Debt Rattle, May 14 2008: Will lie for food

Dorothea Lange: Dust Bowl Farm, 1938 - Coldwater District near Dalhart, Texas.
This house is occupied; most of the houses here have been abandoned.

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Please also read today’s: Did Bernanke lie in Congress?

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Ilargi: After posting Did Bernanke lie in Congress? earlier this morning, it’s perhaps inevitable that I read the rest of the day’s news with that in mind, even more than I already do all the time.

And it doesn’t matter who tells which lies, does it, when everybody participates? The government lies consistently, so do the majority of journalists, and so do experts, analysts and other pundits. That representatives of any and all kinds of industry are blatant liars has become so accepted, nobody notices anymore.

Of course lies can be divided in different sorts, like outright ones, half truths, Orwell's mini truths, and more. And is it a lie if what you say is stupid and wrong, simply because you don't know any better? What you don't know can't hurt you?!

What has happened to us that we find all this so normal? Do we merely get what we deserve? Maybe we're just lying to ourselves consistently, and that makes us unable to detect the lies thrown at us by others.

Anyway, to begin this Debt Rattle: I have the impression that Meredith Whitney is one of the few analysts who escape this phenomenon.


A new target for Whitney?

Is Meredith Whitney, the analyst at Oppenheimer & Co. who famously forecast that Citigroup Inc. was in big trouble and would have to slice its dividend down to size, thinking about focusing on another company?

That's what DealBreaker suggests. The online gossip tabloid grabbed a line from a recent research note in which Ms. Whitney said: “We wish [Citi's] management team all the best in their ambitious endeavors, but we fear [it] is past the point of fixing.”

The line relates to Citigroup's decision to shed $400-billion (U.S.) worth of assets as it tries to fix its damaged balance sheet and operations, but of course it also injects some ambiguity over whether she is walking away from the bank or is merely casting some doubt on the effectiveness of the bank's rescue plan. DealBreaker interprets it this way: “Does that not sound like a ‘Thank you and good night'”?

“Obviously Whitney's grown weary of the 'group, and set her sights on a bigger challenge,” DealBreaker added, raising the possibility that Ms. Whitney could instead focus her critical research on Merrill Lynch & Co. Inc. or  JPMorgan Chase & Co. She currently has a "market perform" recommendation on JPMorgan and a "underperform" recommendation on Merrill, but Citigroup has been her primary focus. 

Although all three stocks were on the run on Tuesday afternoon, Citigroup has been by far the worst hit in 2008. It is down 21.4 per cent, versus a 9.7 per cent decline by Merrill Lynch and a 5.5 per cent rise by JPMorgan.

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Debt Improvement Spells Trouble for Brokerages

This just in: Oppenheimer’s Meredith Whitney is still bearish on the brokerage sector. Her latest salvo covers an issue that will certainly come back to bite the large financial institutions — gains booked as a result of the declining value of their own debt.

Companies such as Merrill Lynch & Co. and Goldman Sachs Group Inc. were able to tally revenue on the declining value of their debt. Merrill booked a gain of $2.1 billion while Citigroup Inc. posted revenue of $1.3 billion. Goldman posted revenue of $300 million. But those accounting gains may be reversed in the second quarter due to the reversal in the value of this debt, that is, the debt has increased in value, and therefore will reduce revenue due to this accounting quirk.

The best way to see this is in the activity of the company’s credit-default swap spreads, which measure the cost of insurance against default. In the second quarter of 2007 — before all hell broke loose — it would cost an investor about $25,000 to insure $10 million in bonds against default for five years. That rose sharply (see table), but companies were able to book revenue on the declining value of that debt — something that’s reversed now.

“Companies that adopted fair value accounting on their own company debt (FAS 159 – Fair Value Option) were able to realize gains as a result of the widening of company credit spread,” Ms. Whitney writes. Merrill Lynch booked a substantial gain in the fourth quarter of 2007 as a result of widening spreads on their own debt — $1.3 billion. In a quiet credit environment, investors would expect valuation adjustments of this type to be small.

But for the second quarter, Ms. Whitney expects a $1.75 billion loss as a result of the debt adjustment for Merrill, and smaller, though still sizeable, losses for the likes of Morgan Stanley and Lehman Brothers Holdings Inc. “Based upon the action in CDS spreads so far this quarter, we believe the brokers earnings will face sizable headwinds from the reversal of revenues resulting from the spread narrowing of firms’ CDS spreads,” she writes.

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Oppenheimer cuts earnings estimates on brokers

Oppenheimer cut its earnings estimates on some U.S. brokers based on its outlook on the capital markets and sizable estimated revenue reversals due to a new accounting rule that allows companies to change the way they value financial securities.

"We expect that most of the gains booked in the first quarter will be reversed in the second quarter," analyst Meredith Whitney said in a note to clients. The Financial Accounting Standards Board (FASB), which sets accounting rules in the United States, adopted a fair value option in February that allows companies to irrevocably choose to record the value of certain financial instruments on their balance sheets based on what that instrument could be traded for in a current market transaction.

