CRA is not the cause for the foreclosure crisis
 

Just in case any reader is still in the blame-CRA crowd:

Consumers Union says,

"CRA is not the cause for the foreclosure crisis"

[URL]http://www.consumersunion.org/pub/homepagerighttop/006247.html[/URL]

[quote]
[B]Statement from National Civil Rights, Consumer, Community Development and Housing Groups Regarding Attacks on the Community Reinvestment Act (CRA)[/B]

Washington, DC – The following group of civil rights, consumer, community development, and housing groups today made the following statement:

Recent conversations pointing to the Community Reinvestment Act as the cause of the foreclosure crisis and credit market crisis are an attempt to deflect attention away from the real problem affecting our financial system. That problem is failed regulatory policy and oversight.

For more than a decade, community leaders, civil rights proponents and housing groups have raised concerns about unfair, deceptive and abusive lending practices that have undermined homeownership aspirations for millions of working families. Those pleas for better regulatory policy and oversight not only went ignored, in some cases they were contradicted by regulatory policy that made predatory lending more virulent and prevalent in low-income neighborhoods and communities of color.

Over that same period, thousands of pages of local, state and federal testimony, peer reviewed policy papers and speeches (many from the groups signed onto this statement) have forewarned of a pending crisis stemming from lax regulatory oversight and enforcement. Yet no serious federal response was made. As Harvard University law professor Elizabeth Warren has artfully stated, consumers had better protection buying a toaster or microwave oven than they had when purchasing the family home.

One example of regulatory failure is that many vital financial institutions – and the products they created and sold -- were not covered by meaningful regulation. Some market players clearly knew their actions were creating a potential market crisis. A Securities and Exchange Commission (SEC) Report recently found that in December of 2006 one analytical manager at a prominent credit rating agency wrote to another senior analytical manager to say “let’s hope we are all wealthy and retired by the time this house of cards falters.”

Improved regulation of the financial system – including brokers, lenders, appraisers, rating agencies and securitizers – was essential. If the Community Reinvestment Act – and other appropriate regulation -- had been applied to independent mortgage companies and other non-bank financial institutions, it is likely that our nation would not be confronted with a foreclosure crisis. Critics of the law conveniently ignore that about 75 percent of sub-prime loans were not covered by CRA. They also ignore the fact that most reckless and damaging subprime lending occurred between 2003 and 2007, long after CRA’s passage in 1977.

CRA exams provide clear and strong incentives for banks to make safe and sound loans and penalize them for making loans that are unfair and abusive. CRA is an antidote, not a cause of the current crisis.

Signed by:

Accion USA / Chicago / New Jersey / New York
Center for American Progress
Center for Responsible Lending
CDFI Coalition
Consumer Action
Consumer Union
Consumer Federation of America
Dēmos: A Network for Ideas & Action
Enterprise Community Partners
Housing Assistance Council
Lawyers' Committee for Civil Rights Under Law
Leadership Conference on Civil Rights
Local Initiatives Support Corporation
NAACP
National Association of Consumer Advocates
National Alliance of Community Economic Development Associations
National Community Reinvestment Coalition (NCRC)
National Consumer Law Center (on behalf of its low income clients)
National Council of La Raza
National Council of Negro Women
National Housing Conference
National Housing Institute
National League of Cities
National Low Income Housing Coalition
National NeighborWorks Association
National Policy and Advocacy Council on Homelessness (NPACH)
National Rural Housing Coalition
National Urban League
Opportunity Finance Network
Rainbow PUSH Coalition
US Conference of Mayors

[B]Contact[/B]:
Pamela Banks
202-462-6262
[/quote]

I can make a very good argument that CRA is bad regulation for banks that it applies to. In a nutshell, 86% of mortgage loans made over the last 3 years were by institutions to whom CRA did not apply. Of the remaining 14%, only a small portion were actually CRA driven loans. The tenets of CRA cause otherwise un-credit-worthy people to be able to get loans. Any way you slice this, the result is that banks to whom CRA applies will be hurt by loan defaults. Just don't blame CRA for the financial meltdown that was caused by non-CRA loans.

DarJones

GSEs to Restructure Mortgages | Radioactive Beer
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aDBGRC.3CRSs&refer=news]Citigroup, Fannie, Freddie Will Limit Foreclosures, Restructure Mortgages[/url]: [i]Mortgage companies Fannie Mae and Freddie Mac and Citigroup Inc. plan to cut home-loan payments for hundreds of thousands of borrowers facing foreclosures, following similar moves by the nation's biggest banks. [/i]
[quote]Fannie Mae and Freddie Mac will reduce principal or interest rates on some loans and extend the terms of others, people briefed on the matter said. The Federal Housing Finance Agency, which seized control of Fannie and Freddie in September, scheduled a press conference at 2 p.m. in Washington to announce the plan.

