December 08, 2007

Once again, Dems to just cave on Iraq

The Senate is going to pass a government-wide appropriations bill that will include Iraq money without a withdrawal timetable, goal, suggestion or other strings.

The House will pretend to save face. Speaker Nancy Pelosi will have it pass a version of the bill that has no Iraq spending. Once it gets to the Senate, Majority Leader Harry Reid will let Republicans attach an Iraq spending amendment. When the bill goes to House-Senate conference, the House will “quietly” accept the Senate version.

Does Pelosi really think she’s fooling anybody? Is she that dumb in this day and age?

Bisphenol-A comes under Canadian scrutiny

That includes Mountain Equipment Co-op, Canada’s largest outdoors retailer pulling Nalgene bottles from the shelves.

Considering studies as long ago as 1936 suggested bisphenol-A might be an endocrine disruptor, it stands to reason that a modern, thorough, in-depth study not sponsored by the plastics industry is exactly what we need to determine just how much bisphenol-A can leach out of polycarbonate bottles. Too bad we still can’t get that in the U.S.

December 06, 2007

Recession more likely — and around party convention time

Moody’s expects a nationwide housing price drop of 15 percent by 2010 and a California/Florida drop of as much as 30 percent, with full recovery not until 2010.
House prices are forecast to fall 13% from their peak through early 2009. After accounting for incentives home sellers are offering buyers, effective declines peak-to-trough will total well over 15%, the report said.

Punta Gorda, Fla., and Stockton, Calif,, are the hardest hit markets in the United States, with price declines from peak-to-trough forecast at 35.3% and 31.6%, respectively.

"This is the most severe housing recession since the post-World War II period," Moody’s Mark Zandi told Reuters.

Remember, the freeze doesn’t apply to already-delinquent homebuyers, nor does it apply to upside-down loans. And, at a 15 percent drop, not to mention 30 percent in California and Florida, many loans will be upside down.

As for a recession possibility?

The same Moody’s report says housing will knock 1.5 percentage points off economic growth next year, most of that by before the end off summer.

So, a recession — right around the Republican and Democratic national conventions. And, a “reset freeze” that’s like a Band-Aid on a horror flick chainsaw wound.

Mitt Romney likes Muslim prayer

Just not in his would-be Cabinet, I guess. And, Mormonism? He treads even lighter than I expected. Among the highlights from his “JFK speech.”
And in every faith I have come to know, there are features I wish were in my own: I love … the commitment to frequent prayer of the Muslims.

Followed by the prerequisite bashing of a secularist straw man:
We separate church and state affairs in this country, and for good reason. No religion should dictate to the state nor should the state interfere with the free practice of religion. But in recent years, the notion of the separation of church and state has been taken by some well beyond its original meaning. They seek to remove from the public domain any acknowledgment of God. Religion is seen as merely a private affair with no place in public life. It is as if they are intent on establishing a new religion in America – the religion of secularism. They are wrong.

Then, the Religious Right pandering:
Our greatness would not long endure without judges who respect the foundation of faith upon which our constitution rests. I will take care to separate the affairs of government from any religion, but I will not separate us from 'the God who gave us liberty.'

In other words, “I’ll appoint judges who keep the church-state ‘wall’ pretty low.”

Then, the Declaration of Independence and Constitution get fused:
It was in Philadelphia that our founding fathers defined a revolutionary vision of liberty, grounded on self evident truths about the equality of all, and the inalienable rights with which each is endowed by his Creator.

We cherish these sacred rights, and secure them in our Constitutional order. Foremost do we protect religious liberty, not as a matter of policy but as a matter of right. There will be no established church, and we are guaranteed the free exercise of our religion.

The Constitution nowhere grounds any of our rights as being endowed by a Creator. Nice sleight of hand. (Of course, liberals can conflate the two documents, too.)

Then, the anti-terrorist pandering:
Infinitely worse is the other extreme, the creed of conversion by conquest: violent Jihad, murder as martyrdom... killing Christians, Jews, and Muslims with equal indifference. These radical Islamists do their preaching not by reason or example, but in the coercion of minds and the shedding of blood. We face no greater danger today than theocratic tyranny, and the boundless suffering these states and groups could inflict if given the chance.


Final note: “Mormon/Mormonism” only mentioned once, in passing, in comparison to JFK’s Catholicism. As I said, even lighter than I expected.

