As the nation struggles to come to terms with its own deficit and breathtaking unemployment rates, at least one state is taking matters into its own hands. Governor of California Arnold Schwarzenegger has told state lawmakers he will lay off up to 10,000 government employees if the legislature was unable to pass a suitable budget to counter a staggering deficit and growing unemployment rate, which was at 8.4 percent as early as November, according to the governor's statements.

Schwarzenegger on Friday delayed terminating (sorry, we had to use the reference) the government workers and halting the 275 state-funded public works projects underway to give lawmakers a few more days to negotiate. They failed to do so, and now the governor is preparing to make good on his word and send pink slips to 10,000 government workers, according to the Los Angeles Times.

The governor and legislature have gone back and forth for months on the state's budget woes and a possible economic stimulus to create jobs and fund infrastructure projects. Lawmakers handed a version of the stimulus to Schwarzenegger in December that he refused to sign. "[W]e had a terrible budget that they sent down to me…. I was very disappointed," he said in a mid-December press conference. "I thought that when we negotiated that we negotiated a very balanced kind of a compromise where we agreed to raise revenues and increase revenues and also make the necessary cuts and also have a very, very strong economic stimulus package…."

Even weeks later into 2009, Schwarzenegger publicly expressed faith in the state legislature to negotiate an acceptable budget and an effective stimulus. "Now, it is time for Republicans and for Democrats to put politics once and for all aside and to make the tough choices needed to keep our state from financial disaster that will take years to recover from," he said in early January. "I just want to provide a budget for the people of California so that we can stimulate the economy, create the jobs, make the necessary cuts and create the extra revenues so we can move forward. Because we are now talking about a $42 billion deficit, potential deficit."

With the legislature having adjourned with no budget agreement and the deficit still looming over California, the months ahead look likely to continue to challenge Californian residents. It was unclear at the time this story was published when the governor will lay off the promised 10,000 state workers and in what departments the cutbacks will occur.

Write to Diana Golobay at diana.golobay@housingwire.com.

President Barack Obama is poised to sign the $787 billion financial stimulus package Tuesday afternoon in Denver, Colo. The package includes more than $7 billion for a high-speed internet expansion project to connect rural areas with faster communication and increased business potential. It also includes expanded unemployment benefits and funds for a first-time home buyer tax credit. Congress has claimed from early versions of the package that every $1 invested will bring a $10 return in economic growth. It's also the longtime claim from Democratic supporters the package will save or create 3.5 million jobs in the next several years.

An eleventh-hour provision added as the stimulus passed a Congress vote Friday will further restrict bonuses for top executives at financial institutions receiving bailout funds. The provision would work retroactively on firms that have already received funds as well as going firms with current transactions. The new amendment — introduced by Senator Chris Dodd, D-Conn. — would limit executive bankers' bonuses to a third of total compensation to be paid in stock that cannot be sold until the firms repay government funds.

The bill passed House and Senate votes late Friday, with Democrats carrying the House victory 246 to 183 and no Republicans supporting the bill. Seven House Democrats opposed the bill. Hours later, Senate Democrats and three Senate Republicans passed the bill 60 to 38.

Treasury Department secretary Timothy Geithner on Friday attended the G7 Finance Minsters and Central Bank Governors meeting in Rome, where he assured the group of leaders the United States is moving swiftly to revive the economy by way of the economic stimulus package and bank stabilization plan — the details of which are expected to be presented soon. Geithner urged other countries to take bold actions as well.

People close to the situation told the Financial Times that financial groups were frustrated by the administration’s decision not to hold detailed talks with the industry before releasing its financial rescue plan. Administration officials said the announcement was meant to serve as a framework, and stressed that industry “stakeholders” would be consulted as details were hashed out.

Write to Diana Golobay at diana.golobay@housingwire.com.

The heat is on for General Motors Corp. (GM: 24.37 -1.42%) and Chrysler Holding LLC, which are scheduled to submit their restructuring plans before end of day Tuesday. The companies, along with their financing divisions, have received a total $25 billion from the Treasury Department through the Troubled Asset Relief Program on the condition they release strategic plans to restructure their businesses, cut production costs and ultimately pay the government back the loans.

