http://www.reuters.com/article/idUSTRE6930K520101004
Racial predatory loans fueled U.S. housing crisis: study
Nick Carey
CHICAGO | Mon Oct 4, 2010
Predatory lending aimed at racially segregated minority neighborhoods led to mass foreclosures that fueled the U.S. housing crisis, according to a new study published in the American Sociological Review.
Predatory lending typically refers to loans that carry unreasonable fees, interest rates and payment requirements.
Poorer minority areas became a focus of these practices in the 1990s with the growth of mortgage-backed securities, which enabled lenders to pool low- and high-risk loans to sell on the secondary market, Professor Douglas Massey of the Woodrow Wilson School of Public and International Affairs at Princeton University and PhD candidate Jacob Rugh, said in their study.
The financial institutions likely to be found in minority areas tended to be predatory -- pawn shops, payday lenders and check cashing services that "charge high fees and usurious rates of interest," they said in the study.
"By definition, segregation creates minority dominant neighborhoods, which, given the legacy of redlining and institutional discrimination, continue to be underserved by mainstream financial institutions," the study says.
Redlining is the practice of denying or increasing the cost of services, such as banking and insurance, to residents in specific areas, often based on race.
The U.S. economy is still struggling with the effects of its longest recession since the 1930s, which was triggered in large part by the housing crisis, which was in part triggered by the crash of the subprime loan market.
Subprime lending refers to loans made to consumers with poor credit and others considered higher risk. They tend to have a higher interest rate than traditional loans.
The study, which used data from the 100 largest U.S. metropolitan areas, found that living in a predominantly African-American area, and to a lesser extent Hispanic area, were "powerful predictors of foreclosures" in the nation.
Even African-Americans with similar credit profiles and down-payment ratios to white borrowers were more likely to receive subprime loans, according to the study.
"As a result, from 1993 to 2000, the share of subprime mortgages going to households in minority neighborhoods rose from 2 to 18 percent," Massey and Rugh said.
They said the U.S. Civil Rights Act should be amended to create mechanisms that would uncover discrimination and penalize those who discriminated against minority borrowers.
The study is published in the October issue of the journal.
(Editing by Paul Simao)
Showing posts with label Subprime. Show all posts
Showing posts with label Subprime. Show all posts
Friday, October 15, 2010
Friday, December 4, 2009
Judge wipes out couple's mortgage
http://www.telegraph.co.uk/news/newstopics/howaboutthat/6657104/Judge-wipes-out-couples-mortgage-after-banks-repulsive-behaviour.html
Judge wipes out couple's mortgage after bank's 'repulsive' behaviour
A New York judge was so angry with a bank's "harsh, repugnant, shocking and repulsive" behaviour towards a financially struggling couple that he wiped out their $525,000 (£316,000) mortgage.
By Tom Leonard in New York
26 Nov 2009
In an unusual legal decision that may cheer ordinary homeowners but dismay lenders, Judge Jeffrey Spinner took a tough line on a California-based bank that he considered had been determined to foreclose on the couple's home in Suffolk County, Long Island.
His ruling against OneWest and its IndyMac mortgage division has relieved Greg Horoski and his wife, Diane Yano-Horoski, of the $291,000 they owed on the original loan as well as $235,000 in interest.
OneWest took $814 million in federal bailout money but has a reputation for foreclosing quickly on property owners who falls into arrears.
The Horoskis bought their house 15 years ago but they refinanced in 2004, taking a sub-prime loan from Deutsche Bank.
The interest rate soared to more than 12 per cent and the bank sued the couple in 2005, when Mr Horoski and his wife began having trouble making payments because of his health problems.
A foreclosure on the 3,400 sq ft bungalow was approved but the couple applied successfully for it to be settled in court.
The judge attacked the bank for repeatedly refusing to work out a deal, for misleading him about the sums in the case and for its treatment of the couple.
He wrote that OneWest's conduct was "inequitable, unconscionable, vexatious and opprobrious", cancelling the debt to deter it from "imposing further mortifying abuse" against the couple.
OneWest, which is owned by a private equity group, said it expected to overturn the "unprecedented" ruling on appeal.
Mr Horoski, a porcelain doll seller, told the New York Post : "I think the judge felt it was almost a personal vendetta. It was like dealing with organised crime."
Judge wipes out couple's mortgage after bank's 'repulsive' behaviour
A New York judge was so angry with a bank's "harsh, repugnant, shocking and repulsive" behaviour towards a financially struggling couple that he wiped out their $525,000 (£316,000) mortgage.
By Tom Leonard in New York
26 Nov 2009
In an unusual legal decision that may cheer ordinary homeowners but dismay lenders, Judge Jeffrey Spinner took a tough line on a California-based bank that he considered had been determined to foreclose on the couple's home in Suffolk County, Long Island.
His ruling against OneWest and its IndyMac mortgage division has relieved Greg Horoski and his wife, Diane Yano-Horoski, of the $291,000 they owed on the original loan as well as $235,000 in interest.
OneWest took $814 million in federal bailout money but has a reputation for foreclosing quickly on property owners who falls into arrears.
The Horoskis bought their house 15 years ago but they refinanced in 2004, taking a sub-prime loan from Deutsche Bank.
The interest rate soared to more than 12 per cent and the bank sued the couple in 2005, when Mr Horoski and his wife began having trouble making payments because of his health problems.
A foreclosure on the 3,400 sq ft bungalow was approved but the couple applied successfully for it to be settled in court.
The judge attacked the bank for repeatedly refusing to work out a deal, for misleading him about the sums in the case and for its treatment of the couple.
He wrote that OneWest's conduct was "inequitable, unconscionable, vexatious and opprobrious", cancelling the debt to deter it from "imposing further mortifying abuse" against the couple.
OneWest, which is owned by a private equity group, said it expected to overturn the "unprecedented" ruling on appeal.
Mr Horoski, a porcelain doll seller, told the New York Post : "I think the judge felt it was almost a personal vendetta. It was like dealing with organised crime."
Wednesday, May 28, 2008
Beast of the Month - April 2008
Beast of the Month - April 2008
Henry Paulson, Treasury Secretary
"I yam an anti-Christ... "
John Lydon (aka Johnny Rotten) of The Sex Pistols, "Anarchy in the UK"
"I have a message for every homeowner worried about rising mortgage payments: The best you can do for your family is to call 1-800-995-HOPE."
George W. Bush, giving the wrong number (it's an 888 prefix) for his "solution" to the subprime crisis last December
Since moving Konformist headquarters from across the Ambassador Hotel in Los Angeles to across the UNLV college campus in Las Vegas last April, The Konformist editorial staff have rediscovered the joys of drinking games. Here's one new favorite we particularly recommend: The "Since the Great Depression" Drinking Game. Here's how you play: talk about current economic and financial conditions, and every time somebody uses the phrase "since the Great Depression" in the discussion, everyone needs to take a swig. Trust us, you'll get drunk off your ass real quick.
The big financial story in recent months has been the subprime crisis, which is the Godzilla of the 2008 economic crisis. Eight million homeowners are overwhelmed by subprime loans - ones with low introductory interest rates for prospective homeowners that often pay only interest initially, but later have higher interest rates and huge increases in monthly payment after the introductory period - with two million in or headed to foreclosure. Meanwhile, 10 percent of homes are worth less than their mortgage. All in all, the last two housing market crisis this big in the USA were the S&L scandal of the late eighties and, of course, The Great Depression. (Gulp gulp gulp...)
The Great Depression comparisons are no mere hype: as Robert Shiller, Professor of Economics at Yale University, told the London Times last December: “American real estate values have already lost around $1 trillion. That could easily increase threefold over the next few years." The New York Times has put the figure at up to $4 trillion. In retrospect, it shouldn't be a surprise: while the Bush Team's debacle in Iraq and its attack on civil liberties have been the main focus of Shrubian criticism in recent years, it is the destructive economic policies to benefit the rich at the expense of everyone else that is the hallmark of the Dubya years.
As news of the subprime crisis first began to be reported, a right-wing spin (echoed more than partially in the "establishment" media) circulated as the explanation: it was the fault of the millions of families who, in stupidity, bought homes they couldn't afford with loans that were doomed to swallow them. And, to be fair to these talking points, there were many (including those in The Konformist editorial staff) who realized that subprime loans were definitely a bad idea.
But then in February, New York Governor (and former hard-nosed Attorney General) Eliot Spitzer gave another explanation for the subprime crisis in The Washington Post: the loans should've been illegal as predatory lending. As Spitzer noted: "Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive 'teaser' rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks." Tellingly, 73% of high-income Black and Hispanic borrowers (repeat, that is high-income, not low-income) were given sub-prime loans versus only 17% of similar-income Whites.
So why were these loans not stopped? They were legitimized by the Bush Administration. More specifically, the Treasury Department (currently led by Henry Paulson, The Konformist Beast of the Month) not only stopped federal enforcement to regulate and stop these loans, they selectively used obscure laws and created new rules to block states from enforcing their own predatory lending and consumer protection laws against national banks. This was so unprecedented and outrageous, all 50 state attorneys general and banking superintendents fought the Treasury, but were stonewalled by the Bush minions like it was a 9/11 investigation. The end result: millions of working-class and middle-class Americans (a high percentage, coincidentally, of racial minority status) were forced by criminal market collusion sanctioned by Bush to either accept highly risky subprimes or give up the apparently foolish fantasy of owning their own home.
(Also coincidentally, less than a month after his WaPo expose, Spitzer was forced to resign in disgrace after being exposed as a customer for an expensive Big Apple prostitution ring. So far, none of the other johns have been exposed by Feds, and it appears the target of the DOJ investigation begins and ends with Mr. Spitzer.)
Okay, big surprise. A destructive economic agenda to help the rich at the expense of everyone else was hatched by the Bush Team. Tell us something we don't know. The question then becomes what to do about the mess. Unsurprisingly, the Bush Administration has thus far only offered "voluntary" deals they have encouraged between bankers and mortgage debtors who are delinquent on payments. Even this minimal plan has helped less than eight percent of all subprime borrowers. But anything beyond a voluntary deal worked out between debtors and the banks is decried by right-wing mouthpieces as a "moral hazard" which will encourage future individuals to recklessly enter dangerous loans with the supposed expectation of a bailout.
Oddly, this concern over a "moral hazard" doesn't seem to apply to big boys involved in the mess. Already the subprime crisis has wreaked havoc on the financial establishment, causing the near collapse of venerable investment bank giant Bear Stearns and the liquidation of Carlyle Capital, the mortgage investment fund off-shoot of the notorious Carlyle Group. (Which leads to some Konformist konspiracy theorizing: Bear Stearns was widely despised in the Wall Street establishment as a banking maverick, and the sweetheart deal leading to a JPMorgan Chase & Co. takeover of the firm appears to be a vengeful payback against a lone wolf. Meanwhile, though Carlyle Capital has indeed gone belly up, its parent Carlyle Group - the private equity group whose partners have included George H. W. Bush and the bin Laden family, and whose founder, perhaps not-so-symbolically, bought the original copy of the Magna Carta for $20 million - has only been marginally damaged by the liquidation, as Carlyle Capital was an spin-off of mortgage securities. Did Carlyle suspect the mortgage market was doomed to sink over toxic subprime loans and thus create the spin-off, the first in its history, to dump a loser on sucker investors?) Moral hazards and laissez-faire philosophy be damned: the Federal Reserve decided to give $400 billion in loan packages to Wall Street banks and financial institutions to help them weather the storm. (And that was in just one decisive action: all told, the Fed has offered nearly a trillion bucks in discounted loans to the fat cats who pushed for this mess.) Before the Senate Banking Committee, Fed Chairman Ben Bernanke conceded: “If you want to say we bailed out markets in general, I guess that’s true.”
Which led The Konformist to do a little mathematics. Just taking the $400 billion figure alone, divide it by 2 million, the number of families at the brink of foreclosure due to predatory subprime loans. That comes to $200K per family. Do you think giving 2 million working-class and middle-class families $200 grand each in financial aid backed by their property couldn't solve the current crisis?
Of course, the Fed is merely the scapegoat here of the Bush Administration's failings, just as George Tenet and the CIA became the scapegoat of the Bush lies leading to the Iraq War. (It's a sad indictment of the Bush Team that they could make The Konformist feel sympathy for the CIA and Federal Reserve.) The fact is the Fed was acting in the capacity it had available to aid ailing markets, while helping the average American is the job of Bush, Paulson and co. So far there's been a grand total of zero.
That's fine with John McCain, the almost certain Republican nominee for the 2008 presidential race. In one speech, McCain declared: “It is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.” But talking out the other side of his mouth, he would add: "Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy." So helping out subprime debtors is rewarding the irresponsible, but helping out bankers is okay to defend the financial system.
Here's another quote: "There's no sense in which you're rewarding someone for taking too big a risk. If you lied about your income in order to get a bigger mortgage, then you're not qualified. Do you really want to give a subsidy to the guy who wasn't prudent?" Nice right-wing talking points, that the subprime crisis is the fault of lying debtors. But the quote doesn't come from Bush, Paulson or McCain, but rather a Barack Obama economic advisor. As it turns out, Obama has echoed these same right-wing talking points on the campaign trail. This should be little surprise: for all his charming talk of "hope" and "unity" this campaign, Obama - who has a bizarre media cheerleading behind his campaign similar to what Bush had in 2000 - has been pushing right-wing economics in his content-free mantras. To be fair, Obama has offered a $20 billion fund plan to help struggling borrowers, but that still is a pittance of what has already been given to Wall Street. It's hardly how we imagine MLK (or even JFK, the pair Obama salesmen are pitching him as a combination of) would respond to the crisis.
Ironically, it is the widely maligned and despised Hillary Clinton who has pushed the most to protect the real victims of the subprime crisis. Behind her shameless pandering and sometimes demagogic manipulations this campaign, there is a surprising level of economic populism to her pitch. She has pushed for a 90-day moratorium on foreclosures, a five-year rate freeze on subprime ARMs and backed legislation allowing bankruptcy judges to amend mortgage terms. She's also backed a total of $40 billion in aid to subprime debtors, twice what Obama has offered. Of course, even that is only a tenth of what the Fed gave Wall Street in its bailout.
