KeNo's Housing and Economic Portal: Wednesday December 7 Housing and Economic stories

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State Pension Funds Resist Accounting Rules That Would Magnify Liability - (www.bloomberg.com) U.S. public pension systems, facing as much as $3 trillion in unfunded promises to current and future retirees, are resisting proposed new standards that might double their funding deficits. Investment losses in 2008 and 2009 left state and local pensions with $3.6 trillion in unfunded obligations, according to an October 2010 study by Joshua Rauh of Northwestern University and Robert Novy-Marx of the University of Rochester. By last month, states had 74.6 percent of assets needed to fulfill obligations, down from 82.8 percent in 2007, according to data compiled by Bloomberg. The Governmental Accounting Standards Board, a private organization that sets bookkeeping rules used by cities and states, is considering changes that would magnify the unfunded liabilities of many pension funds. The new standard would widen the gap for the California State Teachers Retirement System to as much as $150 billion from $56 billion under a “very, very rough estimate,” according to Ricardo Duran, a spokesman for the second-largest public pension.

No check in mail for U.S. Postal Service debt woes - (www.latimes.com) Ideas on stemming the red ink include laying off about 150,000 workers and eliminating Saturday delivery. Higher postal rates are likely. One proposal floated by this columnist: Stop delivering to rural areas. Richard Maher can't remember the last time he wrote a personal letter to anyone — and he works for the U.S. Postal Service. That's how bad things have gotten for the government agency that, in the age of email, Facebook and Twitter, not to mention FedEx and United Parcel Service, announced last week that it lost $5.1 billion in the last year. And the losses would have been more than double that amount — a record $10.6 billion — if Congress hadn't allowed the postal service to engage in a little creative bookkeeping and shift an outstanding $5.5-billion payment for retiree healthcare into the current fiscal year. Hours before that payment was due last Friday, Congress voted to extend the deadline (again) to Dec. 16, kicking the fiscal can a little farther down the road. "The problem is still there," said Maher, a postal service spokesman in Los Angeles. "It's a $5.5-billion obligation that the postal service can't afford given the drop in mail volume."

France’s AAA Status in Tatters as Yields Surge - (www.bloomberg.com) Investors aren’t waiting for Standard & Poor’s or Moody’s Investors Service to strip France, Europe’s second-biggest economy, of its topcredit rating. The extra yield demanded to lend to AAA rated France for 10 years was 158 basis points more than the German rate at 11:51 a.m. today. The gap was 200 basis points on Nov. 17, the widest spread since 1990, up from 28 in April. The French 10-year yield was at 3.5 percent, about midway between top-rated Holland and Belgium, which is graded one level lower at Aa1 by Moody’s. French borrowing costs are more than a percentage point above the AAA rated U.K. “France isn’t trading like a AAA,” said Bill Blain, a strategist at Newedge Group in London, who recommends buying U.K. government debt. “The market has made its judgment already.”

IMF Revamps Credit Lines to Lure Nations - (www.bloomberg.com) The International Monetary Fund revamped its credit line program to encourage countries facing outside shocks to turn to the fund with few conditions attached, as European leaders fail to end their debt turmoil. The Washington-based IMF said today the new instrument, the Precautionary and Liquidity Line, can be tapped by countries with strong economies currently facing short-term liquidity needs. Funding available will be capped at a percentage of countries’ contributions to the fund, limiting the role the instrument can play in preventing the debt crisis from spreading in Europe. “The size is too small to be meaningful for Italy and Spain,” said Edwin M. Truman, a former U.S. assistant Treasury secretary who’s now a senior fellow with the Peterson Institute, a private, nonprofit, nonpartisan research organization in Washington. The countries’ economic policies may also prevent them from pre-qualifying for the credit line, he said.

Wall Street Unoccupied as 200,000 Job Cuts Bring ‘Darkest Days’ to Bankers - (www.bloomberg.com) John Brady, co-head of MF Global Inc.’s Chicago office, was having a vodka cocktail at the Ritz- Carlton in Naples, Florida, overlooking theGulf of Mexico, on the day his company reported its largest-ever quarterly loss. “Wow, the sun just set,” Brady said to his wife and two colleagues attending a conference with him, he recalled in an interview. “I hope it doesn’t set on MF Global.” A week later, on Oct. 31, the firm led by former Goldman Sachs Group Inc. (GS) co-Chief Executive Officer Jon Corzine collapsed. Brady and 1,065 colleagues joined a wave of firings that has washed away more than 200,000 jobs in the global financial-services industry this year, eclipsing 174,000 in 2009, data compiled by Bloomberg show. BNP Paribas (BNP) SA and UniCredit SpA (UCG) announced cuts last week, and the carnage likely will worsen as Europe’s sovereign-debt crisis roils markets.