GM is slated to receive an additional $4 billion Tuesday, bringing the total amount of capital given to GM to $14,284,024,131– according to information released by the Treasury. Chrysler has received $4 billion in all. GM's financing arm, GMAC LLC, has received $5 billion, while Chrysler Financial Services Americas LLC has received a loan up to $1.5 billion.

The automakers may soon ask for even more funds than they've received so far, according to a Bloomberg article Tuesday. Sources told the outlet GM may seek funds beyond the $18 billion initially requested on Dec. 2, while Chrysler has said it needs an additional $3 billion on top of the $4 it already received. Sources also told Bloomberg GM is eyeing a possible closing or sale of as many as four of its European plants in an effort to cut costs and meet the expectations of a stringent oversight panel to be overseen by Treasury secretary Tim Geithner.

Obama has abandoned the so-called "car czar" that would have overseen the auto industry's restructuring efforts in favor of a government panel, with Geithner at the head of the panel overseeing automaker loans.

Write to Diana Golobay at diana.golobay@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Treasury Secretary Timothy Geithner on Friday attended the G7 Finance Minsters and Central Bank Governors meeting in Rome, where he assured the group of leaders the United States is moving swiftly to revive the economy by way of its $787 billion economic stimulus package and bank stabilization plan — the details of which are expected to be presented soon. Geithner urged other countries to take bold actions as well.

"These are global challenges and it is imperative that we work together to address them," Geithner said in a statement following the meeting. "Effective global response will require sustained action by governments working with the international financial institution." He said G7 countries all realize the gravity of the situation.

"The stabilization of the global economy and financial markets remains our highest priority," the G7 wrote in a joint statement Friday. "We have collectively taken exceptional measures to address these challenges and we reaffirm our commitment to act together…"

Although, Geithner came under nation-wide fire last week after presenting an outline of the United States' financial-system rescue plan that's currently in the works, because he gave very few details of that plan. The announcement to revive the financial system actually sent stocks diving, falling over the week by the most since November.

“It is a comprehensive plan, the intent is there, the will is there,” Bank of Canada governor Mark Carney said, according to the IrishTimes. “The question is implementation and execution.” Finance ministers, central bankers and investors world-wide are looking to Geithner and his team to provide specifics on the plan.

The Treasury secretary reportedly sketched out the bank plan for his colleagues at the meeting in Rome and guaranteed the details would be filled in soon. He appeared to win the confidence of some leaders, according to CNNMoney.com. But the story was different on the home front, where Wall Street is all but comfortable with the plan.

People close to the situation told the Financial Times that financial groups were frustrated by the administration's decision not to hold detailed talks with the industry before releasing its financial rescue plan. Administration officials said the announcement was meant to serve as a framework, and stressed that industry "stakeholders" would be consulted as details were hashed out.

Banks concerns, however, were bolstered last week when Geithner canceled a meeting with Wall Street chiefs, citing "scheduling problems." Wall Street is expected to lobby the Obama administration to loosen its plans for stringent reviews of banks’ financial health — referred to as stress tests — and capital injections that could leave the government as a large shareholder in many of those institutions, the Financial Times said.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

The most cost-effective and quick way to address the nation's financial problems would call for the Treasury Department to start breaking up the largest banks and selling off individual operations to the public sector, according to the executive of an independent community bank. Rusty Cloutier, the president and CEO of MidSouth Bank (MSL: 13.19 -0.38%), recently told major news outlets that "[c]oncentration is a bad thing" and called for the feds to break up the "miserable eight" largest banks that, he said, control 60 to 64 percent of the country's assets, restoring competition to the banking industry and restoring investor confidence in the system.

His solution to the nation's financial problems wouldn't mean the government allows major banks to fail — which is the prospect the Treasury's TARP has aimed all along to avoid — but instead break them apart to reduce huge conglomerate banking entities to a series of small operations that would be offered to the public sector.

