Economy
Senate Aims at Offshore Tax Evasion
A new report shows that one five-story building in the Cayman Islands houses 19,000 financial entities.
A Note On Message Consistency
Sen. John McCain has an op-ed in the St. Petersburg Times today about the potential government bailout of Freddie Mac and Fannie Mae. Here's the first paragraph:
Restructurings Burn the Midnight Oil
I'm heading home now, but the NACA people tell me they'll be here again until midnight. People who have been waiting all day in various lines look tired and worn out, but now and then a NACA staffer takes to the microphone in the loan restructuring room to urge them to stay patient, and not to go. NACA closes up shop Thursday at noon. This really will be the last chance for many.
The Nitty Gritty of it All
I've just been to Florence Thomas' loan restructuring. I'll spell out all the details in a minute, but let's just sum it up like this: It's not pretty.
Thomas, a single mother with three children from Upper Marlboro, Md., lost her long-time job in June as a case manager at a company that folded. She has two Countrywide loans - a stated income adjustable mortgage loan with a 5.75 percent interest rate and a 10.5 percent home equity loan Countrywide recommended when she called two years ago to say the first loan was too expensive. Neither loan ever was appropriate for her, but there's little to be done about that now. Her mortgage payment totals $3,145, which she can't afford, even after cutting everything she thought she could from her budget.
But as she sits at one of the little round tables in the crowded banquet room with NACA counselor Abimael Lorenzo, Thomas gets some bad news. To get a loan modification, she's going to have to cut more. That's the first step of this whole deal. Borrowers have to prove to lenders that they're willing to take some hits, too, in order to get a better mortgage. "This is not a free ride," Lorenzo says.
First, goes $120 a month for cable. Thomas doesn't protest. When he moves to cut $200 from the grocery budget, she points out that she's already a frugal shopper, but he doesn't budge. "Right now," he tells her, "we need to save your home."
"I hear you," Thomas replies. A few minutes later, I notice her holding her head in her hand.
The End of a Dream
I was on my way to see for myself how the loan restructurings are going when I ran into Marilu Gonzalez, and her three daughters, ages 13, 10 and 3. The Gonzalez family just drove about an hour from Bowie, Md. to get here, because a cousin called and told them he got his loan restructured on Monday. NACA has always been good at publicity, but what's interesting to me is that people here keep telling me they learned of this event word-of-mouth. Gonzalez was surprised to see so many people here because she thought it was just for the Spanish community.
My Name Is IndyMac
As people wait in line for their turn at talking to counselors, they get nametags to hang around their necks. Only the tags identify which lender holds their loan, instead of who they are. So the sidewalk, and the lobby, and the hallways, are filled with people displaying tags around their necks saying "IndyMac" or "Countrywide" instead of "Hi! I'm Steve."
What's $15 for Parking When You're Trying to Save Your House
Bread Lines and Foreclosed Houses
Trying to Save the Dream
I'm heading to the Capitol Hilton in downtown Washington today, to see if some people are going to be able to ditch the odds in this rapidly worsening mortgage crisis and somehow avoid losing their homes.
For five days here, the Neighborhood Assistance Corp. of America, or NACA, is holding a "Save the Dream of Home Ownership" event. NACA is a high-profile housing advocacy group; it called for a boycott of Countrywide Financial Corp. and organized protests at its branches last year, before reversing itself and reaching an agreement with the lender in October 2007 to help Countrywide homeowners modify their loans. NACA also has committed $1 billion of the money it wrested from Citigroup and Bank of America a few years ago, after protests and marches against the banks, to work with troubled homeowners.
Too Good To Be True?
Bank of America's announcement today of a 41 percent decline in earnings - its fourth-straight drop - is generating the same reaction on Wall Street as Citigroup's losses did last week: It's bad, but not as bad as we thought.
That kind of thinking prompted a rally in financial stocks, aided by JPMorgan Chase and Wells Fargo delivering upbeat earnings reports. And it raised hopes that banks might be doing a little better than expected. Maybe, this thinking goes, the worst of the credit crisis is behind us.
To which Hale Stewart of "The Bondad Blog," says: Not so fast.
The New Boom Towns
With $5-per-gallon gas, will Fargo, N.D., be the next Dubai?
Life Imitates Art
Last week I fulfilled a long-held promise and took my 8-year-old daughter to Kit Kittredge: An American Girl. For those of you fortunate enough not to be caught up in the very lucrative American Girl phenomenon - can you say ka-ching! - Kit is the Depression-era fictional character, and the movie follows her macap adventures during those hard times. I can say that the foreclosure signs being pounded into the lawns of the homes in Cincinnati had a certain ring of familiarity to them these days, as Kit and her friends would watch from their treehouse as yet another neighbor's belongings were hauled to the curb. Kit's attempts, on the other hand, to have her story on Depression-era life from a kid's eye view published in the Cincinnati Register fell a little short of believability, although Wallace Shawn was quite entertaining as the gruff city editor.
