Chicago’s Fiscal Freefall: Moody’s Cuts Chicago Credit Rating to Two Steps Above Junk; Snake Oil and Swaps; It’s All Junk Now
by ilene - March 2nd, 2015 12:25 am
Courtesy of Mish.
Last week I wrote an article for the Illinois Policy Institute on the hugely unfunded and deteriorating nature of numerous Illinois’ pension systems.
I will post the article on Monday.
My article was on on state pension systems, not Chicago’s, and was written well ahead of downgrades of Chicago’s debt by Moody’s on Friday. I was not surprised to see the downgrade.
Let’s take a look at some articles on the debt downgrade starting with Chicago Credit Rating Cut by Moody’s to Two Steps Above Junk.
Chicago had its credit rating cut to within two steps of junk by Moody’s Investors Service because of mounting pension liabilities, underscoring the city’s fiscal stress as Mayor Rahm Emanuel faces an unprecedented runoff.
The one-step reduction to Baa2 affects $8.3 billion of general-obligation bonds, which were already the lowest-rated among the 90 biggest U.S. cities, excluding Detroit. The outlook remains negative, signaling more cuts are possible, New York-based Moody’s said Friday in a report.
“The city’s credit quality could weaken as unfunded pension liabilities grow and exert increased pressure on the city’s operating budget,” Moody’s analysts Matthew Butler and Rachel Cortez wrote. “We expect substantial growth in unfunded pension liabilities even if the city’s recent pension reforms survive an ongoing legal challenge.”
The third-most-populous U.S. city has $20 billion in unfunded pension obligations that it can’t address without the approval of the state legislature. State lawmakers in June restructured two city pension plans with about $9.4 billion in underfunded liabilities for about 60,000 municipal workers and retirees by making them pay more and reducing benefits. The changes didn’t apply to the police and fire systems.
Labor unions in Chicago sued to block the law in December, and the litigation was put on hold pending the outcome of an Illinois Supreme Court ruling on a state pension overhaul.
Chicago May Owe Wall Street $58 Million After Moody’s Rating Cut
To add insult to injury, Chicago May Owe Wall Street $58 Million After Moody’s Rating Cut
Chicago may have to pay $58 million to unwind interest-rate swaps after Moody’s Investors Service cut the city’s credit rating within two steps of junk because of mounting pension liabilities.
The reduction on Friday to Baa2
by ilene - March 1st, 2015 8:09 pm
Courtesy of Mish.
This entire notion that you can take bad assets from a bank and put them in a “bad bank” to make everything well, is ridiculous. Today we see yet another failure of the construct.
Reuters reports Austria Imposes Debt Moratorium on Heta “Bad Bank”
Austria’s Financial Market Authority stepped in on Sunday to wind down “bad bank” Heta Asset Resolution and imposed a moratorium on debt repayments by the vehicle set up last year from the remnants of defunct lender Hypo Alpe Adria.
The step, allowed by new legislation that gives banking supervisors more power to intervene, followed an outside audit of Heta’s balance sheet that exposed a capital hole of up to 7.6 billion euros ($8.51 billion) which the government was not prepared to fill, the FMA said.
The moratorium on repayment of principal and capital lasts until May 31, 2016, giving the FMA time to work out a detailed plan to ensure equal treatment of all creditors, the FMA said in a decree published on its website.
More than 9.8 billion euros worth of debt is affected, including senior notes worth 450 million due on March 6 and 500 million on March 20.
The finance ministry noted that creditors can be forced to contribute to the costs of winding down Heta – or “bailed in” – under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden.
In an absurd statement, the finance ministry added “Heta was not insolvent”.
In summary: Repayments on Heta’s bonds have been suspended, there is a capital shortfall of $8.5 billion, a bail-in is needed, and taxpayers do not have to share the “entire burden“, but the bank is not insolvent.
And by the way, isn’t separating out the “bad bank” supposed to make what’s left of the “good bank”, good? I ask because Heta is what’s left of the “defunct” lender Hypo Alpe Adria.
It seems the good bank and the bad bank are now effectively defunct.
