IMF chides US for fiscal folly - Telegraph

The IMF said the US economy was enjoying a short-term spike as a result of quantitative easing by the US Federal Reserve and the fiscal package agreed by Congress and the White House late last year, but expressed reservations about the side-effects of these policies.

"Although some targeted measures in the US are justifiable at this juncture given the still weak labour and housing markets, the recently implemented stimulus is expected to deliver only a relatively small growth dividend [given its size] at a considerable fiscal cost," the IMF said in its update to the World Economic Outlook.

The IMF said the deficit would remain stuck at 10.75pc of GDP in 2011, with public debt exceeding 110pc of GDP in 2016.

"The absence of a credible, medium-term fiscal strategy would eventually drive up US interest rates, which could prove disruptive for global financial markets and for the world economy," it said. The report called for an assault on America's entitlements behemoth, and caps on discretionary spending.

The deal between President Barack Obama and Capitol Hill extended the Bush tax cuts for rich and poor alike, and added fresh spending, angering the Tea Party hard-liners. "We are much closer to the Greece-Ireland-Spain precipice than any of us would like to believe," said Congressman John Campbell.

The Golden State? Bill Simon Explains Fiscal Challenges Facing California

A Path Is Sought for States to Escape Debt Burdens

MARY WILLIAMS WALSH,
On Thursday January 20, 2011, 8:56 pm EST

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.

Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.

“All of a sudden, there’s a whole new risk factor,” said Paul S. Maco, a partner at the firm Vinson & Elkins who was head of the Securities and Exchange Commission’s Office of Municipal Securities during the Clinton administration.

For now, the fear of destabilizing the municipal bond market with the words “state bankruptcy” has proponents in Congress going about their work on tiptoe. No draft bill is in circulation yet, and no member of Congress has come forward as a sponsor, although Senator John Cornyn, a Texas Republican, asked the Federal Reserve chairman, Ben S. Bernanke, about the possiblity in a hearing this month.

House Republicans, and Senators from both parties, have taken an interest in the issue, with nudging from bankruptcy lawyers and a former House speaker, Newt Gingrich, who could be a Republican presidential candidate. It would be difficult to get a bill through Congress, not only because of the constitutional questions and the complexities of bankruptcy law, but also because of fears that even talk of such a law could make the states’ problems worse.

You can read the rest of the article here.

FT.com / US / Politics & Foreign policy - Illinois considers corporate tax rate hike

FT.com / US / Politics & Foreign policy - Illinois considers corporate tax rate hike

Illinois is considering hiking corporate taxes to the highest level of any US state as part of a financial reform package that political leaders in the cash-strapped state are rushing to complete ahead of the swearing-in of a new legislature on Wednesday.

The state’s finances are in crisis. It faces a $15bn budget deficit, an unfunded pension liability of at least $80bn, and more than $8bn of unpaid bills to schools, universities and social welfare organizations.

Read the rest of the article here.

When Wall Street Bankers and Politicans get into bed with each other the taxpayer ends up getting f*cked.

Harrisburg Gets $3.8 Million To Address Immediate Cash Needs

Harrisburg, Pa., having nearly exhausted its cash reserves making two debt payments Monday, will receive a $3.8 million windfall from a terminated interest rate swap contract.

The Harrisburg Authority, the regional agency that owns the debt-laden incinerator project that helped push the capital city into a fiscal crisis, agreed late Monday to wire the money to the city's water fund, said William Cluck, a member of the authority board.

The city has been struggling to make payroll over the past several months and said Monday that it hadn't fully funded its payroll obligation for next week. It also faces $2.9 million in overdue payments to a range of vendors supplying products ranging from paper goods to fire-truck tires, said Chuck Ardo, spokesman for Mayor Linda Thompson.

If the city wants to use the new cash infusion to address those needs, the mayor and city council must reallocate the money from the city's water fund to the general fund.

"Hopefully we will get this into the general fund and we are able to take care of some of the city's pressing financial problems," Ardo said.

City officials also are trying to have Harrisburg accepted into a state oversight program for distressed municipalities, which would allow the city to get short-term funds.

A hearing on the city's application for the program, called Act 47, is scheduled to resume Wednesday with more testimony from the public. The state will make a decision on whether to designate Harrisburg as distressed after the close of the hearing.

