KeNo's Housing and Economic Portal: Thursday August 25 Housing and Economic stories

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TOP STORIES:

California Risks ‘Drastic’ Budget Cuts as Receipts Miss Forecast - (www.bloomberg.com) Yes, less than 2 months after balancing their budget, California has already underestimated their revenue assumptions by 10%....

California faces “drastic” cuts to universities, schools and social programs if revenue continues to trail budget forecasts, the state controller said after July collections fell short by about 10 percent. A series of “triggers” written into the most-populous state’s $86 billion general-fund budget would cut spending on universities, home care for seniors and the disabled, libraries and other programs if revenue falls $1 billion short of plan. A $2 billion gap would mean a seven-day cut in the school year and an end to busing subsidies. “This is what we’ve been fearful of,” Debra Brown, a lobbyist for the California School Boards Association, said yesterday in a telephone interview. “This brings us a half- billion dollars closer to the trigger going off.” Revenue in July, the first month of the 2012 fiscal year, was $538.8 million less than forecast, according to figures released yesterday by Controller John Chiang.

S&P Lobbies The Government For Beneficial Treatment Even As It Rates Federal Finances - (www.businessinsider.com) An unusual political position." Standard and Poor's, like the other major ratings agencies, Fitch and Moody's, assesses federal finances in order to rate how secure investors can feel when they invest in United States debt. But it simultaneously lobbies the federal government in order to protect its unique role in the financial world. That puts the ratings agency in an "unusual political position," according to a Washington Post report: “S&P wields a huge club over Congress and the president because the company can simply dictate public policies that have huge ramifications for the country and for the government,” said Craig Holman of the Public Citizen advocacy group. “Its influence over the government’s purse can easily be employed as a powerful tool to win concessions from the federal government that are in S&P’s own interest rather than the public’s interest.”

Fannie and Freddie ask for $7 billion more; Could it lead to actual reform? - (www.washingtonpost.com) Freddie Mac, the mortgage finance house, said Monday that it will ask for an additional $1.5 billion of taxpayer money to make up for losses stemming from weak housing markets. The request falls on the heels of an announcement last week by Freddie Mac’s sister organization, Fannie Mae, that it will need $5.1 billion to make up its shortfall. The two coincide with Standard & Poor’s downgrade of the U.S. government’s credit rating from AAA status to AA+, which has the potential to affect the institutions’ lending and collecting abilities. But how the Treasury Department chooses to respond to the requests of Fannie Mae and Freddie Mac could be the catalyst for definitive reform of the institutions. Both the Obama administration and Congress have insisted on reform of the two entities since 2008, but few steps to reform have been taken by either branch on this politically charged issue. “No one should be surprised by the request for more funding,” said Heritage Foundation’s James Gattuso. “It’s a reminder that while the other bailouts that began in 2008 have been or are being resolved, the taxpayer bailout of Fannie and Freddie are continuing,” said Gattuso.

Mutual fund outflows biggest since March 2009: ICI - (www.reuters.com) Investors pulled the most money out of U.S. mutual funds in the week ended August 3 since the depths of the stock market collapse in March 2009, with net redemptions of $16.9 billion, data from the Investment Company Institute showed on Wednesday. For a second straight week, each major fund category tracked by ICI, a U.S. mutual fund trade organization, showed net outflows of cash, illustrating investor anxiety over future economic growth. The estimated data does not capture withdrawals after the U.S. credit rating downgrade by Standard & Poor's, which occurred late on Friday, August 5. Last week's outflows were the most since the week ended March 11, 2009, when ICI reported net outflows of $21.65 billion. The largest net outflow -- nearly $60 billion -- occurred in the week ended October 15, 2008.

Bank of America CEO says he regrets Countrywide - (www.reuters.com) Bank of America Corp (BAC.N) Chief Executive Brian Moynihan said on Wednesday he often regrets the bank's 2008 purchase of mortgage lender Countrywide, but the loan losses from that deal will not force the bank to issue new shares. It was the first time the bank has expressed regret over its 2008 Countrywide purchase, which has saddled Bank of America with billions of dollars of mortgage losses. Moynihan's admission shows the extent to which the bank is still reeling from the housing crisis, and the intensity of investor fear that losses from that deal will force the bank to issue more shares to bolster its balance sheet. "Obviously there aren't many days when I wake up and think positively about the Countrywide acquisition in 2008," said Moynihan during a conference call arranged by Fairholme Capital Management, one of the bank's biggest shareholders. The bank's shares, down as much as 11.3 percent on Wednesday, have lost about a quarter of their value over the last week.