Archive for the ‘mortgages’ Category

Managing risk in an unstable world: Government, finance and security

December 1, 2008

How can we reduce risk for individuals? That’s a natural question when a financial crisis has vaporized trillions of dollars of personal wealth in residential real estate and financial instruments. The problem is, when you try to reduce risk for individuals too much, you end up making things much riskier.

By Michael Barone
The Washington Times
Case in point: The financial system over the last decade. Our current difficulties arose from “the idea,” as Nicole Gelinas describes it in the New York Post, “that any loan, bond or other bank asset could be sliced up and turned into an instantly liquid, priceable and tradable security, with all its risks engineered away.” The securitization of mortgages seemed to reduce risk for everyone – for the lender (who avoided risk of nonpayment by selling the mortgage), for the borrower (who got the mortgage at a lower rate than otherwise) and for the purchaser (because all those mortgages couldn’t got belly up at once, could they?).

The problem was that the risk models were based on the experience of only the last seven years or so, and that both the Clinton and Bush administrations and Fannie Mae and Freddie Mac encouraged the granting of mortgages to borrowers who were, by previous standards, uncreditworthy.

So eliminating risk ended up creating huge risk for everyone – so huge that just about no one, even the Treasury armed with $700 billion – wants to purchase the securitized mortgages in bank portfolios.

Read the rest:
http://www.washingtontimes.com/news/2008/dec/
01/managing-risk-in-an-unstable-world/

Meltdown far from over, new mortgage crisis looms

November 27, 2008

The full scope of the housing meltdown isn’t clear and already there are ominous signs of a new crisis — one that could turn out the lights on malls, hotels and storefronts nationwide.

By MATT APUZZO, Associated Press Writer

Even as the holiday shopping season begins in full swing, the same events poisoning the housing market are now at work on commercial properties, and the bad news is trickling in. Malls from Michigan to Georgia are entering foreclosure.

Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.

That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies’ credit.

“We’re probably in the first inning of the commercial mortgage problem,” said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.

That’s bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.

Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.

But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.

“It’s a toxic drug and nobody knows how bad it’s going to be,” said Paul Miller, an analyst with Friedman, Billings, Ramsey, who was among the first to sound alarm bells in the residential market.

Read the rest:
http://news.yahoo.com/s/ap/20081127/ap_on_bi_ge/melt
down_coming_soon;_ylt=Ao5Sg.24hesMbnCpBUd_uzes0NUE

Fighting the Financial Crisis, One Challenge at a Time

November 18, 2008

WE are going through a financial crisis more severe and unpredictable than any in our lifetimes. We have seen the failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac and the American International Group. Each of these failures would be tremendously consequential in its own right. But we faced them in succession, as our financial system seized up and severely damaged the economy.

By Henry M. Paulson, Jr.
Treasury Secretary
Op-Ed, The New York Times

Treasury Secretary Henry Paulson addresses a gathering of corporate ...
Treasury Secretary Henry Paulson addresses a gathering of corporate CEOs, Monday, Nov. 17, 2008. (AP Photo/J. Scott Applewhite)

By September, the government faced a systemwide crisis. After months of making the most of the authority we already had, we asked Congress for a comprehensive rescue package so we could stabilize our financial system and minimize further damage to our economy.

By the time the legislation had passed on Oct. 3, the global market crisis was so broad and so severe that we needed to move quickly and take powerful steps to stabilize our financial system and to get credit flowing again. Our initial intent was to strengthen the banking system by purchasing illiquid mortgages and mortgage-related securities. But the severity and magnitude of the situation had worsened to such an extent that an asset purchase program would not be effective enough, quickly enough. Therefore, exercising the authority granted by Congress in this legislation, we quickly deployed a $250 billion capital injection program, fully anticipating we would follow that with a program for buying troubled assets.

There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a severe market crisis, always keeping focused on our goal: to stabilize a financial system that is integral to the everyday lives of all Americans. By mid-October, our actions, in combination with the Federal Deposit Insurance Corporation’s guarantee of certain debt issued by financial institutions, helped us to accomplish the first major priority, which was to immediately stabilize the financial system.

Read the rest:
http://www.nytimes.com/2008/11/18/opinion
/18paulson.html?_r=1

Global Financial Crisis, Intertwined Economies, Too Much Debt: Now What?

