KeNo's Housing and Economic Portal: Friday December 30 Housing and Economic stories

Thursday, December 29, 2011

Friday December 30 Housing and Economic stories

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California’s Revenue Shortfall Will Force Brown to Seek $1 Billion of Cuts - (www.bloomberg.com) California Governor Jerry Brown will cut $1 billion in spending from the current budget, saying the economy won’t produce revenue he built into the plan in June, triggering automatic reductions. Brown said he’ll eliminate a $258 million busing subsidy, take $230 million from aid to public universities, trim $200 million in programs that help the elderly and disabled, and make smaller cuts in child care, library and prison spending. Public schools will lose $79.6 million, the equivalent of a half day of classes. “These cuts to the universities, in-home supportive services, to schools, to prosecution -- they’re not good,” Brown said at a press conference in Sacramento. “This is not how we want to run California.”

Sarkozy plan to prop up sovereigns is worrying - (www.ft.com) Highly sensible was the verdict of many who follow European banks, which face a wave of redemptions in 2012 while many funding markets have dried up. But then up popped Nicolas Sarkozy, the French president, and his particular attempt to prove Einstein correct. Mr Sarkozy suggested that the ECB move meant that banks could essentially backstop governments by borrowing money from the ECB at 1 per cent then lending it to the likes of Italy at 6 or 7 per cent. “This means that each state can turn to its banks, which will have liquidity at their disposal,” he said in Brussels on Friday. There are many grounds to object to this line of argument. One, as my colleague James Mackintosh has argued, is that it would force banks to replicate the bet on eurozone sovereign debt that Jon Corzine made at MF Global with such spectacularly bad results.

Hopes fade for IMF funds boost - (www.ft.com) Prospects for a rapid increase in International Monetary Fund firepower to cope with the eurozone crisis have receded after the Japanese government and the Bundesbank set tough conditions before making contributions. On Tuesday Jun Azumi, Japanese finance minister, said that the EU needed to present a more convincing plan before Japan put more money into the IMF. “The EU must make further efforts to convince markets,” he said. “Without European countries showing exactly how much would be needed to deal with the crisis, we would not be able to move on to the next step involving the IMF”. Mr Azumi’s comments follow an announcement at last week’s EU summit that European countries would contribute €200bn to the IMF through their central banks, significantly increasing the fund’s current available lending firepower of around €290bn. European officials said they expected non-European countries including the big emerging market nations to contribute an equal amount.

Italy Sells $3.9 Billion of Five-Year Bonds at Highest Yields Since 1997 - (www.bloomberg.com) Italy had to pay the most in 14 years to sell five-year bonds as Parliament rushes to pass a 30 billion-euro ($39 billion) budget plan that Prime Minister Mario Monti says will bring down record borrowing costs. The Rome-based Treasury sold 3 billion euros of the bonds, the maximum for the sale, to yield 6.47 percent, the most since May 1997 and up from 6.29 percent at the last auction on Nov. 14. Demand was 1.42 times the amount on offer, compared with 1.47 times last month. Monti’s Cabinet approved a sweeping budget plan on Dec. 4 aimed at raising revenue and boosting Italy’s anemic growth to persuade investors Italy can tame the region’s second-biggest debt and avoid a bailout. Parliamentary committees signed off on the amended plan last night, paving the way for a vote this week in the lower house. Monti has warned that failure to approve it could lead to Italy’s “collapse” and threaten the survival of the single currency.

US depositors flee foreign-owned banks - (www.ft.com) Foreign-owned banks operating in the US have suffered their largest six month fall in deposits on record in what some analysts have described as a “flight to safety” from European banks to domestic institutions. Cash on deposit at foreign-owned banks fell $291bn, or 25 per cent, to $879bn from the end of May to the start of December, the first time deposits in the sector have fallen for six consecutive months since 2002, according to Federal Reserve data. “We have heard of a lot of US companies that were doing business with non-US banks looking at the news, and saying I want to be somewhere safer,” said Matt Burnell, large-cap US bank analyst at Wells Fargo. “For those companies somewhere safe means domestic banks like PNC, JP Morgan and US Bancorp that are perceived to have higher quality deposit franchises.”