Wednesday, March 10, 2010

Health care costs open $1.7 billion hole in Texas budget

AUSTIN – Lawmakers have been thinking ahead to a massive shortfall, topping $10 billion, that's probably coming when they write the next budget in 2011. But state officials told them Monday that they'll have to fix a hole in the current budget, too.

Rising health care costs have dug a hole of about $1.7 billion, the officials said.

Texas has about 350,000 more poor people on government health insurance than it did last year, and health care costs also are skyrocketing for state employees and prison inmates, several agency heads told the House Appropriations Committee.

"We're running 11 percent ... growth in the Medicaid program," said Health and Human Services Commissioner Tom Suehs, referring to the nation's main health care program for the poor. Lawmakers assumed enrollment would grow by only 3.4 percent this year, he said.

The bad news comes just six months into the two-year budget passed last year.

As for the next budget, John O'Brien, the Legislative Budget Board's director, who oversees a large staff serving 10 key lawmakers who track fiscal matters, said the shortfall will be at least $11 billion and could be as high as $15 billion.

"We have a deficit that's larger than the rainy day fund," he said, speaking of an emergency fund that he said will have slightly more than $8 billion by next session.

O'Brien said the shortfall could grow by billions if Texas real estate values continue to cool off, state tax revenues continue to fall short of predictions and a federal health care overhaul requires additional state spending.

John Heleman, the state's chief revenue estimator, said economic signals are mixed.

"It looks like we have turned the corner on our employment picture," said Heleman, who works for Comptroller Susan Combs.

He noted that Texas added slightly more than 30,000 jobs in January, about two-thirds of them with temporary help agencies.

Sales tax receipts in February declined by 8.8 percent from a year earlier, Heleman said. That's not as bad as January, when they were down by 14 percent, he said.

Still, Texans' shopping and business activity will have to pick up if sales tax receipts are to grow by 0.5 percent this year and 4.2 percent next year, as Combs predicted in official revenue estimates. Her predictions set the ceiling for last session's budget.

House budget writers seized the chance to plead that favorite programs be spared from 5 percent spending cuts.

Gov. Rick Perry, Lt. Gov. David Dewhurst and House Speaker Joe Straus, R-San Antonio, asked agencies to offer ideas for trims. If all the submitted cuts are adopted, they would save $1.7 billion over the next 18 months, O'Brien said.

However, a proposal to save $27 million by cutting 50 beds each from the Terrell State Hospital and three other mental hospitals sparked protests.

"That's a bad idea, Commissioner," Rep. Ruth McClendon Jones, D-San Antonio, told Suehs.

Other House members criticized proposed cuts to a start-up fund for community health clinics and to family planning clinics' Medicaid payments.

Raymund Paredes, the state's higher education commissioner, asked that he be spared from having to ax $50 million out of financial aid programs.

O'Brien said it will be several weeks before legislative leaders decide on cuts.

AT A GLANCE: Texas budget running short

Texas' current two-year budget is going to run about $1.7 billion short in various health care programs, officials said Monday. A breakdown:

$1.3 billion: Medicaid

$142 million: health coverage for state employees

$88 million: correctional managed health care

$81 million: eligibility screening for Medicaid, CHIP, two other programs

$72 million: Children's Health Insurance Program

SOURCE: Testimony to the House Appropriations Committee

Counties face more cutting as state income tax payments fall

The latest state income tax payments to local governments fell $61.8 million year over year, piling new fiscal woes atop budgets already reeling from state cuts, high snow removal costs and earlier revenue declines.

The declines in payments from the state to county governments at the end of February put an added $29.4 million burden on Montgomery County, which was already facing a projected $761.5 million shortfall by June 30, according to the Maryland comptroller's office.

Prince George's and Charles counties were alone among Maryland's 24 jurisdictions to receive more in the fourth quarter of 2009 than in 2008.

Leaders of Anne Arundel and Carroll counties said they were prepared for the bad news and it won't affect their budgets. Others said the declines will hurt.

"It's very serious, but there's been a lot of bad news this year," said Jennifer Barrett, Montgomery County's finance director. "It makes the gap worse."

Baltimore City, facing a projected $120 million shortfall, dropped $4.6 million in income tax revenues, while Baltimore County, facing a projected shortfall of $138 million, got $16.1 million less from income taxes.

Baltimore County Executive James T. Smith Jr.'s spokesman, Don Mohler, said county officials had no comment.

Talbot County had the largest percentage drop, at 23.8 percent. Other Baltimore-area counties lost smaller amounts. Anne Arundel declined by $2.5 million; while Howard dropped $2.4 million; Harford, $1.3 million; and Carroll, $1.1 million.

Michael Sanderson, executive director of the Maryland Association of Counties, called the timing difficult: "We're in month No. 9 in a fiscal year, so there's not much that can be cut."

George Freyman, assistant director of revenue administration in the state comptroller's office, said the decline reflects the decreased collections and increased refunds produced by the drooping economy. Because the counties based current budgets on more normal years, the changes wrought by 2008's problems are still showing up, forcing the state to hold back more revenues.

"Tax year 2008 stunk," Freyman said - and the latest distribution includes money from taxpayers who got extensions and made payments in October.

While total revenue declined 0.9 percent, distributions to local governments dropped 6.2 percent. However, the relatively small net decline represents "the best performance in quarterly receipts since the third quarter of 2008," and thus may be a sign that the worst of the recession is over, Freyman wrote to local officials in an e-mail.

Anne Arundel County Executive John R. Leopold said his administration expected the decline and is not facing a shortfall because of it.

"Our estimates have been very conservative," he said.

But Howard County's projected shortfall - the result of state cuts, snow removal costs that could near $6 million and reduced income tax revenues - has grown to $20 million, budget director Raymond S. Wacks told the County Council on Monday. County Executive Ken Ulman said finishing the year with a balanced budget "is not going to be easy," but it will be done.

"I certainly understand the state is holding back more for refunds," he said. "We'll get through it." Ulman has not used any of the county's $48.5 million rainy-day fund.

Ted Zaleski, budget director for Carroll County, said the drop is "not any more of a problem than we expected." He said the county is on course to finish the year in the black.

So is Talbot County, said County Council Chairman Levin F. "Buddy" Harrison IV. He said the county has spent some of its contingency fund to stay even.

33 States Have Raised Taxes by $32 Billion/Year

The Center on Budget and Policy Priorities has published State Tax Changes in Response to the Recession:

The national recession has had such a devastating effect on state finances that states took in $87 billion less in tax revenue from October 2008 through September 2009 than they collected in the previous 12 months. This 11 percent decline, the steepest on record, resulted from the impact on tax collections of lost jobs, reduced wages, and lowered economic activity.

To recoup lost revenue, states have taken such actions as eliminating tax exemptions, broadening tax bases, and in some cases increasing rates as well as raising a number of fees.

In 33 states, tax changes are increasing annual revenues, relative to what they otherwise would have collected, by $31.7 billion.

Figure 2

From London to Beijing by train... in just TWO days

Taking up more than a week of your life, the train journey from London to Beijing is not one most people would currently consider.

But fast forward a few years and you could find yourself stepping off in the Chinese capital in a mere two days.

The prospect of the incredible journey came closer to reality yesterday with China's ambitious plans to build a high-speed rail network to Europe.

Enlarge Orient super express.jpg

Under the scheme, British passengers would be able to depart from King's Cross in London and, using the Channel Tunnel, join a service to the Chinese capital.