Congress has been urging financial-services companies to work with borrowers after foreclosures rose to the highest on record in the third quarter. JPMorgan Chase & Co., the biggest U.S. bank, said last month it would stop foreclosures on some loans as it works to make payments easier on $110 billion of problem mortgages, while Bank of America Corp. said it has modified 226,000 loans this year.

``If housing doesn't get stabilized, it's really going to continue to bleed the economy,'' said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, Bloomberg's most accurate economic forecaster for 2008.

Citigroup, the fourth-largest U.S. bank by market value, will contact about 500,000 homeowners with $20 billion in mortgages during the next six months, the New York-based company said in a statement today.

...

Citigroup plans to reach out to loan holders who live in their homes and have ``sufficient income for affordable mortgage payments,'' the statement said. The bank will extend a moratorium on foreclosures to those who meet these criteria.

The Fannie Mae and Freddie Mac plan won't include money from the Treasury's $700 billion bank rescue package, the people familiar with the matter said. The House Financial Services Committee has scheduled a hearing tomorrow on loan modifications. [/quote]
[b]My Comment:[/b] I hope they - especially on the Fannie/Freddie end of things, where taxpayer dollars rather than shareholder value is at stake - really are very careful to only engage in loan modification with borrowers who have at least a snowball`s chance in hell of servicing the mortgage. I cannot help but wonder: if the U.S. gvernment and Treasury had focused on this kind of "bottom up" bailout approach to begin with rather than throwing huge sums of money at the banks and hoping that would magically solve the mortgage crisis, how much of the $700B-plus bailout would have been necessary?


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=apRDGKM7Sbi8&refer=news]Bonuses for Bailed-Out Wall Street Should Go to Zero, U.S. Taxpayers Say[/url]: [i]U.S. taxpayers, who feel they own a stake in Wall Street after funding a $700 billion bailout for the industry, don't want executives' bonuses reduced. They want them eliminated. [/i]
[quote]Compensation at Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and the six other banks that received the first $125 billion of the federal funds is under scrutiny by lawmakers, including Rep. Henry Waxman, a California Democrat, and New York Attorney General Andrew Cuomo, also a Democrat. President-elect Barack Obama cited the program at his first news conference on Nov. 7, saying it will be reviewed to make sure it's ``not unduly rewarding the management of financial firms receiving government assistance.''

While year-end rewards are likely to decline with a drop in revenue this year, industry veterans say that eliminating them risks driving away the firms' most productive workers.

``There are instances where bonuses are justified, deserved, and in the best interests of the investment bank involved,'' said Dan Lufkin, a co-founder of Donaldson Lufkin & Jenrette Inc., the investment bank acquired by Credit Suisse Group AG in 2000. ``Your very best people are people you want to hold, and your very best people will have opportunities even in this environment to transfer allegiance.''[/quote]
[b]My Comment:[/b] Since it was Big Finance`s "most productive", their "best and brightest" who did so much of the "financial innovating" which helped get us here, I will lose little sleep at the prospect of these folks transferring their dubious "allegiance" elsewhere.


[url=http://money.cnn.com/2008/11/11/news/companies/general_growth/index.htm]No. 2 mall operator warns of bankruptcy[/url]: [i]General Growth Properties blames weak retail sales and a credit market freeze.[/i]
[quote]NEW YORK (CNNMoney.com) -- General Growth Properties Inc., the No. 2 mall operator in the United States, has warned that an ongoing slump in retail sales, combined with the credit market lockdown, has pushed the company to the brink of bankruptcy.

Chicago-based General Growth Properties (GGP) said in an SEC filing late Monday that it has $900 million of property secured debt and $58 million of corporate debt that's coming up for renewal by Dec. 1. It also faces another $3.07 billion in debt that matures in 2009.

But "given the continued weakness of the retail and credit markets," the mall operator fears it may not be able to refinance its loans at lower rates to meet its short-term cash needs.

General Growth Properties (GGP) shares tumbled 66% to 46 cents in Tuesday trading on the New York Stock Exchange.

GGP announced in August that it would might sell some assets to raise capital for servicing its debt. The company currently operates more than 200 malls in 44 states, including the Paramus Park Mall in New Jersey, Cumberland Mall in Atlanta, Water Tower Place in Chicago and the Glendale Galleria in California.

