“The United States must increase its national saving rate. Although we should deploy, as best we can, tools to increase private saving, the most effective way to accomplish this goal is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time.”
The quote came from Fed Chairman Ben Bernanke while giving a speech at the Conference on Asia and the Global Financial Crisis on October 19, hosted by the Federal Reserve of San Francisco. Bernanke also stated, “We were smug”, referring to the years of feckless lending practices when the U.S. economy was bubbling over with easy money from cash-rich countries. I imagine the statement was said rather smugly.
It’s a mystery as to how Bernanke expects consumer saving rates to increase given the lack of jobs and a questionable revival of pre-recession wages for the still-employed considering their sizable pay cuts and reduced hours.
Personal savings of disposable personal income was 3% in August, down from 4% in July and significantly lower than the peak rate of 6.9% in May. Fueled by income tax refunds and stimulus package disbursements, critics at the time suggested consumers were slighting the system by saving rather than spending the money to get the economy moving.
Whatever savings people have managed to accumulate will soon be spent to pay winter heating bills, higher gas prices, medical bills, credit card debt, etc., and quickly consumed during the holiday season to give families a temporary, but desperately needed, good-time feeling.
The sole means by which large numbers of consumers will have the ability to add to their savings is through working. The only way the President could possibly deliver on a promise to create or save 3.5 million jobs by the end of 2010 will be by out-of-focus hocus-pocus employment figures. Obama is not a magician.
Much of the blame to shame goes to Henry Paulson, Ben Bernanke and Timothy Geithner. These overlords of taxpayer moneys squandered their opportunities to leverage the recipients of TARP funds to allocate the handouts where they were intended. Rather than renegotiate home mortgages, banks deliberately refused to accept their part in correcting the fallout from the their historic lax lending practices, which led to millions of residential and commercial toxic loans and a near global collapse of financial markets.
Rather than use relief funds as intended, banks have hoarded the bailouts, denying credit lending to American consumers and restricting lending to small businesses to invest in future growth to create jobs. Wall Street is doing one heck of good job of staying on track for self-propelled titanic gains, assured that Bernanke and Geithner will not allow banking markets to sink, as they had infused banks with the $700B Troubled Asset Relief Program. America is essentially frozen in a void of economic stagnation.
Instead, investment bankers are on another unhealthy round of risky bets that have catapulted the DJIA to over 10,000 points from a low of 6,470 in March as they care more about their own interests than propelling economic growth. The Oganisation for Economic Co-operation and Development leading indicators don’t jibe with the worldwide numbers of unemployed, homeless and destitute citizens.
Thus far this year, banks are so comfortable with the status quo that they have supplied lobbyists with over $220M in a concerted effort to thwart meaningful financial reform.
Be rest assured, our economic whizzers, Ben Bernanke and Timothy Geithner, are on the same scripted page of advising world financial markets that the United States has targeted American consumer savings as a strategy to offset the imbalance of global trading.
"Everyone is going to have to come to terms with the fact that we are going to save more in the United States," Geithner chimed during an interview on October 6 with German weekly newspaper Die Zeit. In other words, don’t count on American consumption to fuel worldwide economic recovery.
“China will carry out the exchange rate regime reform and the United States will increase saving rates so as to promote balanced and strong growth and prosperity in the two nations," read a fact sheet released after the China-U.S.A. Strategic Economic Dialogue held in Beijing where the ‘special representative’ of President George W. Bush was then-Treasury Secretary Henry Paulson, That goes way back to December 15, 2006.
Of lesser importance and with a great amount of vanity, on June 2, 2009, prior to addressing graduates of his alma mater, Harriton High School in Rosemont, PA, Economic Advisor Larry Summers said, “…a higher savings rate can still go with a rising standard of living as long as income is growing.”
C’mon, Larry, you must realize that it’ll be quite some time before “income is growing”. The only things growing are the undeserved Wall Street bonuses and the egos of you and your fellow economists.
Sunday, October 25, 2009
Saturday, October 17, 2009
Deadly October
Common denominators of this column are two vacations taken two years apart and two deaths, each of which were of major global impact. Although years apart, both were murders that happened in the month of October.
In the fall of 2006, while my sister Sue and brother-in-law Mike were vacationing in Florida, I joined them at his family’s getaway home in a well-maintained retirement community of manufactured homes in Bradenton.
I found myself trudging along the sidewalks at the Centre Shops of Longboat Key as Sue looked for bargains, with Mike dutifully in tow, while I lagged outside on park benches people-watching. I had no business with merchants whose wares went above my financial comfort zone of Wal-Mart, or even upscale merchandise at Penney’s.
One store that caught my interest was a craft shop that sold original creations of art rather than mass-market productions. Still, not much tempted me to pull out the plastic until I came upon, of all things imaginable, a rock.
Now, I already had a small collection of rocks. A well-rounded specimen of basalt rock, smooth from the pounding waves along the shore of Lake Superior. The white granite rock pilfered from Yosemite National Forest is a favored possession. A lava rock from the Hawaiian island of Kauai is most unique. (The one taken from the Big Island was shipped back when, after four months of really, really bad luck, I realized the curse that is said to befall anyone who takes a lava rock off the island of Hawaii was indeed true.)
So, before leaving Long Boat Key, a 60-pound, 60-dollar rock engraved with the word “Image” was purchased on October 7, one day prior to the murder of John Lennon on October 8, 1980, and two days shy of his 40th birthday, October 9. Perhaps a coincidence but, nonetheless, this faithful admirer cherishes the chiseled piece of stone that pays tribute to the genius of a man who brought momentous change in music.
A year ago this month, I was vacationing in Rapid City, South Dakota. After a most glorious week of unseasonably warm 80-degree temperatures, with day after day and hours upon hours spent experiencing nearly every possible natural wonder of the region – Mt. Rushmore; Jewel Cave; Needles Highway in Custer State Park with free-roaming buffalo, donkeys, prairie dogs and other native creatures; Mammoth Site; Sylvan Lake; waterfalls accented by the colorful fall leaves – I paid a modest forty dollars for a good chunk of petrified log, pound per pound a much better deal than souvenir T-shirts.
One of my last jaunts was at the base of Devil’s Tower just across the border into Wyoming. It was October 10, a day of a seemingly timeless walking around the base of another natural wonder of time’s making among acres of skyward-reaching pine trees.
These awesome sights brought to me visions of a terribly awful act of torture that began during the early morning hours of October 7, 1998, when a victim of a hate crime was left in a coma from fractures to the back of the head and in front of the right ear. Repeatedly pistol-whipped by Aaron McKinney, and witnessed by, but supposedly not involved in the actual beating, Russell Henderson and he each received two life sentences for the murder of 21-year old Matthew Sheppard, a gay student in Laramie, Wyoming.
During the trial, the girlfriends of McKinney and Henderson both testified that the two had planned to rob a gay man in advance. At the Fireside Lounge on the University of Wyoming campus, Sheppard proved to be an easy target as he was easily convinced the two were sympathetic to gay rights and offered him a ride home.
