City of Chicago’s cash plummets, debt triples, arrests drop

Mayor Rahm Emanuel closed the books on 2012 with $33.4 million in unallocated cash on hand — down from $167 million the year before — while adding to the mountain of debt piled on Chicago taxpayers, year-end audits show.

Last week, Moody’s Investors ordered an unprecedented triple-drop in the city’s bond rating, citing Chicago’s “very large and growing” pension liabilities, “significant” debt service payments, “unrelenting public safety demands” and historic reluctance to raise local taxes that has continued under Emanuel.

The 2012 city audits explain why. They show that an unallocated balance that was $167 million a year ago because of Emanuel’s aggressive cost-cutting efforts has dropped to $33.4 million.

Budget Director Alex Holt blamed the $133.6 million drop on “honest” budgeting and ending the long-standing practice of carrying “ghost” vacancies. Read more >>

Just what does a debt-laden, dysfunctional US economy have to do to get a ratings downgrade?

What exactly does a debt-laden, politically dysfunctional major economy have to do to get a ratings downgrade around here?

In 2011, the U.S. earned the ignominious distinction of being the first of several post-financial crisis era economies to be stripped of a triple-A credit rating. Yet since then, Washington has lurched from one budget crisis to the next, with no plan for arresting the growing federal debt burden.

In spite of those factors, the ratings agency triumvirate of Moody's, Fitch and Standard & Poor's — the only firm to actually mete out a U.S. downgrade thus far — have been strangely reluctant to pull the trigger on another ratings cut.

Even still, America's problems — including political paralysis, oceans of red ink and stunted growth — are mounting.

The refusal to cut the U.S. again is curious, given that the Sword of Damocles has already fallen on both Britain and France — the euro zone's second-largest economy, which has been downgraded on two separate occasions by two different ratings firms. Read more >>

ADP "Cancels" 365,000 Private Jobs Created In 2012

Today, our mockeries have been proven 100% spot on. The reason? A week ago, ADP announced that going forward it would coordinate with Moody's (yes, that Moody's), and especially its chief economist, SecTres hopeful (InTrade odds of actually attain that post: 0.00) Mark Zandi, to fudge adjust its data going forward. The data revision was supposed to be publicly disclosed tomorrow when the official October ADP number was released.

Well, just like today's Chicago PMI, and so many other data points recently, this too was released early. What the early release allowed us to promptly calculate is that using the historically revised numbers, and comparing those based on the original methodology, in 2012 alone, the US would have lost a whopping... 365,000 private jobs!

Putting thus number in context, according to the revised methodology, the US has generated only 1.172MM jobs in 2012 through September, or in other words, a statistical "fix" magically eliminated over 30% of what the market had previously expected were job gains, a number which the incumbent president has certain taken advantage of on more than one occasions while campaigning. Read more >>

Moody's downgrades world's oldest bank to 'junk'

Moody's credit rating agency on Thursday downgraded the world's oldest bank, Italy's Banca Monte dei Paschi di Siena, to "junk" status on worries government recapitalisation plans will prove insufficient.

The lowering of BMPS's rating by two notches to "Baaa3", a non-investment grade, reflects Moody's view that "there remains a material probability that the bank will need to seek further external support," the agency said.

Critically exposed to the eurozone debt crisis, in June BMPS was forced to accept a government bailout, borrowing roughly 1.5 billion euros ($1.87 billion) in order to pay off debt and shore up its capital.

The bank has also said it would reduce its workforce by 4,600 people by 2015.

Source

Spain Downgraded to One Level Above Junk

Spain’s debt rating was cut to one level above junk by Standard & Poor’s, which cited mounting economic and political risks as the government considers a second bailout. The country was lowered two levels to BBB- from BBB+, New York-based S&P said in a statement yesterday. S&P assigned a negative outlook to the nation’s long-term rating and lowered the short-term sovereign level to A-3 from A-2.

“The negative outlook on the long-term rating reflects our view of the significant risks to Spain’s economic growth and budgetary performance, and the lack of a clear direction in euro-zone policy,” S&P said. “The deepening economic recession is limiting the Spanish government’s policy options.”

The downgrade comes after Spain announced a fifth austerity package in less than a year and published details of stress tests of its banks. Creditworthiness concerns have grown since the government requested as much as 100 billion euros ($128 billion) in European Union aid to shore up its lenders and amid signals that the deficit target is in jeopardy. Read more >>

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Moody's downgrades 13 Italian banks

Ratings agency Moody's Investors Service is downgrading the credit ratings for 13 Italian banks three days after cutting the Italian government's bond rating.