So why am I prattling on about a movie based on a doll, who, as the Washington Post's Ruth Marcus pointed out, no one could actually afford during the Depression? Because the movie's plot centers around Kit's family being forced to open their home to boarders to pay the mortgage and keep it from being seized by the bank - a common occurence during the Depression. Then, this morning, I scrolled through the New York Times to see this: "More Homeowners Taking in Boarders." According to the story, "modest but growing" numbers of homeowners are turning to agencies that screen boarders so they can use the rent payments to keep their homes:
Government Rescues and Socialized Capitalism
In our story Monday about the government's rescue plan for Fannie Mae and Freddie Mac, we raised the question of why, once again, no conditions were required from the institution being rescued. Like Bear Stearns, both of the mortgage giants weren't asked for anything in return for gaining access to possibly billions of dollars and loans and investments from the federal government.
President Bush denied in Tuesday's press conference that help for the two companies amounted to a bailout, but some see the government's actions as just that.
Economist and former Clinton administration Labor secretary Robert Reich calls the government's actions "socialized capitalism," consisting of private gains and public losses. How do you weigh that against the need to help investment banks that are too big to fail? Reich has some ideas in his post:
Iconic Images and Hard Times
Federal Reserve Chairman Ben Bernanke's testimony before Congress was so gloomy today about the economy's future that it got me thinking about images that define the times. Dorothea Lange's famous photograph of an impoverished California migrant mother and her children remains the iconic image of the Great Depression.
What should illustrate the mess we're in now? A foreclosure sign doesn't really cover it. Via Housing Wire, Peter Viles of The Los Angeles Times offers these images: People waiting in a long line to buy a house in Simi Valley, just five short years ago, and people waiting in another long line on Monday, to get their money out of failed lender IndyMac. Here's yet another bank run image, this one from the Orange County Register, of an elderly woman wiping her forehead and sitting down after nearly fainting while waiting in an IndyMac bank line.
Another Free Bailout
Like the federal Bear Stearns bailout, the latest Washington rescue plan doesn't require anything of the group being saved.
The Government to the Rescue - Again
So the Bush administration wants Congress to approve a rescue plan for Fannie Mae and Freddie Mac, and not that officials are nervous about the future of the two firms or the state of the housing market or anything -- but they actually worked on a Sunday to come up with it, The New York Times says. Under the plan, the government would be able to buy billions of dollars of stock in the two companies, and it would expand its line of credit should the mortgage giants need it.
No doubt part of the plan is to avoid another debacle on Wall Street today, when Freddie Mac debuts an expected $3 billion debt offering. But this one also falls into the too-big-to-fail category, one that seems to be in expansion mode these days; hardly anyone thinks the mortgage markets have a prayer of avoiding a complete and total free fall should Fannie Mae and Freddie Mac go under.
The Last Sucker
The stock market decline of Fannie Mae and Freddie Mac is more rapid and dramatic than anyone expected, but it should be no surprise that the two eventually would wind up in some sort of trouble. For years, conservatives and liberals alike have had issues with both of the entities, and although the specifics of the complaints have differed, the common theme of the complaints centered on the problematic nature of the Fannie and Freddie's very existence. The two were created by Congress to provide money and stability to the mortgage markets. They are the largest buyers of home loans, which they repackage into securities for sale on Wall Street. They also are assumed to have the implicit backing of the government, even though they were converted into private companies. Here's a good backgrounder from Econobrowser. Anyway, this meant for years that everyone assumed the government would step in if their portfolios tanked, but no one really believed that would ever happen or be necessary. They didn't believe it because that would put the government in the position of being the last sucker if the housing market were to collapse and mortgages go sour.
So mortgage companies and banks complained for years that Fannie and Freddie's implied government backing gave it an unfair advantage in the marketplace. On the other side, community groups and housing activists maintained that the two put market interests above their mission to promote homeownership. When Fannie Mae moved to quickly get foreclosed properties off its books, activists in Cleveland charged that Fannie turned the properties over to speculators who only added to neighborhood blight. When Fannie and Freddie, to stay competitive, waded into the subprime market, legal aid lawyers who deal with predatory lending victims contended their presence encouraged more abusive subprime lending.
Whining and Spending
Former Republican Sen. Phil Gramm's keen insights into the psychology of American consumers - "a nation of whiners" bogged down in a "mental recession" - warrants the usual frenzy that accompanies a campaign gaffe. But there's more to this one than just a top advisor to Rep. John McCain shooting off his mouth. Gramm's comments reflect the long-held thinking of Republicans and the Bush administration, going back to the 2001 tax cut stimulus, that consumer spending can both carry and rescue the economy.
There's a basis for that belief, of course. Consumer spending accounts for two-thirds of economic activity, and the recent stimulus bill sought to leverage that fact. By many measures, Gramm isn't entirely off the mark; the economy still shows signs of life, from strong exports to weak but real growth of 1 percent in the first quarter. Gramm told The Washington Post that "based on the data, we are not in a recession. But that does not mean all this talk does not have a psychological impact."
More Latte Index News
Wait, here's yet another offbeat economic indicator, this time from the New York Times: sunglasses. In a story today, the Times says designer and high-end sunglasses are one luxury item people are still willing to splurge on, particularly young girls.
Take the Money and Run
Is the price of concert tickets an economic indicator? The Big Picture spots a discount for a Steve Miller Band concert from its promoters that features "tickets available for only $10!" and begins to wonder. He also cites an anonymous industry executive who tells him the following:
