With 45 states facing an estimated $125 billion budget shortfall in fiscal 2012, the pension plans of public sector employees are coming under intense scrutiny.

New Jersey's Chris Christie made pension reform a key plank of his 2009 campaign, and last year proposed cutting benefits for new hires and banned part-time employees from enrolling in the state's pension system.

The NJ Republican is at the vanguard of a movement among state and local officials to "take on" public employee unions. Gov. Christie's actions were controversial at the time and he's become a spokesman of sorts for the pension reform effort.

But Christie now appears tame after Wisconsin Governor Scott Walker (R) threatened to call out the National Guard if public employees strike in response to his attempts to restrict their collective bargaining rights. As with other governors, Walker is also asking public employees to contribute more to their pensions and health insurance benefits.

Gov. Walker has excluded firefighters and policemen from his reform efforts, but other elected officials have not. In response to what it sees as a mis- and disinformation campaign, the International Association of Fire Fighters (IAFF) is "fighting back against politically motivated attacks on our members' pensions."

The union, which represents about 300,000 firefighters and paramedics nationwide, recently launched a "public education campaign" featuring a full-page ad in the USA Today last week with the tagline: "After a Career Saving Lives, Politicians Want to Take Our Life Savings."

I recently spoke with IAFF President Harold Schaitberger about the campaign. He says a "hysteria" is being created by anti-union elements and those responsible for the pension fund crisis in the first place: Wall Street and reckless politicians.

Fight Fire With Fire

"What is this all about? This is all about the money," Schaitberger says.
"What this is really about is for Wall Street to be able to get their hands on the $2.7 trillion that are in institutionally managed [pension] plans."

If public employee pensions are converted from defined benefit plans to defined contribution plans such as 401Ks, "they know it's the next cash cow for Wall Street," he says. "Individuals will be charged higher fees, they'll be churning their investments and won't really have the ability to measure performance and objectives by those who will now be allegedly helping them prepare for retirement."

Schaitberger also takes umbrage with politicians who failed to live up to their obligations and now blame the unions for pension shortfalls. "Too many states have robbed people of their retirement security, but they are blaming workers for the crime," the IAFF declares, citing N.J. as the worst offender:

Since 2001, the state of New Jersey has "never made more than 58.8% of the required annual pension contributions to the pension fund for police and fire fighters, and completely skipped making payments from 2001-03," according to the IAFF. (Editor's note: We have offered Gov. Christie an opportunity to appear and respond; the request is pending.)

Slash & Burn

Fiscally irresponsible politicians "are taking advantage of an economic crisis and using that as a tool, in a perverted way, to try to turn the clock back on what they have agreed to and what they negotiated," Schaitberger says. "We'll try to be responsible and bring forward solutions but we're not going to allow mayors and governors to slash, cut and burn the benefits and wages" of our members.

The accompanying video is culled from a wide-ranging conversation in which Schaitberger addressed several commonly held views about public employees; most notably the idea they have it easy compared to private sector counterparts.

"There is a lot of [economic] pain out there, including in our membership," he says. "A lot of firefighters have had to go home with a pink slip. This isn't some privileged sector many out there are trying to suggest."

To make his point, Schaitberger notes the average annual pension benefit for an IAFF member is less-than $40,000. "At Goldman Sachs alone, many single-year bonuses exceed the lifetime benefits an average firefighter will ever get," he says. "All of these retirements are working class, middle-class benefits that more importantly these firefighters and paramedics have earned. They put themselves in harms way...and they have given up along the way wages on the front end so that we could create sound retirements."

Some would call those who put themselves in danger in the service of others "heroes," and laud them for focusing on long-term benefits vs. short-term rewards.

On Wall Street there's another word for it: Suckers.

Just over a year ago in his State of the Union Address, President Obama pledged to create 2 million jobs by doubling exports by 2015.

U.S. Commerce Secretary Gary Locke – along with the President’s Export Council – has been tasked with making this goal a reality. “Last year we grew exports at 17 percent,” Locke tells Dan and Aaron in the accompanying video. “As long as we increase exports about 14 percent per year…we will reach the President’s goal.”