Under the new rule, losses on securities can be recognized against retained earnings rather than current earnings. Over the past three quarters reported, the spreads on the credit default swaps for the banks and brokers have widened due to the credit turmoil and liquidity concerns that affected the industry, Whitney said.

"Companies that adopted fair value accounting on their own company debt were able to realize gains as a result of the widening of company credit spreads," she added. The brokerage cuts its estimates on Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley.

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Ilargi: Sure, they claim inane horse doo-doo like "..we are nearing the end of the underperformance of the financials", but European financial institutions can no longer hide their hurt entirely. There’ll be an avalanche of this during the remainder of the year, and beyond.

BNP, ING, Dexia Say Earnings Decline Amid Loan Losses

BNP Paribas SA, France's largest bank, ING Groep NV, the biggest Dutch financial-services company, and Dexia SA, the world's largest lender to local governments, reported lower first-quarter earnings as loan losses increased. BNP Paribas said net income fell 21 percent to 1.98 billion euros ($3.06 billion), beating the median estimate of 1.62 billion euros from 11 analysts surveyed by Bloomberg.

ING said today that profit dropped 19 percent to 1.54 billion euros, matching analysts' predictions, and Dexia's earnings plunged a more-than-estimated 60 percent to 289 million euros. Dexia Chief Executive Officer Axel Miller said losses in the U.S. exceeded expectations because of the collapse of the subprime mortgage market, while Baudouin Prot, his counterpart at Paris-based BNP Paribas, said the financial markets were "more difficult than expected."

"There is a slowdown and yes it will be difficult, but we are nearing the end of the underperformance of the financials," said Alan Beaney, head of investments at Principal Investment Management in Sevenoaks, England, which oversees about $2 billion and owns shares of BNP Paribas and ING. BNP Paribas rose 3 percent in Paris trading and Amsterdam- based ING gained 2.3 percent. Dexia fell 2.8 percent in Brussels trading after the company said earnings were cut by an "unexpected provision" of 128 million euros at the Financial Security Assurance Holdings Ltd. bond-insurance unit.

BNP Paribas, which wrote down assets at its investment bank by 514 million euros, sidestepped the worst of the subprime fallout. The world's biggest financial institutions reported $335 billion of markdowns and credit losses since the start of last year, data compiled by Bloomberg show, leading to record losses and capital raisings at banks including UBS AG and Citigroup Inc.

Pretax profit at BNP Paribas's investment banking unit slumped 73 percent to 318 million euros in the first quarter, missing the 577 million-euro estimate of analysts in the survey. The company was one of the first banks publicly caught up in the credit market seizure in August when it froze three funds, saying it could no longer find prices for some of the securities they held. The funds later reopened.

"The volatility of revenues and the overall environment don't make it really possible for CIB to give clear revenue guidance for the full year," Prot said in an interview with Bloomberg Television. Provisions for risky loans more than doubled from a year earlier to 546 million euros, including 186 million euros related to subprime. Pretax profit at Honolulu-based BancWest, BNP Paribas's U.S. consumer banking unit, slipped 31 percent to 151 million euros.

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Libor Set for Overhaul as Credibility Is Doubted

The benchmark interest rate for at least $347 trillion of derivatives and 6 million U.S. mortgages is set for its biggest shakeup in a decade on concern that banks misquoted their true borrowing costs. "We have not run away or hidden from the need for reform or the need for review" of "serious issues" in the U.K. financial-services industry, British Bankers' Association Chief Executive Officer Angela Knight said at a hearing of a parliamentary committee in London today.

The BBA is set to announce the results of its most far-reaching review of the way it sets the London interbank offered rate in a decade on May 30. The association, an unregulated London-based trade group, is under pressure to show that Libor is reliable following complaints by investors that financial institutions weren't telling the truth about their funding costs after rising mortgage defaults contaminated credit markets and drove up borrowing costs.

While the association set the one-month dollar Libor rate at 2.72 percent on April 7, the Federal Reserve said banks paid 2.82 percent for secured loans later that day. Secured loans typically yield less than unsecured debt. "The Libor numbers that banks reported to the BBA were a lie," said Tim Bond, head of global asset allocation at Barclays Capital in London. "They had been all along. The BBA has been trying to investigate them and that's why banks have started to report the right numbers."

Libor rates jumped after the association said April 16 that any member banks found to be misquoting rates will be banned. The cost of borrowing in dollars for three months rose 18 basis points to 2.91 percent in the following two days, the biggest increase since the start of the credit squeeze last August. The one-month rate climbed 14 basis points, the most since November.

The cost of borrowing in dollars for three months should be as much as 30 basis points, or 0.30 percentage point, higher than the current rate, Citigroup Inc. said in a report last month. Banks are understating borrowing costs on concern they will be perceived as "weakened" by the credit turmoil that forced financial companies to record $323 billion of losses and credit- markets writedowns, said Peter Hahn, a fellow at the London- based Cass Business School.

"Since the credit crunch, it's something that appears to have been manipulated," said Hahn, a former managing director at Citigroup. "We are in an extraordinarily delicate confidence time where a small event can shatter things quite easily." The BBA accelerated its annual review of Libor to assess if there's a fault with how the rate is computed, if it reflects "difficult markets" or is "giving the right answer, just one that people don't want to hear," Knight said yesterday.

