Can Anyone Halt The Mortgage Meltdown?

Wall Street and Washington come together to help troubled mortgage borrowers. Too late?

Fifteen months into the worst credit crisis in decades, major banks and the federal government are coming together on a solution for struggling mortgage borrowers.

The goal is to hasten the process for renegotiating hundreds of thousands of delinquent loans, either those held by major banks or held by Fannie Mae and Freddie Mac , the mortgage finance giants that faltered and were taken over by the government this summer.

Renegotiating loans for struggling homeowners has taken on more urgency as jobless claims rise and the economy declines. Housing prices continue to fall, leaving many with mortgages greater than the value of their homes, and banks continue to suffer major credit losses as a result.

Citigroup , JPMorgan Chase and Bank of America have separately announced plans to help ailing borrowers. On Tuesday, the Federal Housing Finance Agency, the regulator for Fannie and Freddie, announced its own sweeping plan.

The agency is targeting delinquent borrowers who haven’t filed for bankruptcy. The goal is to modify mortgages for borrowers who can support payments but make sure those payments don’t make up more than 38% of income.

James Lockhart, head of the agency, urged U.S. mortgage servicing firms–companies that process payments of loans rather than owning them outright–to adopt the plan as a national standard.

For the government, halting the steady slide in housing prices is the holy grail of all of its big plans to prop up the ailing banking system. It is throwing trillions of dollars at shoring-up banks caught in the housing mess, but nothing has, so far, put a floor under the plunging housing prices at the heart of the credit crisis. Going at the problem from the perspective of a borrower is yet another way to achieve that end.

The government studied the Federal Deposit Insurance Corp.’s approach to modifying loans of failed IndyMac Bank and used that as the model for this broader program.

Neel Kashkari, the Assistant Treasury Secretary in charge of the department’s $700 billion Troubled Asset Relief Program, said the plan will take pressure off mortgage servicing companies, “helping ensure that borrowers do not fall through the cracks because servicers aren’t able to get to them.”

Earlier on Tuesday, Citigroup announced its loan modification plan. The bank is stopping foreclosures for borrowers who live in their own homes and have enough income to stand a chance at repaying a renegotiated loan. It will also expand the program to include mortgages for which the bank collects payments but does not own.

Over the next six months, Citi will contact 500,000 borrowers who are not currently delinquent but close to falling behind to see if those loans could be modified.

Two weeks ago, JPMorgan said it would expand its mortgage modification program to an estimated $70 billion in loans, representing 400,000 borrowers. That is on top of the $40 billion in mortgages JPMorgan has rewritten since early 2007.

Bank of America will begin next month modifying 400,000 loans held by Countrywide Financial, the troubled lender it acquired this year. The plan, which starts Dec. 1, is part of an $8.4 billion legal settlement with 11 states.

Loan modifications have been complicated by the way the banking industry has approached mortgage lending in recent years, selling their loans off to other banks that bundle and resell them as securities rather than holding all loans separately.

For the banks, modification plans are self-preservation. Virtually no bank has been left untouched by the credit crisis, and Citi, JPMorgan, Bank of America and others will undoubtedly have rising credit costs for the next few quarters. Any plan to blunt those costs would be welcomed.

Source

Well I don’t really have a lot of faith in these guys. They are in great part the cause.  These very banks are the ones that had to get bailouts and now they are going to fix it are they?

Trusting them is a lot like letting the fox guard the chickens coup.

Advertisements

The domino effect: Road to recession

It began with the banks. Then house prices began to tumble. In the months that followed, the shock waves spread, engulfing first high streets, then factories – and thousands of jobs. In this gripping account, Paul Vallely travels across Britain to meet the people whose lives – and livelihoods – have fallen victim to the domino effect that left a nation broken

November 12 2008

We could begin with Peter Sastawnyuk. The 53-year-old businessman filled his £370,000 detached home with petrol canisters, sealed the locks, set tripwires and threatened to set the place alight. More than 40 of his neighbours were evacuated from the posh cul-de-sac on the edge of the Pennines from which Sastawnyuk sent his children to be educated at private school. But the cradle of his dreams imploded, in the end, as the scene of a five-hour police siege. The trigger for it all, a court in Rochdale was told last month, was that he had lost his job, got into debt and had had his home repossessed.

Or we could start with Karl Harrison. The father-of-two was found hanging in his garden shed in Anglesey. The 40-year-old surveyor had lost his job when the housing market began to turn down. He fell behind with his payments on his home loan and was being harassed by a firm called Oakwood Homeloans to pay the arrears, the recent inquest was told. Harrison’s widow has now put the house on the market.

But we do not need melodrama or tragedy to tell this story. So, instead, let us begin with what is becoming a more everyday misfortune.

It was an ordinary Thursday morning in early October when Jackie Horn, a 43-year-old IT worker, left her neat little Edwardian town house behind Stockport Grammar School to make the short journey to work. Her destination was the Vauxhall Industrial Estate in which the largest site was occupied by the company for which she had worked for the past 16 years – Chemix, which manufactured the compounds from which uPVC window frames and cladding are made.

She looked back casually at the house, with its handsome stained-glass windows, and got in her car, a small silver Peugeot. She had bought the house 12 years ago and, though she lived alone, her mortgage was nicely manageable. She had had the car for two years and it was all paid for. At Chemix, she had risen from being a receptionist to being a computer programmer. She was better paid now. Hers was a settled life.

She had had an inkling that things were not quite right at work. She noticed from her IT processing that orders for resin, Chemix’s incoming raw material, had been down for a while. So were orders for the compounds the firm produced as the nation’s door-to-door salesmen found ever-larger numbers of people saying no to the idea of having their windows replaced.

Then, about four weeks earlier, the management had told the workforce that it might have to move to only three or four days’ working each week. The workers had rejected the idea in a ballot and a couple of weeks later were told there might have to be selective redundancies. But letters had gone out a few days before saying that jobs in sales and IT were safe.

When she arrived at the little factory, “a lot of blokes in suits” had appeared. A meeting of the whole workforce was called. The firm was in administration, the bankruptcy accountants told them. They had all lost their jobs. They should leave immediately.

“It was a real shock,” she says. “One day I was receiving a letter telling me my job was safe; the next it had gone. The mood was bad. Everyone was saying goodbye. They were hugging and shaking hands.” She was told she would be kept on for an extra two weeks to help with the shutdown. “I couldn’t look the men in the eye.” Now she, too, sits idle at home.

The Domino Effect

The chain of events – which began with salesmen on commission wildly dishing out sub-prime mortgages (to poor people the United States who did not even have to prove they had the earnings to repay them) and ended with Jackie Horn losing her job – is a long one.

I have spent the past few weeks tracing each link in that chain through the stories of a series of people:

The fall-off in demand for Chemix’s products was the result of decisions such as the one made by a Birmingham newsagent, whose domestic economies included not having his windows removed and replaced with uPVC frames because his cigarette sales were down.

Cigarette sales at the newsagent’s had fallen because staff at the nearby Range Rover production plant had had their hours cut.

Range Rover sales are down because a wide variety of businesses are now tightening their belts; not replacing company cars is an obvious money saver.

Among the businesses not replacing company cars as part of general cost cutting are the shop-fitting, sign-writing and advertising firms employed by retail giant Marks & Spencer, which has had two-thirds wiped from the value of its shares this year.

Trade in shops is down because consumer confidence has fallen in line with catastrophic drops in the prices of shares.

Share market volatility was provoked by the sudden refusal of the banks to lend money to anyone, including each other.

The crisis of confidence within the banks was fed by the dramatic multi-billion dollar collapse of the investment bank Lehman Brothers, which was the biggest bankruptcy the world has ever seen.

To make sense of this complex saga, I set out to travel around the United Kingdom to speak to individuals who had played a key part in each stage of the tumbling of the economic dominoes. There were repeated surprises along the way. Encounters with the real world are like that. Not everything turns out as you might expect.

Northern Rock – Panic Begins

The giant tower of the new Northern Rock building stands empty, like a monument to the folly of the years of reckless capitalism. It has never been occupied. Out at Gosforth, on the northern edge of Newcastle, it is the place where the first rumblings of the seismic shakeout that is now gripping the globe were first detected in the UK.

Today, the yellow-brick buildings that surround it are still staffed, but by managers and employees humbled by the events of the past 12 months which have turned them from freebooting buccaneers of a banking world – in which the possibilities of growth seemed unlimited – to servants of a nationalised service industry. Even the bricks seem symbolic, for the yellow brick road in The Wizard of Oz led to a gleaming city with a giant fraud at its heart.