Of course, The Konformist isn't saying that the US government lending $200K to every American family facing subprime foreclosure is the best way to solve the problem. And The Konformist isn't saying that propping up the financial market, even with $400 billion in Federal Reserve help, isn't a completely bad idea either. What we are saying is the frame of argument is clearly out of whack, even from the supposed "liberal" viewpoint of Obama and Hillary. And it isn't helped by pundits of the both "left" and "right" who silence and demonize criticism of this status quo as "engaging in class warfare."
Henry Paulson knows a thing about benefiting from class warfare. Like his predecessor John Snow, Paulson has been deservedly derided for his clueless figurehead status as Bush's economic point man. But he didn't get there by accident: after a stint as Nixon's Assistant Secretary of Defense, he parlayed his Pentagon connections into becoming Chairman and CEO of investment bank titan Goldman Sachs. (As The Konformist has previously noted, he's hardly the only CEO in the BushMob mix.) For his work at the behest of the defense industry and the financial community, he's been rewarded with a net worth of over $700 million.
This leads to the final class warfare punch line. If the 2 million families now in threat of losing their homes fall into foreclosure, the homes will go to the banks and investment houses that lended them the subprime loans. While that should mean some short term pain, they should be able to weather it thanks to the Federal Reserves aid. Eventually they will have at their disposal hundreds of billions in dollars of property to find new prospective buyers for. This could make the subprime crisis the greatest transfers of wealth to the rich in the history of the USA since, well, since the Bush Team's tax cuts of 2001 and 2003. Class warfare that.
In any case, we salute Henry Paulson as Beast of the Month. Congratulations, and keep up the great work, Hank!!!
Sources:
Bajaj, Vikas and Andrews, Edmund L. "Reports Suggest Broader Losses From Mortgages." New York Times 25 October 2007 <http://www.nytimes.com/2007/10/25/business/25mortgage.html>.
"Fed Staves Off Disaster, but That's Not Enough." San Jose Mercury News 20 March 2008 <http://www.mercurynews.com/opinion/ci_8635232>.
Fraser, Max. "Subprime Obama." The Nation 11 February 2008.
Grey, Barry. "Clinton, Obama, McCain Defer to Wall Street." World Socialist Web Site 29 March 2008 <http://www.wsws.org/articles/2008/mar2008/cand-m29.shtml>.
Jackson, Jesse. "Banks Bailed Out, Homeowners Sinking." Chicago Sun-Times 18 March 2008 <http://www.suntimes.com/news/jackson/847802,CST-EDT-jesse18.article>.
Jagger, Suzy. "Top Economist Says America Could Plunge Into Recession." Times Online 31 December 2007 <http://business.timesonline.co.uk/tol/business/economics/article3111659.ece>.
Krugman, Paul. "Loans and Leadership." New York Times 28 March 2008.
Palast, Greg. "The $200 Billion Bail-out for Predator Banks and Spitzer Charges Are Intimately Linked." GregPalast.com 14 March 2008 <http://www.gregpalast.com/elliot-spitzer-gets-nailed> .
Prins, Nomi. "Obama vs. Clinton on the Top 10 Economic Policy Issues." Mother Jones 28 February 2008 <http://www.motherjones.com/news/update/2008/02/obama-vs-clinton-economic-policy.html>.
Spitzer, Eliot. "Predatory Lenders' Partner in Crime." Washington Post 14 February 2008.
Sterling, Robert. "Subprime Bailout & Shrubonomics: A Mathematical Analysis." Konformist Blog 20 March 2008 <http://robalini.blogspot.com/2008/03/subprime-bailout-shrubonomics.html>.
"Wall St. Unlikely to Bemoan Passing of Bear Stearns, Which Made Few Friends Over the Years." International Herald Tribune 18 March 2008 <http://www.iht.com/articles/ap/2008/03/18/business/NA-FIN-US-Bear-Stearns-Employees.php>.
Henry Paulson, Treasury Secretary
"I yam an anti-Christ... "
John Lydon (aka Johnny Rotten) of The Sex Pistols, "Anarchy in the UK"
"I have a message for every homeowner worried about rising mortgage payments: The best you can do for your family is to call 1-800-995-HOPE."
George W. Bush, giving the wrong number (it's an 888 prefix) for his "solution" to the subprime crisis last December
Since moving Konformist headquarters from across the Ambassador Hotel in Los Angeles to across the UNLV college campus in Las Vegas last April, The Konformist editorial staff have rediscovered the joys of drinking games. Here's one new favorite we particularly recommend: The "Since the Great Depression" Drinking Game. Here's how you play: talk about current economic and financial conditions, and every time somebody uses the phrase "since the Great Depression" in the discussion, everyone needs to take a swig. Trust us, you'll get drunk off your ass real quick.
The big financial story in recent months has been the subprime crisis, which is the Godzilla of the 2008 economic crisis. Eight million homeowners are overwhelmed by subprime loans - ones with low introductory interest rates for prospective homeowners that often pay only interest initially, but later have higher interest rates and huge increases in monthly payment after the introductory period - with two million in or headed to foreclosure. Meanwhile, 10 percent of homes are worth less than their mortgage. All in all, the last two housing market crisis this big in the USA were the S&L scandal of the late eighties and, of course, The Great Depression. (Gulp gulp gulp...)
The Great Depression comparisons are no mere hype: as Robert Shiller, Professor of Economics at Yale University, told the London Times last December: “American real estate values have already lost around $1 trillion. That could easily increase threefold over the next few years." The New York Times has put the figure at up to $4 trillion. In retrospect, it shouldn't be a surprise: while the Bush Team's debacle in Iraq and its attack on civil liberties have been the main focus of Shrubian criticism in recent years, it is the destructive economic policies to benefit the rich at the expense of everyone else that is the hallmark of the Dubya years.
As news of the subprime crisis first began to be reported, a right-wing spin (echoed more than partially in the "establishment" media) circulated as the explanation: it was the fault of the millions of families who, in stupidity, bought homes they couldn't afford with loans that were doomed to swallow them. And, to be fair to these talking points, there were many (including those in The Konformist editorial staff) who realized that subprime loans were definitely a bad idea.
But then in February, New York Governor (and former hard-nosed Attorney General) Eliot Spitzer gave another explanation for the subprime crisis in The Washington Post: the loans should've been illegal as predatory lending. As Spitzer noted: "Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive 'teaser' rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks." Tellingly, 73% of high-income Black and Hispanic borrowers (repeat, that is high-income, not low-income) were given sub-prime loans versus only 17% of similar-income Whites.
So why were these loans not stopped? They were legitimized by the Bush Administration. More specifically, the Treasury Department (currently led by Henry Paulson, The Konformist Beast of the Month) not only stopped federal enforcement to regulate and stop these loans, they selectively used obscure laws and created new rules to block states from enforcing their own predatory lending and consumer protection laws against national banks. This was so unprecedented and outrageous, all 50 state attorneys general and banking superintendents fought the Treasury, but were stonewalled by the Bush minions like it was a 9/11 investigation. The end result: millions of working-class and middle-class Americans (a high percentage, coincidentally, of racial minority status) were forced by criminal market collusion sanctioned by Bush to either accept highly risky subprimes or give up the apparently foolish fantasy of owning their own home.
(Also coincidentally, less than a month after his WaPo expose, Spitzer was forced to resign in disgrace after being exposed as a customer for an expensive Big Apple prostitution ring. So far, none of the other johns have been exposed by Feds, and it appears the target of the DOJ investigation begins and ends with Mr. Spitzer.)
Okay, big surprise. A destructive economic agenda to help the rich at the expense of everyone else was hatched by the Bush Team. Tell us something we don't know. The question then becomes what to do about the mess. Unsurprisingly, the Bush Administration has thus far only offered "voluntary" deals they have encouraged between bankers and mortgage debtors who are delinquent on payments. Even this minimal plan has helped less than eight percent of all subprime borrowers. But anything beyond a voluntary deal worked out between debtors and the banks is decried by right-wing mouthpieces as a "moral hazard" which will encourage future individuals to recklessly enter dangerous loans with the supposed expectation of a bailout.
Oddly, this concern over a "moral hazard" doesn't seem to apply to big boys involved in the mess. Already the subprime crisis has wreaked havoc on the financial establishment, causing the near collapse of venerable investment bank giant Bear Stearns and the liquidation of Carlyle Capital, the mortgage investment fund off-shoot of the notorious Carlyle Group. (Which leads to some Konformist konspiracy theorizing: Bear Stearns was widely despised in the Wall Street establishment as a banking maverick, and the sweetheart deal leading to a JPMorgan Chase & Co. takeover of the firm appears to be a vengeful payback against a lone wolf. Meanwhile, though Carlyle Capital has indeed gone belly up, its parent Carlyle Group - the private equity group whose partners have included George H. W. Bush and the bin Laden family, and whose founder, perhaps not-so-symbolically, bought the original copy of the Magna Carta for $20 million - has only been marginally damaged by the liquidation, as Carlyle Capital was an spin-off of mortgage securities. Did Carlyle suspect the mortgage market was doomed to sink over toxic subprime loans and thus create the spin-off, the first in its history, to dump a loser on sucker investors?) Moral hazards and laissez-faire philosophy be damned: the Federal Reserve decided to give $400 billion in loan packages to Wall Street banks and financial institutions to help them weather the storm. (And that was in just one decisive action: all told, the Fed has offered nearly a trillion bucks in discounted loans to the fat cats who pushed for this mess.) Before the Senate Banking Committee, Fed Chairman Ben Bernanke conceded: “If you want to say we bailed out markets in general, I guess that’s true.”
Which led The Konformist to do a little mathematics. Just taking the $400 billion figure alone, divide it by 2 million, the number of families at the brink of foreclosure due to predatory subprime loans. That comes to $200K per family. Do you think giving 2 million working-class and middle-class families $200 grand each in financial aid backed by their property couldn't solve the current crisis?
Of course, the Fed is merely the scapegoat here of the Bush Administration's failings, just as George Tenet and the CIA became the scapegoat of the Bush lies leading to the Iraq War. (It's a sad indictment of the Bush Team that they could make The Konformist feel sympathy for the CIA and Federal Reserve.) The fact is the Fed was acting in the capacity it had available to aid ailing markets, while helping the average American is the job of Bush, Paulson and co. So far there's been a grand total of zero.
That's fine with John McCain, the almost certain Republican nominee for the 2008 presidential race. In one speech, McCain declared: “It is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.” But talking out the other side of his mouth, he would add: "Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy." So helping out subprime debtors is rewarding the irresponsible, but helping out bankers is okay to defend the financial system.
Here's another quote: "There's no sense in which you're rewarding someone for taking too big a risk. If you lied about your income in order to get a bigger mortgage, then you're not qualified. Do you really want to give a subsidy to the guy who wasn't prudent?" Nice right-wing talking points, that the subprime crisis is the fault of lying debtors. But the quote doesn't come from Bush, Paulson or McCain, but rather a Barack Obama economic advisor. As it turns out, Obama has echoed these same right-wing talking points on the campaign trail. This should be little surprise: for all his charming talk of "hope" and "unity" this campaign, Obama - who has a bizarre media cheerleading behind his campaign similar to what Bush had in 2000 - has been pushing right-wing economics in his content-free mantras. To be fair, Obama has offered a $20 billion fund plan to help struggling borrowers, but that still is a pittance of what has already been given to Wall Street. It's hardly how we imagine MLK (or even JFK, the pair Obama salesmen are pitching him as a combination of) would respond to the crisis.
Ironically, it is the widely maligned and despised Hillary Clinton who has pushed the most to protect the real victims of the subprime crisis. Behind her shameless pandering and sometimes demagogic manipulations this campaign, there is a surprising level of economic populism to her pitch. She has pushed for a 90-day moratorium on foreclosures, a five-year rate freeze on subprime ARMs and backed legislation allowing bankruptcy judges to amend mortgage terms. She's also backed a total of $40 billion in aid to subprime debtors, twice what Obama has offered. Of course, even that is only a tenth of what the Fed gave Wall Street in its bailout.
Of course, The Konformist isn't saying that the US government lending $200K to every American family facing subprime foreclosure is the best way to solve the problem. And The Konformist isn't saying that propping up the financial market, even with $400 billion in Federal Reserve help, isn't a completely bad idea either. What we are saying is the frame of argument is clearly out of whack, even from the supposed "liberal" viewpoint of Obama and Hillary. And it isn't helped by pundits of the both "left" and "right" who silence and demonize criticism of this status quo as "engaging in class warfare."
Henry Paulson knows a thing about benefiting from class warfare. Like his predecessor John Snow, Paulson has been deservedly derided for his clueless figurehead status as Bush's economic point man. But he didn't get there by accident: after a stint as Nixon's Assistant Secretary of Defense, he parlayed his Pentagon connections into becoming Chairman and CEO of investment bank titan Goldman Sachs. (As The Konformist has previously noted, he's hardly the only CEO in the BushMob mix.) For his work at the behest of the defense industry and the financial community, he's been rewarded with a net worth of over $700 million.
This leads to the final class warfare punch line. If the 2 million families now in threat of losing their homes fall into foreclosure, the homes will go to the banks and investment houses that lended them the subprime loans. While that should mean some short term pain, they should be able to weather it thanks to the Federal Reserves aid. Eventually they will have at their disposal hundreds of billions in dollars of property to find new prospective buyers for. This could make the subprime crisis the greatest transfers of wealth to the rich in the history of the USA since, well, since the Bush Team's tax cuts of 2001 and 2003. Class warfare that.
In any case, we salute Henry Paulson as Beast of the Month. Congratulations, and keep up the great work, Hank!!!
Sources:
Bajaj, Vikas and Andrews, Edmund L. "Reports Suggest Broader Losses From Mortgages." New York Times 25 October 2007 <http://www.nytimes.com/2007/10/25/business/25mortgage.html>.
"Fed Staves Off Disaster, but That's Not Enough." San Jose Mercury News 20 March 2008 <http://www.mercurynews.com/opinion/ci_8635232>.
Fraser, Max. "Subprime Obama." The Nation 11 February 2008.