Rail expert Wang Mengshu, from China's Academy of Engineering, said: 'We are aiming for the trains to run at 215mph.'

That means the 5,070-mile trip from London to Beijing - which currently takes a week or more and several changes of service - could be completed in 48 hours.


Life on the slower, glamorous Orient Express

The new service will not be arriving in Britain just yet, but the Chinese are hopeful it could be here within ten to 15 years.

China already has its own high-speed railway network, and is negotiating to extend this to up to 17 countries.

Mr Wang said most of the countries already at the negotiating table are in south-east and central Asia. The talks involve a trade of resources for technology. Many of the countries are under-developed but mineral rich.

China has proposed three highspeed railway projects, although the specific routes have yet to be decided.

The first would potentially connect Kunming in southern China, with Singapore via Vietnam, Thailand and Malaysia. Another could start in Urumqi in northern China and go through Kazakhstan and Uzbekistan, and possibly end in India.

The third would start in China's north-east and go north through Russia and then into Western Europe.

Though the project may have a bumpy ride with security issues such as illegal migration, smuggling and visas, the ambitions of the world's most populous country are rarely derailed.

China is spending £480billion on domestic railway expansion, aiming to build nearly 19,000 miles of railway in the next five years.

And it boasts the world's fastest train, the 250mph Harmony Express, which speeds 660 miles between the cities of Wuhan and Guangzhou in three hours.

How Have U.S. Stocks Defied Gravity for So Long?

This Tuesday will mark the anniversary of last year’s US stock market low. Since then the market has rallied by 70 percent in a recovery only slightly less suspicious than a Madoff hedge fund.

A year ago uncertainty hung over the Dow and S&P 500 with the possibility of an economic depression and the potential nationalization of the entire banking system. But what has happened since then did not fall so far short of this extreme.

The Great Recession

The economy has undergone its biggest post-war contraction and unemployment has soared to 15 percent, including the long-term unemployed. With 36,000 jobs lost last month this rise might be slowing but it is not yet decisively over.

Meanwhile the ‘too big to fail’ banks like Citibank (C) remain effectively nationalized, although a great deal of the emergency facilities granted to the banks have been withdrawn.

But bank lending is still seriously down on a year ago and the credit crunch remains a reality for millions, not least of whom are the several million home owners with mortgage resets that will land them in foreclosure over the next couple of years.

Housing sales and auto sales – the two biggest drivers of the US economy – remain deep in recession, not to say depression – as they have fallen into a trough from which it is hard to see a way out. There is no catalyst for a recovery or one on the horizon, indeed quite the reverse for housing in particular.

Market Manipulation

We are indebted to some of our loyal readers for providing an answer to the conundrum of why the stock market has recovered so dramatically when the reality of the economy has been so weak. To quote from a recent article on by Tyler Durden about the fourth quarter of last year:

Anyone looking at their 401(k) portfolio performance since the end of August will undoubtedly be very happy (and extremely surprised), as the market has climbed steadily higher despite i) increasingly declining trading volume and ii) consistent and material withdrawals from domestic equity mutual funds.

Furthermore, if anyone was merely looking at the trading action in regular hours, one would think there was absolutely no profit made since early September. The reason for that: all the upside since September 14th has come exclusively from after hours action.

Every single day, minimal volume pushes the futures index higher. Good news, bad news, it don’t matter to the Goldman S&P and Russell 1000 futures desk: they just lift every micro offer, giving the impression that the market is unstoppable, often leapfrogging each other as the latest viagra’ed GDP or unemployment rumor is spread.

Come morning, it is time for the HFT brigade to come in and scalp their trillions of pennies while leaving the market unchanged, then at 4pm handing it off again to leveraged futures manipulation and dark pools. In a nutshell, this is the secret of the past quarter’s phenomenal market performance.

So this is what has fooled us, and we are humbled! Perhaps we should have expected this with the benefit of hindsight. The largest Fed intervention in markets in history could hardly take place without doing something equally big in the stock market. Why should market forces be allowed to work for equities and not bank liquidations?

Looking forward, however, what the Fed has created is another huge bubble in US stock market valuations. Not only are stocks expensive given the reality of the economy. They are also being artificially inflated in value by outright manipulation aided by the cheap money doled out to investment banks.

Dividend Suppression

That is why the market will allow dividends to persist at an average of two percent while the long-term average dividend is double that amount – implying that share prices should be half what they are today. It needs little imagination to see what must happen in the near future: the mother of all corrections.

Of course timing such a crash is very tough. The manipulators will want to do it to suit their purposes. For example, if they wanted to sell a lot of bonds and were finding it difficult then a nice stock market event would power the bond market back up – perhaps into its final bubble spike?

Short covering might drive the stock markets a little higher this week but staying on the short side is the only viable strategy as a preparation for what is to come.

What goes up has to come down, and the higher you go the harder you fall!

Disclosure: Author holds a short position in the S&P

43% have less than $10k for retirement

NEW YORK ( -- The percentage of American workers with virtually no retirement savings grew for the third straight year, according to a survey released Tuesday.

The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans.

Workers who said they had less than $1,000 jumped to 27%, from 20% in 2009.

Confidence in ability to save enough for a comfortable retirement hovered at 16% of respondents, the second lowest point in the 20-year history of the survey.

A drop in the bucket

"Americans' attitudes toward retirement have clearly tracked the economy the last couple of years, and that seems to be the case in 2010," said Jack VanDerhei, EBRI's research director and co-author of the survey, in a statement.

The percentage of workers who said they have saved for retirement fell to 69%, from 75% in 2009.

While VanDerhei attributed the decline in current savings rates to job losses, mortgage problems and the suspension of corporate 401(k) matches in 2009, he said the economy isn't entirely to blame.

"In previous years, there were a whole lot of people who had nothing to begin with," said VanDerhei.

The gap between what Americans have saved and what they'd need for retirement is forcing workers to prolong their working years.

According to the survey, 24% of workers said they have postponed their planned retirement age in the past year, up from 14% in 2008.

But even as fears over health care costs and job prospects mount, the survey found that only 46% of workers have tried to calculate what they need for a comfortable standard of living in their golden years.

"People just don't want to think about this," said VanDerhei. "Everybody thinks they're too young to think about it, until suddenly they're too old to do anything about it."

In general, financial planners say that retirement savings, including Social Security benefits and pension, should be large enough to provide about 80% of pre-retirement income.

To reach that target, "most Americans need to be saving within the healthy range of 6% - 10% (of their salary)," said Beth McHugh, vice president of workplace investing for Fidelity Investments.

But the survey found that 54% of the workers with some form of savings said that they have less than $25,000 stowed away.

Delaying retirement, though not ideal, is a good sign that people are finally facing reality.

"People have figured out that they don't have enough money," VanDerhei said. "Still, I'd rather they bite the bullet today, rather than take the chance that they'd have a job when they are 65."

The EBRI surveyed 1,153 U.S. workers and retirees, age 25 and older, in January. To top of page

How Goldman Sachs (Rothschild's) took over the world

Well they are the most powerful firm on Wallstreet but actually they are an outlet of the Rothschild's who have spread their power under different names into this century and the prior one. They create new entities to hide the web the have created of which the Bilderberger is one and Soros is another. The 30 mil. think tank I wrote about in an earlier post is the brain of the Obama administration and his closest advisers are all from the Rothshild boys from RUBIN, SUMMERS, VOLCKER and second tier next generation breed like Geithner. Emanuel and many more.