The man who is driving me round the once-mighty complex is Dennis Grainger. He was once a senior employee of the firm and is now the leading light in the Northern Rock Shareholders Action Group. The combination makes him uniquely placed to tell the story of the building society that turned bank after Margaret Thatcher’s deregulation of the financial sector and which last year provoked the first run on a British bank since the Victorian era.

“Northern Rock was not involved in dodgy sub-prime lending,” says Grainger, 61, of Cramlington, Northumberland. “Our loans were good, safe lending to people who could afford to repay. The Rock was very strict in asking whether people could afford to borrow that amount.” He knows this because one of his jobs was to manage the people checking the paperwork.

“After the crisis broke, the media said the problem was that Northern Rock lent people more than they needed to buy their homes. And it is true that we did offer 125 per cent loans, to cover the house purchase and additional expenses. But the rates of default on those were just half the national average.”

What did for Northern Rock was that so much of the money it lent did not come from depositors but was borrowed by the bank on the international money markets. That is what had turned a provincial building society into the UK’s fifth largest mortgage lender – and a FTSE 100 company. “Some 80 per cent of the mortgages we gave out had been borrowed in this way,” Grainger says. ” I know I used to sign the documents for millions of transfers each month.”

The problem came when, on 9 August 2007, one of France’s three biggest banks, BNP Paribas, told investors that they could not take money out of two of its funds because it was unable to value the assets in them. This was because the financial world had created complex financial packages out of the sub-prime debt and sold them on to other investors. It was like pass the parcel; investors had, in effect, bought blind because the deals had so many layers that no one knew what lay at their heart.

The crunch came when some investors wanted their money back and Paribas realised it did not know whether it had the money to pay out. It was, in the words of Northern Rock’s former chief executive Adam Applegarth, “the day the world changed”. Money markets across the globe shut down because they did not know which banks would remove the final wrapper from the “credit default swaps” – and find they were holding a booby prize.

When the money stopped flowing, banks like Northern Rock – which had, in the jargon, “borrowed short-term to lend long-term” – could not get hold of the cash to finance their next day’s business. On 13 September 2007 the BBC’s business editor, Robert Peston, revealed that Northern Rock had asked for emergency support from the Bank of England. But there was no danger of the bank going bust, he added, so customers need not panic.

“It had the same effect that Corporal Jones does in Dad’s Army,” observes Grainger wryly. “When you shout, ‘Don’t panic! Don’t panic!!” people do exactly the opposite. Peston should have known that.” Outside Northern Rock’s branches, massive queues formed of savers demanding to withdraw their money.

But, if there was compassion for savers, there was scant sympathy for those running Northern Rock, whose chairman was a non-banker – the local oddball free-market environmentalist aristocrat Matt Ridley – and whose risk committee was chaired by Sir Derek Wanless, who had previously been ousted from NatWest with a reported £3m payoff. It was they who had endorsed the aggressive growth strategy of bullish chief executive Applegarth and, in the words of the financial journalist Alex Brummer, author of The Crunch: the scandal of Northern Rock and the Escalating Credit Crisis, “allowed him to run riot, without checks and balances”.

The people most often forgotten in all this are the shareholders. “People assume all the shares were held by big institutions and greedy hedge funds,” says Grainger, “but a quarter of the shares are held by little folk.” Again, he knows because he has met 2,000 of them in the streets where he sets up his Shareholders Action Group stall. Another 4,000 have emailed him.

“These people are not speculators or gamblers. They are people in their seventies, eighties and nineties living on very small incomes who received a few hundred shares in the original demutualisation. Many are old ladies keeping their shares to pay for their funeral arrangements and who I’ve seen crying in the streets, saying they will now be a burden to their family. They are Mr and Mrs Shipyardworker who put their savings, with pride, into the local bank.”

Again, this is not academic to Dennis Grainger. Every month for 10 years he put £250 of his salary into the Northern Rock employees’ Share and Save scheme. It was to be his retirement pot. At one point it was worth £114,000. Today it is utterly worthless. “The real losers in all this are the small investors who worked for Northern Rock or savers who bought shares and remained loyal to the bank,” he concludes. “The treatment they have suffered is very unfair.”

It is not the only consequence. To accelerate the payback to the taxpayer, the new management at the now-nationalised company is pursuing an aggressive policy of repossessing the homes of borrowers who get into arrears. Northern Rock’s rate of repossessions is currently running at around double the industry average. And leaked documents from inside the bank reveal that it is set to double numbers in its debt collection arm.

There is a quiet indignation in Grainger’s conclusion. “We have been treated very badly by the Government,” he says. “Northern Rock was illiquid, not insolvent. When there was a run on the bank they wouldn’t lend us £2.7bn, but they’ve had to stump up £400bn to prop up other banks since. We should have been given the same terms as other banks were subsequently given.”

But there was one other bank not included in the rescue deal. When Lehman Brothers investment bank folded it provoked the biggest corporate bankruptcy ever seen.

Lehman – The Untouchables?

Until recently, Andrew Gowers had an office on the 30th floor of a tower in Canary Wharf which offered a stunning panorama of the City of London. It seemed an appropriate location for the UK arm of an investment bank that was one of the big five beasts of Wall Street. If there was any institution whose members might fall prey to the hubris of believing that they truly were Masters of the Universe – as top City traders described themselves with an irony which depreciated with the passing years – then the men at the top of Lehman Brothers might be among their number. The air indeed seemed rarefied at that height. The shame was that nobody bothered to pack the oxygen.

For the past month, Gowers, a former editor of the Financial Times – and now a former director of communications at the 150-year-old US investment bank which had begun life in the 1850s as a cotton-trading partnership – has sequestered himself away in a far less public place, having quit the bank just before it collapsed. He has had a month “watching the autumn go by” in the south of France.

Northern Rock was the prequel to the concatenation of events which has seen £3,000bn wiped off the value of the world’s shares. It has also seen taxpayers across the globe spend double that amount to prop up the world’s banks. But it was the collapse of Lehman Brothers – and the sight of well-paid bankers carrying their belongings from their Canary Wharf offices in black sacks and cardboard boxes – which first suggested that something was going on that might have ripples that moved beyond the United States, or indeed, the Northumbrian fastness of Northern Rock.

But for Andrew Gowers, the writing had been on the Wharf for a good deal longer.

“There was a general awareness of difficulties,” he says, “from August 2007 onwards.” Lehman was a very large borrower, with, according to some estimates, around $130bn in debt, much of it in sub-prime. “But the feeling was that we weren’t as badly exposed as some and there appeared to be some good and clever hedging strategies in place, Gowers says. So 2007 ended as a record year with bumper revenues and the balance sheet grew in the first quarter of 2008 – “which a lot of people, after the fact, found pretty incomprehensible.”

There was no excuse for this complacency. In March, a smaller investment bank, Bear Stearns, had collapsed. In response, Lehman’s share price fell 48 per cent in less than a morning. “But the Lehman management told itself that we were different from Bear Stearns,” Gowers recalls, “because we weren’t so reliant on short-term borrowing and we had large amounts of liquidity.” Anyway, the US Federal Reserve – America’s equivalent of the Bank of England – had stepped in to save Bear Stearns. Perhaps the top people at Lehman – a far bigger bank – believed they would have a state safety net, too.

Even so, says Andrew Gowers, “it all scared the living daylights out of the top management and some major effort was made to shrink the balance sheet, to cut the borrowing and get rid of some of the problem assets.”

The trouble was that other banks were doing the same thing at exactly the same time. As a result, the prices of the assets they wanted to sell fell at a shockingly fast pace. Lehman began to run out of time. It could not offload enough of the dodgy sub-prime debts. To make matters worse, the “good and clever hedging strategies” began to come unstuck. Indeed, instead of offsetting losses, some of the hedges magnified them.

“From April, I became aware of quite a sizeable loss accumulating. Nobody was quite sure how big it was going to be.” In June, executives at Lehman’s money management subsidiary, Neuberger Berman, sent emails to the top managers at Lehman Brothers suggesting that they forgo bonuses – to “send a strong message to both employees and investors that management is not shirking accountability for recent performance.” Lehman’s executive committee dismissed the idea out of hand.

When the news of the first loss ever in Lehman’s independent history came out the market was shocked. Senior managers, including the chief executive, Dick Fuld, didn’t seem to get the measure of the problem. Gowers recalls: “They just thought: we’re not in a catastrophic place, we’ve suffered some buffeting from abnormal developments in the market, but we have a plan to get out of it.”

