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401ks Hit by Withdrawal Freezes - (online.wsj.com) Investors Cry Foul as Some Funds Close Exits; Perils of Distressed Markets. Some investors in 401(k) retirement funds who are moving to grab their money are finding they can't. Even with recent gains in stocks such as Monday's, the months of market turmoil have delivered a blow to some 401(k) participants: freezing their investments in certain plans. In some cases, individual investors can't withdraw money from certain retirement-plan options. In other cases, employers are having trouble getting rid of risky investments in 401(k) plans. When Ed Dursky was laid off from his job at a manufacturing company in March, he couldn't withdraw $40,000 from his 401(k) retirement account invested in the Principal U.S. Property Separate Account. That fund, which invests directly in office buildings and other properties, had stopped allowing most investors to make withdrawals last fall as many of its holdings became hard to sell. Now Mr. Dursky, of Ottumwa, Iowa, is looking for work and losing patience. All he wants, he said, is his money. "I hate to be whiny, but it is my money," Mr. Dursky said. The withdrawal restrictions are limiting investment options for plan participants and employers at a key time in the markets. The timing is inconvenient for the number of workers like Mr. Dursky who are laid off and find their savings inaccessible. Though 401(k) plans revolutionized the retirement-savings landscape by putting investment decisions in the hands of individuals, the restrictions show that plan participants aren't always in the driver's seat. Individual investors mightn't even be aware of some behind-the-scenes maneuvers causing liquidity problems in their retirement plans. Many funds offered in 401(k) plans lend their portfolio holdings to other investors, receiving in exchange collateral that they invest in normally safe, liquid holdings. The aim is often to generate a small but relatively reliable return that can help offset fund expenses. But in recent months, many of the collateral investments have gone haywire, prompting money managers to restrict retirement plans' withdrawals from the lending funds. Some stable-value funds also are blocking the exits. These funds, available only in tax-deferred savings plans such as 401(k)s, typically invest in bonds and use bank or insurance-company contracts to help smooth returns. But in cases of employer bankruptcy and other events that can cause withdrawals, these funds can lock up investor money for months at a time. Investors in the Principal U.S. Property Separate Account said they understood the risk of losses, but didn't think their money could be locked up for months or years. Most participants in the 15,000 plans holding the fund haven't been able to make any withdrawals or transfers since late September. "To sell property at inappropriately low prices in order to generate cash for a few would hurt the majority of investors and violate our fiduciary obligations," said Terri Hale, spokeswoman for Principal Financial Group Inc., the parent of the fund's manager. The fund, which had $4.3 billion in net assets at the end of April, still is making distributions for death, disability, hardship and retirement at normal retirement age.
Obama begins implementation of his socialistic agenda, begins paying back his union supporters:
· Obama paying off political union supporters: CA officials say union influenced a federal requirement that a pay cut be reversed for home healthcare workers – (www.latimes.com) Officials in the governor's office say a politically powerful union may have had inappropriate influence over the Obama administration's decision to withhold billions of dollars in federal stimulus money from California if the state does not reverse a scheduled wage cut for the labor group's workers. The officials say they are particularly troubled that the Service Employees International Union, which lobbied the federal government to step in, was included in a conference call in which state and federal officials reviewed the wage cut and the terms of the stimulus package. California Secretary of Health and Human Services Kim Belshe said she could not recall another instance in which the federal government invited a significant stakeholder group into such government-to-government negotiations. "The involvement of a stakeholder in this kind of state-federal deliberative process is unusual at best," she said. "This was really atypical and outside any norm I am familiar with." SEIU and White House representatives did not respond to requests for comment. In addition to several state and federal officials, participants in the April 15 conference call included an SEIU associate general counsel in Washington, a lobbyist for SEIU in California and a representative from SEIU's policy staff in California, according to a list provided by the Schwarzenegger administration. During the call, state officials say, they were asked to defend the $74-million cut scheduled to take effect July 1. The cut lowers the state's maximum contribution to home healthcare workers' pay from $12.10 per hour to $10.10. The California officials on the call, who requested anonymity for fear of antagonizing the Obama administration, said they needed the savings to help balance the state budget. The wages go to some 300,000 people who care for the elderly and ill in their homes. Those workers collectively pay millions of dollars in dues each month to SEIU and another union. SEIU was among the biggest donors to President Obama's campaign, contributing $33 million. The union is also consistently among the biggest donors to Democrats in Sacramento and had aggressively fought the wage cut during state budget negotiations. But Democratic lawmakers voted for the reduction in February as part of a budget deal they struck with Republicans, who have repeatedly targeted the multibillion-dollar home-care program. The rapidly expanding program is intended to keep low-income elderly and disabled Californians out of nursing homes. People who qualify for the program can hire anyone they choose to take care of them, including relatives and friends. The Obama administration has ruled that California must revoke the wage cut -- which would require a two-thirds vote of the Legislature and thus would need GOP support -- or lose $6.8 billion in federal stimulus funds. The administration says the cut violates the terms of the stimulus money because it forces strapped local governments to make up the lost pay.