"Libor has stood the test of two decades," she said at today's parliamentary committee hearing. While the association has contacted all the member banks to investigate Libor "volatility," the swings in the rate are "hardly surprising" amid the credit turmoil, Knight said. The association has submitted a report based on discussions with member banks to its independent Foreign Exchange and Money Market Committee, which is carrying out the review of Libor, said Brian Mairs, a spokesman for the BBA in London.

The banking group, which represents Citigroup, HSBC Holdings Plc and 14 other lenders, asks members each morning to say how much it would cost them to borrow from each other for 15 different periods ranging from a day to a year in dollars, British pounds, euros and eight other currencies. The Bank for International Settlements said in a March report some lenders were manipulating the rates to prevent their borrowing costs from escalating. The system still worked as it was meant to do as the credit crunch began in the middle of last year, the Basel, Switzerland-based BIS said.

Libor is used to guide banks in setting rates on most adjustable-rate mortgages. It's also the benchmark for the $1.2 trillion of interest-rate swap contracts traded every day worldwide, according to the BIS. "Libor is a proxy for the effective rates of the economy," said Rav Singh, an interest-rate strategist at Morgan Stanley in London. "Libor eventually feeds into the economy. There's so much on the back of the Libor problem. There are structured products, all the swaps and then there are the hedging positions."

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ICAP's Libor Alternative Lacks 'Concrete Timetable'

ICAP Plc, the biggest broker of transactions between lenders, has no "concrete timetable" for a U.S. alternative to the London interbank offered rate as it seeks to sign up banks. "We hope to launch it soon, but we don't have a concrete timetable," Lou Crandall, chief economist at the London-based company's New York research unit, said in an interview.

"We're having individual discussions with banks who understandably want to make sure they know what they're getting into before taking the jump." ICAP plans to start the New York Funding Rate as the accuracy of Libor, a benchmark for corporate loans, at least $347 trillion of derivatives and 6 million U.S. mortgages, is being called into question. For the first time since 1998, the British Bankers' Association, which oversees Libor, is considering changing the way it sets the measure, according to Chief Executive Officer Angela Knight.

"Libor is absolutely ripe for reform as there's always a colossal difference between the rate banks quote and the one they trade at," said Marc Ostwald, a fixed-income strategist at Insinger de Beaufort SA in London. "But I really can't see how this ICAP system is going to take off. The cost of changing from Libor would be phenomenal and would take years and years of legal wrangling."
Libor Benchmark

The new index will be based on an anonymous daily survey of at least 24 banks, Crandall said. ICAP will ask participants each morning to estimate the cost of funding for one- and three- month loans to a "representative" bank. NYFR would be calculated using the quotes of the middle half of that group. The Wall Street Journal reported on May 1 that ICAP planned to introduce the new gauge as soon as last week.

Libor is used as a benchmark for the $1.2 trillion of interest-rate swap contracts traded every day, according to the Bank for International Settlements in Basel, Switzerland. Derivatives are financial instruments derived from stocks, bonds, loans, currencies or commodities, or linked to specific events like changes in interest rates or the weather.

ICAP may not succeed in establishing its measure as an alternative to Libor because so many securities and loans are tied to the BBA's measure, according to Christofferson Rob & Co., a New York-based money manager. "It is not clear to me who is agitating for a change," said Brad Golding, a managing director at the company. "Libor is a very established measure."

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U.S. Foreclosures Rise 65 Percent as Vacated Homes Add to Glut

U.S. foreclosure filings climbed 65 percent and bank seizures more than doubled in April from a year earlier as rates on adjustable mortgages increased and vacated homes added to a glut of unsold homes, RealtyTrac Inc. said. More than 243,300 properties, or one in every 519 households, were in some stage of foreclosure, the highest monthly total since RealtyTrac, a seller of default data, began statistics in January 2005. Nevada, California and Florida had the highest rates. Filings rose 4 percent from March.

Properties in foreclosure "contribute to already bloated inventories of homes for sale, and put downward pressure on home values," RealtyTrac Chief Executive Officer James Saccacio said today in a statement. The collapse of the U.S. housing market, the worst since the Great Depression, is contributing to the economic slowdown and may push the economy into a recession. Median prices for a single- family home fell 7.7 percent in the first quarter, the biggest drop in 29 years, the National Association of Realtors reported yesterday.

There were 4.06 million U.S. homes for sale at the end of March, 40,000 more than the prior month, the Realtors association said in an April 22 report. "Inventory levels have soared to unprecedented levels" Brian Fabbri, chief North American economist for BNP Paribas, said in an interview. "Builders and homeowners have to lower their prices significantly to sell that inventory out."

Bank repossessions jumped 145 percent in April from a year earlier to 54,574, according to Irvine, California-based RealtyTrac. The company has database of more than 1.5 million properties and monitors foreclosure filings including defaults notices, auction sale notices and bank seizures. Banks will seize about 60,000 properties a month through December, when about 1 million U.S. homes, or a quarter of all homes for sale, may be bank-owned, Rick Sharga, RealtyTrac's executive vice president of marketing, said in an interview.