Grey, Barry. "Clinton, Obama, McCain Defer to Wall Street." World Socialist Web Site 29 March 2008 <http://www.wsws.org/articles/2008/mar2008/cand-m29.shtml>.
Jackson, Jesse. "Banks Bailed Out, Homeowners Sinking." Chicago Sun-Times 18 March 2008 <http://www.suntimes.com/news/jackson/847802,CST-EDT-jesse18.article>.
Jagger, Suzy. "Top Economist Says America Could Plunge Into Recession." Times Online 31 December 2007 <http://business.timesonline.co.uk/tol/business/economics/article3111659.ece>.
Krugman, Paul. "Loans and Leadership." New York Times 28 March 2008.
Palast, Greg. "The $200 Billion Bail-out for Predator Banks and Spitzer Charges Are Intimately Linked." GregPalast.com 14 March 2008 <http://www.gregpalast.com/elliot-spitzer-gets-nailed> .
Prins, Nomi. "Obama vs. Clinton on the Top 10 Economic Policy Issues." Mother Jones 28 February 2008 <http://www.motherjones.com/news/update/2008/02/obama-vs-clinton-economic-policy.html>.
Spitzer, Eliot. "Predatory Lenders' Partner in Crime." Washington Post 14 February 2008.
Sterling, Robert. "Subprime Bailout & Shrubonomics: A Mathematical Analysis." Konformist Blog 20 March 2008 <http://robalini.blogspot.com/2008/03/subprime-bailout-shrubonomics.html>.
"Wall St. Unlikely to Bemoan Passing of Bear Stearns, Which Made Few Friends Over the Years." International Herald Tribune 18 March 2008 <http://www.iht.com/articles/ap/2008/03/18/business/NA-FIN-US-Bear-Stearns-Employees.php>.
Friday, March 28, 2008
Subprime Mortgages in Minority Neighborhoods
http://cityroom.blogs.nytimes.com/2007/10/15/subprime-mortgages-concentrated-in-citys-minority-neighborhoods/
October 15, 2007
Subprime Mortgages Concentrated in City’s Minority Neighborhoods
By Ford Fessenden
High-cost “subprime” home mortgages became widely popular in New York City, as they have across the region and the country in the last few years. New data from the federal government show that subprime loans made up 32 percent of mortgages on 1- to 4-family residences in the city in 2006, up from 28 percent in 2005. Most of these loans went to minority borrowers.
An interactive graphic by The New York Times allows users to compare neighborhoods according to the rate of subprime mortgages. In the city, subprime loans have been particularly prevalent in predominantly black and Hispanic neighborhoods, including eastern Brooklyn, southeastern Queens and the south-central Bronx.
Throughout the region, the surge in subprime lending across the region in recent years is helping to fuel a boom in foreclosures.
And now a new study by New York University’s Furman Center for Real Estate and Urban Policy, as Manny Fernandez reports in today’s Times, shows that some buyers in predominantly black and Hispanic neighborhoods in New York City were more likely to get their mortgages last year from a subprime lender than home buyers in white neighborhoods with similar income levels.
In general, even middle-class and wealthy minority home buyers have been more likely than their white counterparts to get high-cost, subprime loans, a pattern that housing activists have decried for years as evidence that prime lenders aren’t living up to their responsibilities under the Community Reinvestment Act, which requires banks to lend in areas all areas in which they do business.
The interactive map of mortgage loans by Census tract shows clearly that subprime lending was especially common in the areas of the city where minorities live. The majority of loans in places like Bushwick, East New York, Locust Manor, St. Albans, and much of the Bronx, was subprime, a fact that could have implications for redevelopment in those areas if foreclosures on subprime loans continue to climb.
Most of the lending in Manhattan, northeast Queens, and the Brooklyn neighborhoods of Park Slope and Bay Ridge was by prime lenders, at low, prime interest rates. But even in those areas, some mortgages were subprimes.
Any loan that carried an interest rate more than three percentage points above the prevailing rate for longterm treasury bonds was considered a subprime mortgage. During 2006, treasury rates ranged from 4.5 to 5.3 percent. Prime mortgage interest rates averaged between 6.1 and 6.8 percent percent, according to Freddie Mac, the Federal Home Loan Mortgage Corporation.
October 15, 2007
Subprime Mortgages Concentrated in City’s Minority Neighborhoods
By Ford Fessenden
High-cost “subprime” home mortgages became widely popular in New York City, as they have across the region and the country in the last few years. New data from the federal government show that subprime loans made up 32 percent of mortgages on 1- to 4-family residences in the city in 2006, up from 28 percent in 2005. Most of these loans went to minority borrowers.
An interactive graphic by The New York Times allows users to compare neighborhoods according to the rate of subprime mortgages. In the city, subprime loans have been particularly prevalent in predominantly black and Hispanic neighborhoods, including eastern Brooklyn, southeastern Queens and the south-central Bronx.
Throughout the region, the surge in subprime lending across the region in recent years is helping to fuel a boom in foreclosures.
And now a new study by New York University’s Furman Center for Real Estate and Urban Policy, as Manny Fernandez reports in today’s Times, shows that some buyers in predominantly black and Hispanic neighborhoods in New York City were more likely to get their mortgages last year from a subprime lender than home buyers in white neighborhoods with similar income levels.
In general, even middle-class and wealthy minority home buyers have been more likely than their white counterparts to get high-cost, subprime loans, a pattern that housing activists have decried for years as evidence that prime lenders aren’t living up to their responsibilities under the Community Reinvestment Act, which requires banks to lend in areas all areas in which they do business.
The interactive map of mortgage loans by Census tract shows clearly that subprime lending was especially common in the areas of the city where minorities live. The majority of loans in places like Bushwick, East New York, Locust Manor, St. Albans, and much of the Bronx, was subprime, a fact that could have implications for redevelopment in those areas if foreclosures on subprime loans continue to climb.
Most of the lending in Manhattan, northeast Queens, and the Brooklyn neighborhoods of Park Slope and Bay Ridge was by prime lenders, at low, prime interest rates. But even in those areas, some mortgages were subprimes.
Any loan that carried an interest rate more than three percentage points above the prevailing rate for longterm treasury bonds was considered a subprime mortgage. During 2006, treasury rates ranged from 4.5 to 5.3 percent. Prime mortgage interest rates averaged between 6.1 and 6.8 percent percent, according to Freddie Mac, the Federal Home Loan Mortgage Corporation.
Friday, March 21, 2008
Fed staves off disaster, but that's not enough
http://www.mercurynews.com/opinion/ci_8635232
Editorial: Fed staves off disaster, but that's not enough
Mercury News Editorial
03/20/2008
The Federal Reserve probably staved off an economic meltdown this week, but investors on Wall Street remain jittery. Congress may have to step in to ease fears of cascading foreclosures.
On Sunday, the Fed, the nation's central banker, orchestrated the unprecedented takeover of one distressed brokerage, Bear Stearns, and announced it would make loans available to others. That prevented panic from spreading throughout the credit market. On Tuesday, the Fed dropped a key interest rate again. But the thrill on Wall Street was short; one day later, the markets gave up most of their huge one-day gains.
You don't have to be a day trader to know that better times aren't imminent. The Federal Reserve's intervention sidestepped disaster but didn't cure the ailing economy. A possibly long and nasty recession is at hand amid worries of inflation. If another big broker or bank announced huge losses, it would set off a new crisis of confidence.
Wall Street has been hypertense since last summer, when trouble in a narrow band of sub-prime mortgages overwhelmed the real estate market. Waves of foreclosures sent home values plunging nationwide, and investors who had purchased those mortgages had to write off the losses.
But contraction is unavoidable after a market binge. For years, Americans feasted off the paper wealth of home equity and easy credit detached from ability to pay. The Fed bore some blame, to the extent that it kept interest rates low and ignored signs that banks, hedge funds and investment houses were dangerously exploiting the subprime market.
Alan Greenspan, the sainted former Federal Reserve chairman, ignored signs of trouble and praised new methods of repackaging mortgages to far corners of the world. Now investors have been bitten by complex financial instruments they didn't understand or even know they held.
The Federal Reserve until now had vowed not to cover the bad bets of capitalists with public money. It crossed that line when it put together the purchase of Bear Stearns at a fire sale price. The Fed assumed responsibility for $30 billion of the worst investments that buyer JPMorgan Chase didn't want.
The downside to the unprecedented intervention is that Wall Street wizards may shrug off the lessons of failure and continue daredevil investments, confident that U.S. taxpayers will rush in with a safety net. The biggest investment houses may believe that, like Bear Stearns, they're too big to be allowed to fail. The Fed must make clear that its actions of the past week are an exception, and Congress must pass tighter regulations to prevent subprime excess and abuse.
The Fed has struggled to pump life into the failing economy in recent months through lower interest rates on money it lends to banks. But banks have resisted passing on the savings. Interest rates on credit cards and 30-year mortgages barely budged.
Congress should seriously consider loan guarantees to some of the 8 million homeowners overwhelmed by subprime loans, helping them to obtain affordable mortgages and pay off debts. Collectively, those homeowners too are too big to fail.
Editorial: Fed staves off disaster, but that's not enough
Mercury News Editorial
03/20/2008
The Federal Reserve probably staved off an economic meltdown this week, but investors on Wall Street remain jittery. Congress may have to step in to ease fears of cascading foreclosures.
On Sunday, the Fed, the nation's central banker, orchestrated the unprecedented takeover of one distressed brokerage, Bear Stearns, and announced it would make loans available to others. That prevented panic from spreading throughout the credit market. On Tuesday, the Fed dropped a key interest rate again. But the thrill on Wall Street was short; one day later, the markets gave up most of their huge one-day gains.
You don't have to be a day trader to know that better times aren't imminent. The Federal Reserve's intervention sidestepped disaster but didn't cure the ailing economy. A possibly long and nasty recession is at hand amid worries of inflation. If another big broker or bank announced huge losses, it would set off a new crisis of confidence.
Wall Street has been hypertense since last summer, when trouble in a narrow band of sub-prime mortgages overwhelmed the real estate market. Waves of foreclosures sent home values plunging nationwide, and investors who had purchased those mortgages had to write off the losses.
But contraction is unavoidable after a market binge. For years, Americans feasted off the paper wealth of home equity and easy credit detached from ability to pay. The Fed bore some blame, to the extent that it kept interest rates low and ignored signs that banks, hedge funds and investment houses were dangerously exploiting the subprime market.
Alan Greenspan, the sainted former Federal Reserve chairman, ignored signs of trouble and praised new methods of repackaging mortgages to far corners of the world. Now investors have been bitten by complex financial instruments they didn't understand or even know they held.
The Federal Reserve until now had vowed not to cover the bad bets of capitalists with public money. It crossed that line when it put together the purchase of Bear Stearns at a fire sale price. The Fed assumed responsibility for $30 billion of the worst investments that buyer JPMorgan Chase didn't want.
The downside to the unprecedented intervention is that Wall Street wizards may shrug off the lessons of failure and continue daredevil investments, confident that U.S. taxpayers will rush in with a safety net. The biggest investment houses may believe that, like Bear Stearns, they're too big to be allowed to fail. The Fed must make clear that its actions of the past week are an exception, and Congress must pass tighter regulations to prevent subprime excess and abuse.
The Fed has struggled to pump life into the failing economy in recent months through lower interest rates on money it lends to banks. But banks have resisted passing on the savings. Interest rates on credit cards and 30-year mortgages barely budged.
Congress should seriously consider loan guarantees to some of the 8 million homeowners overwhelmed by subprime loans, helping them to obtain affordable mortgages and pay off debts. Collectively, those homeowners too are too big to fail.
Banks bailed out, homeowners sinking
http://www.suntimes.com/news/jackson/847802,CST-EDT-jesse18.article
Banks bailed out, homeowners sinking
March 18, 2008
JESSE JACKSON
jjackson@rainbowpush.org
The economy is sinking. Two million homeowners are in or headed to foreclosure. One in 10 homes is "under water," worth less than its mortgage. Gas and food prices are soaring. Jobs are down; incomes have never recovered. The subprime mortgage collapse has turned into a global credit crisis.
So last week, to reassure "hard-working Americans," President Bush traveled up to Manhattan to speak to the New York Economic Club, an audience of bankers and investors terrified that the bottom is falling out of the credit markets.
Bush allowed that the economy was entering into a "rough patch," but warned against "overcorrection." He spent most of his time talking about what he opposed doing for the economy, including any effort to compel banks to renegotiate mortgages that are in trouble. For homeowners generally, no bailout was possible; we have to let the market work.
For the bankers, however, it was a different story. Bush praised the Federal Reserve and the Treasury for their "strong action" to "promote stability in our markets." He was hailing the $400 billion bailout the Fed has begun to help banks with their sinking subprime mortgage loans, including the dramatic overnight deal to save Bear Stearns, an investment house that was about to go belly up. Bear Stearns, it was decided, was simply too large to fail.
A bailout for the bankers who caused the problem, and nothing for the homeowners that are its victims? Homeowners didn't create the subprime mortgage market. They didn't create the system that rewarded brokers for making loans without any concern of whether they could be repaid or not. They didn't profit from the predatory lending scams, the hidden clauses, accelerating interest rates, etc. Buccaneer bankers and hedge-fund operators created the Ponzi scheme -- and profited from it big-time.
Both the borrowers and the lenders made the same bet -- that home prices would continue to go up. Now as they crater, both are in trouble. And the administration is saying they'll bail out the bankers but provide little beyond counseling for the homeowners. That is not right.
And it is not clear it will solve the problem. Foreclosures are driving down housing prices in neighborhoods across the country. If the water keeps coming in the bottom of the boat, then no matter how much the Federal Reserve keeps bailing out the luxury suites, the whole ship may still sink.
The cost of the Bear Stearns bailout is not disclosed. There is no word about any agreement with executives to take pay cuts or return multimillion-dollar bonuses. Once more, the Federal Reserve is sending a clear message to Wall Street. You are playing with the House's money. What you win is yours to keep; we'll cover the losses. No wonder the gambling gets more and more frenzied.