The market did not agree and the Lehman share price continued to plummet. “That caused jaws to drop, says Gowers and the bank’s chief financial officer Erin Callan and its president Joe Gregory, who had been Dick Fuld’s right-hand man for 34 years, resigned.

But it was not enough. “Eventually, at one minute before midnight, they came out with an explanation of what had gone wrong and what they planned to do,” Gowers recalls. “But it was too late.”

In the end, what did for Lehman was that its executives failed to understand that the politics had changed. On 7 September, America’s biggest mortgage providers, Fannie Mae and Freddie Mac, had to be rescued by the US government. It was one of the largest bailouts in US history. “A feeling grew in Congress that there had to be a limit,” Gowers says.

Lehman Brothers became that limit. “At quite a few points in the downward spiral Lehman’s could have been bought, but Dick Fuld was too proud to accept that,” Gowers adjudges. The result was the largest corporate bankruptcy in history.

Andrew Gowers got out just before the collapse, having concluded that his job had become untenable. The evening that I interviewed him, he had just returned from a relaxed day at the market in Cahors. There would be sea bream for dinner that night. But things looked a little more bleak for some of his former colleagues.

Investment bankers rank fairly low on the public sympathy index. Gowers acknowledges that, yet warns against broadbrush judgements. “There were a lot of people in Lehman’s who took 80 per cent of their pay in shares which were deferred for five years and a relatively low salary,” he says. Many borrowed against those shares and are now hiding away and licking their wounds.

“It had been rolling along in a fantastic way for so long that everybody really did began to think there was no way it was going to end. They applied that to their own personal finances, as well as the way they ran the firms, borrowing against tomorrow.”

But now, grimly, tomorrow has become today.

Blame it on the young guns

The seats are of the kind of red plush velvet that speaks not of your local Indian restaurant but of discreet wealth. The menu offers seared Isle of Skye scallops with pork belly squares and cauliflower purée. With the chateaubriand of Aberdeen Angus, served with a béarnaise sauce, I suspect that Duncan Glassey’s eye might alight at a £58 bottle of 1975 Château Cantenac Brown. But I am wrong. He is happy, he says, with an Australian shiraz, the cheapest on the list of bin ends in the smart Circus Wine Bar & Grill in the austere Georgian elegance of Edinburgh’s New Town.

“How did the world’s cleverest financiers get into this almighty mess?,” I ask him.

There is a lot about Duncan Glassey which is not what you might expect. The child chess prodigy who turned professional runs a wealth planning consultancy for the mediumly-rich. It grew out of his experience of working with lottery winners at the accountant Ernst & Young in the mid-Nineties. His firm Wealthflow LLP now specialises in clients with between £1m and £5m to invest.

For all that, he is modest in his own lifestyle. So much so that in the past he has been told that he lost business from new clients after turning up for the initial interview in a car which they decided was insufficiently grand. There is something about him of the solidity of old money. His client list includes aristocrats as well as advocates. Like those whose money he manages, his bias is towards the conservative and away from the febrile psychology of “active management” where, he insists, over-activity can sometimes substitute for solid long-term investment.

Glassey has some interesting thoughts on the generational conflicts that have tipped the world into financial crisis and to the brink of recession: “The people who made the strategy in the banks are of the baby-boomer generation born from 1945 onwards. They are a generation of grand visions, optimism and high ideals about combining individual empowerment with social values. They are the big talkers and the people with the vision and mission statements.”

By contrast, the generation who have managed us into the present situation have a very different set of attitudes and values. Generation X are the children of the Thatcher era. “They are at home with globalisation and the information revolution,” he says. “Change is normal, as is the idea of lifelong learning. They are not scared of failure.

“What’s important to them is individualism, choice, self-reliance and immediate gratification. They are thrill seekers.” They can be pessimists, cynics and selfish.

But the younger generation who created sophisticated financial products which have so dramatically imploded – the “masters of the universe” – are different again, Glassey says. “They are Generation Y, born from 1985 onwards. They are the generation who have not known a world without the internet. They are highly techno-savvy and street smart but information overload has made them hugely naive in many other ways. They are the Facebook and Bebo generation – networkers who live in a world where divorce and geographical dispersion has broken down the family. They are self-obsessed and close-focused.

“The belief systems of the three groups – the strategists, the managers and the traders – are entirely different,” concludes Glassey. “They don’t really understand one another at all. And they didn’t know what each other really wanted or expected out of the complex financial architecture they created.

“Everybody was locked into the Nick Leeson scenario; no one asked questions so long as everyone was making money.”

The shaven-headed Glassey, aged 39, characterises himself as on the cusp between generations X and Y but his values hark back to what he calls “the old days when banks were trustworthy and on your side, before they became out-and-out sales organisations”. His approach is to keep his clients away from financial fads and fashions and “commission-based products which are deliberately made so complex that clients can’t understand them”. Glassey was always suspicious of the world of credit-swap derivates which he saw as a parade of emperor’s new clothes. “I view all that as speculation. I’m not paid to make huge money for my clients; I’m paid to diversify risk.”

But his clients, Glassey acknowledges, will not be the ones to suffer. “Their portfolios may be down 15 per cent where others are down 35 per cent or more. But their homes and jobs are not as risk.” So whose jobs and homes are in peril? And why? The trail pointed away from the world of pure finance and into that of the stock market.

The trillion-dollar wipeout

They are still selling oysters and champagne in the great courtyard of the Royal Exchange which was founded in 1565 as the centre of commerce for the City of London. In the 17th century, stockbrokers were not allowed within its elegant portals because of their rude manners, but today it is no longer a stock market. Instead, it is a luxury shopping centre whose pillared and marbled atrium is lined with discreet boutiques bearing names like De Beers, Hermès, Tiffany, Bulgari and Cartier. A couple of lattes in its magnificent courtyard will set you back the price on an entire lunch for two in Bury market, of which more later.

I was there to meet Richard Hunter, head of British equities at the fund manager Hargreaves Lansdown – which manages £11bn in shares for its small investor clients. I wanted to find out why the alarm over bank shares that gripped the stock market then infected other areas. After the collapse of Lehman Brothers, it was not just banking shares that fell; equities plummeted in a wide range of companies that had no connections with the financial services industry.

“Credit is the oil in the machinery of the business world,” he says. Every business needs to borrow to finance the gap between buying its raw materials and the income arriving for what it sells. “The money that used to be available to do that just isn’t there any more because the banks have stopped lending to one another. All that has been impacted by the credit squeeze. That’s why share prices fell first in certain sectors – the banks and financial services companies – but soon spread to other areas.”

But there were a collection of other forces in the real economy that accelerated the speed with which prices fell.

“It was a cocktail of factors,” he says. “After the sub-prime crisis broke in the US and after the collapse of Northern Rock here, some people became more cautious and started to spend less.” Then came the global rise in food prices which raised the cost of bread, rice and other staples in the supermarkets; in April, rice prices were double what they had been seven months earlier. Next followed the international hike in the price of oil – it rose as high as $147 a barrel in July, almost treble what it had been a couple of years earlier. And that massively increased both domestic fuel bills and petrol prices.

“If it costs you an extra £10 a week to fill your car and you’re on a budget,” he says, “you have to find that £10 by cutting back somewhere. If you’re paying more for your gas and electricity you have to cut back on something else.”

Then, on top of all that, house prices had started to fall. The fall-off began slowly, last November. By April this year, house prices were lower than they had been a year before. It was the first time an annual drop had been recorded for 12 years. The number of new houses being built fell to the lowest level for 60 years. The building industry, after 13 years of unprecedented growth, faced a major slump; in July the housebuilder Taylor Wimpey asked shareholders for an extra £500m and failed to raise it. Mortgage lending crawled to a near standstill in August as approvals for new homes hit a record low. By September, house prices across the country had fallen by about 10 per cent. Repossessions rose to triple their previous level. In the worst hit areas, such as the centre of Manchester where thousands of buy-to-let apartments had been made in converted inner city warehouses, prices fell by more than 20 per cent.

Half the flats in one prestigious block, Albion Mill – a converted Victorian biscuit factory with double-height living rooms and stunning views across to the Pennines – were repossessed. One woman, Jeanette Leach, 31, got off the plane at Manchester Airport after a holiday in Tenerife and received a text message saying her home had been repossessed; she went straight into the toilets at Terminal Two and hanged herself with the cord from her tracksuit bottoms.

