Many stories of significance have come my way on housing issues, state debt issues, federal debt issues, pension issues, and other economic items of note. I feel as if I am buried a mile deep news. Here are a few stories that caught my eye.
Senator Rand Paul Proposes Elimination of HUD
I am pleased to report a tremendous deficit cutting idea by senator Rand Paul: Eliminate Energy, HUD and most of Education department
In his first major legislative proposal, U.S. Sen. Rand Paul has proposed cutting government spending by $500 billion in a year, including eliminating the Departments of Energy and Housing and Urban Development and most of the Department of Education.
That is the single best piece of fiscal legislation proposed in years.
Nevada Governor Brian Sandoval Addresses Underfunded Public Pension Plans
While Illinois has jumped off the deep end with tax hikes, Nevada’s Governor says Tax increases last thing Nevada businesses need
Tax increases are the last thing Nevada businesses need now, Gov. Brian Sandoval told a receptive audience Wednesday during a speech to the Las Vegas Chamber of Commerce. “My understanding is that PERS is an $8 (billion) or $9 billion unfunded liability that Nevada can’t afford,” he said. Sandoval said benefits reforms must starts with the new employees hired by the state.
I commend Governor Brian Sandoval’s ideas and his starting point. States need to scrap defined benefit pension plans for new hires immediately.
100,000 People in Oakland Expected to Apply for 650 Subsidized Housing Openings
The San Francisco Chronicle reports Oakland opens waiting list for Section 8 vouchers
Oakland’s housing authority opened up its waiting list Tuesday for Section 8 housing vouchers, drawing thousands for a coveted spot in line.
The only way to sign up was over a computer, so across the city, hundreds jammed into city libraries to fill out the forms in the hope that they might eventually get a chance to live in subsidized housing.
In the first three hours, 6,000 people filled out applications. Over the five-day application period, the housing authority expects 100,000 people to apply for only 10,000 spots on the waiting list.
The housing authority uses a lottery to determine who gets on the list. And even then it’s no more than a foot in the door. It has taken nearly five years to clear the waiting list that was opened in 2006. Vouchers, for the most part, only become available when people living on assistance obtain higher-paying jobs or die.
Even now, only 650 vouchers are available, said Eric Johnson, the housing authority’s executive director.
With those odds, I have a simple question: Does this program make any sense whatsoever? Here is a bonus question: Does this feel like a recovery?
New York State Seizes Finances of Nassau County
The New York Times reports New York State Seizes Finances of Nassau County
A state oversight board on Wednesday seized control of Nassau County’s finances, saying the county, one of the nation’s wealthiest and most heavily taxed, had nonetheless failed to balance its $2.7 billion budget.
Nassau’s tax receipts are the envy of many worse-off municipalities: its malls and busy retail districts, a short drive from New York City, help generate about $1 billion in sales taxes a year, and its aging bedroom communities add about $800 million in county property taxes.
But the county has resisted cuts in services, and its current leaders have been just as adamant about not raising taxes.
The problem should not be hard to guess – public unions wages and benefits. It will be interesting to see what the imposed solution is. It could be higher taxes or wage and benefit cuts.
Churches Walk Away
You have no doubt heard about homeowners and businesses “walking away”. Churches are now doing the same thing. Please consider Churches Find End Is Nigh
Residential and commercial real-estate owners aren’t the only ones losing their properties to foreclosure. The past few years have seen a rapid acceleration in the number of churches losing their sanctuaries because they can’t pay the mortgage.
Just as homeowners borrowed too much or built too big during boom times, many churches did the same and now are struggling as their congregations shrink and collections fall owing to rising unemployment and a weak economy.
“Religious organizations may be subject to the laws of God but they are also subject to the laws of economics,” said Chris Macke, senior real-estate strategist at CoStar. Many troubled churches, he said, are in states such as California, Florida, Georgia and Michigan, which also have some of the highest home-foreclosures rates in the country.
In many cases, churches ran into trouble after borrowing to build bigger houses of worship needed to accommodate growing congregations in once-booming housing markets.
Pastors Rich and Lindy Oliver decided their Family Christian Center needed more space after their congregation rose from a few hundred in the early 1990s to 650 by 2002. The church borrowed $4.2 million and began building a new 1,000-person sanctuary on 11 acres in Orangevale, Calif., including classrooms and a space for adult learning.