The government's lower rating means Moody's believes it is at greater risk of defaulting on its debts and "indicates a similarly increased risk that the government might be unable to provide financial support to its banks in financial distress."

Moody's dropped seven banks by one notch, the other six by two notches. They all remain investment grade.

The downgraded banks are: UniCredit and UniCredit Leasing; Intesa Sanpaolo; Banca Carafirenze; Banca IMI; Banca Monte Parma; Cassa di Risparmio di Parma e Piacenza; Banca Popolare Friuladria; Banca Carige; Credito Emiliano; GE Capital SpA; Cassa Depositi e Prestiti; and Istituto Servizi Mercato Agricolo Alimentare. Read more >>

5 Banks Downgraded in Spain Along With Largest Bank Bailout in Spain’s History

Tiffany Hsu
Los Angeles Times
Standard & Poor’s just slashed the credit ratings of five banks and said the country is headed into a double-dip recession. One of them, Bankia, just asked the government for 19 billion euros in aid - a roughly $23.8 billion boost.

That makes it the largest bank bailout in Spain’s history. Combined with escalating concerns that Greece is about to execute its so-called Grexit from the euro currency, the news is doing nothing to alleviate the heightened anxiety in the euro zone.

3 Portuguese Banks Lose More Than 660 Million in 5 Days

Bank Millennium 

Cut the rating of Spanish banks and the poor performance of the largest Portuguese banks have caused a loss of more than EUR 660 million in capitalization of the BES, Millennium bcp and the BPI.

Within a year, the market value of the BES, Millennium bcp and the BPI fell 61%. Only at the end of last week, after the rating of Spanish banks have been revised downwards again, the three Portuguese private banks lost more than 660 million in market capitalization.

BES was the bank most penalized, having lost about 570 million of value in exchange, as a result of a fall of 22.26% in the share price. Millennium bcp, that seemed no longer able to fall much more, yet depreciated 4.85%, with its share to fall up to 9.6 cents.

Translated Source

Biggest Weekly Loss For S&P Since November 2011

The world’s richest people lost a combined $32.8 billion this week as concerns over a possible Greek exit from the euro area pushed the Standard &Poor’s 500 index to its biggest weekly loss since November 2011.

Mexican Carlos Slim, 72, lost the most during the week, as shares of his Mexico City-based telecommunications company America Movil SAB fell 4.38 percent. Slim, who lost $4.1 billion, remains the world’s richest person with a $65.5 billion fortune, according to the Bloomberg Billionaires Index.

The S&P 500 fell 4.3 percent to 1295.22 during the week as Greece failed to form a government and Moody’s Investors Service downgraded 16 Spanish banks, citing a recession and mounting loan losses. The S&P 500 is down almost 9 percent since April 2. More...

Longest Loss Streak For Japan Stocks Since 2001

Japanese stocks fell, with the Topix Index capping the longest streak of weekly losses since the Sept. 11 attacks in 2001, as exporters declined after U.S. economic data missed estimates and a rating cut of Spanish banks fueled concern Europe’s debt crisis is deepening.

Sony, Japan’s No. 1 exporter of consumer electronics that depends on Europe and the U.S. for 38 percent of its sales, fell 5.3 percent. Hitachi Construction Machinery Co. led machinery makers lower after industry bellwether Caterpillar Inc. said its sales growth slowed. Mizuho Financial Group Inc., Japan’s third-largest bank by market value, paced losses among lenders, dropping 3.4 percent after Moody’s Investors Service downgraded 16 Spanish banks.

The Topix index fell 2.9 percent to 725.54 as of the 3 p.m. trading close in Tokyo, capping its biggest daily loss since Aug. 5. The measure fell 4.3 percent this week, its seventh week of decline. It has dropped for seven straight weeks only twice since November 1977 -- in 2001 and 1995. About eight stocks fell for each that rose. More...

Moody’s Issues Capital Warning to Global Banks - May Downgrade 17 Banks

Moody’s has warned that the tendency of global banks to avoid new capital requirement rules and load up on debt will continue to put pressure on their creditworthiness.

The credit rating agency announced it was placing 17 banks on review for a downgrade earlier this year, citing “vulnerabilities” in the companies’ vast and volatile capital markets businesses. The potential downgrades have become a talking point on Wall Street, with some bankers openly criticizing Moody’s and others privately attempting to change the agency’s mind in closed-door meetings.