The majority of those falling into difficulties as result of the credit crunch were not driven to such extremes. But, says Richard Hunter, “the stock market tries to discount the falls in value that will come over the next nine to 12 months.” As soon as the banking system was pulled back from what the head of the International Monetary Fund called “brink of systemic meltdown”, investors began to consider what might be the short-to-medium term implications for the real economy. House prices were a key indicator.

And further contraction was obviously on the cards. Some 1.2 million homeowners in the UK are now faced with the prospect of negative equity because the prices of their properties have fallen below what they paid for them. Another 1.4 million households are due to come off short-term fixed-rate mortgage deals by the end of 2008. The credit crunch on the wholesale markets was making mortgages harder to come by. It contributed to a growing “feel-bad” factor on the markets. “With shares and house prices you don’t crystallise your loss till you sell, but you feel poorer because of all the bad news,” says Hunter, “and so your behaviour begins to change. Everyone cuts back.”

Some people do more than that. They panic.

“People who have been in the city 40 years are telling me that they’ve never seen this degree of volatility before,” Hunter says. “Panic overtakes logic. Just a few people running round like headless chickens can infect others because people look at the headless chickens and say: What do they know that I don’t? In the past they used to say that the market was driven by one prevailing emotion – greed or fear; this time it’s a cocktail of both.”

The result was an orgy of frenzied selling in which £2.7 trillion was wiped off the value of shares globally in a single week of extraordinary financial mayhem in October. This was when a crisis that had for months seemed confined to the world of banking began to ripple out into the real world.

Source

What bailed-out banks spend on lobbying

By Matt Kelley


WASHINGTON

Nineteen banks taking taxpayer money from the Treasury Department have spent $32.4 million lobbying the federal government during the first nine months of this year, their lobbying disclosure reports show.

Combined, the Treasury is investing in the banks $159 billion from the $700 billion financial rescue package approved by Congress last month. None of the banks has indicated it plans to stop lobbying.

Lobbying by the financial industry before and during the financial crisis has come under criticism from consumer groups, members of Congress and President-elect Barack Obama.

“It’s ridiculous that the perpetrators of this mess should be the people dictating to Congress how to get out of it,” says Kathleen Day of the non-profit Center for Responsible Lending.

Sen. Dianne Feinstein, D-Calif., began drafting a bill to ban recipients of government help from lobbying with taxpayer funds after learning that insurance giant American International Group continued to lobby after it received $123 billion in government-backed loans. AIG suspended its lobbying Oct. 20, company spokesman Joe Norton says.

In a statement, Feinstein said “it would be unconscionable for these companies to misuse taxpayer dollars” on lobbying. Although federal law prohibits federal loan, grant or contract money from being used for lobbying, Feinstein wants to ensure that ban also applies to the investments, loan guarantees and other emergency help offered to financial firms, Feinstein spokesman Gil Duran said.

Financial industry lobbyist Scott Talbott says such restrictions are unnecessary.

“Washington is watching. The world is watching. Companies will be able to show how they’re using the money,” said Talbott, a senior vice president of the Financial Services Roundtable, a trade group that represents 21 large banks getting government investments. “Lobbyist money will come out of other income.”

Feinstein and others criticized AIG last month for sending executives on a $440,000 retreat after getting government help. AIG so far has spent $9.5 million on lobbying this year, records show.

Norton said AIG stopped working to influence legislation and regulations, but its lobbyists “continue to monitor policy and have general discussions” with lawmakers and regulators. He said AIG has no plans to fire its lobbyists or lobbying firms.

THE BALANCE OF INFLUENCE

Lobbying expenses for first 9 months of 2008
By banks receiving government help:

Company

Lobbying amount

Government investment

Merrill Lynch{*}

$4.6 million

$25 billion

Bank of America{*}

$4.7 million

$25 billion

Citigroup

$5.6 million

$25 billion

JPMorgan Chase

$5 million

$25 billion

Wells Fargo

$2 million

$25 billion

Goldman Sachs

$4.2 million

$10 billion

Morgan Stanley

$2.4 million

$10 billion

PNC Bank

$320,000

$7.7 billion

U.S. Bancorp

$290,000

$6.6 billion

Capital One

$920,000

$3.6 billion

* — Merrill Lynch is being taken over by Bank of America, and the merged bank will receive $25 billion

Sources: Lobbying disclosure reports, U.S. Senate Office of Public Records, Financial Services Roundtable

Source

Despite crisis, Merrill Lynch still lobbying

By Matt Kelley

WASHINGTON

Brokerage giant Merrill Lynch, a victim of the financial crisis, is merging with Bank of America and expects to share in the $25 billion the Treasury Department is spending to help the merged bank.

Despite its crumbling financial foundation and organizational upheaval, one thing at Merrill hasn’t changing: It has continued to lobby the federal government, including on the $700 billion financial rescue package that provided the money for the government investments in Merrill and other major banks.

President-elect Barack Obama and members of Congress have blamed lobbying by the financial industry in part for the current financial crisis. Last month, Obama said the crisis developed “when speculators gamed the system, regulators looked the other way, and lobbyists bought their way into our government.”

Jeff Peck, a lobbyist whose clients include Merrill Lynch, says financial companies will “take their lumps” before a skeptical Congress but have a right to lobby Washington policymakers.

Merrill Lynch hired the firm April 1 and paid it $160,000 through September to lobby Congress on a “blueprint for regulatory and mortgage reform,” the firm’s disclosure reports say. Merrill Lynch has spent $4.6 million in lobbying in the first nine months of the year, records show.

“When you have this kind of scrutiny and this kind of seismic change happening … everyone wants to make sure they’re part of the process that affects their business,” Peck said.

Bank of America also has no plans to quit lobbying, spokesman Scott Silvestri said.

“We continue to talk to Congress and regulators about issues of interest and concern to our company,” Silvestri said.

Lobbyists play a key role in keeping lawmakers and government decision-makers informed about how their decisions affect the lobbyists’ clients, says Scott Talbott of the Financial Services Roundtable, a group representing large banks, insurance companies and other financial institutions.

“Lobbyists provide information, and that role is more important than ever right now,” Talbott says. “You have a very complicated industry, and we’re trying to find the best solutions. … Now is not the time to be cutting back on information flow.”

Banks and other financial firms lobbied Congress for the financial rescue package, but the idea for direct government investment in financial institutions came from the Treasury Department. The American Bankers Association wrote to Treasury Secretary Henry Paulson last week to complain that healthy banks without toxic debt on their books were being pressured to take part.

“This is not a program the banking industry sought,” wrote Ed Yingling, CEO of the bankers’ group. He said some banks are worried that being coerced into taking government money will make them appear to be financially weak and that the government may decide to restrict dividend payments to shareholders.

Unlike the banks, in which the government is buying minority stakes, the feds completely took over Fannie Mae and Freddie Mac, the giant home mortgage financing companies brought down by the foreclosure crisis.

Fannie Mae and Freddie Mac spent $14.3 million on lobbying before the government halted it in September after taking over the companies at a cost of as much as $200 billion.

Lobbying by Fannie and Freddie has been bipartisan. Freddie Mac’s internal lobbyists included Kirsten Johnson-Obey, the daughter-in-law of House Appropriations Committee Chairman Dave Obey, D-Wis. Fannie Mae paid $115,000 in lobbying fees this year to a lobbying firm headed by Steve Farber, the co-chairman of the host committee for Democratic Party convention held in August in Denver.

On the Republican side, Freddie Mac paid $260,000 this year to Timmons & Co. — a lobbying firm founded by Bill Timmons, who worked in the Nixon and Ford administrations and was a top campaign aide or adviser to every presidential candidate since Richard Nixon.

Kathleen Day of the Center for Responsible Lending says financial companies’ clout should be on the decline because their mistakes led to the current crisis.

“It shouldn’t be the industry getting its way all the time,” Day said. “Look where that got us.”

Source

Published in: on November 8, 2008 at 6:38 am  Comments Off on What bailed-out banks spend on lobbying  
Tags: , , , , , , , , , , , , , , , , , ,

Real Change Depends on Stopping the Bailout Profiteers

To understand the meaning of the U.S. election results, it is worth looking back to the moment when everything changed for the Obama campaign. It was, without question, the moment when the economic crisis hit Wall Street.

Up to that point, things weren’t looking all that good for Barack Obama. The Democratic National Convention barely delivered a bump, while the appointment of Sarah Palin seemed to have shifted the momentum decisively over to John McCain.