Mike “Mish” Shedlock
by ilene - March 1st, 2015 7:25 pm
Courtesy of Jim Quinn via The Burning Platform
‘If you’re committed enough, you can make any story work. I once told a woman I was Kevin Costner, and it worked because I believed it’ – Saul Goodman – Breaking Bad
“As calamitous as the sub-prime blowup seems, it is only the beginning. The credit bubble spawned abuses throughout the system. Sub-prime lending just happened to be the most egregious of the lot, and thus the first to have the cockroaches scurrying out in plain view. The housing market will collapse. New-home construction will collapse. Consumer pocketbooks will be pinched. The consumer spending binge will be over. The U.S. economy will enter a recession.” – Eric Sprott – 2007
In Part One of this article I provided the background of how our current debt saturated economy got to this point of ludicrousness. The “crazy” bloggers, prophets of doom, and analysts who could do basic math were warning of an impending financial crisis in 2006 and 2007, which would be caused by the issuance of hundreds of billions in subprime slime by the Too Big To Trust Wall Street shysters. Subprime mortgages, auto loans, and credit card lines provided the kindling for the 2008 conflagration.
Under normal circumstances we wouldn’t have seen such irrational, reckless, greedy behavior from Wall Street for another generation. But, Wall Street didn’t have to accept the consequences of their actions. They were bailed out and further enriched by their puppets at the Federal Reserve, the lackey politicians they installed in Washington D.C., and on the backs of honest, hard-working, tax paying Americans. The lesson they learned was they could continue to take excessive, reckless, unregulated risks without concern for losses, downside, or consequences.
In reality, the Fed and government have worked in tandem with Wall Street to create the subprime economic recovery. The scheme has been to revive the bailed out auto industry by artificially boosting sales through dodgy, low interest, extended term debt. With the Feds taking over the entire student loan market, they have doled out hundreds of billions to kids who don’t have the educational…
by ilene - March 1st, 2015 3:37 pm
Courtesy of Mish.
As Australia’s mining boom turns to bust, Towns are Dying the Death of a Thousand Cuts as Miners Leave in Droves.
Locals say the main street of Dalby resembles a ghost town these days – a sad indication of a mining boom ending too soon for some.
Things have taken a turn for the worse since the glory days of the mining construction boom, with companies responding to falling commodity prices by pulling the plug on new projects and laying off workers across the Surat Basin.
The increasing exodus of workers, investment and money from the mining towns has left houses empty and businesses struggling, with many of those left behind wondering what to do next.
Di Reilly, owner of Mary’s Commercial Hotel on Dalby’s Cunningham St, said much had changed since 2013 when thirsty miners packed into the pub every Friday and Saturday night.
“We used to open the old bar up and the whole place would be chock-a-block,” she said.
Things were going so well that Ms Reilly began a revamp of the pub before the numbers tapered off, leaving her with a half-renovated bar and plummeting income.
The old bar now sits unrenovated and empty, a dusty reminder of plans gone awry.
“They were saying it was going to last 10 years but it hasn’t,” she said.
“I was going to do the whole pub up, so I was banking on it that they would be here a little longer than they were, but it just stopped all of a sudden. It just got cut off.”
The impact on her bottom line has been astonishing, with turnover last December down $100,000, slashed in half from the previous year.
Down the road, electronics retailer Colin Fountain speaks of the boom in the past tense….
by ilene - March 1st, 2015 2:30 pm
Courtesy of ZeroHedge
"The Fed is out of control," exclaims David Stockman – perhaps best known for architecting Reagan's economic turnaround known as 'Morning in America' – adding that "people don't want to hear the reality and the truth that we're facing." The following discussion, with Harry Dent, outlines their perspectives on the looming collapse of free market prosperity and the desctruction of American wealth as policymakers "take our economy in a direction that is dangerous, that is not sustainable, and is likely to fully undermine everything that's been built up and created by the American people over decades and decades."
The Fed, Stockman concludes, "is a rogue institution," and their actions have led us to "one of the scariest moments in our history… it's a festering time-bomb and we're not sure when it will explode."
Key Excerpts from the detailed interview:
David Stockman: People don't want to hear the reality and the truth that we're facing. But I think there is an enormous appetite out in the country to get a different perspective than what you have from the media day in and day out, so I say the fed is out of control. Its balance sheet is exploded. It's printing money like never before.