But in an interview with the Financial Times, Moody’s banking analysts said the agency was updating its financial ratings to take into account the historical tendency of banks to leverage their balance sheets and arbitrage global financial rules, often to the detriment of the banks’ own health and the safety of the wider banking system. Moody’s caution could see all 17 banks downgraded when the review is finally completed, expected to happen in mid-June. More...

Consumer prices up 2.3% from last year

money.cnn.com
Consumer prices in March rose at a faster pace on an annual basis amid higher utility costs, the government reported Wednesday.

The Consumer Price Index, the government's key measure of inflation, rose 2.3% over the past 12 months, driven by a 41% climb in gasoline costs during the period. In February, prices climbed 2.1% from the previous year.

The core CPI, which economists eye closely because it strips out volatile food and energy prices, was up 1.1% from a year earlier. In February, it inched 1.3% higher year over year.

March: Overall prices inched up 0.1% in the month, as rising costs for electricity were offset by declines in gasoline prices. The increase was in line with the 0.1% gain projected by economists. Prices did not budge in February.

Core CPI for the month of March was unchanged, compared to a 0.1% increase in February. Economists had forecast a 0.1% bump up.

"The rate of inflation was very low this month and still somewhat below the historical average," said Andres Carbacho-Burgos, an economist for Moody's Economy.com.

Historically, CPI stood between an annual rate of 2.4% to 2.5% and core CPI ran from 1.7% to 1.8% annually, he added.

The run-up in March CPI was driven in part by a 2.1% increase in electricity costs, which was offset slightly by a dip in home gas prices. Overall food prices edged up 0.2% during the month.

According to Carbacho-Burgos, the "abnormal" run-up in electricity prices could be related to "some unseasonable variation" in the price of coal, a key component in electricity creation, due to February's volatile weather.

Prices for new and used cars and trucks, airline fares and medical care costs were higher, with medical costs rising for the third straight month. Conversely, the costs for housing and clothing fell. more...

States Use Fraud and Thievery to Mask Debt and Plug Holes

State Debt Woes Grow Too Big to Camouflage

By MARY WILLIAMS WALSH
California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay.

And states are responding in sometimes desperate ways, raising concerns that they, too, could face a debt crisis.

New Hampshire was recently ordered by its State Supreme Court to put back $110 million that it took from a medical malpractice insurance pool to balance its budget. Colorado tried, so far unsuccessfully, to grab a $500 million surplus from Pinnacol Assurance, a state workers’ compensation insurer that was privatized in 2002. It wanted the money for its university system and seems likely to get a lesser amount, perhaps $200 million.

Connecticut has tried to issue its own accounting rules. Hawaii has inaugurated a four-day school week. California accelerated its corporate income tax this year, making companies pay 70 percent of their 2010 taxes by June 15. And many states have balanced their budgets with federal health care dollars that Congress has not yet appropriated.

Some economists fear the states have a potentially bigger problem than their recession-induced budget woes. If investors become reluctant to buy the states’ debt, the result could be a credit squeeze, not entirely different from the financial strains in Europe, where markets were reluctant to refinance billions in Greek debt.

“If we ran into a situation where one state got into trouble, they’d be bailed out six ways from Tuesday,” said Kenneth S. Rogoff, an economics professor at Harvard and a former research director of the International Monetary Fund. “But if we have a situation where there’s slow growth, and a bunch of cities and states are on the edge, like in Europe, we will have trouble.”

California’s stated debt — the value of all its bonds outstanding — looks manageable, at just 8 percent of its total economy. But California has big unstated debts, too. If the fair value of the shortfall in California’s big pension fund is counted, for instance, the state’s debt burden more than quadruples, to 37 percent of its economic output, according to one calculation.

The state’s economy will also be weighed down by the ballooning federal debt, though California does not have to worry about those payments as much as its taxpaying citizens and businesses do.

Unstated debts pose a bigger problem to states with smaller economies. If Rhode Island were a country, the fair value of its pension debt would push it outside the maximum permitted by the euro zone, which tries to limit government debt to 60 percent of gross domestic product, according to Andrew Biggs, an economist with the American Enterprise Institute who has been analyzing state debt. Alaska would not qualify either.

State officials say a Greece-style financial crisis is a complete nonissue for them, and the bond markets so far seem to agree. All 50 states have investment-grade credit ratings, with California the lowest, and even California is still considered “average,” according to Moody’s Investors Service. The last state that defaulted on its bonds, Arkansas, did so during the Great Depression.