The city's $288 million debt burden from a problematic incinerator--more than four times its annual budget--and political dysfunction have brought Harrisburg to the brink of insolvency.

Harrisburg has this year missed more than $10 million in debt payments tied to the project and is being sued by the bond insurer Assured Guaranty Ltd. (AGO) and Dauphin County, which made the payments to bond holders.

 

LA Times - $69 million in California welfare money drawn out of state

It is any wonder that California is bankrupt. It just goes to show that the liberal utopia known as California is a complete failure. I wonder what an investigation of liberal bastions like New Jersey and New York would turn up.

$69 million in California welfare money drawn out of state-Las Vegas tops the list with $11.8 million spent at casinos or taken from ATMs, but transactions in Hawaii, Miami, Guam and elsewhere also raise questions. Officials say budget cuts hinder investigations.

By Jack Dolan, Los Angeles Times

Reporting from Sacramento — More than $69 million in California welfare money, meant to help the needy pay their rent and clothe their children, has been spent or withdrawn outside the state in recent years, including millions in Las Vegas, hundreds of thousands in Hawaii and thousands on cruise ships sailing from Miami.

State-issued aid cards have been used at hotels, shops, restaurants, ATMs and other places in 49 other states, the U.S. Virgin Islands and Guam, according to data obtained by The Times from the California Department of Social Services. Las Vegas drew $11.8 million of the cash benefits, far more than any other destination. The money was accessed from January 2007 through May 2010.

A Fight Over City Hall—Literally - WSJ

I don't know who the bigger idiots are the City for risking money on a golf course or the bankers for loaning $9.2M backed by two buildings only worth " a few hundred thousands." Either way they both deserve what they get from this realtionship.

By IANTHE JEANNE DUGAN

A financial firm is fighting City Hall—and angling to take over the building itself.

Buena Vista, Va., borrowed $9.2 million through a bond offering in 2005 to refinance a municipal golf course. It pledged as collateral, of all things, its City Hall and police station. Now, amid financial difficulties, the city says it can't pay its debt, triggering a showdown over these public buildings.

On the other side of the battle is a big New York insurance company, ACA Financial Guaranty Corp., which is obligated to pay bondholders if the city defaults.

"They put up City Hall to finance the golf course," says Bonnie France, a lawyer for ACA. "It's collateral, so they could lose it. I've worked in public finance for 30 years and never seen this happen."

Municipalities across the U.S. are struggling with huge debts and shrinking revenue, making them vulnerable to similar situations. Harrisburg, the capital of Pennsylvania, is publicly flirting with bankruptcy. And when Central Falls, R.I., couldn't pay its debt recently, it handed its finances to a receiver.

http://online.wsj.com/article/SB10001424052748703908704575433720458693754.html

The Federal Reserve and the banks join forces against Blanche Lincoln's derivatives proposal

Lincoln's proposal may be the only part of the financial reform bill that I like coming out of Washington D.C. Anytime the banks and the Federal Reserve are working together you can be sure that the American people are going to get the shaft, which is why its interesting that they both want her proposal killed.

The article below provides a good explanation but I have my own take. Now using the chart below we see that the total of all the assets of the 5 major banks totals $5.47 Trillion but the total amount of derivatives contracts for the same five banks equals $206 Trillion. This means that if the banks liquidated all of their assets they have enough to cover only 2.5% of the outstanding contracts. So how did it get this bad. First you have regulators and our elected representatives either asleep at their desks (or surfing for porn). Second they all lined their pockets in the good times with Wall Street money so they don't care what happens to main street when the Ponzi scheme blows up.

The next time you get pissed at that idiot down the street that refinanced his house into bankruptcy remember he probably didn't graduate from Wharton or Harvard but these clowns did. They have created the ultimate house of cards and we need just a light breeze (maybe the PIIGS) to have it all come crashing down. By the way if you still don't think derivatives are a problem the total GDP of the World was only $58 Trillion in 2009 according to the IMF or just 27% of the total amount of derivatives in the U.S. Now that's going to be one hell of a bailout.