Foreclosures hit record high in third quarter

By percentage points, the rate of homes in foreclosure jumped 20 percent from the second quarter to the third.
The Mortgage Bankers Association in its quarterly snapshot of the mortgage market released Thursday said that the percentage of all mortgages nationwide that started the foreclosure process jumped to a record high of 0.78 percent during the July-to-September period. That surpassed the previous high of 0.65 percent set in the prior quarter.

Defaults also hit an all-time high:
The delinquency rate for all mortgages climbed to 5.59 percent in the third quarter. That was up from 5.12 percent in the second quarter and was the highest since 1986, the association said. Payments are considered delinquent if they are 30 or more days past due.

Homeowners with spotty credit who have subprime adjustable-rate loans were especially hard hit. Foreclosures and late payments for these borrowers also reached all-time highs in the third quarter.

All of this puts the “rate reset freeze” into starker relief.

Remember, it does not apply to homes in mortgage default, let alone all the way past that into foreclosure.

At the same time, this will probably increase pressure for a Fed rate cut. That, in turn, will probably tank the dollar.

December 05, 2007

White House OKs mortgage rate reset freeze — so what?

The good news? It’s for five years.

The bad news? As preliminary reports indicated the freeze in adjustabale rate mortgage rate resets only applies to homeowners current on their mortgages.

Nor, of course, do we know if ARM –holders who get a five-year grace period will actually learn the discipline it takes to handle a merely delayed, not eliminated, rate reset when it comes down the road.

If not, we’ve just shuffled trouble off to Buffalo, where it will keep growing in the dark.

And, this freeze also assumes lenders will be highly willing to refinance. Well, given what we’ve seen so far, that may not be quite so true.

First, lenders just have not been that anxious to move on this issue.

Second, this may be a situation similar to where people take out six- or seven-year car loans and are, in essence, “upside down” on the vehicle, especially if they want to resell before paying the note off. Something similar may be happening in the case of some houses.

Or, related to that, if a house has lost that much value, investors who bought loans that are now nonperforming would have to agree to eat a loss.

And with slice-and-dice collateralized debt obligations never priced to market, the word “crater” immediately comes to mind in thinking of their potential value in such a situation.

Beyond that, banks and other lending agencies will surely be asking for proof of insurance when a borrower wants to re-fi to a straight-up mortgage. Well, getting back to my early point, what if that ain’t happening, or they ain’t making the grade?

That said, allowing courts more power over renegotiating loans, at least in bankruptcies, would leverage mortgage-buying speculators more.

On the other hand, some economists say that would make lenders more nervous about making loans, which would then make them more pricey.

And, bottom line: people who have paid off loans may not want any sort of bailout that comes out of their wallets.

No word as to whether or not BushCo supports allowing courts more latitude in resetting delinquent mortgages, which is under discussion in the Senate.

Romney: Heavy on religious liberty, light on Mormonism

It looks like that will be the thrust of Mitt Romney’s ”JFK speech,”, to be given at the George Bush Library in College Station, Texas
“'This speech is an opportunity for Governor Romney to share his views on religious liberty, the grand tradition religious tolerance has played in the progress of our nation and how the governor's own faith would inform his Presidency if he were elected,” said Romney spokesman Kevin Madden in a statement.

“Governor Romney understands that faith is an important issue to many Americans, and he personally feels this moment is the right moment for him to share his views with the nation,” Madden said in his statement.

Notice how Madden carefully phrased his statement.

He’s going to talk first about religious liberty and tolerance, then how his own beliefs will inform his presidency.

The second graf has him saying faith is an important issue to many Americans. But not, his faith.

Now, that may be parsing a lot out of one word, but somehow I really doubt Mitt Romney is going to explain Mormonism.

Ancient gold tablets, magic spectacles, Jesus making a junket to America? Not likely to be heard.

Conversion pressures on American Indians in the West? Blacks as “second class Mormons” until the 1970s? Not likely to be discussed.

Nor are we going to hear about celestial marriages, baptisms for the dead, secret temple ceremonies, or those temple undergarments.

Not that most of this stuff is really, that much sillier than the beliefs of other organized religions, at least in their more literalist leanings.

But for the Christian fundies Romney is courting, their beliefs are improbable precisely to show the power of God. Mormonism’s tenets? That’s just human lunacy.

It’s all whose ox is beng gored.

December 04, 2007

Dollar woe to get worse?