Instead, he was robbed of his wallet containing $20, plus his shoes, and left to die tied to a wooden split-rail fence, bleeding in near freezing temperatures. A cyclist happened by 18 hours later and the horrors of the previous night were soon exposed to the world. Matthew Shepard passed away on October 12, 1998.
For nearly a decade, attempts have been made to bring into law The Matthew Shepard Act to “Expand the law to authorize the Department of Justice to investigate and prosecute certain bias-motivated crimes based on the victim's actual or perceived sexual orientation, gender, gender identity, or disability. Current law only includes race, color, religion or national origin.”
On October 8, 2009, the House of Representatives passed the Matthew Shepard Hate Crimes Prevention Act by a vote of 281-146. It’s now up to the Senate to vote before the legislation becomes the law.
No, there’s no funereal stone that commemorates the hate crime of that cold night in October eleven yours ago, but chiseled in my mind are scenes that “I can’t imagine”.
In the fall of 2006, while my sister Sue and brother-in-law Mike were vacationing in Florida, I joined them at his family’s getaway home in a well-maintained retirement community of manufactured homes in Bradenton.
I found myself trudging along the sidewalks at the Centre Shops of Longboat Key as Sue looked for bargains, with Mike dutifully in tow, while I lagged outside on park benches people-watching. I had no business with merchants whose wares went above my financial comfort zone of Wal-Mart, or even upscale merchandise at Penney’s.
One store that caught my interest was a craft shop that sold original creations of art rather than mass-market productions. Still, not much tempted me to pull out the plastic until I came upon, of all things imaginable, a rock.
Now, I already had a small collection of rocks. A well-rounded specimen of basalt rock, smooth from the pounding waves along the shore of Lake Superior. The white granite rock pilfered from Yosemite National Forest is a favored possession. A lava rock from the Hawaiian island of Kauai is most unique. (The one taken from the Big Island was shipped back when, after four months of really, really bad luck, I realized the curse that is said to befall anyone who takes a lava rock off the island of Hawaii was indeed true.)
So, before leaving Long Boat Key, a 60-pound, 60-dollar rock engraved with the word “Image” was purchased on October 7, one day prior to the murder of John Lennon on October 8, 1980, and two days shy of his 40th birthday, October 9. Perhaps a coincidence but, nonetheless, this faithful admirer cherishes the chiseled piece of stone that pays tribute to the genius of a man who brought momentous change in music.
A year ago this month, I was vacationing in Rapid City, South Dakota. After a most glorious week of unseasonably warm 80-degree temperatures, with day after day and hours upon hours spent experiencing nearly every possible natural wonder of the region – Mt. Rushmore; Jewel Cave; Needles Highway in Custer State Park with free-roaming buffalo, donkeys, prairie dogs and other native creatures; Mammoth Site; Sylvan Lake; waterfalls accented by the colorful fall leaves – I paid a modest forty dollars for a good chunk of petrified log, pound per pound a much better deal than souvenir T-shirts.
One of my last jaunts was at the base of Devil’s Tower just across the border into Wyoming. It was October 10, a day of a seemingly timeless walking around the base of another natural wonder of time’s making among acres of skyward-reaching pine trees.
These awesome sights brought to me visions of a terribly awful act of torture that began during the early morning hours of October 7, 1998, when a victim of a hate crime was left in a coma from fractures to the back of the head and in front of the right ear. Repeatedly pistol-whipped by Aaron McKinney, and witnessed by, but supposedly not involved in the actual beating, Russell Henderson and he each received two life sentences for the murder of 21-year old Matthew Sheppard, a gay student in Laramie, Wyoming.
During the trial, the girlfriends of McKinney and Henderson both testified that the two had planned to rob a gay man in advance. At the Fireside Lounge on the University of Wyoming campus, Sheppard proved to be an easy target as he was easily convinced the two were sympathetic to gay rights and offered him a ride home.
Instead, he was robbed of his wallet containing $20, plus his shoes, and left to die tied to a wooden split-rail fence, bleeding in near freezing temperatures. A cyclist happened by 18 hours later and the horrors of the previous night were soon exposed to the world. Matthew Shepard passed away on October 12, 1998.
For nearly a decade, attempts have been made to bring into law The Matthew Shepard Act to “Expand the law to authorize the Department of Justice to investigate and prosecute certain bias-motivated crimes based on the victim's actual or perceived sexual orientation, gender, gender identity, or disability. Current law only includes race, color, religion or national origin.”
On October 8, 2009, the House of Representatives passed the Matthew Shepard Hate Crimes Prevention Act by a vote of 281-146. It’s now up to the Senate to vote before the legislation becomes the law.
No, there’s no funereal stone that commemorates the hate crime of that cold night in October eleven yours ago, but chiseled in my mind are scenes that “I can’t imagine”.
Thursday, October 8, 2009
The Migration of Health Care Reform
Is the Obama Administration serious about universal healthcare reform? Yes. At this point, any old Democrat health plan will do.
Will healthcare reform include coverage for illegal immigrants? Contrary to the infamous two-word wisecrack blurted out by a now well-known rightwing racist Senator from South Carolina, the answer is, “No way, Jose.”
If Congress worms its way to pass legislation on healthcare reform within the next few weeks, why would it not become effective until 2013? The obvious answer is that it will be less of a political issue in the 2010-midterm elections. But there appears to be a scheme a-brewing to provide coverage to not only a fair number of currently uninsured 45 million Americans but also to a few extra million immigrants.
On October 2 The New York Times printed an article on actions being implemented by the U.S. States Citizenship and Immigration Services (CIS) that will reshape the social (unrest?) and cultural (shock?) makeup of America, resulting in an unprecedented change in political arenas, perhaps resulting in an eventual emergence of viable third party candidates. It may also become the defining moment that brings to fruition President Obama’s willful intent of “fundamentally transforming the United States of America.” In the meantime, demographics may give Democrats the upper hand, especially among Hispanics.
The Times’ article reported that CIS is taking the first steps to accommodate an anticipated stampede of illegal immigrants seeking visas in response to President Obama’s stated intention to propose to Congress legislation toward comprehensive immigration reform. As quoted by CIS director Alejandro Mayorkas, “We are under way to prepare for that.”
It’s a given fact there are well over 10 million illegal immigrants in the U.S., of which approximately 6 million are said to typically seek legal status each year. Since the CIS anticipates millions of immigrants will apply for legal status within a matter of weeks if immigration legislation passes Congress next year, the agency is on an immediate hiring spree to play catch-up with a current backlog of pending paperwork. More jobs, bigger government.
Some lawmakers have already expressed concern that, as CIS becomes overwhelmed with large volumes of applications, haste will result in poorly processed paperwork and lax review of background checks will create a national security crisis.
Regardless of what may come from immigration reform, Homeland Security Secretary Janet Napolitano this past week revealed a strategy that will overhaul the way immigration violators are held in detention centers. With over 60% of detainees classified as non-criminals, Napolitano said an initiative is under way “to make immigration detention more cohesive, accountable and relevant to the entire spectrum of detainees we are dealing with.”
