Obama administration takes a stab at meteorology and notes strong headwinds

(Reporting by Alister Bull; Editing by Andrew Hay)
Images courtesy of grandpa (feeling a bit sarcastic on a Friday afternoon...

(Reuters) - The Obama administration warned on Friday the U.S. economy had encountered "strong headwinds" and the country's fiscal challenge remained grim, but it lowered an estimate for the budget deficit this year.

Outlining the country's fiscal path over the next decade, the White House said the numbers were moving in the right direction but the deficit and debt were too high.

"The economy is still struggling; too many Americans are still out of work; and the nation's long-term fiscal trajectory is unsustainable," the White House said in the annual midsession review of President Barack Obama's budget.

Polls show Americans are anxious about the economy and could punish Obama's Democrats in November 2 midterm congressional elections for perceptions of big government spending and high unemployment after a severe U.S. recession.

Investors are also eyeing U.S. debt at a time when European governments are stressing fiscal consolidation. The White House said the country was on track to meet its June commitment to the Group of 20 in Toronto to halve the deficit by 2013.

The administration trimmed an expected funding gap in the current fiscal year by $84 billion to $1.47 trillion versus the estimate released in February. This gap was seen narrowing to $1.42 trillion in 2011.

Republicans jumped on the numbers as proof "Obamanomics" was not working.

"This report confirms that our national debt will double in five years and triple in 10 years. It confirms that our deficits are not sustainable," U.S. House of Representatives Republican Leader John Boehner said in a statement.

The review also tweaked White House assumptions about the economy, which have been criticized as overly optimistic in the past. The White House forecast growth at 3.2 percent this year, 3.6 percent in 2011 and 4.2 percent in 2012. Unemployment will only decline slowly, staying above 6 percent until 2015.

The forecasts were based on data available through May and finalized in early June.

"The most pressing danger we now face is unacceptably weak growth and persistent unemployment, rather than outright economic collapse, and that is a very substantial difference," White House budget director Peter Orszag told reporters.

Job creation is a vital goal for Obama, and will loom large in the November poll, but unemployment has lagged growth and remains at a lofty 9.5 percent.

EUROPEAN RISKS

"The U.S. economy still faces strong headwinds," the White House said, citing a weak housing market and doubts about the recovery in Europe, which could sap demand for exports.

"The European recovery is at risk because of increased uncertainty while government stimulus is withdrawn, and a further slowdown in Europe would pose problems for the rest of the world whose exports to Europe may be reduced," it said.

Britain and Germany have announced austerity plans to reassure investors, contrasting with the U.S. preference of phasing in budget controls going forward.

European Central Bank President Jean-Claude Trichet, in an article in the Financial Times on Friday, urged countries using the common euro currency to "implement a credible medium-term fiscal consolidation strategy."

In contrast, Federal Reserve Chairman Ben Bernanke argued this week the economy still needed fiscal support and it did not make sense to try to rein in this year's deficit.

But he stressed the country needs to curb the deficit over the next 2 to 3 years.

Obama signed a $862 billion emergency stimulus last year, which the White House says helped restore U.S. growth. But his subsequent efforts to increase aid to cash-strapped states and small businesses have been thwarted in Congress, mainly by Republicans in the Senate objecting to more deficit spending.

U.S. government debt held by the public is projected to rise above 70 percent of gross domestic product in 2012 and reach 77 percent by 2020.

Critics warn adding to the deficit could sap investor faith in the administration's commitment to phase in budget controls, risking a sovereign debt crisis here that unnerved European markets earlier this year.

Long-term U.S. interest rates have stayed low despite the grim U.S. budget outlook, supporting the recovery by holding down borrowing costs on things like mortgages and auto loans. But that could quickly change if bond investors took fright.

Obama vows to halve the deficit by 2013, a promise the larger Group of 20 rich and emerging nations also adopted at a meeting in Toronto last month, and the president has appointed a bipartisan commission to suggest how to tackle the fiscal challenge.

Obama's 18-strong panel is expected to recommend a mixture of spending cuts and tax increases when it reports findings by the end of December, well after the congressional vote.

Ken Feinberg goes wimpy and will gladly pay you Tuesday for a hamburger today

Ken Feinberg...talks tough however no action

Shahien Nasiripour
Huffington Post

The federal overseer entrusted with investigating Wall Street pay has declined to take action, arguing that the public wouldn't be served by going after $1.6 billion that 17 financial firms doled out to their employees in the five months after taxpayer-bailouts began in the fall of 2008.

Among other duties, Congress granted Kenneth R. Feinberg, the Obama administration's "pay czar," the legal authority to attempt to recover excessive compensation that may have been contrary to the "public interest."

Though acknowledging the massive payouts were "ill-advised" and exhibited "bad judgment" -- some bankers were paid more than $10 million, he said -- Feinberg refused to rule that any of the massive payouts went against the public's interest.

"As a matter of fairness, to label these payments years later as contrary to the public interest, with all the consequences that might roll from that?" Feinberg asked. "No, I don't think that would be right."

