FedUpUSA

Archive for the ‘California’ Category

In a stunning letter to members of the California State Bar and a California Judge, Michael T. Pines sets forth a damning (and supported) assertion against the big banks.

There is little doubt the “banks” through their attorneys are behind the attacks on me, and since they can’t win in court they had to try to stop me other ways by trying to prevent me from representing property owners.  If you are not happy, contact the Bar, others, and tell every attorney you know to hold off on paying their dues as long as possible.

In conclusion, his letter ends:

The Bar and Courts are now, and will, go bankrupt. It is only a matter of time. The courts are broken, the economy is broken, and the government is broken and all are run by the Banks. That is the bigger picture and this won’t go on forever. In the long run, your children will be O.K. In the short run, it is going to be awful. In my opinion, there is going to be a collapse of historic proportions.

Be sure to read the entire letter.

h/t MSFraud

In the last few weeks the issue has come to the table that in some states, in particular Florida, banks are rushing through the foreclosure process so quickly that they have mismanaged the paperwork process.  Apparently the same forged paperwork that got people with very little income into highly leveraged properties is now working in reverse.  This is a critical issue because housing is the most vital asset for the average American in their net worth profile.  Banks might like to believe that they can just automate our judicial system but that isn’t exactly how it works.  One major issue that isn’t being covered is why are banks so eager to foreclose in Florida but not in California?  The answer is because of mortgage foreclosure deficiency judgments.

“(Alperlaw) During the recent real estate boom deficiency judgments were uncommon because increasing real estate values brought home values above note balances of defaulting mortgages. Additionally, lenders could take back “upside down” properties and hold them until the rising market made them whole. Deficiency liability is a problem in a declining market. Up to this point in the real estate crash few of the national mortgage service companies with conventional first mortgages have been pursuing deficiency judgments, especially mortgages on owner occupied homes. There has been an increase in deficiency actions by smaller regional lenders. Many attorneys and other experts speculate that first mortgage deficiency lawsuits will increase in the future as lenders resolve foreclosure backlogs and as they sell their deficiency rights to third party investors and collection firms. Florida law gives mortgage lenders five years to pursue a mortgage deficiency claim.

Second mortgage lenders and private lenders are more likely than first mortgage holders to go after the borrowers by suing for default on the underlying promissory note. There has been a significant increase in second mortgage lawsuits since the beginning of 2009. Banks that made commercial loans to developers or builders almost always file a lawsuit against the individual borrower to enforce and collect upon the promissory note or personal guarantee of a business loan.”

Now this is an interesting perspective.  We have now had three major lenders with GMAC, JP Morgan Chase, and Bank of America announcing halts on some foreclosure proceedings.  Yet Wells Fargo has not announced any changes (could it be their $35+ billion in option ARMs in California?).  Here is the big difference.  Banks can rush and foreclose on homes in Florida and possibly go after borrowers at a later date.  For example, if a home was bought in Miami for $350,000 during the peak, ended up in foreclosure, the banks sells it for $250,000 there is a $100,000 gap.  The way the law is written, someone can go after the borrower for this.  The law isn’t so clear in a non-recourse state like California.  That is why shadow inventory is off the charts in California.  In Miami home prices have fallen in dramatic fashion:

Source:   HousingTracker

This explains why many banks in California have not moved on higher priced homes in the state where borrowers are simply not paying their mortgage.  It can also explain why Wells Fargo isn’t announcing any similar halts to foreclosures.  If you take a look at their option ARM portfolio you can understand why Wells Fargo has zero desire in speeding up the foreclosure process in California:

Source:  Wells Fargo 10-Q

Now logically think this out.  California has no issue with robo-signers and massive law firms dedicated to foreclosing on people.  Yet Florida does.  Both benefitted greatly during the housing bubble and both saw bursting markets.  Yet California is slow to foreclose while Florida is itching to get everyone out of their homes.  For a bank like Wells Fargo in California, there is no benefit in taking over a $600,000 option ARM on a home that would sell for $300,000 in today’s market.  That is a balance sheet hit of $300,000.  In Florida, they can take the hit now while the mortgage market is practically nationalized and start creating a portfolio of these underwater sales for future money grubbing.  If the bank doesn’t want to do the dirty work of going after borrowers, it can sell the right off to other investors.  The contrast between Florida and California is too stark when it comes to the foreclosure process.