· Obama administration threatens to rescind billions in stimulus money if Gov. Schwarzenegger and lawmakers do not restore wage cuts to unionized home healthcare workers Reporting from Sacramento -- The Obama administration is threatening to rescind billions of dollars in federal stimulus money if Gov. Arnold Schwarzenegger and state lawmakers do not restore wage cuts to unionized home healthcare workers approved in February as part of the budget. Schwarzenegger's office was advised this week by federal health officials that the wage reduction, which will save California $74 million, violates provisions of the American Recovery and Reinvestment Act. Failure to revoke the scheduled wage cut before it takes effect July 1 could cost California $6.8 billion in stimulus money, according to state officials. The news comes as state lawmakers are already facing a severe cash crisis, with the state at risk of running out of money in July. The wages at issue involve workers who care for some 440,000 low-income disabled and elderly Californians. The workers, who collectively contribute millions of dollars in dues each month to the influential Service Employees International Union and the United Domestic Workers, will see the state's contribution to their wages cut from a maximum of $12.10 per hour to a maximum of $10.10. The SEIU said in a statement that it had asked the Obama administration for the ruling. The cut was highly contentious during last winter's budget talks. Republican lawmakers insisted that the rapidly growing, multibillion-dollar state program, In Home Supportive Services, be scaled back significantly.
· Will: Obama engages in demagoguery in Chrysler bailout | Business ... - (www.chron.com) At the Academy of Obama, professors and others devise plans for extracting a new and improved automobile industry from a semi-sort-of-bankruptcy arrangement that — if it survives judicial scrutiny — will give the United Auto Workers 39 percent of General Motors, with the government owning 50 percent. During future contract negotiations, will the union’s adversary be an administration that the union helped to put in power? The UAW will own 55 percent of Chrysler, so perhaps the union will sit on both sides of the table in negotiations. They should go smoothly, although the UAW may think it has made sufficient concessions, such as the one that says henceforth overtime pay will not begin until the worker has toiled 40 hours in a week. Many months and many billions of dollars are being wasted by the administration’s determination to spare the car companies, and especially the UAW, the rigors of a straightforward bankruptcy. The president’s “surgical” bankruptcy plan for Chrysler requires some of the company’s lenders, mostly non-banks, to receive less than they would as secured creditors under bankruptcy law. The law may still make itself heard over the political thunder. Meanwhile, the president faults these “speculators” for not being as cooperative as are most of the banks that have lent to Chrysler. But the banks are compliant because they are mendicants: Having taken the government’s money, they are the government’s minions. It is Demagoguery 101 to identify an unpopular minority to blame for problems. The president has chosen to blame “speculators” — aka investors — for Chrysler’s bankruptcy. Yet he simultaneously says he hopes that private investors will begin supplanting government as a source of capital for the companies. Breathes there an investor/speculator with such a stunted sense of risk that he or she would go into business with this capricious government? Its chief executive says: “If the Japanese can design (an) affordable, well-designed hybrid, then, doggone it, the American people should be able to do the same.” Yes they can — if the American manufacturer can do what Toyota does with the Prius: Sell its hybrid without significant, if any, profit and sustain this practice, as Toyota does, by selling about twice as many of the gas-thirsty trucks that the president thinks are destroying the planet. Obama overflows with advice for Americans who he thinks need admonitions such as “wash your hands when you shake hands” and “cover your mouth when you cough.” He also advises that this is a good time for Americans to put their hygienic hands on the steering wheel of a new car. He hopes buyers will choose American cars. A sensible person might add: Buyers should choose cars made by the Ford Motor Company.