Rockefeller's,Ford the Bush family belongs to them as the Clinton's work for them. One very easy proof is the remaining official Rothschild's fortune is petty cash compared to my calculation how much the fortunes of them should be worth easily in the trillion league. Compared to the pathetic list Forbes publishes every year about Gates and Buffett who are also members of the Club. Imagine it like the middle ages with kings and lords who share one big interest and we are close to the real picture. The idea of democracy is the Matrix cover to run their business as it is easier to screw with people as long as they think they have a saying to what is going on. The list below gives some ideas but there are far more names and they are not only from Goldman they have different breeding organisations like the IMF and Worldbank.

Excerpt ... 73869.html

They are well-credentialed, partly by design. From its beginning when the German immigrant Marcus Goldman began discounting IOUs among the diamond merchants of New York in the 1870s, Goldman Sachs has always known about the power of the network of influence. Goldman hires former politicians and civil servants, as readily as it supplies them.

And then there is simply the intellectual quality of the employees, many hired as much youngster men via a gruelling interview process, and then forged in the fire of 17-hour work days.

With Goldman Sachs at the heart of Wall Street, and Wall Street at the heart of the US economy, few expects its power to wane. Indeed, The New York Times columnist David Brooks noted that Goldman Sachs employees have given more money to Barack Obama's campaign for president than workers of any other employer in the US. "Over the past few years, people from Goldman Sachs have assumed control over large parts of the federal government," Brooks noted grimly. "Over the next few they might just take over the whole darn thing."

John Thornton

From his post as professor and director of global leadership at Tsinghua University in Beijing, the former Goldman Sachs co-chief operating officer John Thornton has become a highly-influential figure in the developing business and poltical inter-relations between the US and China. He was Goldman's boss in Asia in the mid-Nineties and remains well connected in the East and the West.

Duncan Niederauer

Wall Streeters joked about a Goldman Sachs "takeover" of the New York Stock Exchange. Hank Paulson, the Goldman boss on the NYSE board, moved to oust the chairman, Dick Grasso, and recommended the then chief operating officer of Goldman, John Thain, as Mr Grasso's replacement. Mr Thain modernised the exchange as demanded by Goldman, and Mr Thain's old Goldman deputy, Duncan Niederauer, is in charge.

Jon Corzine

The former co-chief executive of Goldman went into full-time politics in 1999, having lost the internal power struggle that preceded the company's stock-market flotation in 1999. He has been governor of New Jersey since 2006, having spent the previous six years in the US Senate. His 2000 Senate election campaign was then the most expensive ever in the US, and Corzine spent $62m of his own money.

Joshua Bolten

For five years until 1999, Mr Bolten served as director of legal affairs for Goldman based in London, effectively making him the bank's chief lobbyist to the EU. The Republican lawyer aided George Bush's 2000 election campaign, helped co-ordinate policy in the White House and has been the President's chief of staff since 2006.

Paul Deighton

The man heading London's planning for the 2012 Olympic Games, Paul Deighton amassed a fortune estimated at over £100m during his two decades at Goldman Sachs, where he had been one of its most powerful investment bankers.

Robert Rubin

A US Treasury secretary under Bill Clinton, Mr Rubin could once again emerge as a powerful figure in Washington if Barack Obama wins the presidency, since he has maintained his influence on Democrat politics. Mr Rubin reached the second-highest rung at Goldman, becoming co-chief operating officer before joining the US government in 1993.

Gavyn Davies

The ex-chairman of the BBC still has the ear of Gordon Brown, to whom he has been a good friend and informal adviser. He is married to the Prime Minister's aide Sue Nye. Mr Davies spent 15 years as an economist at Goldman. He was commissioned to report on the future funding of the BBC by Mr Brown in 1999. Two years later, he was poached to chair it.

Jim Cramer

This former Goldman trader is, without question, the most influential stock pundit in the US. Hectoring and shouting his investment advice nightly on his CNBC show, Mad Money, he routinely moves share prices. His primal scream against the Federal Reserve ("They know nothing") was a YouTube sensation last year, as the central bank refused to lower interest rates to ease the pain of the credit crisis on Wall Street.

Robert Zoellick

Goldman provided a lucrative home to Robert Zoellick, the neo-conservative Republican, between the time he quit as Condoleezza Rice's deputy at the State Department in 2006 (having not secured the job he coveted as Treasury Secretary, when it went to Hank Paulson) and his appointment last year as head of the World Bank. At Goldman he had acted as head of international affairs, a kind of global ambassador and networker-in-chief.

Mario Draghi

The head of the Italian central bank is another example of the revolving door between Goldman and public service. Mr Draghi had been an academic economist, an executive at the World Bank and a director-general of the Italian treasury before joining Goldman as a partner in 2002. He is becoming a significant figure in the response to the credit crisis, chairing the financial stability forum of central banks, finance ministries and regulators.

Malcolm Turnbull

Treasurer for the opposition Liberal Party, Mr Turnbull is one of the fastest-rising politicians in Australia. He was the aggressive advocate who took on and beat the British Government in the Spycatcher trial of the former MI5 agent Peter Walker, but he then pursued a career in business and ran Goldman Australia from 1997 to 2001, before jumping in to politics to serve as environment minister under John Howard.

Hank Paulson

Cometh the hour, cometh the man. President George Bush must be delighted he lured a reluctant Hank Paulson away from his $38m-a-year job as Goldman Sachs chief executive in 2006, just in time to deal with the Wall Street crisis that has engulfed the entire US economy. The bird-watching enthusiast had been a surprising choice as Treasury secretary, since his environmentalism was at odds with much of Bush's policy.

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Amazon cuts off Colo. affiliates because of tax

DENVER - Amazon is cutting off affiliates that help it sell products in Colorado because of a new way taxes are being collected on online sales.

Affiliates earn money by using their Web sites to link customers to online sellers like Amazon.

Amazon told affiliates in an e-mail on Monday it would no longer pay them advertising fees because of the new law.

"I got that e-mail and I couldn't believe it," Heidi Murphy, an Amazon associate, said.

The law says online retailers have to start collecting state sales tax themselves or send annual notices to customers telling them to pay the tax.

The Colorado Retail Council reiterated support for the bill on Monday, stressing the new law is not a new tax.

"Every Coloradan who buys an item from an online merchant like already, under current law, owes the tax on that item," Colorado Retail Council President Christopher Howes stated in a release. "Our Colorado Retail Council members collect the sales tax for the government and firmly believe that Internet retailers should too. The General Assembly set these tax laws long ago - we are just playing by the rules. It's a matter of fairness."

Amazon says the law is cumbersome and no other state has similar rules.

"Amazon came here and they met with the very people that passed this bill, and they said, 'if you want to do something constitutional, we're here with you, but you're not, so we're going to be forced, unfortunately to have to end our relationship,'" Rep. Amy Stephens (R-Monument) said.

Affiliates feared the tax would hurt them and lawmakers changed the bill to try to prevent them from being harmed.

"When you pursue tax policy that punishes, this is an outcome of it," Stephens said.

Gov. Bill Ritter (D-Colo.) issued the following statement after Amazon's decision:

"Amazon has taken a disappointing - and completely unjustified - step of ending its relationship with associates. While Amazon is blaming a new state law for its action, the fact is that Amazon is simply trying to avoid compliance with Colorado law and is unfairly punishing Colorado businesses in the process.