But when housing prices across California began tumbling in 2006, followed by a surge in unemployment and foreclosures, many congregants moved away, and those who were left reduced their tithing sharply. Meanwhile, the property, valued at $8.5 million in 2002 was appraised at just $2.5 million in 2008.
Stretched to the limit, the pastors stopped making payments. “I just told the bank to take it,” Mr. Oliver said. “If you’re a church with a piece of property upside down and no one will refinance the loan or lend you more money, there’s not really another choice but to walk away.”
E-mails Suggest Bear Stearns Cheated Clients Out of Billions
The Atlantic reports E-mails Suggest Bear Stearns Cheated Clients Out of Billions
Former Bear Stearns mortgage executives who now run mortgage divisions of Goldman Sachs, Bank of America, and Ally Financial have been accused of cheating and defrauding investors through the mortgage securities they created and sold while at Bear. According to e-mails and internal audits, JPMorgan had known about this fraud since the spring of 2008, but hid it from the public eye through legal maneuvering. Last week a lawsuit filed in 2008 by mortgage insurer Ambac Assurance Corp against Bear Stearns and JPMorgan was unsealed. The lawsuit’s supporting e-mails, going back as far as 2005, highlight Bear traders telling their superiors they were selling investors like Ambac a “sack of sh*t.”
Mike Nierenberg, who ran the adjustable-rate mortgage trading desk at Bear and is now the head of mortgages and securitization for Bank of America, was a key player ensuring the defaulting loans Bear was buying would move off their books right after they bought them, with little concern for the firm’s due diligence standards. He was joined in this scheme by Jeff Verschleiser, his peer and Senior Managing Director on the mortgage and asset-backed securities trading desk and head of whole loan trading. He is now an executive in Goldman Sachs’ mortgage division.
According to the lawsuit, the Bear traders would sell toxic mortgage securities to investors and then sell back the bad loans with early payment defaults to the banks that originated them at a discount. The traders would pocket the refund, and would not pass it on to the mortgage trust, which was where it should have gone to be distributed to the investors who owned the bonds. The Marano-led traders also cut the time allowed for early payment defaults, without telling the bond investors. That way, Bear could quickly securitize defective loans, without leaving enough time for investors to do their own due diligence after the bonds were sold and put-back any bad loans to Bear.
Bear deal manager Nicolas Smith wrote an e-mail on August 11th, 2006 to Keith Lind, a Managing Director on the trading desk, referring to a particular bond, SACO 2006-8, as “SACK OF SH*T [2006-]8” and said, “I hope your [sic] making a lot of money off this trade.”
It’s this blatant internal awareness inside the Bear mortgage trading division that the Ambac suits says led Bear to implement an across-the-board strategy to disregard its contractual promises and conceal the defective loans. By JPMorgan taking over Bear, it became the successor of interest in Bear Stearns. As the lawsuit lays out, JPMorgan is responsible for the flagrant accounting fraud started by Bear designed to avoid, and has continued to avoid, recognition of vast off-balance sheet exposure relating to its contractual repurchase agreements. This allowed executives to reap tens of millions of dollars in compensation from a bank that wouldn’t have been able to buy Bear without tax payer assistance.
Barney Frank Chides GOP for ‘Waiting’ on Fannie, Freddie
The Wall Street Journal reports Barney Frank Chides GOP for ‘Waiting’ on Fannie, Freddie
Rep. Barney Frank, (D., Mass.), the top Democrat on the House Financial Services Committee, told reporters that he was “puzzled” by what he characterized as a lack of action by Republicans, who criticized the Dodd-Frank financial-overhaul law enacted last summer as incomplete without dealing with the mortgage giants.
“Last year the Republicans were very insistent that this was an emergency,” Frank told reporters. “I’m waiting for their plan. I am surprised that they’re not moving as quickly…They knew exactly what they wanted to do when they were in the minority, so I don’t know why they aren’t moving forward.”
This is easy to address. The Republicans ought to take Barney Frank up on his excellent suggestion and introduce legislation tomorrow to phase out Fannie Mae and Freddie Mac in a two-year timeframe.
Then we can watch the biggest Fannie hypocrite the world has ever seen protest the move.