November 16, 2008

Barack Obama surely has one of the toughest leadership challenges any incoming president has ever faced. We’re in the midst of a terrible economic meltdown, the current administration has lost all credibility, the House of Representatives is full of knuckle-dragging Neanderthals, and the public is being whipsawed between free-market fundamentalists preaching the virtues of just letting the market rip and left-wingers who think we can punish Wall Street while protecting Main Street. It feels like a mess with no one in charge.
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Now is when we need a president who has the skill, the vision and the courage to cut through this cacophony, pull us together as one nation and inspire and enable us to do the one thing we can and must do right now:

Go shopping.

Obama can’t wait until Jan. 20 to weigh in on this. If we don’t stimulate the global economy fast enough and big enough, some of Obama’s inaugural balls might be held in soup kitchens.

When President Bush told us to go shopping after 9/11, he was right. We needed to stimulate the economy then. The problem was that the Bush economic team never turned off the green light and told people to “go saving.” So with easy credit seemingly endlessly available, American consumers saved virtually nothing and bid up housing prices to record levels. Retailers expanded stores and China expanded factories to accommodate all the shopping. It was quite a party. We had banks in America giving mortgages to people whose only qualification “was that they could fog up a knife,” one mortgage broker told me.

By Thomas Friedman
The New York Times

But when something seems too good to be true, it usually is. When these reckless mortgages eventually blew up, it led to a credit crisis. Banks stopped lending. That soon morphed into an equity crisis, as worried investors liquidated stock portfolios. The equity crisis made people feel poor and metastasized into a consumption crisis, which is why purchases of cars, appliances, electronics, homes and clothing have just fallen off a cliff. This, in turn, has sparked more company defaults, exacerbated the credit crisis and metastasized into an unemployment crisis, as companies rush to shed workers.

Governments are having a problem arresting this deflationary downward spiral — maybe because this financial crisis combines four chemicals we have never seen combined to this degree before, and we don’t fully grasp how damaging their interactions have been, and may still be….

Read the rest:
http://www.nytimes.com/2008/11/16/
opinion/16friedman.html?scp=1&sq=jaws&st=nyt


“You’re gonna need a bigger boat.”

Bailout Lacks Oversight Despite Billions Pledged

November 13, 2008

In the six weeks since lawmakers approved the Treasury’s massive bailout of financial firms, the government has poured money into the country’s largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

By Amit R. Paley
The Washington Post
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Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

“It’s a mess,” said Eric M. Thorson, the Treasury Department‘s inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. “I don’t think anyone understands right now how we’re going to do proper oversight of this thing.”

In approving the rescue package, lawmakers trumpeted provisions in the legislation that established layers of independent scrutiny, including a special inspector general to be nominated by the White House and a congressional oversight panel to be named by lawmakers themselves.

U.S. Treasury Secretary Henry Paulson speaks during a news conference ...
U.S. Treasury Secretary Henry Paulson speaks during a news conference at the Treasury Building in Washington November 12, 2008. Paulson on Wednesday said he was backing away from buying troubled mortgage assets using a $700 billion bailout fund, instead favoring a second round of capital injections into financial institutions that would match private funds.(Mitch Dumke/Reuters)

Read the rest:
http://www.washingtonpost.com/w
p-dyn/content/article/2008/11/
12/AR2008111202846.html?hpid=topnews

Poll Tells Obama: Fix Economy First; Tax Cuts When You Can

November 12, 2008

People want the tax cuts promised during the presidential campaign, but they may be willing to wait while President-elect Obama takes on the larger issue of fixing the economy.

Only 36 percent say trimming income taxes should be a top priority when the new president takes office in January, according to a new Associated Press-GfK poll. That was less than half the 84 percent who cited improving the economy as a No. 1 goal, and the 80 percent who said creating jobs should be a paramount task.

“I don’t think it’s going to work in this instance,” said Ryan Anderson, 31, a Democrat from Bloomington, Minn., who thinks tax reductions would have little impact on most families’ budgets. “That’s kind of like shooting a BB gun at a freight train.”

Obama promised to cut taxes for working families during the campaign.

By ALAN FRAM and TREVOR TOMPSON, Associated Press Writers

Even fewer — 29 percent — said another top priority should be Obama’s plan to allow tax cuts to expire for families earning more than $250,000 a year. He has said he would use the revenue that would raise to help finance some of his priorities.

Amid such talk, 72 percent in the AP-GfK poll voiced confidence Obama will make the changes needed to revive the stalling economy. Underscoring how widely the public is counting on its new leader, 44 percent of Republicans joined nearly all Democrats and most independents in expressing that belief.