Locke, just back from a high-tech trade mission to India with a delegation of 24 U.S. businesses, is fairly confident that the pace of U.S. exports will continue to grow, but it is not going to be easy. “We gotta keep at it,” he says. “Only one percent of U.S. companies export, and of that one percent 58-60 percent export to only one country, typically Canada or Mexico.“

With unemployment hanging above 9 percent longer than any time since the Great Depression, the Obama administration is set on trying to create jobs any way it can.  “The more that companies export the more that they produce. The more they produce the more workers they need. And, that means jobs.”

Not only is there a lot of potential for U.S. behemoths like GE and Boeing to sell products in countries like India, there are also great opportunities for small- and medium-sized U.S. businesses to sell products overseas, but, it is not always as easy, he says.

To help the little guys, yesterday Locke and U.S. Trade Representative Ron Kirk kicked off the Export Council’s new “exports road show” called New Markets, New Jobs to help small- and medium- sized businesses across the country navigate their products into foreign markets.

Free Trade Stigma

In the last decades, the U.S. has signed a number of free trade agreements – like NAFTA and CAFTA – which have been hailed as U.S. job killers as companies shipped thousands of jobs -- not goods -- overseas.  But, the Obama administration is adamant that FTAs will spur U.S. export growth and lead to job creation in this country. 

Up until now there has not been the political will to push through three trade deals in particular.  The FTAs with South Korea, Panama and Colombia have been on the table for years waiting for Congressional approval.

But, time is of the essence, says Locke. There is an abundance of competition from other countries vying for the same business in foreign markets.  “Right now U.S. products and services face these incredible barriers,” says Locke in regard to the South Korean trade deal which is pending congressional approval.  “The trade agreement lowers the barriers and it will make it easier for American companies to sell made in the U.S.A. goods and services into Korea providing tens of thousands of jobs for America here at home.”

Made In America?

Yes, if you've been wondering, America does still make a few things for which the world is “hungry” for, Locke says. “There is a great desire all around the world. They would prefer to buy things made in the U.S.A. because they know that it is a superior product.”

India is one key place that is hot for our goods these days. According to a Commerce Department press release, the U.S. exports to India totaled $17.6B in the first eleven months of 2010, up 17 percent from the same period the year before.

You can bet the administration has its sights set on India, which saw 9.7 percent growth last year and does not show any signs of slowing.

Do you agree with President Obama that free trade agreements will help create jobs in this country?

Editors Note: Check out part one of this interview here.

Provided by Business Insider, Friday, February 18, 2011:

Good Morning. Here's what you need to know:

•Asian indices were mixed in overnight trading with the Shanghai Composite down 0.92% and the Nikkei up 0.06%. Major European indices are down and U.S. futures are slightly down.

•People's Bank of China increased its reserve-requirement ratio by 0.5%, the second increase this year. Click here to see 17 facts about China that will blow your mind.

•Moodys has downgraded the ratings of German banks' subordinated debt securities valued at $33 billion over concerns that new legislation will reduce government support for the securities and increase the risk of losses among debt holders.

•Ford Motor Co. is teaming up with Russian automobile company Sollers to make and distribute cars in Russia. Both companies will have equal stakes in the joint venture called Ford Sollers and expect to begin operations by the year's end.

•SunPower announced 4Q earnings of $152.25 million. The company's shares were up in after hours trading. Check out a a former BP exec's guide to peak oil.

•Investors have put in bids for $22 billion worth of contingent capital bonds (cococs) issued by Credit Suisse, 11 times the $2 billion that was on offer by the bank. These function as stocks at a stipulated level of financial stress giving banks a credit boost when they're struggling. Barclays is now considering issuing the bonds as well.

•The SEC is investigating mutual funds that it believes overstated the value of risky municipal bonds.

•The White House will announce Intel CEO Paul Otellini to the President's Council on Jobs and Competitiveness today.

•The finance ministers of G20 nations are meeting in Paris today to delineate global economic imbalances. Japan doesn't expect to reach an agreement while the Germans insist on establishing a full list of indicators.