Which means, in the coming weeks Napolitano will submit to Congress plans to renovate vacant hotels and nursing homes, and convert residential houses to provide less restrictive oversight of low-risk violators of immigration laws, primarily women and children. By doing so, savings are expected to lower the cost from $100 per day to about $14 per day for each detainee.
It’s believed the new policy will greatly reduce the annual cost of $2.4 billion currently spent on approximately 380,000 immigrants, of which many were arrested during the past two years when ICE agents followed a practice of raiding neighborhoods, factories and other workplaces known to employ immigrants, thus terrorizing people and traumatizing children.
Rather than targeting employees, current practice puts businesses on legal notice to verify the legal status of immigrants.
The perfect example is the 1,800 employees of American Apparel in Los Angeles who were terminated in early September by the company as a result of Immigration and Customs Enforcement (ICE) agents identifying discrepancies and mismatches in employment records when compared to immigration records of the Social Security Administration. That is to say, they were proven to be illegal immigrants.
The action came as a result of a 17-month investigation by ICE that began with the Bush Administration. LA Times journalist Tim Rutten called the action a “callous” turn of events under President Obama. It doesn’t seem to phase otherwise law-abiding, intelligent people that hiring and, at times, harboring illegal immigrants with subsidized housing are lawless un-American activities.
With the government displaying a change in sentiment toward the humanitarian aspects of non-violent immigrants, legal or not, new laws of this land will bring about change that we’ll all have to live with.
Provisions are now in the works to address detainee concerns about the lack of proper treatment for medical and mental health conditions. The fact that seriously ill detainees have died while in custody cannot be ignored. Therefore, they will have healthcare before uninsured Americans.
So, will President Obama’s healthcare reform include coverage for illegal immigrants? “No way, Jose.” By the time it’s implemented in 2013, many of those illegal immigrants will have become naturalized citizens.
Will healthcare reform include coverage for illegal immigrants? Contrary to the infamous two-word wisecrack blurted out by a now well-known rightwing racist Senator from South Carolina, the answer is, “No way, Jose.”
If Congress worms its way to pass legislation on healthcare reform within the next few weeks, why would it not become effective until 2013? The obvious answer is that it will be less of a political issue in the 2010-midterm elections. But there appears to be a scheme a-brewing to provide coverage to not only a fair number of currently uninsured 45 million Americans but also to a few extra million immigrants.
On October 2 The New York Times printed an article on actions being implemented by the U.S. States Citizenship and Immigration Services (CIS) that will reshape the social (unrest?) and cultural (shock?) makeup of America, resulting in an unprecedented change in political arenas, perhaps resulting in an eventual emergence of viable third party candidates. It may also become the defining moment that brings to fruition President Obama’s willful intent of “fundamentally transforming the United States of America.” In the meantime, demographics may give Democrats the upper hand, especially among Hispanics.
The Times’ article reported that CIS is taking the first steps to accommodate an anticipated stampede of illegal immigrants seeking visas in response to President Obama’s stated intention to propose to Congress legislation toward comprehensive immigration reform. As quoted by CIS director Alejandro Mayorkas, “We are under way to prepare for that.”
It’s a given fact there are well over 10 million illegal immigrants in the U.S., of which approximately 6 million are said to typically seek legal status each year. Since the CIS anticipates millions of immigrants will apply for legal status within a matter of weeks if immigration legislation passes Congress next year, the agency is on an immediate hiring spree to play catch-up with a current backlog of pending paperwork. More jobs, bigger government.
Some lawmakers have already expressed concern that, as CIS becomes overwhelmed with large volumes of applications, haste will result in poorly processed paperwork and lax review of background checks will create a national security crisis.
Regardless of what may come from immigration reform, Homeland Security Secretary Janet Napolitano this past week revealed a strategy that will overhaul the way immigration violators are held in detention centers. With over 60% of detainees classified as non-criminals, Napolitano said an initiative is under way “to make immigration detention more cohesive, accountable and relevant to the entire spectrum of detainees we are dealing with.”
Which means, in the coming weeks Napolitano will submit to Congress plans to renovate vacant hotels and nursing homes, and convert residential houses to provide less restrictive oversight of low-risk violators of immigration laws, primarily women and children. By doing so, savings are expected to lower the cost from $100 per day to about $14 per day for each detainee.
It’s believed the new policy will greatly reduce the annual cost of $2.4 billion currently spent on approximately 380,000 immigrants, of which many were arrested during the past two years when ICE agents followed a practice of raiding neighborhoods, factories and other workplaces known to employ immigrants, thus terrorizing people and traumatizing children.
Rather than targeting employees, current practice puts businesses on legal notice to verify the legal status of immigrants.
The perfect example is the 1,800 employees of American Apparel in Los Angeles who were terminated in early September by the company as a result of Immigration and Customs Enforcement (ICE) agents identifying discrepancies and mismatches in employment records when compared to immigration records of the Social Security Administration. That is to say, they were proven to be illegal immigrants.
The action came as a result of a 17-month investigation by ICE that began with the Bush Administration. LA Times journalist Tim Rutten called the action a “callous” turn of events under President Obama. It doesn’t seem to phase otherwise law-abiding, intelligent people that hiring and, at times, harboring illegal immigrants with subsidized housing are lawless un-American activities.
With the government displaying a change in sentiment toward the humanitarian aspects of non-violent immigrants, legal or not, new laws of this land will bring about change that we’ll all have to live with.
Provisions are now in the works to address detainee concerns about the lack of proper treatment for medical and mental health conditions. The fact that seriously ill detainees have died while in custody cannot be ignored. Therefore, they will have healthcare before uninsured Americans.
So, will President Obama’s healthcare reform include coverage for illegal immigrants? “No way, Jose.” By the time it’s implemented in 2013, many of those illegal immigrants will have become naturalized citizens.
Friday, October 2, 2009
Banking Executives vs Football Players
“Why is it we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs and NFL football players?”
On September 14, President Obama posed the question as he addressed Wall Street from Federal Hall on the anniversary of the collapse of Lehman Brothers. Obama also stated that "we will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses." He continued, “And, of course, to embrace serious financial reform, not fight it."
The President had already set up a game plan months before. I should note that, although he wisely commented about excessive executive compensation during his campaign, Obama’s messages were all about “regulation”.
With little fanfare, Kenneth Feinberg, appointed by the Treasury Department in June and dubbed “pay czar” with the official title of Special Master, the same post he was given to distribute aid to victims after 9/11, has remained a behind-the-scenes administrator, which indicates he’s little more than an Obama implant to promote oversight of financial institutions by means of some regulatory scheme rather than by putting ceilings on executive compensation.
On September 25, Feinberg stated that, when he releases a report next month on the executive compensations of bail-out companies, “ We don’t want specific names next to dollars.” And that, "Avoiding excessive risk means different things to different people in different situations." The wording indicates a degree of coaching from Treasury Secreaty Timothy Geithner who, in turn, may have been teleprompted by Team Obama.
Unlike German Chancellor Angela Merkel and French President Nicolas Sarkoz, both of whom prefer strict governance over banking bonuses, The Administration seems to be treading lightly toward a resolution with Wall Street egos and their troves of lobbyists to relegate satisfactory action to Congress.