"My office worked closely with Amazon's affiliates and associates to modify House Bill 1193 to specifically protect small businesses, avoid job losses and provide a fair, level playing field for on-line retailers and Main Street, brick-and-mortar retail shops alike.

"Amazon's position is unfortunate, and Coloradans certainly deserve better."

ProgressNow Colorado, an online progressive advocacy organization, also issued a statement Monday, saying Amazon appeared determined to protect its "unfair advantage" over local brick-and-mortar retailers.

"Local companies like the Tattered Cover Bookstore and Ultimate Electronics, who employ thousands of Colorado residents and pay their sales taxes back into the community, have suffered greatly while Amazon profited from an unfair advantage," Bobby Clark, the executive director of ProgressNow Colorado, stated in the release. "With millions of dollars in badly-needed revenue set to make its way into the budgets for Colorado's schools, roads and health care, standing behind Main Street over online behemoths like Amazon is an easy choice."

Clark says Amazon tried to "make an example" of Colorado for political gain.

(KUSA-TV © 2010 Multimedia Holdings Corporation with The Associated Press)

Housing quote of the day

From a story by Diana Olick at CNBC late yesterday on the possibility of the federal government getting behind a large-scale program to reduce principal balances on underwater mortgages comes a keen observation from housing consultant Howard Glaser.

Home prices have fallen so far in the hardest hit areas, the areas where the bulk of the troubled loans are, that banks would have to write down principal 30 to 50 percent to put borrowers back in the green. Accounting rules require that banks write down the value of those loans on their books, and experts tell me that if banks really accounted for all the losses in the home loan market, they'd all be insolvent.

That's why the Obama Administration has created this kind of shell game in the first place.

I stole that shell game idea from housing consultant Howard Glaser: "We're spending tens of billions of dollars on a tax credit to get people to purchase homes, we're spending federal money to keep them in their homes through the modification program, and now we're going to pay them to move out of their homes. This is not a sustainable system for the housing market. It's a shell game. Bernie Madoff could have created this system," Glaser told me today.
Mr. Glaser does a good job with that summation and one important tidbit that dovetails nicely with the tax credits, loan modifications, assisted short-sales, and possible principal reduction is the fact that the U.S. government, via wards of the state Fannie Mae and Freddie Mac, basically own the entire mortgage market.

Shawnee Mission Schools Cutting $10 Million, 128 Jobs

The Shawnee Mission School Board discussed budget cuts in the district for the 2010-11 school year and faces cutting $10.1 million and up to 128 jobs.Superintendent Gene Johnson shared his proposed budget cuts with the school board Monday in a meeting at Shawnee Mission West High School."We need teachers, parents and the community to work together," parent Cathy Cook said to the board.A number of parents showed up at the meeting to voice their concern about the cuts. The job losses could amount to 128 full-time positions which could include teachers, custodians, specialists and counselors."When you start cutting fine arts and music at elementary levels and options from high school, people will walk away from this district," Johnson said.Despite the proposed cuts, the Johnson said parents ultimately have nothing to fear."Yes class sizes may be bigger, but we will still give the programs this community expects," Johnson said.Other proposed changes include an increase in fees for all-day kindergarten, reducing out-of-district travel at all levels and the removal of one counselor or social worker from each high school.And while only a few people addressed the board out of the dozens at the meeting, each one made it clear they understand these are tough times and tough choices.The board has some time to think about and discuss the proposal, with a final vote not coming until August.

Top Bell aide says Toledo likely to face 'fiscal emergency'

Potential strategy to secure labor concessions disputed

Unless there is a fundamental change in the way Toledo's government operates, the city will likely be unable to pay its employees before the year is through, a top official in the Bell administration warned.
That looming financial disaster leads people such as Mayor Mike Bell and Councilman D. Michael Collins to throw out words like "bankruptcy" or "receivership," two feared terms but ones that are not likely to become reality.
The truth is that receivership or bankruptcy is probably not an option for the city anytime soon. But being slapped by the state as a "fiscal emergency" municipality is a real threat - a label some dislike but others advise Toledo to embrace given its $48 million deficit.
"If you cannot make payroll for 30 days, you are there. You are in fiscal emergency," said Deputy Mayor of Operations Steve Herwat, Mr. Bell's right-hand man.
"If we don't get this budget balanced, and the imbalance is enough, and yes it is, we are at risk," he said.
Mr. Bell has proposed a number of options - including the controversial legal maneuver to claim what lawyers call "exigent circumstances" to get concessions from city unions that they have so far been unwilling to even entertain.

‘If you cannot make payroll for 30 days, you are there. You are in fiscal emergency.

"Our general fund base salaries are roughly $90 million and we have $8.87 million in concessions on the table," Mr. Herwat said. "At some point in this year, October, November, we would be in position not to make payroll."

Fiscal emergency would not abrogate the city's contracts.
There is confusion about what fiscal emergency would mean for Toledo - even among some of the city's leadership.
Wilma Brown, the most senior member of City Council and its president, mistakenly said the city would "go into receivership" if the budget is not balanced by March 31 and the union contracts would be "null and void."


That could happen under bankruptcy, but Toledo could not file for that federal protection without the state's permission and then would still have to ask a federal bankruptcy judge.
Mr. Herwat said he had not directed City Law Director Adam Loukx to prepare for the long process of a municipal bankruptcy.
Mr. Loukx himself declined to discuss the matter or Mr. Bell's attempt to have council declare exigent circumstances since unions such as the Toledo Police Patrolman's Association are expected to file a legal challenge.
"I think receivership is probably a misnomer because I am not aware of any process for receivership," Mr. Loukx said. "I doubt if there is any lawyer in the city of Toledo that has first-hand experience with Chapter 9 [bankruptcy] but there are famous cases from across the country."
Donato Iorio, a lawyer for the Toledo Police Patrolman's Association , declined to talk about what strategy the union would take should council go through with declaring exigent circumstances.
"There is no legal basis for doing so," Mr. Iorio said. "It hasn't been done in Ohio before, and there is no basis for doing so."
Mr. Bell, even before his election in November, has said Toledo's labor spending is unsustainable because the city could not afford the three-year contracts signed last summer.
While they saved money for the 2009 budget under then-Mayor Carty Finkbeiner, the agreements started costing the city more money this year, Mr. Bell said.
The mayor said council would vote to let him change the agreements because of the record-high deficit the city faces this year.

A rare move

John Hartgen, a spokesman for the American Bankruptcy Institute, said it is rare for a city to file bankruptcy, which is covered under Chapter 9 of the federal bankruptcy code.
Detroit is attempting to close a massive budget deficit, and while it has not taken steps to reorganize under Chapter 9, officials there say it could be an option. That would allow Mayor Dave Bing to break union contracts.
Nationally, only six municipalities filed for Chapter 9 protection in 2007, five in 2006, and 11 in 2005, according to the American Bankruptcy Institute. One of the largest and most well-known municipalities to seek bankruptcy protection was Bridgeport, Conn., in 1991. It withdrew the petition.
Orange County, an affluent area in southern California, declared bankruptcy in 1994 after sustaining losses of about $1.6 billion from bad decisions in a principal investment.