Congress needs to step up here. First, we need legislation that will enable homeowners to negotiate lower principle and payments to avoid foreclosure. Investors should have to take the loss for loans that should never have been made.
Second, it is clearly time to renovate and strengthen the rules for banks and investment houses. No bank or investment house can be too big to fail without having its activities regulated, its gambles limited, its balance sheets inspected.
After his speech, Bush went on to headline a $1.4 million, $20,000-a-plate fund-raiser for the Republican National Committee. It was held, the Washington Post reports, in a posh co-op that was completed a month before the 1929 stock market crash that ushered in the Great Depression. You couldn't make this stuff up.
Banks bailed out, homeowners sinking
March 18, 2008
JESSE JACKSON
jjackson@rainbowpush.org
The economy is sinking. Two million homeowners are in or headed to foreclosure. One in 10 homes is "under water," worth less than its mortgage. Gas and food prices are soaring. Jobs are down; incomes have never recovered. The subprime mortgage collapse has turned into a global credit crisis.
So last week, to reassure "hard-working Americans," President Bush traveled up to Manhattan to speak to the New York Economic Club, an audience of bankers and investors terrified that the bottom is falling out of the credit markets.
Bush allowed that the economy was entering into a "rough patch," but warned against "overcorrection." He spent most of his time talking about what he opposed doing for the economy, including any effort to compel banks to renegotiate mortgages that are in trouble. For homeowners generally, no bailout was possible; we have to let the market work.
For the bankers, however, it was a different story. Bush praised the Federal Reserve and the Treasury for their "strong action" to "promote stability in our markets." He was hailing the $400 billion bailout the Fed has begun to help banks with their sinking subprime mortgage loans, including the dramatic overnight deal to save Bear Stearns, an investment house that was about to go belly up. Bear Stearns, it was decided, was simply too large to fail.
A bailout for the bankers who caused the problem, and nothing for the homeowners that are its victims? Homeowners didn't create the subprime mortgage market. They didn't create the system that rewarded brokers for making loans without any concern of whether they could be repaid or not. They didn't profit from the predatory lending scams, the hidden clauses, accelerating interest rates, etc. Buccaneer bankers and hedge-fund operators created the Ponzi scheme -- and profited from it big-time.
Both the borrowers and the lenders made the same bet -- that home prices would continue to go up. Now as they crater, both are in trouble. And the administration is saying they'll bail out the bankers but provide little beyond counseling for the homeowners. That is not right.
And it is not clear it will solve the problem. Foreclosures are driving down housing prices in neighborhoods across the country. If the water keeps coming in the bottom of the boat, then no matter how much the Federal Reserve keeps bailing out the luxury suites, the whole ship may still sink.
The cost of the Bear Stearns bailout is not disclosed. There is no word about any agreement with executives to take pay cuts or return multimillion-dollar bonuses. Once more, the Federal Reserve is sending a clear message to Wall Street. You are playing with the House's money. What you win is yours to keep; we'll cover the losses. No wonder the gambling gets more and more frenzied.
Congress needs to step up here. First, we need legislation that will enable homeowners to negotiate lower principle and payments to avoid foreclosure. Investors should have to take the loss for loans that should never have been made.
Second, it is clearly time to renovate and strengthen the rules for banks and investment houses. No bank or investment house can be too big to fail without having its activities regulated, its gambles limited, its balance sheets inspected.
After his speech, Bush went on to headline a $1.4 million, $20,000-a-plate fund-raiser for the Republican National Committee. It was held, the Washington Post reports, in a posh co-op that was completed a month before the 1929 stock market crash that ushered in the Great Depression. You couldn't make this stuff up.
The History of Greenback
Robalini's Note: As the subprime crisis has brought the Federal Reserve back into the spotlight, now would be a good time to learn about Greenback, the monetary system I've long been in favor of...
http://en.wikipedia.org/wiki/United_States_Note
United States Note
From Wikipedia, the free encyclopedia
A United States Note is a fiat paper currency that was issued directly into circulation by the United States Department of the Treasury. These bills of credit were also known as Legal Tender Notes because of the inscription on each obverse face stating "This Note is a Legal Tender." They were among the first national United States currency, authorized by the Legal Tender Act of 1862 and began circulating during the American Civil War. After the death of Abraham Lincoln on 15 April 1865, additional "first charter period" (i.e. banks chartered between 1863 and 1882) National Bank Notes and Gold Certificates of 1865 were issued.
On a United States Note, the Treasury seal and the note's serial number are printed in red. United States Notes were printed in the following denominations: $1, $2, $5, $10, $20, $50, $100, $500, $1000, $5000, and $10,000.
The Treasury Department issued these notes directly into circulation, and they are obligations of the United States Government. The issuance of United States Notes is subject to limitations established by Congress. In order to stimulate the economy, the Acts of July 10, 1862 and March 3, 1863 (among other legislation) established a statutory limitation of $300 million on the amount of United States Notes authorized to be outstanding and in circulation. This currency was not backed by any deposit in any bank or government reserve, in contrast to the Gold Certificates at the time. They also do not bear interest, unlike the appropriately titled Interest Bearing Notes of 1861 to 1865. While $300 million was a significant figure in Civil War days, it is now a very small fraction of the total currency in circulation in the United States.
Despite the fact that in modern times the word "Greenback" usually refers to any United States currency, the origin of the term rests solely in these Government-issued United States Notes that have since given way to private bank-issued currency, or Federal Reserve Notes, in the United States.
The primary difference between the United States Note and the Federal Reserve Note is that a United States Note is created by the government directly as a bill of credit, and thus there is no interest for the Government to pay for the creation of that dollar. A Federal Reserve Note, on the other hand, is bank currency, and the U.S. has to pay interest on the treasury bonds that it gives the Federal Reserve System in exchange for the right to produce a like quantity of Federal Reserve Notes. This, in turn, increases the tax burden on the people. Abraham Lincoln advocated the use of United States Notes because they avoid the usury and debt multiplication aspects of debt-based currencies, and thus save the Government immense sums of interest. Thomas Jefferson also believed that the issuing power of money should rest with the US Treasury, and not the private banks. He noted in the debate over The Re-charter of the Bank Bill (1809) that, "[...]the issuing power should be taken from the banks and restored to the people to whom it properly belongs."
Other influential Americans who have advocated a government-issued currency include President Andrew Jackson, inventor Thomas Edison, inventor Peter Cooper, and American economists Henry C. Carey, Edward Kellogg, and Nobel-prize winner Milton Friedman. William Jennings Bryan is remembered as saying in his 1896 Cross of Gold speech "When we have restored the money of the Constitution, all other reform will be possible, but until this is done there is no other reform that can be accomplished."
Both United States Notes and Federal Reserve Notes are parts of the national currency of the United States and both are legal tender. They circulate as money in the same way. However, the issuing authority for them comes from different statutes. United States Notes (like the later Federal Reserve Notes) were fiat currency, in that they were never redeemable explicitly for any precious metal. During the Civil War, the banking interests did not want these notes to be a legal tender to pay the national debt, so the Senate depreciated the currency by putting an exception clause in, which allowed Government creditors to be paid in gold. Thaddeus Stevens, the Chairman of the House of Representatives Committee of Ways and Means which authored the original United States Notes bill to be a legal tender for all debts, viciously denounced the Senate's amended exception clause, calling the new bill "mischievous" because it made United States Notes an intentionally depreciated currency for the masses, while the banks who loaned to the government got "sound money" in gold. However, it appeared necessary to allow the banks the exception clause or perhaps there would have been no other way to fund the Civil War effort.
The notes were not immediately redeemable in gold. However, while the United States was on the gold standard, it was possible to redeem them for gold indirectly by exchanging them for a currency of a different obligation, for example a Gold Certificate. Whoever accepted the exchange was left with the less-trusted fiat currency. At the time United States Notes were issued, this was a serious concern, as the government sought to strike a balance between coin shortages and fiat currency. The greenback traded at a substantial discount from gold, which prompted Congress to pass the short-lived Anti-gold futures act of 1864 which was promptly repealed after it seemed to accelerate the decline of the greenback.
At the close of the Civil War, the Radical Republicans, led by Abraham Lincoln and his economic advisor Henry Charles Carey, sought to make the Greenback system permanent. In March of 1865 Carey published a series of letters to the Speaker of the House of Representatives Schuyler Colfax entitled "The Way to Outdo England Without Fighting Her". Carey called for the reserve requirements of the Nationally chartered banks to be raised to 50%, while emitting more Greenbacks to help with reconstruction. However, Lincoln was assassinated in the next month and the United States then began to move towards a gold standard and contract the supply of Greenbacks.
After the abandonment of the gold standard in 1933, all types of issued currency (silver certificates, Federal Reserve notes, and United States Notes) were redeemable only for silver. This ceased to be the case in 1963, during a time in which all U.S. currency was becoming fiat currency. At this point, the United States Notes became obsolete, and no more were issued after about 1966. Because they circulate interest-free, up to the statutory maximum of $300 million in "circulation", a series of $100 bills was printed in 1966, and comically moved from one Federal Reserve Bank to another every few weeks. These $100 notes, depending on condition, may be of significant numismatic value.
The act was repealed in 1970, and none has been placed into circulation since January 21, 1971. As is the case with all issue of the U.S. from 1861 onward, any United States Note is legal tender at its face value and may have a numismatic premium to collectors.
http://en.wikipedia.org/wiki/United_States_Note
United States Note
From Wikipedia, the free encyclopedia
A United States Note is a fiat paper currency that was issued directly into circulation by the United States Department of the Treasury. These bills of credit were also known as Legal Tender Notes because of the inscription on each obverse face stating "This Note is a Legal Tender." They were among the first national United States currency, authorized by the Legal Tender Act of 1862 and began circulating during the American Civil War. After the death of Abraham Lincoln on 15 April 1865, additional "first charter period" (i.e. banks chartered between 1863 and 1882) National Bank Notes and Gold Certificates of 1865 were issued.
On a United States Note, the Treasury seal and the note's serial number are printed in red. United States Notes were printed in the following denominations: $1, $2, $5, $10, $20, $50, $100, $500, $1000, $5000, and $10,000.
The Treasury Department issued these notes directly into circulation, and they are obligations of the United States Government. The issuance of United States Notes is subject to limitations established by Congress. In order to stimulate the economy, the Acts of July 10, 1862 and March 3, 1863 (among other legislation) established a statutory limitation of $300 million on the amount of United States Notes authorized to be outstanding and in circulation. This currency was not backed by any deposit in any bank or government reserve, in contrast to the Gold Certificates at the time. They also do not bear interest, unlike the appropriately titled Interest Bearing Notes of 1861 to 1865. While $300 million was a significant figure in Civil War days, it is now a very small fraction of the total currency in circulation in the United States.
Despite the fact that in modern times the word "Greenback" usually refers to any United States currency, the origin of the term rests solely in these Government-issued United States Notes that have since given way to private bank-issued currency, or Federal Reserve Notes, in the United States.
The primary difference between the United States Note and the Federal Reserve Note is that a United States Note is created by the government directly as a bill of credit, and thus there is no interest for the Government to pay for the creation of that dollar. A Federal Reserve Note, on the other hand, is bank currency, and the U.S. has to pay interest on the treasury bonds that it gives the Federal Reserve System in exchange for the right to produce a like quantity of Federal Reserve Notes. This, in turn, increases the tax burden on the people. Abraham Lincoln advocated the use of United States Notes because they avoid the usury and debt multiplication aspects of debt-based currencies, and thus save the Government immense sums of interest. Thomas Jefferson also believed that the issuing power of money should rest with the US Treasury, and not the private banks. He noted in the debate over The Re-charter of the Bank Bill (1809) that, "[...]the issuing power should be taken from the banks and restored to the people to whom it properly belongs."
Other influential Americans who have advocated a government-issued currency include President Andrew Jackson, inventor Thomas Edison, inventor Peter Cooper, and American economists Henry C. Carey, Edward Kellogg, and Nobel-prize winner Milton Friedman. William Jennings Bryan is remembered as saying in his 1896 Cross of Gold speech "When we have restored the money of the Constitution, all other reform will be possible, but until this is done there is no other reform that can be accomplished."
Both United States Notes and Federal Reserve Notes are parts of the national currency of the United States and both are legal tender. They circulate as money in the same way. However, the issuing authority for them comes from different statutes. United States Notes (like the later Federal Reserve Notes) were fiat currency, in that they were never redeemable explicitly for any precious metal. During the Civil War, the banking interests did not want these notes to be a legal tender to pay the national debt, so the Senate depreciated the currency by putting an exception clause in, which allowed Government creditors to be paid in gold. Thaddeus Stevens, the Chairman of the House of Representatives Committee of Ways and Means which authored the original United States Notes bill to be a legal tender for all debts, viciously denounced the Senate's amended exception clause, calling the new bill "mischievous" because it made United States Notes an intentionally depreciated currency for the masses, while the banks who loaned to the government got "sound money" in gold. However, it appeared necessary to allow the banks the exception clause or perhaps there would have been no other way to fund the Civil War effort.
The notes were not immediately redeemable in gold. However, while the United States was on the gold standard, it was possible to redeem them for gold indirectly by exchanging them for a currency of a different obligation, for example a Gold Certificate. Whoever accepted the exchange was left with the less-trusted fiat currency. At the time United States Notes were issued, this was a serious concern, as the government sought to strike a balance between coin shortages and fiat currency. The greenback traded at a substantial discount from gold, which prompted Congress to pass the short-lived Anti-gold futures act of 1864 which was promptly repealed after it seemed to accelerate the decline of the greenback.
At the close of the Civil War, the Radical Republicans, led by Abraham Lincoln and his economic advisor Henry Charles Carey, sought to make the Greenback system permanent. In March of 1865 Carey published a series of letters to the Speaker of the House of Representatives Schuyler Colfax entitled "The Way to Outdo England Without Fighting Her". Carey called for the reserve requirements of the Nationally chartered banks to be raised to 50%, while emitting more Greenbacks to help with reconstruction. However, Lincoln was assassinated in the next month and the United States then began to move towards a gold standard and contract the supply of Greenbacks.
