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It's a good
thing Fed Chairman Ben Bernanke, the man who saved our
economy, is in charge. Otherwise I might be a bit concerned
about these three (and many other) bailouts-in-the-making:
"FHA Bailout Risk Looming Larger After
Guarantee Binge: Mortgages" (Bloomberg)
The Federal
Housing Administration won’t be able to earn its way to financial
health this year, increasing the chance it will need a taxpayer bailout,
based on an updated forecast from Moody’s Analytics, which provides the
agency’s housing-market analysis.
The U.S.
government mortgage-insurer, which guarantees $1.1 trillion in home loans,
had been counting on “robust growth” in home prices to help
rebuild its insurance fund after paying out $37 billion to cover defaults the
past three years, according to its annual report to Congress, filed in
November.
It won’t
get that growth until 2014, according to the latest outlook from
Moody’s Analytics. Prices will fall 3 percent in fiscal 2012 before
growing 1.4 percent in 2013 and 6.5 percent in 2014, said Celia Chen, a
Moody’s Analytics housing economist who updated her estimate after
providing the housing-market forecast for the FHA’s annual actuarial
report.
“The
FHA’s economic projections are surreal,” said Andrew Caplin, a New York University economics professor who has
testified to Congress on the agency’s finances. “They must
believe there will be very few readers in Congress able to critically review
such a complex report.”
In their annual
review, the FHA’s actuaries -- risk analysts who specialize in
insurance -- used earlier projections that called for increases of 1.2
percent in 2012 and 3.8 percent in 2013. The agency, which backs mortgages
that cover as much as 96.5 percent of a home’s value, is sensitive to
changes in home prices. While the insurance fund’s 2012 outlook called
for net growth of about $9 billion, that will drop
if home prices decline, according to the FHA’s November report.
"The
First Crack: $270 Billion In Student Loans Are At Least 30 Days
Delinquent" (Zero Hedge)
Back in late
2006 and early 2007 a few (soon to be very rich) people were warning anyone
who cared to listen, about what cracks in the subprime facade meant for the
housing sector and the credit bubble in general. They were largely ignored as
none other than the Fed chairman promised that all is fine (see here). A few
months later New Century collapsed and the rest is history: tens of trillions
later we are still picking up the pieces and housing continues to collapse.
Yet one bubble which the Federal Government managed to blow in the meantime
to staggering proportions in virtually no time, for no other reason than to
give the impression of consumer releveraging, was
the student debt bubble, which at last check just surpassed $1 trillion, and
is growing at $40-50 billion each month. However, just like subprime, the
first cracks have now appeared. In a report set to convince borrowers that
Student Loan ABS are still safe - of course they are - they are backed by all
taxpayers after all in the form of the Family Federal Education Program -
Fitch discloses something rather troubling, namely that of the $1 trillion +
in student debt outstanding, "as many as 27% of all student loan borrowers
are more than 30 days past due." In other words at least $270 billion in
student loans are no longer current (extrapolating the delinquency rate into
the total loans outstanding). That this is happening with interest rates at
record lows is quite stunning and a loud wake up
call that it is not rates that determine affordability and sustainability: it
is general economic conditions, deplorable as they may be,
which have made the popping of the student loan bubble inevitable. It also
means that if the rise in interest rate continues, then the student loan
bubble will pop that much faster, and bring another $1 trillion in unintended
consequences on the shoulders of the US taxpayer who once again will be left
footing the bill.
"More
Municipalities Betting on Pension Bonds to Cover Obligations" (Los
Angeles Times)
Local
governments are increasingly borrowing money to plug shortfalls in their
employee pension funds by exploiting a loophole in federal law. Market
experts say the risks and long-term costs are frequently ignored.
-- NEW YORK
Struggling to pay employee pensions, local governments are increasingly
borrowing money to cover their obligations — exploiting a loophole in
federal law that allows them to issue taxable bonds without seeking voter
approval.
Oakland took a
bet on its pension fund that ended up costing the city an estimated $245
million — nearly a quarter of its annual budget. That hasn't stopped
the city from looking to try its luck one more time.
The bets are
being made using an exotic but increasingly popular financial instrument
known as a pension obligation bond. Cities, counties and states use the bonds
to take out high-interest loans from private investors to plug shortfalls in
their employee pension funds.
If the pension
funds make smart investments with the borrowed money, the returns can help
pay the interest due to borrowers and sometimes even spin off some extra cash
to pay pension costs. If they don't, the bonds can create additional costs
for taxpayers, put the retirement funds of teachers and firefighters in
jeopardy, and, in the worst case scenario, force municipalities into
bankruptcy.
Municipal
finance experts are sounding alarms about the practice, saying that local
elected officials are taking unnecessary risk because they are afraid to
anger voters by raising taxes. There is also the risk of instigating powerful
public employee unions if pensions are cut.
"There are
communities that just do not want to make the hard choices, even though it
means the choices in the future will be worse," said Robert Doty, a
municipal finance consultant in Sacramento. "They are just going to dig
themselves deeper and deeper into a hole."
But Apple closed
up on the day, so that's all that matters -- right?
Michael J. Panzner
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