Postal Service Eyes Closing Thousands of Post Offices
The Wall Street Journal reports Postal Service Eyes Closing Thousands of Post Offices
The U.S. Postal Service plays two roles in America: an agency that keeps rural areas linked to the rest of the nation, and one that loses a lot of money.
Now, with the red ink showing no sign of stopping, the postal service is hoping to ramp up a cost-cutting program that is already eliciting yelps of pain around the country. Beginning in March, the agency will start the process of closing as many as 2,000 post offices, on top of the 491 it said it would close starting at the end of last year. In addition, it is reviewing another 16,000—half of the nation’s existing post offices—that are operating at a deficit, and lobbying Congress to allow it to change the law so it can close the most unprofitable among them. The law currently allows the postal service to close post offices only for maintenance problems, lease expirations or other reasons that don’t include profitability.
Sen. Susan Collins (R., Maine) says the agency should instead cut waste in its ranks. Although the postal service has cut its work force through attrition in recent years, it is still weighed down by overly generous employee benefits, she says.
“One of my frustrations is that the first approach the post office seems to take is to reduce service…when instead it needs to tackle a benefit structure that is too expensive, and it needs to look for ways to stay in business and deal with the digital age,” says Sen. Collins.
Senator Collins hits the nail on the head. The problem is excessive public union benefits.
Arbitrator Rules Against Firefighters’ Union
In a victory for common sense, a Nevada Arbitrator chooses Clark County offer over firefighters union
Clark County won a months-long labor dispute with its firefighters union Wednesday when an arbitrator chose the county’s final contract offer, a decision that will save an estimated $7.4 million.
The 741 firefighters covered in the contract will get a 2 percent pay cut, no wage increases, a reduction in long-term disability benefits and a tougher sick leave policy.
Clark County Commissioner Steve Sisolak Not Yet Done With Firefighters
Best wishes to Clark County Commissioner Steve Sisolak who is still justifiably after firefighters over fraudulent sick leave.
Please consider Sisolak calls for investigation of firefighter sick leave
In 2009, Clark County Commissioner Steve Sisolak began looking hard at Fire Department costs. He had received a deluge of angry calls and e-mails from constituents wondering why the unionized firefighters weren’t accepting salary or benefits reductions as the county dealt with budget cuts and the local economy continued its slide.
“Everybody was losing their jobs, their homes,” Sisolak said.
For much of that year, he was the only commissioner willing to criticize their salaries, benefits and retirement packages that averaged about $180,000 in 2009.
In retaliation, members of the union showed up at Sisolak’s public meetings to glare at him. He said he received death threats, which prompted county administrators to post park police at commission meetings. A city firefighter posted on Facebook that she’d like to shoot him.
This week brought a measure of vindication for Sisolak in his fight with the union after an arbitrator broke a stalemate in negotiations by deciding the county’s contract offer was better than the firefighter union’s offer.
Sisolak said he was happy. “I’m not done, though,” he added.
Late Thursday, he sent letters to the FBI, Metro Police, Clark County district attorney and others seeking an investigation into potentially criminal acts of racketeering and fraud by firefighters. Sisolak has long alleged that firefighters are abusing the sick-leave system to rack up overtime pay.
After reading the arbitrator’s 26-page decision, he is more determined than ever to have his suspicion investigated. He pointed specifically to one part of the decision:
“Some employees use sick leave as vacation, scheduling themselves to be ‘sick’ months in advance. This improper use of sick leave is evident from e-mails the (Fire) Department recovered,” arbitrator Norman Brand wrote. “Second, it appears some firefighters may deliberately call in late to turn the overtime opportunity into a callback/overtime opportunity.”
Callback pay is more valuable than overtime because it pays overtime plus a contribution to a firefighter’s pension.
In his letter, Sisolak said if more than one firefighter has been involved in sick-leave scamming, it might represent a violation of the federal RICO (Racketeer Influenced and Corrupt Organizations) Act.
Pension Fraud in San Francisco
The New York Times reports Bonus Payments to City Retirees Are Drawing Ire
As San Francisco struggles under ballooning pension and health care costs, the city’s retirees will receive unexpected cost-of-living bonuses totaling $170 million. The city’s anticipated budget deficit for the coming year is $360 million.