Then, Fannie Mae and Freddie Mac failed, followed by insurance giant AIG, then Lehman Brothers. It was in this moment of economic vertigo that Obama found a new language. With tremendous clarity, he turned his campaign into a referendum into the deregulation and trickle down policies that have dominated mainstream economic discourse since Ronald Reagan. He said his opponent represented more of the same while he stood for a new direction, one that would rebuild the economy from the ground up, rather than the top down. Obama stayed on this message for the rest of the campaign and, as we just saw, it worked.

The question now is whether Obama will have the courage to take the ideas that won him this election and turn them into policy. Or, alternately, whether he will use the financial crisis to rationalize a move to what pundits call “the middle” (if there is one thing this election has proved, it is that the real middle is far to the left of its previously advertised address). Predictably, Obama is already coming under enormous pressure to break his election promises, particularly those relating to raising taxes on the wealthy and imposing real environmental regulations on polluters. All day on the business networks, we hear that, in light of the economic crisis, corporations need lower taxes, and fewer regulations — in other words, more of the same.

The new president’s only hope of resisting this campaign being waged by the elites is if the remarkable grassroots movement that carried him to victory can somehow stay energized, networked, mobilized — and most of all, critical. Now that the election has been won, this movement’s new missions should be clear: loudly holding Obama to his campaign promises, and letting the Democrats know that there will be consequences for betrayal.

The first order of business — and one that cannot wait until inauguration — must be halting the robbery-in-progress known as the “economic bailout.” I have spent the past month examining the loopholes and conflicts of interest embedded in the U.S. Treasury Department’s plans. The results of that research can be found in a just published feature article in Rolling Stone, The Bailout Profiteers, as well as my most recent Nation column, Bush’s Final Pillage.

Both these pieces argue that the $700-billion “rescue plan” should be regarded as the Bush Administration’s final heist. Not only does it transfer billions of dollars of public wealth into the hands of politically connected corporations (a Bush specialty), but it passes on such an enormous debt burden to the next administration that it will make real investments in green infrastructure and universal health care close to impossible. If this final looting is not stopped (and yes, there is still time), we can forget about Obama making good on the more progressive aspects of his campaign platform, let alone the hope that he will offer the country some kind of grand Green New Deal.

Readers of The Shock Doctrine know that terrible thefts have a habit of taking place during periods of dramatic political transition. When societies are changing quickly, the media and the people are naturally focused on big “P” politics — who gets the top appointments, what was said in the most recent speech. Meanwhile, safe from public scrutiny, far reaching pro-corporate policies are locked into place, dramatically restricting future possibilities for real change.

It’s not too late to halt the robbery in progress, but it cannot wait until inauguration. Several great initiatives to shift the nature of the bailout are already underway, including http://bailoutmainstreet.com. I added my name to the “Call to Action: Time for a 21st Century Green America” and invite you to do the same.

Stopping the bailout profiteers is about more than money. It is about democracy. Specifically, it is about whether Americans will be able to afford the change they have just voted for so conclusively.

Source

Published in: on November 8, 2008 at 4:42 am  Comments Off on Real Change Depends on Stopping the Bailout Profiteers  
Tags: , , , , , , , , , , , , , , , , , , ,

Economist explains how conservatives engineered financial free-fall

Meltdown

Economist James Galbraith shows how conservatives engineered financial free-fall

Reviewed by John Sakowicz

AS LIFE as we know it seemed to be ending—bailouts pushing $1 trillion on Wall Street, the stock market plunging, credit markets seized up around the world, with banks even refusing to lend to each other, never mind lending to their customers—James Galbraith and I talked. In his recent book, The Predator State, James Galbraith does what his famous father, John Kenneth Galbraith, never did: he makes a moral case. He argues that our country has been hijacked by the neoconservatives of the Bush administration. The “ideals” extolled by those neoconservatives—free trade, monetarism, balanced budgets, deregulation, privatization—are nothing more than a bunch of bull, says Galbraith. Moreover, he says, their true agenda was always greed. Taken together, these “ideals” came to represent a worldview whose basic principle was largely unchallenged by liberals. And what was that basic principle? Socialism—socialism for the rich.

During the last decade, the United States has become a nation of predators vs. the rest of us. As Galbraith explains it, neoconservatives in Washington and on Wall Street have conspired to steal elections and occupy the most powerful political and financial institutions in the land so that they might abuse that power. How does it work? When times are good, extol the virtues of privatization. Then reward politicians for betraying the public trust. Finally, let the robber barons rob the country blind. When times are bad, extol the virtues of socialism. Say you’re asking for bailouts not for yourself but for the greater good. Nationalize whole industries, like the financial sector, whatever the cost.

Here’s a quick economics lesson from Galbraith: Wall Street reinvented itself after the Glass-Steagall Act (which instituted banking controls in the Depression) was repealed in 1999. Then-Sen. Phil Gramm proceeded to deregulate every damn market you can think of: stocks, bonds, commodities, etc. Every form of debt was also “securitized” in exotic financial instruments like CMOs, CDOs and SIVs (like many military acronyms, these acronyms are innocent-sounding names for things that are harmful). Eventually, a newfangled market called swaps and derivatives was ushered in, a market that has a notional value in the hundreds of trillions of dollars—a market as esoteric as it is unregulated. Think of it as make-believe money that made very real people really, really rich. Printing this make-believe money on Wall Street was a new species of bankers called “prime brokers.”

Things were good until last summer, when Bear Stearns went bust. Then things turned bad because those really, really rich people went crazy speculating in make-believe money at the encouragement of prime brokers—and at the encouragement of the banks and broker dealers the prime brokers worked for. Words like “value” and “risk” became meaningless. Something had to give. Banks and broker dealers started going bust. First, one by one, then, in waves. But those really, really rich people were allowed to keep their money. A funny thing happened at the same time, too. Those very same ruthless capitalist archetypes became hypocrites. “We’re too big to fail,” they hollered. “You’ve got to save the rich to save the poor.”

Don’t call them neoconservatives or conservative anything, says Galbraith. Call them by their true name: predators. And Galbraith continues, predators are almost entirely responsible for the problems confronting us at this moment in history: the subprime crisis, our new national debt ceiling of 14 digits; the deepening divide between the rich and the poor; the still-persistent inequality across the spectrum of race, gender and immigration status; climate change; our collapsing bridges and other infrastructure deficit; and, last but not least, the falling dollar.

What can America do to save itself? Simple, says Galbraith. Bring back the real ideology of free markets. If Fannie or Freddie have to fail, let them fail. New mortgage guarantors will spring up. When you think about it, Fannie and Freddie were just in the insurance business, plain and simple. The market will recover. Have faith. Also, start repairing government. Publicly finance campaigns and elections. Send the lobbyists packing. Finally, start regulating again. Regulate the new Wall Street—its new products, i.e., swaps and derivatives, and its new services, i.e., prime brokerage. Robber barons cannot be expected to police themselves. And for God’s sake, stop labeling yourself and others as “liberals” or “conservatives.” Those labels are meaningless. There’s only the super-rich and the rest of us. There’s only predators and prey.

Source

Published in: on October 13, 2008 at 12:31 am  Comments Off on Economist explains how conservatives engineered financial free-fall  
Tags: , , , , , , , , , , , , , , , , , , ,

Salaries hit by Icelandic bank Collapse

Council salaries hit by bank collapses

Treasury urged to defer £1bn business-tax demand as this month’s payroll for hundreds of thousands of workers is frozen in Icelandic accounts

By Jane Merrick, Brian Brady and Jonathan Owen
October 12 2008

Hundreds of thousands of council workers may not be paid this month because their earnings are frozen by the Icelandic bank collapse, it emerged last night.

The Local Government Association has just eight days to avert a catastrophe, senior sources warned. The LGA has urged the Treasury not to insist on prompt payment of nearly £1bn in business taxes owed by councils, and due on 20 October, to free up cash and allow staff to be paid.

It is understood that dozens of the 100-plus local councils that are victims of the Iceland banking crisis use their accounts for the payroll of everyone from the chief executive to front line staff. Until now it was thought only capital savings, worth £840m, were locked in the failed banks. But the accounts were also used as a quick way to earn interest to pay wages.

And in a fresh blow to the banking industry, The Independent on Sunday has learned that seven councils are to withdraw a total of £2bn from British and foreign banks because they fear the crisis could claim more victims. The money will be transferred to government bonds, leaving a gaping hole in UK banking assets at a time when the Treasury is struggling to prop them up with its £500bn bailout.