Jim Jubak said a probably interest rate hike by the European Central Bank while U.S. financiers pressure the Fed for another rate cut will be the perfect storm for the dollar’s continued slump.
What has changed so much in just three weeks? Inflation in Europe has picked up and is now above the range the European Central Bank has said it will tolerate. There's a good chance the bank will raise short-term interest rates to 4.25% from 4% when it meets Thursday.

With U.S. interest rates on hold or headed lower, the result would be another big boost to the euro, another hit to the dollar, a continued move away from the U.S. dollar by central banks in Asia, Russia and the Middle East, and higher prices for gold and, more importantly, oil.

Jubak focuses on Germany, the largest EU economy. Inflation there is at a 13-year high. Meanwhile, unemployment is at a 15-year low. (That’s a further sign that U.S. conservative and neoliberal/DLC bashing of “European economic “woes” is full of crap.)

Because of such low unemployment, the ECB has no pressure against hiking interest rates.

Plus, unlike the Fed, the ECB is actually eyeing inflation as well as the credit crunch.

Result, if the ECB does as expected? The dollar will fall more, gold will climb, and more foreign countries (read: China and OPEC members) will be more tempted to dump dollars for euros.

Additional loopholes in the CAFE bill

Gregg Easterbrook notes that the ramp-up to 35mpg, rather than requiring incremental increases on the way, is entirely voluntary until 2020. (Scroll about halfway down the page.)
And, that’s not all. It also has a waiver provision!
But TMQ is hugely suspicious, and hopes the media will watch the specifics of the bill carefully. The mpg legislation the Senate already has approved requires a one-third improvement in fuel efficiency — but nothing becomes mandatory until 2020, meaning Detroit could continue to do nothing for 13 years. Worse, the Senate version has a waiver provision that says that if the new standards prove too onerous, automakers can ask they be waived before 2020. That is a formula for what Washington specializes in: the appearance of dramatic action while nothing actually happens.

(Automakers drag their feet, then demand a waiver.) In January, George W. Bush proposed, and Barack Obama endorsed, new mpg rules that would take effect right now, mandating a 4 percent annual improvement in fuel efficiency until a one-third overall betterment is achieved. How often do a sitting conservative president and one of his leading liberal opponents agree on something? The Bush-Obama mpg reform would have gone into effect immediately, with immediate positive results. I worry that what Congress ends up enacting on mpg will be a make-believe bill that sets lofty targets but has no teeth. And I worry that the mainstream media, excited by gaffes and scandals but endlessly bored by the details of public-policy proposals, will be too gullible to notice the difference between real mpg reform and make-believe.

Easterbrook goes on to note that cars now don’t meet the current 27.5mpg average. Since the government reformulated its fuel-economy tests closer to real-world standards, I have no doubt that’s true. I also don’t doubt that current standards probably aren’t being enforced that well by the Environmental Protection Agency.

Finally, he blames the increase in auto horsepower over the last decade or so as being a contributor to road rage. Hmm….

December 03, 2007

“The Pope of the Fed” still proclaims infallibility

Former Federal Reserve chief Alan Greenspan finally admit there’s a housing bubble. But, “me responsible?” No way.
Said the former Federal Reserve chairman: "Markets are becoming aware of the fact that the decline in housing is not stopping. . . . I have no particular regrets. The housing bubble is not a reflection of what we did, as it is a global phenomenon."

Greenspan's conclusion is not accurate. But before describing why, I find it interesting that he said the words "housing bubble." Recall that as the housing bubble was raging and he was still Fed chairman, he argued that real estate could not experience a bubble because all housing markets were local. He specifically cited the impossibility of arbitrage between Portland, Maine, and Portland, Ore., as though that was an impediment to a bubble.

In essence, Greenspan won’t admit that his policies “delocalized” the housing market, either, by artificially inflating the housing sector, which then brought in all the financial institutions who came up with the ideas for their wacky collateralized debt obligations.

Greenspan is now trying to pass the buck globally:
Now he's making the argument that not only is there a housing bubble but that it's been a worldwide housing bubble. Well, this is a rare occasion where he is right. It is a worldwide housing bubble. But that does not mean he was a hapless bystander as the bubble developed. Just the opposite is the case.

One reason for the global housing bubble is that the dollar has been the world's reserve currency, with parts of South America, the Middle East and the Far East linking their currencies to ours. As such, the weak dollar has been a conduit for spreading easy money globally. Therefore, although Greenspan did not directly cause the housing bubble in Europe, his pursuit of wildly indulgent monetary policies at home were transmitted abroad. That did not exactly hurt the development of a housing bubble there.