Obama’s apparent disdain of Simi Valley entrepreneurs who provide innovation and evolutionary advancements in e-commerce technologies is misplaced as displayed by the Forbes list of the top 10 CEOs and their levels of compensation.
Although Oracle CEO Lawrence Ellison tops the list in compensation ($556M), petroleum CEOs of Occidental ($222M), Hess ($154M), Ultra Petroleum ($116M), and EOG Resources ($90M) round up the top remaining five companies that handsomely reward their CEOs with fortunes. Of course, the President dare not rile the money-mongering emissaries of greenhouse gases.
Nor should Obama attempt to tackle the salaries of football players.
In 2008, Ben Roethlisberger of the NFL Pittsburgh Steelers made $27M. Of other sports figures, Kevin Garnett of the NBA Boston Celtics was paid $27M; Alex Rodriguez of the MLB New York Yankees received $33M; in the NHL Dany Heatley of the Ottawa Senators earned $10M. Not too shabby by any measure of success.
Which takes me back to the interests of Wall Street. When the dot-com bubble burst at the turn of the century, an estimated $7-trillion were lost to investors, primarily in tech stocks. When Wall Street got burned, it was quick to regain its fortunes in the housing market.
In 2005, Yale economist Robert Shiller said, “Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed. Where else could plungers apply their newly acquired trading talents? The materialistic display of the big house also has become a salve to bruised egos of disappointed stock investors.”
Over these past two years, it’s estimated that U.S. households have lost $7-trillion in home equity, $2-trillion in retirement funds, and $8-trillion in the stock market. But to this day Wall Street shows no shame.
Lawrence White, a professor at New York University's Stern School of Business, said Wall Street believes its pay is justified and that, “The big Wall Street view is 'Hey, we work hard, we achieve a lot, and we deserve what we get paid.” Recent articles and Op-Ed columns in The New York Times shows that many Lehman Brothers ex-employees are remorseful of only one thing: the loss of the jobs that had brought them such riches they may never see again.
According to Challenger, Gray & Christmas, an outplacement company, only slightly more than 300,000 jobs were lost in the finance industry since the beginning of 2008, as compared to all the other 7.4M jobs lost since the beginning of the recession.
It should be no surprise that, according to an Ipsos Public Affairs survey conducted September 11-14 of 1,000 adults, 60% of Americans are angry about excessive compensation to investment executives.
President Obama should leave Simi Valley alone, let sports fans judge the worth of football players and address the concerns that Americans have about the fortunes that Wall Street executives have reaped at the expense of present day and future taxpayers.
On September 14, President Obama posed the question as he addressed Wall Street from Federal Hall on the anniversary of the collapse of Lehman Brothers. Obama also stated that "we will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses." He continued, “And, of course, to embrace serious financial reform, not fight it."
The President had already set up a game plan months before. I should note that, although he wisely commented about excessive executive compensation during his campaign, Obama’s messages were all about “regulation”.
With little fanfare, Kenneth Feinberg, appointed by the Treasury Department in June and dubbed “pay czar” with the official title of Special Master, the same post he was given to distribute aid to victims after 9/11, has remained a behind-the-scenes administrator, which indicates he’s little more than an Obama implant to promote oversight of financial institutions by means of some regulatory scheme rather than by putting ceilings on executive compensation.
On September 25, Feinberg stated that, when he releases a report next month on the executive compensations of bail-out companies, “ We don’t want specific names next to dollars.” And that, "Avoiding excessive risk means different things to different people in different situations." The wording indicates a degree of coaching from Treasury Secreaty Timothy Geithner who, in turn, may have been teleprompted by Team Obama.
Unlike German Chancellor Angela Merkel and French President Nicolas Sarkoz, both of whom prefer strict governance over banking bonuses, The Administration seems to be treading lightly toward a resolution with Wall Street egos and their troves of lobbyists to relegate satisfactory action to Congress.
Obama’s apparent disdain of Simi Valley entrepreneurs who provide innovation and evolutionary advancements in e-commerce technologies is misplaced as displayed by the Forbes list of the top 10 CEOs and their levels of compensation.
Although Oracle CEO Lawrence Ellison tops the list in compensation ($556M), petroleum CEOs of Occidental ($222M), Hess ($154M), Ultra Petroleum ($116M), and EOG Resources ($90M) round up the top remaining five companies that handsomely reward their CEOs with fortunes. Of course, the President dare not rile the money-mongering emissaries of greenhouse gases.
Nor should Obama attempt to tackle the salaries of football players.
In 2008, Ben Roethlisberger of the NFL Pittsburgh Steelers made $27M. Of other sports figures, Kevin Garnett of the NBA Boston Celtics was paid $27M; Alex Rodriguez of the MLB New York Yankees received $33M; in the NHL Dany Heatley of the Ottawa Senators earned $10M. Not too shabby by any measure of success.
Which takes me back to the interests of Wall Street. When the dot-com bubble burst at the turn of the century, an estimated $7-trillion were lost to investors, primarily in tech stocks. When Wall Street got burned, it was quick to regain its fortunes in the housing market.
In 2005, Yale economist Robert Shiller said, “Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed. Where else could plungers apply their newly acquired trading talents? The materialistic display of the big house also has become a salve to bruised egos of disappointed stock investors.”
Over these past two years, it’s estimated that U.S. households have lost $7-trillion in home equity, $2-trillion in retirement funds, and $8-trillion in the stock market. But to this day Wall Street shows no shame.
Lawrence White, a professor at New York University's Stern School of Business, said Wall Street believes its pay is justified and that, “The big Wall Street view is 'Hey, we work hard, we achieve a lot, and we deserve what we get paid.” Recent articles and Op-Ed columns in The New York Times shows that many Lehman Brothers ex-employees are remorseful of only one thing: the loss of the jobs that had brought them such riches they may never see again.
According to Challenger, Gray & Christmas, an outplacement company, only slightly more than 300,000 jobs were lost in the finance industry since the beginning of 2008, as compared to all the other 7.4M jobs lost since the beginning of the recession.
It should be no surprise that, according to an Ipsos Public Affairs survey conducted September 11-14 of 1,000 adults, 60% of Americans are angry about excessive compensation to investment executives.
President Obama should leave Simi Valley alone, let sports fans judge the worth of football players and address the concerns that Americans have about the fortunes that Wall Street executives have reaped at the expense of present day and future taxpayers.
Monday, September 28, 2009
And the survey says...
There are such a myriad of purveyors of surveys and opinion polls (Gallop, Harris, Nielsen, Roper, Pew Research) that it’s difficult to know if one provides a better pulse of consumer, constituent or citizen attitudes than others. Another source of gathering people’s viewpoints are conducted by colleges and universities, of which the University of Michigan Institute for Social Research has a 60-year history of being “one of the largest and oldest academic survey and social research organizations in the world”.
Then there are polls that are less than scientific on social websites, including MySpace, Facebook and Sodahead. Some of these surveys are well intentioned and thought provoking while others are nothing other than childish inquiries on such topics as the Jonas Brothers, Britney Spears and other teenybopper interests.