Goldman Sachs, in a research report last week, acknowledged the pension issue but concluded the states were very unlikely to default on their debt and noted the states had 30 years to close pension shortfalls.

Even though about $5 billion of municipal bonds are in default today, the vast majority were issued by small local authorities in boom-and-bust locations like Florida, said Matt Fabian, managing director of Municipal Market Advisors, an independent consulting firm. The issuers raised money to pay for projects like sewer connections and new roads in subdivisions that collapsed in the subprime mortgage disaster.

The states, he said, are different. They learned a lesson from New York City, which got into trouble in the 1970s by financing its operations with short-term debt that had to be rolled over again and again. When investors suddenly lost confidence, New York was left empty-handed. To keep that from happening again, Mr. Fabian said, most states require short-term debt to be fully repaid the same year it is issued.

Some states have taken even more forceful measures to build creditor confidence. New York State has a trustee that intercepts tax revenues and makes some bond payments before the state can get to the money. California has a “continuous appropriation” for debt payments, so bondholders know they will get their interest even when the budget is hamstrung.

The states can also take refuge in America’s federalist system. Thus, if California were to get into hot water, it could seek assistance in Washington, and probably come away with some funds. Already, the federal government is spending hundreds of millions helping the states issue their bonds.

Professor Rogoff, who has spent most of his career studying global debt crises, has combed through several centuries’ worth of records with a fellow economist, Carmen M. Reinhart of the University of Maryland, looking for signs that a country was about to default.

One finding was that countries “can default on stunningly small amounts of debt,” he said, perhaps just one-fourth of what stopped Greece in its tracks. “The fact that the states’ debts aren’t as big as Greece’s doesn’t mean it can’t happen.”

Also, officials and their lenders often refused to admit they had a debt problem until too late. More...

Morgan Stanley accused of conspiring with rating agencies to defraud investors

Reuters
Morgan Stanley has been sued by a Virgin Islands pension fund that accused the Wall Street bank of defrauding investors by marketing $1.2 billion (753 million pounds) of risky mortgage-related notes that it expected to fail.

The lawsuit filed December 24 in Manhattan federal court said Morgan Stanley collaborated with credit rating agencies Moody's Investors Service and Standard & Poor's to obtain "triple-A" ratings for notes marketed in 2007 as part of a collateralized debt obligation (CDO) known as Libertas.

According to the complaint, the CDO was backed by low-quality assets, including securities issued by subprime lenders New Century Financial Corp, which quickly went bankrupt, and Option One Mortgage Corp, then owned by H&R Block.

The complaint alleged Morgan Stanley knew the CDO's assets were far riskier than the ratings suggested, but was "highly motivated to defraud investors" with pristine ratings because it was simultaneously "shorting" almost all the assets. This was a bet that their value would fall, which they did in 2008.

"Morgan Stanley was betting the entire investment it was promoting would fail," according to the complaint, which was made available on Tuesday. "The firm achieved its objective."

Alyson Barnes, a Morgan Stanley spokeswoman, declined to comment. S&P spokesman Frank Briamonte had no immediate comment. Moody's did not immediately return a call seeking comment. Moody's, a unit of Moody's, and S&P, a unit of McGraw-Hill Cos, were not named as defendants.

Many banks face lawsuits from investors who say they were misled into investing in securities they believed were safe but which were in fact tied to risky subprime mortgages.

Morgan Stanley is also a defendant in a closely watched case in the same Manhattan court that concerns whether rating agencies deserve free speech protection for their opinions.

The December 24 complaint said Morgan Stanley knew securities in the Libertas CDO were suffering a dramatic rise in delinquencies, but provided a misleading "risk factor" in a prospectus that rising delinquencies "may" hurt values in the $1 trillion residential mortgage-backed securities market.

It called this representation "analogous to Captain Smith's telling passengers of the Titanic that some ships have 'recently sunk' in the Atlantic and therefore 'our ship may sink,' without mentioning the facts that his ship struck an iceberg, had a hole in it, and was filling with water."

The lawsuit seeks class-action status, and also seeks compensatory and punitive damages, among other remedies. It was filed by Coughlin Stoia Geller Rudman & Robbins LLP, a law firm specializing in securities class-action lawsuits.

Morgan Stanley shares were up 22 cents at $29.51 in afternoon trading on the New York Stock Exchange.