From Ezra Klein's Blog in the Washington Post
http://voices.washingtonpost.com/ezra-klein/

The banks, of course, aren't big on Blanche Lincoln's idea to spin derivatives-trading desks out of the banks. Particularly the big banks, which as you can in the graphic atop this post, pretty much control the market. But it turns out the Federal Reserve is on their side. According to the Wall Street Journal1, "the Federal Reserve over the weekend tried to kill the provision," sending lawmakers a letter saying the idea should be "deleted" from the bill. But as it is, the idea actually appears to be gaining ground, moving from some weird regulation that Lincoln proposed and nobody expected to part of the actual bill.

The easy explanation is that derivatives-regulation is popular and no one want to stand in its way. But the new Washington Post-ABC poll2 complicated that story. Though financial regulation is very popular and Obama is far more trusted on the subject than the Republicans, opinions on regulating derivatives are split, with 43 percent supporting federal regulation of the derivatives market and 41 percent opposing it. And derivatives were pretty much the only item in the poll where the skeptics were even close to the reformers.

Chart credit: Wall Street Journal.

1-http://online.wsj.com/article/SB10001424052748704464704575208522431096734.html

2- http://voices.washingtonpost.com/behind-the-numbers/2010/04/most_back_stricter_financial_r.html

Update on the People's Republic of California

Urban Dictionary- Quasi-communist state loosely associated with the United States of America. Located South of Oregon and West of Arizona and Nevada. Home of all the fruitcakes and malcontents from the rest of the US. Noted for horrible drivers and a porous border. Largest non-English speaking population in the US.

One only has to look at California to see the rest of the country's future thanks to the socialist agenda which has shaped that state's failed policies.

California's economy is the largest of any state in the US, and is the eighth largest economy in the world. As of 2008, the gross state product (GSP) was about $1.85 trillion, which accounted for 13% of the United States gross domestic product(GDP). However, California's economic recovery is predicted to lag behind the nation's in 2010. Economists at the UCLA Anderson School of Business predict that California's economy will only begin to increase when U.S. consumers start buying again and goods come through the region's ports and transportation hubs, so do your duty America and buy some cheap Chinese crap on your credit card, if you still have one, to help California's economy. The state's unemployment rate won't fall below double digits until 2012, economists predicted.

So my question is how are people supposed to buy things when they are unemployed, gas prices will be above $4 by Memorial Day, and their homes aren't worth crap? They can't and I don't need a degree in economics to know that! But the news gets better, because the City of Los Angeles is actually broke. Yes, they are completely broke:

The city's top financial official issued a grim assessment of the escalating budget crisis Monday, warning that Los Angeles could be unable to pay its bills in just over four weeks.City Controller Wendy Greuel declared an "urgent financial crisis" and said the only way to continue paying bills in the short term was to begin to drain the city's already limited emergency reserve.

http://www.latimes.com/news/local/la-me-la-city-budget6-2010apr06,0,2012176.story?track=rss

As if the news wasn't bad enough in the City of Angels we get this from Sacramento:

According to a new report by a group of Stanford University graduate students,the shortfall facing California's public pension systems could reach more than half a trillion dollars over the next decade and a half. A summary of the report, released Monday, also said the current recession has cost the three systems — for the state's public employees, schoolteachers and University of California workers — $109.7 billion in lost investment value. The report says the systems' basic growth assumptions are too rosy. The report was prepared for Gov. Arnold Schwarzenegger, who has made pension reform a top issue his last year in office. Because pension benefits are guaranteed, the state's general fund, facing a $19 billion deficit through next summer, must make up any shortfalls.

http://www.mercurynews.com/ci_14825500?source=most_emailed&nclick_check=1

First there was Bear Sterns. Then Fannie and Freddie. Then AIG and the TARP programs. Finally the American Auto Industry. Can you see what's coming next, ........the "California Cleanup" ....the latest and greatest bailout by the Federal government (thank god they don't have to balance the federal budget and they can print money otherwise it would be broke too), which will be pushed through Congress by the Speaker of the House (Democrat from California) and our President who needs those 55 electoral votes if he wants a snowballs chance in hell of beating whatever piece of crap the GOP nominates (Romney currently leads the polls but do we really want the guy who created Obamacare before it was known as Obamacare as our next President).

How's the future look America aren't you excited about our future!

Me neither which is why I have plan. When, not if, Texas secedes I'm moving there if they'll have me. http://www.texassecede.com/ Care to join me.

8th Largest Economy in the World is on the Brink of Bankruptcy- Say bye bye California

Welcome to the United States of Iceland

Some cheery news on the U.S.'s future. Time to pay off your debts and get your own households in order because the government doesn't give a rat's ass about us.