Cleveland's crisis

Ohio's original municipal fiscal emergency law was enacted in 1979 as a response to a financial crisis in the city of Cleveland. Since then, financial planning and supervision commissions have aided more than 50 governments declared in fiscal emergency, said Chris Abbruzzese, spokesman for Ohio Auditor Mary Taylor.
A city also could be labeled in fiscal emergency if it defaults on any debt obligation for more than 30 days.
Longtime Cleveland Councilman Michael Polensek, who first took office January, 1978, and stayed through all seven years of the city's fiscal emergency, said it proved to be a tough but beneficial experience.
"What it fiscally did was force the city government to be more responsible, and we had to segregate accounts because there had been commingling of funds from one department to another and our enterprise funds," Mr. Polensek said. "There's some down sides, yes. We could not build or buy much of anything so we were greatly restricted, but having gone through it, I think it was a very worthwhile learning experience."
If an Ohio city is declared in "fiscal emergency," a seven-member financial planning and supervision commission would be empowered to advise a city on its spending decisions, Mr. Abbruzzese said.
The commission would have the power to enforce its recommendations by preventing a city from borrowing money.
It would be made up of the mayor, the president of council, the state treasurer, the state director of budget and management, and three people appointed by the governor from a list of nominees provided by the mayor and council president.
The commission would have much power to investigate and oversee spending, requiring detailed plans for getting back into solvency. Ultimately it could bar the city from borrowing money.
However, it could not replace city officials, erase or change contracts, or order specific spending decisions.
Cleveland defaulted on $15 million and spent one of the longest periods in fiscal emergency. The city of East Cleveland spent the longest with the label, more than 17 years from September, 1988, to February, 2006.
"I came in as a freshman councilmen when this all imploded and the bad decisions that were made dated back years before," Mr. Polensek said. "I can't recall if it was called fiscal emergency at the time, but it was in essence fiscal takeover, and we had to be accountable for everything we did."
His advice for Toledo: "Reset your priorities, deliver the important services, cut out any frills, address quality of life issues and accountability."

A Toledo disconnect

Toledo Councilman Adam Martinez, who took office in January and is council's newest member, said few people have a good handle on Toledo's future with or without the fiscal emergency declaration.
"My biggest surprise is the disconnect between people and the city," Mr. Martinez said. "People think we on council have a lot more authority than we do, that we spend money frivolously, and that there is one big piggybank we draw from."
Like some of his 11 colleagues on council, Mr. Martinez said he is disappointed that the city union leaders haven't been more receptive to givebacks.
"But I understand," he said. "I think the best way to streamline the city is start asking the unions' opinions on how to best consolidate and measure performance from the bottom up."
Mr. Collins, the only independent on council, said Mr. Bell will likely have to fall back on the contingency plan he announced last week, which includes massive layoffs and shutting down whole departments such as parks and forestry.
"The bottom line is none of this works unless he has concessions from the bargaining units," he said.

Tough choices

Garfield Heights, a Cleveland suburb in Cuyahoga County, has about 30,700 residents and it's currently the largest city in fiscal emergency.
Finance Director Richard Obert said that city balanced its budget with some of the same things Mr. Bell wants to use in Toledo.
Council was hesitant to dig into the taxpayers' pockets and put it on the mayor to cut his way to a balance budget, Mr. Obert said.
But after the state stepped in, council approved a new trash collection fee and installed red-light cameras to generate money.
"Your first option is always going to be layoffs, so the suggestion was to lay off 15 percent of the staff and we had overtime that we had to cut by half," he said. "We started charging $15 [a month] for residents' garbage pickup and $10 for those with a homestead exemption.
"Being in fiscal emergency was not as bad as I thought," Mr. Obert said. "The state was very cooperative, they did a performance audit that took about five months, and there were some very good things there."

Ron Paul: If the Fed didn't exist there would be no deficits

Click this link .......

Stock A Safe Haven With Food And Firearms To Protect Against Doomsday Pillagers

MarketWatch has rounded up a few of the more pessimistic preditions about 2010.

A lot recommend buying farmland. Here are the gloomiest:

Former IMF chief economist Simon Johnson warns:

"We're running out of time ... to prevent a true depression." He says unless we break Wall Street's "stranglehold" we will be unable prevent the Great Depression 2.

Morgan Stanley research guru turned hedge fund manager Barton Biggs (pictured), who called the market rally, advises that you buy a farm a good distance away from a city and, he advises, make sure that your doomsday safe-haven:

  • Be self-sufficient and capable of growing some kind of food
  • Be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc

And get a gun, he says, because "a few rounds over the approaching brigands' heads would probably be a compelling persuader that there are easier farms to pillage."

Mark "Gloom Boom Doom" Faber also recommends buying farmland. Our society has peaked and is on the decline, he says:

"Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline."

Cash-strapped LA County courts to begin layoffs

LOS ANGELES—The Los Angeles County Superior Court is laying off 329 staff members next month and officials say more than 1,000 others may go in the next two years because of budget cuts.

A memo from Court Executive Officer John Clarke to employees says the first layoffs will begin on April 1.

Clarke says an additional 500 layoffs are planned for September followed by 530 in fall 2011. The court currently has 5,400 employees.

Clarke says civil rather than criminal cases will be hardest hit.

Clark says the court system's budget deficit is expected to reach $140 million by the 2011-12 fiscal year that begins in July.

Presiding Judge Charles McCoy has said he's looking at plans to close up to 180 courtrooms and lay off about a third of the staff.

Ford finance arm to cut 200 jobs in Franklin

Ford Motor Credit Co. plans to layoff 200 employees at its business center in Franklin by the end of March as part of a plan to cut 1,000 jobs nationwide this year.

The finance arm of automaker Ford said the cuts are necessary because of fewer car sales and a move to handle financing arrangements only for Ford cars rather than some other brands as well. Ford has sold its interest in Jaguar and Land Rover, for instance, and reduced its stake in Mazda.

Financing of Volvo sales will move to another provider, too, because Ford expects an agreement by the end of this month to sell that brand to a Chinese automaker.

“This will help us address current and expected business conditions,” said Ford credit spokeswoman Margaret Mellott of the job cuts.

Ford Motor Credit — once known as Primus here — helped spark commercial development in the Cool Springs area during the 1990s. Last year, Ford Motor Credit cut 20 percent of its U.S. workforce with just under 1 percent of those cuts affecting the Franklin office, Mellott said.

The latest layoffs will leave Ford Motor Credit with 850 employees in Franklin, keeping it in the ranks of Williamson County’s 10 largest private-sector employers.

“It’s unfortunate that people lose their jobs, but it’s less a reflection on our community and more of a reflection of a restructuring that’s going on inside the company,” said Matt Largen, director of Williamson County’s Office of Economic Development.

Last week, Moody’s Investors Service upgraded its rating of $43 billion worth of Ford Motor Credit’s senior unsecured debt, citing the finance arm’s improved capital position as it paid down debt amid an improving economy.

“Delinquency levels have started to level off for the company, and as the economy improves we expect their earnings to grow as credit costs decrease,” said Mark L. Wasden, a senior credit officer with Moody’s.

Wasden said the restructuring makes sense considering a lower volume of U.S. car sales and Ford’s move away from certain product lines. “For the company to maintain it’s profitability going forward, it has to resize its employment level as it shrinks its business scale.”