After the abandonment of the gold standard in 1933, all types of issued currency (silver certificates, Federal Reserve notes, and United States Notes) were redeemable only for silver. This ceased to be the case in 1963, during a time in which all U.S. currency was becoming fiat currency. At this point, the United States Notes became obsolete, and no more were issued after about 1966. Because they circulate interest-free, up to the statutory maximum of $300 million in "circulation", a series of $100 bills was printed in 1966, and comically moved from one Federal Reserve Bank to another every few weeks. These $100 notes, depending on condition, may be of significant numismatic value.
The act was repealed in 1970, and none has been placed into circulation since January 21, 1971. As is the case with all issue of the U.S. from 1861 onward, any United States Note is legal tender at its face value and may have a numismatic premium to collectors.
Thursday, March 20, 2008
Sticker shock: Food prices surge
Robalini's Note: Food prices, another victim of the subprime disaster...
http://www.mercurynews.com/ci_8600334
Sticker shock: Food prices surge
FLOUR, MILK, EGGS UP 24%-PLUS IN 1 YEAR
By Mark Schwanhausser
Mercury News
03/17/2008
With food prices climbing far faster than inflation - and many staples rising at double-digit rates - some consumers are starting to ask themselves if they need to tighten their belts, both literally and figuratively.
Flour, milk and eggs are each up at least 24 percent for the year ending in February, about 10 times the inflation rate over the same period, according to the Consumer Price Index. Whole wheat bread and cheddar cheese are up 15 percent each. And chugging down a 2-liter bottle of soda will set you back 14 percent more.
Food prices on average have risen less than inflation since 1987 - and just 2.7 percent since 2000. And there was a sigh of relief Friday when the Consumer Price Index showed that increases in the overall cost of food slowed in February.
But economists worry that powerful forces are fueling higher food prices - from the cost of oil and ethanol production to the weak dollar and global demand for food products. And they're not likely to abate anytime soon.
Despite the price relief in February, "it would be hard to see food prices being anything less than 4 percent higher overall for the year," said Ephraim Leibtag, a U.S. Department of Agriculture economist.
That scenario would only compound the financial pressure on consumers as the nation slips closer to recession, layoffs mount, home values slump and banks slow the flow of credit. Rising food prices simply provide Americans with daily reminders that their food dollar isn't stretching as far.
You don't need to tell that to Mary DaRosa. Earning $17,000 a year as a school crossing guard and from three other part-time jobs, the 49-year-old San Jose woman said she shares a rented mobile home with her daughter and patiently waits for grocery sales. Rather than paying $4 for a loaf of bread, she buys four loaves when bread is marked down to 99 cents each.
Pointing to a few plastic bags in her shopping cart at a PW Market on Friday, she said, "Today, I spent 30-something dollars - and it will last me three weeks."
But other shoppers are less sensitive to prices. Unloading a shopping cart at PW that was piled high with $200.92 worth of groceries Friday, Lan Smith, 47, said she had taken little notice of rising food prices until her mother said a few months ago that she'd stopped buying eggs because they were too costly. The topic arose again when Smith and her friends were baking goods for a Second Harvest Food Bank fundraiser before the holidays. Smith said she looked for egg sales at Safeway, while friends hunted for deals at Costco and Longs Drugs.
For Smith, though, rising food prices are mostly an annoyance - especially compared with what it costs to tank up her Jeep these days.
"I don't think anything will keep me from paying for eggs when I'm paying $3.75 for gas," the San Jose woman said.
Several forces are fueling rising food prices, economists say. Not surprisingly, the main one is the price of oil. But that issue goes back before the recent spike in crude prices, which pushed a barrel of oil above $110 for the first time last week and is ratcheting up the cost to process food, transport it to distribution centers and stores, and refrigerate or heat it at the grocery.
Part of the inflationary pressure is an unintended consequence of the nation's push to develop alternative fuels, notably ethanol made from corn. Demand for corn was so strong that farmers made a dramatic shift last year to grow corn rather than other crops like soybeans. By the end of the 2006-07 crop year, 19 percent of the harvested corn crop was made into ethanol - a 30 percent increase in just one year. The increased demand for ethanol helped boost the price of a bushel of corn from $2 in 2005 to $3.40 in 2007.
The ripple effects were widespread, Leibtag said. For one thing, diverting corn to produce ethanol pushed up the price of corn that ranchers feed to livestock and poultry. But it also shrunk the supply of soybeans and other commodities, pushing prices of those staples up, too.
Then the mortgage meltdown triggered the credit crisis in August. And ever since, the Federal Reserve has been slashing interest rates and pumping money into the markets to lubricate the economy. However, those efforts have only sent the dollar plummeting in value.
That made commodities like oil more expensive - adding at least $25 to the price of a barrel of oil, according to Nick M. Bennenbroek, who heads currency strategy for Wells Fargo Bank in New York. But it also boosted the buying power of developing nations like China, which have bid up the price of agricultural products and food products.
"It's clearly not very good news for an economy that's struggling anyway," Bennenbroek said. "While we believe the dollar is cheap and doesn't have much of a way to go but up, we have delayed the liftoff for the dollar until late 2008."
Contact Mark Schwanhausser at mschwanhausser@mercurynews.com or (408) 920-5543.
http://www.mercurynews.com/ci_8600334
Sticker shock: Food prices surge
FLOUR, MILK, EGGS UP 24%-PLUS IN 1 YEAR
By Mark Schwanhausser
Mercury News
03/17/2008
With food prices climbing far faster than inflation - and many staples rising at double-digit rates - some consumers are starting to ask themselves if they need to tighten their belts, both literally and figuratively.
Flour, milk and eggs are each up at least 24 percent for the year ending in February, about 10 times the inflation rate over the same period, according to the Consumer Price Index. Whole wheat bread and cheddar cheese are up 15 percent each. And chugging down a 2-liter bottle of soda will set you back 14 percent more.
Food prices on average have risen less than inflation since 1987 - and just 2.7 percent since 2000. And there was a sigh of relief Friday when the Consumer Price Index showed that increases in the overall cost of food slowed in February.
But economists worry that powerful forces are fueling higher food prices - from the cost of oil and ethanol production to the weak dollar and global demand for food products. And they're not likely to abate anytime soon.
Despite the price relief in February, "it would be hard to see food prices being anything less than 4 percent higher overall for the year," said Ephraim Leibtag, a U.S. Department of Agriculture economist.
That scenario would only compound the financial pressure on consumers as the nation slips closer to recession, layoffs mount, home values slump and banks slow the flow of credit. Rising food prices simply provide Americans with daily reminders that their food dollar isn't stretching as far.
You don't need to tell that to Mary DaRosa. Earning $17,000 a year as a school crossing guard and from three other part-time jobs, the 49-year-old San Jose woman said she shares a rented mobile home with her daughter and patiently waits for grocery sales. Rather than paying $4 for a loaf of bread, she buys four loaves when bread is marked down to 99 cents each.
Pointing to a few plastic bags in her shopping cart at a PW Market on Friday, she said, "Today, I spent 30-something dollars - and it will last me three weeks."
But other shoppers are less sensitive to prices. Unloading a shopping cart at PW that was piled high with $200.92 worth of groceries Friday, Lan Smith, 47, said she had taken little notice of rising food prices until her mother said a few months ago that she'd stopped buying eggs because they were too costly. The topic arose again when Smith and her friends were baking goods for a Second Harvest Food Bank fundraiser before the holidays. Smith said she looked for egg sales at Safeway, while friends hunted for deals at Costco and Longs Drugs.
For Smith, though, rising food prices are mostly an annoyance - especially compared with what it costs to tank up her Jeep these days.
"I don't think anything will keep me from paying for eggs when I'm paying $3.75 for gas," the San Jose woman said.
Several forces are fueling rising food prices, economists say. Not surprisingly, the main one is the price of oil. But that issue goes back before the recent spike in crude prices, which pushed a barrel of oil above $110 for the first time last week and is ratcheting up the cost to process food, transport it to distribution centers and stores, and refrigerate or heat it at the grocery.
Part of the inflationary pressure is an unintended consequence of the nation's push to develop alternative fuels, notably ethanol made from corn. Demand for corn was so strong that farmers made a dramatic shift last year to grow corn rather than other crops like soybeans. By the end of the 2006-07 crop year, 19 percent of the harvested corn crop was made into ethanol - a 30 percent increase in just one year. The increased demand for ethanol helped boost the price of a bushel of corn from $2 in 2005 to $3.40 in 2007.
The ripple effects were widespread, Leibtag said. For one thing, diverting corn to produce ethanol pushed up the price of corn that ranchers feed to livestock and poultry. But it also shrunk the supply of soybeans and other commodities, pushing prices of those staples up, too.
Then the mortgage meltdown triggered the credit crisis in August. And ever since, the Federal Reserve has been slashing interest rates and pumping money into the markets to lubricate the economy. However, those efforts have only sent the dollar plummeting in value.
That made commodities like oil more expensive - adding at least $25 to the price of a barrel of oil, according to Nick M. Bennenbroek, who heads currency strategy for Wells Fargo Bank in New York. But it also boosted the buying power of developing nations like China, which have bid up the price of agricultural products and food products.
"It's clearly not very good news for an economy that's struggling anyway," Bennenbroek said. "While we believe the dollar is cheap and doesn't have much of a way to go but up, we have delayed the liftoff for the dollar until late 2008."
Contact Mark Schwanhausser at mschwanhausser@mercurynews.com or (408) 920-5543.
The B Word
http://www.nytimes.com/2008/03/17/opinion/17krugman.html
March 17, 2008
Op-Ed Columnist
The B Word
By PAUL KRUGMAN
O.K., here it comes: The unthinkable is about to become the inevitable.
Last week, Robert Rubin, the former Treasury secretary, and John Lipsky, a top official at the International Monetary Fund, both suggested that public funds might be needed to rescue the U.S. financial system. Mr. Lipsky insisted that he wasn’t talking about a bailout. But he was.
It’s true that Henry Paulson, the current Treasury secretary, still says that any proposal to use taxpayers’ money to help resolve the crisis is a “non-starter.” But that’s about as credible as all of his previous pronouncements on the financial situation.
So here’s the question we really should be asking: When the feds do bail out the financial system, what will they do to ensure that they aren’t also bailing out the people who got us into this mess?
Let’s talk about why a bailout is inevitable.
Between 2002 and 2007, false beliefs in the private sector — the belief that home prices only go up, that financial innovation had made risk go away, that a triple-A rating really meant that an investment was safe — led to an epidemic of bad lending. Meanwhile, false beliefs in the political arena — the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing — led Washington to ignore the warning signs.
By the way, Mr. Greenspan is still at it: accepting no blame, he continues to insist that “market flexibility and open competition” are the “most reliable safeguards against cumulative economic failure.”
The result of all that bad lending was an unholy financial mess that will cause trillions of dollars in losses. A large chunk of these losses will fall on financial institutions: commercial banks, investment banks, hedge funds and so on.
Many people say that the government should let the chips fall where they may — that those who made bad loans should simply be left to suffer the consequences. But it’s not going to happen. When push comes to shove, financial officials — rightly — aren’t willing to run the risk that losses on bad loans will cripple the financial system and take the real economy down with it.
Consider what happened last Friday, when the Federal Reserve rushed to the aid of Bear Stearns.
Nobody expects an investment bank to be a charitable institution, but Bear has a particularly nasty reputation. As Gretchen Morgenson of The New York Times reminds us, Bear “has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach.”
Bear was a major promoter of the most questionable subprime lenders. It lured customers into two of its own hedge funds that were among the first to go bust in the current crisis. And it’s a bad financial citizen: the last time the Fed tried to contain a financial crisis, after the collapse of Long-Term Capital Management in 1998, Bear refused to participate in the rescue operation.
Bear, in other words, deserved to be allowed to fail — both on the merits and to teach Wall Street not to expect someone else to clean up its messes.
But the Fed rode to Bear’s rescue anyway, fearing that the collapse of a major investment bank would cause panic in the markets and wreak havoc with the wider economy. Fed officials knew that they were doing a bad thing, but believed that the alternative would be even worse.
As Bear goes, so will go the rest of the financial system. And if history is any guide, the coming taxpayer-financed bailout will end up costing a lot of money.
The U.S. savings and loan crisis of the 1980s ended up costing taxpayers 3.2 percent of G.D.P., the equivalent of $450 billion today. Some estimates put the fiscal cost of Japan’s post-bubble cleanup at more than 20 percent of G.D.P. — the equivalent of $3 trillion for the United States.
If these numbers shock you, they should. But the big bailout is coming. The only question is how well it will be managed.
As I said, the important thing is to bail out the system, not the people who got us into this mess. That means cleaning out the shareholders in failed institutions, making bondholders take a haircut, and canceling the stock options of executives who got rich playing heads I win, tails you lose.
According to late reports on Sunday, JPMorgan Chase will buy Bear for a pittance. That’s an O.K. resolution for this case — but not a model for the much bigger bailout to come. Looking ahead, we probably need something similar to the Resolution Trust Corporation, which took over bankrupt savings and loan institutions and sold off their assets to reimburse taxpayers. And we need it quickly: things are falling apart as you read this.
March 17, 2008
Op-Ed Columnist
The B Word
By PAUL KRUGMAN
O.K., here it comes: The unthinkable is about to become the inevitable.
Last week, Robert Rubin, the former Treasury secretary, and John Lipsky, a top official at the International Monetary Fund, both suggested that public funds might be needed to rescue the U.S. financial system. Mr. Lipsky insisted that he wasn’t talking about a bailout. But he was.
It’s true that Henry Paulson, the current Treasury secretary, still says that any proposal to use taxpayers’ money to help resolve the crisis is a “non-starter.” But that’s about as credible as all of his previous pronouncements on the financial situation.
So here’s the question we really should be asking: When the feds do bail out the financial system, what will they do to ensure that they aren’t also bailing out the people who got us into this mess?
Let’s talk about why a bailout is inevitable.
Between 2002 and 2007, false beliefs in the private sector — the belief that home prices only go up, that financial innovation had made risk go away, that a triple-A rating really meant that an investment was safe — led to an epidemic of bad lending. Meanwhile, false beliefs in the political arena — the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing — led Washington to ignore the warning signs.