Treasury officials and the Icelandic authorities said last night that they had made “significant progress” in agreeing in principal a quick payout for British investors – including local councils – who had about £4bn in the Icelandic Landsbanki’s internet bank Icesave.

The News of the World also reported that the value of Icelandic-owned assets seized by the Britain under anti-terror laws was believed to be roughly equivalent to the amount invested in Icelandic banks by British individuals and organisations.

As the economic crisis deepens, Gordon Brown will today make an unprecedented appearance in Paris before an emergency summit of eurozone leaders held by French President Nicolas Sarkozy. The Prime Minister will give a presentation on last week’s bailout, which gave the taxpayer a £50bn stake in British banks.

A No 10 spokesman said last night: “We don’t expect everyone to do exactly what we have done, but the approach we set out is probably the best kind of model.”

Following G7 finance meetings in Washington, President George Bush called for a “serious global response” to cope with the continuing plunge in markets, backing moves to buy stock in troubled financial institutions.

A local government source warned that most of the councils caught in the collapse had invested funds from revenue accounts, used to cover recurring costs such as wages and local services, in Icelandic banks – with terrifying implications for staff and clients. It is not known which councils are affected, but conservative estimates of 50 authorities would cover more than 150,000 staff.

Public-sector unions last night revealed they had written to employers laying out their “grave concerns” about the immediate impact on wages, jobs and front-line services. Unison spokeswoman Mary McGuire said: “We have asked the LGA … how much councils have deposited, and exactly what the impact is going to be in the short term.”

Haringey in north London is believed to be among those councils whose payroll is frozen, though the chief executive refused to confirm or deny this. Haringey made a £5m investment in Iceland just last week – after the nation’s first bank, Glitnir, went bankrupt. Braintree council, in Essex, has confirmed that the £230,000 annual interest from £5m of taxpayers’ money held in three failed Icelandic banks was to be spent on payroll and services.

Despite warnings as far back as July that investing in Icelandic banks was risky, Tory-controlled Winchester council deposited £1m in Heritable, a Landsbanki subsidiary, in September. Lord Oakeshott, Liberal Democrat Treasury spokesman, said: “Winchester council was grossly imprudent. I wouldn’t put them in charge of a child’s money box.”

Council leaders will meet local government minister John Healey and the economic secretary to the Treasury, Ian Pearson, later this week to appeal for more help, including a delay in the payment of business rates. More money is due to the Treasury on 6 November, the date of the Glenrothes by-election.

The shadow Local Government Secretary, Eric Pickles, said: “If the Government shows some flexibility, I am sure that most problems in regard to cash-flow will be taken care of.”

Local government difficulties

Interest rate swaps

In the 1980s, council officers, who were largely unskilled for the task, became involved in a sophisticated form of derivative known as an interest rate swap. Until 1988, when interest rates rose, councils made a tidy profit, but then huge losses were incurred. Hammersmith & Fulham council lost about £200m on investments worth £6bn, but eventually settled with many of its creditors.

Off balance sheet

Not yet a disaster, but there are plenty of critics of councils’ – and central government’s – habit of taking health care facilities and schools built through the private finance initiative off their balance sheets. The argument is that the risk of the project failing is borne by the private sector and so the project should go on its balance sheet. However, even some officials privately admit that it’s a smoke and mirrors exercise to ensure big investments do not come out of a local or central government budget.

BCCI

The Bank of Credit and Commerce International collapsed in 1991 owing more than $16bn (£9.4bn) and took the deposits of local councils down with it.

Source

Time Line To Date

7 September
US government seizes control of mortgage lenders Fannie Mae and Freddie Mac.

14 September 2007
Bank of England steps in with emergency funding to support Northern Rock.

17 March 2008
Federal Reserve organises the rescue of Bear Stearns.

17 September
US rescues insurer AIG.

26 September
US government takes control of Washington Mutual in the largest-ever American bank failure.

29 September
UK government nationalises Bradford & Bingley’s loan book.

30 September
Ireland guarantees the deposits of all savers.

3 October
Biggest ever US government bail-out plan – worth $700bn – clears House of Representatives after being rejected a week earlier.

7 October
Iceland asks Russia for €4bn loan to avoid financial meltdown.

8 October
Chancellor Alistair Darling announces £450bn rescue plan for Britain’s ailing banks. Bank of England cuts interest rates by half a percentage point.

10 October
G7 meeting in Washington agrees global rescue plan.

Source

Wall Streeters are just Welfare Recipiants in Disguise

Wall Streeters are just Welfare Recipients, in Disguise they just cost more to feed is all.

They are the Rich Welfare bums who need it the least.

Exactly 9 Years Ago Today: Fannie Mae Eases Credit To Aid Mortgage Lending

Lest we forget. History can say a lot.

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES

September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans. ”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.” Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market. In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s. ”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.” Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped. Fannie Mae, the nation’s biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings. Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites. Home ownership has, in fact, exploded among minorities during the economic boom of the 1990’s. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University’s Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent. In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent. Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings. In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups. The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Compliments of One Mans Blog

Under Fannie Mae’s pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 — a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

This means they made a small fortune on the poor for some time. Why is it the poor have to pay more interest? That one percent certainly adds up to a whole lot of profit.

There certainly are those who know how to make money off a stock market crash.

During the Great Depression there were those who made a fortune. Seems the as usual the rich got richer and the poor got very much poorer.

There are those who know very well how to create a crisis and profit from it. I see a pattern emerging.

One does have to wonder (in spite of all the legislation that has been passed over the years) how it is still possible this can happen.

Seems our law makers never really get it right. It could be they really don’t actually do anything to prevent it. Could be they just pretend to fix it.

People become confident things will be OK. They start investing again, until the next crash comes along. Then we all just repeat the same scenario over again. Maybe it’s just me. But I see the wool being pulled over everyone’s eyes yet again.

They mess up and the Government Bails them out. So where is the accountability. Seems anyone in American messes up and Government is there to bail them out. They can be as irresponsible as they want. NO FEAR the Government will give them YOUR MONEY. Meanwhile back at the ranch there are millions living in poverty and many are ending up on the streets every day.

Isn’t that comforting? Yes your Government is taking care of you?

Wall Street bailout: Report from the front

This is almost amusing Poor Suffering Wall Streeters BOY does my heart go out them and all the suffering they have caused. The poor, pathtic, lost souls, that they are.

October 11, 2008

Lehman Brothers Holdings Inc. Chief Executive Richard S. Fuld Jr., wearing tie, is heckled by protesters as he leaves Capitol Hill in Washington after testify before the House Oversight and Government Reform Committee.