Others website networks give people and businesses an opportunity to design and post online surveys to suit their specific needs, some of which are free, such as polldaddy, micropoll, twiigs, proprofs, and surveypopups.
There are industry-specific questionnaires – medical, education, employee satisfaction, customer satisfaction, student opinions, plus surveys that measure how the electorate views the performance of international, national, state and county governments.
The wording and placement of survey questions can produce different results. Survey results can be slighted with the intent to direct questions that may result in respondents to give answers that serve their cause. To avoid this tactic, it’s necessary to consider two important factors in validating the worthiness of a survey – demographics and methodology.
Demographics include household income, gender, education, race, age and marital status, all of which are basic considerations. Understandably, political opinion polls require party affiliation. The more information given by a targeted segment of the population, the results hold a greater level of accuracy than if the cross-section of respondents has its limitations.
Methodology identifies how the poll was administered. For instance, the accuracy of a random sampling of 1,000 respondents is typically +/- 3% while a larger sampling of 10,000 reduces the margin to a 1% error rate, which also takes into consideration that some participants may not be entirely honest in that they try to second guess mainstream opinions.
To make the sampling as random as possible, surveys conducted by large pollsters may take a computer-generated list of, say 50,000, active home telephone nationwide numbers. From there, a computer may then be programmed to randomly select perhaps 1,000 residential numbers. A random selection of exchanges and digits takes the process one step further.
Another measure to be taken into consideration: generally speaking there’s a 95% accuracy rate of the +/- accuracy rate! Figure that one out!
‘No opinion/Prefer not to answer’ on a multiple-choice question restricts information for analysis of information, yet they’re appropriate for answers concerning household income, race and religious affiliation. It’s like saying, “It’s none of your business.” But without providing age and sex, results of many surveys invalidate the intended focus of the subject at hand.
Strongly agree, somewhat agree, agree, slightly disagree, disagree, strongly disagree. Take your pick. This format provides a more specific opinion than all other question-answer polls. It may also be more affective in giving respondents an easier task of making a choice if they should have a borderline opinion on a given subject. It helps to avoid the guesswork out of the actual mood of the respondent. Depending on the question, I appreciate the option to ‘strongly’ disagree rather than be restricted to ‘disagree’.
Some opinion polls are sought on a regular basis, say weekly and called a “tracking poll”, when there is deemed a frequent change of attitude, such as health care legislation, the economy, foreign policy, abortion or, coming soon to everyone’s contention, the debate on immigration reform, which is sure to be another round of partisan alignment.
A bandwagon effect occurs when the poll prompts voters to back the candidate shown to be winning in the poll, which may have been the case during the 2008 Presidential primaries, which not to meant to put in doubt the popularity of Obama.
In the 2008 General Election, Barack Obama garnered 52.9% of the vote, which happens to be extremely close to the 52% overall national approval ratings in July and August, so it should be of little surprise that, after the 100-day honeymoon, it should level off from the 60% in February when he was given the benefit of the doubt for his anticipated efforts to tackle the leftover debris from the Bush years, and the 61% approval rate in May, which may have been largely influenced by taxpayer rebates.
My favorite surveys are those sought from businesses that are requested for marketing purposes. Wal-Mart’s an excellent example where I could actually win $1,000 of in-store purchases. The odds aren’t likely to be any better than those for the Lottery.
For relaxation I watch Family Feud. Whether be the original host Richard Dawson or followers Ray Combs, Richard Carr or today’s John O’Hurley some are repetitive whereby I tend to coach them on the answers. It’s obvious some have watched previous broadcasts as they sweep the answers toward victory.
Although unscientific, the results on questions can be very telling of people’s attitudes. There a few ‘Fast money round’ responses asked of “one hundred people” that were very surprising.
The #1 answer as to what age people start to lose their memory: 50 years old! I beg to question the validity on that one. The #1 answer to “On a scale of 1 to 10, how satisfied are you with your job?” was “5” – not surprising by any means.
The one that got shocked me a bit was “On a scale of 1-10, how prepared is the USA for a crisis?” I would have given it a “7” but the #1 answer was “5”! from a hundred people more astute to reality than myself.
Then there are polls that are less than scientific on social websites, including MySpace, Facebook and Sodahead. Some of these surveys are well intentioned and thought provoking while others are nothing other than childish inquiries on such topics as the Jonas Brothers, Britney Spears and other teenybopper interests.
Others website networks give people and businesses an opportunity to design and post online surveys to suit their specific needs, some of which are free, such as polldaddy, micropoll, twiigs, proprofs, and surveypopups.
There are industry-specific questionnaires – medical, education, employee satisfaction, customer satisfaction, student opinions, plus surveys that measure how the electorate views the performance of international, national, state and county governments.
The wording and placement of survey questions can produce different results. Survey results can be slighted with the intent to direct questions that may result in respondents to give answers that serve their cause. To avoid this tactic, it’s necessary to consider two important factors in validating the worthiness of a survey – demographics and methodology.
Demographics include household income, gender, education, race, age and marital status, all of which are basic considerations. Understandably, political opinion polls require party affiliation. The more information given by a targeted segment of the population, the results hold a greater level of accuracy than if the cross-section of respondents has its limitations.
Methodology identifies how the poll was administered. For instance, the accuracy of a random sampling of 1,000 respondents is typically +/- 3% while a larger sampling of 10,000 reduces the margin to a 1% error rate, which also takes into consideration that some participants may not be entirely honest in that they try to second guess mainstream opinions.
To make the sampling as random as possible, surveys conducted by large pollsters may take a computer-generated list of, say 50,000, active home telephone nationwide numbers. From there, a computer may then be programmed to randomly select perhaps 1,000 residential numbers. A random selection of exchanges and digits takes the process one step further.
Another measure to be taken into consideration: generally speaking there’s a 95% accuracy rate of the +/- accuracy rate! Figure that one out!
‘No opinion/Prefer not to answer’ on a multiple-choice question restricts information for analysis of information, yet they’re appropriate for answers concerning household income, race and religious affiliation. It’s like saying, “It’s none of your business.” But without providing age and sex, results of many surveys invalidate the intended focus of the subject at hand.
Strongly agree, somewhat agree, agree, slightly disagree, disagree, strongly disagree. Take your pick. This format provides a more specific opinion than all other question-answer polls. It may also be more affective in giving respondents an easier task of making a choice if they should have a borderline opinion on a given subject. It helps to avoid the guesswork out of the actual mood of the respondent. Depending on the question, I appreciate the option to ‘strongly’ disagree rather than be restricted to ‘disagree’.
Some opinion polls are sought on a regular basis, say weekly and called a “tracking poll”, when there is deemed a frequent change of attitude, such as health care legislation, the economy, foreign policy, abortion or, coming soon to everyone’s contention, the debate on immigration reform, which is sure to be another round of partisan alignment.
A bandwagon effect occurs when the poll prompts voters to back the candidate shown to be winning in the poll, which may have been the case during the 2008 Presidential primaries, which not to meant to put in doubt the popularity of Obama.