Springfield walloped by lower March sales tax revenue check

The city's latest sales tax revenue check is down 17.9 percent from this time a year ago and marks the worst showing since December 2008.
But City Manager Greg Burris on Monday urged patience -- asking citizens and city employees not to read too much into the March figures.

Burris hinted that any potential budget cuts may not be as deep as he once suggested.

A hiring freeze has been in place for more than a year now, and the city this fiscal year already responded in September and December to sales tax revenue shortfalls -- a new quarterly approach to making budget adjustments.

March's check ends the third quarter, which is off $783,553 from the same period of a year ago, and means the city must turn to the budget again.

However, Burris is optimistic that savings from the hiring freeze -- $664,000 -- could eat up most of it.

"Obviously, we're disappointed it's down," Burris said. "The bright side of this is we continue to live within our means. We adjust the budget quarterly and we're not relying on stimulus money (to balance the general fund)."

Greene County officials got a similar grim sales tax news.

Budget officer Jeff Reinold said the county's March sales tax check was 17.6 percent lower than the same time a year ago -- a decrease of $393,000.

"With our budget, we anticipated we would be 5 percent down for the year," Reinold said. "So far we're down a total of $156,000 -- about 9.3 percent to date."

Reinold said a hiring freeze remains in effect and could be extended longer if sales tax revenue continues to decline.

The March check represents sales that occurred in January.

Reinold said the county "will wait for more data" to come in before deciding what actions it may need to take.

Last year's March sales tax check was $2.2 million. This year's check was almost $1.8 million, according to Reinold.

"We've cut 7 percent out of our budget so far," Reinold said. "We talked about the sales tax check this morning. We need to be very careful with our spending."

Springfield's March check totaled $3,177,811.

Compared to the check of March 2009 -- it was $3,870,811 -- that equaled a 17.9 percent decrease from the year before.

With only one more quarter to go in fiscal 2010, the city has collected slightly more than $26.459 million in sales tax revenue.

But the March check also represents a punch in the city's collective gut.

Not only does the March check drop the city's sales tax revenue differential to 9.16 percent, it follows a pair of checks that showed some promise and hinted that the city could see some economic stability.

February's check showed an increase, of 1.35 percent, and followed a January check that was off 3.53 percent from the year before.

Those checks arrived after Burris warned the City Council in early January that further budget cuts could "get real ugly" if the sales tax picture did not improve.

At the time, the city already addressed a more than $1.042 million sales tax revenue shortfall after the first quarter and a $1.273 million shortfall in the second quarter.

The first-quarter cuts included the elimination of four jobs in Planning and Development and two furlough days for 158 managers and supervisors, including Burris.

The second quarter focused instead on expenses that city departments agreed to forgo, such as Public Works equipment purchases.

Burris said Monday that he anticipates rolling out a budget adjustment within two weeks.

By then, the city anticipates it will know whether some retailers did not file their revenue on time or the state ended its revenue accounting before the arrival of those receipts. Both instances would mean that revenue being distributed in the April check.

The city also will canvass a laundry list of other revenue sources that are directed to the general fund and determine if they show shortfalls.

Sales tax revenue comprises a large portion of the general fund, but so do a number of other funds such as City Utilities' payments in lieu of taxes, or Pilot revenue.

In the second quarter, CU's Pilot revenues from natural gas were down $121,000, and Municipal Court fines were down $150,000. Building Development Services' fees and permits showed a $110,000 decrease.

All those figures were off compared to the same period as a year before and contributed to the $1.273 million shortfall in the second quarter.

That is why the city on Monday could not forecast with certainty the potential depth of the third-quarter cuts.

"We need some time to look at the big picture," Finance Director Mary Mannix Decker said.

Chevron to cut 2,000 jobs

NEW YORK ( -- Chevron Corp., the second largest U.S. oil company, announced on Tuesday that it would cut 2,000 jobs this year amid challenging market conditions.

The company said the cuts come as a part of its plans to boost earnings by lowering costs, exiting unprofitable markets, and streamlining its business.

"Market conditions are likely to be difficult for the next several years," said Mike Wirth, executive vice president of Chevron's Global Downstream division in a statement.

Lloyd Avram, a Chevron (CVX, Fortune 500) spokesman, told CNN that the cuts will come from areas including refining and marketing, and are a part of a larger restructuring effort.

Avram anticipates the new organizational structure will be in place by the third quarter.

The announcement comes as Chevron and its competitors face a tough economic environment, with lower oil prices and relatively low demand.

In January, Chevron reported fourth quarter earnings of $3.07 billion, which were down 39% from the prior year period.

The company said it plans to concentrate on its North American and Asia-Pacific markets, where it says it has a competitive advantage.

It also said that even after eliminating 2,000 positions in 2010, it will continue to cut jobs through 2011.

Chevron expects to take a first quarter charge of $150 million to $200 million in order to pay out severance packages.

China at the wheel of the Soros and Goldman Gold Hedging Vessel

Yi Gang, head of the State Administration of Foreign Exchange, said that while gold was "not a bad asset," it would never become a big part of China's overall investment portfolio.

"The international gold market is very limited. If I purchase gold on a massive scale, it will definitely push up global gold prices," Yi said
at a news conference on the sidelines of China's annual parliament.

"So, as for suggestions from many friends that we should increase gold holdings, we will give prudent consideration to this, according to
market conditions."

Gold fell $3 in the hour after Yi spoke, later paring losses to reach $1,122 per ounce, as many market participants had already discounted the chances
of a sudden gold spree by China.

Many investors have wondered whether China might buy 191.3 tonnes of gold being offered for sale by the International Monetary Fund, after India
bought 200 tonnes in November.

"We have been saying that whilst it's clearly the case that it's sensible for China to buy some gold, we think it's more likely they'll be doing
it quietly in the open market as opposed to taking a large chunk of the
IMF gold," David Barclay, commodities analyst at Standard Chartered.

State media have reported the country is unlikely to do so, partly for fear of fuelling market speculation, and Barclay said he thought it was
largely a question of price.

"If we have gold correct down below $1,000 then I think it's more likely, given that they've said prices below $1,000 are more reasonable and
also it would be lower than the $1,045 level that India bought at.
There is that rivalry between the two countries."


The Chinese government wowed the gold market last year by revealing it had increased its holdings of the metal to 1,054 tonnes from 600 tonnes in
2003. Buying the IMF gold might cause prices to spike, Barclay said.

"Prices haven't really corrected that much despite the drop in the euro, and we've seen investor positioning turn a bit more positive. It wouldn't
take much, if China did come out, to really ignite the market, and I
don't think that's something they want to do."

China's $2.4 trillion in foreign currency reserves and its relatively small gold holdings have fueled speculation the country is continuing to buy,
although officials have insisted that any increases have come from
domestically produced gold and the international price is too high.

"It is, in fact, impossible for gold to become a major investment channel for China's foreign exchange reserves. We have 1,000 tonnes now, and
even if I double that holding, according to current prices, that would
be about $30 billion," Yi said. "It would just increase the level of
gold (in China's reserves) to about 2 percent from the current 1

Yi also said that, from a long-term investment perspective, gold was not the best play.

"Gold prices in recent years have risen very nicely, but if we look at the price over the last 30 years, gold prices moved in great swings," he
said. "So as an investment, its yield is not very good from a 30-year
point of view."

China is vying with India to be the world's top consumer of gold. It is already the top producer, with output of 313.98 tonnes last year, up by almost 50
percent in five years.

