ability to borrow from other funds, an official said.

Jefferson County Could Decide Thursday Whether To File For Largest-Ever Muni Bankruptcy - (www.businessinsider.com) Officials in Jefferson County, Alabama could decide as soon as Thursday whether they will file for the largest municipal bankruptcy in U.S. history. The AP reports that the Jefferson County Commission will hold a special meeting Thursday night in Birmingham to decide whether they will keep trying to work out a deal with the county's sewer creditors or file for bankruptcy. The county has still yet to receive a response to a repayment plan for its $3.2 billion sewer debt. The plan, which would erase nearly $1.3 billion of the debt, was submitted to creditors more than a week ago. The meeting will come one day before the end of a 30-day negotiating period between the county and its creditors.

U.S. Rating Cut May Force Unloading of Student-Loan Debt, Citigroup Says - (www.bloomberg.com) A cut in the U.S. government’s AAA grade could force investors to sell asset-backed securities tied to student loans, causing spreads to widen “significantly,” according to Citigroup Inc. “A ratings downgrade would be a significant blow” to the $250 billion government-guaranteed sector, Citigroup analysts led by Mary Kane said in a July 22 report. “The likelihood of forced selling is elevated.” Citigroup sees a 50 percent chance of a ratings cut this year as the U.S. struggles to reduce its long-term debt. Many investors buy student-loan securities specifically because they’re so highly rated and a U.S. government credit risk, according to analysts at the New York-based lender. Money managers with rating-based guidelines would be forced to sell into a sinking market, affecting the sector more than other asset-backed debt tied to consumers, commercial mortgages and corporate loans, they wrote.

Greece Credit Rating Cut Three Levels by Moody’s - (www.bloomberg.com) Greece’s credit rating was cut three steps by Moody’s Investors Service, which said the European Union’s rescue for the debt-laden nation will cause substantial losses for investors and amount to a default. Greece’s long-term foreign currency debt was downgraded to Ca, its second-lowest rating, from Caa1, the company said in a statement in London today. Moody’s said it will reassess the risk profile of any outstanding or new securities issued by Greece after the debt exchange that’s part of the new rescue plan has been completed. “The combination of the announced EU program and the debt exchange proposals by major financial institutions imply that private creditors will experience substantial losses on their holding of Greek government bonds and this is something we need to reflect in the rating,” Moody’s senior analyst Sarah Carlson said in an interview.

RIM to Cut 2,000 Jobs on BlackBerry Share Decline - (www.bloomberg.com) Research In Motion Ltd., maker of the BlackBerry smartphone, plans to cut 2,000 jobs, or about a tenth of its workforce, as sales slow amid market share losses to Apple Inc.’s iPhone. The reductions, across all functions, are part of a plan to “focus on areas that offer the highest growth opportunities,” RIM said today in a statement. The job cuts will leave the Waterloo, Ontario-based company with about 17,000 employees. RIM predicted last month that sales this quarter may drop for the first time in nine years. The company is losing market share in the U.S. to the iPhone and handsets running Google Inc.’s Android software, in part because it hasn’t introduced a major new BlackBerry model since August. Cheaper Google phones are also making inroads in Latin America, Asia and Europe, threatening the popularity of less expensive BlackBerry models like the Curve.