October 10, 2008

CRASH TALK OCTOBER 10

Phil Mattera, Dirt Diggers Digest - Jerry Brown, once derided as Governor Moonbeam because of his unorthodox ideas while serving as the chief executive of California, today showed that he is much more in touch with reality than the U.S. Congress and the Bush Administration. Brown, currently California's attorney general, announced a settlement under which one of the worst predatory lenders will be compelled to spend more than $8 billion to assist borrowers who are confronting foreclosure.

Congress, at the behest of the Administration, approved a misguided bill that bails out major banks to the tune of $700 billion and provides little direct assistance for struggling homeowners-and still may not solve the credit crunch. Brown and the attorneys general of ten other states went to the real heart of the problem. Earlier this year, they sued subprime lender Countrywide Financial (now owned by Bank of America) and have now gotten the company to disgorge some of its ill-gotten gains tied to the subprime mortgages it was peddling.

The settlement with Countrywide - which Brown's office played a central role in bringing about - is by far the largest recovery from a predatory lender. . . The settlement . . . includes options such as interest rate and principal reductions as well as complete Federal Housing Administration refinancing under the HOPE for Homeowners Program. There is also financial assistance for those whose homes have already been foreclosed. This settlement by itself seems to do more to help homeowners than the whole ballyhooed federal bailout.

Market Watch - General Motors Corp. shares, already reeling from the widening credit crisis that has crippled Wall Street, fell as much as 22% in early trades Thursday, dropping to levels last seen around Christmas time in 1950.

Progressive Review - Two things we never expected showed up on the first page of the Washington Post. One was an article raising the question: "The End Of American Capitalism?" which is quite a query given the Post's role in encouraging casino capitalism over the past three decades. But the other thing was even more impressive and unusual: a chart showing the actual decline over the past year of the Dow compared with the1929 crash and the 2000 tech bubble collapse.

The similarities between the 2000 crash and the 1929 one has been a big secret in the press, because it began during the media cared for Clinton administration during an election year. But here's a chart we ran some years ago:


Progress Report - Dana Perino suggested that the Bush administration would oppose any effort to extend jobless benefits, a stance that the White House has taken before. She explained this position by saying, "[We want people to be able to return to the workplace as soon as possible" and concluded that "the best way to help" the economy and unemployed people is for the unemployed to start "getting back to work."

Wall Street Journal - Treasury Secretary Henry Paulson, in a marked shift in rhetoric, played up Treasury's newfound authority to "to inject capital into financial institutions" in remarks Wednesday. Mr. Paulson, who won approval from Congress to buy $700 billion worth of distressed assets, had previously focused on Treasury's plan to buy mortgage-related securities from financial institutions that are having trouble getting the assets off their books. As the financial crisis continues to escalate, Treasury has begun fleshing out ways to use its authority to make direct injections into financial institutions, according to a person familiar with the matter. Treasury is figuring out how to structure such infusions so that banks can recapitalize and begin lending. No such moves are imminent, but the fact that the department is engaging in such discussions is an indication of how the crisis is constantly morphing. Such a move was not under consideration just a few days ago but has become more of a possibility in recent days as the stock market has plunged and the credit crunch shows no signs of easing.

Canoe, CA - High banking standards have kept Canada's financial institutions afloat and out of the kind of trouble that has sunk many of their international peers, Finance Minister Jim Flaherty said. . . . "We've had a couple of financial institutions in Canada that ran the risk of falling outside the capitalization requirements," he said during a news conference on Wednesday. "We required them... to maintain the appropriate capital requirements and raise capital as necessary, which was done months ago.". .

Some of the fundamentals credited with keeping Canada's banks in the safe zone were put in place nearly a decade ago by the Liberal government of Jean Chretien, including a refusal to approve any Canadian bank mergers.

While Flaherty said government regulation has helped make Canada's banking industry more secure than financial sectors in the United States and many other countries, Canada has also benefited from a strong housing market and more conservative lending practices.

So-called subprime mortgages to risky borrowers, which were at the heart of the U.S. financial collapse, were only a tiny part of the Canadian mortgage industry and are non-existent today. Meanwhile, Canadian borrowers must put down at least five per cent of the cost of a home and the maximum payback period on federally insured mortgages has been reduced to 35 years from 40 years, lowering the risk of defaults.

Progress Report - A study released by the Center for American Progress has found that in every racial and ethnic group, women in America are more likely to be poor than men. "Over half of the 37 million Americans living in poverty today are women," and "the gap in poverty rates between men and women is wider in America than anywhere else in the Western world," the brief states. There are a number of factors contributing to the high proportion of women living in poverty. Women are paid less than men, segregated into low paying jobs, and are more likely to bear child care costs. Moreover, pregnancy affects women's work and educational opportunities more than men's and domestic and sexual violence can push women into a cycle of poverty. The report recommends "a range of decent employment opportunities with a network of social services that support healthy families, such as quality health care, child care, and housing support."

Dean Baker, Guardian, UK - This is the first time in the history of the United States that the president has sought to provoke a financial panic to get legislation passed through Congress. While this has proven to be a successful political strategy - after the House of Representatives finally passed the bank bail-out plan today - it marks yet another low point in American politics. . .

The scare tactics of President Bush, Henry Paulson, the Treasury secretary, and Ben Bernanke, chairman of the Federal Reserve, created sufficient panic, so that by the time of the first vote on the emergency package in Congress, much of the public believed that the defeat of the bail-out may actually have had serious consequences for the economy. Millions of people have changed their behavior because of this fear, with many pulling money out of bank and money market accounts, and adjusting their financial plans in other ways.

The collapse of the housing bubble, while falling short of the magnitude of the Great Depression, is likely to lead to the worst recession since the second world war. Repairing the damage caused by this bubble will be a long and difficult process. Cleaning up the damage to the political system from President Bush's unprecedented fear campaign may prove to be even more difficult.

WHY YOU CAN'T BLAME THE HOUSING CRISIS ON POOR HOMEOWNERS

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