The mortgage laws for both states are complicated as you can imagine.  The general notion that California is a “non-recourse” mortgage state might have something to do with how the foreclosure process is currently playing out from the banking industry perspective.  One thing is certain however, this current action will artificially make things look better in the housing market like the early stages of HAMP but anyone who calls this an improvement in the housing market is seriously living in another world:

“(WSJ) Chase and GMAC Mortgage Co. both suspended foreclosure sales in some states to review paperwork and the document-signing process. That means October and November’s reports will likely show an artificially low number of foreclosure starts. Some might interpret the falling numbers as improvement.  But “don’t get too excited about the market getting better,” Mr. Sharga warns.

Provided the paperwork is in order–which Mr. Sharga thinks will be the case in many of the stalled foreclosures–REO actions, or actual foreclosures, will likely spike early next year. “Don’t panic and think everything is sinking,” he tells Developments.”

And of course this doesn’t mean that Chase or Bank of America will do anything different in California:

“(NY Times) California’s attorney general, Jerry Brown, said that Chase should stop any foreclosures in the state until it proved that it was following the law. Mr. Brown, who is a candidate for governor, earlier made the same demand of GMAC.

In California, lenders generally pursue foreclosures outside of the court system, so they are presumably still proceeding with evictions. Chase declined to say whether it would comply with Mr. Brown’s comments.”

This is a complicated mess brought to you by the same banks that actually created these horrible mortgage products.  Is it any surprise that they are fumbling foreclosure cases?

Want to see some of the top foreclosure cities?

Source:  RealtyTrac

How is it that the state with the biggest housing bubble (and crash) doesn’t have one city in the top 5 here?  Even if we look at total foreclosure filings we can see that Florida is speeding ahead of California:

August data – total foreclosure filings

Florida                  -                              56,877

California             -                              69,143   (17 percent higher)

Florida population           -              18.53 million

California population      -              37 million (50 percent higher)

You can do the math here.  The banking industry has made a living stealing from the taxpayer for the last decade.  It is just stunning to see how far they are going to steal every nickel from the American public even if this means going after Americans years down the road.

My Budget360

Now that Schwarzenegger is a certifiable lame duck (dead duck may be a more appropriate term) Schwarzenegger sees fit to take on public unions in a major way. It’s too late now (for him) even as he speaks the truth.

Please consider Public Pensions and Our Fiscal Future by Arnold Schwarzenegger.

Recently some critics have accused me of bullying state employees. Headlines in California papers this month have been screaming “Gov assails state workers” and “Schwarzenegger threatens state workers.”

I’m doing no such thing. State employees are hard-working and valuable contributors to our society. But here’s the plain truth: California simply cannot solve its budgetary problems without addressing government-employee compensation and benefits.

Thanks to huge unfunded pension and retirement health-care promises granted by past governments, and also to deceptive pension-fund accounting that understated liabilities and overstated future investment returns, California is now saddled with $550 billion of retirement debt.

The cost of servicing that debt has grown at a rate of more than 15% annually over the last decade. This year, retirement benefits—more than $6 billion—will exceed what the state is spending on higher education. Next year, retirement costs will rise another 15%. In fact, they are destined to grow so much faster than state revenues that they threaten to suck up the money for every other program in the state budget.

At the same time that government-employee costs have been climbing, the private-sector workers whose taxes pay for them have been hurting. Since 2007, one million private jobs have been lost in California. Median incomes of workers in the state’s private sector have stagnated for more than a decade. To make matters worse, the retirement accounts of those workers in California have declined. The average 401(k) is down nationally nearly 20% since 2007. Meanwhile, the defined benefit retirement plans of government employees—for which private-sector workers are on the hook—have risen in value.