Obama has called for about $175 billion in new stimulus spending, including for public works projects, and has said he would make it a top priority in January if it is not enacted by a lame-duck session of Congress and President Bush this year.

The poll shows trust in Obama’s ability to succeed is even broader, at least for now. Sixty-eight percent said they think when he takes office in January, the new president will be able to enact the policies he pushed during his presidential campaign.

Read the rest:
http://news.yahoo.com/s/ap/20081112/ap_on_go_
pr_wh/ap_poll_obama;_ylt=ArhlQW_
78Fn7nRDh2uPpJ_qs0NUE

Most Americans Believe Obama Will Fix Economy

November 11, 2008

In one of the economy’s darkest hours in decades, it looks as if people are taking Barack Obama up on his exhortations for hope and change.

Seven in 10, or 72 percent, voice confidence the president-elect will make the changes needed to revive the stalling economy, according to an Associated Press-GfK poll released Tuesday. Underscoring how widely the public is counting on its new leader, 44 percent of Republicans joined nearly all Democrats and most independents in expressing that belief.

Associated Press

The poll shows that faith in Obama is even broader, at least for now. Sixty-eight percent said they think that when he takes office in January, the new president will be able to enact the policies he pushed during his presidential campaign.

People signaled a willingness to wait on one of the keynote items of his agenda — tax cuts. Only about one in three, or 36 percent, said they wanted Obama to make income-tax cuts a top priority when he takes office, and even fewer wanted higher taxes on the rich to be a primary goal.

Instead, 84 percent said strengthening the economy should be a top-tier priority. Eighty percent also named creating jobs as a No. 1 order of business.

Majorities in both parties said those issues should be top priorities, though Democrats were a bit likelier than Republicans to say so.

With Obama ending the GOP‘s eight-year hold on the White House under President Bush and about to become the first black president, the AP-GfK poll showed three quarters saying the election made them feel hopeful, six in 10 feeling proud and half expressing excitement.

Read the rest:
http://news.yahoo.com/s/ap/20081111/ap_on_el_pr/ap_poll_obama;_ylt=AjMe_qSqvDLMn_4ni6BOWMSs0NUE

To Rescue the Economy: How Much Government?

November 9, 2008

What is the right amount of government intervention in the American economy?  That is the question.

China manages its economy from the halls of the Beijing communist government’s headquarters.  Yet the communist government, unable even to assure people of basic safeties like pure and untainted food, often blames other “criminals” that they themselves are unable to deter, prevent or defend against.  Even today, China wants Western nations to clean up the environmental disaster that is China today: despite the fact that China’s communists have gotten unbelievably wealthy by ignoring the environmental lessons learned in the West for decades.

Personally, the fact that China’s ground water is now polluted to a degree of about 90% doesn’t sound like an issue the West should have to deal with: the Chinese communists have allowed filth to proliferate and now they live in filth.  Corrective action is up to them.

A policeman stands gaurd amid the smog in Beijing's Tiananmen Square one month before the Olympic Games start.
Above: A policeman stands gaurd amid the smog in Beijing’s Tiananmen Square one month before the Olympic Games started this summer.  Photo: Reuters

So we know, or should know, that too much government intervention may not be a good thing.  Judging from the vast number of pages of our Tax Code and the fact that even smart accountants often have to consult “outside experts” to figure their own taxes, my faith in the U.S. government’s ability to manage the economy and my life is, let us say, tenuous…..

This brings us to the “blame game” of the American and global economic and financial meltdown.  Russia blames the U.S.  But nobody who got rich due to the lavish practices of spending and lending seems to have been taken to account.  They got rich and they got away.

It might just be me but I believe in accountability — which seems to be gone in our modern society. 

Who paid for the economic meltdown? 

Apparently: you and me.

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”  Barney Frank, quoted by The New York Times, said this on September 11, 2003.  Had appropriate action been taken then perhaps we woulnd’t be in this mess.

House Financial Services Committee Chairman Barney Frank listens ... 
Above: House Financial Services Committee Chairman Barney Frank listens during testimony before the committee in a hearing on ‘the Future of Financial Services Regulation,’ on Capitol Hill, October 21, 2008.(Mitch Dumke/Reuters)

Republicans generally want less regulation.  Democrats generally want more.  That is the crux of the issue, as I see it.