Exactly. Greenspan’s part in the eventual weakening of the dollar has helped export the larger American financial problems that stem from the housing bubble.

Meanwhile, Saint Alan chose to be a bubble-inflator and a false prophet, already a year ago:
On Oct. 9, 2006, at a financial conference in Calgary, Alberta, he said: "I suspect that we're coming to the end of this downtrend, as applications for new mortgages, the most important series, have flattened out. . . . There is a good chance of coming out of this in good shape, but average housing prices are likely to be down this year (meaning 2006) relative to 2005. I don't know, but I think the worst of this may well be over."

It’s clear, based on his history, that Greenspan was blowing smoke up the housing market’s collective skirt.

Bill Fleckenstein concludes his column by telling us exactly what the Fed needs right now: A Paul Volker to make the country take its medicine.

Yet more credit crunch fallout — businesses as financiers

The amount of major companies that have their own credit arms is staggering. Sony, for example, makes more from financial matters than it does from Sony Pictures.

Here’s the bottom-line story:
How big is financing in the economy? One way to measure it: 18% of the $13 trillion market value of S&P 500 companies is for the financial sector. That bulge is a big part of why the market has been choppy since last summer: Credit problems are dragging down the banks, brokers and insurers. Another measure is profits. The finance sector accounts for 28% of the index's combined $748 billion in earnings for 2006. Those earnings are likely to be down in 2007 when writeoffs are included. Neither of these percentages for financial services includes the financial activities of companies like Sony and GE.

Here’s another way to look at how much is riding on the soundness of borrowers. Debt at U.S. households, governments (state and federal) and nonfinancial businesses now stands at 217% of gross domestic product, up from 141% a quarter of a century ago. So a small rise in interest rates or in defaults is likely to have a bigger impact than it once would have had on business bottom lines and consumers' ability to spend.

In short, as shown by the subprime crisis extending even to Narvik, Norway, with bad CDO investments that city made, there’s a lot fewer barricades to financial problems rapidly spreading. It’s like the Dust Bowl Midwest, after farmers had removed windbreak trees in order to plant crops row to row. That was fine and dandy — until the dustbowl hit, and eastern Colorado wound up landing in places like Ohio or even further east.

Paul Kennedy, in “The Rise and Fall of the Great Powers,” said that with countries in the past such as Britain and Holland, a seminal turning point was when they moved from making money off of making things to making money off making money.

Well, we’re definitely moving that way ourselves.

December 02, 2007

Subprime crisis hits Narvik, Norway?

You read right. Narvik and other towns in Norway had their municipal governments invested in CDO-type securities. The four communities may have lost as much as $64 million or even more. It’s bad enough that Narvik, population 18,000, has missed one city payroll.
“The people in City Hall were naïve and they were manipulated,” said Paal Droenen, who was buying fish at a market across the street from the mayor’s office. “The fund guys were telling them tales, like, ‘This could happen to you.’ It’s a catastrophe for a small town like this.”

Now, the towns are considering legal action against the Norwegian brokerage company, Terra Securities, that sold them the investments. They allege that they were duped by Terra’s brokers, who did not warn them that these types of securities were risky and subject to being cashed out, at a loss, if their market price fell below a certain level.

“When you sell something that is not what you say it is, that is a lie,” Mayor Karen Kuvaas said. She disputed the suggestion that people here lacked the sophistication to understand what they were buying. “We’re not especially stupid because we live so far in the north,” she said.

Norway’s financial regulator agreed that the brokers had misled the towns, and it revoked the license of Terra Securities, prompting the company to file for bankruptcy. But the company’s parent, Terra Group, which is in turn owned by 78 savings banks and remains in business, rejected calls for it to compensate the towns. A spokesman for the group said it too had taken a hit from the episode.

Norway’s finance minister, Kristin Halvorsen, has ruled out the possibility of a state bailout, and Citigroup, which announced Thursday that it would shut down one of the money-losing investments Narvik bought, said it had no legal obligation to step in.

Narvik has investments like this equal to about one-quarter its annual budget. The problem seems to have been created in part by city officials who didn’t read original documents thoroughly, and in at least equal part by Citigroup and others who added fine print after the initial documents were signed.

I wouldn’t be surprised to see Citigroup sued in Norwegian court before this sorry episode is over.