Few Californians in the private sector have $1 million in savings, but that’s effectively the retirement account they guarantee to public employees who opt to retire at age 55 and are entitled to a monthly, inflation-protected check of $3,000 for the rest of their lives.

In 2003, just before I became governor, the state assembly even passed a law permitting government employees to purchase additional taxpayer-guaranteed, high-yielding retirement annuities at a discount—adding even more retirement debt. It’s as if Sacramento legislators don’t want a government of the people, by the people, and for the people, but a government of the employees, by the employees, and for the employees.

For years I’ve asked state legislators to stop adding to retirement debt. They have refused. Now the Democratic leadership of the assembly proposes to raise the tax and debt burdens on private employees in order to cover rising public-employee compensation.

Much needs to be done. The Assembly needs to reverse the massive and retroactive increase in pension formulas it enacted 11 years ago. It also needs to prohibit “spiking”—giving someone a big raise in his last year of work so his pension is boosted. Government employees must be required to increase their contributions to pensions. Public pension funds must make truthful financial disclosures to the public as to the size of their liabilities, and they must use reasonable projected rates of returns on their investments. The legislature could pass those reforms in five minutes, the same amount of time it took them to pass that massive pension boost 11 years ago that adds additional costs every single day they refuse to act.

…

All of these reforms must be in place before I will sign a budget.

I am under no illusion about the difficulty of my task. Government-employee unions are the most powerful political forces in our state and largely control Democratic legislators. But for the future of our state, no task is more important.

Schwarzenegger Washes His Hands

Schwarzenegger drones on and on about who is to blame. He also acts as if he was fiscally responsible.

That is far from the truth. In Turn out the lights California, the party is over I blasted Schwarzenegger’s fiscally reckless proposals.

Flashback March 2, 2007: Schwarzenegger wants $500 billion to rebuild California

Sound Bites

• $42.7 billion in general obligation bonds issued last year is “only the foot in the door, to whet the appetite.”
• It will take $500 billion to “rebuild California the way it ought to be”.
• $500 billion is “too big for people to digest, so you don’t talk about that” even though he is talking about it.
• California needs $500 billion even though it has “done tremendously with the revenue increases”.
• California will not issue less debt even if the economy slows.
• California “could face lower tax revenues” but he opposes tax hikes.

Well here we are, 9 months later and the $4.1 billion reserve went to a $14 billion deficit in the last 4 months.

Thank God Schwarzenegger did not get what he asked.

Now in massive revisionist history he attempts to take credit for being fiscally conservative. Please, let’s stop the charades.

While there is some truth he wanted concessions from unions, unlike Governor Chris Christie, he never fought for them very hard. Only now is he saying “All of these reforms must be in place before I will sign a budget.”

He should have said that in 2009, 2008, and 2007. He is saying that now that he is a lame duck. While I commend the idea, the problems he was elected to fix are more broken than ever.

It will be interesting to see how this budget battle plays out, but no amount of hand-washing can absolve Schwarzenegger of his share of the blame.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

The $2.3 Trillion State and Local Government Debt Monster – California Pension Systems on Unsupportable Path with $500 Billion Projected Shortfall. CalPERS, CalSTRS, and UCRS.

Posted by mybudget360

Much of the focus on government debt over the past few years has revolved around the federal government.  No doubt, this is a stunningly large amount.  Yet the government has the ability to finance this debt through the U.S. Treasury and Federal Reserve with a buffet of choices.  You have direct bailouts to Wall Street, quantitative easing, and systematically dismantling the U.S. dollar.  But one issue that is rising to the top is that of state and local government debt.  States do not have the ability to print money at the whim of any central banker.  And the state and local government debt market is up to a whopping $2.3 trillion.  At this point, trillion is the new billion.