NEW YORK (Fortune) -- It's time to start paying attention to the financial sinkhole that Iceland is trying to climb out of -- the view from inside of it is eerily similar to our own.

An Icelandic savings bank, Icesave, had attracted billions in deposits from hundreds of thousands of British and Dutch citizens, due to the phenomenally high interest rates it offered. Icesave collapsed in 2008, for much the same reason Lehman Brothers, WaMu, and hundreds of local savings banks did: its bankers used their cash to make complicated, bad, leveraged investments, mostly on real estate.

The British and Dutch have made their citizens whole, bailing out Icesave after it became clear the Icelandic government didn't have the resources to do the same.

Now, they expect to be repaid. But in a referendum there this past weekend,only 1.8% of voters favored a plan to pay back the $5.3 billion Iceland owes. It would have worked like this: the International Monetary Fund would loan Iceland the cash to pay back the British and Dutch. Iceland, then, would repay the IMF.

Welcome to the United States of Iceland

So How Broke Are Our State Governments- Well Arizona Is Going To Be Leasing Its Own State Buildings From Investors To Close A Budget Gap

You know the economy is bad when this is the best solution a state government can come up with to balance their budget.


The Arizona Republic
By Mary Jo Pitzl
State buildings to go on market next week

Arizona's state buildings will go on the market next week, as state officials look to raise $735 million to boost the state's depleted coffers.

The offer, which includes the state Coliseum, prisons, the headquarters of the Department of Public Safety and legislative buildings, will go on the market Tuesday and Wednesday, said Alan Ecker, a spokesman for the state Department of Administration.

Investors can buy certificates of participation in the buildings in $5,000 increments by working through the state's underwriters, Morgan Stanley and Citi. Ecker said the certificates, which are tax exempt, will likely carry an interest rate of 4 to 5 percent.

State officials say they're confident they can sell certificates for all of the buildings involved, based on the queries they received since the sale-leaseback was announced.

However, Ecker said there's no push to complete the entire sale-leaseback next week. If market conditions look favorable farther down the road, some of the sale may be delayed, he said.

California Is Bankrupt!!! But The Greedy Banks Are Being Blamed For Not Accepting Its IOUs?

It was less than a year ago that our leaders blamed the banks for our current depression. Congress said it was the greed of Wall Street bankers that lead us to where we are today and made a big show of it before the television cameras showing how they were going to punish those greedy bankers. While its certainly true that banks played it fast and loose with lending standards and allowed many unqualified people to buy homes that they couldn't afford, they weren't solely to blame. As Fred Lucas of CNSNews.com reported yesterday Congress was equally to blame:

"Fannie Mae and Freddie Mac were the chief culprits in the housing crisis because they encouraged people who could not afford payments to borrow money, according to a congressional report released Tuesday." http://www.cnsnews.com/public/content/article.aspx?RsrcID=50680

Now I wouldn't hold by breath if you expect Congress to hold hearings on its own culpability anytime in the near future.

So lets fast forward to today and we see that California, that utopia of liberal thinking and policies, is as broke as some third world nations. California needs to close a $26 Billion budget gap and there seems to be no resolution in sight. But in the mean time it has to pay its bills so it began issuing IOUs to state contractors to keep them working. These IOUs are redeemable for the face value plus 3.75% annual interest but not until October. Banks in California have decided that they will redeem these IOUs only until Friday, July 10th. After Friday they are only going to offer loans to the holders of the IOUs.

Now if you look at it from the banks' perspective there is a good chance that California may not be able to resolve its fiscal crisis by October and therefore the IOUs may not be worth the paper they are printed on. Also banks, after being burned by the housing crisis, are extremely risk adverse at this time and frankly do not have the cash reserves to float the state's obligations. But rather than seeing the logic of the banks' positions and commending them for being fiscally responsible they are being made out to be Ebenezer Scrooge. http://online.wsj.com/article/SB124692354575702881.html

I hope the Banks stand fast, as they should, because ultimately they are responsible to their shareholders not the politicians in Sacramento.

PS- California, if it was its own nation, ranks as sixth in the world based on GDP. The fact that it is bankrupt shows what is going to happen to the rest of the country if we keep pumping money into entitlement programs.