"Our potential inability to address our 2008 or 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern," the company said in the filing.

Retail real estate experts say other large mall operators could also find themselves in the same situation as GGP. That's because several of the leading mall operators have significant debt that's coming up for renewal at the end of 2008 and early 2009.

But given the tight credit environment and dismal forecasts for retail sales in the fourth quarter, analysts said lenders probably won't refinance those loans at lower rates.

If GGP does file for bankruptcy, the company's real estate portfolio could be broken up and its malls acquired by other mall operators, said Ivan Friedman, president & CEO of RCS Retail Real Estate Advisors.

"General Growth has some very valuable properties," he said. [/quote]
[b]My Comment:[/b] "If GGP does file for bankruptcy, the company's real estate portfolio could be broken up and its malls acquired by other mall operators" ... where are these flush-with-cash, sales-are-booming "other mall operators" supposed to come from, exactly?

[b]Hidden Costs of Recycling: The Radioactive Beer Scout[/b]

[Apologies to [url=http://www.dangerouslaboratories.org/radscout.html]this fellow[/url] for shamelessly punning on his story title]

[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aKNgo0CVJg9s&refer=news]Radioactive Beer Kegs Threaten Public, Boost Costs at ArcelorMittal, Nucor[/url]: [i]French authorities made headlines last month when they said as many as 500 sets of radioactive buttons had been installed in elevators around the country. It wasn't an isolated case. [/i]
[quote]Abandoned medical scanners, food processing devices and mining equipment containing radioactive metals such as cesium-137 and cobalt-60 are often picked up by scrap collectors and sold to recyclers, according to the International Atomic Energy Agency, the UN's nuclear arm. De Bruin said he sometimes finds such items hidden inside beer kegs and lead pipes to prevent detection.

Smelting such items contaminates recycled metal used to make new products and the furnaces that process the material. Cleanups cost as much as $30 million, according to the Brussels-based Bureau of International Recycling, which represents metal, paper and glassmakers.

The danger increases when metal prices rise, pushing scavengers to pick up and sell more material, said Martin Magold, who led a Geneva-based UN team that tracked radioactive metal shipments in Europe.

Prices for scrap steel quadrupled to $665 a ton in Rotterdam over the past five years. After peaking on July 3, prices dropped to $115.50 last week as the slowing global economy eroded demand.

``Because of high scrap prices, any little piece is being sold for recycling,'' Magold said. ``Alarms will go up dramatically in coming years.''

Nucor Corp., the biggest U.S.-based steel producer, has spent more than $1 million installing and upgrading radiation detection equipment at its plants, said Steve Roland, environmental director for the Charlotte, North Carolina company.

``Orphaned sources are a significant problem worldwide for the recycling industry,'' Roland said. ``Anything governments can do to remove sources from commerce and hold people accountable for the loss is to our benefit.''
[b]
Cancer, Birth Defects
[/b]
Chronic exposure to low doses of radiation can lead to cataracts, cancer and birth defects, according to the U.S. Environmental Protection Agency.

A study of 6,252 Taiwanese people who lived in apartments built with radioactive reinforcing steel found that 117 cancer cases were diagnosed from 1983 to 2005. The research showed a statistically significant increase in leukemia and breast cancer.

``People don't understand the risk,'' said Dr. Peter Chang, a professor of environmental health at Taiwan's National Medical Center who developed the study. ``We have an extreme lack of education.''
[b]
Spanish Cloud
[/b]
In 1998, equipment containing cesium-137 was smelted at a foundry in Los Barrios, Spain, operated by Acerinox SA, the world's largest stainless steel producer. Radiation spread over Italy and France, triggering concern that a reactor had melted down in Russia, according to an IAEA report on the incident.

While only six people were exposed to radiation, the cleanup, hazardous waste storage and interruption of business cost the company an estimated $25 million, the report said.

At the time, Acerinox had radiation detectors installed in parts of the factory and assumed the scrap it purchased had been inspected by the dealer, said Juan Garcia, a Madrid-based spokesman for the company. Acerinox has since improved security by spending about 100 million euros ($129 million) on ``advanced contamination-detection technologies,'' he said.

The event also led Spain to rewrite rules governing the scrap metal industry and to create an agency that helps recyclers dispose of radioactive materials.

The IAEA may recommend that governments increase monitoring of scrap shipments at international borders and recyclers screen all material entering their plants, according to draft guidelines circulated by the agency.
[b]
ArcelorMittal Scanners
]/b]
Many large metal producers in the U.S. and western Europe say they already screen for nuclear material.