•Unrest continues in the Middle-East with Bahrain's military taking control of the capital. 5 have now been killed and 230 injured during protests. In Libya security forces opened fire on protestors killing 24. See here for a simple explanation of why the Mideast is doomed to crisis after crisis.

•SILVER is having another huge morning.

•BONUS - Amanda Seyfried and Ryan Phillippe have split up after 3 months of dating.

A year ago, President Obama laid out an ambitious (some say audacious) goal of doubling U.S. exports over the next 5 years. Thanks in part to the global recovery, we're off to a good start: U.S. exports rose 17% in 2010 to the second-highest level in history.

In an effort to keep the momentum going, U.S. Commerce Secretary Gary Locke recently returned from a trade mission to India, which itself was a follow-up to President Obama's trip to the world's largest democracy last year.

The President's November trip spurred $10 billion of contracts which Locke says will "provide and support" 50,000 U.S. jobs. It also yielded new reforms between the U.S. and India whereby the Indian market has become open to "areas and sectors where there was not much U.S. participation in the past," he says. "A new relationship between India and the U.S. will allow U.S. companies to partner up and sell the great things U.S. companies make."

Joining Secretary Locke's trade mission were executives from 24 U.S. companies, including Boeing, Lockheed Martin, Intuit, Exelon and Westinghouse. Among potential tangible benefits from the trip, Boeing and Lockheed are among the finalists (along with some foreign firms) for a multi-billion dollar contract with the Indian Air Force; the winner is expected to be announced at the ongoing Bangalore air show this week.

Having returned from India, Locke was in Minnesota Thursday to kickoff an "exports road show" that is geared toward helping small- and medium-sized businesses get in on the export boom. In the accompanying video, Locke tells Dan Gross and me about the ways the Commerce Department can help all U.S. companies do business overseas, not just the corporate giants typically associated with global trade.

Locke says his time in India was spent "advocating on behalf of all U.S. products and services," not just the specific companies involved in the mission.

Stay tuned for part 2 of this interview where Locke discusses the outlook for free trade agreements with South Korea and Columbia, and tries to answer the question of whether all these exports will actually lead to jobs at home.

Nearly five percent of home mortgages in the U.S. were in the foreclosure process in the fourth quarter of 2010, matching an all-time high, according to new data from the Mortgage Bankers Association.  Even more alarming, almost 14 percent, or one in seven mortgages, in the U.S. were either in the foreclosure process or had overdue payments in that same time period.

That's obviously bad news for existing homeowners but potentially good news for those in the market to buy. (See: More Homeowners Are Underwater, Now Here's the Good News...)

"Make sure you're not buying off more than you can chew [but] if you were in need of a home and you have the wherewithal to be approved for a down payment then it probably is a good time to buy a house," says John Sauro president of North Atlantic Mortgage Corp.

All those foreclosures are making homes more affordable and the interest rate environment remains favorable. The average rate on a 30-year fixed mortgage slipped to 5 percent from 5.05 percent last week, Freddie Mac reports.  That's up from the 40-year low of 4.17 percent in November but still historically attractive.

Although lending standards are for the most part tougher, Sauro says all kinds of non-traditional mortgage products are still available, at least until Dodd-Frank bill takes effect. He cites a variety of options for prospective buyers, including ARMs (adjustable rate mortgages) and "the no income check loans" which infamously sprouted during the heyday of the subprime era and caused so much heartache.

The main difference between now and pre-bubble days is "you better make sure you've got a great job, money in the bank and great credit scores," Sauro says. For example, the lenders still offering no income loans require "up to 60% of the home’s value and you must have excellent credit and be able to verify cash assets," he says.

So it's not exactly like the go-go days of the housing boom, but if you qualify, "this is a very good time to buy," says Sauro.

Hmm, a mortgage broker saying 'it's a good time to buy'? Some things never change.

The time has finally come for serious talk on how to dissolve the country’s largest home lenders: the government-backed Fannie Mae and Freddie Mac.

Late last Friday – when the world was focused on the resignation of Egypt’s President Hosni Mubarak -- the Obama administration sent Congress a white paper entitled “Reforming America’s Housing Finance Market” laying out its recommendations on how to “wind down” the role of Fannie and Freddie and “dramatically transform the role of government” in the U.S. housing market.