U.S. Forced Chrysler Creditors to Blink - (online.wsj.com) The U.S. used its leverage as the sole willing lender to Chrysler to extract deep concessions from some of the nation's biggest banks. President Barack Obama's auto task force heard a blunt message early this spring from J.P. Morgan Chase & Co., the largest lender to Chrysler LLC. In any deal to remake the troubled auto maker, Chrysler would have to repay its lenders all $6.9 billion it owed. "And not a penny less," said James B. Lee Jr., vice chairman at the bank, in a call to auto task-force boss Steven Rattner on March 29. The next day, Mr. Obama called the banker's bluff. The president stepped before a podium to announce that Chrysler could face a disorderly bankruptcy or even liquidation. ...
Darker Times for Solar Power - (online.wsj.com) The solar-power industry is pulling back, and prices of solar cells are falling amid recession and tight credit. The global recession and tight credit conditions have cast a chill on the solar-power industry after years of breakneck growth, and could usher in long-term changes in the industry. Banks have curtailed financing for major solar projects, and Spain -- the world's second-largest solar-power market after Germany -- has slashed subsidies for the industry, leading to sharply lower demand for solar cells. Sales of the tiny chips that convert the sun's rays into electricity are expected to drop by at least 20% this year. As a result, solar-cell manufacturers are delaying construction of new factories and sharply cutting prices.
Banks Won Concessions on Tests: Fed Cut Billions Off Some Initial Capital-Shortfall Estimates; Tempers Flare at Wells - (online.wsj.com) The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation's biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining. In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits. The overall reaction to the stress tests, announced Thursday, has been generally positive. But the haggling between the government and the banks shows the sometimes-tense nature of the negotiations that occurred before the final results were made public. Government officials defended their handling of the stress tests, saying they were responsive to industry feedback while maintaining the tests' rigor. When the Fed last month informed banks of its preliminary stress-test findings, executives at corporations including Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. were furious with what they viewed as the Fed's exaggerated capital holes. A senior executive at one bank fumed that the Fed's initial estimate was "mind-numbingly" large. Bank of America was "shocked" when it saw its initial figure, which was more than $50 billion, according to a person familiar with the negotiations. At least half of the banks pushed back, according to people with direct knowledge of the process. Some argued the Fed was underestimating the banks' ability to cover anticipated losses with revenue growth and aggressive cost-cutting. Others urged regulators to give them more credit for pending transactions that would thicken their capital cushions. At times, frustrations boiled over. Negotiations with Wells Fargo, where Chairman Richard Kovacevich had publicly derided the stress tests as "asinine," were particularly heated, according to people familiar with the matter. Government officials worried San Francisco-based Wells might file a lawsuit contesting the Fed's findings. The Fed ultimately accepted some of the banks' pleas, but rejected others. Shortly before the test results were unveiled Thursday, the capital shortfalls at some banks shrank, in some cases dramatically, according to people familiar with the matter. Bank of America's final gap was $33.9 billion, down from an earlier estimate of more than $50 billion, according to a person familiar with the negotiations. A Bank of America spokesman wouldn't comment on how much the previous gap was reduced, though he said it resulted from an adjustment for first-quarter results and errors made by regulators in their analysis. "It wasn't lobbying," he said.
Almost 24,000 houses, apartments vacant in Sacramento area - (www.sacbee.com) Nearly four years into California's housing downturn, close to 24,000 Sacramento-area homes and apartments are vacant, a number that climbed 40 percent in the past year, according to a Bee analysis of federal data. Roughly a third, or about 7,200, of the six-county region's vacant homes have been empty longer than a year. About 3,500 have been empty longer than two years. The vacancy count, revealing a vast excess of unused shelter in a region that overbuilt during the housing boom, stems from a U.S. Postal Service survey of houses and apartments where mail has not been picked up for 90 days. Unoccupied houses put further stress on neighborhoods already hit hard by foreclosures. "If I could afford to move out of here I'd do it," said Angela Trejo of Sacramento's Oak Park. Across the street is a house vacant for months, now for sale for less than $20,000. In the northern sections of Oak Park, and parts of West Sacramento, more than one in 10 homes is vacant. More than one in 20 homes is vacant in parts of Oak Park, south Sacramento, North Sacramento, North Highlands and Citrus Heights. Reasons vary for the surge of vacant dwellings. Area real estate agents and others Monday cited recent foreclosure moratoriums and banks increasingly sitting on large numbers of repossessed homes. Apartment communities also report rising vacancies as 11.3 percent regional unemployment forces renters to double up or move back in with family members.
