Must-Know News - Jan. 15

• 1) State’s budget hole could pass $3 billion (Florida)

“Growing Medicaid caseloads, falling property tax revenue and other budget woes mean the state is now in an even deeper budget hole than experts were predicting last fall.

That likely means layoffs for state workers, Senate budget chief JD Alexander warned Wednesday.

In September, the state’s top economists estimated that next fiscal year, Florida would come up $923 million short of meeting its most critical needs, such as in public schools and the courts. Factor in other expenses the state usually covers — such as health care for low-income organ transplant patients — and the predicted shortfall rose to almost $2.7 billion.”

• 2) NY property taxes rose $2.5B in 2009

“New Yorkers paid $2.5 billion more in property taxes from 2008 to 2009 despite widespread drops in property values, according to The Business Council of New York State Inc.

The research wing of the Albany-based lobby found taxpayers paid $46 billion in property taxes in 2009, a 6 percent increase from the total bill in 2008.”

• 3) Jobless rate to stay above 8 percent until 2012: CBO

“The U.S. unemployment rate, currently at 10 percent, is unlikely to drop below 8 percent before 2012 unless Congress takes further steps to boost the economy in the short term, the nonpartisan Congressional Budget Office said on Thursday.”

• 4) Fed’s balance sheet liabilities hit record

“The U.S. Federal Reserve’s balance sheet rose to a record level in the latest week, boosted by its ongoing efforts to support the mortgage market, Fed data released on Thursday showed.

The Fed’s balance sheet — a broad gauge of its lending to the financial system — rose to $2.274 trillion in the week ended January 13 from 2.216 trillion in the prior week.”

• 5) Spain, Ireland Lead European Nations Using Banks for Bond Sales

“Spain and Ireland led European governments raising $34 billion from bonds sold through banks this week as countries start 2010 selling debt at the fastest pace on record to finance growing budget deficits. ”

“Euro-region countries may sell a record 1 trillion euros of bonds this year, HSBC Holdings Plc estimates.”

• 6) Marc Faber: We are doomed, U.S. debt crisis in next 5 to 10 years

“The United States debt is more than $12 trillion and financial guru Marc Faber believes the country will see the consequences of that within the next five to ten years through defaulting on their debt, most likely by printing large quantities of money.”

• 7) Q+A-Cost of Iraq, Afghanistan tops $1 trillion

“The cost to U.S. taxpayers of wars in Iraq and Afghanistan since 2001 has topped $1 trillion, and President Barack Obama is expected to request another $33 billion to fund more troops this year.”

• 8) Banks Set for Record Pay ($145 Billion)

“Major U.S. banks and securities firms are on pace to pay their people about $145 billion for 2009, a record sum that indicates how compensation is climbing despite fury over Wall Street’s pay culture.

An analysis by The Wall Street Journal shows that executives, traders, investment bankers, money managers and others at 38 top financial companies can expect to earn nearly 18% more than they did in 2008—and slightly more than in the record year of 2007. The conclusions are based on an examination of securities filings for the first nine months of 2009 and revenue estimates through year-end.”

• 9) Moody’s Puts $572.7 Bln In Alt-A RMBS On Watch For Downgrade

“Moody’s Investors Service put $572.7 billion in Alternative-A residential mortgage-backed securities issued from 2005 through 2007 on watch for possible downgrade after it revised its loss provisions.

The rating agency said Alt-A loans that are 60 or more days delinquent “have increased markedly” since it last revised its loss projections. Alt-A mortgages, which sit between prime and subprime, typically were granted without the borrower showing proof of income or assets.

Ratings agencies have been cutting their ratings on billions of dollars of RMBS deals after revising the amount of losses expected. The changes have occurred as delinquencies continue to climb and home prices keep falling.

Moody’s said it now projects, on average, cumulative losses of 14% of the original balance for 2005 securitizations, 29% for 2006 securitizations and 35% for 2007 securitizations. The updated loss projections will have the greatest impact on senior securities issued in 2005, the firm said.

The number of foreclosures is likely to hurt home prices in coming months despite modest gains measured by the S&P/Case-Shiller Home Price Index in recent months, Moody’s said.

The credit rater estimated the proportion of current or 30-day delinquent loans that will become 60 or more days delinquent by the second half of this year will be 10.1%, 19.7% and 21.6% for loans issued in 2005, 2006 and 2007, respectively. ”

• 10)  Fate Of Some Pension Plans In Bankruptcy Angers Retirees

“John Bohane spent more than 30 years at Reader’s Digest, rising through the magazine’s ranks to become a senior vice president and president of international operations. When he retired in 2001, he did so knowing he had three separate pensions to his name, enough to allow him to retire comfortably in Florida.

But what Bohane and more than 280 other retirees didn’t count on was that some of those pensions aren’t guaranteed under federal pension laws. So those plans, which are deemed “nonqualified” and may be given to salaried employees as extra compensation, are often terminated when a company files for Chapter 11 bankruptcy, as Reader’s Digest Association Inc. did in August.

“They did not explain to me that any of my pension was under risk,” Bohane said.”

“Under its restructuring plan, which a bankruptcy judge will consider approving Friday, Reader’s Digest promises its unsecured creditors–including the pensioners–$4 million, which amounts to a recovery of up to 3.6 cents for every dollar they’re owed. ”

• 11) Big mystery bidder on Treasuries (Financial Times)

“Investors have speculated that the surprising demand for notes in the past few days has been fuelled by one big mystery bidder, whose intentions are still unclear. ”

…………….Financial Times video on the mystery bidder

• 12) Market losses worsen state pension liabilities (West Virginia)

“Funding shortfalls in West Virginia’s public pensions worsened by $2 billion during the past budget year, after Wall Street’s meltdown erased years of gains.

The Consolidated Public Retirement Board announced unfunded liabilities totaling $7 billion.

The plan that provides benefits to 29,245 retired state teachers suffered the worst hit. Investment losses left it just 41 percent funded.”

• 13) State may force schools to lend it $1B (Minnesota)

“In a sign of the gravity of the state’s fiscal crisis, Minnesota budget officials may force public school districts to loan the state money so that it can continue paying its bills.

Gov. Tim Pawlenty’s administration could withhold nearly $1 billion in state aid payments to public schools through May, to ensure the state’s checkbook doesn’t run dry, under a plan unveiled Wednesday at a legislative committee meeting.

The state already has the legal authority to do so, although it has never exercised it.”

• 14) Property Taxes Clobber Hurting Homeowners

“After suffering 30 percent or greater losses in the value of their homes last year, homeowners are looking forward to a silver lining this year in the form of lower property taxes as assessments adjust to the new real estate reality.

Unfortunately, for millions there may be no silver lining.

Nationally, property tax revenues rose 6.2 percent in 2008 according to the National League of Cities, but increased only 1.6 percent last year as property assessments, which are usually conducted every three years, reflected lower values.

Saddled with budget crises rooted in the recession and reliant on property taxes for 30 to 40 percent of their budgets, local governments across the country are responding to the threat to their bottom line by raising taxes. In fact, local government’s across the nation are facing fiscal crises this year. Prohibited by law from operating in a deficit, 56 percent of counties report starting their fiscal years with up to $10 million projected shortfalls. according to the National Association of Counties. More county officials blame their shortfalls in property tax revenues than any other factor.”

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