According to the Wall Street Journal, the government suggested these three options which could be slowly implemented over the next five to seven years:

Option #1: The first option puts the vast majority of the mortgage market in the hands of the private sector, where lenders would originate mortgages and securitize them without any government backing.

Option #2: The second option is the same as the first, but would also create a limited government backstop that would primarily become active buying or guaranteeing loans in periods when private lenders retreated during financial shocks.

Option #3: The third option would create new privately owned companies to buy mortgages from banks and sell them as securities. Those securities would be explicitly guaranteed by the government as long as they meet certain criteria.

These government-sponsored enterprises were initially created to offer homebuyers easy and better access to more affordable capital when purchasing a home.  And for decades, Fannie and Freddie did help many Americans realize the American Dream of home ownership.

But times have changed since the financial crisis of 2008, which was spurred by the mortgage industry – Fannie and Freddie included – granting subprime loans with adjustable rates to borrowers who really could not afford to be purchasing a home.

In the last three years, Fannie Mae and Freddie Mac have received roughly $150 billion of your tax dollars to prevent their failure and an even worse collapse in the housing market.

So now, it looks likely that Fannie and Freddie will be dismantled for the same reasons they were created. In a press release, Treasury Secretary Tim Geithner said, “This is a plan for fundamental reform – to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it.”

Critics argue that a world without a government-backed Fannie and Freddie would push up interest rates and make it more difficult for people to access credit for a home loan.

John Sauro president of Connecticut’s North Atlantic Mortgage Corp. is on the other side of this argument. He is a strong proponent of unwinding the GSEs, if done the right way. “If you get the government out of half of the stuff they are involved in, this country we will be a lot better off,” he says.  “I am an advocate of Fannie and Freddie being privatized, but we have to be careful here, you can’t do this overnight and you can’t do it in a way that will further depress real-estate values in this country, which represent a fifth of the GDP.”

Fannie and Freddie were not alone in driving this country into the worst recession since the great depression. They had the help of Wall Street and some of the biggest banks in the country, which not only offered these subprime loans, but bundled them into investment-grade securities.

Sauro believes it is time for these financial institutions – like Wells Fargo, Chase, Citibank, Bank of America and Goldman Sachs -- to step up to the plate and help solve the problem they helped create.

“These big financial institutions have the where-with-all to come in and buy a portion of Fannie and Freddie’s assets and take over that conglomeration called Fannie and Freddie and still issue loans.... The government can still offer a guarantee behind that, albeit temporary, until that organization is profitable.”

There is no incentive for the big banks to do this, so the chances of this happening seem very, very small, as Aaron points out in this interview.

But, as difficult a situation as this is to solve, it does look like some sort of privitization of these mortgage giants could come within the next few years.

FinReg = Monopoly of Housing Market?

Sauro is not a fan of government intervention in the housing market as noted earlier.

As a member of the Government Affairs Committee of The Association of Mortgage Professionals (NAMB), he is currently fighting a provision in the Dodd-Frank legislation that lets the Federal Reserve dictate the fees all mortgage loan officers can charge for their work.

He and NAMB say this will stifle competition and essentially create a monopoly or cartel of the mortgage industry and risks further depressing home prices. “You are going to create a monopoly of three or four banks – a cartel if you will – in this country that is going to dictate the cost of home financing.”

Bad loans, not loan officer compensation created the crisis he says.

To learn more about this issue, visit www.Repealfinreg.com.

Provided by Business Insider, Thursday, February 17, 2011:

Good morning. Here's what you need to know:

•Asian markets were up over night with the Nikkei up 0.26%. Major European indices are down and US futures indicate a negative open.

•CPI figures are out at 8:30 AM ET and expectations are for 0.3%, is expected at 0.1%. Here are 5 charts you must see before today's report.

•Initial jobless claims are out at 8:30 AM and are expected up at 401K.

•Fitch Ratings is expected to downgrade US states after it released a report announcing that it was changing the way it analyzes pension bills and the pressure it puts on state budgets. Click here to see the next 10 pension funds that will go bust.