``All our steelworks are equipped to verify possible radioactivity contamination of the scrap shipments,'' Jean Lasar, a spokesman for Luxembourg-based ArcelorMittal, the world's biggest steelmaker, said in an e-mail.

Much of the contaminated scrap originates in or passes through countries with inadequate licensing regulations and detection equipment.
[b]
For example, about 1,000 radio-electronic thermal generating units were misplaced after the collapse of the Soviet Union, said Abel Gonzalez, a former IAEA inspector who helped retrieve such orphaned sources in Russia. The devices, used to power remote lighthouses, each contain as much radiation as was released by the Chernobyl meltdown in 1986, he said.[/b][/quote]
[b]My Comment:[/b] Is that a head of regular or quantum froth on your beer there? Interestingly, beer [and not just by way of its being consumed in mass quantities] in fact figures prominently in the history of nuclear physics - the idea for the [url=http://en.wikipedia.org/wiki/Bubble_chamber]bubble chamber[/url] was conceived by an off-duty physicist while examining the [url=http://units.sla.org/division/dpam/pam-bulletin/vol09/no4/may1982.pdf]rising bubbles in a glass of beer[/url]. [I had the privilege of imbibing more than a few beers at the very same [url=http://arborwiki.org/city/Pretzel_Bell]Pretzel Bell[/url] restaurant in Ann Arbor before it closed in the late 80s]. I notice laureate Glaser now denies that the bubbles in the beer were the actual *inspiration* for the bubble chamber, but come on, even were that true, why ruin a great anecdote with some ugly facts, I say.

[quote=Fusion_power;148853]The tenets of CRA cause otherwise un-credit-worthy people to be able to get loans.[/quote]No, the CRA encourages banks not to "redline" by ruling out loans to entire neighborhoods. It provides for periodic examinations of banks to determine whether they comply.

It does _not_ require that any bank make a loan to a noncreditworthy person. What it _does_ is encourage banks to stop using a creditworthy person's location or neighborhood as reason to deny a loan.

From [URL]http://www.federalreserve.gov/DCCA/CRA/default.htm[/URL]:

[quote]Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner.[/quote]

- - -

BTW, I've seen other accusations that this "19[B]9[/B]7" law passed during the "[B]Clinton"[/B] administration was responsible for the subprime, etc., etc. But the law was passed in 19[B]7[/B]7, not 1997. This, of course, fits less well with some of the blame-CRA idea, so the digit substitution is easy.

Wikipedia's article ([URL]http://en.wikipedia.org/wiki/Community_Reinvestment_Act[/URL]) has a list of changes since 1977. None is listed as occurring in 1997.

Housing Bubble Timeline PPT | More on the CRA
 

Online article with a link to a fantastic Powerpoint presentation from the Milken Institute about the origins and effects of the housing bubble - fantastic use of charts here:

[url]http://www.windsofchange.net/archives/looks_like_cra_didnt_cause_it_after_all.php[/url]

The article also notes something that didn`t make it into the Powerpoint, but emerged in the ensuing Q&A session:
[quote]...One quote is worth noting immediately. In response to an audience question that asked, in short, whether the CRA requirements imposed by Congress were at the root of the problem, the answer was a resounding "no".
[b][i]
We looked at CRA pools and the [post-default] returns on them is higher than the equivalent return on conventional pools.
[/i][/b]
In a nutshell, they blame the crisis on three things:

* A massively overleveraged financial sector (with FHLMC as the worst culprit);

* Horrible underwriting at every level from loan origination to S & P;

* 'Toxic' loan products which - combined with poor underwriting - allowed unqualified borrowers to take out loans they never could have been expected to repay.

Those loans were immediately securitized into the highly overleveraged financial institutions - instead of being held by the originating institutions which would have had skin in the game as to real loan quality - and when they unsurprisingly blew up, the negative leverage effects killed the institutions. This was, of course, made worse by the array of poorly designed (but fee rich!) risk-managing tools that made up much of the secondary markets[/quote]

I saw a similar presentation on C-SPAN several weeks ago that also nicely illustrated how well CRA loans perform relative to their peers - they are only slightly worse-performing than the "gold standard" prime conforming loans, and massively better than all the "financially innovative" mortgage-loan products that arose in the past 5-10 years, e.g. subprime, Alt-A, neg-am, pay-option ARM, etc.