A political battle has raged over the city’s growing retirement obligations. In November, Proposition B, which would have required city workers to contribute more toward their pensions and benefits, was soundly defeated. The measure’s opponents — every major elected official and energetic public-employee unions — said fears about the pension fund were overblown.
Meanwhile, the fund’s fundamentals deteriorated as it gradually accounted for its huge losses in the stock market crash. It took in $414 million in contributions in 2010 but paid out $819 million.
On Jan. 4, an actuarial firm reported that the $13.1 billion San Francisco Employees’ Retirement System now had an unfunded liability of $1.6 billion — triple its shortfall a year earlier. Gary A. Amelio, the system’s chief since January 2010, did not respond to questions.
In spite of the shortfall, Mr. Amelio and the system’s board quietly decreed in mid-December that “excess” earnings on investments in 2010 entitled retirees to an unexpected cost-of-living increase of as much as 3.5 percent this year. The special $170 million bonus is in excess of regular cost-of-living adjustments, or COLAs.
“The irony of issuing bonus payments to retirees at a time the pension fund is a billion dollars down is insane. It really is,” said Jeff Adachi, San Francisco’s public defender and the chief proponent of Proposition B, which he says would have saved the city $120 million this year. “It’s like a bankrupt corporation paying dividends to its shareholders.”
The actions of Gary Amelio who authorized bonuses on the basis of fund “excesses” are every bit as fraudulent as bankrupt corporations paying dividends.
I hope Jeff Adachi resubmits Proposition B in the next election, tripling or quadrupling the last amount he requested union members contribute.
In the meantime, someone should seek civil if not criminal charges against Amelio right now.
Groundbreaking California Ruling OKs Teacher Layoffs Not Based on Seniority
In yet another victory for common sense over public union greed, a Judge OKs settlement that limits use of seniority in L.A. teacher layoffs
In a case that pits the constitutional rights of students against the job protections of teachers, a Los Angeles County Superior Court judge approved a groundbreaking settlement Friday that limits the effect of layoffs on the district’s most vulnerable students.
Up to 45 Los Angeles Unified School District campuses will be shielded from teacher layoffs altogether, Judge William F. Highberger ordered Friday, and layoffs in the district’s other 750 schools must be spread more equitably.
The decision comes amid deep education cuts and a debate over teacher tenure rules, which are being challenged across the country. New Jersey Gov. Chris Christie recently called for the end of tenure, as have leaders in Florida, Idaho, Wyoming and elsewhere.
Lawyers representing district students hailed the judge’s ruling as a “landmark victory” that put the interests of children ahead of their instructors.
Representatives of United Teachers Los Angeles, which vigorously opposed the settlement in court, said the teachers union will probably appeal the order, which “eviscerates seniority” and will damage the morale of district teachers.
The settlement is an attempt to address a problem all parties recognize: the devastating effect that layoffs have had on district campuses in recent years. Some schools have lost as much as 50% of their teaching staffs to cutbacks, unraveling some reform efforts and causing turmoil at already struggling campuses.
A Times investigation last year found that seniority-based layoffs in the district had led to the dismissal of hundreds of highly effective teachers and fell hardest on schools in the city’s poorest neighborhoods. Far fewer layoffs would be necessary if the decisions were based on performance rather than seniority, a Times analysis found.
If teachers wanted what was best for the kids, they would not object to this ruling.
Unfortunately, it has been proven countless times teachers want only what is best for teachers. Add this item to the list.
Société Générale crafts strategy for China hard-landing
The Telegraph reports Société Générale crafts strategy for China hard-landing
In a report entitled The Dragon which played with fire, the bank’s global team said China had carried out its own version of “quantitative easing”, cranking up credit by 20 trillion (£1.9 trillion) or 50pc of GDP over the past two years. It has waited too long to drain excess stimulus.
“Policy makers are already behind the curve. According to our Taylor Rule analysis, the tightening needed is about 250 basis points,” said the report, by Alain Bokobza, Glenn Maguire and Wei Yao.
The Politiburo may be tempted to put off hard decisions until the leadership transition in 2012 is safe. “The skew of risks is very much for an extended period of overheating, and therefore uncontained inflation,” it said.