Cloutier also argued that private investors are likely to be more interested in putting money into financial institutions that are small and efficient enough to run without a multi-billion dollar capital infusion from the Treasury. "The money is going to sit on the sidelines until [regulators] announce they're going to do something with these [big banks]," Cloutier said, according to statements released Monday by the bank. "Nobody is going to put fresh capital into the banking business when your major competitor is going to be continuously bailed out by the United States government with more and more money."

Lafayette-based MidSouth, with $936.8 million in assets as of the end of 2008, received $20 million through the capital purchase program within the TARP. But Cloutier said many community banks like his that hold government money on their hands have considered "giving back" the funds. Other community banks that were set to receive TARP money are now saying they won't accept the funds, he said.

Write to Diana Golobay at diana.golobay@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

On the day of the most bank closings so far in 2009, regulators closed four more banks late Friday and named the Federal Deposit Insurance Corp. as receiver. The announcement brought total closings to 13 for the year as of Feb. 13. The estimated cost of all four banks to the Deposit Insurance Fund will be some $341.6, the FDIC said.

Number 10
The Nebraska Department of Banking and Finance closed Sherman County Bank of Loup City, Neb., naming the FDIC receiver. The banks four offices are set to reopen as branches of Wood River, Neb.-based Heritage Bank on Tuesday. The FDIC said it had entered a purchase agreement with Heritage, which will pay a 6 percent premium on all of the failed bank's $85.1 million in deposits. It also agreed to purchase $21.8 million of the $129.8 in assets. The FDIC said it "will retain the remaining assets for later disposition" and it expects a $28 million cost to the insurance fund.

Number 11
The Florida Office of Financial Regulation closed Cape Coral-based Riverside Bank of the Gulf Coast, naming the FDIC as receiver. The bank's nine office will reopen Tuesday as branches of Naples-based TIB Bank, which has entered a purchase agreement with the FDIC. TIB will pay the FDIC a 1.3 percent premium on the failed bank's $424 million deposits (it also agreed to take over $125 million of the bank's $539 million in assets) but will not purchase some $142.6 million in brokered deposits. The FDIC said it will pay the brokers for all insured funds directly, bringing the failed bank's impact on the insurance fund to $201.5 million.

Number 12
The Division of Banking, Illinois Department of Financial Regulation closed Corn Belt Bank and Trust Co. The two offices of the Pittsfield, Ill.-based bank are set to reopen as branches of The Carlinville National Bank on Tuesday after the holiday. The FDIC, which was named receiver of the failed bank, said it had entered a purchase and assumption agreement with Carlinville National, which has agreed to pay the FDIC a 1.75 percent premium on the bank's $234.4 million total deposits (it also agreed to purchase $60.7 million in assets), but which will not assume some $92 million in brokered deposits. The FDIC instead will pay the brokers directly for the insured funds, bringing the total loss to the fund on the failed bank to $100 million.

Number 13
The Oregon Division of Finance and Corporate Securities shut down Beaverton, Ore.-based Pinnacle Bank, the sole office of which will reopen Tuesday as a branch of Washington Trust Bank. The FDIC said it had entered a purchase agreement with Spokane-based Washington Trust to assume all of the $64 million in total deposits. Washington Trust has agreed to a loss-sharing plan on some $66 million in Pinnacle's assets covered under the agreement. The FDIC said the estimated cost to the deposit insurance fund will total $12.1 million.

Regulators had shut down two Californian banks and one Atlantan bank on Feb. 6 at a total estimated cost to the insurance fund of $452 million. Regulators had shut down three banks on Jan. 30 — based in Florida, Maryland and Utah — at a total cost to the fund of $345 million. The failure of one Californian bank on Jan. 23 cost the fund $227. Two banks — based in Washington and Illinois — were closed on Jan. 16, costing the fund between $217.1 million and $242.1 million, based on the FDIC's initial estimates at the time. Altogether, failed banks so far in 2009 will cost the fund at least $1.58 billion, according to the FDIC's estimates.

Write to Diana Golobay at diana.golobay@housingwire.com.