The case is Employees' Retirement System of the Government of the Virgin Islands v. Morgan Stanley & Co et al, U.S. District Court, Southern District of New York, No. 09-10532.

Credit Rating Agency Scam and Latest Dollar Rally

AL MARTIN via conspiracyplanet.com
The deteriorated credit ratings of sovereign debt, especially as we see it in Dubai, Greece and Ukraine, etc., has rankled global equity markets.

This has also driven money into the US Dollar and is primarily responsible for the recent rally we've seen in the Dollar.

Sovereign debt is the debt of foreign nations, Second and Third World governments, denominated in a currency other than its own, to wit US Dollars, Yen, Pounds or Euros.

This sovereign debt has been sold and is payable in a currency other than that of the issuing country.

Usually the largest amount of sovereign debt outstanding is denominated in US Dollars and Japanese Yen.

So what does the credit rating downgrade of the government debt of Greece and Dubai debt really mean?

This is a problem which everyone knows about, but which has been, until recently, successfully hidden by what I call the Wanton Bullish Shills in the media.

Credit ratings agencies, like Standard & Poors, Moody's and Fitch's, are being disingenuous at best regarding their rating system.

They are independent for-profit corporations, yet they masquerade as allegedly objective credit ratings agencies in a monopolistic role deciding what is "credit-worthy” or not.

The problem with the credit rating agencies is the inherent conflict of interests and since there are only three of them, universally recognized by the central banks, the IMF, BIS, etc., they can get away with it.

The credibility of the credit rating agencies has obviously been hurt because they dragged their feet in downgrading Credit Default Swaps (CDS) and Collateralised Debt Obligations (CDOs) in 2007-2008.

The credit quality of that debt was obviously deteriorating, and it also pointed out the flaws in the credit rating agencies, namely that they are paid by the very same issuers of the debt they are rating.

The principal problem is that every effort that the Democrats have made to make the ratings agencies truly independent by either making them some sort of quasi-government entity, or by creating a so-called payment pool, or even a securities transaction tax that would be paid by the industry into a common pot that would then be managed by either the FDIC or SIPC, which in turn would pay the credit rating agency.

That would remove the direct connection between the issuers of securities and the credit rating agencies who are rating them. Every effort to make them more independent has been stifled by the Republicans.

And what about the weakness in the credit ratings of the sovereign debt of Greece and Ukraine? The agencies had been warning for the last half of 2009 that problems were coming in the Greek, Hungarian, Latvian, Ukrainian, etc. economies. They had acted to downgrade the sovereign debt of these nation-states.

In fact now Moodys, Standard and Poors and Fitch's have a total of 37 nation-states on their downgrade list. These are not Third World nation states, whose credit quality is perennially "junk" status anyway. What has become more troublesome is the sharp deterioration in the credit quality of so-called Second World nation state issuers as well. This would include Spain, Iceland, Greece Hungary etc.

At the same time, the credit rating agencies have also been warning First World nation-states like the United States and Britain that they can also lose their AAA credit ratings if they do not rein in their budget deficits.

Japan has also received similar warnings since the Japanese are now running a debt to GDP ratio of about 130%.

Dubai is just a harbinger of things to come for sovereign debt

Jeremy Warner
Telegraph
Watch out. This may be just the beginning. In the scale of things, the debt problems of Dubai are little more than a flea bite. Dubai’s sovereign debts total “just” $80bn, which counts for nothing against the trillions being raised by advanced economies to plug fiscal deficits.

Small wonder, though, that this minor tremor has sent such shock waves around the wider capital markets. The fear is that threatened default in this tiny desert kingdom is just a harginger of things to come for government debt markets as a whole. According to new estimates by Moody’s, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 per cent between 2007 and 2010 to $15.3 trillion. The great bulk of this increase comes not from irrelevant little states like Dubai, but from the big advanced economies – America, Europe, and Japan.

Perversely, they are for the time being beneficiaries of the “flight to safety” that trouble in Dubai has sparked. Government bond yields in the major advanced economies have fallen in response to the crisis in the Gulf. If experience of the banking crisis, when investors removed their money from one bank only to find that the one they had put it into looked just as dodgy, is anything to go by, this effect will not last.

Up until now, markets have assumed that the ruinous fiscal cost of addressing the financial and economic crisis was probably just about affordable to the major economies. That view may be about to be challenged.

I’m going to be writing more about the fallout for Dubai and its implications for the advanced economies in tomorrow’s paper.