Zero interest rates for 70 months have basically destroyed the pricing function in the financial markets. I said that as a result of this, Wall Street has become a huge casino which basically rewards gamblers, but it is not functioning as a capital raising, capital allocating instrument, which really is what the financial markets should do in a free market system. I warned about the size of the federal debt. I'm an old budget director from the Reagan days. We had a trillion dollar national debt, a 3 trillion economy when I started. Today, it's 18 trillion. Eighteen fold gain in the last 35 years versus maybe a fourfold gain in the economy. So all of these trends are taking our economy in a direction that is dangerous, that is not sustainable, and is…
by ilene - March 1st, 2015 10:58 am
Courtesy of Marc To Market.
March is said to come in like a lion and leave like a lamb. It does indeed appear to be coming in like a lion for investors. There are four major central bank meetings and the US employment report. Although Yellen did not convince many that the Fed is set to hike rates in June, yields in the eurozone continue to fall in anticipation of the bond buying scheme that will start later this month. The resulting widening of the interest rate differentials lent the dollar support.
Two emerging market central banks are in play as well. Brazil is one of the few central banks engaged in a tightening cycle. It is set to continue. The Selic rate bottomed in 2012-2013 at 7.25%. It stands at 12.25% now. The consensus expects another 50 bp rate hike. A 25 bp rate hike would be seen as a potential signal that a pause and possibly the end of the tightening cycle is at hand.
Poland is expected to cut the base rate by 25 bp to 1.75%. It had cut the base rate 50 bp last September. The main issue is not growth. Fourth quarter GDP expanded 3% year-over-year. Rather Poland, like so many countries in Europe, is experiencing deflation. In January, consumer prices were 1.3% below year ago levels.
There were three developments over the weekend that may help shape the investment climate. First and most likely to impact trading on Monday is the rate cut by the People's Bank of China on Saturday. The 25 bp cut in the key one-year lending and deposit rates (to 5.35% and 2.50% respectively). The fact that the PBOC cut rates is not very surprising, but the precise timing is nearly always unpredictable. Most of the speculation has focused possible yuan depreciation, and some analysts have been playing up the risk that the 2% dollar-yuan band would be widened. The rate cut overshadows the official PMI readings that were also reported over the weekend. The manufacturing PMI ticked up to 49.9 from 49.8 while non-manufacturing PMI firmed to 53.9 from 53.7.
by ilene - March 1st, 2015 9:53 am
Courtesy of Jeff Thomas of International Man
Those of us who are libertarians have a tendency to speak frequently of “the New World Order.” When doing so, we tend to be a bit unclear as to what the New World Order is. Is it a cabal of the heads of the world’s governments, or just the heads of Western governments? Certainly bankers are included somewhere in the mix, but is it just the heads of the Federal Reserve and the IMF, or does it also include the heads of JPMorgan, Goldman Sachs, etc.? And how about the Rothschilds? And the Bundesbank—surely, they’re in there, too?
And the list goes on, without apparent end.
Certainly, all of the above entities have objectives to increase their own power and profit in the world, but to what degree do they act in concert? Although many prominent individuals, world leaders included, have proclaimed that a New World Order is their ultimate objective, the details of who’s in and who’s out are fuzzy. Just as fuzzy is a list of details as to the collective objectives of these disparate individuals and groups.
So, whilst most libertarians acknowledge “the New World Order,” it’s rare that any two libertarians can agree on exactly what it is or who it’s comprised of. We allow ourselves the luxury of referring to it without being certain of its details, because, “It’s a secret society,” as evidenced by the Bilderberg Group, which meets annually but has no formal agenda and publishes no minutes. We excuse ourselves for having only a vague perception of it, although we readily accept that it’s the most powerful group in the world.
This is particularly true of Americans, as Americans often imagine that the New World Order is an American construct, created by a fascist elite of US bankers and political leaders. The New World Order may be better understood by Europeans, as, actually, it’s very much a European concept—one that’s been around for quite a long time.
It may be said to have had its beginnings in ancient Rome. As Rome became an empire, its various emperors found that conquered lands did not automatically remain conquered. They needed to be managed—a…
by ilene - March 1st, 2015 1:25 am
Courtesy of ZeroHedge.
Stephen Schwarzman, CEO and co-founder of Blackstone Group, the world’s largest private-equity firm with $290 billion in assets under management, made $690 million for 2014 via a mix of dividends, compensation, and fund payouts, according to a regulatory filing. A 50% raise from last year.