And there is already at least some government involvement in the U.S. economy, as Walter E. Williams points out, (see link below) thanks to the Congress, BATF, CAA, CFTC, CPSC, DEA, EEOC, EPA, FAA, FCC, FDA, FDIC, FEMA, FERC, FRB, FTC, INS, IRS, NHTSA, NIH, NLRB, OHSA, SEC, the Departments of: Health and Human Services, Housing and Urban Development, Interior, Education, Commerce, Labor, Agriculture, Transportation, other federal agenciesand etc…..

Related:
 Capitalism, fiscal woes; contempt for economic liberty

Jobless ranks hit 10 million, most in 25 years

November 8, 2008

The nation’s jobless ranks zoomed past 10 million last month, the most in a quarter-century, as piles of pink slips shut factory gates and office doors to 240,000 more Americans with the holidays nearing. Politicians and economists agreed on a painful bottom line: It’s only going to get worse.

The unemployment rate soared to a 14-year high of 6.5 percent, the government said Friday, up from 6.1 percent just a month earlier. And there was more grim news from U.S. automakers: Ford Motor Co. and General Motors Corp., American giants struggling to survive, each reported big losses and figured to be announcing even more job cuts before long.

Regulators, meanwhile, shut down Houston-based Franklin Bank and Security Pacific Bank in Los Angeles on Friday, bringing the number of failures of federally insured banks this year to 19.

By JEANNINE AVERSA, AP Economics Writer

The Federal Deposit Insurance Corp. was appointed receiver of Franklin Bank, which had $5.1 billion in assets and $3.7 billion in deposits as of Sept. 30, and of Security Pacific Bank, with $561.1 million in assets and $450.1 million in deposits as of Oct. 17.

Barack Obama, in his first news conference as president-elect, said the nation was facing the economic challenge of a lifetime but expressed confidence he could deal with it.

“Immediately after I become president, I’m going to confront this economic crisis head on by taking all necessary steps to ease the credit crisis, help hardworking families, and restore growth and prosperity,” he said after meeting with economic advisers in Chicago. “I’m confident a new president can have an enormous impact.”

Wall Street revived somewhat after two days of big losses. The Dow Jones industrials rose 248 points.

Still, the Labor Department’s unemployment report provided stark evidence that the economy’s health was deteriorating at an alarmingly rapid pace. The jobless rate was 4.8 percent just one year ago.

Read the rest:
http://news.yahoo.com/s/ap/20081108/ap_on_bi_ge
/financial_meltdown;_ylt=Aj1J5vsTtXduBFFeCnZz7Sqs0NUE

Jobless rate bolts to 14-year high of 6.5 percent

November 7, 2008

The nation’s unemployment rate bolted to a 14-year high of 6.5 percent in October as another 240,000 jobs were cut, far worse than economists expected and stark proof the economy is deteriorating at an alarmingly rapid pace.

By JEANNINE AVERSA, AP Economics Writer

The new snapshot, released Friday by the Labor Department, showed the crucial jobs market quickly eroding. The jobless rate zoomed to 6.5 percent in October from 6.1 percent in September, matching the rate in March 1994.

Job seekers wait in line at an October 2008 Internal Revenue ... 
Job seekers wait in line at an October 2008 Internal Revenue Service (IRS) Career Open House in New York City. The White House on Friday said that a sharp rise in unemployment figures in October highlighted the importance of a government response, but indicated no new powers were needed.(AFP/Getty Images/File/Mario Tama)

Unemployment has now surpassed the high seen after the last recession in 2001. The jobless rate peaked at 6.3 percent in June 2003.

October’s decline marked the 10th straight month of payroll reductions, and government revisions showed that job losses in August and September turned out to be much deeper. Employers cut 127,000 positions in August, compared with 73,000 previously reported. A whopping 284,000 jobs were axed in September, compared with the 159,000 jobs first reported.

So far this year, a staggering 1.2 million jobs have disappeared. Over half of the decrease occurred in the past three months alone.

Although the unemployment report was worse than expected, and Ford Motor Co. reported dismal third-quarter results and announced plans to cut more than 2,000 additional white-collar jobs, Wall Street investors appeared to take it all in stride. The Dow Jones industrial average was up more than 190 points in morning trading.

Read the rest:
http://news.yahoo.com/s/ap/20081107/ap_on_bi_go_ec_fi/
economy;_ylt=AotsUnMxfdq9W57QIWHAR6Ks0NUE