In the 2008 General Election, Barack Obama garnered 52.9% of the vote, which happens to be extremely close to the 52% overall national approval ratings in July and August, so it should be of little surprise that, after the 100-day honeymoon, it should level off from the 60% in February when he was given the benefit of the doubt for his anticipated efforts to tackle the leftover debris from the Bush years, and the 61% approval rate in May, which may have been largely influenced by taxpayer rebates.
My favorite surveys are those sought from businesses that are requested for marketing purposes. Wal-Mart’s an excellent example where I could actually win $1,000 of in-store purchases. The odds aren’t likely to be any better than those for the Lottery.
For relaxation I watch Family Feud. Whether be the original host Richard Dawson or followers Ray Combs, Richard Carr or today’s John O’Hurley some are repetitive whereby I tend to coach them on the answers. It’s obvious some have watched previous broadcasts as they sweep the answers toward victory.
Although unscientific, the results on questions can be very telling of people’s attitudes. There a few ‘Fast money round’ responses asked of “one hundred people” that were very surprising.
The #1 answer as to what age people start to lose their memory: 50 years old! I beg to question the validity on that one. The #1 answer to “On a scale of 1 to 10, how satisfied are you with your job?” was “5” – not surprising by any means.
The one that got shocked me a bit was “On a scale of 1-10, how prepared is the USA for a crisis?” I would have given it a “7” but the #1 answer was “5”! from a hundred people more astute to reality than myself.
Thursday, September 17, 2009
Move and the Economy Moves Too
As part of the American Recovery and Reinvestment Act of 2009, between January 1 and November 30, 2009, qualified first-time home buyers are eligible for tax credits of 10% of the home’s purchase price, with an $8,000 limit, through the filing of an income tax return.
According to the Treasury Department, through August approximately 314,000 buyers had bought into the program at an estimated $154-million in credits. The National Association of Home Builders (NAHB) and the National Association of Realtors (NAR) anticipate final figures will show over 1.5 millions homes sold, at a total cost of about $15 billion. The NAR estimates that only 350,000 homes, or 23%, will be directly attributed to the program incentives, claiming others would have made the purchase regardless.
With time running out, on June 12, Senator Johnny Isakson (R-Georgia) introduced legislation to not only extend the tax credits but up the ante to $15,000 to any homebuyer, plus eliminate income caps of $75,000 for individuals/$150,000 for couples. It has bipartisan support, including Senators Chris Dodd (D-CT), Joe Lieberman (ID-CT) and Senator Bob Corker (R-Tennessee).
From the words of Sen. Isakson, “In the mid-1970’s when America faced a similar housing crisis following a period of easy credit and loose underwriting that flooded the market with new construction and a three-year supply of vacant homes, Congress responded by passing a $2,000 ($8,000 in 2009 dollars) tax credit for anyone purchasing a new home for their principal residence. The results from that tax credit were clear and swift as home values stabilized, housing inventory dropped and the market recovered.”
The projected cost, adding to national debt, would be $50 to $100 billion. It’s a relatively small price to pay considering the hundreds of billion of dollars that were chucked out to stave off the failings of large scale banking institutions. The little guy deserves a good slice of the stimulus pie. Unlike the big, bad banks, consumers would be less likely to hoard their moneys.
I’m all for it. This could be the deciding factor in following through on an anticipated move to where there are “42,145 square miles of scenic beauty” in the Smoky Mountains. Think of me as a future right-wing, gun-totin’ Second Amendment Patriot of The Volunteer State. Seriously.
As reported by the U.S. Census Bureau, there were 18.7 million unsold homes in the U.S. at the end of the second quarter, a slight increase from the 18.6 million homes a year earlier. Representing a full 14% of the total 130.8 million homes in the U.S., at the current sales rate it would take 9.4 months to sell those homes and get them off the market.
With Alt-A and Option ARM mortgages due to balloon over the next three years, this recession is set to inch ever closer to something worse than a recession. It’s too late to cushion the blowout from these toxic loans that, at over $2.75-trillion, are more than double the mess caused from sub-prime loans.
Steps must be taken to keep people in their homes and move others into vacant homes. Going forward, lax lending practices must be avoided through strong regulatory oversight. The slight of information from applicants must be tamped by prohibiting further use of an automated loan process that avoided the review of income and assets.
Since the glut of unsold homes puts in doubt a surge of new-home construction anytime in the foreseeable future, incentives would give realtors, our masters of property investments, something to cheer about in the meantime, snuggly sandwiched between buyers and sellers and giving everyone that warm, fuzzy feeling of home sweet home.
Hopefully a temporary setback to a growing population, America has largely lost its means of being a mobile society. People are stuck in the humdrums of doing too much of nothing, driven to levels of complacency that may have long-lasting affects on its place in the cutting edges of the new world order.
There are plenty of positive prospects for the redistribution of the population and the limited wealth that some have managed to cling on to. Many realize they must downsize, thus having extra cash that will bolster local businesses as they make the best of their home investments with remodeling, upgrades and purchases of new home furnishings.
A number of little sparks across the nation would light a brighter future for small and mid-size businesses; a stimulating lifeline toward a prosperous tomorrow – job creation. As people begin to once again earn wages, the momentum will help grow the economy sooner than any other government program imaginable.
A move from one region to another necessitates a wardrobe change; southerners going north will need seasonal apparel, northerners heading south would shed layers of winter cloths for shorts, swim suits, year-round tank tops, sandals, beach towels and suntan lotions as they lounge beneath their hammocks and large beach umbrellas.
What would this hold for Florida? Between the springs of 2008 and 2009 the state population declined by 58,294 – no doubt, bad news. But, as some leave, others would see this as an opportunity to head south, especially retirees who have tired weeks upon weeks of cold and freezing temperatures under gloomy, overcast skies.
According to a report issued by a 2008 CDC report, in 2005 the life expectancy for those over the age of 65 suggests retirees could spend another 18 years (16 male, 19 female) in the Sunshine State making new friends in the vast number of retirement communities.
The best of all bets is that first-time home buyers who already have the funds for a down payment will finally own a piece of the American dream and take hundreds of thousands of unoccupied homes off the housing market. To affectively move large numbers of people into new homes, giving incentives to all prospective homebuyers, new and existing alike, is a necessity. As a compromise new homebuyers could be offered the full $15,000 incentive package while existing homeowners given the offering of $8,000.
I’m all for it. This could be the deciding factor in following through on an anticipated move to where there are “42,145 square miles of scenic beauty” in the Smoky Mountains. Think of me as a future right-wing, gun-totin’ Second Amendment Patriot of The Volunteer State. Seriously.
According to the Treasury Department, through August approximately 314,000 buyers had bought into the program at an estimated $154-million in credits. The National Association of Home Builders (NAHB) and the National Association of Realtors (NAR) anticipate final figures will show over 1.5 millions homes sold, at a total cost of about $15 billion. The NAR estimates that only 350,000 homes, or 23%, will be directly attributed to the program incentives, claiming others would have made the purchase regardless.
With time running out, on June 12, Senator Johnny Isakson (R-Georgia) introduced legislation to not only extend the tax credits but up the ante to $15,000 to any homebuyer, plus eliminate income caps of $75,000 for individuals/$150,000 for couples. It has bipartisan support, including Senators Chris Dodd (D-CT), Joe Lieberman (ID-CT) and Senator Bob Corker (R-Tennessee).