Asked what consequences could arise from recouping public funds, Feinberg replied:

"The consequences might be lawsuits, private lawsuits -- a huge threat if I made that finding. Congress might very well be more willing to intervene if there was such a finding. This might go on. There might be a new chapter. There still might be a new chapter -- I don't know.

"But I'm trying to minimize the likelihood that today's decision will trigger another round now of investigations and litigation. I've tried to strike that balance."

That balance Feinberg struck means bailed-out bankers get to keep their loot while taxpayers are left holding the bag.

The 17 firms are American Express, AIG, Boston Private Financial Holdings, Capital One, Bank of America, CIT Group, Citigroup, JPMorgan Chase, M&T Bank, Morgan Stanley, Regions Financial, SunTrust Banks, Bank of New York Mellon, Goldman Sachs, PNC Financial Services, U.S. Bancorp, and Wells Fargo.

The group represents 15 of the 32 biggest banks in the country, including the six biggest, Federal Reserve data show. AIG was once the world's largest insurer. Boston Private Financial Holdings has less than 1,000 employees.

Feinberg reviewed the pay of the top 25 executives at 419 bailed-out firms. He decided to focus on those 17, as they doled out $1.6 billion of the $1.7 billion in questionable pay. After speaking with the firms, Feinberg issued a set of voluntary recommendations. One of them was for firms to restructure their pay practices so employees wouldn't be guaranteed payouts if their firms faltered.

Feinberg said banks told him that they had to pay out such huge sums because they were contractually obligated to. Feinberg thinks firms should be free to restructure or even cancel those contracts. The banks told him they'd take his recommendations "under advisement."

That money "is just the tip of the iceberg that needs to be recouped from Wall Street," said Stephen Lerner, who directs the bank and financial reform campaign for the Service Employees International Union (SEIU). The SEIU has 2.2 million members, according to its website.

"This is a lead-in to a bigger problem," Lerner continued. "We've got pension funds that lost hundreds of billions of dollars. We've got cities and states that are having to lay off firefighters because they got stuck in bad deals with Wall Street. It's critical that we recoup...that money."

Told that Feinberg said he wanted to minimize the amount of new litigation and investigations, Lerner said that Feinberg's findings "open a Pandora's box of why there aren't bigger investigations, why there isn't more litigation, and why there aren't more efforts to recoup [Wall Street's] ill-gotten gains.

"The notion that we can wash our hands and say everything is fine now is crazy," he added.

Feinberg said that of the 17 firms, 11 had fully repaid their TARP money, plus interest. That factored into his decision over whether to crack down on the banks.

"I think we did our best here at Treasury in balancing second-guessing, armchair-quarterbacking with a statutory mandate to seek reimbursement in appropriate cases," the pay master said. "With Congress providing not much guidance on how to take a look at these companies," he added. "I am very comfortable with our findings.

"As to the remaining 17 [firms], I point with a great deal of pride that 11 of them have already reimbursed the taxpayer. I mean, I really do think that is the best example...of the wisdom of TARP and how these companies were saved by the taxpayer," Feinberg said.

He added that "we all move forward with lessons learned and that we put this sad chapter behind us and look forward."

Link to other Shahien Posts...worth reading

Rep. Walt Minnick wants to bailout commercial real estate investors...Hey Walt, I lost money on my garage sale...any chance of a bailout?

For the sake of our grandchildren Walt, GIVE IT UP! When one invests in commercial real estate, the purchase agreement does not come with a guaranty! Many of us experience financial challenges and believe it or not Walt, the world is not always fair and crappy things happen due to conditions beyond our control. You have grandchildren so how about giving them a break and the millions of other grandchildren by not exposing them to any additional financial risk.

Your website states Walt Minnick, "Right for Idaho". You take care of the grandkids in Idaho and give non-Idaho grandkids a flipping break!!

By Jessica Holzer
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--A U.S. House lawmaker suggested Wednesday his proposal to shore up the troubled commercial real estate industry has momentum in both chambers of Congress.

The yet-to-be introduced legislation would authorize the U.S. Treasury to provide as much as $15 billion to $25 billion in guarantees on new loans to the sector.

The temporary program would aim to halt the slide in commercial real estate prices that is battering banks' balance sheets and making it difficult for property owners to renew their existing financing.

Rep. Walt Minnick (D., Idaho), who plans to introduce the measure by Thursday with co-sponsors from both parties, said three senators are working on companion legislation in the upper chamber.

The plan is likely to face resistance from lawmakers trying to rein in spending. Minnick said he was still finalizing the details of the measure but expects to have the administration's support.

"We anticipate that they will support our plan based on preliminary discussions we've had with [Treasury] staff," he told reporters at a real estate forum hosted Wednesday by the U.S. Chamber of Commerce.

Under the measure, Treasury would guarantee bonds backed by small-balance loans financing strip malls, office parks and other commercial properties.

In exchange, it would collect fees in the amount of 2% of each underlying loan in the bond.

To qualify for the federal backing, the bond would have to carry an investment-grade rating and each underlying loan in the security would have to be for $10 million or less. The program would phase out after three years.

Minnick said the House Financial Services Committee would hold a hearing on his proposal next Thursday. He said Democratic House leaders had assured him the measure would get a vote in that chamber in September. However, the proposal must first be approved by the Financial Services panel.

The deep recession has sent delinquencies on commercial real estate loans soaring as high vacancies have dried up property owners' revenue.

Meanwhile, trillions of dollars of commercial real estate debt are coming due over the next few years amid a crash in property values that is making it difficult for owners to sell or refinance. Commercial real estate prices have plummeted by 40% in some markets from the highs seen in 2007.

Large banks such as Wells Fargo (WFC), J.P. Morgan (JPM) and Bank of America (BAC) that aggregate commercial real estate loans into bonds have been unwilling to hold smaller loans, even for a short while, before packaging them for investors, an aide of Minnick said. The federal guarantee would spur them to purchase such loans, injecting liquidity into the market, the aide said. Community banks could use the proceeds to make new loans, helping to buoy prices.

The program would be overseen by a new board housed at Treasury that would set underwriting criteria. The Treasury secretary, the Federal Deposit Insurance Corp. chairman, the Federal Reserve chairman and other federal regulators would sit on the board, along with four industry experts.

Sens. Charles Schumer (D., N.Y.), Mike Crapo (R., Idaho) and Bob Corker (R., Tenn.) will soon introduce a companion measure in the Senate, Minnick said.

Financial Reform Bill grants FDIC Santa Claus status in July

Yes Amercia, Congress once again sticks it to our grandchildren by affording the financially irresponsible with a retroactive gift. The FDIC was granted Santa Claus status in July. It was no secret that the FDIC insured limit was $100,000 in 2008 as it was increased to this level in 1980. The FDIC estimates Santa Claus visits to 9,500 people this month to once again bestow financial gain to the irresponsible.

One can safely assume that a measuable number of the 9,500 receiving a visit from Donner, Prancer, Comet and Vixen (a.k.a. Sheila Bair) will show their appreciation with additional contributions prior to the November elections.

Twas the night before a July Christmas, when all through the house
Not a creature was stirring, not even a mouse.
The FDIC claim forms were hung by the chimney with care,
In hopes that St Sheila Bair soon would be there.
The depositors were nestled all snug in their beds,
While visions of large sums of free money danced in their heads.

 

FDIC Press Release (July 21, 2010)

The Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law by President Barack Obama today permanently raised the maximum deposit insurance amount to $250,000. In addition, the Act made this increase retroactive to January 1, 2008.

The provision making the law retroactive means that the $250,000 deposit insurance amount applies to banks that failed between January 1 and October 3, 2008. These insured institutions are:

•Hume Bank, Hume, MO
•ANB Financial, N.A., Bentonville, AR
•IndyMac Bank, F.S.B., Pasadena, CA
•First Priority Bank, Bradenton, FL
•The Columbian Bank and Trust Company, Topeka, KS
•Silver State Bank, Henderson, NV

This retroactive increase has reduced the number of uninsured depositors at these failed institutions from more than 10,000 to approximately 500.

The FDIC will mail checks to uninsured depositors tomorrow, July 22, 2010. To learn more, uninsured depositors of these institutions can visit the FDIC's Web site at Link to Santa Claus Central

Since May 5th, 2010, $38.990 BILLION has been withdrawn from Domestic Equity Funds.

Washington, DC, July 21, 2010 - Total estimated inflows to long-term mutual funds were $2.96 billion for the week ended Wednesday, July 14, the Investment Company Institute reported today. Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

Equity funds had estimated outflows of $3.27 billion for the week, compared to estimated outflows of $4.29 billion in the previous week. Domestic equity funds had estimated outflows of $3.16 billion, while estimated outflows from foreign equity funds were $113 million.

Total Domestic Equity Flows/Week Ending
-$3.157 Billion 7/14/10
-$4.115 Billion 7/7/10 (huge outflow and the Standard and Poor's 500 up 55 points during the very same week)

-$227 Million 6/30/10
-$1.248 Billion 6/23/10
-$1.824 Billion 6/16/10
-$3.660 Billion 6/9/10
-$1.117 Billion 6/2/10
-$13.442 Billion 5/26/10
-$745 Million 5/19/10
-$7.018 Billion 5/12/10
-$2.437 Billion 5/5/10

Since May 5th, 2010, $38.990 BILLION has been withdrawn from Domestic Equity Funds.

The U.S. Equity market is clearly broken. Retail investors yanking billions of dollars from equity funds albeit the robots continue to push the market higher (Dow up 220 points at the time of this post). Mark grandpa's words, this will all end very badly....

Do yourself, your children and grandchildren a favor....turn off CNBC and spend several hours a week reading and researching information so you are better prepared to manage YOUR MONEY. Wall Street remains a financial furnace and it is fueled by your hard earned money. Do you really want to risk entrusting your childrens' future to the likes of Mad Money's Jim Cramer and the Fast Money traders. THEY ARE TRADERS and get to spew whatever they want and they  ALWAYS stand to benefit more than you!