Daily Digest

Daily Digest 1/27 - Bear Stearns May Have Cheated Clients, Social Security to Run Permanent Deficits, Shelters Could Close

Thursday, January 27, 2011, 11:00 AM
  • E-mails Suggest Bear Stearns Cheated Clients Out of Billions
  • CBO: Social Security To Run Permanent Deficits
  • Inflation? No Problem ... If You Avoid Food
  • Majority of Shelters Could Close with Proposed Budget
  • Arizona Seeks Waiver To Cut 280K From Medicaid Rolls
  • Quinn Calls for Borrowing Plan
  • In U.S., One in Four Unemployed Adults in Financial Distress

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E-mails Suggest Bear Stearns Cheated Clients Out of Billions (stephen)

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.

CBO: Social Security To Run Permanent Deficits (david)

The Congressional Budget Office said Wednesday that Social Security will pay out $45 billion more in benefits this year than it will collect in payroll taxes, further straining the nation's finances. The deficits will continue until the Social Security trust funds are eventually drained, in about 2037.

Inflation? No Problem ... If You Avoid Food (jeff)

Some food and beverage companies have already reacted to higher commodity costs with price hikes while others are discussing the possibility of raising prices. Starbucks (SBUX, Fortune 500), for example, has boosted the price of some drinks. And the chief financial officer of McDonald's (MCD,Fortune 500) hinted in an earnings conference call with analysts Monday that the company may "raise prices where it makes sense" in reaction to higher prices of beef and other commodities.

Majority of Shelters Could Close with Proposed Budget (Georgia)

Domestic violence shelters will face major state cuts if the Georgia Department of Human Resources' proposed budget gets approved. Shelter advocates say a majority of state shelters could close if this happens. The state currently spends about $4.5 million on family violence services. In the DHR's proposed budget they're either looking to slash funding by nearly 70 percent or getting rid of funding entirely. 

Arizona Seeks Waiver To Cut 280K From Medicaid Rolls

Confronting a $1.1 billion budget shortfall, the Arizona Legislature has given the go-ahead to apply for a federal waiver to drop 280,000 residents from the Medicaid rolls, reports Healthcare Finance News.
If approved, the waiver would save Arizona about $540 million per year, but would also drastically reduce the Grand Canyon State's opportunity to receive federal matching funds.

Quinn Calls for Borrowing Plan

Governor Pat Quinn says he backs a plan to borrow money to pay the state's bills. 
The state's plan involves creating general obligation restructuring bonds, which would allow the state to pay off its current obligations to health and human service providers and schools... Illinois has over $8 billion in unpaid bills. 

In U.S., One in Four Unemployed Adults in Financial Distress

About one in four unemployed adults in the United States today, 26%, reports they are either falling behind on their bills or facing more serious financial difficulties such as bankruptcy or foreclosure. This compares with 21% of underemployed Americans and 8% of adults who are neither unemployed nor underemployed.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."


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Re: Daily Digest 1/27 - Bear Stearns May Have Cheated ...
1) Japan's Credit Rating Cut to AA- by S&P on Debt Load

"Jan. 27 (Bloomberg) -- Japan’s credit rating was cut for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden.

The world’s most indebted nation is now ranked at AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said in a statement. The outlook for the rating is stable, S&P said."

"WASHINGTON (AP) — Social Security's finances are getting worse as the economy struggles to recover and millions of baby boomers stand at the brink of retirement.

New congressional projections show Social Security running deficits every year until its trust funds are eventually drained in about 2037.

This year alone, Social Security is projected to collect $45 billion less in payroll taxes than it pays out in retirement, disability and survivor benefits, the nonpartisan Congressional Budget Office said Wednesday. That figure swells to $130 billion when a new one-year cut in payroll taxes is included, though Congress has promised to repay any lost revenue from the tax cut.

The massive retirement program has been feeling the effects of a struggling economy for several years. The program first went into deficit last year, but the CBO said at the time that Social Security would post surpluses for a few more years before permanently slipping into deficits in 2016.

