Friday, May 29, 2009

Wells Fargo CEO says California in 'financial ruin'. AND: "Billions in new cuts loom for California — including eliminating welfare...

First up, from the Silicon Valley/San Jose Business Journal:

Wells Fargo CEO John Stumpf said Thursday that California’s large budget deficit means state services will have to be cut.

“The state of California is in financial ruin,” Stumpf told those attending a statewide microfinance lenders’ conference at Stanford University. “The budget deficit in California is staggering.”

Stumpf said the recession is taking a toll on some of the loans made to creditworthy borrowers who lost their jobs and fell behind on payments.

“Today we’re charging off loans to people we should have made loans to,” said Stumpf, reiterating that the bank avoided many of the exotic mortgages offered by rivals.

Stumpf’s comments were not intended as guidance on how the San Francisco bank is faring in the second quarter, a bank spokesman said.

The state of California is struggling with a growing budget deficit after tax and financial measures failed at the ballot box this month. Earlier this year, the state delayed tax refunds and other payments due to what State Controller John Chiang called a “cash crisis not seen since the Great Depression.”

The state recently asked the federal government for assistance in guaranteeing California’s short-term borrowings, fearing that it could not raise the money standing on its own credit.

On the national economy, Stumpf said this is his “third rodeo” or downturn. He pointed to the deep recession of the early 1980s when the prime rate hit 21 percent and the struggling economy of the late 1980s that counted most the nation’s largest thrifts and major banks in Texas among its casualties. He says the economic fallout from the dot-com bust and Sept. 11 terrorist attacks was significant but not as harsh as the earlier recessions.

“This one feels different,” Stumpf said. “It feels different in the respect that the whole world is in recession.”>>>MORE

We are now seeing prime borrowers defaulting.

The next story is a bit deceptive. While the bare facts are prima facie true, the writer does not point out that some of the program cuts are not the primary safety net programs but extensions. That said, the extent of the human impact is going to be very large. From the Silicon Valley Mercury News:

Faced with a ballooning deficit and a clear signal that voters won't pay more to fix it, California Gov. Arnold Schwarzenegger released a budget plan Tuesday that would eliminate welfare, drop 1 million poor children from health insurance, cut off new grants for college students and shut down 80 percent of state parks.

In a state that long has prided itself on its social safety net, it could well go down in history as the most drastic reduction in social programs ever. And billions in further cuts will be unveiled later this week.

The governor's proposal to whack an additional $5.5 billion from state programs stunned even longtime Capitol-watchers with its blunt force. Ending cash assistance for 1.3 million impoverished state residents, for example, would make California the only state with no welfare program.

"Every single first-world nation has a safety net program for children," said Will Lightbourne, Santa Clara County's social services director. "This would return us to the era of Dickens — you'd have to go back to the 19th century to find a comparable proposal."

The governor's office reiterated that the cuts were painful but unavoidable, with the proposed budget for the 2009-10 fiscal year already outdated before lawmakers even begin debate. Schwarzenegger's finance team now says the deficit will grow to $24.3 billion by July 1, up from the previous $21.3 billion projected shortfall....

...So, in the wake of the resounding "no" that came from a disillusioned electorate, he has held true to his promise and then some:

  • The budget proposal would eliminate vast swaths of programs, including CalWORKs — the welfare program serving more than 521,000 families who now receive $526 average monthly grants — and Healthy Families, which subsidizes health care for low-income children whose families don't qualify for Medi-Cal. Those cuts would also cost the state billions in federal matching funds.
  • Medi-Cal coverage for dialysis and for breast and cervical cancer treatment for those over age 65 would be cut. Undocumented immigrants would lose nonemergency health care.
  • In the prisons, rehabilitation, education and vocational programs would be hacked. So would the sentences of nonviolent, non-serious offenders, who would go free a year early.
  • More than 200,000 college-bound students would lose some or all of their tuition assistance under the Cal Grant program. New grants for students to attend college would be eliminated, and existing grants would be reduced. All of that would come on top of $335 million in cuts for the University of California and California State University systems — which already have seen $415 million in cuts this year, forcing student fee increases....
  • On that last point, remember the chart of the top ten public employee pensioners from Wednesday's "Damn! California Public Employees Get Paid A Lot...":

    Here are the top CalPERS pension beneficiaries via Mike Shedlock:

    CalPERS Top 10

    click on chart for sharper image