"These are the properties that are causing the bloat in the inventory," he said. Delinquencies on subprime mortgages will continue to rise and defaults on prime loans also may accelerate as people lose their jobs in a slowing economy, Fabbri said. About $460 billion of adjustable-rate loans were scheduled to reset this year, according to New York-based analysts at Citigroup Inc

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Breaking April California Foreclosure Stats

The new April CA foreclosure stats are just out, compliments of Foreclosure Radar. They are now the first company with real foreclosure data on the street each month. In April, Foreclosure records were set across the board in California still confirming, in my opinion, a disaster of epic proportions coming. The data continue to worsen.

The real data are in stark contrast to the bullish nature of a popular recent Wall St Journal story by Cyril Moulle-Berteaux, managing partner at Traxis Partners in New York, various reports and comments from Trim Tabs beginning about a month ago when the firm’s CEO publicly announced it went long financial stocks, and various other ‘analysts’ trying desperately to call a bottom for the past year, to an even greater degree in the past two months.

First, Notice of Defaults (NOD = pre-foreclosures) were up 2.6% to a record high of 44,100 from 42,700 last month. This is the first step to foreclosure when a borrower is approximately 90-days past due on their mortgage. In about 75% of cases, these are not cured leading to a jump in foreclosure sales and bank owned Real Estate Owned (REO) for months to come. If you combine March and April NOD’s, CA had a whopping 86,800, which should produce almost 65k Foreclosure Notices in the next 2-3 months. That is more than the total monthly sales in CA for many months now. Keep in mind that this is only new foreclosure activity entering the system and not home owner, builder or bank REO inventory, which is where the bulk of the inventory lie.

Second, Notice of Trustee Sales (NTS = Foreclosure Notices) were up 7.8% to a record high of 28,892. These are issued roughly 90-days after the NOD (above) so this figure was mostly from the NOD’s filed in Jan, which totaled approximately 38,500. For next month’s preview of NTS, use the Feb NOD number of 37,400 and multiply by 75%…28,050 if the trend holds. Then, the NTS number begins to balloon due to NOD counts accelerating into 2008. As an example of rate of change, NOD’s for Nov 2007 were 23k, Dec were 33k, Jan 08 were 38,500, Feb were 37,400, Mar were 42,700 and Apr were 44,101. The time from NOD to NTS is roughly 4 to 5 months, so judging from the past four months of NOD’s (162,700) at a 25% cure rate (44,700) we will have approx 122,000 units slamming the CA auctions over the next 4 months. Of those, if the trend continues of 97.5% going back to the bank as REO, the banks will get back 119,000 homes to add to their shadow inventory. Again, this is more than the total monthly home sales over the past four months including home owner, builder and bank-owned REO sales combined.

Third, Foreclosure Sales at Auction jumped 44% for a total of approx $9.5 Billion from $6.87 Billion last month. This DOES NOT mean consumers bought the homes. As a matter of fact, if there are no bidders then the bank who holds the note typically buys the home. So, the total ‘sold at auction’ count increasing is more a function of the total NOD’s increasing 4 to 5 months earlier. What is important to track is how many went back to the bank, which stayed very high at almost 98%. So essentially, Foreclosure Sales at Auction is bad thing because it shows actual foreclosures are increasing and so is bank REO, which is the shadow inventory wildcard.

Fourth, Discounts were at a record pace. 84% were discounted by 25% or more off the original note amount. 47% were discounted by a whopping 30% or more. Keep in mind, this ‘discount’ is from an 80% first mortgage in most cases so many of these could be selling for 50-60% off the prior appraised value.

Fifth, 97.75% of the homes failed to sell at auction so the banks bought the rest back. That percentage was in line with last month. Bank REO is quickly becoming ‘The Real Estate Market’.

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Republican Senators Question Fannie Mae’s Capital Position

In a letter sent Monday to Office of Federal Housing Enterprise Oversight director James Lockhart and obtained by Housing Wire, four key Republican Senators questioned the capital position of Fannie Mae on the heels of a $2.2 billion first quarter loss reported last week. Senators Chuck Hagel (R-NE), John Sununu (R-NH), Elizabeth Dole (R-NC), and Mel Martinez (R-FL) jointly expressed concern at OFHEO’s loosening of an excess capital surcharge on Fannie Mae in light of continuing losses, and a plan to raise an additional $6 billion in capital.

“Are you concerned the the $6 billion Fannie has promised to raise in capital will not support new lending and greater mortgage market liquidity, but instead go to cover more of its losses?” the Senators asked in the question-laden letter sent to Lockhart. The group also signaled concern over $9.3 billion in unrealized losses on securities held in Fannie’s portfolio: “If Fannie doesn’t recover the full value of these securities, how would that affect its capital position?” the letter asked.

Fannie Mae held roughly $42.7 billion in core capital at the end of the first quarter; critics have contended that both Fannie Mae and sister GSE Freddie Mac are too thinly capitalized to successfully backstop a flailing U.S. housing market, as many regulators and legislators have hoped.
Losses of just 5 percent on either firms’ massive mortgage portfolio would likely be enough to wipe out shareholders, some equity analysts and investment managers have suggested.

