Saturday, November 15, 2008

CRASH TALK

Jon Hurdle, NY Times - Philadelphia, Phoenix and Atlanta will seek at least $50 billion in emergency financing from the federal Treasury to help with infrastructure renewal, pension costs and short-term borrowing, which have all been curtailed by the credit crisis. The cities are calling on Treasury Secretary Henry M. Paulson Jr. to release the money from the $700 billion Troubled Asset Relief Program authorized by Congress to bail out banks and financial institutions. About a half-dozen other cities, including Chicago, are reviewing the plan and may sign on, said a spokesman for Mayor Michael Nutter of Philadelphia, who is leading the initiative. . . In the past three weeks, Philadelphia, New York and other cities have announced cuts to services as revenues hit by the economic slowdown create budget deficits. Philadelphia will lay off about 220 city employees, and shut libraries and swimming pools to close a $108 million gap in its current $4 billion budget.

Pro Publica - Rep. Steve LaTourette (R-OH) said the HOPE housing program had attracted far fewer applicants than expected. In its first two weeks of existence, the Federal Housing Authority's HOPE for Homeowners program, meant to help as many as 400,000 homeowners avoid foreclosure, has fielded a grand total of 42 applications. The program set aside $3.9 billion to help people in "neighborhoods hardest hit by foreclosures" renegotiate their loans, but as Rep. Steve LaTourette (R-OH) noted in yesterday's congressional hearings on the financial crisis, the effort appears to have fallen flat and now expects to receive only a fraction of the applications it was designed to manage.

Naomi Klein, Alternet -
Despite potential lawlessness, the Democrats are either openly defending the administration or refusing to intervene. "There is only one president at a time," we hear from Barack Obama. That's true. But every sweetheart deal the lame-duck Bush administration makes threatens to hobble Obama's ability to make good on his promise of change. To cite just one example, that $140 billion in missing tax revenue is almost the same sum as Obama's renewable energy program. . .

I suspect that the real reason the Democrats are so far failing to act has less to do with presidential protocol than with fear: fear that the stock market, which has the temperament of an overindulged 2-year-old, will throw one of its world-shaking tantrums. Disclosing the truth about who is receiving federal loans, we are told, could cause the cranky market to bet against those banks. Question the legality of equity deals and the same thing will happen. Challenge the $140 billion tax giveaway and mergers could fall through. "None of us wants to be blamed for ruining these mergers and creating a new Great Depression," explained one unnamed congressional aide.

More than that, the Democrats, including Obama, appear to believe that the need to soothe the market should govern all key economic decisions in the transition period. Which is why, just days after a euphoric victory for "change," the mantra abruptly shifted to "smooth transition" and "continuity."

Washington Post - Retail sales plunged by the largest amount on record in October as the financial crisis and the slumping economy caused consumers to sharply cut back on their spending. . . The decline in sales was led by a huge drop in auto purchases, but sales of all types of products from furniture to clothing fell as consumers retrenched. The 2.8 percent drop marked the fourth consecutive monthly decline in retail sales and was much bigger than the 2 percent fall economists expected.

Portland Press Herald, ME - The market for recycled waste has collapsed during the past few weeks, slashing the revenue that helps cover municipal trash budgets and forcing regional waste handlers to stockpile old newspapers and other castaways. "It started with newsprint, then it went to cardboard, then it went to steel cans, then it went to plastics," said Kevin Roche, general manager of Ecomaine, a waste disposal and recycling cooperative owned by 21 Greater Portland communities. The market got so bad for old newsprint, in fact, that Ecomaine couldn't give it away. It has filled a warehouse and part of a parking lot with bales that used to be worth $162 a ton, Roche said. Ecomaine started sending the paper off for recycling again this week, but it now has to pay to get rid of it.

Phil Mattera, Dirt Diggers Digest
For his next trick, the Great Paulson is applying that same technique to the consumer finance sector. Using language similar to his scare talk in September about the housing and business finance sectors, Paulson yesterday warned that consumer finance "is currently in distress, costs of funding have skyrocketed and new issue activity has come to a halt. Today, the illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards."

No doubt that is all true, but Paulson's apparent plan to address the crisis is more of the same. Rather than helping consumers directly, he intends to provide capital infusions to the corporations that are supposed to provide those loans. In other words, he is applying the same dubious logic as with the bank investments: Prop up the balance sheets of the lenders and the loans will start flowing again.

Keep in mind that the consumer finance industry followed the same path as home lending in recent years. Shaky and often predatory loans were pushed on struggling borrowers and then repackaged as asset-backed securities that are now in precarious condition. Paulson's infusions will go to the same companies that perpetuated that abusive system. . .

What Paulson can't seem to understand is that lenders of all kinds are spooked by the weakness of the economy. Credit is based on the faith that the borrower can repay the loan, and for now almost no one looks trustworthy. Until significant steps are taken to boost employment and household income, all the federal investments in the financial sector serve as nothing more than corporate handouts. Maybe that's Paulson's real sleight of hand.

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