By the way, Mr. Greenspan is still at it: accepting no blame, he continues to insist that “market flexibility and open competition” are the “most reliable safeguards against cumulative economic failure.”
The result of all that bad lending was an unholy financial mess that will cause trillions of dollars in losses. A large chunk of these losses will fall on financial institutions: commercial banks, investment banks, hedge funds and so on.
Many people say that the government should let the chips fall where they may — that those who made bad loans should simply be left to suffer the consequences. But it’s not going to happen. When push comes to shove, financial officials — rightly — aren’t willing to run the risk that losses on bad loans will cripple the financial system and take the real economy down with it.
Consider what happened last Friday, when the Federal Reserve rushed to the aid of Bear Stearns.
Nobody expects an investment bank to be a charitable institution, but Bear has a particularly nasty reputation. As Gretchen Morgenson of The New York Times reminds us, Bear “has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach.”
Bear was a major promoter of the most questionable subprime lenders. It lured customers into two of its own hedge funds that were among the first to go bust in the current crisis. And it’s a bad financial citizen: the last time the Fed tried to contain a financial crisis, after the collapse of Long-Term Capital Management in 1998, Bear refused to participate in the rescue operation.
Bear, in other words, deserved to be allowed to fail — both on the merits and to teach Wall Street not to expect someone else to clean up its messes.
But the Fed rode to Bear’s rescue anyway, fearing that the collapse of a major investment bank would cause panic in the markets and wreak havoc with the wider economy. Fed officials knew that they were doing a bad thing, but believed that the alternative would be even worse.
As Bear goes, so will go the rest of the financial system. And if history is any guide, the coming taxpayer-financed bailout will end up costing a lot of money.
The U.S. savings and loan crisis of the 1980s ended up costing taxpayers 3.2 percent of G.D.P., the equivalent of $450 billion today. Some estimates put the fiscal cost of Japan’s post-bubble cleanup at more than 20 percent of G.D.P. — the equivalent of $3 trillion for the United States.
If these numbers shock you, they should. But the big bailout is coming. The only question is how well it will be managed.
As I said, the important thing is to bail out the system, not the people who got us into this mess. That means cleaning out the shareholders in failed institutions, making bondholders take a haircut, and canceling the stock options of executives who got rich playing heads I win, tails you lose.
According to late reports on Sunday, JPMorgan Chase will buy Bear for a pittance. That’s an O.K. resolution for this case — but not a model for the much bigger bailout to come. Looking ahead, we probably need something similar to the Resolution Trust Corporation, which took over bankrupt savings and loan institutions and sold off their assets to reimburse taxpayers. And we need it quickly: things are falling apart as you read this.
Subprime Bailout & Shrubonomics
Subprime Bailout & Shrubonomics: A Mathematical Analysis
Robert Sterling
Amount Fed plans to pour "into big Wall Street banks and investment houses and allow them to put up risky home-loan packages as collateral to borrow much-in-demand Treasury securities," according to following AP story: $200 billion
Amount Fed also has offered "in short-term loans to banks and large financial institutions": $200 billion
Total amount of the Fed bailout: $400 billion
Number of families at the brink of foreclosure due to predatory subprime loans that should have been illegal: 2 million
$400 billion divided by 2 million: $200,000
Do you think giving 2 million working class families $200K each in financial aid backed by their property couldn't solve the current crisis? Oh, sorry, that would just mean stupid people making bad business decisions would be rewarded...
*
http://ap.google.com/article/ALeqM5jC0Js_XMSCt-GDAijc3qIbjuVZIAD8VETFI00
Fed Takes New Steps to Ease Crisis
By JEANNINE AVERSA
3-16-8
WASHINGTON (AP) — The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.
The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created a lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms on Monday.
"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.
The Fed acted just after JP Morgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world's largest and most venerable investment banks. Just on Friday the Fed had raced to provide emergency financing to cash-strapped Bear Stearns through JP Morgan. Days earlier the Fed announced a set of other unconventional steps to thaw out a credit market in danger of freezing shut.
"It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown," Richard Yamarone, an economist at Argus Research, said Sunday evening.
On world financial markets, Asian stocks plunged early Monday after the JPMorgan and Fed announcements. Markets in Australia and New Zealand also fell.
The new lending facility — described as a cousin to the Fed's emergency lending "discount window" for banks — is geared to give major investment houses a source of short-term cash on a regular basis — if they need it.
It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral — including investment-grade mortgage backed securities — will be accepted to back the overnight loans.
Treasury Secretary Henry Paulson said he was pleased by Sunday's developments.
"Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets," he said.
"We appreciate the actions taken by the Federal Reserve this evening," said White House press secretary Dana Perino. "Secretary Paulson and Chairman Bernanke are actively engaged in addressing issues affecting our financial markets. Secretary Paulson has kept the president briefed on recent developments."
The "discount" rate cut announced Sunday applies only to the short-term loans that financial institutions get directly from the Federal Reserve. It doesn't apply to individual borrowers.
The Fed's actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street. And, the action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered. That key rate is now at 3 percent and is expected to be cut by at least one-half percentage point on Tuesday. Analysts said the Fed's new steps may lessen pressure for a super-sized cut to that rate.
The Fed said in a statement that the steps are "designed to bolster market liquidity and promote orderly market functioning ... essential for the promotion of economic growth."
Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating. An increasing number of economists believe the country already has slipped into its first recession since 2001. Many economists think that the economy is shrinking now in the January-to-March quarter. The first government figures on first-quarter economic activity will be released in late April.
The Fed on Sunday also approved the financing arrangement through which JPMorgan will acquire Bear Stearns. JP Morgan said the Fed will provide special financing for the deal. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets, according to JP Morgan.
The housing collapse and credit crisis has dealt a one-two punch against financial companies and the economy as a whole. Financial institutions have racked up multibillion-dollar losses when mortgage-backed investments soured. Foreclosures have hit record highs as distressed borrowers — hit by slumping home prices and higher mortgage rates — couldn't make their monthly payments. It has become a vicious cycle.
The Fed this past week said it would pour as much as $200 billion into big Wall Street banks and investment houses and allow them to put up risky home-loan packages as collateral to borrow much-in-demand Treasury securities. This maneuver — slated to start on March 27 — was intended to bring sorely needed relief in the market for mortgage securities. The Fed also has offered as much as $200 billion in short-term loans to banks and large financial institutions.
AP Business writers Joe Bel Bruno and Madlen Read contributed to this report from New York.
Robert Sterling
Amount Fed plans to pour "into big Wall Street banks and investment houses and allow them to put up risky home-loan packages as collateral to borrow much-in-demand Treasury securities," according to following AP story: $200 billion
Amount Fed also has offered "in short-term loans to banks and large financial institutions": $200 billion
Total amount of the Fed bailout: $400 billion
Number of families at the brink of foreclosure due to predatory subprime loans that should have been illegal: 2 million
$400 billion divided by 2 million: $200,000
Do you think giving 2 million working class families $200K each in financial aid backed by their property couldn't solve the current crisis? Oh, sorry, that would just mean stupid people making bad business decisions would be rewarded...
*
http://ap.google.com/article/ALeqM5jC0Js_XMSCt-GDAijc3qIbjuVZIAD8VETFI00
Fed Takes New Steps to Ease Crisis
By JEANNINE AVERSA
3-16-8
WASHINGTON (AP) — The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.
The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created a lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms on Monday.
"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.
The Fed acted just after JP Morgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world's largest and most venerable investment banks. Just on Friday the Fed had raced to provide emergency financing to cash-strapped Bear Stearns through JP Morgan. Days earlier the Fed announced a set of other unconventional steps to thaw out a credit market in danger of freezing shut.
"It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown," Richard Yamarone, an economist at Argus Research, said Sunday evening.
On world financial markets, Asian stocks plunged early Monday after the JPMorgan and Fed announcements. Markets in Australia and New Zealand also fell.
The new lending facility — described as a cousin to the Fed's emergency lending "discount window" for banks — is geared to give major investment houses a source of short-term cash on a regular basis — if they need it.
It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral — including investment-grade mortgage backed securities — will be accepted to back the overnight loans.
Treasury Secretary Henry Paulson said he was pleased by Sunday's developments.
"Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets," he said.
"We appreciate the actions taken by the Federal Reserve this evening," said White House press secretary Dana Perino. "Secretary Paulson and Chairman Bernanke are actively engaged in addressing issues affecting our financial markets. Secretary Paulson has kept the president briefed on recent developments."
The "discount" rate cut announced Sunday applies only to the short-term loans that financial institutions get directly from the Federal Reserve. It doesn't apply to individual borrowers.
The Fed's actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street. And, the action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered. That key rate is now at 3 percent and is expected to be cut by at least one-half percentage point on Tuesday. Analysts said the Fed's new steps may lessen pressure for a super-sized cut to that rate.
The Fed said in a statement that the steps are "designed to bolster market liquidity and promote orderly market functioning ... essential for the promotion of economic growth."
Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating. An increasing number of economists believe the country already has slipped into its first recession since 2001. Many economists think that the economy is shrinking now in the January-to-March quarter. The first government figures on first-quarter economic activity will be released in late April.
The Fed on Sunday also approved the financing arrangement through which JPMorgan will acquire Bear Stearns. JP Morgan said the Fed will provide special financing for the deal. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets, according to JP Morgan.
The housing collapse and credit crisis has dealt a one-two punch against financial companies and the economy as a whole. Financial institutions have racked up multibillion-dollar losses when mortgage-backed investments soured. Foreclosures have hit record highs as distressed borrowers — hit by slumping home prices and higher mortgage rates — couldn't make their monthly payments. It has become a vicious cycle.
The Fed this past week said it would pour as much as $200 billion into big Wall Street banks and investment houses and allow them to put up risky home-loan packages as collateral to borrow much-in-demand Treasury securities. This maneuver — slated to start on March 27 — was intended to bring sorely needed relief in the market for mortgage securities. The Fed also has offered as much as $200 billion in short-term loans to banks and large financial institutions.
AP Business writers Joe Bel Bruno and Madlen Read contributed to this report from New York.
Tuesday, March 18, 2008
How to end the subprime crisis
http://onlinejournal.com/artman/publish/article_3054.shtml
How to end the subprime crisis
By Paul Craig Roberts
Mar 12, 2008
Reforms often do more harm than good. This is currently the case with the "mark-to-market" rule, which is imploding the US financial system by requiring financial institutions to value subprime mortgages at their current market values.
This makes a big problem for balance sheets. These financial instruments became troubled prior to a market being established for them, as they were marketed direct from issuers to investors. Now that they are troubled and with their true values unknown, no one wants them. Their lack of liquidity assigns them a low value.
The result is tremendous pressure on balance sheets. The plummeting value of subprime derivatives is pushing institutions that own them into insolvency, destroying their own stock values and forcing the financial institutions to sell untroubled liquid assets, thus resulting in an overall decline in the stock market.
The solution is to suspend the mark-to-market rule. Instead, allow financial institutions to keep the troubled instruments at book value, or 85-90 percent of book value, until a market forms that can sort out values, and allow financial institutions to write down the subprime mortgages and other troubled instruments over time.
Suspending the mark-to-market rule would take pressure off the stock market and make it unnecessary for the Fed to lower interest rates in an effort to force liquidity into the economy through an impaired banking system. The problem is not a general lack of liquidity, but liquidity for poorly conceived new financial instruments. Low US interest rates could worsen the crisis by accelerating the dollar’s decline. Now that inflation has raised its head, more liquidity from the Fed adds to the economic distress.
It is mindless to allow a "reform" to cause a financial crisis, but that is what is happening. Unfortunately, there are people who argue that anything less than financial Armageddon would create a "moral hazard."
It is certainly true that securitized subprime mortgage instruments were a bad idea, that a lot of people who should have known better opened floodgates to greed and fraud, and that "somebody should pay." But it shouldn’t be the general public and the economy that pays.
It is also true that without the Federal Reserve’s irresponsible low interest rate monetary policy, which produced a housing boom, the subprime instruments would not have been created, or at least not in such amounts. Rapidly rising real estate prices were expected to make the risky loans good. What were issuers and the Federal Reserve thinking?
No doubt but that greed, fraud, and bad policy all played their roles. But at the heart of the problem is a 1999 "reform" that repealed an earlier reform known as the Glass-Steagall Act.
In 1933 the Glass-Steagall Act separated commercial banking from the securities business. It prevented securities speculation from destroying bank capital and shrinking bank deposits from bank failures and runs on banks by depositors. Congress and President Bill Clinton foolishly repealed the Glass-Steagall Act in 1999.
The repeal of the 1933 law was driven by profit lust in the banking industry and by "free market" ideology, which claims the unfettered marketplace is always superior to regulation. In pushing the repeal forward, Congress and Clinton ignored warnings from the General Accounting Office that the banks needed to build up their capital levels before being permitted to enter a broad range of securities businesses. The GAO also noted that there were no regulatory structures in place to monitor the new financial networks that would result from removing the wall between commercial and investment banking.
However, greed and ideology won over sound advice. The result is a crisis that, if mishandled, will be calamitous.
Paul Craig Roberts was Assistant Secretary of the Treasury during President Reagan’s first term. He was Associate Editor of the Wall Street Journal. He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy, and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice.
How to end the subprime crisis
By Paul Craig Roberts
Mar 12, 2008
Reforms often do more harm than good. This is currently the case with the "mark-to-market" rule, which is imploding the US financial system by requiring financial institutions to value subprime mortgages at their current market values.
This makes a big problem for balance sheets. These financial instruments became troubled prior to a market being established for them, as they were marketed direct from issuers to investors. Now that they are troubled and with their true values unknown, no one wants them. Their lack of liquidity assigns them a low value.
The result is tremendous pressure on balance sheets. The plummeting value of subprime derivatives is pushing institutions that own them into insolvency, destroying their own stock values and forcing the financial institutions to sell untroubled liquid assets, thus resulting in an overall decline in the stock market.
The solution is to suspend the mark-to-market rule. Instead, allow financial institutions to keep the troubled instruments at book value, or 85-90 percent of book value, until a market forms that can sort out values, and allow financial institutions to write down the subprime mortgages and other troubled instruments over time.