On the same topic, here`s an online posting at Aaron Krowne`s Mortgage-Lend-Implode-o-Meter site which takes apart the lies and distortions in one McCain-campaign ad about the CRA and community groups like ACORN:

[url]http://ml-implode.com/viewnews/2008-10-16_TheFactsAboutACORNCRAProgramsandtheMortgageCrisis.html[/url]


And here`s a [url=http://www.jchs.harvard.edu/publications/governmentprograms/cra02_sec4.pdf]Harvard University study[/url] which goes into much detail about historical lending patterns under the CRA and their possible influence on recent trends:
[quote]Any effort to isolate the impact of CRA on mortgage lending to lower-income people and
communities must account for the significant changes in the structure of the mortgage industry
over time. As noted throughout this report, CRA was designed at a time when depository
institutions dominated mortgage lending activities. In that era, deposits were the single most
important source of mortgage capital and prime lenders (as opposed to subprime or manufactured
housing lenders) conducted virtually all home purchase and refinance lending. The growth of
independent mortgage companies, the rise of secondary market funding, and the advent of a
whole new array of mortgage products (some of which are originated electronically) have
dramatically changed the mortgage landscape. So have the rise of ‘non-bank’ financial services
industry players, including insurance companies, investment houses and others, who have
extended their business lines to include traditional banking and mortgage lending activities.
Moreover, detailed HMDA data on the characteristics of loans and lenders were not available
until 1993. As a result, for most of CRA’s history, it was impossible to conduct any detailed
comparisons of the lending patterns of CRA-regulated entities and others operating in market.

Several observations flow from these comments. The first relates to the dramatic rise in subprime
and manufactured home lending, and to the equally significant differences in loan product mix
between CRA lenders and their affiliates, and non-covered institutions. Because independent
mortgage companies accounted for most of the growth in subprime and manufactured home
lending, comparisons of the level of growth of lower-income lending between CRA-regulated
entities and others should carefully control for the differing product mix. Said another way,
absent a careful accounting for the differing mix of loans made by regulated and non-regulated
lenders, comparisons of CRA-eligible lending by each group will not be ‘apples to apples,’ and in
fact will count subprime and manufactured home loans (with their generally higher interest rates
and fees) as the same as conventional prime loans.

The second observation relates to the rise of out of assessment area lending by mortgage
company affiliates or subsidiaries of CRA-regulated institutions. By the 1990s most of the larger,
CRA-regulated entities formed and/or acquired mortgage banking subsidiaries or affiliates
capable of operating outside of their CRA-designated assessment areas (defined here as the
county, or counties, where a CRA-regulated entity operated deposit-taking branches). Today less
than half of all mortgage lending by banking organizations (and less than a third of mortgage
loans made by any entity) occurs within the assessment area of a CRA-regulated entity. This issue
is important because bank and thrift regulators examine all lending as part of their safety and
soundness and Fair Lending oversight, but only assessment area loans are subject to the further,
detailed review mandated by CRA. In assessing the impact of CRA on residential mortgage
lending it is therefore important to identify three different sets of loans: loans made by CRAregulated
entities within their CRA assessment area (‘Assessment Area Lending’), loans made by
CRA-regulated entities outside of their CRA assessment areas (‘Out of Area Lending’), and loans
made by entities not regulated by CRA (‘Non-CRA Regulated Lending’).