From the words of Sen. Isakson, “In the mid-1970’s when America faced a similar housing crisis following a period of easy credit and loose underwriting that flooded the market with new construction and a three-year supply of vacant homes, Congress responded by passing a $2,000 ($8,000 in 2009 dollars) tax credit for anyone purchasing a new home for their principal residence. The results from that tax credit were clear and swift as home values stabilized, housing inventory dropped and the market recovered.”
The projected cost, adding to national debt, would be $50 to $100 billion. It’s a relatively small price to pay considering the hundreds of billion of dollars that were chucked out to stave off the failings of large scale banking institutions. The little guy deserves a good slice of the stimulus pie. Unlike the big, bad banks, consumers would be less likely to hoard their moneys.
I’m all for it. This could be the deciding factor in following through on an anticipated move to where there are “42,145 square miles of scenic beauty” in the Smoky Mountains. Think of me as a future right-wing, gun-totin’ Second Amendment Patriot of The Volunteer State. Seriously.
As reported by the U.S. Census Bureau, there were 18.7 million unsold homes in the U.S. at the end of the second quarter, a slight increase from the 18.6 million homes a year earlier. Representing a full 14% of the total 130.8 million homes in the U.S., at the current sales rate it would take 9.4 months to sell those homes and get them off the market.
With Alt-A and Option ARM mortgages due to balloon over the next three years, this recession is set to inch ever closer to something worse than a recession. It’s too late to cushion the blowout from these toxic loans that, at over $2.75-trillion, are more than double the mess caused from sub-prime loans.
Steps must be taken to keep people in their homes and move others into vacant homes. Going forward, lax lending practices must be avoided through strong regulatory oversight. The slight of information from applicants must be tamped by prohibiting further use of an automated loan process that avoided the review of income and assets.
Since the glut of unsold homes puts in doubt a surge of new-home construction anytime in the foreseeable future, incentives would give realtors, our masters of property investments, something to cheer about in the meantime, snuggly sandwiched between buyers and sellers and giving everyone that warm, fuzzy feeling of home sweet home.
Hopefully a temporary setback to a growing population, America has largely lost its means of being a mobile society. People are stuck in the humdrums of doing too much of nothing, driven to levels of complacency that may have long-lasting affects on its place in the cutting edges of the new world order.
There are plenty of positive prospects for the redistribution of the population and the limited wealth that some have managed to cling on to. Many realize they must downsize, thus having extra cash that will bolster local businesses as they make the best of their home investments with remodeling, upgrades and purchases of new home furnishings.
A number of little sparks across the nation would light a brighter future for small and mid-size businesses; a stimulating lifeline toward a prosperous tomorrow – job creation. As people begin to once again earn wages, the momentum will help grow the economy sooner than any other government program imaginable.
A move from one region to another necessitates a wardrobe change; southerners going north will need seasonal apparel, northerners heading south would shed layers of winter cloths for shorts, swim suits, year-round tank tops, sandals, beach towels and suntan lotions as they lounge beneath their hammocks and large beach umbrellas.
What would this hold for Florida? Between the springs of 2008 and 2009 the state population declined by 58,294 – no doubt, bad news. But, as some leave, others would see this as an opportunity to head south, especially retirees who have tired weeks upon weeks of cold and freezing temperatures under gloomy, overcast skies.
According to a report issued by a 2008 CDC report, in 2005 the life expectancy for those over the age of 65 suggests retirees could spend another 18 years (16 male, 19 female) in the Sunshine State making new friends in the vast number of retirement communities.
The best of all bets is that first-time home buyers who already have the funds for a down payment will finally own a piece of the American dream and take hundreds of thousands of unoccupied homes off the housing market. To affectively move large numbers of people into new homes, giving incentives to all prospective homebuyers, new and existing alike, is a necessity. As a compromise new homebuyers could be offered the full $15,000 incentive package while existing homeowners given the offering of $8,000.
I’m all for it. This could be the deciding factor in following through on an anticipated move to where there are “42,145 square miles of scenic beauty” in the Smoky Mountains. Think of me as a future right-wing, gun-totin’ Second Amendment Patriot of The Volunteer State. Seriously.
Monday, September 14, 2009
Bankrupties: The Worst Is Yet To Come
Sub-prime mortgage defaults and bankruptcies have peaked. But in all likelihood our twisted economy still has a long way to go before the recession fully unwinds and slightly happier days are here again.
The next big economic smack-down will be from millions of Alternate-A and Option ARM loans. Dubbed “toxic” mortgages, they portend to be justly named. We’re talking a whole lot more bankruptcies.
Alt-A mortgages are offered to borrowers who pose less risk than sub-prime loans but don’t qualify for an A-paper, or "prime" loan, which requires a FICO credit score greater than 680, verifiable income and, among other criteria, a debt-to-income ratio less than 35%.
Just as a large number of subprime mortgages (40%) were approved through an automated loan process whereby the customary review and documentation of assets and income bred applicant falsification of information and lender fraud, so too went these toxic mortgages.
With a low, introductory interest rate, many buyers were enticed (coerced?) to purchase homes beyond their means. When the introductory rate ends, monthly payments balloon by 50% or more.
The amount of outstanding Alt-A mortgages is over $2-trillion. Add another $750-billion in Option ARM loans that will reset between now and 2013. Keep in mind that sub-prime loans totaled approximately $1.3-trillion. We’re set up for double the trouble.
Now, close your eyes, take the deepest of breaths, and hold it for forty (the number of months until the majority of toxic mortgages have defaulted) seconds. Red-faced and woozy, you’ll be floored. However long it takes before you can stand up straight – no grabbing a-hold of something for stability – that’s a pretty good estimate of how many years before the economy has begun to get back on its feet. Let’s say five minutes/five years.
Option ARM loans give the borrower the flexibility of a repayment schedule that starts with a “teaser” interest rate as low as 1%. The worst of all options are interest-only payments. Intended as an investment vehicle for people whose income can vary (commission jobs or those with regular bonuses), the borrower has the “option” to pay down the principal of the loan. Otherwise, the loan balance increases, resulting in negative amortization. You end up owing more on the house than the value. The value has already plummeted due to the number of foreclosures over the past two years.
Although there’s an Annual Payment Change cap of 7.5%, on the fifth year a built-in recalculation can increase the monthly payment well over 100%. Option ARM loans were popular with property investors when home values were expected to follow an upward climb.
Fitch Ratings, a global agency that analyzes credit markets in more than 80 countries, estimates 80% of all Option ARM holders make the minimum monthly payment. With more than 55% of these borrowers owing more than the value of their properties, with payments about to go sky high, expect many to simply walk away from their investments.
More alarming than what I imagined, in response to my July 1st column “Setting aside common sense for feel-good consumerism”, reader Alex Charles e-mailed what had first appeared to give me a scolding for suggesting everybody who took out a home loan during the boom years made foolish decisions.
