Important News - Oct. 10

• 1) California municipal bond sale falls short of fundraising goal

“California suffered a painful snub by investors Thursday as the state’s attempt to sell $4.5 billion in general obligation bonds failed to attract enough demand to raise the full amount.

After boosting interest rates on a chunk of the debt, the state cut the total size of the deal by 8% to $4.14 billion, Treasurer Bill Lockyer said.”

• 2) FHA Shortfall Seen at $54 Billion May Lead to Bailout

“Oct. 8 (Bloomberg) — The Federal Housing Administration, which insures mortgages with low down payments, may require a U.S. bailout because it has $54 billion more in losses than it can withstand, a former Fannie Mae executive said.

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today.”

—2A)  The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.

Despite the agency’s attempt to outrun its fate by insuring ever-larger amounts of new loans to such borrowers as Ms. Shimon — the current rate is over a billion dollars a day — 7.77 percent of the portfolio is in default, up from 5.6 percent a year ago.

Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.

“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

• 3) Proposed Laws Won’t Stop Pension Pain

“Even if Congress approves new legislation and allows companies to postpone funding obligations, companies would have to contribute a total of at least $120.8 billion into their funds in 2011, according to consulting firm Watson Wyatt. Without the legislation, that figure could be as high as $146.5 billion,

“There has never been a required contribution that large,” says Mark Warshawsky, director of retirement research at Watson Wyatt.

The largest previous annual contribution was $100 billion in 2003. After that, many companies decided to stop offering pensions and to freeze benefits for current participants, to reduce future obligations.

Companies are required to fund their pensions even if they have frozen their plans. Current legislative proposals would allow businesses to make up any 2009 and 2010 funding shortfalls with interest-only payments in those years and then gives them seven years to catch up.

Norman Stein, a professor at the University of Alabama School of Law, says without help “there’s a real chance that (businesses) will freeze their plans if they can’t get relief.”

In the best of circumstances, most plans will be significantly underfunded in 2011: The average plan would be 74.5% to 77.1% funded depending on which of the three legislative proposals is approved, according to Watson Wyatt.”

• 4) “The Pennsylvania Public School Employees Retirement System plan,

which has more than 400,000 members, has a $10 billion unfunded liability total, said Richard Dreyfus, a fellow at the Harrisburg-based Commonwealth Foundation.”

• 5) (Missouri) Springfield’s police-fire pension system deteriorated

(page 2)

“According to the actuarial accounting method — used for governmental accounting purposes — the fund’s assets stood at about $147 million in June, with accrued liabilities of about $317 million. By that approach, the pension system is 46.5 percent funded, with an unfunded liability of about $169 million.”

• 6) (Vermont) Panel Wrestles With State Pension Cuts

“I think everybody ought to be a part of this discussion,” he told reporters. “We have according to the state treasurer an unfunded liability of about $1.6 billion, including past-retirement health benefits that we’ve got to deal with. This is quite serious.”

• 7)” Funding levels for Hawaii’s pension system remain a concern

having declined from 95% in 2000 to 68.8% as of June 30, 2008, with the unfunded liability exceeding $5 billion.”

• 8) Ron Paul on the Daily Show

(True unemployment at 20%)

• 9) ”Orlando-area mortgage delinquency and foreclosure rates doubled

in August compared with the previous year, said First American CoreLogic Inc.

The delinquency rate of more than 90 days in August was 18.7 percent, up from 9 percent in August 2008. Meanwhile, the August 2009 foreclosure rate — the percentage of loans in some stage of foreclosure — was 10.7 percent, versus 5.8 percent in the same month a year prior.”

• 10) (Louisville) 10,000 apply for 90 factory jobs

11) By the numbers: Unemployment taxes

Texas unemployment insurance taxes paid by employers:

2009: $1.1 billion

2010: $1.7 billion to

$2.6 billion*

2011: $2.5 billion to

$3.8 billion*

• 12) Is bankruptcy an option for San Diego?

“The city’s current predicament

Last week, Mayor Jerry Sanders and his office released its Five-Year Financial Outlook, and estimated deficits well over $100 million every year through 2015.

San Diego’s general fund deficit has grown incrementally the last few months, from a projected $60 million, to the mayor’s estimate last week - $179 million - to the Independent Budget Analyst (IBA) office’s most recent guess, $200 million.”

• 13) Growing unemployment forces more onto LA County welfare rolls

“The Los Angeles County Board of Supervisors is seeking to reform its largest welfare program amid a dramatic increase in the number of people who seek help.

The county’s General Relief program is welfare of last resort. It’s a monthly cash payment of $221 to L.A.’s most down and out. As the unemployment rate’s skyrocketed in the last year-and-a-half, the number of recipients has jumped by 25,000, to more than 80,000 adults.

That pressure on county resources – the program now costs L.A. more than $200 million a year – prompted proposals for restructuring.”

• 14) Florida faces another budget year awash in red ink

“A staggering 2.3 million Floridians are on food stamps, 12 percent of the state’s population. Welfare rolls are swelling, standing at 107,000 residents, the highest rate since President Clinton’s 1996 federal welfare reform. And prisons are packed, with over 101,000 inmates, near record levels.”

• 15) Banks cutting back on loans to businesses

“WASHINGTON (MarketWatch) — U.S. banks are reducing their lending at the fastest rate on record, tightening the credit squeeze and threatening to leave many otherwise viable businesses unable to borrow money to expand their businesses, meet their payroll or refinance their maturing debts.

According to weekly figures provided by the Federal Reserve, total loans at commercial banks have fallen at a 19% annual rate over the past three months, while loans to businesses have dropped at a 28% annualized pace.”

• 16) Treasury prices getting hit today.
• 30-year bond in worst sell-off since July 14
• 17) The Most Overvalued Market in History

“Note the date of that chart, it is current as of this week. Still near 140, the P/E has turned down slightly from the high last month. There are two ways to get this ratio down… one is for the PRICE of stocks to go down, and the other is for earnings to go up. The bulls are arguing that earnings are going to go up while the bears are arguing that the price is going to come down. Reality will almost always be found in the middle, but it will most certainly not be found here at a P/E of 140!”

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Just a thought: As we continue to watch the National Debt Clock go higher and higher does anyone else think that the Chinese see us as being more and more like this guy?