Under the bank’s “risk scenario” – a 30pc probability – inflation will hit 10pc by the summer. “This would cause tremendous pain and fuel widespread social discontent,” and risks a “pernicious wage-price spiral”
The bank said overheating may reach “peak frenzy” in mid-2011. Markets will then start to anticipate a hard-landing, which would see non-performing loans rise to 20pc (as in early 1990s) and a fall in bank shares of 50pc to 75pc over the following 12 months.
“We think growth could slow to 5pc by early 2012, which would be a drama for China. It would be the first hard-landing since 1994 and would destabilise the global economy. It is not our central scenario, but if it happens: commodities won’t like it; Asian equities won’t like it; and emerging markets won’t like it,” said Mr Bokobza, head of global asset allocation.
Credit expansion in China is indeed rampant, and although the timeframe is uncertain, a hard landing now seems baked in the cake.
SEC Backs Fiduciary Standard
Investment News reports Battle lines drawn after SEC backs fiduciary standard
Anyone providing personalized investment advice to retail customers would have to adhere to a fiduciary standard of care under a recommendation contained in a Securities and Exchange Commission staff report. The SEC study, which was mandated by the Dodd-Frank financial reform law, was submitted to Congress late Friday night.
The report encourages SEC commissioners to write a regulation that would impose a universal fiduciary duty that is “no less stringent” than the one that currently applies to investment advisers. Dodd-Frank allows the SEC to move ahead and write such a rule.
Currently, broker-dealers must only meet a suitability standard when providing personalized advice about securities to retail investors. But the SEC staff calls for raising the bar by requiring brokers to act as fiduciaries, and thus put their clients’ best interests ahead of their own.
New Haven Connecticut Seeks To Change Binding Arbitration Rules
The Independent reports City To State: Time To Change Binding Arb Rules
New Haven’s mayor sent Hartford a message: Yes, we need money. Just as important, we need to revolutionize the way we settle labor disputes. Mayor John DeStefano issued that call Tuesday at a press conference to highlight the city’s agenda for the upcoming state legislative session.
The call comes as New Haven is negotiating with 13 unions whose contracts have expired, and two more (police and fire) that expire on June 30. With the city facing a projected $52 million budget gap in the next fiscal year, and therefore seeking dramatic pension and health insurance givebacks, the atmosphere has turned contentious.
Right now, if the two sides can’t agree on terms, the matter may ultimately go to binding arbitration: The city picks an arbitrator. The union picks an arbitrator. They agree together on a third arbitrator.
That system’s broken, DeStefano argued. As a result cities are saddled with expensive pension and health-care plans that risk bankrupting them.
“You inevitably get a system that splits the baby and lowers the expectation of any meaningful change,” DeStefano argued.
Any third arbitrator who wants to continue getting hired has to make sure not to offend either side, even if he or she concludes that one side is right, the mayor argued. If an arbitrator were to decide that the city can’t afford to maintain the current pension plan, for instance, unions probably wouldn’t agree to hire him or her the next time around.
To remedy that, DeStefano proposed that the governor appoint an independent panel to choose the neutral third arbitrators—similar to the way the state chooses superior court judges—and give those arbitrators terms rather than select them for one case at a time.
If you are going to ask for changes, why put forth a wimpy proposal. The goal should be complete elimination of collective bargaining. The compromise, and a wimpy one at that, is what DeStefano asked for.
House GOP Lists $250 Billion in Spending Cuts, Repeal of Davis-Bacon
Here is a headline distorted by a factor of 10: House GOP Lists $2.5 Trillion in Spending Cuts
Moving aggressively to make good on election promises to slash the federal budget, the House GOP today unveiled an eye-popping plan to eliminate $2.5 trillion in spending over the next 10 years. Gone would be Amtrak subsidies, fat checks to the Legal Services Corporation and National Endowment for the Arts, and some $900 million to run President Obama’s healthcare reform program.
What’s more, the “Spending Reduction Act of 2011” proposed by members of the conservative Republican Study Committee, chaired by Ohio Rep. Jim Jordan, would reduce current spending for non-defense, non-homeland security and non-veterans programs to 2008 levels, eliminate federal control of Fannie Mae and Freddie Mac, cut the federal workforce by 15 percent through attrition, and cut some $80 billion by blocking implementation of Obamacare.
I am in favor of those cuts and more. The best thing in the bill however, is a line to repeal the Davis-Bacon prevailing wage law.
Mike “Mish” Shedlock
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