Senate votes to make taxpayers liable for yet more bad debt - (finance.yahoo.com) Senate moves toward easing terms to qualify for government-backed reduced mortgages. Trying to curb home foreclosures, the Senate voted on Wednesday to make it easier for homeowners with risky credit to switch to a lower-cost mortgage backed by the government. The bill, passed 91-5, also would give banks a break by encouraging reduced fees they must pay for the government to insure deposits. While both steps put taxpayer money on the line, lawmakers say the legislation is needed to prevent the economy from getting worse. "Given the size and scope of the struggles too many Nevadans and Americans endure, it will take more time before housing normalizes again," said Senate Majority Leader Harry Reid, D-Nev. "But with this bill, we are working to hasten that day so that no family will ever accept losing its home as the way it is." Absent from the measure was a bankruptcy provision that President Barack Obama had promised to push through Congress, but backed down amid stiff opposition from banks. The provision, rejected by the Senate last week in a 45-51 vote, would have allowed bankruptcy judges to lower a person's mortgage payment. While the House included the provision when it passed its version of the bill in March, lawmakers said it didn't have enough support to insist it be included in the final compromise bill. The two chambers have to iron out their differences in the legislation before it can be sent to Obama to sign. "That issue is a dead letter," said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee. Also on Wednesday, the House agreed to a Senate-passed bill that would hire hundreds more FBI agents and prosecutors to investigate mortgage fraud. The legislation, expected to reach the president's desk soon, also would establish a $5 million, independent commission to investigate the cause of the financial crisis and chart a path forward.
OTHER STORIES:
House values plunge up to 30 percent in Florida - (www.tampabay.com)
House prices fall to 2004 levels in England - (www.guardian.co.uk)
Chrysler won't repay federal bailout 'loans' - (money.cnn.com)
Bank of America to need $34 billion of your money - (www.reuters.com)
Goldman Conspiracy: explosive 13-episode TV show - (www.marketwatch.com)
People bought houses at three times true value - (theautomaticearth.blogspot.com)
American consumers struggle with their debts - (www.economist.com)
5 Costs of Buying a House You Didn't Consider - (www.nytimes.com)
House Prices Still No Bargain - (online.wsj.com)
Taking a loss: Houseowners pay to sell in Hawaii - (www.starbulletin.com)
Fed says more banks tighten mortgage standards - (www.chron.com)
Banks won't sell foreclosed houses, stalling market - (market-ticker.denninger.net)
We Can't Subsidize the Banks Forever - (online.wsj.com)
Buffett Lambastes Bankers, Insurers for Stupidity - (www.bloomberg.com)
Commercial Property: The Other Shoe - (www.smartmoney.com)
Mega-Regions and High-Speed Rail - (correspondents.theatlantic.com)
The Worst Case Scenario - (www.Someone Has to Say It) - (www.seekingalpha.com)
Please Welcome 'New Prosperity Magazine' - (Charles Hugh Smith at www.oftwominds.com)
FHA Creating The Next Housing Bust - (online.wsj.com)
The Houseownership Bubble - (www.theaffordablemortgagedepression.com)
Only hard money, high savings, and a balanced budget will work - (www.atimes.com)
"Too Big To Fail" Is Un-American - (www.huffingtonpost.com)
If China loses faith the dollar will collapse - (www.nakedcapitalism.com)
Want to Sell Your House? Lower Your Price - (www.businessweek.com)
Affluent Houseowners Underwater and Sinking Fast - (blogs.wsj.com)
Rich Default on Luxury Houses Like Subprime Victims - (www.bloomberg.com)
More than one in five houseowners underwater - (finance.yahoo.com)
O.C. house values down 32% from peak - (lansner.freedomblogging.com)
Inflation Nation - (www.nytimes.com)
Interest rates, like Wall Street, must run one way - (www.marketwatch.com)
Great Recession Will Redefine Full Employment as Jobs Vanish - (www.bloomberg.com)
New idea to deal with Menlo Park foreclosure problem - (www.sfgate.com)
How toxic waste was turned into AAA gold - (www.thebarricadeblog.com)