AP / Susan Walsh

I don’t fully understand how the $700-billion we are all donating to rescue Wall Street’s executives will be deployed, but I assume it will become clear in a few weeks when we are likely to see a report from the front along these lines: Hundreds of security personnel, some in riot gear, kept order at Congress’ much-anticipated bailout distribution site today on Wall Street. Earlier, dozens of relief trucks loaded with sacks of cash intended for needy financial executives had lumbered through the streets of lower Manhattan before dawn. An estimated 70,000 CEOs, CFOs, COOs, VPs and hedge fund managers hit hardest by the collapse of the credit markets will receive $10 million each in taxpayer money. By 7 a.m., they clogged Wall Street wearing tags issued by their former companies and the crowd was a sea of names like Freddie, Fannie, Lehman, AIG, Washington Mutual, Bear Sterns and Merrill Lynch. Congress had hired emergency-distribution veteran Oxfam International to oversee the operation. Oxfam’s spokesman Jack Rowley said that in the past weeks, needy recipients awaiting the relief drop have been housed in appropriate Manhattan hotels commandeered by the government as holding “camps.” The hotel/camps were chosen in the hopes the executives would be used to the routine, but authorities said conditions had become difficult, with Wall Streeters in some cases forced to share rooms ( try living like poor Americans on the Streets then Whine Boys) at the The Palace, the Four Seasons, The Ritz and the St. Regis. “The hygiene situation is appalling,” said Oxfam’s Rowley, “with the men’s locker-rooms attached to the day spas running out of Clubman aftershave, Armani cologne and Cartier eau de toilette.” ( try living like poor Americans on the Streets then Whine Boys) Rowley said food was also becoming a problem, and his people were putting out an emergency call to restaurants to donate more beef tartare, Dover sole, seared Hudson Valley fois gras, pistachio crusted filet au poivre and wild boar tagliatelle carbonado. ( try living like poor Americans on the Streets then Whine Boys) The denizens of Wall Street, though still among the world’s richest citizens, have been in crisis ever since they bet everything on shaky subprime mortgages , which then predictably collapsed. One executive, who insisted on anonymity, said it is unfair to point the finger of blame at Wall Street. “The middle class let us down,” he told reporters. “We tried to help these $40,000-a-year people by talking them into $3,000-a-month mortgages, which we could bundle into huge hedge investments, and what happens? Two years later they default into foreclosure, cratering our lucrative mortgage-backed securities. I guess that’s gratitude for you.” (OH they were so generous the kindness, the kindness and who are they tring to kid they did it for “profit”.). Congress cut costs at the distribution site by canceling the need for thousands of National Guard members. Instead, in a show of “solidarity with the American needy,” security was provided by a “coalition of the willing,” from such sympathetic states as Switzerland, Macau, Liechtenstein, Barbados, Monaco and the Cayman Islands. Although clad in riot gear, the security personnel also carried folders bulging with deposit slips from their local banks, offering the bailout recipients tax-free havens for their money. Authorities said preparatory operations had gone well, with C-130 cargo planes usually used by USAid to deliver rice to Third World disaster spots having landed at JFK at 2 a.m. They carried the first $70 billion of the $700-billion bailout fund. Waiting trucks were soon in position in lower Manhattan. At exactly 10 a.m., the Oxfam staff opened the truck cargo doors to reveal thousands of sacks bearing the stamp, “Gift to Wall Street from Main Street.” Instantly, the crowd surged forward. Men in Armani Collezioni charcoal 3-button suits with Salvatore Ferragamo belts jockeyed for position next to women in Mariella Burani black crepe blazers with drapped detailing matched with Gucci classic heels. Among them were the CEO’s of Fannie Mae (Daniel H Mudd From Fannie Mae makes 8.79 million a year and owns 18.3 million in shares) and Freddie Mac (Richard F Syron From Freddie Mac makes 3.40 million a year and owns 20.0 million in shares) — who will likely walk away from their companies with over $25 million each, as well as ex Lehman Brothers CEO Dick Fuld, (Better known as Richard S Fuld Jr From Lehman Bros Holdings made 71.90 million a year  and owns $436.8 million in shares).who got $480 million over the years in pay packages.

They all said they appreciated taxpayers helping them out now that they’re out of jobs. (MY  Interpretation of this statement, “Thanking the all day suckers, you the tax payer that is”).

Peacekeepers with bullhorns shouted for calm. Several reporters saw officers with tear gas guns tense up as the crowd began to chant, “Show us the money. . . .” International observers were concerned. “If we don’t get this finished in the next week, the situation will become acute,” said Oxfam veteran Gustav Yves-Pierre. “The risk of money riots is imminent.” He pointed out that many recipients were in arrears on yacht payments and club dues.

One man, Pierre said, told him he feared that if he could not follow through on a $100,000 pledge to the Yale capital campaign, his son would not be accepted early admission, and perhaps not at all, which would interrupt his family’s four-generation membership in Skull and Bones. “That’s why I’m here,” said Yves-Pierre. “Whether it’s the starving in Ethiopia or this, a human being can’t look away when tragedy is unfolding.” Those on the trucks worked feverishly, handing out 110-pound (50-kg) bags of cash, each containing $10 million. As money managers, recipients are expected to invest it and live off the interest, but officials were concerned that with yield rates on treasuries and bonds so low, the $10 million won’t generate enough, and Wall Streeters will have to dip into their new principal to pay for such essentials as Sothebys auctions, Tuscan vacations and caretaking for their Aspen ski houses. Many of those in line found it difficult to wait for hours in the sun and some, on the point of collapse, retreated to their BMWs, and idled with the air conditioning on. As predicted, there was only enough for 10 percent of those in line. It was a poignant sight as tens of thousands headed empty-handed back to their hotel-camps while the luckier recipients struggled to their cars balancing the heavy sacks on their heads. Some relief workers wept openly at the heartbreak. Source

Year of the Bailout

September 09, 2008 

Want a federal bailout? Get in line. Now that the Treasury Department has finally announced its rescue of mortgage giants Fannie Mae and Freddie Mac—at a cost of up to $100 billion each—isn’t it time to start tallying up all this largesse? A hundred billion here, a hundred billion there, maybe it doesn’t seem like much at first. But before you know it, you’ve drained the treasury of the world’s richest country. And besides, more rescues seem to be coming. Here’s a tally of the bailouts so far:

The stimulus package. Maximum taxpayer cost: $150 billion What taxpayers got: Free money, up to $1,200 from the government per household, to spend as they wish. Early research shows most recipients have used the money to pay down debts or boost their savings. Good for them, but bad for the economy, which benefits most in the short-term from spending, not saving.

Bear Stearns. Maximum taxpayer cost: $29 billion. What taxpayers got: Prevented an even worse meltdown in the financial markets—at least for a while.

Fannie Mae and Freddie Mac. Maximum taxpayer cost: $200 billion. What taxpayers get: The mortgage market won’t completely collapse. Interest rates may even drop a little and credit gets a bit easier.

IndyMac and 10 other banks. These insolvent banks had billions in deposits that were taken over by the Federal Deposit Insurance Corp. Taxpayers won’t foot the bill directly, because FDIC takeovers are funded by insurance that banks pay for. But those premiums are likely to rise across the industry, and banks may pass some of that cost onto consumers. What taxpayers get: They don’t have to worry about losing their deposits just because their bank acts reckless. So far, all these bailouts add up to about $400 billion the government could end up doling out to keep key parts of the economy solvent. As the zeroes and the billions mount, we tend to get a bit numb to the magnitude of the number. But it’s big. The savings and loan fiasco of the late 1980s—perhaps the biggest government bailout since the Great Depression—cost taxpayers a mere $130 billion. And $400 billion dwarfs government spending on most other things. It’s equivalent to more than half of the nation’s total annual budget for defense or for Social Security payments. And it’s more than one tenth of all federal spending in a given year. Worse—there’s more to come. Here are some of the bailouts still in the works:

The Detroit automakers. A bill working its way through Congress would commit up to $6 billion in low-interest loans to General Motors, Ford, and Chrysler. Some are pushing for loans of up to $50 billion. Yeah, they’re loans, not grants, and theoretically, the companies would repay them. Unless…something…happens.

More banks. The FDIC says it’s closely watching 117 problem banks at risk of insolvency. Those banks control about $78 billion in assets. Then there’s the daily drama of troubled Lehman Brothers, where investors wait to see whether a white knight will surface, cash in hand, or a Bear Stearns redux takes place. Source

Well we now the Banking bailout cost 810 Billion


The $700 Billion Bailout: One More Weapon of Mass Deception

September 22,2008
By Richard W. Behan
The American economy needs help, but there are other, far more equitable ways to accomplish it.

It is necessary only to assure the financial survival of Wall Street banks and brokerages, the administration’s most loyal supporters and its greatest political contributors — and in large measure the cause of the financial meltdown the country is facing……


Now I am going to retreat to my hoval and eat my bread and water like a good Slave.

Published in: on October 10, 2008 at 11:50 pm  Comments Off on Wall Streeters are just Welfare Recipiants in Disguise  
Tags: , , , , , , , , , , , , , , , , ,

The End of the American order

KEVIN CARMICHAEL ,  From Saturday’s Globe and Mail

October 10 2008

OTTAWA — Before U.S. Treasury Secretary Henry Paulson was pressed into becoming the fire chief of the financial crisis, he had a good thing going as an economic missionary.

Basking in what he liked to call “the strongest global economy” of his business lifetime, Mr. Paulson, who joined President George W. Bush’s administration in June, 2006, embraced with zeal an aspect of his new job with roots in Cold War diplomacy.

In his two years as Treasury Secretary before financial markets came totally unhinged this summer, Mr. Paulson conducted more official business in China than he did in New York. He has visited as many cities in Latin America as he has cities in the United States of America. He rolled through Calcutta, New Delhi and Mumbai in three days in October, 2007; two weeks later, he spent five days in Africa.

The places changed, but the message stayed the same: American-style banking, unencumbered by regulation and open to U.S. financial institutions, is the surest way to create wealth.

“An open, competitive and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than government intervention,” Mr. Paulson told an auditorium full of officials in Shanghai in March, 2007.

Mr. Paulson’s brand of capitalism isn’t promoting much stability these days, and prosperity isn’t a word that jumps to mind as policy makers from Canada to Japan to France scramble to avert a global economic recession.