The outlook, however, has grown bleaker as the nation struggles to recover from the worst economic crisis since Social Security was enacted during the Great Depression."

......................2A) Social Security Will Post Shortfall This Year, CBO Says

"The weakest part of the Social Security program is the portion that provides disability payments; that fund will be drained in 2017, the CBO projected."

"U.S. municipal-bond funds had withdrawals for the 11th straight week amid investor concern that financially strapped states and cities may default, according to estimates by the Investment Company Institute."

"German import prices rose at the fastest annual pace in 29 years in December, while inflation in the euro area breached the ECB’s 2 percent limit for the first time in more than two years. Policy makers are debating how to respond to those price gains fanned by surging commodity costs without derailing an uneven recovery in the crisis-afflicted euro region.

Crude oil prices have surged 22 percent since August, adding pressure on companies to pass on those increases to customers. Wheat rose yesterday, heading for the longest rally since November 2009, while corn and soybeans climbed."

"China Investment Corp. Vice Chairman Gao Xiqing said that central banks’ quantitative easing policies are hurting the value of money just one day after the Federal Reserve maintained plans to buy $600 billion of Treasuries.

“You know money is gradually becoming not worth the paper it’s printed on,” Gao said at an event sponsored by HSBC Holdings Plc at the World Economic Forum in Davos, Switzerland today. Recent gains in commodity and food prices reflect the “long-term view” of investors that prices will accelerate, he said.

The Fed and the European Central Bank have kept their benchmark interest rates at record lows to spur their economic recoveries, triggering concern in emerging markets that the resulting flood of capital will undermine currencies such as the dollar and spark inflation.

“We’ve started collecting Zimbabwe notes,” Gao said, referring to an economy whose currency was scrapped in 2009 after inflation reached 500 billion percent. He noted investors are also discussing whether central banks will pursue more rounds of quantitative easing. "

"Record food prices may fan social unrest and fuel inflation beyond North Africa as thousands of people take to the streets of Cairo to denounce President Hosni Mubarak, delegates at the World Economic Forum said.

“This protest won’t end in North Africa; it will spread in many countries because of high unemployment and increasing food prices,” Hamza Alkholi, chairman and chief executive of Saudi Alkholi Group, a holding company investing in industrials and real estate, said in an interview in Davos, Switzerland.

Risks of global instability are rising as governments facing budget crunches cut subsidies that help the poor cope with surging food and fuel costs, the head of the United Nations’ World Food Program said two days ago. World food costs rose to a record in December on higher costs for sugar, grain and oilseeds, the UN reported Jan. 4, contributing to the uprising that ousted Tunisia’s Zine El Abidine Ben Ali on Jan. 14. Protests have spread to Egypt, Algeria, Morocco and Yemen. "

  • Other news, headlines and opinion:

Moody's to Include Unfunded State Pension Liabilities, NYT Says and Pension Costs Add to US States' Debt, Moody's Finds

Belgium Faces Wrath of Markets as Its Deadlock Deepens

Italy confiscates euro20 billion in fake US bonds

Ukraine State Debt Surged 36.4% Last Year on VAT Bonds

Egypt Riskier Than Iraq in Swaps as Protests Spread to Mubarak

Maine Treasurer Sounds Debt Alarm, but Crisis Claims Questioned

Jerry Brown to big-city mayors: Redevelopment 'money is not there' (California) and Wilson calls Brown's plan to take redevelopment funds "brazen theft"

Arizona's Brewer Seeks to Cut 280000 From Medicaid

HT:RPS Proposes Closing Seven Schools, 281 Layoffs

Oakland Grapples With Depleted Force

New York State Seizes Finances of Nassau County

Sacramento's $500000 `Crash Tax' Taps Drivers to Fill Gap

Grain, Soybeans Rise as Food Riots Spur Demand for US Exports

Soros Says US Recovery Temporary, Deficit a 'Serious' Threat

Initial Jobless Claims in U.S. Rose Last Week to 454,000

Food Inflation Stays Above 15% for Fourth Week as Subbarao Increases Rates (India)