The PE firm’s subsidiary Invitation Homes, doped with nearly free money the Fed’s policies have made available to Wall Street, has become America’s number one mega-landlord in the span of three years by buying up 46,000 vacant single-family homes in 14 metro areas, initially at a rate of $100 million per week, now reduced to $35 million per week.
As of September 30, Invitation Homes had $8.7 billion worth of homes on its balance sheet, followed by American Homes 4 Rent ($5.5 billion), Colony Financial ($3.4 billion), and Waypoint ($2.6 billion). Those are the top four. Countless smaller investors also jumped into the fray. Together they scooped up several hundred thousand single-family houses.
A “bet on America,” is what Schwarzman called the splurge two years ago.
The bet was to buy vacant homes out of foreclosure, outbidding potential homeowners who’d actually live in them, but who were hobbled by their need for mortgages in cash-only auctions. The PE firms were initially focused only on a handful of cities. Each wave of these concentrated purchases ratcheted up the prices of all other homes through the multiplier effect.
Homeowners at the time loved it as the price of their home re-soared. The effect rippled across the country and added about $7 trillion to homeowners’ wealth since 2011, doubling equity to $14 trillion.
by ilene - March 1st, 2015 12:54 am
Courtesy of Michael Snyder via The Economic Collapse.
Cartoon and emphases below via Zero Hedge.
Most Americans spend their lives working for others, paying off debts to others and performing tasks that others tell them that they “must” do. These days, we don’t like to think of ourselves as “servants” or “slaves”, but that is what the vast majority of us are. It is just that the mechanisms of our enslavement have become much more sophisticated over time. It has been said that the borrower is the servant of the lender, and most of us start going into debt very early into our adult years. In fact, those that go to college to “get an education” are likely to enter the “real world” with a staggering amount of debt. And of course that is just the beginning of the debt accumulation.
Today, when you add up all mortgage debt, all credit card debt and all student loan debt, the average American household is carrying a grand total of 203,163 dollars of debt. Overall, American households are more than 11 trillion dollars in debt at this point. And even though most Americans don’t realize this, over the course of our lifetimes the amount of money that we will repay on our debts is far greater than the amount that we originally borrowed. In fact, when it comes to credit card debt you can easily end up repaying several times the amount of money that you originally borrowed. So we work our fingers to the bone to pay off these debts, and the vast majority of us are not even working for ourselves. Instead, our work makes the businesses that other people own more profitable. So if we spend the best years of our lives building businesses for others, servicing debts that we owe to others and making others wealthier, what does that make us?
In 2015, the words “servant” and “slave” have very negative connotations, and we typically don’t use them very much.
Instead, we use words like “employee” because they make us feel so much better.
In Memory of Spock: Live Long and Prosper; Is He or Isn’t He? Fish Tomatoes, Hand Transplants, Sci-Fi vs. Reality
by ilene - February 28th, 2015 9:20 pm
Courtesy of Mish.
One of my favorite characters in TV history was Star Trek’s “Spock”. Yesterday, Leonard Nimoy, Spock of ‘Star Trek,’ Died at 83.
Leonard Nimoy, the sonorous, gaunt-faced actor who won a worshipful global following as Mr. Spock, the resolutely logical human-alien first officer of the Starship Enterprise in the television and movie juggernaut “Star Trek,” died on Friday morning at his home in the Bel Air section of Los Angeles. He was 83.
His wife, Susan Bay Nimoy, confirmed his death, saying the cause was end-stage chronic obstructive pulmonary disease.
Mr. Nimoy announced last year that he had the disease, attributing it to years of smoking, a habit he had given up three decades earlier. He had been hospitalized earlier in the week.
His artistic pursuits — poetry, photography and music in addition to acting — ranged far beyond the United Federation of Planets, but it was as Mr. Spock that Mr. Nimoy became a folk hero, bringing to life one of the most indelible characters of the last half century: a cerebral, unflappable, pointy-eared Vulcan with a signature salute and blessing: “Live long and prosper” (from the Vulcan “Dif-tor heh smusma”).
There’s much more in the article. Inquiring minds may wish to take a look.
Is He or Isn’t He?
Nimoy is author of two contradictory autobiographies:
Nimoy Explains Origin of Vulcan Greeting