11-03-10

 

SOVEREIGNS

 

GREECE   SPAIN   GERMANY   FRANCE   UK   IRELAND     Irish credit costs hit record on sovereign fears MW   Ireland May Have One Month to Stave Off Bailout: Euro Credit BL The premium on Irish bonds has doubled since August and is now wider than the spread on Greek debt four days before it sought a European Union-led bailout in April. JAPAN

4- STATE & LOCAL GOVERNMENT

Meredith Whitney: State Bailouts? They've Already Begun  WSJ

 

The threat posed by the state fiscal crisis in the U.S. is vastly underestimated and under-appreciated—because even today too few people understand how states have been managing their finances. Many investors fail to appreciate is that state bailouts have already begun.   Over 20% of California's debt issuance during 2009 and over 30% of its debt issuance in 2010 to date has been subsidized by the federal government in a program known as Build America Bonds. Under the program, the U.S. Treasury covers 35% of the interest paid by the bonds. Arguably, without this program the interest cost of bonds for some states would have reached prohibitive levels.   California is not alone: Over 30% of Illinois's debt and over 40% of Nevada's debt issued since 2009 has also been subsidized with these bonds. These states might have already reached some type of tipping point had the federal program not been in place.   Beyond debt subsidies, general federal government transfers to states now stand at the highest levels on record. Traditionally, state revenues were primarily comprised of sales, personal and corporate income taxes. Over the years, however, federal government transfers have subsidized business-as-usual state spending not covered by state tax collections. Today, more than 28% of state funding comes from federal government transfers, the highest contribution on record.   These transfers have made states dependent on federal assistance. New York, for example, spent in excess of 250% of its tax receipts over the last decade. The largest 15 states by GDP spent on average over 220% of their tax receipts. Clearly, states have been spending at unsustainable levels without facing immediate consequences due to federal transfer payments and other temporary factors.   At the same time, local governments now rely on state government transfers for 33% of their funding. Thus, when a state finds itself in a financial bind, it has the option of saving itself before saving one of its local municipalities. Pennsylvania recently assisted the state capital, Harrisburg, in the form of a one-time "advance" payment—but there are hundreds of towns like Harrisburg that will also need assistance. These one-time fixes fail to address the real structural problems facing so many states and municipalities.   State budgets are likely to experience their second consecutive year with deficits of close to $200 billion. The root of the problem is simple: State governments have spent recklessly and unsustainably. Rainy-day funds are depleted, pension-fund contributions are already at record lows, and almost all of the major federal government subsidy programs will run out in June 2011.   Until now, the states have been able to evade the need to rein in spending largely because the federal government enabled them to do so through record high federal allocations, and by creative accounting that put off funding well over a trillion dollars of state-employee pension and other retirement obligations.   The level of complacency around this issue is alarming. Most assume that the federal government will simply come to the rescue of the states without appreciating the immensity of the cumulative state-budget gaps. I expect multiple municipal defaults to trigger indiscriminate selling, which will prompt a federal response. Solutions attempted in piecemeal fashion, as we've seen thus far, would amount to constantly putting out recurring fires.   Rather than waiting for more federal intervention, states need to make their own hard decisions and not kick the can down the road. How will taxpayers from fiscally conservative states like Texas or Nebraska feel about bailing out threadbare Illinois or California? Let's hope we never have to find out.

5- CENTRAL & EASTERN EUROPE

7- RISK REVERSAL

8- COMMERCIAL REAL ESTATE

9-RESIDENTIAL REAL ESTATE - PHASE II

Mortgage Modification Failures Push Borrowers Into Foreclosure BL

Banks ease up on foreclosures amid increased scrutiny USAT

Echoes of Abacus: JP Morgan to Face SEC Probe Over CDO Transaction Forbes

14- CORPORATE BANKRUPTCIES

The Many Faces Of Deleveraging - Corporate_Leverage Contrary Investor (Pretti)

 

US MID TERM ELECTIONS     GOP Tide Claims House; Reid, Democrats Hold Senate  WSJ   Voters dealt a stiff rebuke to Obama and the Democratic Party, in a historic wave that swept the GOP to power in most levels of government and corners of the country. Analysis: How the Rout Was Won WSJ Senate: Toomey, Boxer, Rubio, Paul Win WSJ House: Key Committee Heads Lose WSJ Governors: States Flip to GOP WSJ Boehner Poised to Take Gavel WSJ Tea Party Plans Next Phase WSJ Unaligned Voters Tilt Rightward WSJ Cuomo Cruises as N.Y. Bucks Trend WSJ Californians Quash Legalized Pot WSJ Markets Rise Amid Early Returns WSJ   Financial Leaders Expect Shift of Power After Elections NYT  Reich   Likely gridlock in Congress could threaten economy AP

The US economic policy mix is a threat to the world VOX

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