Rice Imports by Bangladesh to Double on `Panic-Buying,' Prices, Hasan Says

Foreclosure Filings Rose in 72% of U.S. Cities as Crisis Spread Last Year

French January Consumer Confidence Drops; Unemployment Highest Since 2003

TARP Special Inspector General's Report Says HAMP is Failing

Here It Comes: US Suspends New Issuance Under Supplementary Financing Program, $200 Billion Liquidity Gusher Imminent (Zerohedge)

ICN 01/24/2011 Inflation, Ron Paul On New Republicans, and Peter Schiff On Gold (Video)

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Re: Daily Digest 1/27 - Bear Stearns May Have Cheated ...

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Re: Daily Digest 1/27 - Bear Stearns May Have Cheated ...

Japan downgrade: The beginning of the end?

The timing of the downgrade of Japan's sovereign bonds by Standard & Poor's on Thursday came as a bit of a surprise to some. After all, Japanese government bond yields have been relatively stable recently, the yen fairly strong, and, as Citigroup points out, the government has vowed to address its sky-high debt load this year.

But S&P isn't convinced that's going to happen. "The downgrade reflects our appraisal that Japan's government debt ratios--already among the highest for rated sovereigns--will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s."


 "If Lehman Brothers was too big to fail, then Japan would be too big to save," agrees Costello. "In some respects Japan is ahead of the curve, because Europe and the United States are eventually going to have to deal with this, and it will be interesting to see how this plays out."


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Re: Daily Digest 1/27 - Bear Stearns May Have Cheated ...

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States Most Likely To Go Bankrupt

I was surprised to see See:  "States Most Likely To Go Bankrupt" on Time Warner Cable's site, at http://rr.com/news/debtstatesgallery#rr%2F33311618%2F33311664%2F .  Notice that California, which comes up first here, appears to be #25, and then they count 'down" to #1.  Here's the kind of info they provide with a photo for each state:

25. California

Debt 2009: $134.6 billion
Projected 2012 Budget Shortfall*: $25.4 billion
GDP 2009: $1.9 trillion
Debt/GDP Ratio: 7.12%
Unfunded Pension Liabilities: $59.5 billion (13%)
Unfunded Health Care & Other Liabilities: $62.4 billion (100%)

On the chopping block: Transportation. Tickets for a high speed rail line project between Los Angeles and San Francisco are expected to be twice original estimates. Despite $2.25 billion from the federal government, the first 520 miles of the line will cost $42.6 billion, up from $33.6 billion. "This just smells funny," said state Sen. Alan Lowenthal (D-Long Beach), chairman of the Senate Transportation and Housing Committee.

*California s shortfall includes an $8.2 billion shortfall carried forward from fiscal year 2011

It looks like the original article is from The Daily Beast, at http://rr.com/news/topic/article/rr/10374903/33290352/States_Most_Likely_To_Go_Bankrupt.  Per the Beast:

Several states in the Union are discussing bankruptcy, despite opposition in Washington. How bad is it? The Daily Beast crunches the numbers of all 50 states to find who's in the deepest debt-and it isn't who you think.

 No warm-fuzzy here!

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JP Morgan's Dimon @ Davos

Oh, just gotta love that Jamie Dimon.  It appears now that the greatest threat to any economy is that banks may need to be bailed out.   Read below and Warning! keep a barf bag handy!


Davos 2011: Dimon warns of debt restructuring risk

Mr Dimon said a debt restructuring would be risky given the weakness of the financial sector

Forcing eurozone countries to restructure their debt would be "far too risky", the head of US bank JP Morgan Chase has warned.

Jamie Dimon said doing so could result in banks taking losses and needing to be rescued.

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