In January, China produced 21.81 tonnes, a rise of 8.1 percent from a year earlier, according to the Ministry of Industry and Information.

No bottom yet

Tulsa's sales-tax revenue this month dropped 11.6 percent or about $2 million from March 2009, capping off 12 straight months of negative numbers.

That's actually $122,000 above the revised budget projections for the month, Finance Director Mike Kier said.

Considering the city's use taxes — those levied when products are bought from another state — were below estimate by $332,000, there's still less money going out of than into the general operating fund.

But at this point, no additional cuts are planned, Kier said.

"We are going to hold for the moment," he said. "I think succeeding months are becoming more important, not just for the rest of this fiscal year (which ends June 30), but for expectations for next year."

April's sales-tax check will be particularly telling because it was April 2009 when the city's downward spiral began, Kier said.

"We need to get closer to leveling off," he said. "If we continue to drop 10 percent or more this April, and that's on top of our decline last April, that would be a sign that we're not finding the bottom yet."

Tulsa's March sales-tax payment, including interest, from the Oklahoma Tax Commission was $14,945,912, compared with $16,903,291 last year.

The revenue was collected from Jan. 16 to Feb. 15.

Overall for the fiscal year, which began July 1, the city is down 11.1 percent in sales-tax revenue, or about $18.3 million.

Use-tax revenue is down 14.3 percent or $2.2 million.

A budget amendment that reduces the general fund's revenue intake by $10 million is still pending with the City Council.

It formalizes cuts to city departments including police layoffs, park community center closures and others, even though Mayor Dewey Bartlett already has taken the cost-cutting actions.

Earlier cuts were made this fiscal year by then-Mayor Kathy Taylor.

Since the decline in sales tax revenues began early last year, current and previous city administrations have reduced operating expenses in the general fund by about $27 million.

Bartlett said he hopes a forthcoming review of the city by KPMG, a consulting and auditing firm, will help leaders get control of Tulsa's volatile finances.

The review should be done by summer.

"Finding solutions to our financial situation by reviewing our core businesses is one approach that will steel the city against future economic declines," he said. "We continue to look for new ways of doing business."

Tulsa is certainly not alone, with sales-tax revenue down in most area cities.

In Sapulpa, the latest sales-tax check came in 10.9 percent below what was remitted in March 2009.

Despite that downturn, city officials are not panicking, said Sapulpa Finance Director Pam Vann.

Vann said the city has revised its budget for the remainder of the fiscal year, based on an agreement between police officers and non-uniformed employees to take four furlough days.

When all the furloughs are considered, she said, the sales-tax check it received this month is just $18,194 short of the city's revised budget projection.

Sand Springs officials said sales-tax collections there were down 4.8 percent for March, but the percentage decline was not as severe as the declines in the last quarter of 2009 and the first part of this year.

"Our focus remains on sustainability, and we will likely look at lower sales-tax numbers as a new reality at least in the near term," Sand Springs City Manager Douglas Enevoldsen said.

Bixby's sales-tax revenue dropped 7.8 percent. City Manager Blu Hulsey said the city will continue to keep projects on hold and monitor spending.

Jenks was down 9.6 percent this month compared to March 2009 and is lagging 3.82 percent for the fiscal year.

Jenks Finance Director Josh McCorkle said that officials have impounded capital items and are not filling vacant positions. The finance division is down two people.

"Every department has been affected," he said.

Other drops over March last year include Catoosa with 16.6 percent, Claremore with 11.3 percent, Broken Arrow with 5.3 percent and Owasso with 1.2 percent.

Meanwhile, Collinsville experienced a sharp uptick, with sales-tax revenue jumping about 15.8 percent over the same month a year ago. City officials there credited campaigns stressing the importance of buying locally.

Coweta's sales-tax check was up 26.2 percent. But City Manager Steve Whitlock said that number is an anomaly, likely including revenue from the previous month.

The monthly calculations are partially based on revenue estimates with the difference made up the following month.

"We think it's a correction," he said. "When we compare to the region, we're pretty consistent."

Glenpool continued its positive trend due to new retail there, with a 7.8 percent increase compared to March 2009.

Muskogee's sales-tax receipts were up 7.7 percent, but most of that bump was due to half-cent sales tax rate increase that took effect last fall for street, sewer and other capital projects.

Ailing Banks May Require More Aid to Keep Solvent

Some of the nation’s large banks, according to economists and other finance experts, are like dead men walking.

A sober assessment of the growing mountain of losses from bad bets, measured in today’s marketplace, would overwhelm the value of the banks’ assets, they say. The banks, in their view, are insolvent.

None of the experts’ research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are federally insured. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves.

But without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to restart the wheels of commerce. The answer, say the economists and experts, is a larger, more direct government role than in the Treasury Department’s plan outlined this week.

The Treasury program leans heavily on a sketchy public-private investment fund to buy up the troubled mortgage-backed securities held by the banks. Instead, the experts say, the government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets.

It is the basic blueprint that has proved successful, they say, in resolving major financial crises in recent years.

Japan endured a lost decade of economic stagnation in the 1990s before it adopted such measures from 2001 to 2003.

The Swedish government took tough steps in 1992 and Washington did so in 1987 to 1989 to overcome the savings and loan crisis.

“The historical record shows that you have to do it eventually,” said Adam S. Posen, a senior fellow at the Peterson Institute for International Economics. “Putting it off only brings more troubles and higher costs in the long run.”

Of course, the Obama administration’s stimulus plan could help to spur economic recovery in a timely manner and the value of the banks’ assets could begin to rise.

Absent that, the prescription would not be easy or cheap. Estimates of the capital injection needed in the United States range to $1 trillion and beyond. By contrast, the commitment of taxpayer money is the $350 billion remaining in the financial bailout approved by Congress last fall.

Meanwhile, the loss estimates keep mounting.

Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, has been both pessimistic and prescient about the gathering credit problems. In a new report, Mr. Roubini estimates that total losses on loans by American financial firms and the fall in the market value of the assets they hold will reach $3.6 trillion, up from his previous estimate of $2 trillion.

Of the total, he calculates that American banks face half that risk, or $1.8 trillion, with the rest borne by other financial institutions in the United States and abroad.

“The United States banking system is effectively insolvent,” Mr. Roubini said.

For its part, the banking industry bridles at such broad-brush analysis. The industry defines solvency bank by bank, and uses the value of a bank’s assets as they are carried on its books rather than the market prices calculated by economists.

“Our analysis shows that the banks have varying degrees of solvency and does not reveal that any institution is insolvent,” said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, a trade group whose members include the largest banks.

Edward L. Yingling, president of the American Bankers Association, called claims of technical insolvency “speculation by people who have no specific knowledge of bank assets.”

Mr. Roubini’s numbers may be the highest, but many others share his rising sense of alarm. Simon Johnson, a former chief economist at the International Monetary Fund, estimates that the United States banks have a capital shortage of $500 billion. “In a more severe recession, it will take $1 trillion or so to properly capitalize the banks,” said Mr. Johnson, an economist at the Massachusetts Institute of Technology.

At the end of January, the I.M.F. raised its estimate of the potential losses from loans and other credit securities originated in the United States to $2.2 trillion, up from $1.4 trillion last October. Over the next two years, the I.M.F. estimated, United States and European banks would need at least $500 billion in new capital, a figure more conservative than those of many economists.