Next, it is important to understand that some of CRA’s impact on mortgage lending may have
occurred prior to 1993, the date when detailed HMDA data are first available. Moreover,
legislative and regulatory changes, along with equally important increases in the enforcement of
Fair Lending legislation, combined in the 1980s to increase the incentives of CRA-regulated
entities to seek out ways to serve lower-income and minority communities. As a result, the gains
achieved in the 1980s as CRA-regulated entities searched out ‘new market’ opportunities may
have carried over to the current period to the benefit of CRA-regulated entities and other market
participants alike, and contributed to the surge in lower-income lending that occurred in the 1993
to 2000 period.
[u]
Whether CRA (along with expanded Fair Housing enforcement) worked to overcome barriers
relating to discrimination and/or information barriers linked to lower-income borrowers or
communities may be less important than its role in promoting the explosion of borrower and loan
performance information that has occurred over the past quarter century. Although some of the
most detailed information about borrowers and loan performance remains proprietary, much has
seeped into the general marketplace to the benefit of all market participants. This represents a
marked contrast to the paucity of borrower and loan performance information that was available
when CRA was enacted in 1977. In short, beyond any direct effect CRA may have had on the
lending of CRA-regulated entities, it is likely also to have had an indirect impact on the lending
patterns of non-covered lenders, as ‘lessons learned’ by CRA-regulated entities were absorbed by
other market participants.
[/u]
...
Exhibit 18 also demonstrates that over the 1993-2000 period, the CRA-eligible share of prime
home purchase lending advanced broadly among all lender types. The strong economy,
technological advances, and increased competition surely played a role in this general advance of
CRA-eligible prime lending. Indeed, by the end of the period, the CRA-eligible share of prime
loans made by independent mortgage companies eclipsed that of banking organizations. In the
presence of CRA, which applies only to regulated lenders operating in their assessment areas, the
more rapid growth of CRA lending by independent mortgage companies merits further attention.
In particular, critics of CRA have cited similar findings to argue that CRA is unnecessary. They
argue that if entities that fall outside of CRA’s reach are as likely to make prime loans to lowerincome
borrowers as regulated entities, competitive pressures must be insuring that markets for
lower-income lending remain active and viable, and there is little need for CRA.
The standard rebuttal to such a challenge is that CRA itself established and helps maintain the
conditions that enable independent mortgage companies to succeed in their efforts to reach lowerincome
borrowers and communities. The Act accomplished this first by demonstrating that
market opportunities existed in serving previously neglected borrowers and areas, and second by
enforcing ongoing credit access in lower-income places ensuring that housing markets in these
areas remain viable.

This line of argument further suggests that the gains in credit access that lower-income borrowers
and areas enjoyed over the 1990s amid unprecedented national economic growth will not endure
without regulatory oversight during less favorable economic times.[/quote]

Paulson Scraps Plan to Buy Troubled Assets
 

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aU8ijqyX6ZO8&refer=news]Paulson Scraps Plan to Buy Troubled Assets, Shifts Focus to Consumer Loans[/url]: [i]U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets. [/i]
[quote] Nov. 12 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said today in a speech at the Treasury in Washington. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''

Paulson's remarks are an acknowledgement that the pitch he made to Congress for the bailout hasn't delivered what was promised. Paulson sold the rescue plan as a way to rid bank balance sheets of illiquid mortgage assets, and he may encounter resistance from Congress for the remaining $350 billion in TARP funds after using most of the first half to buy bank stakes.

Lawmakers will ``put his feet to the fire,'' said Kevin Petrasic, a former official at the Office of Thrift Supervision, now an attorney with the Paul, Hastings, Janofsky & Walker law firm in Washington. ``I'm not sure how you get around dealing with what is clearly the congressional intent.''

Paulson said he has no regrets for the revised plan. ``I will never apologize for changing a strategy or an approach if the facts change,'' he said at a press conference.[/quote]
[b]My Comment:[/b] Will you apologize for changing a strategy or an approach if the initial strategy or approach was deeplu flawed, misguided and doomed to fail?


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aCIytV1_Ii7M&refer=news]U.S. Slump May Be Longest in Three Decades as Economy `Fell Off a Cliff'[/url]: [i]The U.S. downturn will be the longest in three decades, and the drought in consumer spending may be the worst ever, according to economists surveyed by Bloomberg News. [/i]


[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aRIAzzUj87tE&refer=europe]Germany's IG Metall, Employers Agree on 4.2% Wage Increase Over 18 Months[/url]: [i]Germany's IG Metall labor union agreed to pay increases of 4.2 percent for its 3.2 million members at companies such as Volkswagen AG and Siemens AG, lifting the threat of strike action. [/i]
[quote]``With this outcome we've sought to protect job security for workers in our industry over the next couple of years,'' Gesamtmetall [workers union] President Martin Kannegiesser told reporters. ``We recommend this pay agreement for all unions and states throughout Germany.'' The outlook for companies is worsening and the wage deal offers them ``flexibility,'' he said. [/quote]
[b]My Comment:[/b] How does increasing the chances of a corporate bankruptcy by one of the companies having to pay these higher wages in the face of a massive worldwide economic downturn "protect job security for workers in [your] industry" and give the companies "flexibility", exactly? Inquiring minds would very much like to know how that works.


[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aTTGqbAfZWjI&refer=europe]Russian Debt Risk Jumps After Ruble Trading Band Widened, Rates Increased[/url]: [i]The cost of protecting against a default by Russia soared after the central bank increased the ruble's trading band and lifted its benchmark interest rate to stem record capital outflows. [/i]


[url=http://www.bloomberg.com/apps/news?pid=20601089&sid=abM29KiepBow&refer=china]Retail Sales Climb 22% in China as Crisis Fails to Damp Consumer Spending[/url]: [i]China's retail sales rose 22 percent, close to the fastest pace in nine years, signaling that domestic demand may help the fourth-biggest economy withstand a looming global recession. [/i]

[b]My Comment:[/b] I would be very interested to know what portion of that retail spending is fueled by increased consumer debt.