Suspending the mark-to-market rule would take pressure off the stock market and make it unnecessary for the Fed to lower interest rates in an effort to force liquidity into the economy through an impaired banking system. The problem is not a general lack of liquidity, but liquidity for poorly conceived new financial instruments. Low US interest rates could worsen the crisis by accelerating the dollar’s decline. Now that inflation has raised its head, more liquidity from the Fed adds to the economic distress.
It is mindless to allow a "reform" to cause a financial crisis, but that is what is happening. Unfortunately, there are people who argue that anything less than financial Armageddon would create a "moral hazard."
It is certainly true that securitized subprime mortgage instruments were a bad idea, that a lot of people who should have known better opened floodgates to greed and fraud, and that "somebody should pay." But it shouldn’t be the general public and the economy that pays.
It is also true that without the Federal Reserve’s irresponsible low interest rate monetary policy, which produced a housing boom, the subprime instruments would not have been created, or at least not in such amounts. Rapidly rising real estate prices were expected to make the risky loans good. What were issuers and the Federal Reserve thinking?
No doubt but that greed, fraud, and bad policy all played their roles. But at the heart of the problem is a 1999 "reform" that repealed an earlier reform known as the Glass-Steagall Act.
In 1933 the Glass-Steagall Act separated commercial banking from the securities business. It prevented securities speculation from destroying bank capital and shrinking bank deposits from bank failures and runs on banks by depositors. Congress and President Bill Clinton foolishly repealed the Glass-Steagall Act in 1999.
The repeal of the 1933 law was driven by profit lust in the banking industry and by "free market" ideology, which claims the unfettered marketplace is always superior to regulation. In pushing the repeal forward, Congress and Clinton ignored warnings from the General Accounting Office that the banks needed to build up their capital levels before being permitted to enter a broad range of securities businesses. The GAO also noted that there were no regulatory structures in place to monitor the new financial networks that would result from removing the wall between commercial and investment banking.
However, greed and ideology won over sound advice. The result is a crisis that, if mishandled, will be calamitous.
Paul Craig Roberts was Assistant Secretary of the Treasury during President Reagan’s first term. He was Associate Editor of the Wall Street Journal. He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy, and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice.
Friday, February 22, 2008
Subprime Obama
http://www.thenation.com/doc/20080211/fraser
Subprime Obama
by MAX FRASER
[from the February 11, 2008 issue]
Last year, forty-three states reported increased home foreclosure rates. Nevada led the way for eleven consecutive months; in Clark County, which includes Las Vegas, nearly one in twenty homes is in foreclosure. Whole blocks have been foreclosed in Chicago. Nationwide, rates are nearing Depression-era highs--ravaging working- and middle-class neighborhoods that fell prey to the soft sell and outright chicanery of predatory lenders in the heyday of the housing boom. These lenders have targeted the most vulnerable--black and Latino borrowers have been twice as likely to receive subprime loans as whites; female homeowners, 30 percent more likely than male; black women, five times more likely than white men.
As the subprime mortgage debacle drives a recession that threatens financial markets around the world, the Democratic presidential candidates are pushing plans to address the crisis. John Edwards and Hillary Clinton are pledging substantial federal resources to stabilize the mortgage market and intervene on behalf of borrowers. Barack Obama's proposal is tepid by comparison, short on aggressive government involvement and infused with conservative rhetoric about fiscal responsibility. As he has done on domestic issues like healthcare, job creation and energy policy, Obama is staking out a position to the right of not only populist Edwards but Clinton as well.
Edwards's plan includes a mandatory moratorium on foreclosures, a freeze on rising interest rates for at least seven years, federal subsidies to help homeowners keep up with payments and restructure loans, and explicit measures to rein in predatory lenders and regulate the financial sector. Clinton's plan is weaker--a voluntary moratorium, a shorter freeze, less commitment to new regulations--but she has promised $30 billion in federal aid to help reeling homeowners and communities.
Only Obama has not called for a moratorium and interest-rate freeze. Though he has been a proponent of mortgage fraud legislation in the Senate, he has remained silent on further financial regulations. And much like his broader economic stimulus package, Obama's foreclosure plan mostly avoids direct government spending in favor of a tax credit for homeowners, which amounts to about $500 on average, beyond which only certain borrowers would be eligible for help from an additional fund.
"One advantage to the tax credit is that there's no moral hazard involved," one of Obama's economic advisers explains. "There's no sense in which you're rewarding someone for taking too big a risk. If you lied about your income in order to get a bigger mortgage, then you're not qualified. Do you really want to give a subsidy to the guy who wasn't prudent?" Obama has used similar language on the campaign trail. "Innocent homeowners," he has promised, those "responsible" borrowers "facing foreclosure through no fault of their own," would get help restructuring their loans. But no such luck for those "claiming income they didn't have" or "lying to get mortgages."
"There's been less emphasis from the Obama campaign on the really dysfunctional role of the financial industry in the subprime mess," says Josh Bivens of the Economic Policy Institute. "Edwards and Clinton talk much more about regulation of the financial industry going forward, and to the extent that blame is placed, they tend to place it on the lenders for steering people into loans they couldn't afford."
Obama's disappointing foreclosure plan stems from the centrist politics of his three chief economic advisers and his campaign's ties to Wall Street institutions opposed to increased financial regulation. David Cutler and Jeffrey Liebman are both Harvard economists who served in the Clinton Administration, and they work on market-oriented solutions to social welfare issues. Cutler advocates improving healthcare through financial incentives; Liebman, the partial privatization of Social Security.
Austan Goolsbee, an economist at the University of Chicago who calls himself a "centrist market economist," has been most directly involved with crafting Obama's subprime agenda. In a column last March in the New York Times, Goolsbee disputed whether "subprime lending was the leading cause of foreclosure problems," touted its benefits for credit-poor minority borrowers and warned that "regulators should be mindful of the potential downside in tightening [the mortgage market] too much." In October, no less a conservative luminary than George Will devoted a whole column in the Washington Post to saluting Goolsbee's "nuanced understanding" of traditional Democratic issues like globalization and income inequality and concluded that he "seems to be the sort of fellow--amiable, empirical, and reasonable--you would want at the elbow of a Democratic president, if such there must be."
Robert Pollin, an economist at the University of Massachussets, believes "these three advisers generally reflect Obama's very moderate economic program, similar to Clintonism." Wall Street apparently has come to a similar conclusion. Obama had received nearly $10 million in contributions from the finance, insurance and real estate sector through October, and he's second among presidential candidates of either party in money raised from commercial banks, trailing only Clinton. Goldman Sachs, which made $6 billion from devalued mortgage securities in the first nine months of 2007, is Obama's top contributor. When asked if Obama would hold these financial institutions accountable for losses incurred by homeowners and investors, his campaign refused to comment.
But tax credits and continued deregulation won't solve the mortgage crisis, which threatens to dispossess more than 2 million homeowners this year. "There's no evidence that an unregulated market is going to be a stable market," Pollin says. "The unstable mortgage market is one indication of that. This is not anything new. What is new is that you have a serious presidential candidate who isn't really talking about it and doesn't have advisers that are prepared to deal with it."
If Obama is serious about his community organizing roots, then he would do well to take a lesson from groups like the Rainbow/PUSH Coalition and ACORN, which are calling for a moratorium on foreclosures of a year or longer and for the creation of a massive government loan agency on the scale of the Reconstruction Finance Corporation of the 1930s. "We need some serious federal government intervention to restructure loans, not repossess homes," says the Rev. Jesse Jackson. "Because it's not just the borrowers anymore, it's the economy itself. We're in for a very difficult economic season."
Subprime Obama
by MAX FRASER
[from the February 11, 2008 issue]
Last year, forty-three states reported increased home foreclosure rates. Nevada led the way for eleven consecutive months; in Clark County, which includes Las Vegas, nearly one in twenty homes is in foreclosure. Whole blocks have been foreclosed in Chicago. Nationwide, rates are nearing Depression-era highs--ravaging working- and middle-class neighborhoods that fell prey to the soft sell and outright chicanery of predatory lenders in the heyday of the housing boom. These lenders have targeted the most vulnerable--black and Latino borrowers have been twice as likely to receive subprime loans as whites; female homeowners, 30 percent more likely than male; black women, five times more likely than white men.
As the subprime mortgage debacle drives a recession that threatens financial markets around the world, the Democratic presidential candidates are pushing plans to address the crisis. John Edwards and Hillary Clinton are pledging substantial federal resources to stabilize the mortgage market and intervene on behalf of borrowers. Barack Obama's proposal is tepid by comparison, short on aggressive government involvement and infused with conservative rhetoric about fiscal responsibility. As he has done on domestic issues like healthcare, job creation and energy policy, Obama is staking out a position to the right of not only populist Edwards but Clinton as well.
Edwards's plan includes a mandatory moratorium on foreclosures, a freeze on rising interest rates for at least seven years, federal subsidies to help homeowners keep up with payments and restructure loans, and explicit measures to rein in predatory lenders and regulate the financial sector. Clinton's plan is weaker--a voluntary moratorium, a shorter freeze, less commitment to new regulations--but she has promised $30 billion in federal aid to help reeling homeowners and communities.
Only Obama has not called for a moratorium and interest-rate freeze. Though he has been a proponent of mortgage fraud legislation in the Senate, he has remained silent on further financial regulations. And much like his broader economic stimulus package, Obama's foreclosure plan mostly avoids direct government spending in favor of a tax credit for homeowners, which amounts to about $500 on average, beyond which only certain borrowers would be eligible for help from an additional fund.
"One advantage to the tax credit is that there's no moral hazard involved," one of Obama's economic advisers explains. "There's no sense in which you're rewarding someone for taking too big a risk. If you lied about your income in order to get a bigger mortgage, then you're not qualified. Do you really want to give a subsidy to the guy who wasn't prudent?" Obama has used similar language on the campaign trail. "Innocent homeowners," he has promised, those "responsible" borrowers "facing foreclosure through no fault of their own," would get help restructuring their loans. But no such luck for those "claiming income they didn't have" or "lying to get mortgages."
"There's been less emphasis from the Obama campaign on the really dysfunctional role of the financial industry in the subprime mess," says Josh Bivens of the Economic Policy Institute. "Edwards and Clinton talk much more about regulation of the financial industry going forward, and to the extent that blame is placed, they tend to place it on the lenders for steering people into loans they couldn't afford."
Obama's disappointing foreclosure plan stems from the centrist politics of his three chief economic advisers and his campaign's ties to Wall Street institutions opposed to increased financial regulation. David Cutler and Jeffrey Liebman are both Harvard economists who served in the Clinton Administration, and they work on market-oriented solutions to social welfare issues. Cutler advocates improving healthcare through financial incentives; Liebman, the partial privatization of Social Security.
Austan Goolsbee, an economist at the University of Chicago who calls himself a "centrist market economist," has been most directly involved with crafting Obama's subprime agenda. In a column last March in the New York Times, Goolsbee disputed whether "subprime lending was the leading cause of foreclosure problems," touted its benefits for credit-poor minority borrowers and warned that "regulators should be mindful of the potential downside in tightening [the mortgage market] too much." In October, no less a conservative luminary than George Will devoted a whole column in the Washington Post to saluting Goolsbee's "nuanced understanding" of traditional Democratic issues like globalization and income inequality and concluded that he "seems to be the sort of fellow--amiable, empirical, and reasonable--you would want at the elbow of a Democratic president, if such there must be."
Robert Pollin, an economist at the University of Massachussets, believes "these three advisers generally reflect Obama's very moderate economic program, similar to Clintonism." Wall Street apparently has come to a similar conclusion. Obama had received nearly $10 million in contributions from the finance, insurance and real estate sector through October, and he's second among presidential candidates of either party in money raised from commercial banks, trailing only Clinton. Goldman Sachs, which made $6 billion from devalued mortgage securities in the first nine months of 2007, is Obama's top contributor. When asked if Obama would hold these financial institutions accountable for losses incurred by homeowners and investors, his campaign refused to comment.
But tax credits and continued deregulation won't solve the mortgage crisis, which threatens to dispossess more than 2 million homeowners this year. "There's no evidence that an unregulated market is going to be a stable market," Pollin says. "The unstable mortgage market is one indication of that. This is not anything new. What is new is that you have a serious presidential candidate who isn't really talking about it and doesn't have advisers that are prepared to deal with it."
If Obama is serious about his community organizing roots, then he would do well to take a lesson from groups like the Rainbow/PUSH Coalition and ACORN, which are calling for a moratorium on foreclosures of a year or longer and for the creation of a massive government loan agency on the scale of the Reconstruction Finance Corporation of the 1930s. "We need some serious federal government intervention to restructure loans, not repossess homes," says the Rev. Jesse Jackson. "Because it's not just the borrowers anymore, it's the economy itself. We're in for a very difficult economic season."
Saturday, January 12, 2008
`Subprime' is linguists' word of year
http://news.yahoo.com/s/ap/20080105/ap_on_re_us/word_of_the_year
`Subprime' is linguists' word of year
By SOPHIA TAREEN, Associated Press Writer
Sat Jan 5, 2007
Even the American Dialect Society knows how risky home mortgages are these days. The group of wordsmiths chose "subprime" as 2007's Word of the Year at its annual convention Friday.
"`Subprime' has been around with bankers for awhile, but now everyone is talking about `subprime,'" said Wayne Glowka, a spokesman for the group and a dean at Reinhardt College in Waleska, Ga. "It's affecting all kinds of people in all kinds of places."
About 80 members of the organization spent two days debating the merits of runners-up "Facebook," "green," "Googleganger" and "waterboarding" before voting for an adjective that means "a risky or less than ideal loan, mortgage or investment."
The choice signifies the public's concern for a "deepening mortgage crisis," the society said in a statement.
"Facebook," as a noun, verb or adjective, was popular with younger linguists, Glowka said.
Several people lobbied for "green," which "designates environmental concern," but the term has been around for years, he said. The word topped the 2007 "Most Useful" category, one of numerous subgroups the society choses.
