KeNo's Housing and Economic Portal: Thursday October 13 Housing and Economic stories

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New York Starts Laying Off 3,500 After Union Rejects Concessions - (www.businessinsider.com) Gov. Andrew Cuomo started the process of laying off 3,500 workers last night after the state's second-largest employee union rejected wage and benefit concessions negotiated to balance New York's budget. The New York Daily News reports that members of the Public Employees Federation voted 54% to 46% last night to reject the contract, which would have cut raises for three years and required employees to pay more for their health insurance. The PEF represents 56,000 professional scientific and technical workers. The deal was virtually the same as the one ratified by New York's largest union, the Civil Service Employees Association, last month. Cuomo and state lawmakers urged PEF members to schedule a new vote to reconsider the agreement, which would prevent the largest wave of job cuts in nearly two decades. Pink slips were mailed to 3,500 workers this morning, and the layoffs will take effect in 21 days.

For Bank of America, a $50 Billion Claim of Havoc Looms - (www.nytimes.com) Bank of America’s potential liability for bad mortgages — in the tens of billions of dollars — is well known. But Bank of America is haunted by other demons from the financial crisis, the most significant one being a lawsuit arising from its troubled Merrill Lynch acquisition. This lawsuit, brought by Bank of America shareholders, claims that Bank of America and its executives, including its former chief executive, Kenneth D. Lewis, failed to disclose what would be a $15.31 billion loss at Merrill in the days before and after the acquisition. The plaintiffs contend that this staggering loss was hidden to ensure that Bank of America shareholders did not vote against the transaction. Bank of America disclosed this loss after Merrill was acquired. At the same time, Bank of America also disclosed a $20 billion bailout by the government. The bank’s stock fell by more than 60 percent in a two-week period, a market value loss of more than $50 billion.

Euro Crisis Makes Fed Lender of Only Resort - (www.bloomberg.com) The Federal Reserve, chastised by Congress for lending money to foreign institutions including a Libyan-owned bank, is once again the lender of last resort for banks around the world it knows little about. Three years after the collapse of Lehman Brothers Holdings Inc., money-market borrowing rates for dollars are rising, leading the Fed and European Central Bank to make the currency available to Europe’s institutions for as many as three months. U.S. prime money-market funds cut their exposure to euro-zone bank deposits and commercial paper, or short-term IOUs, to $214 billion in August from $391 billion at the end of last year, according to JPMorgan Chase & Co. data. The failure of regulators worldwide to address European banks’ fragile dependence on short-term funding is “putting the Fed in a really awkward position,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics, a Washington regulatory research firm whose clients include the biggest U.S. banks. The swaps with Europe “are an extremely advantageous political football” for critics of the Fed, she said.

Health Insurance Costs Rising Sharply This Year, Study Shows - (www.nytimes.com) The cost of health insurance for many Americans this year climbed more sharply than in previous years, outstripping any growth in workers’ wages and adding more uncertainty about the pace of rising medical costs. A new study by the Kaiser Family Foundation, a nonprofit research group that tracks employer-sponsored health insurance on a yearly basis, shows that the average annual premium for family coverage through an employer reached $15,073 in 2011, an increase of 9 percent over the previous year. “The open question is whether that’s a one-time spike or the start of a period of higher increases,” said Drew Altman, the chief executive of the Kaiser foundation. The steep increase in rates is particularly unwelcome at a time when the economy is still sputtering and unemployment continues to hover at about 9 percent. Many businesses cite the high cost of coverage as a factor in their decision not to hire, and health insurance has become increasingly unaffordable for more Americans. Over all, the cost of family coverage has about doubled since 2001, when premiums averaged $7,061, compared with a 34 percent gain in wages over the same period.

ECB Lends $500 Million to One Euro-Area Bank in Weekly Tender - (www.bloomberg.com) The European Central Bank said it will lend dollars to one euro-area bank tomorrow. The ECB today allotted $500 million to one bidder in a regular seven-day liquidity-providing operation at a fixed rate of 1.09 percent. Last week, the Frankfurt-based ECB also lent $500 million to one institution. The ECB doesn’t identify the banks it lends to. The spreading sovereign debt crisis in Europe has heightened concerns about banks’ balance sheets, causing financial institutions to become reluctant to lend to each other. Global equity markets rallied after the ECB said on Sept. 15 it will coordinate with the Federal Reserve to offer a series of three-month dollar loans to euro-area banks to ensure they have enough of the currency for the rest of the year. The premium European banks pay to borrow in dollars through the swaps market is close to the highest level in almost three years. The cost of converting euro-based payments into dollars, as measured by the one-year cross-currency basis swap, was 98 basis points below the euro interbank offered rate, or Euribor, at 11 a.m. in Frankfurt, indicating a premium to buy the greenback. It widened to as much as 112.5 basis points earlier this month, the most since Dec. 2, 2008, according to data compiled by Bloomberg.