[url=http://money.cnn.com/2008/11/12/news/companies/best_buy/index.htm]Best Buy: 'Most difficult climate we've ever seen'[/url]: [i]No. 1 electronics retailer cuts profit forecast, blames continued weakness in consumer spending heading into critical holiday shopping period.[/i]
[quote]NEW YORK (CNNMoney.com) -- Best Buy, the No. 1 electronics retailer, cut its full-year profit forecast Wednesday, citing continued weakness in consumer spending that it says has been exacerbated by the "recent turmoil in the financial markets."

The company also said "uncertainty regarding future consumer spending" would limit its ability to project revenue for the critical holiday shopping season.

That's a huge problem since the November-December holiday shopping months typically account for 50% or more of retailers' annual profits and sales.

"In 42 years of retailing, we've never seen such difficult times for the consumer," Brian Dunn, president and chief operating officer of Best Buy, said in a statement. "People are making dramatic changes in how much they spend, and we're not immune from those forces." [/quote]
[b]
In-Depth: Demise of the Ospraie Hedge fund Empire
[/b]
[url=http://money.cnn.com/2008/11/12/news/companies/ospraie_demos.fortune/index.htm]The collapse of a $9B hedge fund empire[/url]: [i]Dwight Anderson built his $9 billion Ospraie hedge fund empire betting on volatile commodities markets. His world came undone this summer.[/i]
[quote]the fall of Ospraie is particularly telling. It is a vivid reminder that the best business minds of a generation were drawn to hedge funds, whether managing a portfolio through good times and bad - the definition, after all, of a hedge fund - was their special talent or not.

In a bull market Ospraie's focus on diligence was richly rewarded. But in an irrational bear market, Ospraie's buy-and-hold philosophy made it especially vulnerable.[/quote]
[b]My Comment:[/b] I keep hearing this mournful "why is the market being so irrational?" refrain from the Wall Street investment-bank and hedge-fund crowd. None of them appears willing to entertain the apparently-radical notion that [b]it was the decades-long Greenspan-era perma-bull-market which was irrational[/b], in that it was fueled by a once-in-a-lifetime massive inflow of retirement and foreign capital, artificially low interest rates, and unreasonable expectations about long-term returns, risk/reward balances and healthy company price/earnings valuations. Perhaps the bear market, while not immune to irrational fear-driven volatility, is the long-needed fair-value reckoning coming due at last.

[QUOTE=ewmayer;149035][url=http://www.bloomberg.com/apps/news?pid=20601085&sid=aRIAzzUj87tE&refer=europe]Germany's IG Metall, Employers Agree on 4.2% Wage Increase Over 18 Months[/url]: [i]Germany's IG Metall labor union agreed to pay increases of 4.2 percent for its 3.2 million members at companies such as Volkswagen AG and Siemens AG, lifting the threat of strike action. [/i]

[b]My Comment:[/b] How does increasing the chances of a corporate bankruptcy by one of the companies having to pay these higher wages in the face of a massive worldwide economic downturn "protect job security for workers in [your] industry" and give the companies "flexibility", exactly? Inquiring minds would very much like to know how that works.[/QUOTE]You could ask yourself the question what effect lowering everybodies wages will have on the economic situation. IG Metall has accepted a pay rise lower than the past inflation, in other words they have accepted a lowering of wages since there is no indexing mechanism for wages in Germany. Unlike Belgium where wages are indexed on cost of living increase, this is not the case in Germany : this means that the periodic negotiations over pay increase are there to compensate inftation.

Jacob

Jobless Claims: 7-Year High | Germany in Recession
 

[b]World:[/b]

[url=http://www.bloomberg.com/apps/news?pid=20601087&sid=a19MPg9apju0]Russia Stocks Slide, Kuwait Shuts as Oil Roils Emerging Markets[/url]: [i]Russian stocks plunged and Kuwait suspended trading as the slump in oil to below $55 a barrel roiled emerging markets and increased concern that the ruble will be devalued. [/i]


[url=http://www.bloomberg.com/apps/news?pid=20601109&sid=aGnhfqtiHogU&refer=news]Mukesh Ambani, Lakshmi Mittal Lead $200 Billion Loss Among India's Richest[/url]: [i]Mukesh Ambani and Lakshmi Mittal led India's richest in losing $200 billion this year as the global financial crisis triggered a plunge in stocks and property values, Forbes Asia said. [/i]
[quote]The combined wealth of India's 40 wealthiest people slumped 60 percent to $139 billion, the magazine said today in an e-mailed release. Mittal, 58, lost his top position to Mukesh Ambani of Reliance Industries Ltd. Mittal lost $30.5 billion after the world's biggest steelmaker ArcelorMittal extended production cuts. The net worth of Mukesh Ambani, 51, dropped 58 percent after demand for petrochemicals made by Reliance Industries slumped and oil refining margins shrank.