The group also decided that although "waterboarding," an interrogation technique that simulates drowning, gained a lot of attention during recent attorney general confirmation hearings, it was a bigger deal in 2004, Glowka said.
But what's a "Googleganger?"
A play on "doppelganger," the word is "a person with your name who shows up when you Google yourself," according to the society.
Glowka said he assessed many Google-related words.
"Just Google `Google' and you'll turn them up," he said. The ghostly double of a word won the 2007 "Most Creative" designation.
As for "subprime," Glowka said it is an odd word — at least as far as linguists are concerned.
The prefix "sub" translates roughly to "below the standard," while "prime" means something close to "the best."
So, according to Glowka, the word really means "far below the best."
"People were saying that students were referring to their tests, `I'm going to subprime this; I'm going to mess it up,'" he said.
The American Dialect Society, founded in 1889, comprises linguists, grammarians, historians and scholars, among others. The society began choosing words of the year in 1990 for fun, not in an official capacity to induct words into the English language.
In 2006, the organization chose "plutoed," which means "to be demoted or devalued."
___
On the Net:
American Dialect Society: http://www.americandialect.org
`Subprime' is linguists' word of year
By SOPHIA TAREEN, Associated Press Writer
Sat Jan 5, 2007
Even the American Dialect Society knows how risky home mortgages are these days. The group of wordsmiths chose "subprime" as 2007's Word of the Year at its annual convention Friday.
"`Subprime' has been around with bankers for awhile, but now everyone is talking about `subprime,'" said Wayne Glowka, a spokesman for the group and a dean at Reinhardt College in Waleska, Ga. "It's affecting all kinds of people in all kinds of places."
About 80 members of the organization spent two days debating the merits of runners-up "Facebook," "green," "Googleganger" and "waterboarding" before voting for an adjective that means "a risky or less than ideal loan, mortgage or investment."
The choice signifies the public's concern for a "deepening mortgage crisis," the society said in a statement.
"Facebook," as a noun, verb or adjective, was popular with younger linguists, Glowka said.
Several people lobbied for "green," which "designates environmental concern," but the term has been around for years, he said. The word topped the 2007 "Most Useful" category, one of numerous subgroups the society choses.
The group also decided that although "waterboarding," an interrogation technique that simulates drowning, gained a lot of attention during recent attorney general confirmation hearings, it was a bigger deal in 2004, Glowka said.
But what's a "Googleganger?"
A play on "doppelganger," the word is "a person with your name who shows up when you Google yourself," according to the society.
Glowka said he assessed many Google-related words.
"Just Google `Google' and you'll turn them up," he said. The ghostly double of a word won the 2007 "Most Creative" designation.
As for "subprime," Glowka said it is an odd word — at least as far as linguists are concerned.
The prefix "sub" translates roughly to "below the standard," while "prime" means something close to "the best."
So, according to Glowka, the word really means "far below the best."
"People were saying that students were referring to their tests, `I'm going to subprime this; I'm going to mess it up,'" he said.
The American Dialect Society, founded in 1889, comprises linguists, grammarians, historians and scholars, among others. The society began choosing words of the year in 1990 for fun, not in an official capacity to induct words into the English language.
In 2006, the organization chose "plutoed," which means "to be demoted or devalued."
___
On the Net:
American Dialect Society: http://www.americandialect.org
Tuesday, January 8, 2008
New Year, New Scams
http://money.aol.com/special/best-and-worst-2007/winners
New Year, New Scams
By ALEKSANDRA TODOROVA
It's been a tough year for consumers. With housing prices falling and the subprime-mortgage mess raging on, we won't blame you if you're looking forward to a fresh start in 2008.
Better watch out: The financial woes and natural disasters of 2007 have armed scammers with plenty of new tricks -- or resourceful spins on old ones -- aimed at separating you from your cash. Here the five most treacherous scams to watch out for in 2008.
1. Fake foreclosure rescue
As foreclosures plague communities throughout the country, scammers are jumping at the opportunity to squeeze money out of troubled homeowners. The problem has become so widespread in some states, like Nevada, that the attorney general's office recently issued an official warning that homeowners anywhere in the country should consider.
The most common foreclosure rescue scam entails approaching homeowners in default — notices of default are public record, easily accessible at the county clerk's office or local court — with an offer to help them avoid foreclosure by negotiating with their lender. Some even offer to lend them the money needed to become current on the mortgage. The problem: They charge hefty upfront fees, do nothing in return and the property is foreclosed anyway. Minnesota's attorney general recently filed suit against two out-of-state companies — Florida-based Foreclosure Assistance Solutions and Nevada-based American Housing Authority — for allegedly charging $1,200 and $1,395 fees upfront, respectively, and delivering no services in return.
Many homeowners are afraid of contacting their lender when they fall behind on mortgage payments, explains Mark Huffman, an editor at consumer web site ConsumerAffairs.com. In reality, it is in their best interest to contact the lender at first sign of mortgage trouble — even if they haven't fallen behind on payments yet. Some homeowners may be eligible for a rate freeze under the Bush administration's new plan to help subprime-mortgage holders. Even those not eligible could negotiate another solution with the help of the Hope Now alliance, a group that brings together housing counseling agencies, lenders and mortgage servicers. Call them at 1-888-995-HOPE. Foreclosure assistance received from legitimate sources should be free of charge.
2. Foreclosure rental scams
Even more perilous is a scheme to trick homeowners threatened by foreclosure into signing over the title to their home. The scammers typically target those who have some home equity left, with the goal to pocket that equity and disappear.
How it works: The scammers approach you with an offer to buy your house for the total amount you owe, plus a small amount of cash. You can then continue to rent the home, with the idea of buying it back later when your financial circumstances improve. The problem is, as soon as you sign over the deed to the house the new "owner" stops making the payments and collects your rent until the house is foreclosed. They may also refinance the property to take whatever equity is left. Eventually, the home goes into foreclosure and the tenants are evicted.
The only protection against this scam is vigilance. "The chances of someone good knocking on your door offering to help you save your house is very slim," says Ralph Roberts, author of "Protect Yourself From Real Estate and Mortgage Fraud."
3. Disaster-related schemes
Floods in the Northwest, wildfires in California. Scams proliferate whenever and wherever a disaster hits.
Residents in the affected zones should be particularly wary of offers for cheap home repair and clean-up. Earlier this month, the Washington State attorney general issued a warning against such scams, cautioning residents that the con artists typically demand payment upfront and "never do the work, do a shady job or require additional money once the job starts." To protect yourself, be sure to check up on your contractor: They must be registered with the state's department of labor and carry liability insurance coverage.
Even more treacherous are scammers who prey on people's goodwill, soliciting donations for charitable organizations that don't exist — or aren't really charitable. "If there's something in the news that's on people's minds and is likely to have them open up their wallets, scammers will make a pitch," says Nat Wood, assistant director for consumer and business education at the Federal Trade Commission. "But while giving in times of crisis is great, people should give to legitimate charities." To make sure your money is going to the right place, check that your solicitor is from a registered 501(c)(3) tax-exempt organization. A good place to verify that a nonprofit is legitimate is GuideStar.org.
4. Aggressive car warranty pitches
Senior citizens are often targeted by scammers and the extended car warranty scam is one of their latest tricks. It typically starts with the victim receiving a letter, postcard or prerecorded phone call informing them that their car warranty has expired and they have to purchase a new one. After an aggressive sales pitch, the victim agrees to buy an expensive extended warranty that they don't really need. Alternatively, the scammers could be simply "phishing" for personal information, such as the victim's Social Security number, address and date of birth, which can later be used for identity theft.
Several weeks ago, North Carolina's attorney general issued a warning against the scam after receiving an average of 30 calls a week from targeted consumers. Consumers should always verify mailings that appear to come from their car manufacturer with the manufacturer itself, and should never give out personal information over the phone. (Keep in mind, extended warranties — even if offered legitimately — are rarely necessary.
5. "Red Cross" military scams
A particularly repulsive twist on the "phishing" scam (where the victim is tricked into giving out personal information later used by identity thieves) is one targeting military spouses.
How it works: Someone claiming to be with the American Red Cross calls a military spouse to inform her that her husband has been hurt while on duty in Iraq and has been transported to a hospital in Germany. To complete the necessary paperwork and proceed with treatment, the caller asks for verification of the husband's Social Security number and date of birth. The information is then used by identity thieves to obtain credit in the victim's name.
Military spouses beware: In a statement issued earlier this year, the Red Cross said its representatives do not contact military members or dependents directly, but rather do that through a commander or first sergeant. Meanwhile, pretending to be a member of the American Red Cross is a federal crime, punishable by up to five years in prison.
Frightened as you might be by a phone call about your spouse, be sure you are speaking with legitimate sources. "Scammers are very ingenious, and although they sound nice and interested, they can be heartless as well," says the FTC's Wood.
New Year, New Scams
By ALEKSANDRA TODOROVA
It's been a tough year for consumers. With housing prices falling and the subprime-mortgage mess raging on, we won't blame you if you're looking forward to a fresh start in 2008.
Better watch out: The financial woes and natural disasters of 2007 have armed scammers with plenty of new tricks -- or resourceful spins on old ones -- aimed at separating you from your cash. Here the five most treacherous scams to watch out for in 2008.
1. Fake foreclosure rescue
As foreclosures plague communities throughout the country, scammers are jumping at the opportunity to squeeze money out of troubled homeowners. The problem has become so widespread in some states, like Nevada, that the attorney general's office recently issued an official warning that homeowners anywhere in the country should consider.
The most common foreclosure rescue scam entails approaching homeowners in default — notices of default are public record, easily accessible at the county clerk's office or local court — with an offer to help them avoid foreclosure by negotiating with their lender. Some even offer to lend them the money needed to become current on the mortgage. The problem: They charge hefty upfront fees, do nothing in return and the property is foreclosed anyway. Minnesota's attorney general recently filed suit against two out-of-state companies — Florida-based Foreclosure Assistance Solutions and Nevada-based American Housing Authority — for allegedly charging $1,200 and $1,395 fees upfront, respectively, and delivering no services in return.
Many homeowners are afraid of contacting their lender when they fall behind on mortgage payments, explains Mark Huffman, an editor at consumer web site ConsumerAffairs.com. In reality, it is in their best interest to contact the lender at first sign of mortgage trouble — even if they haven't fallen behind on payments yet. Some homeowners may be eligible for a rate freeze under the Bush administration's new plan to help subprime-mortgage holders. Even those not eligible could negotiate another solution with the help of the Hope Now alliance, a group that brings together housing counseling agencies, lenders and mortgage servicers. Call them at 1-888-995-HOPE. Foreclosure assistance received from legitimate sources should be free of charge.
2. Foreclosure rental scams
Even more perilous is a scheme to trick homeowners threatened by foreclosure into signing over the title to their home. The scammers typically target those who have some home equity left, with the goal to pocket that equity and disappear.
How it works: The scammers approach you with an offer to buy your house for the total amount you owe, plus a small amount of cash. You can then continue to rent the home, with the idea of buying it back later when your financial circumstances improve. The problem is, as soon as you sign over the deed to the house the new "owner" stops making the payments and collects your rent until the house is foreclosed. They may also refinance the property to take whatever equity is left. Eventually, the home goes into foreclosure and the tenants are evicted.
The only protection against this scam is vigilance. "The chances of someone good knocking on your door offering to help you save your house is very slim," says Ralph Roberts, author of "Protect Yourself From Real Estate and Mortgage Fraud."
3. Disaster-related schemes
Floods in the Northwest, wildfires in California. Scams proliferate whenever and wherever a disaster hits.
Residents in the affected zones should be particularly wary of offers for cheap home repair and clean-up. Earlier this month, the Washington State attorney general issued a warning against such scams, cautioning residents that the con artists typically demand payment upfront and "never do the work, do a shady job or require additional money once the job starts." To protect yourself, be sure to check up on your contractor: They must be registered with the state's department of labor and carry liability insurance coverage.
Even more treacherous are scammers who prey on people's goodwill, soliciting donations for charitable organizations that don't exist — or aren't really charitable. "If there's something in the news that's on people's minds and is likely to have them open up their wallets, scammers will make a pitch," says Nat Wood, assistant director for consumer and business education at the Federal Trade Commission. "But while giving in times of crisis is great, people should give to legitimate charities." To make sure your money is going to the right place, check that your solicitor is from a registered 501(c)(3) tax-exempt organization. A good place to verify that a nonprofit is legitimate is GuideStar.org.
4. Aggressive car warranty pitches
Senior citizens are often targeted by scammers and the extended car warranty scam is one of their latest tricks. It typically starts with the victim receiving a letter, postcard or prerecorded phone call informing them that their car warranty has expired and they have to purchase a new one. After an aggressive sales pitch, the victim agrees to buy an expensive extended warranty that they don't really need. Alternatively, the scammers could be simply "phishing" for personal information, such as the victim's Social Security number, address and date of birth, which can later be used for identity theft.
Several weeks ago, North Carolina's attorney general issued a warning against the scam after receiving an average of 30 calls a week from targeted consumers. Consumers should always verify mailings that appear to come from their car manufacturer with the manufacturer itself, and should never give out personal information over the phone. (Keep in mind, extended warranties — even if offered legitimately — are rarely necessary.
5. "Red Cross" military scams
A particularly repulsive twist on the "phishing" scam (where the victim is tricked into giving out personal information later used by identity thieves) is one targeting military spouses.
How it works: Someone claiming to be with the American Red Cross calls a military spouse to inform her that her husband has been hurt while on duty in Iraq and has been transported to a hospital in Germany. To complete the necessary paperwork and proceed with treatment, the caller asks for verification of the husband's Social Security number and date of birth. The information is then used by identity thieves to obtain credit in the victim's name.
Military spouses beware: In a statement issued earlier this year, the Red Cross said its representatives do not contact military members or dependents directly, but rather do that through a commander or first sergeant. Meanwhile, pretending to be a member of the American Red Cross is a federal crime, punishable by up to five years in prison.
Frightened as you might be by a phone call about your spouse, be sure you are speaking with legitimate sources. "Scammers are very ingenious, and although they sound nice and interested, they can be heartless as well," says the FTC's Wood.
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