Let us examine the growth of this debt over the last forty years:

The growth in local government debt has exploded since the 1970s.  We went from $295 billion in 1968 to $2.3 trillion today.  But as Greece is demonstrating, there is such a thing as having too much debt and at a certain point the markets no longer have an appetite for so much borrowing.  Average Americans probably have a hard time examining the large numbers being thrown around.  Yet state and local governments are now finding a hard time balancing their budgets.  In many cases, the ability to balance their budget goes in direct conflict with paying out pension distributions.  Or in many cases states need to raise taxes or cut services.

Wall Street enjoys exploiting this fact because they actually loot the public sufficiently with golden parachutes and ridiculous bonuses that they never need any sort of pension.  Yet the truth is, many of the gold plated pensions are just another side of the Wall Street mentality coin.  That coin relies on having others pay for your bailout or extended retirement.

Now Wall Street has implemented the biggest transfer of wealth in history with the $13 trillion in bailouts and backstops.  But many pension funds also bought into what Wall Street was pushing.  Let us examine the California state pension systems.

California Pensions – $500 Billion Underfunded

The Stanford Institute for Economic Policy Research issued a stunning report on the three largest pension systems in California.  The report was titled Going for Broke and what we find is a rather daunting mountain that California has to climb if it seeks to remedy their pension system.

Let us look at the three largest systems:

In total these cover 2.6 million of California state workers.  These are CalPERS (the largest), CalSTRS, and UCRS.  But if you look at the funds performance through the crisis, all of the funds saw 23 to 25 percent declines.  These declines only exacerbate the shortfall of the system.

The odds of shortfalls are virtually assured for all systems.  We are now entering a stage where many workers will be retiring and drawing into the system.  Expectations for deficits are large:

Part of this stems from the notion that markets will always return a standard rate.  As we have seen with the massive market volatility, markets are largely unpredictable especially when they become casinos for the wealthy.

As the report finds, these funds do not have the flexibility required in an unpredictable market:

“A public employee’s pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues upon acceptance of employment. Such a pension right may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity.”

It becomes a matter of law to pay even if the economy has rendered a new reality.  As Greece is showing, having very early retirement rates with generous packages is not supportable with a younger generation that isn’t having larger families.  The math doesn’t work but good luck changing that.  Some will argue that people contribute into these systems.  This is true but not anywhere to cover the actual payout over time:

In other words, there is a shortfall of coverage and a market decline only pushes the problem to the surface for all to see:

“As mentioned earlier, the pressing nature of California pension shortfalls is due in part to the losses CalPERS, CalSTRS, and UCRS sustained in the mar­kets over the past 18 months. CalPERS expects an average annual investment return of 7.75 percent, CalSTRS targets 8.00 percent, and UCRS expects 7.50 percent.”

Those expected rates of return are simply too optimistic.  These funds are expecting 7.5 to 8 percent annual returns in a market that is giving 0 percent rates to savings accounts and 4 percent for 30 year fixed government debt.  Instead of realigning to this low yield environment fund managers went all in to the market and gambled on Wall Street:

It is amazing that many fund managers look at the above as “safe” but it is anything but safe if you are losing 23 percent.  Part of the bets were flat out risky:

“(LA Times) SACRAMENTO — The value of residential real estate investments owned by the country’s largest public pension fund has plummeted 35% — a paper loss of $3.3 billion for current workers, retirees and their state and local government employers.

The California Public Employees’ Retirement System reported Wednesday that in the year ended June 30 its real estate portfolio declined to $6.08 billion from $9.36 billion, based on 461 independent appraisals of its investments in 288,000 housing units across the country.”

Housing, both residential and commercial has not recovered.  So these losses are still likely part of the funds new reality.  The massive rise in equities probably has helped but it is a long way from that 7.5 to 8 percent annual return:

Past performance is no indication of future returns especially when more and more retirees are going to draw from the system:

“In 1999 California passed Senate Bill 400 (SB400), substantially raising benefit factors and lowering retirement ages for public employees (see Table 3). Based on a National Institute on Retirement Security report, average monthly public pension benefits in California were $2,008 in 2006, the eighth highest nationwide.”