Despite concerns over capital constraints, Fannie will see restrictions on its required core capital level loosened further from 20 percent to 15 percent above statutory minimums, the Office of Federal Housing Enterprise Oversight said after Fannie’s first quarter earnings report; the current GSE regulator said it may further reduce its requirement to 10 percent in September. OFHEO first loosened its capital surplus charge in the middle of March from an originally-imposed 30 percent level for both Fannie and Freddie.

The concern by Senate Republicans echoes recent warnings from analysts at UBS Investment Research, who argued that both GSEs face “severe” capital pressures [and] concluded that both Fannie and Freddie’s capital positions likely put neither firm in a position to aggressively soak up new business on a large scale.

For his part, however, OFHEO’s Lockhart has been steadfast thus far in asserting that the latest round of new capital will be enough to tide the GSEs over until the housing and mortgage markets recover, and that fresh capital will enable both Fannie and Freddie to aggressively move to restore liquidity to much of the mortgage market. Lockhart said last week that the additional capital would likely be enough to shield the GSEs from a 10 percent further drop in home prices.

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Moody's cuts Freddie Mac financial strength rating

Credit ratings agency Moody's Investors Service downgraded its bank financial strength rating on government-backed mortgage lender Freddie Mac to 'B+' from 'A-,' with a negative outlook. The agency affirmed all of the lender's other debt ratings. The outlook on Freddie Mac's 'Aaa' senior debt and 'Aa2' subordinated debt ratings remains stable.

Moody's said the rating actions follow Freddie Mac's reporting a $151 million loss for the first quarter of 2008 and the planned issuance of $5.5 billion in regulatory capital. The credit ratings agency said it expects the lender to incur substantial credit losses that will reduce its financial flexibility even after taking into account the planned capital issuance.

Moody's ratings now incorporate cumulative credit losses in 2008 and 2009 of up to $7.5 billion. "Our rating assumes Freddie Mac will generate a modest amount of capital over the next two years," said Moody's senior vice president Brian Harris. "Because of the need to build reserve levels, our rating incorporates a stress case loss of up to $6 billion in 2008."

Moody's noted that Freddie Mac's preferred and subordinated securities have features which could lead to the suspension of dividend or interest payments if certain capital levels are not maintained. However, Moody's believes the company and its regulators would take preventative measures if Freddie Mac approached such triggers, and therefore affirmed those ratings.

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Freddie Mac reports loss, sees more housing weakness

Mortgage-finance giant Freddie Mac on Wednesday reported a first-quarter loss on expenses related to "challenging" housing and credit-market conditions, as its chief executive predicted more housing weakness would hurt the company's bottom line this year. Freddie Mac said it lost $151 million, or 66 cents a share, in the first quarter, compared to a loss of $133 million, or 46 cents a share, in the year-ago period.

The company said challenging housing- and credit-market conditions were behind a $1.2 billion provision for credit losses in the quarter. But the company did better than Wall Street expected. On average, analysts surveyed by FactSet predicted that Freddie Mac would lose 91 cents a share in the first three months of 2008. Freddie Mac also said it will raise $5.5 billion in new capital and deploy it to help the stressed housing market.

When that money is raised, Freddie Mac's federal regulator said it will lower the excess-capital cushion on the company to 15% from 20%, with another cut to 10% after Freddie completes other steps including completion of registration with the Securities and Exchange Commission. Freddie Mac shares lately rose 8% to $26.96. Shares of sister company Fannie Mae also climbed, by 4% to $29.20.

Richard Syron, Freddie Mac's chief executive, warned investors that the company probably faces more tough times ahead as the housing market remains weak."While our expectation is for continued weakness in the housing and economic environment to negatively impact our overall performance through the remainder of this year, we have put Freddie Mac on a better foundation to manage through the current cycle and emerge a successful, long-term competitor," Syron said in a statement on Wednesday.

On a conference call, Syron said it's too early to formally update the company's estimate of a 15% peak-to-trough fall in home prices, but that risks to that forecast are "strongly weighted on the downside." The housing market remains under intense pressure. On Tuesday, the National Association of Realtors reported that home prices fell in more metropolitan areas in the first quarter than at any time in the past 30 years.

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Greenspan sees U.S. house price bottom in '09

U.S. home prices will likely bottom out in early 2009 after the market absorbs excess inventories, former U.S. Federal Reserve Chairman Alan Greenspan told audiences in Asia Wednesday, according to news reports.

Greenspan, who spoke by video link to audiences in Hong Kong and Singapore, said the current pace of liquidation will accelerate, but excess supply won't be eliminated until early 2009, according to Dow Jones Newswires, which cited prepared remarks provided to investors by Deutsche Bank, which sponsored the conference.

Greenspan told the audience U.S. economy is showing resilience and flexibility. He also said high oil prices are structural and will likely continue due to a lack of investment in capacity and infrastructure, the report said.

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Survey: 1 in 10 boomers borrowing for everyday expenses

The economic downturn is hitting roughly one in 10 middle-aged and older Americans especially hard, compelling them to borrow money for everyday living expenses and to seek help from family, friends or charities, according to a survey released Tuesday by the AARP. In the telephone survey of 1,002 adults 45 and older, nearly four in 10 said they had helped a child pay bills or expenses. Among retirees, one-third said they'd helped their children pay bills. Eight percent said they'd helped a parent pay bills or expenses.

One-third of survey participants said they stopped putting money into their 401(k) or retirement account and 14 percent said they had cut back on their medications. "We have patients coming in fewer times," said registered nurse Tucky Franz of Salisbury, Md. "They'll cut back because of the copay." The majority of baby boomers said they were finding it more difficult to pay for essentials and utilities, and six in 10 said they had cut back on eating out and entertainment.

James Dyas, 75, of Sherman, Conn., said he and his wife go to their favorite Mexican restaurant about half as frequently as they used to. "About all the money we have goes to buying gasoline," he said. While the survey doesn't show large numbers of people making radical changes -- taking second jobs or moving to a smaller home -- it did find that more than one-quarter of those surveyed are having trouble paying their mortgage or rent.

Compared with older people, a greater percentage of younger baby boomers, those 45 to 54, said they were cutting back on medications, prematurely withdrawing retirement funds and postponing paying bills. "For the younger boomers, it's been an especially rude wake-up call," said Jim Dau, a spokesman for the AARP, a nonprofit that advocates Americans 50 and older. Debra Koziol, a 48-year-old hospital finance worker in Rhode Island, said she's started carpooling to work with her sister a few times a week and packing lunch every day. "The food is better," she said. "Some of this is creating better habits, not so much waste."

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Ilargi: Either Brett Arends at the Wall Street Journal is a hugely dumb fcuk or he’s an criminal industry shill. Whatever he is, this is dangerous nonsense. But it cannot be prosecuted. Even though trying to entice people to buy will throw many of them in the poorhouse. Then again, whoever still falls for this deserves what they will get.

Home Buyers, Start Your Engines

If you were thinking of buying a home, start looking. The latest data from the housing market shows that sellers, after months and years in denial, are finally giving in to reality and slashing prices. There is a distance still to go. There may even be a lot to go. But the process, long delayed, is now well underway.

The National Association of Realtors on Tuesday released its long-awaited report on prices from the first quarter. The price drops were startling. In many of the former hot spots, from Florida to Nevada to the Californian "Inland Empire," single-family home prices plunged by 20% to nearly 30% in a year. Even more remarkable was how far prices had fallen just from the previous three months.

In greater Las Vegas, for example, single-family home prices are down about 20% compared to the first quarter of 2007… and about 9% compared to last fall. In certain parts of California, the quarter-on-quarter declines are more than 10%. And there are similar pictures from Boston, Mass., to Tucson, Ariz., to, well, lots of places in Florida. Nationwide, the decline from the previous quarter was about 5%, says the NAR. And this, ultimately, is good news. We know prices have to fall. The sooner it happens, the quicker the market can clear.

We may not be at that stage known on Wall Street as "capitulation," but there is more than a whiff of it in the air. Far too many people in the real estate market have spent far too long insisting that denial is just a river in Egypt. They refused to accept there was a bubble on the way up, and refused to admit it even on the way back down. (There's a few still out there: Last week I got an angry email from a broker who blamed the whole slump on "the media".)

It is simply remarkable how slow this bubble has been to deflate. That, bluntly, is part of the problem. In the Las Vegas area, for example, NAR data shows single home prices peaked in early 2006. Yet by the middle of last year, when everyone and their Aunt Sally already knew we were deep into the biggest housing bust since the Great Depression, prices had only been cut by around 4%. No wonder sales volumes collapsed and the number of unsold homes skyrocketed.

You can imagine what fantasies the sellers were clinging to. "Well, two years ago this home was worth half a million bucks." The problem: So what? It doesn't matter what prices were three or two years ago. We were in a bubble. Market psychologists call this "anchoring", because people anchor their expectations to the past, and it's a fallacy.

Just five years ago, the same home sold for $270,000 and 10 years ago just $200,000. Are those relevant anchor points too? Fact: Even though Las Vegas single family home prices are down about a quarter from their peak, NAR data shows they are still nearly 45% above their levels in early 2003. The picture is similar in other former hot spots. It remains to be seen how much further prices have to fall.

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Ilargi: Next time anyone keeps tells you that Canada doesn’t have a subprime problem, you tell them: "Yes, it does. Over here it’s called 40-year amortization.".

Subprime is a word for borrowers who don’t qualify for standard mortgages. How you reel them in is inconsequential.

Forty-year mortgages spark concerns

Canadians are flocking to 40-year mortgages, often without a down payment, and the rapidly developing trend is beginning to ring alarm bells for policy makers in Ottawa. Both the Finance Minister and the Governor of the Bank of Canada are expressing concern about the situation, as the U.S. economy continues to reel from a crisis triggered by mortgage holders who were in over their heads.

"We've seen an inclination now, a trend, toward longer-term amortizations and smaller down payments, and that is a matter of some concern," Finance Minister Jim Flaherty said yesterday. Forty-year mortgages have only been available here since late 2006. Anthony De Almeida, chief executive officer of the Canadian Equity Group Inc., estimates that 25 to 30 per cent of home buyers are now asking for them. One banker from a large Canadian bank said the majority of new mortgages it is doing are now for 40-year terms.

"Over the next couple of years, you're going to see more and more people utilizing the 40-year amortization, just because it lowers your initial mortgage payments," Mr. De Almeida said. Growth is rapid. Last year, only 9 per cent of outstanding mortgages were for terms longer than 25 years, but 37 per cent of all new mortgages were, said Jim Murphy, chief executive of the Canadian Association of Accredited Mortgage Professionals.

What is really troubling some policy makers and economists is the use of long-term mortgages with little or no equity. No-money-down mortgages "really came out of the gate about five years ago," and now at least one-third of first-time buyers toy with the option, Mr. De Almeida said. He estimates 15 to 20 per cent of first-time buyers are taking out 40-year mortgages without a down payment. There is concern that a one-time rise in house prices could result if the bulk of Canadians get into longer-term mortgages, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.

"Any kind of a shift in lending practices that makes it more affordable for everyone will basically just drive up the price," he said. "The other concern is that it could be leading to a situation where people are paying a lot more interest over the entire term of the mortgage than they otherwise would, and it could ultimately weaken household finances." Canadian consumers as a group could have less net savings down the road because many will still be paying off mortgages later in life, he added.

Bank of Canada Governor Mark Carney recently told the Commons finance committee the central bank is concerned. It is his understanding that "the vast majority" of people taking on longer-term mortgages could qualify for a traditional 25-year mortgage. But the trend is adding momentum to the housing market and "if everyone has a 40-year amortization mortgage, then we just have higher house prices and the same availability," Mr. Carney said. For the moment, the easy debt is helping to keep the housing market humming, economists said. Any damage would be down the line.

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Judge promises quick ruling on ABCP plan's fairness

The judge overseeing the $32-billion restructuring of the frozen ABCP market says he will rule as soon as possible whether the plan is fair, after challengers urged him to throw out a clause making it impossible to sue those who sold the paper. The challengers argued Tuesday, in the second of two days of hearings, that Ontario Superior Court Justice Colin Campbell doesn't have the jurisdiction to grant the legal immunity the plan requires.

The banks backing the restructuring have demanded the immunity and say they will scuttle the plan without protection from lawsuits, but the challengers say the so-called legal releases are too broad because they attempt to rule out fraud claims. The banks “are playing chicken with the court,” said lawyer Ken Rosenberg, who represents a mining company stuck with asset-backed commercial paper. “They are asking you to do something you can't do.”

The judge said that he would try to keep his deliberations as “short as possible” but that it was a very complex issue.
“You've left me with a very difficult issue,” Judge Campbell said. The challengers are fighting to preserve the right to sue because they say they will lose money in the restructuring. The judge signalled in Monday's hearing that he is troubled by the release. However, the pressure is on because the plan may fail if the releases are thrown out or altered.

That would cause massive losses for ABCP holders, who voted 96 per cent in favour of the plan, leaving the minority with the court challenge as a last resort.

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India Finds U.S. at Fault in Food Cost

Instead of blaming India and other developing nations for the rise in food prices, Americans should rethink their energy policy — and go on a diet. That has been the response, basically, of a growing number of politicians, economists and academics in this country, who are angry at statements by top United States officials that India’s rising prosperity is to blame for food inflation.

The debate has sometimes devolved into what sounded like petty playground taunts over who are the real gluttons devouring the world’s resources. For instance, Pradeep S. Mehta, secretary general of the center for international trade, economics and the environment of CUTS International, an independent research institute based here, said that if Americans slimmed down to the weight of middle-class Indians, “many hungry people in sub-Saharan Africa would find food on their plates.”

He added, archly, that the money spent in the United States on liposuction to get rid of fat from excess consumption could be funneled to feed famine victims. Mr. Mehta’s comments may sound like the macroeconomic equivalent of “so’s your old man,” but they reflect genuine outrage — and ballooning criticism — toward the United States in particular, over recent remarks by President Bush.

After a news conference in Missouri on May 2, he was quoted as saying of India’s burgeoning middle class, “When you start getting wealth, you start demanding better nutrition and better food, and so demand is high, and that causes the price to go up.” The comments, widely reported in the developing world, followed a statement on the subject by Secretary of State Condoleezza Rice that had upset many Indians.

In response to the president’s remarks, a ranking official in the commerce ministry, Jairam Ramesh, told the Press Trust of India, “George Bush has never been known for his knowledge of economics,” and the remarks proved again how “comprehensively wrong” he is. The Asian Age, a newspaper based here, argued in an editorial last week that Mr. Bush’s “ignorance on most matters is widely known and openly acknowledged by his own countrymen,” and that he must not be allowed to “get away” with an effort to “divert global attention from the truth by passing the buck on to India.”