Still, these numbers are all based on estimates of the value of complex mortgage-backed securities in a very uncertain economy. “At this moment, the liabilities they have far exceed their assets,” said Mr. Posen of the Peterson institute. “They are insolvent.”

6 Theories On Why the Stock Market Has Rallied

There are at least 6 theories about why the stock market has rallied some 70% off its lows a year ago, even though nothing has been done to actually address the root causes of the financial crisis.

What The Dumb Money Believes

The dumb money believes what CNBC and their trusty stock churner ... er, broker ... says: that the government has fixed the economy but it just has to "kick in" (and that unemployment is just a lagging indicator, nothing important. See this, this, this and this).

Therefore, these folks believe that stocks are hugely undervalued, and that if they buy while most people are still afraid, they'll make a killing when the market goes to the moon.

Temporary Juice

Others believe that it is the quantitative easing, low rates, bank bailouts, stimulus spending, and other portions of the "wall of money" which the feds have thrown at the economy are creating a temporary pump to the stock market.

But they think that - when the spigot is turned off - the market will tank.

The Situation is Inflation

Others believe that - regardless of continued loose monetary and fiscal policy or real stock valuations, we're in for some serious inflation.

Stocks tend to preform well during inflationary periods.

For more on inflation versus deflation, see this.

Machines Run Amok

Tyler Durden explains that all of the stock market gains have occurred after hours when mystery buyers purchase stock futures in low volume environments (and see this).

Vincent Deluard - a strategist for TrimTabs Investment Research (25% of the top 50 hedge funds in the world use TrimTabs' research for market timing) - said last month:
We've never seen this before – such a huge rally, and the little guy is out.
Some argue that it is high-frequency trading or momentum-chasing trading algorithms doing the buying, and that the market will tank when they change their game.

Fed Futures

Others argue that the government is itself buying stock futures.

Some believe that the Feds aren't buying, but that they have intentionally showered the big banks with money, and encouraged the banks to buy. In other words, they argue that the Feds are indirectly promoting a stock market rally.

Fraud Central

Karl Denninger believes that the market has rallied due to the systemic, fraudulent overvaluation of assets.

As Denninger wrote yesterday:
[A reader wrote] the FDIC to ask about [allegations of fraudulent valuations]. This was their response:

That’s the value the bank had them on their books on their year-end financials, but the true value is much less. It is similar to someone in Las Vegas saying that their house is worth $300,000 because that’s what they paid for it three years ago, but the reality is, if they had to sell it in today’s market, they’d only get $250,000 for it. The FDIC has to sell assets in today’s market...

Or tomorrow's market.

The simple fact of the matter is that there it is, right in front of you.

A raw admission that the banks are carrying these loans at dramatically above their actual value.

Yes, this means that essentially all balance sheets must now be considered fraudulent, and thus the valuations assigned by the market to them are also fraudulent.

Extending this to the stock market as a whole you now have a market that is intentionally overvalued as a direct and proximate consequence of fraud, permitted and endorsed by the government, of somewhere between 25-40%.

Now you know why the market rallied off the SPX 666 lows to where it is now. 1139 (where we are now) * .60 (a 40% haircut) = 683.40, or awfully close to that 666 bottom.

Of course this "valuation" expressed in the market can only be maintained for as long as the fraud is. If the ability to maintain that fraud is lost for any reason then values will instantly collapse back to reflect reality.

Note: Obviously, I believe this is a bear market rally which will eventually fizzle out. If the bulls are instead right, then that will make me the dumb money. But I think it much more likely that the rally will change direction in the not-too-distant future.

Jesse Ventura claims gov’t involved in 9/11

Former Minnesota governor says Bush administration tied to attacks

In his new book, “American Conspiracies: Lies, Lies, and More Dirty Lies That the Government Tells Us,” former Minnesota Gov. Jesse Ventura begins an investigative journey to prove that there is more to our national history than the government wants us to know. In this excerpt, he writes about an alleged 9/11 cover-up.

Chapter 12: What really happened on September 11?

The incident: On September 11, 2001, four airplanes were hijacked on American soil and crashed into the Twin Towers, the Pentagon, and a field in Pennsylvania.

The official word: The 19 hijackers were all fanatic Muslim terrorists linked to al-Qaeda and its ringleader, Osama bin Laden.

My take: Our government engaged in a massive cover-up of what really happened, including its own ties to the hijackers. Unanswered questions remain about how the towers were brought down, and whether a plane really struck the Pentagon. The Bush Administration either knew about the plan and allowed it to proceed, or they had a hand in it themselves.

I was in my third year as Minnesota’s governor on September 11, 2001. After the devastation of the Pentagon being hit and the Twin Towers falling, I put the National Guard on alert and secured some of our public buildings. The following Sunday morning, we were the first state to hold a memorial for the nearly 3,000 victims. More than 40,000 people showed up on the front lawn of the State Capitol, while a steady rain fell. I’ll never forget Native American shamans beating drums alongside honor guards who represented the police and firefighters and military.

It still chokes me up to think about it. Looking out on hundreds of flags fluttering in the breeze, I remember saying at the end of two hours: “We will promote good against evil. And finally, we will together restore our sense of freedom by conquering this enemy!”

I never wanted to believe anything different than what our government told us about that tragic day. But here is what John Farmer, a Senior Counsel for the 9/11 Commission who drafted the original report, has to say in a new book: “At some level of the government, at some point in time ... there was an agreement not to tell the truth about what happened.”

What more do we need? Are we willing to live with another lie to go with the Warren Report, the Iran-Contra cover-up, and many other “official” stories?

I certainly never expected to think that elements of the Bush Administration were complicit with the enemy. Today, though, I am convinced that some people inside our government knew the attack was going to happen and allowed it to come to pass — because it furthered their political agenda.

I don’t necessarily believe that they orchestrated it themselves, although the door is definitely open to that. I say this after expending many hours researching things about the official story that don’t add up, and interviewing a number of witnesses with firsthand knowledge that contradicts what we were told. As a patriotic American, I say this with a heavy heart — and with an outrage that really knows no words. But it’s something we, as a nation, must come to terms with. Otherwise, it could happen again.

From day one, there was something that puzzled me. You had four airplanes being hijacked on the same morning. Maybe the first one snuck by the radar — but the next three? I’d been inside air traffic control, where you’ve got a dozen people watching every plane in their sector. They know what direction all the aircraft are supposed to be going, and here were four planes going directly opposite of their normal flight path. But we’re supposed to believe that no alarm bells went off anywhere, so no fighter jets got scrambled to intercept the planes. Was everybody asleep at the switch? How could the FAA and our air defenses experience such a miserable failure?

I want to tell you a short story about a guy named Charles Lewis, who my writing colleague Dick Russell interviewed recently in Southern California.

Until two months before September 11, Lewis had worked at LAX as the Quality Control Manager for Kiewit Pacific Construction on its Taxiway “C” project. A large part of his duties involved security in the Airport Operations Area, or AOA. There he got to know employees of various agencies — the LA World Airport Police, the LAPD, California Highway Patrol, the FBI, U.S. Customs, and others.

When the 9/11 attacks occurred, Lewis was a deputy inspector for the city of LA during a seismic retrofit of the LA Hilton Towers Hotel, only a few minutes from the airport by car. After making sure the hotel construction crew went home, Lewis rushed over to LAX’s Guard Post 2, because he was one of very few people who knew how to fix certain parts of the new security systems in case any problems developed.

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