There are 27 Indians with a net worth of $1 billion or more, compared with 54 last year. The key Sensitive index declined 53 percent this year and is set for its worst annual performance on record. At the same time, there are 456 million Indians who live on less than $1.25 a day, according to the World Bank.

``Indians who felt the heat of the meltdown have not exactly become paupers,'' said Anup Kumar Sinha, professor at the Indian Institute of Management Calcutta, in Kolkata. ``They will probably realize anew the importance of the real economy and reconcile to the vagaries of the financial markets.'' [/quote]


[url=http://www.bloomberg.com/apps/news?pid=20601089&sid=a_qbnSsVFQDI&refer=china]China's Industrial-Output Growth Slumps, Adding to Risk of Deeper Slowdown[/url]: [i]China's industrial output grew at a slower pace than any economist forecast in October, stoking concern that the biggest contributor to global growth is running out of steam. [/i]
[quote]``China's economy is losing momentum faster than expected: the central bank needs to act,'' said Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong. ``We hope this is the worst quarter and things start looking better next year because of the infrastructure plan.'' [/quote]
[b]My Comment:[/b] Dream on, dude.


[url=http://www.bloomberg.com/apps/news?pid=20601085&sid=asVhpVLebe1Q&refer=europe]Germany Enters Recession With Sharpest Two-Quarter Contraction Since 1996[/url]: [i]The German economy, Europe's largest, contracted more than economists expected in the third quarter, pushing the nation into the worst recession in at least 12 years. [/i]
[quote]Ralph Solveen, an economist at Commerzbank AG in Frankfurt, expects a ``marginal'' recovery in the second half of next year.

``The German economy would have cooled regardless of the financial crisis, which just gave it the final push into recession,'' he said. ``The factors that slowed German growth earlier this year such as high inflation, a strong euro and tight monetary policy are all disappearing, which should feed through to the economy next year.'' [/quote]
[b]My Comment:[/b] Träum weiter, Mensch...


[url=http://www.telegraph.co.uk/finance/financetopics/recession/3446686/Ken-Clarke-warns-Britain-is-on-the-brink-of-meltdown.html]Ken Clarke warns Britain is on the brink of 'meltdown'[/url]: [i]Kenneth Clarke, the former Conservative Chancellor, has warned the economy is on the brink of "meltdown" and unemployment could reach three million.[/i]
[quote]Mr Clarke, 68, said the British economy is headed for a "catastrophic crisis" that will be "far worse than anything that has occurred in my lifetime".

"There will be a very serious recession next year," he said in an interview with Telegraph TV. "I think the big problem in 2009 will be the catastrophic fall in consumer spending demand, spending in shops will get worse."

Mr Clarke, who as Chancellor of the Exchequer between 1993 and 1997 led Britain's recovery from Black Wednesday, called for a temporary cut in VAT to boost spending. [/quote]
[b]My Comment:[/b] Cutting the VAT is robbing Peter to pay Paul - the fundamental issue in the UK [as in the US and elsewhere] is that consumers are massively overleveraged and thus the only long-term "fix" is for them to pay down their debt, which requires cutting back on spending, VAT or no VAT. And that`s for the ones not so deep underwater that their only way out is to file personal bankruptcy.


[b]U.S.:[/b]

[url=http://biz.yahoo.com/ap/081113/jobless_claims.html]AP | Jobless claims jump unexpectedly to 7-year high[/url]: [i]The number of newly laid-off individuals seeking unemployment benefits has jumped to a level not seen since just after the Sept. 11, 2001, terrorist attacks, as companies cut more jobs in the face of a slowing economy.[/i]

[b]My Comment:[/b] Why the "unexpectedly"? As with the dramatic drop in consumer spending, there is nothing unexpected about it.

[url=http://www.bloomberg.com/apps/news?pid=20601103&sid=aBlCucXR33Jw&refer=us]Obama Pushing for $50 Billion Automaker Rescue, