Boys and girls in Caldwell, Idaho
Ilargi: Sometimes the day starts with a few chuckles. I know, it's probably a sign that on those days matters are truly going to the dogs. I read so many lies every day, it's me who starts feeling guilty. And I’m not even talking about the video from The Onion posted below, though it's scarily hilarious. But you tell me: what am I supposed to do when one of the first things I see in the early morning is a FOX headline, admittedly on a serious enough topic, that says:
"New Jobless Claims Rise More Than Unexpected"Then I was skimming a piece about GM's upcoming plant closures, and somehow my eyes got stuck on a great name, which sounded like it belonged to someone, a large stockholder or a big-time lawyer, involved in high level talks with the US auto task force, or Fiat perhaps. Not quite:
Elbert Havard IV, who attaches doors to sedans at the Orion plant...[..]Nobody beats British humor, of course, and this is a fine specimen:
Alistair Darling's 2009 Budget has been derided as a stew of unrealistic forecasts and missed opportunities, after the Chancellor conceded the current slump is comparable with the Great Depression but insisted it would be over by Christmas.That one still gets me. And finally, something that doesn't necessarily sound funny but still is: Italian carmaker FIAT (Fabbrica Italiana Automobili Torino), which is about to take over Chrysler, announced a half billion dollar loss today. Look, I don't know what is being discussed there numbers-wise, but I'm inclined to say that no matter what perks Obama throws at the Cosa Nostra, they'd still be nuts to bite.
And if they do regardless, then once the deal is closed, everybody in America should insist that all details of the deal are made public the day after. FIAT is negotiating, at the very same moment, the take-over of GM's European Opel division. Of course I see how it might be a good game to play for them, but that inevitably means someone else is on the hook for, let's say, "the difference". And I know the German government is bound by EU treaties and laws, which France's semi-nationalized carmakers will invoke with a vengeance, so in the end it's the US taxpayer once more who has the kiddy seat at the table, and that's me being generous.
Right. In the muddy field of US banking, Keefe, Bruyette and Woods (KBW) did its own version of the by now notorious stress tests. KBW doesn't go that far south in its scenarios, that is to say not much further than the Treasury. That is a chronic problem all by itself, those rosy assumptions all over the place. However, KBW still calculates that there'll be a need across the industry for an additional amount in new capital of $1 trillion. Which, let me repeat myself, they arrive at after injecting numbers into their spread sheets that look, to my eyes, to be far too positive and hopeful to be of any use in case we need a Plan B, a plan that would hold up if things turn out worse than those who have a stake in them not being worse like to make you believe. In short: even if things go real hugely relatively well, someone has to come up with an extra $1 trillion, on top of all else, starting tomorrow, the day stress test results are supposed to be handed out.
Not in loans or anything like that, but in Capital with a Capital C. And I suggest you memorize that number, because the "official" numbers you'll hear will be much lower. Congress won't provide it, the people won't support it. But through the FDIC and the Fed, it will be "lazarused" into existence anyway. 13 out of the 19 banks stress tested are in serious trouble, that much we know by now. Geithner, Summers and their clique will get to pick 'em off, one by one, as they please. Goldman Sachs and Citi have by now received enough funds, through one channel or another, to be "safe", against all odds, which will allow them to gobble up the ones left out to dry, and with public money. Bank of America may still be among the sucker-uppers, but they're a brink-teeterers. If you look a bit closer at the numbers for these main banks, you’ll see that there are no solvent institutions left on Wall Street, and all the stress test to-and-fro you see is but a game. Even more than unexpected.
US Banks To Need $1 Trillion in New Capital After Stress Tests
U.S. banks may need another $1 trillion in capital to cushion losses as unemployment rises and borrowers fall behind on payments, KBW Inc. analysts led by Frederick Cannon said today. The estimate is based on the analysts’ own "stress test" of the strength of top U.S. lenders, Cannon wrote. The government is also evaluating the ability of banks to withstand a deepening recession. Bank of America Corp., the largest U.S. lender by assets, may be forced by the government to accept additional aid by converting preferred shares into common stock, Cannon said.
Bankers may get their first look tomorrow at results of the tests, which are being conducted on 19 of the biggest U.S. financial companies. The examinations will compel lenders to raise more capital by selling shares, converting government stakes to common stock or by seeking more taxpayer funds, according to a person familiar with the matter. Investors and analyst have been debating which lenders will need the help without knowing exactly how the institutions will be judged. The Federal Reserve is scheduled to release the methods used to calculate the exams tomorrow. Bank of America will likely pass the test, Cannon said. Still, the Charlotte, North Carolina-based bank may be forced by the government to convert $15 billion to $20 billion of preferred shares into common to bolster the balance sheet, he said.
The company has already received two rounds of federal help, with the U.S. holding $45 billion of Bank of America preferred shares. The government also guaranteed $118 billion of assets and the bank raised $41.7 billion selling debt guaranteed by the Federal Deposit Insurance Corp. as part of that agency’s effort to bolster lenders. Chief Executive Officer Kenneth Lewis has said the matter is in the hands of regulators. Cannon repeated his estimate that Wells Fargo & Co., the biggest home lender during the first quarter, will have to raise as much as $25 billion in new capital and $25 billion to repay government investments. Wells Fargo Chief Financial Officer Howard Atkins said in television interviews yesterday on Bloomberg Television and CNBC that he didn’t know where Cannon was getting his numbers and that the analyst was "entitled to his opinion."
Stress Tests Flash a Lot More Red
Big Losses Are Looming
Wall Street wasn't rattled by newly disclosed details of the government's stress tests of 19 large financial institutions, even though the banks could face hundreds of billions of dollars in additional losses. Federal bank regulators are expected on Friday to start sharing preliminary results of stress tests with the banks that have been scrutinized since February. The findings are expected to be made public next week. Wednesday, analysts scrambled to assess the latest implications of the government's criteria after The Wall Street Journal released details of a confidential document that the Federal Reserve gave banks in February. The document provided details about the formulas regulators used to assess loan losses in a worsening economic environment.
The criteria the government is using to assess the financial health of the banking industry appear to be roughly in line with standards some analysts and banks already are embedding in their own calculations. Still, based on those assumptions, there is a view banks likely will face hundreds of billions of dollars in additional losses from the recession that is wreaking havoc with mortgages, credit cards, commercial real estate and virtually every other type of loan. Under those assumptions, 13 of the banks undergoing the stress tests could be hit with $240 billion of losses, according to Westwood Capital LLC. "This seems to be a legitimate exercise. You could argue with a percent here or there, but it seems to be a good stress test," said Dan Alpert, managing director of the New York boutique investment bank.
One scenario that assumed a 10.3% unemployment rate at the end of 2010 required banks to calculate two-year cumulative losses of 8.5% on mortgage portfolios, 11% on home-equity lines of credit, 8% on commercial and industrial loans, 12% on commercial real-estate loans and 20% on credit-card portfolios. While those figures are worse than today's economic environment, some aren't too far off estimates analysts and banks already have disclosed. But it is difficult to make sweeping assessments of the criteria, in part because the banks have wide variables in their loan portfolios, such as the underwriting standards used to make the loans and the bank's geographic concentration of the loans. Some analysts thought the government's criteria were tougher than many had been banking on.
"We believe these stressed loss assumptions are broadly higher than most bank investors and analysts were anticipating," Ed Najarian, head of bank research at ISI Group, wrote in a note to clients. Under those scenarios, he said, earnings at those banks could be weaker than expected, and most of the institutions could require additional capital. For J.P. Morgan Chase & Co., which is the nation's largest issuer of credit cards and viewed as among the strongest banks, the credit-card stress test of 20% losses over two years is roughly in line with its own predictions. The bank reported loss rates of 6.86% on its cards in the first quarter and estimated that losses may rise as high as 9.5% by the end of the year based on an unemployment rate of 9%.
Although the results aren't expected to be fatal to the banking industry, they are expected to more clearly separate the strongest banks from those considered among the most susceptible to a deteriorating economy. Earlier this week, Treasury Secretary Timothy Geithner said the "vast majority" of banks could be considered to be well-capitalized. Government officials are expected to require each bank to have a buffer of capital above normal limits, but several people familiar with the matter said banks wouldn't be expected to meet a uniform capital floor. In other words, each bank will be gauged differently based on its own risks and portfolios. Regional banks with large, concentrated portfolios of commercial real-estate loans are considered particularly vulnerable. Commercial real-estate defaults have only recently begun to accelerate, and most industry observers expect loss rates to deepen as the recession lingers.
A number of analysts also noted that the government's criteria for the tests aren't completely meaningful without an accompanying forecast for banks' revenue over the next two years. Even banks with high loan-loss rates can survive the crisis if they can bring in revenue that exceeds losses on a quarterly basis. Although it is difficult to juice up revenue in a weak economy, a number of large banks have recently done so by raising fees on credit cards and other types of loans. Also, low interest rates have spurred a boom in mortgage refinancings, which also pumps up bank revenue. Mr. Geithner said on Tuesday that the government would provide as much capital as banks need to continue lending. He also said banks that need additional capital would be encouraged to raise it from private sources.
Banks May Be Required to Disclose Capital Needs After Stress-Test Results
The Obama administration may direct banks judged to need capital after stress tests to disclose how they plan to get additional funds when the government reveals the results May 4, a person familiar with the matter said. Officials are discussing a release that will show the assessments for each of the 19 biggest U.S. banks, said the person, who spoke on condition of anonymity because a decision hasn’t been made. Lenders would specify whether they will issue new stock, seek a conversion of government preference shares, or rely on additional taxpayer funds, according to the person. By pushing for detailed disclosure, the administration is seeking to give the public the ability to differentiate the health of the nation’s major lenders. The move would also address the concerns of some investors that banks needing extra money will be punished without a detailed strategy already in place to get the capital.
"Transparency is critical," said Bill Brown, a visiting professor at Duke University School of Law in North Carolina and a former managing director at Morgan Stanley. "While banks have pushed to keep the kimono closed, the stress tests have forced it open." Financial regulators remain concerned about investors’ reaction to a bank that wants to seek private money but doesn’t have a firm commitment, one official said. The Treasury’s capital-assistance program gives companies six months to obtain the funding. In one scenario under discussion, firms that fall between those strong enough to forgo new capital and those that need injections, the Treasury would provide the money immediately and the banks would announce that the investment is provisional. "Where there is a need for additional capital," banks will "work out with their primary supervisors what’s the best mix" of options, Treasury Secretary Timothy Geithner told a congressional oversight panel in Washington two days ago.
Choices include converting previous government investments from preferred to common stock, getting money from private sources or tapping the $700 billion financial-rescue program, he said. The Treasury and banking regulators are still working out the final details of how to reveal the test results and plans could change, said the person. Generally, the regulators favor less disclosure because bank exam data is confidential, while the Treasury advocates releasing more details. U.S. stocks retreated yesterday, led by financial shares. Morgan Stanley tumbled 9 percent after posting a wider-than- forecast loss, while KeyCorp tumbled 13 percent after BMO Capital Markets said credit problems are spreading. Wells Fargo & Co. fell 3.4 percent after Chief Financial Officer Howard Atkins said "credit may not have turned yet." Banks are expected to begin getting preliminary results from the reviews on April 24, the same day the Federal Reserve is scheduled to release the methodology for the exams.
The central bank is leading the assessments, which are designed to ensure that firms have enough capital to weather a deeper economic downturn over the coming two years. Regulators conducting the stress tests are increasingly focusing on the quality of loans banks made after finding wide variations in underwriting standards, a regulatory official said earlier this week. They concluded that banks’ lending practices need to be given as much weight as macroeconomic scenarios in determining the health of each bank, the person said. In his prepared statement for the April 21 oversight hearing, Geithner said "the vast majority of banks have more capital than they need to be considered well capitalized by their regulators."
U.S. Lawmakers Consider Bair's Suggestion to Limits Banks’ Size
U.S. lawmakers considered and some backed an idea by Federal Deposit Insurance Corp. Chairman Sheila Bair to limit the size of banks and prevent lenders from becoming "too big to fail," U.S. House Democrats said. Representative Brad Sherman of California and member of the House Financial Service Committee, said Bair "threw out" as a possibility regulating the growth of companies to prevent any from becoming so big that government is forced to take over the institution. Bair didn’t elaborate on her proposal, he said. "Maybe there should be limits on the size of institutions," Sherman said Bair suggested during a meeting yesterday with House Democrats. "There was a positive response from people in attendance."
Bair has said she wants to "end too-big-to-fail" models that have shaped U.S. policy and wants financial firms to reduce systemic risk by "limiting size" and "complexity." She said in March that regulators need to impose "higher capital requirements" to ensure banks have enough capital to withstand worsening economic scenarios. Bair didn’t offer a proposal, suggest how to limit the size or specify the ideal size, said Representative Edolphus Towns, a New York Democrat. "That was the interest, to make certain that we don’t have this problem again, that these institutions get too big to fail, in the interest of consumers." Democrats invited Bair to a closed-door Washington meeting for a briefing on the banking industry and discuss a request to expand the FDIC’s borrowing authority from the U.S. Treasury to $100 billion from $30 billion.
Bair has said an increase will help instill confidence in depositors that the government stands behind their FDIC-insured accounts after more than two dozen lenders were shut this year, lawmakers said after the meeting. "Her message is the FDIC, even in the midst of everything that’s happened with 25 banks having been closed, not a single depositor has lost money," said Representative John Larson, a Connecticut Democrat. Bair said that expanding the FDIC’s borrowing authority would lessen pressure to raise the premiums on banks, especially on smaller institutions, to replenish the deposit insurance fund, said Representative Maxine Waters, a California Democrat and chairman of the Financial Services’ housing panel.
Lawmakers are concerned that "good banks would be penalized" for mistakes by larger banks that became overleveraged and took on too much risk, Waters said after the meeting. Representative David Wu, an Oregon Democrat, said Bair told the group that "assessments should reflect costs" to insure. Bair also endorsed an effort, pushed by House Speaker Nancy Pelosi and discussed by Democratic legislators at the meeting, for a comprehensive inquiry into the causes of the financial crisis, Larson said. "She’s in the same camp as a number of people, that we need to take a thorough look back at what transpired," Larson said in an interview. "We need to take a look back at how we got into this current fix."
Rep. Barney Frank Slows Market Regulation Bill
Slowing a rapid-fire attempt to revamp regulation of financial markets, House Financial Services Committee Chairman Barney Frank (D., Mass.) said he no longer plans to expedite a bill that would allow the government to place large financial companies into receivership. Rep. Frank said in an interview that the complexity of the bill and the fact that his Senate counterparts were poised to move more slowly prompted him to instead decide to package the measure with broader legislation to create a new regulator to oversee systemic risks to the economy later in the year. "It was a mistake to think it could be done early," Rep. Frank said, adding that the "whole package will have to go together."
The change is a blow to Obama administration officials who have pushed aggressively for these powers, and leaves government officials without new tools to take over teetering companies during the next few months. It could also frustrate efforts by the Obama administration to convince foreign leaders that the U.S. plans to move swiftly to overhaul financial market rules. Rep. Frank, a key architect of the coming regulatory overhaul, had hoped to pass a version of the legislation through his committee next month to give the government the power to place large financial companies such as American International Group Inc. into receivership. The process would be similar to the way the Federal Deposit Insurance Corp. places banks into receivership, but would also apply to insurance companies, bank-holding companies, broker dealers, and other financial firms.
The move would have been the first volley in a series of changes designed to address what critics say were deficiencies in the regulatory structure that contributed to the financial crisis. President Barack Obama and Treasury Secretary Timothy Geithner personally lobbied lawmakers last month to move the provision quickly, arguing that they needed these powers to respond to a fast-moving financial market crisis aggressively. Government officials argued that they had to use an ad hoc approach to financial rescues last year because they didn't have the power to wind down a large company, such as Lehman Brothers, in an orderly process. "We will continue to work with our colleagues on the Hill to implement these changes as soon as possible because we all recognize they are essential to creating a more stable system, with stronger tools to prevent and manage future crises," a Treasury spokesperson said.
The legislation proved more complicated than some originally thought. Rep. Frank said Congress needed to at the same time create a new "systemic risk" regulator, a body that would be charged with overseeing broad risks to the financial system. Without such a body, it would have been hard to determine which companies might be eligible for receivership, Capitol Hill staff said. The new authority would also have needed substantial funding to enable it to unwind large, complex companies, and it's still unclear where that money would have come from. Treasury and Federal Reserve officials had floated language to Capitol Hill that spelled out how the new receivership powers would work. Senate Banking Committee Chairman Christopher Dodd (D., Conn.) and Sen. Richard Shelby (R., Ala.) said they were inclined to move slowly. They have said that changes should be done at once and not piecemeal.
10 Reasons Why I'm Staying Away from Bank Stocks
For the first time in a long while, things are looking up for the banks. Morgan Stanley and Capital One just reported bigger than expected losses. But overall the results have beaten the gloomiest forecasts, and shares have rocketed from last month's desperate lows. Wells Fargo and JP Morgan Chase have doubled. Bank of America and Citigroup have trebled.
Many banks are now talking of repaying the government's TARP money. And leaks suggest all the major banks may pass the government's "stress tests" in a couple of weeks. Many are wondering if the crisis is now over. Are happy days here again? And is it too late to get on board? I wish shareholders the best. And maybe this rally in banking stocks will keep going. I have no idea - I never try to foretell short-term moves in the market. But I wouldn't touch banking stocks with a 10-foot pole. If I had any shares I'd be looking to sell. Why? Here are 10 reasons.
- These stocks are gambles. They are highly leveraged bets on an economic rebound. They will be most vulnerable if the recovery runs out of steam. And the market rally has already run well ahead of any upturn in economic news.
- And you're betting blind. Your cards are all face down. At least with, say, a retailer you have a pretty good idea what the assets actually are and what they might fetch if they had to be sold quickly. With the banks: Good luck. Nobody really understands what they own - least of all the people in charge.
- The "stress tests" that the government is running on banks may not be stressful enough. As others have already pointed out many forecasters already expect the economy to do worse than the tests' supposed "worst case scenario".
- Recent earnings reports, while often not as bad as many had feared, should raise more eyebrows. Write-offs are certainly rising. And analysts at SG Securities say, for example, that up to one third of Wells Fargo's first -quarter profits may have come from an accounting change.
- The stock market rarely comes out of a crash the way it went in. Financials and emerging markets owned the last boom, 2003-07. They're probably not the place to be in the next one.
- Financials aren't even quite as depressed as they may seem. They just look that way because they got so high before. Right now they make up about 15% of the US stock market by market value. Sure, a few years ago they were nearly a quarter of the market. But 25 years ago they were only about 12%.
- For the retail banks: It's hard to have much faith in - or respect for - their business model. Too many rely on nickel and diming customers - on everything from overdraft fees, credit card gotchas and low interest paid on deposits. Bankrate says average fees hit a new high last year. This leaves banks wide open to more regulation, better competition, or simple customer revulsion.
- As for the Wall Street banks: They aren't run for the benefit of the stockholders anyway. They are run for the staff. The threat of a crackdown on pay is going to cause a stampede to new firms. These banks will happily issue new shares, diluting existing stockholders, just to pay off the TARP money so they can get back to handing out fat bonuses.
- Why bother? Banking isn't the only industry on the stock market. And investors have lots of choices these days. There are plenty of good quality businesses in other industries whose stocks are looking reasonably valued. Why gamble with your savings?
- Finally, and most importantly: Even if, by some magic, the economy, the stock market and the banks recovered back to 2006 levels I still wouldn't want to own banking stocks. The bankers would just find another way to blow all the money.
New Jobless Claims Rise More Than Unexpected, as 6 Million Seek Benefits
New jobless claims rose more than expected last week, while the number of workers continuing to filing claims for unemployment benefits topped 6.1 million. Both figures are fresh evidence layoffs persist amid a weak job market that is not expected to rebound anytime soon. The Labor Department said Thursday that initial claims for unemployment compensation rose to a seasonally adjusted 640,000, up from a revised 613,000 the previous week. That was slightly above analysts' expectations of 635,000. Economists are closely watching the unemployment compensation data because they believe a sustained decline in the number of initial claims could signal the end of the recession is nearing. Jobless claims have historically peaked six to 10 weeks before recessions end, according to a report by Goldman Sachs. Initial claims reflect the level of job cuts by employers.
But the latest report shows job losses remain high. The four-week average of claims, which smooths out volatility, dropped slightly to 646,750, about 12,000 below the peak in early April. Goldman Sachs economists have said a decline of 30,000 to 40,000 in the four-week average is needed to signal a peak. In another sign of labor market weakness, the number of people continuing to claim benefits rose to 6.13 million, setting a record for the 12th straight week. As a proportion of the work force, the total jobless benefit rolls are the highest since January 1983. The continuing claims data lag initial claims by a week. The high level of continuing claims is a sign that many laid-off workers are having difficulty finding new jobs. Employers have cut 5.1 million jobs since the recession began in December 2007 in an effort to slash costs as consumers and businesses have sharply reduced spending.
The department said earlier this month that companies cut a net total of 663,000 jobs in March, sending the unemployment rate to 8.5 percent, the highest in 25 years. The cuts reflect the depth of the downturn, which has been global in scope. The International Monetary Fund estimated Wednesday that the global economy would shrink 1.3 percent this year, the first drop in more than six decades. The IMF projects the U.S. economy will decline 2.8 percent, the worst since 1946. "The world economy is going through the most severe crisis in generations," Treasury Secretary Timothy Geithner said Wednesday. The Obama administration is counting on its $787 billion stimulus package, enacted in February, to "save or create" 3.5 million jobs.
More job losses were announced this week. Yahoo Inc. said it will layoff 700 employees, the third round of mass layoffs this year. And oilfield services provider Halliburton Co. said it has cut 2,000 positions in the first three months of the year. Among the states, Florida saw the largest increase in claims with 9,303 for the week ending April 11, which it attributed to more layoffs in the construction, service and manufacturing industries. The next largest increases were in Pennsylvania, California, Wisconsin and New York. Michigan saw the largest drop in claims with 12,566, which it said was due to fewer layoffs in the automobile industry. The next biggest declines were in North Carolina, Missouri, Kentucky and Oregon.
U.S. mass layoffs rise to highest on record
Large-scale U.S. layoffs rose again in March, according to Labor Department data on Thursday, as the economy struggles with what many expect will be the country's worst post-World War II recession. Last month witnessed 2,933 more mass layoffs, defined as affecting 50 or more workers, than February. This brought the total number of people who lost their jobs in this manner to 299,388, the highest on a record that dates back to 1995. The U.S. job market has been under severe strain as a crisis first evident in housing spread to the rest of the economy, severely curtailing corporate profits and consumer spending. Ongoing pain was evident across sectors, with the Labor Department also reporting another record for blanket layoffs within manufacturing.
Mass layoffs now total 31,414 since the start of the recession in December 2007, resulting in the loss of more than 3.2 million jobs. The monthly mass layoff numbers are compiled from establishments with at least 50 initial claims for unemployment insurance filed against them during a five-week period. Separate data out on Thursday showed the number of continuing unemployment claims climbing to a new record of 6.14 million. Weekly initial jobless claims also rose again, to 640,000. "Over the past year, the deterioration in initial claims, continuing claims, and the insured jobless rate has been just as bad as they were during the 1981-1982 recession, which has been the most severe in the post-World War II period," said Steven Wood, chief economist at Insight Economics.
US Existing-Home Sales Fall Despite Continued Price Declines
Existing-home sales dropped in March, and the median price was down 12% from a year earlier. Home resales fell by 3.0% to a 4.57 million annual rate from 4.71 million in February, the National Association of Realtors said Thursday. The NAR originally reported February sales rose 5.1% to 4.72 million. About 50% of the 4.57 million in March sales were foreclosures and short sales. The large number of these distressed property sales has driven prices lower, year over year. The median price for an existing home last month was $175,200, down 12.4% from $200,100 in March 2008. Lower prices, combined with historically low borrowing costs, have increased affordability. The average 30-year mortgage rate was 5.00% in March, down from 5.13% in February, Freddie Mac data show. Realtors also hope demand is stirred by the $8,000 tax credit for first-time home buyers included in the Obama administration's economic stimulus package.
A steady decline in price is troubling because it can give pause to would-be buyers, hesitant in hope for a better deal. On a bright note, the median price, on a monthly basis, has climbed two months in a row. It was $168,200 in February, an upward revision from an originally reported $165,400. Tighter mortgage lending standards have made it harder to fund a purchase. And the uncertain economic outlook is also hurting the existing-home market. The unemployment rate rose to 8.5% in March from 8.1%. Falling demand has kept inventories of unsold homes high. Inventories of previously owned homes fell 1.6% at the end of March to 3.74 million available for sale. That represented a 9.8-month supply at the current sales pace, compared to 9.7 in February. Bloated inventories, in turn, are depressing prices. The March resales level of 4.57 million reported Thursday by NAR was below Wall Street expectations of a 4.69 million sales rate for previously owned homes.
NAR economist Lawrence Yun said first-time buyers are driving the market. "The share of lower priced home sales has trended up, indicating a return of many first-time buyers," he said.
Previously owned home sales, year over year, were down 7.1% from the pace in March 2008, Thursday's report said. Regionally, sales in March compared to February fell 8.0% in the Northeast, 1.7% in the South, and 4.2% in the West. Sales were unchanged in the Midwest. New U.S. claims for state unemployment benefits rose last week, while the total number of people drawing unemployment benefits surged to the highest level on record. The expected rise comes after the Labor Department reported an unexpected plunge last week that had offered a ray of hope that the job market could be finding its footing.
Initial claims for state jobless benefits grew 27,000 to 640,000 in the week ended April 18, the Labor Department said in a weekly report Thursday. Wall Street economists had expected a 30,000 rise, according to a Dow Jones Newswires survey. The prior week's level was revised to 613,000, which is 2,000 higher than the 610,000 level initially reported. A Labor Department analyst said Thursday's report was no surprise. "It's actually pretty uneventful," he said. "Most of the states are doing what we expected." The four-week average -- which aims to smooth volatility -- fell 4,250 to 646,750. Economists are closely eyeing the weekly claims report amid signs that some sectors of the economy like housing and consumer spending may be stabilizing, albeit at very weak levels. Recently, Federal Reserve Chairman Ben Bernanke and Obama administration officials have expressed some cautious optimism that the sharp decline in economic activity may be slowing.
However, if the U.S. keeps losing jobs at its recent pace, it could prevent a consumer-led recovery from taking hold. At the same time, a clear decline in the number of American's filing for unemployment benefits could signal a turn for the better in the broad economy. According to Thursday's Labor Department report, the tally of continuing jobless claims -- those drawn by workers collecting benefits for more than one week in the week ended April 11 -- surged another 93,000 to 6,137,000, the highest level on record. The unemployment rate for workers with unemployment insurance rose 0.1 percentage point to 4.6%, its highest level since January 1, 1983. Not adjusted to reflect seasonal fluctuations, Florida reported the largest increase in new claims during the April 18 week, 9,303, due to layoffs in the construction, trade, service and manufacturing industries. Michigan reported the biggest decrease, 12,566, due to fewer layoffs in the automobile industry.
Europe's Grim Outlook Challenges World Recovery
Europe's economy faces a deeper recession and a slower recovery than the U.S. or other parts of the world, making it the region that is most hurting prospects for an early end to the global economic slump. The EU's economy is set to contract 4% this year, even worse than the 2.8% drop projected for the U.S., according to new forecasts published Wednesday by the International Monetary Fund. Those figures came as the U.K. released a budget that includes its biggest jump in the national debt since World War II. Germany, Europe's biggest economy, shrank by 3.3% in the first quarter -- a steep slide from a 2.1% contraction in the last quarter of 2008. Leading German economics institutes said Wednesday that the country's economy is set to contract 6% this year, which would be its worst recorded performance since 1931.
European banks' losses from the global financial crisis are now projected to overtake U.S. banks' losses, according to IMF figures, which could hurt the banks' ability to lend liberally to help the bloc out of its crisis. More than half of the losses on continental Europe are homemade, the IMF said, reflecting bad loans to European firms and households rather than toxic U.S. securities. The worsening outlook for the 27-nation EU is a blow for many of the region's governments, who have argued that the U.S. is the center of the global economic storm and that Europe's problems are smaller. Because of that, plus fear of rising inflation and public debt, authorities in much of Europe have been slower than those in the U.S. or leading Asian economies to cut interest rates or adopt ambitious fiscal-stimulus measures.
"At some deep level the European banks and policy makers don't get it: that they helped cause the crisis, that their slow response is part of the reason that the economy is bad, and that more is on the way," says Simon Johnson, a former IMF chief economist. Europe's poor prospects are likely to rebound on the U.S., Asia and other regions, given that the EU's $18.4 trillion economy makes up 30% of the world economy. In a sign of such spillover, Peoria, Ill.-based equipment maker Caterpillar Inc. said its first-quarter sales to Europe fell 46% from a year ago, significantly more than its sales declines in the U.S., Asia or Latin America, as it announced a first-quarter loss on Tuesday. Even European firms' hopes are pinned on other regions where countries are spending more on stimulus plans. At Munich-based engineering firm HAWE Hydraulik SE, owner Karl Haeusgen is hoping that signs of life in the U.S. and China will lead to new export orders. In recent months, his orders have fallen as much as half from a year ago.
HAWE is holding on to its workers at idle German factories only because the government is helping to pay their salaries -- a policy many European countries use to damp unemployment figures. "That we have a downturn is not surprising, but the intensity is unexpected and abnormal," says Mr. Haeusgen. In France, labor protests became more violent this week as workers stormed and ransacked a government building near Paris, after they failed in court to prevent their tire factory, owned by German auto-parts company Continental AG, from being shut down. German Trade Union Federation head Michael Sommer warned his country's industrialists this week that such social unrest could spread to Germany if mass layoffs multiply.
On Tuesday, credit-rating agency Standard & Poor's predicted that debt defaults among high-risk European companies would overtake defaults among low-rated U.S. companies. Some business surveys and economic data suggest the pace of Europe's contraction might be easing. But signs of a recovery in coming months appear weaker than in other regions, such as Asia and the U.S., where economists say more aggressive government efforts are starting to show some effect. Tentative signs of relief in Asia include Chinese factory output and auto sales, which improved in March. Japan is also seeing some glimmers of hope, as exports in March nearly halved from a year earlier but rose from February, the first monthly gain since May last year.
Policy makers are partly to blame for the severity of the euro zone's slowdown, say some analysts. "When you think of the broader monetary and fiscal policy mix, it's clearly been more aggressive in the U.S.," says David Mackie, economist at J.P. Morgan in London. The European Central Bank cut its key interest rate to 1.25% from 4.25% in October, and is expected to trim the rate to 1% in May. That's still well above comparable rates in the U.S. and U.K. Governments in Europe also have been slower to use fiscal policy to support demand. Fiscal stimulus measures over a three-year period of 2008-2010 are equivalent to 4.8% of last year's gross domestic product in the U.S. and 4.4% in China, according to the IMF -- but only 3.4% in Germany, 1.5% in the U.K., and 1.3% in France.
The weakening of Europe's banking sector is potentially more damaging for the wider economy than woes at U.S. banks, because Europe's financial system relies more on bank lending and less on securities markets. Although Europe's banks have bigger balance sheets than U.S. lenders, so that their losses are smaller as a proportion of total assets, they will need more fresh money than the U.S. to repair their capital buffers, the IMF said. An IMF report published Tuesday said that write-downs at Western European banks outside the U.K. will total $1.109 trillion for 2007-2010, topping the U.S. total of $1.049 trillion. Banks in the euro zone have so far written down only 17% of their losses, compared with roughly 50% at U.S. banks, the IMF said. U.K. banks have written down about a third of their $310 billion in expected losses, the report said.
Restrictive lending by banks trying to repair their capital ratios is holding back European businesses. At French racing-bicycle maker Look Cycle International SA, sales are suffering because the bicycle stores and distributors it deals with in markets including France and Italy can't get enough financing, says Look Chief Executive Thierry Fournier. "Dealers and distributors have problems with their banks, so everybody is more cautious about placing orders or holding stocks," he says. Fixing the banking system is particularly tricky in the EU, where 16 of the 27 countries share the euro currency and a central bank, but where banking regulation mostly remains the preserve of the national governments.
"In Continental Europe, there is basically no prospect of any coordinated policy action to identify the weaknesses in the banking system," says Nicolas Veron, a research fellow at Brussels think tank Bruegel. Europe's economy also faces a greater risk of further deterioration than other regions because of the deep economic and financial crisis in the formerly communist East. Austria-based banks, for example, have some $278 billion in exposure to those countries, equivalent to over 70% of Austria's gross domestic product. The IMF expects Continental European banks' losses on emerging-market assets to reach $172 billion by 2010, more than four times the emerging-market losses it expects for U.K., U.S. or Asian banks.
Freddie Mac, Fannie Mae sink into managerial turmoil
The death of Freddie Mac's acting chief financial officer heightens the turmoil at Freddie and Fannie Mae at a critical time when the two housing-finance giants are assuming larger roles in the Obama administration's housing rescue program. David Kellermann, who became Freddie's CFO when the government took over Freddie and Fannie in September, was found dead Wednesday. Both institutions have lost the CEOs the government installed last fall and have seen other high-level executive departures. Paul Miller, analyst at FBR Capital Markets, said a reason for the departures is that those who had taken on high-profile positions after the government takeovers believed the agencies would be spun off in a year. The federal conservatorships have meant less control, lower salaries and public criticism of executive bonuses. In April, the agencies came under fire for their plans to pay $210 million in retention bonuses to employees.
"A lot of people who had been attracted there had thought it would be a year and they'd be public companies," Miller said. "Instead, it's a political land mine." The two institutions also face the heavy burden of resuscitating the housing market. Under the Obama rescue plan, both agencies have been directed to modify millions of home loans and provide up to 5 million loan refinancings. Fannie and Freddie hold or guarantee about half of the mortgages in the USA. They play a critical role in funding the mortgage market by buying mortgages made by banks and bundling them into securities to sell to investors. But as more mortgages have defaulted, their losses have grown. The government has thrown them some financial lifelines. It has pledged up to $200 billion to each of them and has invested nearly $60 billion in their preferred shares since September.
Both agencies have said they may need more help. In March, Freddie announced a fourth-quarter loss of $23.9 billion. It has received about $45 billion in federal aid. In addition, the Justice Department and the Securities and Exchange Commission have been investigating accounting, disclosure and corporate governance issues at Freddie since late last year. The SEC issued subpoenas for certain Freddie Mac documents in January and February, the company said in recent securities filings. Freddie's top leadership has changed repeatedly since fall. The government ousted Freddie Mac CEO Richard Syron in September and his replacement, David Moffett, resigned last month. John Koskinen, a board member, was named interim CEO. James Lockhart, director of the Federal Housing Finance Agency, which regulates Fannie and Freddie, said a search is underway for a CEO and CFO. This month, Fannie Mae appointed Michael Williams, its former chief operating officer, as CEO, succeeding Herbert Allison, who has been nominated for a Treasury position overseeing the financial bailout program.
Federal Prosecutors Focusing on Risk Disclosures by Freddie Mac
Federal prosecutors in Alexandria are leading a criminal investigation into Freddie Mac, in part focusing on whether the company properly disclosed the risks associated with mortgage-related investments to investors, law enforcement sources familiar with the investigation said today. A parallel civil investigation into disclosure, accounting and corporate governance issues at Freddie Mac is also under way at the Securities and Exchange Commission, the company said in a March regulatory filing. The SEC has subpoened documents and deposed employees at the mortgage finance giant, but the investigation is still in an early stage, according to a source familiar with the matter.
Sources said that David B. Kellermann, the Freddie Mac acting chief financial officer who police said died in an apparent suicide today, was someone investigators wanted to question, but not a target of any investigation. "He obviously knew about things that we would want to know about,'' said one law enforcement source. The sources spoke on condition of anonymity because they were not authorized to comment publicly. It could not be determined if Kellermann had been questioned before his death. His death is not expected to affect the investigation, sources said, because other Freddie Mac executives could provide similiar information. A focus on disclosure is common in investigations into potential corporate wrongdoing. The key factor in determining whether to file criminal charges is whether executives knew they should have disclosed certain information but did not.
The investigation into Freddie Mac is focused on a period starting in January 2007 and extending to the government's takeover in September 2008. During that time, Freddie Mac bought tens of billions of dollars in securities backed by subprime and other risky home loans. Sources described the investigation as complex and said no charges are imminent. Any such charges would likely be filed against Freddie Mac executives rather than the company itself, law enforcement sources said. The criminal probe began in New York in the fall but moved to Alexandria because Freddie Mac is located in Northern Virginia -- and because the U.S. attorney's office in Alexandria led an earlier investigation of the company several years ago.
Option ARM Loans Turn into Nightmares
"Flexible" loans for small business owners now threaten them with bankruptcy and home foreclosure at the same time. Entrepreneur Michael Bissell worries about losing his business, his house, or both. His 10-year-old Web design firm in Portland, Ore., is struggling as customers fall behind on their bills. To cover salary and other expenses, Bissell tapped into his home last year for extra cash, relying on his exotic mortgage, which gives him the option to pay less than the monthly interest and principal for a while. But that source of money is running dry: The payment on his home loan will soon jump significantly. "I have no padding," says Bissell. Small business owners are at the epicenter of two dangerous forces: the housing bust and the recession. During the boom, many entrepreneurs pulled money out of their homes to start businesses or fund existing operations. Some, like Bissell, relied on an especially pernicious type of loan, the option adjustable-rate mortgage, which allowed borrowers to determine the size of their monthly payment. When the businesses ran into trouble, many homeowners started paying the minimum, tacking the extra interest and principal onto the loan.
Many mortgages are resetting and triggering higher payments—either because the terms of the loans dictate such a reset or the balances far exceed the value of the underlying homes. That's leaving entrepreneurs scrambling to come up with more money as their businesses are suffering—a double whammy on a fragile economy. Borrowers with option ARMs can't easily refinance, since they often owe more on the loans than their homes are worth. And loans for small businesses have all but dried up. "Small business [owners] are hurting, and they're scared," says Chad Moutray, chief economist in the U.S. Small Business Administration's Office of Advocacy. In the era of easy credit, mortgage brokers targeted small business owners, marketing option ARMs as cash-management tools. An executive at now-defunct lender GreenPoint Mortgage called such loans "a low-cost and low-hassle way for small business owners to finance…growth" in a trade publication back in 2004. Bill Challas, a broker at LG Loan Group, saw entrepreneurs as ready buyers: "If you could pay $1,000 less a month on a loan, wouldn't you?"
Statistics are scarce because lenders don't break down loan volume by types of borrowers. But sales of option ARMs to all homeowners, according to research firm First American CoreLogic, soared more than 75%, to $255 billion, from 2005 to 2007—the height of the housing frenzy. Small business loans backed by the government dropped 4.5% in the last two years of the boom. The problem is acute in California, where small businesses account for more than 50% of employment. Homeowners in the state are liable for 60% of all the outstanding option ARMs nationwide, according to Credit Suisse (CS). Officials are trying to forestall a wave of business failures. Preston DuFauchard, commissioner of California's Corporations Dept., is pressing large lenders to modify the loans. "California small businesses are at risk, since they were targeted for these toxic mortgages," says Samuel D. Bornstein, a professor at Kean University in Union, N.J. Such efforts come too late for Pamela Plouffe of Pine Mountain Club, Calif. She refinanced her home in 2003, extracting $50,000 to buy an apparel business. Last year her monthly mortgage payment jumped from $900 to $1,700 as customers dwindled. The bank foreclosed in October. Says Plouffe, 53: "I've got to start over."
Delinquencies and Defaults Up, Up and Away
Delinquencies and defaults are on the rise, due mainly to a handful of circumstances, including the backlog from recent foreclosure moratoria, a jump in unemployment and even a slight rise in marital spats, according to data released by the Federal Housing Finance Agency (FHFA) Tuesday. Since late November, Fannie Mae and Freddie Mac suspended foreclosure sales and evictions on owner- occupied properties. The suspensions, which ended on March 31, 2009, allowed servicers additional time to work with borrowers in foreclosure who were eligible for the Streamlined Modification Program. The impact of the suspensions caused completed foreclosure sales and third-party sales to decline 77% from the prior three-month average of 16,342 to 3,711 in December, and 79% to 3,391 in January, according to the FHFA’s latest foreclosure prevention report.
At the same time, loans that were 60+ and 90+ days delinquent climbed. All loans 60+ days delinquent increased from 834,831 as of November 30 to 1,229,051 as of January 31, representing an increase of 47% over the period, the FHFA said. However, prime loans 60+ days delinquent increased by 69.6% while nonprime loans increased by a significantly lesser 23%. The number of foreclosure sales as a percentage of delinquencies dropped. Loans for which a foreclosure or third party sale was completed as a percent of loans 60+ days delinquent fell from 2.43% in October to 1.79% in November, 0.40% in December and 0.28% in January. The report, based on data from the GSEs’ 30.6m residential mortgages, also assessed the top reasons for default. It found that defaults, as of the end of January, were not largely due to mortgages being untenable, but to what the industry calls the "standard Ds" — death, divorce, disability and didn’t keep job.
34.1% of homeowners cited curtailment of income as the main cause of default, 19.8% reported excessive obligations, 8.1% said unemployment, 6.5% said illness and 3.5% cited marital difficulties, such as the loss of a spouse’s wages. In January 8,953 loan modifications were completed compared to 8,688 in December and the prior 3-month average of 7,926, the FHFA reported. This represents a 3 percent increase in loan modifications by Fannie Mae and Freddie Mac from December 2008 to January 2009. Of the modifications completed, 65.2% required an interest rate reduction and term extension, 19.5% a term extension only, and 5.3% an interest rate reduction only.
Ilargi: NOTE: The Federal reserve has officially denied giving Lewis "advice on any questions of diclosure". At least one party's lying here.
Lewis Testifies U.S. Urged Silence on Deal
Bank of America Chief Says Bernanke, Paulson Barred Disclosure of Merrill Woes Because of Fears for Financial SystemBank of America CEO Ken Lewis testified he was pressured to keep silent about deepening financial difficulties at Merrill Lynch.
Q: Were you instructed not to tell your shareholders what the transaction was going to be?
A: I was instructed that 'We do not want a public disclosure.'
Q: Who said that to you?
Q: Had it been up to you would you [have] made the disclosure?
A: It wasn't up to me.
Q: Had it been up to you.
A: It wasn't.
Federal Reserve Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America Corp. to not discuss its increasingly troubled plan to buy Merrill Lynch & Co. -- a deal that later triggered a government bailout of BofA -- according to testimony by Kenneth Lewis, the bank's chief executive. Mr. Lewis, testifying under oath before New York's attorney general in February, told prosecutors that he believed Messrs. Paulson and Bernanke were instructing him to keep silent about deepening financial difficulties at Merrill, the struggling brokerage giant. As part of his testimony, a transcript of which was reviewed by The Wall Street Journal, Mr. Lewis said the government wanted him to keep quiet while the two sides negotiated government funding to help BofA absorb Merrill and its huge losses.
Under normal circumstances, banks must alert their shareholders of any materially significant financial hits. But these weren't normal times: Late last year, Wall Street was crumbling and BofA faced intense government pressure to buy Merrill to keep the crisis from spreading. Disclosing losses at Merrill -- which eventually totaled $15.84 billion for the fourth quarter -- could have given BofA's shareholders an opportunity to stop the deal and let Merrill collapse instead. "Isn't that something that any shareholder at Bank of America...would want to know?" Mr. Lewis was asked by a representative of New York's attorney general, Andrew Cuomo, according to the transcript. "It wasn't up to me," Mr. Lewis said. The BofA chief said he was told by Messrs. Bernanke and Paulson that the deal needed to be completed, otherwise it would "impose a big risk to the financial system" of the U.S. as a whole.
Mr. Lewis's testimony suggests how aggressively federal regulators have been willing to behave in their fight to fix the U.S. financial system. The testimony for the first time spreads some of the blame to Messrs. Paulson and Bernanke for Mr. Lewis's decision to keep problems at Merrill under wraps. "Everybody -- Lewis, Paulson, Bernanke -- eventually agreed that any public discussion of the situation at Merrill would have adverse consequences for the system," according to an individual close to BofA. A person in government familiar with Mr. Bernanke's conversations with Mr. Lewis said Wednesday that the Fed chairman didn't offer Mr. Lewis advice on the question of disclosure. Instead, Mr. Bernanke suggested Mr. Lewis consult his own counsel.
Mr. Paulson repeatedly told Mr. Lewis that "the U.S. government was committed to ensuring that no systemically important financial institution would fail," according to his spokeswoman. Mr. Lewis couldn't be reached for comment. A BofA spokesman said, "We had no legal obligation to disclose ongoing negotiations with the government and disclosure of ongoing negotiations likely would have severely disrupted the global financial markets and damaged the bank." In the transcript reviewed by the Journal, Mr. Lewis didn't say he was explicitly instructed to keep silent about the losses piling up at Merrill. But his testimony indicates that he believed the government wanted him to remain silent. Mr. Cuomo's investigator asked: "Wasn't Mr. Paulson, by his instruction, really asking Bank of America shareholders to take a good part of the hit of the Merrill losses?" Mr. Lewis said, "Over the short term, yes." But he also said he believed Mr. Paulson's motive was preventing widespread disaster in the U.S. financial system.
According to a person familiar with the matter, Mr. Paulson in March told Cuomo investigators that Mr. Lewis may have misinterpreted some remarks about the Treasury's disclosure obligations as referring to BofA's obligations. The transcript, which stems from an investigation into bonus payments at BofA conducted by the New York attorney general's office, illuminates the difficult dilemmas that regulators and executives alike have had to wrestle with in recent months. By keeping mum, the CEO of one of the biggest U.S. banks appeared to set aside a basic tenet of American-style finance -- that, above all, companies must disclose material information to shareholders and potential investors "Regulators are supposed to tell you to obey the law, not to disobey the law," said Jonathan R. Macey, deputy dean of Yale Law School. "If you're the CEO, your first obligation is not to your regulator, it's to your institution and shareholders."
At the same time, regulators were struggling to prevent a systemic panic. In the transcript, Mr. Lewis is quoted saying that the regulators' goal was to put everything in place for the deal to be done, "so that you didn't set off alarms in a tragic economy." Mr. Lewis's statements highlight a lack of public disclosure that has accompanied the financial crisis since its inception. The crisis has roots in the fact that Wall Street banks didn't adequately disclose the true prices of the toxic mortgage-related assets they held. The government has also been criticized for offering limited disclosure of the details or rationale of some of its bailout strategies, from the forced sale of Bear Stearns Cos., to the $173 billion injection into American International Group Inc. The testimony -- which the New York attorney general plans to release to federal regulators and overseers of bailout money and banks Thursday -- stemmed from an investigation that started when the New York attorney general began examining the circumstances surrounding $3.6 billion of bonus payments to Merrill employees just before the takeover was completed. New York prosecutors are expected to provide the testimony to several regulatory bodies, says a person familiar with the matter.
The new details of Mr. Lewis's interactions with regulators over the Merrill merger coincide with the bank chief's battle to retain control of his company as it continues to struggle. The size of the Merrill losses stunned investors in January, and earlier this week Mr. Lewis gave a dim outlook for the economy, setting aside another $13.4 billion to brace for more credit losses, despite earning a first-quarter profit. The Wall Street Journal previously reported, in a page-one story on Feb. 5, that Mr. Lewis agreed to proceed with the Merrill merger only after Messrs. Paulson and Bernanke said that he and his board would lose their jobs if Bank of America backed out of the deal. Mr. Lewis's testimony with the New York attorney general's office corroborates that account. Mr. Cuomo's office says it has been unable to gather a full picture of the Fed's role in the December discussions because the Fed has invoked a regulatory privilege, allowing it to keep some documents confidential.
Mr. Lewis has previously said that he first considered backing out of the Merrill deal on Dec. 13, when he said his chief financial officer told him projected after-tax losses were "about $12 billion." Shareholders of the Charlotte, N.C., bank voted to approve the purchase on Dec. 5, and the deal was completed on Jan. 1. Bank of America agreed to accept $20 billion in new capital from the government and announced the injection, in conjunction with the Merrill losses, with its regularly scheduled earnings release on Jan. 20. Mr. Lewis has since been vilified by lawmakers and shareholders for his handling of the purchase. Several investors, including TIAA-CREF, a major pension-fund manager, have said they intend to vote against his re-election as chairman. Some argued that Mr. Lewis should have informed shareholders of the potential losses at Merrill before the Jan. 1 closing of the deal.
During his testimony, Mr. Lewis described a conversation with Mr. Paulson in which the Treasury secretary made it clear that Mr. Lewis's own job was at stake. Mr. Lewis still was considering invoking his legal right to terminate the Merrill deal. Mr. Paulson was out on a bike ride when Mr. Lewis phoned to discuss the matter, according to the transcript. "I can't recall if he said, 'We would remove the board and management if you called it [off]' or if he said 'we would do it if you intended to.' I don't remember which one it was," Mr. Lewis said. "I said, 'Hank, let's de-escalate this for a while. Let me talk to our board.' "
Why Hasn't Cuomo Indicted Rattner?
Steven Rattner, the current leader of President Obama's task force on the auto industry is an oleaginous sycophant of the Sulzberger family, the publishers of The New York Times; the newspaper protects Rattner. So beholden is Rattner to the Sulzbergers that he even named his hedge fund the Quadrangle Group, after Quadrangle Publishing, which, few people know, was the name of a book publishing venture of The New York Times. My own father Edward Sr., before his retirement, was the owner of a company that printed material for Quadrangle Publishing during the 1970s. Rattner's foray into the world of private hedge funds has been a financial disaster--at least for Rattner's clients. So Rattner probably sought out state and municipal pension funds to sustain his self-marketing plan as a financial guru.
In the foray to attract new financing from state and municipal retirement funds for his hedge fund, Rattner stepped over the fine line between "pay to play" and an illegal payoff in at least one incident and possibly three others. As widely reported, Rattner’s Quadrangle Group paid fees to Searle & Co. then the employer of political advisor Hank Morris to obtain contracts to manage pension funds for, not only the New York State Common Retirement Fund but also for an $85 million investment from the New York City Employee Retirement Fund, a $10 million investment from the Los Angeles Fire and Police Pension System, and the New Mexico State Investment Council. As previously reported, Rattner arranged for a Quadrangle affiliate, GT Brands LLC, to pay $88,841 for the DVD distribution rights for Chooch, a movie produced by David Loglisci and his brother; David was the State of New York's Deputy Comptroller and Chief Investment Officer of the New York State Common Retirement Fund.
What's not been reported is how "Chooch" which is Italian slang for jackass, fared. I can now report that Chooch did phenomenally; "The 2004 movie grossed $31,015 according to BoxOfficeMojo.com," says a report in the April 18, 2009 Los Angeles Times. Consider the folllowing: Rattner paid Loglisci and his brothers for the distribution right of the crappy film; it doesn't matter that it was only $88,841. Loglisci then clears Rattner's Quadrangle Fund to be eligible for the $100 million investment. This to me represents a payoff; in otherwords a bribe. Now let's put this in the proper perspective. Let's make it hypothetical since William Thompson, Comptroller of the City of New York is an honest man and Charles Barron is an hones Councilman representing Brooklyn.
Now substitute the name Thompson for Logiscli and Barron for Rattner. Now assume that Barron had paid Thompson. What would have happened to Barron? He would have been indicted in a hot minute and convicted by now. A press conference would have been held.Barron would be in prison. And The Times would publish a political obituary of Charles Barron. But not Rattner. Rattner is always given favorable treatment because of his connections to the wealthy of New York society. Even now Quadrangle continues to handle the finances of Mayor Michael Bloomberg. Most of all, Rattner has been given favorable treatment because of his connections to the former empire of the Sulzbergers.
My question: Is attorney general Andrew Cuomo taking a page from the drama of Eliot Spitzer when he went after Wall Street titans? Excoriate crooked billionaires but do not indict them? Unless Wall Street operatives are treated like the rest of us; indicted when warranted, tried and convicted like the rest of us if warranted, there will be no reforms of the system. Most importantly where is that self-proclaimed guardian of the public; The New York Times? Or, is it as with Animal Farm, some animals are more equal than others? As I learned studying Cicero in high school: "Cum tacent clamant." When they are silent, they shout.
Treasury Department Issues Emergency Recall Of All Us Dollars
Economy Adds to Woes of New York's Governor
The faltering economy helped to drain the good will that greeted New York Gov. David Paterson's ascension to office, and now is complicating his efforts to tackle the state's budget problems. The Democrat has become a target of the public's ire after taking over following the hasty resignation of former Gov. Eliot Spitzer in March 2008. Mr. Paterson was vilified for proposing, then scuttling, a bevy of small taxes to patch a severe budget shortfall. He also failed to convince a majority of lawmakers to pump cash into New York City's regional transit operations to stave off higher fares and drastic service cuts. Now state-employee unions are skewering him in television and radio ads, saying program cuts in the $133 billion state budget will harm the public. Union officials have refused to reopen wage contracts, despite a threat of 8,700 layoffs.
Last week, the governor introduced legislation that would legalize gay marriage. "That's not a priority for the state. We have to worry about jobs," said Republican Brian Kolb, leader of the state Assembly's minority conference. Amid the budget turmoil, Mr. Paterson's favorability rating has fallen to 27% and his positive job-performance rating has plunged to 18%, according to a Siena Research Institute poll released earlier this week. "It is staggering, the speed with which his popularity has fallen," said Steven Greenberg, a spokesman for the poll. The governor had an approval rating of 60% three months ago, Mr. Greenberg said. Mr. Paterson enjoyed broad support when he took the helm after Mr. Spitzer resigned amid a prostitution scandal. But Mr. Paterson's popularity began to slide over the winter after he took weeks to fill the U.S. Senate seat vacated when Hillary Clinton became Secretary of State.
His poll numbers have plummeted since then, as many faulted his handling of the budget and the state's economy. Aides to the governor say he approved a trim budget that will actually save money for New Yorkers by changing health-care spending priorities. To balance the budget, "he asked all New Yorkers to share in this sacrifice," a spokeswoman said. Mr. Paterson faced a $17.7 billion budget deficit this year, and his situation highlights the predicament of governors who are required to balance budgets and can't rely on deficit spending. This can be especially challenging for Democrats, who are typically supported by the public-sector unions that consume a large chunk of state spending and are now bearing the brunt of cuts in many states.
Mr. Paterson has taken heat for approving a budget with new taxes and spending even as New York has lost private-sector jobs for seven-straight months. A spokeswoman for the governor said the budget reflects spending of federal stimulus money. She said the budget will save the state more than $2 billion by investing in primary and preventative health care, eliminating expensive in-patient hospital stays. But critics lambasted Mr. Paterson for signing a budget that allowed individual lawmakers to include money for pet projects. The governor asked state labor boards to reopen contracts. Unions say they are being unfairly singled out by Mr. Paterson so he can look like he is tough on spending. "He wants a piece of our hide so he can use it for political purposes," said Stephen Madarasz, a spokesman for the state Civil Service Employees Association, whose group has spent $1 million airing ads attacking the governor.
GM shutdown to begin next month
General Motors Corp.'s massive summer shutdown is expected to begin at some plants in mid-May, the Free Press was told Wednesday. Most of its factories will be closed for up to nine weeks, a person familiar with the planning said. The move would likely send shock waves through the already struggling supplier industry, which does not make money when factories are not using their parts to build cars and trucks. Thomas Pyden, a GM spokesman, declined to comment Wednesday, saying that "if and when we have production news, our intent is to share it with employees first, and we have had no such announcements." A person familiar with the planning said an announcement was slated for Friday.
Workers at GM's Orion Assembly plant, which makes Pontiac G6 and Chevy Malibu cars, were told that the factory would be idled in May and for half of June. But they have not heard about what to expect after the typical two-week summer shutdown, which starts in July. Elbert Havard IV, who attaches doors to sedans at the Orion plant, said he understands why the automaker would decide to extend the shutdown. "If we're making cars nobody is buying, then I think that's more negative for the company than for us," said Havard, 31, of Flint. "I hate to not work. But it makes sense why they would have to do that." During the past year, GM has turned to extended and rolling shutdowns at various facilities as it has worked to shed excess inventory and cut expenses.
The company's U.S. sales have dropped 48.8% so far this year, compared with 2008. The industry, meanwhile, has seen sales drop off by 38.4%. The Detroit automaker, which lost about $70 billion during the past two years, is racing to come up with a more aggressive turnaround plan prior to June 1 that impresses the White House. It failed to prove that its previous plan could make the company viable long-term. GM is staying afloat on a $13.4-billion loan and needs about $5 billion more by the end of the second quarter. In all, GM has asked for as much as $30 billion in support. Industry analysts were surprised by the news of the summer shutdown Wednesday, saying it could further reduce incoming revenues. "That's the red blood of the whole system, production. They get paid when they ship them out the back door of the plant," said Joseph Phillippi, an industry consultant from AutoTrends Consulting.
At first blush, Phillippi said GM's move was likely to reduce dealer inventories and could be a way to conserve cash before a bankruptcy filing. At the end of March, GM reported that it had about 765,000 vehicles in stock -- down about 108,000 vehicles, or 12%, from a year before. Although the shutdowns will affect some plants at different times, the Free Press was told, a lot of the plants will be down at the same time. The shutdown will include the typical two-week summer shutdown used to change over for the new model year. UAW workers affected will be placed on temporary layoff and receive state unemployment benefits and company supplemental pay that roughly equals about 70% of their gross pay.
GM has 47 U.S. manufacturing facilities and employs about 55,000 UAW workers.
Banks Get New Treasury Offer for Chrysler Debt
The U.S. Treasury, in an escalating back-and-forth that may determine whether Chrysler LLC avoids liquidation, has quickly responded to Chrysler lenders that rejected an earlier Treasury bid to slash the car maker's debt. The Treasury now proposes that the banks and other lenders accept as payment 22% of the $6.9 billion they are owed plus a 5% equity stake in Chrysler, said several people familiar with the matter. That's up from an earlier Treasury proposal that the banks and other lenders accept 15% of what Chrysler owes them and receive no Chrysler stock.
The lenders, which include Citigroup Inc. and J.P. Morgan Chase & Co., rejected that offer outright and instead proposed Monday they get paid about 65% of the debt, or about $4.5 billion. In addition, the lenders sought a 40% Chrysler stake and a seat on the company's board, according to a copy of the proposal provided by individuals outside the lenders' group.
The new government offer leaves the U.S. and Chrysler lenders at least $3 billion apart with one week left before an April 30 Treasury deadline to determine the auto maker's fate. The two sides are also far apart in how big an ownership stake the lenders would get in a restructured Chrysler.
If concessions can't be reached with the lenders and the United Auto Workers union by the deadline, the company will likely be forced to liquidate in bankruptcy court. The government's counteroffer, made Wednesday afternoon, offers lenders $1.5 billion of the $6.9 billion owed them by Chrysler. The government response didn't address another demand of the lenders, that Fiat SpA put $1 billion into an alliance it proposes with Chrysler. The Treasury declined to comment as did a spokesman for the lenders. The UAW, which Chrysler owes about $10.6 billion for retiree health-care costs, would get $1 billion in 2009 and $2 billion in 2010 plus a stake in the restructured Chrysler under the most recent government proposal to lenders.
Fiat CEO May Break Pledge as Chrysler Deadline Looms
Fiat SpA Chief Executive Officer Sergio Marchionne, with seven days left to forge a partnership with Chrysler LLC, may be forced to do what he opposed from the start: invest money to help save the U.S. automaker. With Fiat’s net debt piling up to an estimated 6.5 billion euros ($8.4 billion) and its bonds cut to junk last month by Standard & Poor’s, Marchionne may have to back away from his pledge and put up cash to reach a deal with Chrysler by the U.S.-government imposed deadline of April 30, analysts say. Fiat, Italy’s largest carmaker, today is likely to report its first quarterly loss since 2004 in what Marchionne has described as a "tough" first three months of the year. Sanford C. Bernstein Ltd. analysts said yesterday Fiat may have to sell its "jewel assets" like the CNH Global NV agricultural and construction-equipment unit to fund the Chrysler partnership.
"I have some worries over the debt level in the short run," said Roberto Brasca, head of equities at Anima SGR in Milan, which manages 7.5 billion euros including 5.4 million Fiat shares. "Marchionne will have to show that the operation is financially sustainable to have free hands to turn around Chrysler. Strategically this is the right move for Fiat." Chrysler, surviving with $4 billion in U.S. loans, must win concessions from banks and unions to reach the deal with Fiat. Its lenders asked Fiat to make a cash contribution to its proposed alliance as part of their proposal to the U.S. Treasury, people familiar with the negotiations said April 21. The lenders want Fiat to invest $1 billion in the U.S. automaker, the Washington Post reported yesterday,
In a statement late yesterday, Fiat said no agreement has yet been reached in talks between Chrysler and its U.S. and Canadian unions, and that it’s "impossible to predict the timing and the final outcome" of the discussions. Fiat may report a first-quarter net loss of 349 million euros, according to the average estimate of five analysts compiled by Bloomberg. The company had a profit of 405 million euros a year earlier. Net debt may have increased to 6.5 billion euros last month from 5.9 billion euros at the end of 2008, according to the average of four analyst estimates. Fiat is scheduled to report earnings at about noon local time. Fiat has more than doubled on the Milan exchange from a record low on Feb. 25 as government incentives to buy more fuel- efficient cars started to boost sales in Europe.
"I’m more cautious on Fiat after the shares rallied," said Emanuele Vizzini, who helps manage about $1.2 billion at Investitori SGR in Milan and has sold most of his Fiat shares. "There’s always the chance of a capital increase. The major deal for Fiat has still to come." David Arnold, an analyst at Credit Suisse in London, said he recommends selling Fiat shares because of the risks of cash injection or a rights issue in case of a negotiated Chrysler Chapter 11 deal. "A massive expansion with the new auto businesses will surely require funding," as Fiat will have to invest in the turnaround and restructuring of Auburn Hills, Michigan-based Chrysler’s plants, Sanford C. Bernstein’s London-based analysts led by Max Warburton wrote in a note yesterday.
Not everyone agrees. Gabriele Parini, an analyst at UniCredit Markets & Investment Banking in Milan, said he doesn’t think Marchionne would put cash in Chrysler, "especially considering market concerns on Fiat debt." "My main concern is that Fiat won’t close the deal before the April 30 deadline," he said. A rights offer is "unavoidable" if Fiat is asked to invest in Chrysler or decides to acquire General Motors Corp.’s Opel unit, Mediobanca SpA analyst Massimo Vecchio wrote in an April 16 note. Marchionne, who will discuss Fiat results with analysts today on a conference call, has said the company isn’t planning any stock sale. With no cash injection for Chrysler, Fiat could avoid a capital increase by securing a second credit line after a 1 billion-euro loan from Intesa Sanpaolo SpA, UniCredit SpA and Credit Agricole SA in February, Mediobanca’s Vecchio said.
If the third-largest U.S. automaker is forced to declare bankruptcy, Fiat, along with rivals and industry players, may consider buying assets, Marchionne said April 15. Chairman Luca Cordero di Montezemolo said earlier this week that Fiat is looking at alternatives to a Chrysler partnership and would review Chrysler talks during today’s board meeting. Standard & Poor’s said March 31 it may cut its BB+ rating on Fiat further if there is "evidence that Fiat’s involvement with Chrysler translates into cash outflows."
Fiat posts $533M 1Q loss
Fiat SpA lost 411 million euros, or $533 million in the first quarter of this year as car and commercial truck sales fell sharply in Europe. This is the company's first quarterly loss since 2004, and was larger than the 349 million euro loss analysts expected. Fiat earned a profit of 427 million euros in the first quarter of 2008. Fiat also repeated that it has no intention to invest cash in its proposed partnership with Chrysler LLC. Sales for all of Fiat Group declined to 11.3 billion euros, or $14.7 billion, down 25.3% from a year earlier. Fiat Group includes the Fiat, Alfa Romeo, Lancia, Maserati and Ferrari car brands, Case New Holland farm and construction equipment, Iveco trucks and commercial vehicles and manufacturers of automotive components FPT Powertrain Technologies, Magneti Marelli, Teksid and Comau.
Sales of Fiat Group Automobiles, which includes Fiat, Alfa Romeo and Lancia, dropped 18% to 5.6 billion euros, or $7.3 billion. Fiat reported 5.1 billion euros, or $6.6 billion of cash as of March 31, up from $4.8 billion at the end of 2008 because it drew on a new 3-year loan. European car sales fell 17.9% in the first quarter of 2009 from a year earlier, according to industry association ACEA in Brussels. The sales decline has come despite incentives in France and Germany where governments have offered money for consumers to scrap gas-guzzling cars and replace them with more fuel efficient models.
Gilt 'Indigestion' Looms as U.K. Plans Record Bond Sales of $318 Billion
The U.K.’s plan to sell a record 220 billion pounds ($318 billion) of gilts this year to revive the economy may cause investor "indigestion," according to some of Britain’s biggest bond traders. The amount, 50 percent more than the 146.4 billion pounds sold in the fiscal year that ended March 31, may be too much for the market to absorb, according to Royal Bank of Scotland Group Plc. The issuance plan, announced by the London-based Debt Management Office yesterday following the government’s budget report, is a "surprise," according to Barclays Capital. "The scope for bouts of indigestion going forward is high," Richard McGuire, said senior fixed-income strategist in London at RBC Capital Markets. "In terms of the market’s ability to absorb this supply, the key is whether the budget presents a credible road map toward fiscal sustainability and here we would argue it is lacking."
Prime Minister Gordon Brown is betting the bond sales will help to haul the nation out of the worst recession since World War II and revive the government’s prospects of winning a general election next year. Gilts fell following yesterday’s announcement, with the yield on the 10-year note rising 14 basis points to 3.44 percent in London. The unprecedented sale plan raises the risk that bond auctions will fail, former U.K. Chancellor of the Exchequer Norman Lamont said in a Bloomberg Television interview this week. The debt office couldn’t find enough buyers at a sale of 40-year bonds on March 26, the first time since 2002 that demand fell short. The Treasury will issue 74 billion pounds of securities maturing in as much as seven years, 70 billion pounds of bonds coming due between seven and 15 years, and 27 billion pounds of gilts maturing in more than 15 years, the debt office said yesterday. It will offer a further 19 billion pounds of long- dated debt through syndicated deals and so-called mini tenders, and 30 billion pounds of inflation-protected gilts, it said.
U.K. debt underperformed German bonds this year, as investors demanded higher yields to compensate for the prospect of increased supply. Gilts lost 2 percent, while bunds returned 0.03 percent, according to Merrill Lynch & Co. indexes. The yield difference, or spread, between 10-year gilts and bunds widened to 31 basis points today, the most since March 5, compared with six basis points at the start of the week. "It’s a challenging remit but I am confident that there is strong ongoing demand for gilts and we will work closely with the market to successfully deliver it," Robert Stheeman, chief executive officer of the debt office in London, said in an e- mailed response to questions yesterday. "From the perspective of the gilt market, which is highly efficient, we don’t think that a funding strike is in any way a realistic scenario."
While Chancellor of the Exchequer Alistair Darling said in his budget yesterday that the economy will expand 1.25 percent next year after a contraction of about 3.5 percent in 2009, the International Monetary Fund expects the country to stay mired in recession. The Washington-based lender predicted a contraction of 0.4 percent next year after a 4.1 percent slump in 2009. "The main anxiety in the market is that this might not be the worst of it," said Robin Marshall, director of fixed income in London at Smith & Williamson Investment Management. The U.K. may sell "more next year given the economic outlook. The key is growth and how soon the financial sector functions properly again." The debt office said March 18 that it would issue 147.9 billion pounds of bonds this year. The revised plan is almost five times the average in the five years before 2007 and surpassed every forecast in the Bloomberg survey.
It’s "20 billion pounds more than the highest estimates, and there are going to be more syndicated deals than the market expected," said Adam McCormack, head of gilt sales at Barclays Capital in London. The median forecast of 14 of 16 banks that deal directly with the Treasury was 180 billion pounds. Darling said the government’s budget deficit this year will reach 175 billion pounds, or 12.4 percent of gross domestic product. That’s the biggest shortfall in the Group of 20 nations and surpasses the 12 percent forecast in the U.S. The U.K. will raise gilt issuance to over 240 billion pounds in the next fiscal year and to almost 250 billion pounds in the fiscal 2011-12, according to Citigroup Inc. "The U.K. is mortgaged up to the hilt," Paul Day, chief market analyst at MIG Investments SA, said in an interview from Singapore yesterday.
U.K. Bank Bailout Rises to $2 Trillion, May Climb on Building Societies
U.K. government support for the banking system has risen to £1.4 trillion ($2 trillion) and may climb higher as the financial crisis spreads to building societies and economists warn lenders may need more aid. Prime Minister Gordon Brown’s government yesterday offered to guarantee some mortgage-backed bonds, adding as much as 50 billion pounds to the bailout that began with the collapse of Northern Rock Plc in 2007. The amount invested in, loaned to or pledged to back bank assets now equals Britain’s gross domestic product, or 22,800 pounds for every person in the U.K. "The size of this financial bailout is unprecedented," said Alan Clarke, an economist at BNP Paribas in London. "The worry is that this is not going to be enough and the government may need to come back and step in again."
Britain’s budget deficit rose to 12.4 percent of GDP as the government took over four banks, insured assets and underwrote loans to spur an economy ravaged by the global credit crisis. Brown is using that leverage to force banks to increase lending as he trails the Conservative Party in the polls and prepares for elections no later than June 2010. The Treasury, in the budget submitted to Parliament yesterday, estimated the bailout may cost taxpayers 50 billion pounds. That contradicts with the International Monetary Fund’s estimate that the bill may climb to 9.1 percent of GDP, or about 132 billion pounds. In return for state aid, Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Northern Rock Plc have pledged to increase lending by 44 billion pounds over the next year.
That’s 150 billion pounds less than the economy needs to return to a nominal growth rate of 5 percent, said Vicky Redwood, an economist at Capital Economics Ltd. who formerly worked at the Bank of England. "This problem is not going to ease in the near term with unemployment rising sharply," Redwood said. "The government may put more capital into the banks or promise to put more capital into the banks to get lending going again." Government measures to cap losses on toxic assets have eased strain in the credit markets. The difference between the three-month London interbank offered rate for pounds and the expected average Bank of England base rate, an indicator of banks willingness to lend, has narrowed by 56 basis points since Feb. 26, when RBS said it would enter the government’s asset insurance plan. The spread was 107 basis points yesterday, compared with a record 299 basis points on Nov. 6.
The government took action "to make sure we get ourselves back on a path to sustainable recovery," Chancellor of the Exchequer Alistair Darling said today in an interview with Bloomberg Television. "If I hadn’t done that then the cost of this recession would far more." Brown may need to provide more money to help building Societies. The customer-owned lenders accounted for 18 percent of the U.K. residential mortgage market in 2007, according to the Council of Mortgage Lenders. Moody’s Investors Service last week downgraded the credit ratings of nine building societies, including Nationwide, the U.K.’s largest, citing concerns about further credit losses. The cut will make it harder for the lenders to raise funding in the wholesale markets. "Building societies that made imprudent commercial lending decisions are most likely to need a government bailout," said Ray Boulger, senior technical manager at Charcol Ltd., Britain’s biggest online mortgage broker. "A number of societies expanded into commercial lending without the necessary expertise to know exactly what they were doing."
Bloomberg News tabulated the extent of the government’s effort to rescue the financial system using data from the Treasury, Bank of England and U.K. banks. Commitments include 526.5 billion pounds of asset insurance, 250 billion pounds to guarantee bank lending and 154 billion pounds to take on the liabilities of nationalized banks Northern Rock and Bradford & Bingley Plc. The government also loaned the Bank of England 185 billion pounds to finance a special liquidity program for banks. In addition, the central bank agreed to purchase as much as 150 billion pounds of assets with new money to lower borrowing costs through so-called quantitative easing. Other state aid to the industry includes direct investment in U.K. lenders, assistance for customers of Icelandic banks and the bailout of Dunfermline Building Society. The £1.4 trillion figure doesn’t count government pledges to stimulate the economy.
Since credit markets froze in August 2007, U.K. banks have announced 76.6 billion pounds of losses and at least 45,000 job cuts, according to data compiled by Bloomberg. The five-member FTSE 350 Banks Index has gained 68 percent since March 7, when Lloyds joined RBS in entering the asset insurance plan. The index fell 57 percent in 2008. "The whole banking system is still very fragile," said Peter Hahn, a former managing director of Citigroup Inc. and now a fellow at London’s Cass Business School. "When you look at the income numbers that have been put out by banks recently they contain so much fudge and financial manipulation. You could say that the automobile industry has a clearer future at the moment."
Alistair Darling's Budget derided as 'fantasy'
Alistair Darling's 2009 Budget has been derided as a stew of unrealistic forecasts and missed opportunities, after the Chancellor conceded the current slump is comparable with the Great Depression but insisted it would be over by Christmas. Mr Darling cemented his reputation as the Chancellor with the worst forecasting record in modern history after he slashed his projection for British economic output this year to -3.5pc. Unveiling the biggest increase in government borrowing since the Second World War, he conceded that Britain's national debt will double to around £1.2 trillion in the coming years, and that the budget would not return to balance until 2018 or later. In what economists described as a "fantasy Budget", Mr Darling imposed swingeing new taxes on those who earn more than £150,000, which will raise as much as £5.5bn a year by 2012 – one of the biggest per-capita tax increases in recent history.
But while he will try to trim some departmental budgets, he will nevertheless increase the total amount the Government will spend this year and the next by £37.6bn. This indicates that if he does intend to balance the nation's books, he will do so not with spending cuts but with tax rises. When all is said and done, this Budget will involve a giveaway of £5.2bn this year, largely comprised of extra capital allowances and employment funding for businesses, but the size of the stimulus nevertheless falls far short of the VAT cut introduced in last year's pre-Budget report or the various rescue packages enacted by other governments around the world.
Moreover, according to the Budget plans, the Treasury will levy a combined £5.3bn over the following two years in a series of higher taxes. However, the proposed tax and spending measures pale into insignificance against the scale and extent of the economic and fiscal crunch mapped out in the Budget small print. The documentation reveals that this year's economic contraction will be the worst in any year since the end of the Second World War. Indeed, according to the International Monetary Fund, this year is likely to be the worst since the 1930s, as countries around the world slump into a synchronised slowdown. The Chancellor predicted that despite shrinking by 3.5pc this year, the UK economy would start growing again "towards the end of the year", with 1.25pc growth next year and 3.5pc from 2011 onwards.
Last night economic historians were trying in vain to find examples of developed countries that had stomached so significant a one-off drop in growth and yet managed to recover within 12 months. As the IMF pointed out last week, recessions associated with financial crises tend to be more protracted and virulent than almost any other type, and that is precisely what the UK faces. Indeed, alongside many City economists, the IMF expects the UK economy to shrink by a further 0.4pc next year – significantly below even the Chancellor's revised forecasts. Dig a little deeper into the Budget and it becomes clear that the Treasury expects nothing short of a full-scale consumer recovery – if not boom – in order to satisfy its projections. Such a prospect seems unrealistic if not outlandish, according to City experts. "It's just wishful thinking," said Peter Spencer, chief economic adviser to the Ernst & Young Item Club.
"It's impossible to find a period when that sort of recovery has actually come through … If you believe that, you'll believe anything." Even taking at face value the Chancellor's forecasts, the UK will have to borrow some £175bn this year and £173bn the next to make up for the shortfall in tax revenues and extra demands on the public purse from increased social welfare spending. At over 12pc of gross domestic product, these represent the worst years for the public finances since the 1940s. However, the optimistic economic forecasts are doubly significant in this case because higher growth means a lower deficit. Should the Chancellor's economic projections be proven wrong, the eventual outcome for the national accounts will be worse still, according to City analysts, with total borrowing likely to surpass £200bn and not to peak until next year.
"This leaves the already horrendous borrowing projections looking too optimistic," said Ross Walker, an economist at Royal Bank of Scotland. Michael Saunders, chief UK econmist at Citigroup, said: "I shake my head in despair. As the Chancellor faces a terrible fiscal position no one outside the Treasury will believe the forecasts. When I saw the public spending plans I nearly fell off my chair," he added. The tidal wave of extra debt will push up Britain's net national debt from below 40pc – one of the ceilings set by Gordon Brown in 1998 but since abandoned – to almost 80pc. The Treasury said it still had no plans to reinstate any fiscal rules to bring its borrowing back under control in the future. In fact, it said it did not expect the budget to come back into balance until 2018 or beyond. The Budget came amid continuing bad economic news, with the Office for National Statistics announcing that unemployment jumped by 177,000 to 2.1m in the three months to February, taking the jobless rate to 6.7pc. Marc Ostwald, a strategist at Monument Securities said: "Whoever wins the election next year faces probably the most unenviable task in modern British history."
by Bernie Sanders, Independent US Senator from Vermont
Representative Spencer Bachus is one of the only people I know from Alabama. I bet I'm the only socialist he knows. I'm certainly the only one the congressman from Birmingham could name after darkly claiming that there are 17 socialists lurking in the House of Representatives. I doubt that there are any other socialists, let alone 17 more, in all of the Congress. I also respectfully doubt that Spencer Bachus understands much about democratic socialism. I hope this is an opportunity to shed some light on a viewpoint that deserves more attention throughout America and in our capital.
At its best, Washington brings people like us together to fight for our principles and work things out for the good of the country. Spencer and I used to serve together on the House Financial Services Committee. I don't mean to hurt him back home, but the truth is that he even cosponsored an amendment of mine once on credit card ripoffs. At its worst, Washington is a place where name-calling partisan politics too often trumps policy. A standard refrain in John McCain's presidential stump speeches last fall was a claim that Barack Obama's Senate voting record was more liberal than Senate's only socialist, yours truly. That is nonsense on several levels. Even as political hyperbole, the attack didn't work out all that well for my colleague from Arizona.
Still, branding someone as a socialist has become the slur du jour by leading lights of the American right from Newt Gingrich to Rush Limbaugh. Some, like Mike Huckabee, intentionally blur the differences between socialism and communism, between democracy and totalitarianism. "Lenin and Stalin would love this stuff," Huckabee told last winter's gathering of the Conservative Political Action Conference. If we could get beyond such nonsense, I think this country could use a good debate about what goes on here compared to places with a long social-democratic tradition like Sweden, Norway and Finland, where, by and large, the middle class has a far higher standard of living than we do.
I was honored last year to show Ambassador Pekka Lintu of Finland around my home state of Vermont. There was standing-room only at a town meeting where people came to hear more about one of the world's most successful economic and social models. And what we learned impressed us. Finland is a country which provides high-quality health care to all of its people with virtually no out-of-pocket expense; where parents and their young children receive free excellent childcare and/or parental leave benefits which dwarf what our nation provides; where college and graduate education is free to students and where children in the public school system often record the highest results in international tests. In Finland, where 80 percent of workers belong to unions, all employees enjoy at least 30 days paid vacation and the gap between the rich and poor is far more equitable than in the United States.
One reason there was so much interest in the Finnish model was that even before Wall Street greed drove the world economy into a deep recession, more and more Americans were wondering why the very rich were becoming richer while our economy failed our working families. They wanted to know why the middle class was shrinking, poverty was increasing and the United States was the only major country without a national health care program. Despite all the rhetoric about "family values," workers in the United States now work the longest hours of any people in a major country. Our health care system is disintegrating. At last count, 47 million Americans had no health insurance while we spend twice as much per capita on health care as any other nation.
We have the highest rate of childhood poverty in the industrialized world. Our childcare system is totally inadequate. Too many of our kids drop out of school, and college is increasingly unaffordable. One of the results of how we neglect many of our children is that we end up with more people in jails and prisons than any other country on earth. There is a correlation between the highest rate of childhood poverty and the highest rate of incarceration. Let's be clear. Finland is no utopia. Not so many years ago, it experienced a severe economic downturn. Its economy today is not immune to what is happening in the rest of the world. There also are, to be sure, important differences between the United States and Finland - a small country with a population of only 5.2 million people. Finland has a very homogenous population. We are extremely diverse. Finland is the size of Montana. We stretch 3,000 miles from coast to coast.
Despite the differences, there are important similarities. Both countries share many of the same aspirations for their people. When one thinks about the long march of human history, it is no small thing that democratic countries like Finland exist that operate under egalitarian principles, which have virtually abolished poverty, which provide almost-free, quality health care to all their people, and provide free, high-quality education from child care to graduate school. Whether we live in Burlington, Vt. or Birmingham, Ala., we should be prepared to study and learn from the successes of social-democratic countries. Name-calling and scare tactics just won't do.
World Bank to Launch Stimulus for Developing Nations
Moving to combat the spiraling economic downturn in developing countries, the World Bank will unveil a major initiative today to almost double financing for road, bridge and other infrastructure projects from Latin America to Eastern Europe, allowing poorer nations to create jobs in a manner similar to the stimulus programs underway in the United States and other wealthy countries. That $55 billion effort, spelled out by World Bank president Robert B. Zoellick in an interview yesterday, comes as both the bank and the International Monetary Fund seek to address the fast sinking fortunes of developing nations through a series of high-level meetings in Washington this week.
Following the $1.1 trillion plan for the global recovery hatched by world leaders in London this month, finance ministers and central bankers from major nations will converge for meetings of the Group of Seven and Group of 20 at the Treasury Department on Friday. Those will be followed by further closed-door meetings at the biannual assembly of the IMF and World Bank this weekend, in part to hash out just where those vast sums of promised funds will come from and how they will be spent. Although the focus to date has shined on the IMF and its vastly expanded role as global banker to nations facing immediate crisis, the World Bank, its sister organization engaged in longer term development assistance, also faces an amplified mission. Concern is mounting that the worst financial crisis since the Great Depression is reversing historic gains against global poverty made in recent years, partly with help from the World Bank, which is based in the District.
Those fears were underscored yesterday by an IMF report indicating the global economy is faring worse than IMF economists had predicted only a few months ago. As recently as January, for instance, the IMF thought Brazil would post moderate growth in 2009. But it now projects Latin America's largest economy -- stung by the credit crunch and a sharp downturn in exports -- will suffer a painful recession along with much of the rest of the region. Mexico had been expected to suffer only a mild economic contraction, but the IMF now says its downturn this year will be even harsher than the one in the United States. "Decreases in demand are leading to decreases in production, decreases in exports and increases in unemployment that are still shaping current evolutions," said Olivier Blanchard, the IMF's chief economist.
That said, the fund noted that some of the steepest contractions include wealthy countries such as Japan, at 6.2 percent, Germany, at 5.6 percent, and Britain, at 4.1 percent, compared with 2.8 percent contraction in the United States. Stimulus packages, however, are cushioning declines in Europe, Japan and the United States, aiding recovery efforts. Yet such cushions, Zoellick said, have been far harder for others to establish. A dramatic pullback of private financing from the developing world has been forcing poor and middle-income nations from Africa to Latin America to abandon half-finished construction projects, fueling spikes in unemployment. The bank will step in to fill the gaps left by panicked private investors, nearly doubling to $55 billion its available infrastructure financing to poor and middle-income countries.
Those funds would help jump-start projects that have stalled in recent months, including the installation of power grids in Cameroon and new port facilities in Vietnam and Indonesia, World Bank officials said. Zoellick estimated that each billion spent would generate 200,000 to 500,000 jobs. "You have projects that are half built, but where jobs can't continue because the financing isn't there," Zoellick said. "You finance these projects, you keep people working." In addition, the bank is moving this week to unveil billions of dollars more in financing for social safety nets in the developing world. The bank will more than double to $28 billion the amount available for hard-hit Latin America, including a recapitalization plan for banks. That amount would be pooled with resources from agencies including the Inter-American Development Bank for a total of $90 billion.
Concerns remain that world leaders talk about vast sums without specifics regarding where the money will come from or when. A portion of the $1.1 trillion pledged by world leaders this year was earmarked, and in some cases, already spent, to combat the crisis. Clarity, however, is emerging. The IMF, which had about $250 billion on hand, is set to expand its arsenal to about $1 trillion. About $250 billion of that will come from the IMF effectively printing money, called Special Drawing Rights. The United States, Japan and the European Union have pledged up to $300 billion; Canada and Switzerland, $10 billion each; and Norway, $4.5 billion. China is expected to give at least $40 billion, while Saudi Arabia and other countries are counted on for much of the balance. But many of those pledges require approval from legislators at home, and it is uncertain how quickly the money would be made available. The IMF is saying that it immediately needs half of the $500 billion it will seek from governments to deal with the crisis.
In the World Bank's case, armed with about $200 billion, much of the funds needed to cope with the crisis are in hand or will be raised privately through bonds issues or other commercial transactions. However, a few targeted donations from governments are set to come for the infrastructure fund, including from Germany and France. Every three years, the bank holds a drive to replenish its fund for the poorest of nations, with a record $42 billion collected in 2007. The bank is facing pressure from some nations to kick off the next drive early, moving up efforts now set for 2010. Zoellick said he would seek to balance the fresh need in the developing world with his desire not to thrust the offering plate too quickly in front of rich countries, now suffering severe downturns themselves. "I want to build a track record of credibility," Zoellick said, "by not crying wolf early."
Holder and Geithner LIED About Loan Modification Scams
Today was the day that I discovered the truth about something that I had been certain was just the result of the administration being misguided. They didn’t know, I reasoned. They didn’t understand, I hoped. They were misinformed, I believed. But I was wrong… they flat out lied to the American people… stood there in front of the cameras and, just like Bill Clinton when he wagged his finger and said that he did not have sexual relations with that woman… they knowingly lied. And, I have to admit, it saddens me.
Attorney General Eric Holder and Treasury Secretary Tim Geithner flat lied that Monday morning, April 6, 2009, when they addressed the nation to talk about the government’s response to the fraudulent loan modification scams that they claimed were sweeping the nation. They made it sound like the problem was an epidemic. They made it sound as if there was a fraudulent loan modification company around every corner. And they knew that the numbers they were using had nothing to do with loan modification scams.
Here it is from the Associated Press, but I’m sure you can find them on YouTube, if you’d like to see it come from the horse’s ass… I mean mouth:
Government cracking down on mortgage scams
by The Associated Press
Published: April 6, 2009
Top federal and state officials on Monday announced a broad crackdown on mortgage modification scams, accusing "criminal actors" of preying on desperate borrowers caught up in the nation’s housing crisis.
Government officials say scammers are seeking to take advantage of borrowers in danger of default. The frauds often involve companies with official-sounding names designed to make borrowers think they are taking advantage of the Obama administration’s efforts to help modify or refinance 7 to 9 million mortgages.
Officials say such operations almost always are fraudulent, and that help is available for free from government-approved housing counselors.
"These predatory scams callously rob Americans of their savings and potentially their homes," Treasury Secretary Timothy Geithner said Monday. "We will shut down fraudulent companies more quickly than before. We will target companies that otherwise would have gone unnoticed under the radar."
The Federal Trade Commission has sent warning letters to 71 companies it says were running suspicious advertisements and has filed five new civil cases to halt illegal loan modification scams. Attorney General Eric Holder says the FBI is investigating about 2,100 mortgage fraud cases.
"If you discriminate against borrowers or prey on vulnerable homeowners with fraudulent mortgage schemes, we will find you, and we will punish you," Holder said.
Did you catch the lie? Chances are you didn’t. I didn’t either at the time. It took me two weeks to realize that they had lied… intentionally lied. Here’s the lie:
Attorney General Eric Holder says the FBI is investigating about 2,100 mortgage fraud cases.
Is the FBI investigating about 2,100 mortgage fraud cases? You bet they are. It says so right on the FBI Website. Those 2,100 mortgage fraud cases were filed between 2003 and 2009. The problem is that the FBI’s Website also provides a definition of "mortgage fraud" and it has just about nothing to do with the fraudulent loan modification scams Holder and Geithner were talking about.
Here’s how the FBI defines "mortgage fraud crimes":
Mortgage Fraud is defined as the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan. Although no central repository collects all mortgage fraud complaints, statistics from multiple sources indicate that mortgage fraud is on the rise. Some industry explanations for this increase point to recent high mortgage loan origination volumes that strained quality control efforts, the persistent desire of mortgage lenders to hasten the mortgage loan process, the escalation of home prices in recent years, and the introduction of non-traditional loans which contain fewer quality control restraints such as low documentation and no documentation loans.
Well, that doesn’t sound like what they were describing, does it. I thought they were talking about fraudulent loan modification firms that were taking people’s money and not delivering a service. There must be something on the FBI’s site, right? And there is… all the way down at the bottom, after paragraph after paragraph describing numerous other violations. It reads:
Recent statistics suggest that escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance. The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This "foreclosure rescue" often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment.
While foreclosure scams vary, they may be used in combination with other fraudulent schemes. For instance, perpetrators may view foreclosure-rescue scams as a new method for fraudulently acquiring properties to facilitate illegal property-flipping and equity-skimming.
That’s it? "Escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking guideance…" You’re kidding me, right? No, I’m afraid I’m not kidding. That’s it and that’s all. After that, the FBI site goes into the following:
Home Equity Lines of Credit
Individuals and criminal groups are exploiting the home equity line of credit (HELOC) application process to conduct multiple-funding mortgage fraud schemes, check fraud schemes, and potentially money laundering-related activity. HELOCs differ from standard home equity loans because the homeowner may borrow against the line of credit over a period of time using a checkbook or credit card. HELOCs are aggressively marketed by lenders as an easy, fast, and inexpensive means to obtain funds. HELOC funds are normally withdrawn on an as-needed basis to conduct home repairs or to pay bills, but fraud perpetrators may withdraw the entire amount within a short time period. Lenders typically focus on property equity prior to funding HELOCs. As such, many lenders do not demand a full property appraisal or a full property title search.
So… the Attorney General of the United States, you know… the guy that replaced Attorney General Gonzalez, the AG who could not remember a darn thing… had a choice when preparing his speech that Monday morning on April 6, 2009. He could have told the truth.
After reviewing online and print ads nationwide, the FTC sent warning letters to 71 companies who may be deceptively marketing mortgage services.
In the last year, the FTC said it’s brought 11 law enforcement actions against operations accused of conning consumers. There’s also been plenty of state action in running down companies engaged in fraud. Illinois Attorney General Lisa Madigan filed two lawsuits recently against alleged Chicago-area mortgage rescue scams. “We have repeatedly found that these operations are swindling desperate homeowners out of money they can’t afford to lose,” Madigan said in a release.
Wow… 11 cases of deceptive advertising and 2 lawsuits filed in Illinois. And the Illinois AG’s phrasing would make me laugh, if it weren’t so entirely sad.
"We have repeatedly found that these operations are swindling desperate homeowners out of money they can’t afford to lose."
Well, I suppose it’s true. "Repeatedly" does mean more than once… and so two lawsuits would qualify as having happened "repeatedly". But, you know what I have to say about that: F#@k You.
No wonder they all looked so uncomfortable that Monday morning in front of the cameras. I noticed it right away, but I figured it was because they’re all kind of new at this… and they’ve got tough jobs. But it wasn’t that, was it Tim and Eric? You were uncomfortable because you knew that what you were saying wasn’t really the truth. Right guys? It’ll be better if you just admit it… ask Bill Clinton.
Eric Holder went on to say the following that day:
“For millions of Americans, the dream of homeownership has become a nightmare because of the unscrupulous actions of individuals and companies who exploit the misfortune of others,” Attorney General Eric Holder said in a release. “The Department of Justice’s message is simple: If you discriminate against borrowers or prey on vulnerable homeowners with fraudulent mortgage schemes, we will find you, and we will punish you.”
If anyone remembers my column about that day, you’ll remember that I made fun of that line. I put in parenthesis something about Holder being the black guy and therefore required to mention discrimination so many times each year. I wrote that line because I couldn’t understand at the time what discrimination had to do with fraudulent loan modification companies. Were they discriminating against certain people and only defrauding others. Strange, I thought… criminals so rarely discriminate as to from whom they steal.
I, like everyone else, was focused on the second word in Holder’s message, "millions". "For millions of Americans…" Millions of Americans were being defrauded… that was the message. And so, as these two stalwarts of transparency were preparing their speeches, practicing their parts, working out the timing of when each would talk, they needed a big number. 11 and 2 wouldn’t do it. So they found the FBI’s 2,100 number and decided it would go unnoticed. After all, who would know the difference between loan modification fraud and "mortgage fraud"?
And it worked. You guys pulled it off. I didn’t even catch it until two weeks later… I might never have caught it, if it weren’t for Florida’s Attorney General who tried the exact same ploy. In one article, he claimed to be investigating 30,000 cases of mortgage fraud, while in another article it said this:
Florida Attorney General Bill McCollum this month filed a civil lawsuit against a number of alleged loan-modification scam artists on behalf of scores if not hundreds of people, most of them facing foreclosure, who claim they paid upfront fees as high as $3,000 to have their mortgage terms improved so they could keep their homes. The suit alleges those services, which numerous non-profit organizations will do for free in tandem with lenders, were never delivered.
When I read that the first thing I thought was… "Wow, it’s pretty rare to see numbers measured in ‘scores’ these days." And then… "scores, if not hundreds"? Which is it? And then I remembered the 30,000 cases reported by another Florida paper… that’s a pretty big spread, don’t you think: 30,000 or scores, if not hundreds? That’s when the whole thing started to stink up the joint… and I went to look at what Holder and Geithner had said.
And then I became sad. I know… some of you reading this will undoubtedly defend what was said as being okay for one reason or another, but you know what… save it. That’s not the kind of administration Obama promised… that’s politics as more than usual. And that’s the Attorney General, damn it. God damn it. I hated watching Bush appointee, Gonzalez say "I don’t recall" about a gazillion times. And I voted for Obama because at least I thought… "No way he’s going to appoint guys like that."
He chose to use a number to make his point because he couldn’t come up with a legitimate number. He lied people… and if you can’t see that then you’ve really lost it. Want me to ask my mom? She’ll tell you… he lied.
So, after staring at the wall for about an hour, wondering why they would have chosen to create this fictional boogey man that was raping and pillaging throughout the land in the form of fraudulent loan modifications, I decided to see if I could find the impetus. If you’ve read my past articles, you know I have come to believe it was the banks that were behind it. Banks don’t want private loan modification companies negotiating mortgages for homeowners… because it costs them more money than if they could just abuse the homeowners directly. But how could I be sure… and then there it was… right in the Washington Post:
According to the Treasury Department’s Financial Crimes Enforcement Network, financial institutions filed an estimated 65,049 suspicious activity reports from 2007 through 2008, a 30% jump from 2006.
Did they now? Suspicious Activity Reports are known by the acronym "SARS" and they’re the kind of reports banks generally file with the IRS and Treasury when they suspect money laundering or tax evasion.
Well, what do you know… I guess all of a sudden the SARS work to report potentially fraudulent loan modification companies. Really? That’s a wild coincidence, don’t you think? And a 30% increase over 2006… the same year more loan modifications were being requested by all those FRAUDULENT loan modification firms?
So, what’s the deal? I thought the fraudulent moan modification firms were taking a homeowners money and deliver nothing in return. No? How could they all be delivering nothing in return if the banks filed 65,049 suspicious activity reports about these fraudulent loan modification scammers? I guess maybe they’re the kind of scammers that, before absconding with your cash, first go through the headache of actually trying to get your loan modified… then they go to Brazil.
Okay guys and gals in the Obama administration and you sleazebags at the banks as well… listen up. At first you were making me dizzy. Now you’re making me nauseous. Your story stinks. You’re causing people to lie to the American people. And all because you don’t want private loan modification firms to represent homeowners because you’d much prefer homeowners weren’t represented when attempting to negotiate a modification of their mortgages.
Not cool, people. Not cool at all.
Here’s a letter written by a real homeowner… I didn’t change a word… think of it as a P.S.
I was watching Fox News last night and saw their free loan modification story. They made it sound so simple and enticing that I could immediately tell that none of the people involved in the production, filming, or writing of the piece had ever tried to do a loan modification without an attorney. Well I have tried, and I’m writing this to say that even if I had completed my modification it wouldn’t have been worth the wasted time and aggravation spent pursuing it on a day-to-day basis.
In fact, the one thing I was waiting for was a couple testimonials from people that had done it themselves. Needless to say, there were no testimonials. I know why, too. Even if they had found someone that had seen their modification through to the end I’m pretty sure they wouldn’t be happy about it. Maybe relieved, but not happy. In my own experience after months of hold time, snotty people at my bank, and hundreds of unreturned calls all I wanted was for it to be over and I didn’t care whether it happened or not. I just wanted it over. Any testimonials like that would not have fit in to the sunny disposition of the report so in the back of my mind I knew I wasn’t going to be hearing from any success stories.
I’ve got to say, the piece actually upset me a bit because what was being said on the show was nothing like the reality of trying to get a do-it-yourself one done. I actually went to a couple non-profits that provided counseling and information but came away from them feeling like maybe I had taught them more about flying solo than they had taught me. At any rate, I didn’t walk out of one of those meetings feeling like I was loaded for bear and ready to represent myself in an actual negotiation. Part of that was because my mortgage was really complex with negative amortization and a bunch of moving parts that determined my interest rate.
Dealing with my bank was a pretty horrendous experience too. The bank wasn’t very helpful at all during the times where I didn’t understand what they were talking about or had questions on things like what to do next. A pretty common response was "We are your bank but we are also re-negotiating a contract you signed. It is not our job to walk you through the process to help you negotiate with us." That seems to be a pretty common mentality as I found out from chatting with many people with similar experiences.
I should mention this as well. My house was fast coming up on a foreclosure so time was becoming more and more precious. The most wearing part of the whole thing was knowing that there was nothing I could do, being reliant on people that really weren’t interested in what happened either way.
It wasn’t until an acquaintance mentioned that (Intentionally omitted by article’s author) Law Center had done his loan mod that I first heard of the company. He said his was done by an attorney and considering that my payments were a bunch of months late that should think about using one too. By that point I was more than happy to pay whoever wanted to take over the job for me. I handed everything over to them and they got the loan mod done.
It just seems that there was so much naivety in the Fox News thing that I wanted to share my experience. I hope it helps.
Well… I’m pretty good with words and I could never say it any better than that. Take action people. Tell those in government… let the private sector help homeowners negotiate with their banks… regulate it… fine, but stop the administration’s campaign against private loan modification firms… before it ends up making the Obama administration look like you know who… Part 2.