The developing nations, and in particular China and India, are being blamed for global problems, including the rising cost of commodities and the increase in greenhouse gas emissions, because they are consuming more goods and fuel than ever before. But Indians from the prime minister’s office on down frequently point out that per capita, India uses far lower quantities of commodities and pollutes far less than nations in the West, particularly the United States.

Explaining the food price increases, Indian politicians and academics cite consumption in the United States; the West’s diversion of arable land into the production of ethanol and other biofuels; agricultural subsidies and trade barriers from Washington and the European Union; and finally the decline in the exchange rate of the dollar.

There may be some foundation to Indians’ accusations of hypocrisy by the West. The United States uses — or throws away — 3,770 calories a person each day, according to data from the United Nations Food and Agriculture Organization collected in 2001-3, compared with 2,440 calories per person in India. Americans are also the largest per capita consumers in any major economy of the most energy-intensive common food source, beef, the Agriculture Department says. And the United States and Canada lead the world in oil consumption per person, according to the Energy Information Administration, an Energy Department agency.

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The Media's Mini-Truths

Barack Obama may be closer than ever to defeating Hillary Clinton in the race for the Democratic nomination, but the real loser of the election campaign is the American people. They have been betrayed by cynical journalists who have constantly opted for style over substance.Rudolf Augstein, the founding father of SPIEGEL, once said that the good journalist is subject to no one -- only to his own prejudices and errors.

The right to make mistakes has been exercised extensively during this campaign, at times also by the author of this column. "All of those people who've been dreaming of America's first black president now have to slowly wake up. It'll happen one day, hopefully, but not in this election," it was claimed after Barack Obama's losses in New Hampshire and Nevada. The column was entitled "The End of the Obama Revolution." The chances that the next US president will be black and a Democrat are better than ever before in American history. The revolution continues -- even if the skepticism remains.

What we are talking about here, though, is not a series of mistakes. It's betrayal. During this election campaign, a large part of the American media has neglected to carefully follow the principles of the profession. In fact, some were about as loyal to those principles as Eliot Spitzer to his wife. A journalist's twin points of references should be the real and the important. But for months the focus of the election coverage was on trivia.

Every insignificant detail got blown out of proportion, with every chipmunk becoming a Godzilla. According to a report by the Project for Excellence in Journalism, over 60 percent of election coverage by the US media has been focused on campaign strategies, tactics or personalities -- but not on actual political content. Reporters focused the most attention on such pressing questions as whether Barack Obama was wearing an American flag lapel pin, whether John McCain had a mistress eight years ago or whether former first lady Hillary Clinton was incorrectly recalling her 1996 trip to Bosnia.

Clinton claimed to recall hearing sniper fire as her plane landed in Bosnia. In fact, as archive TV footage later showed, Clinton was actually greeted by a young girl who recited a poem on the tarmac. That may have been embarrassing for Hillary Clinton, but it is insignificant for voters.Even the eccentric pastor from Obama's church, Jeremiah Wright, is not worth the fuss. "God damn America," he preached. So what? The priest at my Catholic church was a reactionary, while my class teacher was a communist. Perhaps the mad and the blind to the right and the left of our path through life are there simply to show us where the middle way is.

The American public has not only been misled during this election campaign, but has also been fed a constant stream of irrelevant information. In one of his novels, the British writer, essayist and journalist George Orwell invented the Ministry of Truths, which he called "minitruths," with which one would try to confuse the public with small parts of the truth that even when added up do not give the whole picture. This is despite the fact that there is no shortage of relevant issues to discuss. The upcoming US presidential election should address issues of war, peace, and growing inequality created by the forces of globalization.

Many questions could be posed that are hard to beat in terms of drama. What would happen if the Democrats really were to withdraw the US Army from Iraq? How does Barack Obama plan to address the threat that the killing fields of Cambodia could be repeated in Basra and Baghdad? Does he have a plan or even an idea for dealing with the day after? How do the Republicans plan to end the scandal of the uninsured? Some 47 million people in America now have no health insurance. Around 9 million have been added to that total during the seven years George W. Bush has been in power. This is the greatest market failure since the invention of modern capitalism.

But one cannot blame the journalists alone for the decline of journalism. Their importance has diminished more than in any other previous election. They now share newspaper pages and TV broadcasting time with people who call themselves strategists or consultants and who are either in the pay of a party now, or have been in the past.

Journalists and strategists deliver their commentaries, side by side and in harmony, on CNN and Fox News. Make way for Karl Rove, the architect of George W. Bush's two electoral victories, who is now under contract with Fox News, Newsweek and the Wall Street Journal. Raise the curtain for Dick Morris, once the closest adviser to Bill Clinton, who is a fixture on practically every TV channel. Cast the spotlight on Donna Brazile, who appears on CNN as a commentator on every election night -- the audience only learns in passing that she is actually a member of the exclusive Democratic National Committee and one of her party's superdelegates.

The job description of journalists and party strategists could hardly be more different. One is a seeker of truth, the other is a manipulator of reality. What these strategists offer the public may sound like analysis, but it is actually propaganda. It may say journalism on the tin, but the content is pure party tactics.

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