•BNP Paribas' 4Q net profit was up 14% to €1.55 billion ($2.1 billion) but profits came in lower than expected after the French bank had to write-down its insurer AXA SA.

•Nestlé SA's net profits tripled from last year to $35.65 billion and was pushed by its eye-care business in emerging markets.

•ECB's bank lending soared Wednesday to its highest level in 19 months. Banks borrowed €15.801 billion ($21.44 billion) from its emergency marginal-lending facility. Here's a guide to the fundamental problem facing Europe.

•With Portuguese yields at an all time high Germany is pressurizing the country to accept a bailout now.

•Steve Jobs was seen leaving the Stanford Cancer Center in Paolo Alto. Apple shares are sliding in the pre-market.

•The situation in Bahrain deteriorates as protests continue and three are reported dead. An ABC journalist was brutally beaten during a protest. 14 are reported dead in Libya after protestors continue to mount pressure on Muammar el-Qaddafi to step-down. Click here for to see why the Mideast is doomed to crisis after crisis.

•BONUS - Britney Spears reportedly shelled out $20 million for a luxury mansion in Hidden Hills community in LA.

Earlier this week, the NYSE Euronext agreed to a $10.2 billion takeover offer from Germany's Deutsche Boerse. The deal still needs to clear anti-trust hurdles in both the U.S. and EU, but it looks like the NYSE will be the latest iconic American brand to fall into foreign hands -- if not by the wayside altogether.

Predictably, this development is leading to some gnashing of teeth and rending of garments among America's pundit class.

"Though the deal doesn't really pose a threat to our financial markets, and the loss is largely symbolic, it's a blow to national pride," writes MarketWatch.com's David Weidner. "Losing the Big Board and its iconic trading floor, even if it's become a symbolic relic, is a painful reminder that U.S. institutions have lost their edge in the global marketplace."

But fear not, America. The sale of the NYSE is not (necessarily) a sign of the U.S. being an empire in decline.

As Dan Gross and I discuss in the accompanying clip, if the U.S. were really in the midst of a terminal downturn, foreigners wouldn't be putting capital here. Whether it's Burger King, Budweiser, Genzyme or the NYSE, the very fact foreigners continue to "buy American", shows the desirability of our brands and firms.

The other thing to think about is a point Weidner slipped into his lament: the NYSE's human-based open outcry model is "a symbolic relic," thanks to decimalization, competition from electronic platforms, high-frequency computer trading and related forces. 

Other than selling out to the highest bidder - rumors persist the CME might yet come with a hostile offer - the NYSE faced a very uncertain future as a standalone enterprise. Only time will tell, but the German alliance might actually help New York maintain its status as a global financial center, rather than hasten its decline.

As expected, Borders Group filed for bankruptcy protection today. The struggling bookseller has finally succumbed to more than 2-years of double digit sales decline.  The retailer says it plans to close 30% of its more than 500 stores.

Borders follows Blockbuster, Circuit City, and others as casualties of the Great Recession and shifting consumer trends.

The bankruptcy highlights several important trends:

E-commerce is overtaking brick and mortar stores.

In today's retail market, a strong online presence is a must. Borders outsourced their online business to Amazon for much of the last decade, only relaunching Borders.com in 2008.   In the first three quarters of 2010, those sales still made up only 2 percent of Borders' business, reports Reuters. 

From physical to digital

Remember CDs or records? Neither do we.  Music, magazines, movies and games have gone digital.  The same may soon be said about books.  Border was a latecomer to the e-book market, only launching its store last July.  By then Amazon, the Apple Store and Barnes & Noble had already established a major foothold; those companies also have their own e-readers.

Too many stores

Dan Gross describes it as "peak mall" theory, in this clip.  "Have we reached the point where we have all the malls we're going to need?," he asks.  E-commerce, coupled with the demise of "conspicuous consumption" as a result of the Great Recession could spell trouble for mall owners and commercial real estate in general.

The silver-lining - while this means more Americans will be without jobs, the rate of bankruptcies and stores closings has cooled considerably in the last year.