Instead, Alex told a frightening tale of what is happening to responsible mortgage holders. Alex has 30 years in Information Technology with Project Management Certification (BA degree plus 4,500 hours experience required – two years). With a FICO score of 820+, he relocated from the north and took out a fixed-rate conventional loan in 2000, never having been late on mortgage and other credit obligations.
That was before he became unemployed on September 17 – a year ago (his job vanished somewhere off-shore). He remains unemployed, over three months behind on mortgage payments and amazed “that Governor Crist has not made any regular press appearances to even ‘sugar coat’ the dire situation of unemployment and small businesses tanking”.
What could possibly be more devastating than an ever-growing number of Americans losing their homes through bankruptcy?
A National Association for the Self-Employed (NASE) survey shows that 3.7-million small businesses (10 employees and less) have toxic mortgages that will come due in the next three years, of which more than a third are already delinquent by one to three months.
With the looming number of small business bankruptcies, the ranks of the unemployed will multiply. Owners don’t qualify for unemployment benefits. Workers have limited benefits that are but a fraction of their previous earnings. With few prospects of rejoining the workforce anytime soon, even at lower pay, their savings become depleted as has already happened to millions of Americans. More bankruptcies.
The toxicity of home and small business ARMs will lead to more bank closings, more foreclosures, more taxpayer funding of bailouts to keep big banks – still too many for the good of taxpayers – from failing.
Of the 8,195 banks and savings associations FDIC insured, 414 were on the “problem list” at the end of June, up from 305 in March and approaching the record 434 institutions in June 1994
Instead, hundreds of small and medium-size banks will fail. Sheila Bair, chairwoman of the FDIC, acknowledges the “looming problem” of commercial real estate loans that saw a doubling of defaults from 2Q of 2008 (1.18%) to 2Q of 2009 (2.88%) with a projected rate of 4.1% by year-end then level off at about 5% through 2012 before a modest decline to 4.5% in 2013.
Bair is hopeful (fingers crossed?) the FDIC will be able to avoid opening an interest-accruing line of credit with the Treasury Department, which has pre-approved a $500-billion loan. The FDIC receives no federal tax dollars – insured financial institutions fund its operations. But, one way or another, don’t taxpayers always gets stuck with the bill?
Taxpayer Alex says, “We certainly don't want a hand-out, just a chance to earn a decent paycheck with health insurance.” Washington is working on it. Or is it?
The next big economic smack-down will be from millions of Alternate-A and Option ARM loans. Dubbed “toxic” mortgages, they portend to be justly named. We’re talking a whole lot more bankruptcies.
Alt-A mortgages are offered to borrowers who pose less risk than sub-prime loans but don’t qualify for an A-paper, or "prime" loan, which requires a FICO credit score greater than 680, verifiable income and, among other criteria, a debt-to-income ratio less than 35%.
Just as a large number of subprime mortgages (40%) were approved through an automated loan process whereby the customary review and documentation of assets and income bred applicant falsification of information and lender fraud, so too went these toxic mortgages.
With a low, introductory interest rate, many buyers were enticed (coerced?) to purchase homes beyond their means. When the introductory rate ends, monthly payments balloon by 50% or more.
The amount of outstanding Alt-A mortgages is over $2-trillion. Add another $750-billion in Option ARM loans that will reset between now and 2013. Keep in mind that sub-prime loans totaled approximately $1.3-trillion. We’re set up for double the trouble.
Now, close your eyes, take the deepest of breaths, and hold it for forty (the number of months until the majority of toxic mortgages have defaulted) seconds. Red-faced and woozy, you’ll be floored. However long it takes before you can stand up straight – no grabbing a-hold of something for stability – that’s a pretty good estimate of how many years before the economy has begun to get back on its feet. Let’s say five minutes/five years.
Option ARM loans give the borrower the flexibility of a repayment schedule that starts with a “teaser” interest rate as low as 1%. The worst of all options are interest-only payments. Intended as an investment vehicle for people whose income can vary (commission jobs or those with regular bonuses), the borrower has the “option” to pay down the principal of the loan. Otherwise, the loan balance increases, resulting in negative amortization. You end up owing more on the house than the value. The value has already plummeted due to the number of foreclosures over the past two years.
Although there’s an Annual Payment Change cap of 7.5%, on the fifth year a built-in recalculation can increase the monthly payment well over 100%. Option ARM loans were popular with property investors when home values were expected to follow an upward climb.
Fitch Ratings, a global agency that analyzes credit markets in more than 80 countries, estimates 80% of all Option ARM holders make the minimum monthly payment. With more than 55% of these borrowers owing more than the value of their properties, with payments about to go sky high, expect many to simply walk away from their investments.
More alarming than what I imagined, in response to my July 1st column “Setting aside common sense for feel-good consumerism”, reader Alex Charles e-mailed what had first appeared to give me a scolding for suggesting everybody who took out a home loan during the boom years made foolish decisions.
Instead, Alex told a frightening tale of what is happening to responsible mortgage holders. Alex has 30 years in Information Technology with Project Management Certification (BA degree plus 4,500 hours experience required – two years). With a FICO score of 820+, he relocated from the north and took out a fixed-rate conventional loan in 2000, never having been late on mortgage and other credit obligations.
That was before he became unemployed on September 17 – a year ago (his job vanished somewhere off-shore). He remains unemployed, over three months behind on mortgage payments and amazed “that Governor Crist has not made any regular press appearances to even ‘sugar coat’ the dire situation of unemployment and small businesses tanking”.
What could possibly be more devastating than an ever-growing number of Americans losing their homes through bankruptcy?
A National Association for the Self-Employed (NASE) survey shows that 3.7-million small businesses (10 employees and less) have toxic mortgages that will come due in the next three years, of which more than a third are already delinquent by one to three months.
With the looming number of small business bankruptcies, the ranks of the unemployed will multiply. Owners don’t qualify for unemployment benefits. Workers have limited benefits that are but a fraction of their previous earnings. With few prospects of rejoining the workforce anytime soon, even at lower pay, their savings become depleted as has already happened to millions of Americans. More bankruptcies.
The toxicity of home and small business ARMs will lead to more bank closings, more foreclosures, more taxpayer funding of bailouts to keep big banks – still too many for the good of taxpayers – from failing.
Of the 8,195 banks and savings associations FDIC insured, 414 were on the “problem list” at the end of June, up from 305 in March and approaching the record 434 institutions in June 1994
Instead, hundreds of small and medium-size banks will fail. Sheila Bair, chairwoman of the FDIC, acknowledges the “looming problem” of commercial real estate loans that saw a doubling of defaults from 2Q of 2008 (1.18%) to 2Q of 2009 (2.88%) with a projected rate of 4.1% by year-end then level off at about 5% through 2012 before a modest decline to 4.5% in 2013.
Bair is hopeful (fingers crossed?) the FDIC will be able to avoid opening an interest-accruing line of credit with the Treasury Department, which has pre-approved a $500-billion loan. The FDIC receives no federal tax dollars – insured financial institutions fund its operations. But, one way or another, don’t taxpayers always gets stuck with the bill?
Taxpayer Alex says, “We certainly don't want a hand-out, just a chance to earn a decent paycheck with health insurance.” Washington is working on it. Or is it?
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