The state budget shortfall in California has increased dramatically in the last six months, forcing state officials to assemble a series of new spending cuts that are likely to mean further reductions to schools, health care and other social programs already battered by nearly five years of budget retrenchment, state officials announced on Saturday.
Gov. Jerry Brown, disclosing the development in a video posted on YouTube, said that California’s shortfall was now projected to be $16 billion, up from $9.2 billion in January. Mr. Brown said that he would propose a revised budget on Monday to deal with it.
“We are now facing a $16 billion hole, not the $9 billion we thought in January,” Mr. Brown said. “This means we will have to go much further and make cuts far greater than I asked for at the beginning of the year.”
Mr. Brown disclosed the news in a video that had all the trappings of a campaign announcement. In it, he aggressively accounted for the steps he said he had taken to try to scale back a $26 billion deficit he found upon taking office. And he urged viewers to back an initiative he is putting on the November ballot that would increase sales taxes by 0.25 percent and impose an income tax surcharge on wealthy Californians to try to stave off more cuts
State officials said Mr. Brown’s proposal would include a package of immediate cuts, as well as others that would be triggered only if voters failed to approve his tax plan. The sales tax increase would expire after four years, while the income tax surcharge would last for seven years.
State officials said the shortfall was a result of disappointing revenue collections in April as California continued to struggle to pull out of the recession. “We are still recovering from the worst recession since the 1930s,” Mr. Brown said.
Still, the state controller reported that the state had exceeded spending by $2.1 billion as well, though Mr. Brown said court rulings and other actions that restricted California from making the cuts were at least partly to blame.
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Ally Financial Inc's Residential Capital unit is nearing a bankruptcy filing, sources familiar with the situation said on Sunday, in a move that could help the taxpayer-owned auto lender to shed its troubled mortgage business but also spur drawn-out legal fights.
The board of ResCap is scheduled to meet later on Sunday and a pre-arranged bankruptcy filing, where Ally has the support of some creditors to its plan but not all, is expected to follow soon after, the sources said.
Under the plan, Fortress Investment Group is expected to make an opening bid of more than $2 billion, including debt, to buy certain ResCap assets, while Ally would buy the rest, in a bid to turn all ResCap assets into cash, a source said.
Treasuries rose, driving the 10-year yield to a seven-month low, as Greece’s leaders prepared for more talks on forming a government amid concern failure will force the nation from the euro area.
U.S. debt advanced for a second day, with seven-year note yields falling to a record low 1.1679 percent, after the party of German Chancellor Angela Merkel was defeated in an election in the nation’s most-populous state. The difference between the two-year swap rate and the yield on similar-maturity U.S. debt widened to the most since January.
“The fear out of Europe continues as the rhetoric about the possibility of Greece leaving the euro zone gets stronger,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “The global growth concerns haven’t left flight, and as such, Treasuries continue to benefit, with investors buying any dip in prices on the march to lower yields.”
The benchmark 10-year yield slid seven basis points, or 0.07 percentage point, to 1.76 percent at 5 p.m. New York time, after touching the least since Oct. 4. The 1.75 percent note due May 2022 added 21/32, or $6.56 per $1,000 face amount, to 99 28/32, according to Bloomberg Bond Trader prices.
Ten-year yields reached a record low 1.67 percent on Sept. 23 after a Group of 20 finance chiefs failed to ease concern the global economy was on the brink of another recession.
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U.S. stocks declined, sending the Dow Jones Industrial Average to the lowest level since January, as Greece struggled to form a new government amid growing speculation the nation may leave the European currency.
Financial and energy shares fell the most among 10 groups in the Standard & Poor’s 500 Index. JPMorgan Chase & Co. and Bank of America Corp. sank at least 2.6 percent as European lenders slumped. Alcoa Inc. and Schlumberger Ltd. slid more than 1.5 percent to pace declines in commodity producers. Symantec Corp. the biggest seller of security software, retreated 1.4 percent after Goldman Sachs Group Inc. cut its recommendation.
The S&P 500 slid 1.1 percent to 1,338.35 at 4 p.m. New York time, the lowest since Feb. 2. The Dow fell 125.25 points, or 1 percent, to 12,695.35. The Chicago Board Options Exchange Volatility Index, which measures the cost of using options as insurance against S&P 500 losses, rose 10 percent to an almost four-month high of 21.87. About 6.6 billion shares changed hands on U.S. exchanges, in line with the three-month average.
“The fear factor is definitely higher,” said Madelynn Matlock, who helps oversee about $14.7 billion at Huntington Asset Advisors in Cincinnati. “The whole European (SX7P) political situation is really the focus at this point. Nobody really knows what’s going to happen next and the market hates uncertainty.”
Global stocks fell as Greece’s political deadlock went into a second week after President Karolos Papoulias failed to secure agreement on a unity government. Alexis Tsipras, leader of Greece’s Syriza party, said Europe must reexamine its policy of austerity and that his party wants Greece to stay in the euro.
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The number of Federal Housing Administration-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later. The FHA’s role in lending to first-time buyers with poor credit and limited cash expanded after the 2008 collapse of the mortgage market put it at the center of government efforts to revive housing. The FHA allows down payments as low as 3.5% for borrowers with a credit score of 580, below the 640 defined as subprime by the Federal Reserve. ‘The credit standards are way too loose -- you can get into a house with very little skin in the game, and if home prices drop by a small amount, you’re underwater,’ said David Lykken, managing partner at Mortgage Banking Solutions… ‘We’ve got to start getting reasonable about standards. What they’ve done so far, some very slight attempts at tightening, doesn’t really count.
The NAHB/Wells Fargo Housing Market index slipped to 25 from 28 in March, shy of economists' expectations for the index to hold steady at 28.
Still, the index has gained 11 points since September 2011, reinforcing optimism the housing market is finding a bottom.
The index has a long way to go to the 50 mark that indicates more builders view market conditions as favorable than poor. The index has not been above 50 since April 2006.
"What we're seeing is essentially a pause in what had been a fairly rapid build-up in builder confidence that started last September," NAHB chief economist David Crowe said in a statement.
"This is partly because interest expressed by buyers in the past few months has yet to translate into expected sales activity, but is also reflective of the ongoing challenges that are slowing the housing recovery - particularly tight credit conditions for builders and buyers, competition from foreclosures and problems with obtaining accurate appraisals."
The single-family home sales component fell to 26 from 29. The gauge of single-family sales expectations for the next six months eased to 32 from 35, while prospective buyer traffic waned to 18 from 22.
Retail sales rose in April at the slowest pace of the year as Americans took a break from a shopping spree induced by unseasonably warm weather in prior months and an earlier Easter holiday.
The 0.1 percent gain followed a 0.7 percent increase in March, Commerce Department figures showed today in Washington. The April advance matched the median forecast in a Bloomberg News survey.
Sales at building material, clothing and furniture stores probably deteriorated in April compared with a weather-induced gain in the first three months of 2012, the warmest on record. Weaker employment growth may also make it more difficult for households to match the pace of spending last quarter, which was the fastest in more than a year.
The U.S. Justice Department and the Federal Bureau of Investigation in New York have begun a criminal probe of JPMorgan Chase & Co. $2 billion trading loss, a person familiar with the matter said.
The U.S. is looking into whether criminal wrongdoing occurred in relation to the losses the bank reported last week, said the person, who declined to be identified because the matter isn’t public. The inquiry is in its most preliminary stage, the person said.
The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, which regulates derivatives trading, also are examining New York-based JPMorgan’s trading activities, according to people familiar with those probes.
JPMorgan Chief Executive Officer Jamie Dimon said on May 10 that the bank made “egregious” mistakes and that the losses of about $2 billion tied to synthetic credit securities were “self-inflicted.”
A measure of the U.S. cost of living was unchanged in April, restrained by a drop in energy prices and supporting the view of some Federal Reserve policy makers that inflation will ease.
Last month’s consumer-price index matched the median forecast of economists surveyed by Bloomberg News and followed three straight gains that included a 0.3 percent rise in March, Labor Department data showed today in Washington. The so-called core measure, which excludes more volatile food and energy costs, rose 0.2 percent for a second month.
Some companies are holding the line on prices as job growth shows signs of cooling, limiting wage gains. Slowing inflation would underscore views of some Fed officials who have said higher fuel costs will have only a temporary effect, allowing the central bank to stick to its plan to keep interest rates low at least until late 2014.
“There’s a lot of slack in the economy,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. Inflation is “sort of at the sweet spot as far as the Fed is concerned. The recovery is on track but it’s not especially strong.”
Forty-one years ago Congress told the U.S. Postal Service to start acting like an independent business and pay its own way. Every time the Postal Service tries, something stands in the way: Congress. Facing annual losses of $18.2 billion by 2015 and a possible default this year, the Postal Service has a five-year plan for profitability. It wants to end Saturday mail delivery, close hundreds of letter-sorting facilities and thousands of post offices and consider breaking union contracts to fire employees. It also wants to set up an independent health plan, raise postal rates and enter lines of business such as delivering wine and liquor.
The unemployment crisis in America is much worse than you are being told. Did you know that there are 100 million working age Americans that do not get up in the morning and go to work? No wonder why it seems like there are so many people that do not have jobs! According to the federal government, there are 12.6 million working age Americans that are considered to be "officially" unemployed, but there are another 87.8 million working age Americans that are not working either. The federal government considers those Americans to be "not in the labor force" so they are not included in the unemployment rate. In fact, this is one of the key ways that the government manipulates the unemployment numbers. The Obama administration would have us believe that the unemployment rate is going down and that that since the start of the last recession about as many Americans have left the labor force as we saw during the entire decades of the 1980s and 1990s combined.
Of course that is a bunch of nonsense, but that is what the Obama administration would have us believe. The truth is that the percentage of working age Americans that are employed is just about the same right now as it was two years ago. It was incredibly difficult to get a job back then and it is incredibly difficult to get a job right now. So don't believe the hype that things are getting much better. If you still do have a good job, you might want to hold on to it tightly, because there is not much hope that things are going to improve significantly any time soon.
J.C. Penney Co. said on Tuesday that it swung to a first-quarter loss of $163 million, or 75 cents a share, from a profit of $64 million, or 28 cents, a year earlier. Sales fell 20% to $3.15 billion. On an adjusted basis, the company said it lost 25 cents a share. Analysts surveyed by FactSet estimated the Plano, Texas-based company to lose 1 cent a share on sales of $3.45 billion. Comparable store sales tumbled 19%, also missing estimates.
The company said it expects to post additional restructuring charges this year and may incur additional inventory write-downs as it exits certain businesses. It no longer expects to meet its profit forecast for the year of $1.59 a share, but still kept its forecast of adjusted profit of $2.16 a share. It also said it will discontinue the quarterly dividend of 20 cents a share, resulting in cash savings of about $175 million, which it will use to fund its transformation plan. Penney shares slumped 14% in after-hours trading after declining 0.7% to $33.32 in regular trading. The company's stock has declined 5.2% this year, lagging that of rivals including Macy's Inc. Kohl's Corp. and Sears Holdings Corp.
Foreclosures and tight credit markets remain a constraint on the housing industry, said Federal Reserve Governor Elizabeth Duke in a speech yesterday before the National Association of Realtors Midyear Legislative Meetings and Trade Expo in Washington.
Still-elevated foreclosures are “indicative of a historic level of homeowner stress,” she said. At the same time, “they are down from their post-crisis peaks, and there are signs that further gradual improvement may lie ahead.”
The unresolved status of government-sponsored mortgage firms Fannie Mae and Freddie Mac is restraining the recovery in housing by helping to choke off credit, she said. Mortgage lending is also being hampered by uncertainty over the outlook for home prices and government regulations.
Goldman Sachs Group Inc. and Merrill Lynch & Co. employees discussed helping naked short-sales by market-maker clients in e-mails the banks sought to keep secret, including one in which a Merrill official told another to ignore compliance rules, Overstock.com Inc. said in a court filing.
The online retailer accused Merrill, now part of Bank of America Corp., and Goldman Sachs of manipulating its stock from 2005 to 2007, causing its shares to fall. Clearing operations at the banks intentionally failed to locate and deliver borrowed shares for clients shorting stocks, including two traders who were fined and suspended from the industry, Overstock’s attorneys said in court filings earlier this year.
Lawyers for Overstock, whose California state court lawsuit in San Francisco was dismissed in January, asked a judge to make public e-mails sent in 2005 and 2006 that it said “reflect business decisions to put profits and corporate ambition over compliance” at Goldman Sachs and Merrill. The banks’ decisions to intentionally fail to deliver Overstock shares caused large- scale naked short selling of the company’s stock, according to the filing.