Now that $2,008 monthly benefit does not factor in additional healthcare benefits which cost a lot and are also provided.  Just do the quick math, let us assume someone retires at 55 and lives to 85 and receives that $2,008 monthly benefit:

$2,008 x 12 = $48,192 x 30 = $1,445,760 in total paid out

We are also assuming no COLA adjustments which some of these plans have.  We aren’t adding the added healthcare cost which an older retiree will be using up.  Something tells me that a state worker did not even come close to putting in $1.4 million over their working career.  And you wonder why these pension funds combined are projected to have a $500 billion shortfall?  And good luck if the stock market turns lower or simply remains stagnant for years.  California is only one example of many.

The paper lays out a few suggestions including higher contributions, a hybrid 401k/403b system, and safer investments but also a tiered system.  In reality, Wall Street has not wanted to deal with reality and has used the taxpayer as a bailout for their wealth protection.  Now that taxes are being talked about including a value added tax (VAT) people are getting angry.  You didn’t think bailing out Wall Street was free?  The same reality will hit the state pension systems.  Younger workers are going to enter a tiered system where they have to pay out more with no future guarantee while they watch older workers take on funds that they will never see.  I’m sure that is politically going to go over well.

Those of you counting on getting your old assembly line job back in Detroit can forget it.

The recent eight year forecast published by the Bureau of Labor Statistics shows that 4.19 million jobs will be gained in the US in professional and business services, followed by 4 million health care and social assistance jobs, while 1.2 million will be lost in manufacturing. This is great news for website designers, Internet entrepreneurs,  registered nurses, and masseuses in California, but grim tidings for traditional metal bashers in the rust belt manufacturing states like Michigan, Indiana, and Ohio.

I’m so old now that I am no longer asked for a driver’s license to get into a night club. Instead, they ask for a carbon dating. The real challenge for we aged career advisors is that probably half of these new service jobs haven’t even been invented yet, and if they can be described, it is only in a cheesy science fiction paperback with a half dressed blond on the front cover. After all, who heard of a webmaster, a cell phone contract sales person, or a blogger 40 years ago? Where are all these jobs going to? You guessed it, China, and other lower waged, upstream manufacturing countries like Vietnam, where the Middle Kingdom is increasingly subcontracting its own offshoring.

These forecasts may be optimistic, because they assume that Americans can continue to claw their way up the value chain in the global economy, and not get stuck along the way, as the Japanese did in the nineties. The US desperately needs no less than 27 million new jobs to soak up natural population and immigration growth and get us back to a traditional 5% unemployment rate. The only way that is going to happen is for America to invent something new and big, and fast. Personal computers achieved this during the eighties, and the Internet did the trick in the nineties. The fact that we’ve done diddly squat since 2000 but create a giant paper chase explains why job growth since then has been zero, real wage growth has been negative, and American standards of living are falling.

Alternative energy and biotechnology are two possible drivers for a new economy. Unfortunately, the last administration did everything it could to stymie progress in both these fields, coddling big oil so China could steal a lead in several alternative technologies, and starving stem cell researchers of Federal cash, ceding the lead there to others. While the current crop of politicians extol the virtues of education, the reality is that we are dumbing down our public education system. How do we invent the next “new” thing, while shrinking the University of California’s budget by 20% two years in a row? If my local high school can’t afford new computers, how is it going to feed Silicon Valley with computer literate work force? The US has a “Michael Jackson” economy. It’s still living like a rock star, but hasn’t had a hit in 20 years.

China can have all the $20 a day jobs it wants. But if it accelerates its move up the value chain, as it clearly aspires to do, then America is in for even harder times. I’ll be hoping for the best, but preparing for the worst. How do you say “unemployment check” in Mandarin?