The Made in America financial crisis has seriously undermined the U.S.’s standing as the undisputed leader of the international economy, posing the first serious threat to U.S. hegemony since the height of the Soviet Union.

After decades of strong-arming governments in Asia, Latin America and Eastern Europe to keep the state out of the economy, the U.S. government in September put up $285-billion (U.S.) to nationalize mortgage giants Fannie Mae and Freddie Mac and insurer American International Group Inc.

That’s nothing compared with the $700-billion Mr. Paulson got from Congress yesterday to purge the financial system of the bad debt at the root of the credit crisis. With governments saving failing banks in Europe, stock markets plunging in China and exports slowing in Brazil, the world is in no mood to take economic lessons from the U.S. government.

“There is a real element of anger and frustration around the planet that this is a U.S.-originated problem with global repercussions,” John Manley, a finance and foreign affairs minister under former prime minister Jean Chrétien, said in an interview. “The world will be looking for a loss of hubris from the United States as a result of this.”

America has dominated global economic affairs virtually unopposed since the collapse of the Berlin Wall, an era marked by the acceleration of global free-trade agreements, the confirmation of the dollar as the world’s de facto currency, and the rise of Wall Street as the world’s financial centre.

The U.S. and Britain dictated the Bretton Woods agreement in 1944, establishing the International Monetary Fund and the World Bank. The U.S. became the largest shareholder in the global institutions, which built their headquarters side by side in Washington. Unsurprisingly, the American vision of private ownership and unfettered markets dominated the prescriptions those agencies imposed on weaker economies in return for financial aid. That culminated in the Washington Consensus, a term coined in the 80s to encompass policies such as privatization, lower taxes and deregulation.

These days, countries can’t distance themselves fast enough from the Washington way of economic management.

“The world is on the edge of the abyss because of an irresponsible system,” French Prime Minister François Fillon said on the eve of a gathering of European Union leaders to discuss the financial turmoil.

German Finance Minister Peer Steinbrueck predicted the end of the U.S.’s status as the “superpower of the global financial system.” Chinese officials are rethinking their embrace of globalization, and Colombian President Alvaro Uribe said the U.S. must ensure the situation doesn’t get any worse.

“The Anglo-American model has suffered a big setback,” John Snow, who preceded Mr. Paulson as treasury secretary and is now chairman of private equity firm Cerberus Capital Management, said in an interview. “We don’t have the moral authority we might have had a few years ago to get others to follow our model.”

Other nations appear ready to assume a more assertive role in the global economy.

French President Nicolas Sarkozy, current President of the European Union, wants to host a summit of the world’s major economies next month to consider global rules for financial markets. Germany’s Mr. Steinbrueck, whose push for stricter oversight of hedge funds and private equity firms last year was blocked by Mr. Paulson, will be a ready ally.

“The whole spectrum of options for regulation is now open again,” said Glen Hodgson, chief economist at the Conference Board of Canada and an IMF official. “You only have moral authority when you have your own house in order.”

A new era of global financial regulation – however appropriate given the serious gaps exposed by the credit crunch – will increase costs for businesses and slow global economic growth.

Say what you will about U.S.-style capitalism, its ability to produce wealth is unchallenged. The world economy expanded at an average annual rate of 3.9 per cent over the past decade, as more emerging market nations embraced free-market ideals. Over the previous 10 years, global growth averaged 3.5 per cent.

There’s a risk that countries such as China and India could become more reluctant to ease barriers to international investors, especially in the financial sector.

“It’s a possibility that you see countries become more protectionist,” said Mr. Manley, who is now a senior counsel at law firm McCarthy Tétrault LLP. “That’s going to slow growth.”

There’s an element of schadenfreude in the world’s criticism of the U.S. government’s role in the financial meltdown.

After all, nobody likes a bully, which is essentially the approach American officials have taken to international negotiations for decades, said John Curtis, a former chief economist at Canada’s Trade Department. “They can be insensitive at times to others’ interests,” said Mr. Curtis, who is now a distinguished fellow at the Waterloo, Ont.-based Centre for International Governance Innovation.

Still, Mr. Curtis and others said it would be a mistake to get carried away with the idea that we’re witnessing the death of the American empire.

The U.S. hardly has a monopoly on economic crises, and the German and French governments, among others, have had to put up billions of their own to save several European banks from collapse, which has muted their criticisms of the U.S.

“I don’t think any country is in position to say they have the right regulatory system,” said James Barth, a senior fellow at the Sana Monica, Calif.-based Milken Institute and a former chief economist at the U.S. Office of Thrift Supervision. “One has to be careful to say the U.S. has a terrible financial system and that capitalism doesn’t work because of this particular situation.”

One reason the U.S. can’t be counted out is that Americans are used to such calamities.

Mr. Paulson would often tell his audiences that the U.S. copes with a financial crisis every decade or so because the country’s entrepreneurs get too greedy and overreach. The cleanup is wrenching, but the country’s economy is left stronger as a result, Mr. Paulson argued. The country’s rebound from the collapse of the dot.com bubble is perhaps the most recent example of Mr. Paulson’s creative destruction thesis.

There’s also the sheer size of the U.S. economy. The spread of the Wall Street crisis to other continents is a graphic example of how much the rest of the world still depends on America for their economic growth. The U.S.’s gross domestic product is three times the size of that of Japan, the world’s second biggest economy, and is four times the size of China’s.

The U.S. dollar still makes up more than 60 per cent of the world’s currency reserves, according to IMF data.

“They are so big, you can’t get along without them,” said Mr. Curtis, who also served at the IMF. “They are pre-eminent, they are no longer dominant.”

The U.S.’s standing in the world of global finance may well be determined by the outcome of Mr. Paulson’s $700-billion rescue package.

Observers marvel at the speed with which Mr. Paulson and U.S. Federal Reserve chairman Ben Bernanke developed the plan after earlier efforts failed to reverse the credit squeeze. It took years to sort out the mess created by the defaults of Argentina and Brazil.

If the U.S. can save its banks faster than the Europeans save theirs, Mr. Paulson will restore some of his department’s reputation abroad, said Daniel Drezner, a political science professor at Medford, Mass.-based Tufts University and a former Treasury Department economist.

But gone are the days when a U.S. treasury secretary will automatically be seen as the smartest guy in the room.

“It’s tough to tell other countries you should privatize and liberalize when you are going the other way,” Mr. Drezner said. “The Washington consensus is dead.”

Source

Privatization benefits only those who operate the corporations etc. It does not benefit anyone else. Everything in the end becomes more expensive.

Like Health Care for example. Those profits made by Insurance companies eat up a lot of money. Government run Health Care is more efficient and more cost effective by a long shot. Of course private companies that have tried and have succeeded in some countries have driven up the cost of Health Care and should be eliminated.

Government run systems have no need to advertise so money is not wasted there. The cost of advertising is massive.

You also don’t have to hire a Lawyer to get treatment, because your insurance companies says no. Universal Health Care is something that needs to be protected at all cost.

Social agencies like Welfare, is another thing that should not now, or ever be privatized.

Child protection agencies, should never be privatized.

Prisons should, never be privatized.

Electricity should, never be privatized.

Water should, never be privatized and numerous other things should always be operated by the Governments for the protection of services to the people.

It also keeps the price of services much lower.

Never believe privatizing anything will save you money.

That is a lie always was and always will be.

Governments have no need for profit to feed shareholders.

Their only share holders they have to protect, are the people of their countries.

That is the Governments Jobs to serve and protect the people of their country.

Capitalism just doesn’t work as we have seen. If anything it has caused a world wide epidemic of problems.

Massive problems. Cleaning up this mess is going to take a long time.

Free Trade Agreements should also be revisited as well and changes to them should be turned in to Fair Trade and be absolutely sure it benefits the people and not the Corporations.  Corperations should be regulated so they are not allowed to pollute or sue governments and numerous other restrictions should be implemented to protect all the people around the world.

Trade Agreements, as they stand now are geared giving profit and control to Corporations and do little if anything to protect people or to enhance their standard of living.  If anything they cause an increase in poverty.  Ask Farmers,  in  countries around the world how Free Trade has helped them. Many have gone out of Business. Problems as these have to be rectified. The sooner the better.

Related

A Crisis Made in the Oval Office

Guess What AIG did after the Bailout? Party Time?

Europeans Angry at their Money being Used for Bailouts

Europe catches America’s financial disease

Europe catches America’s financial disease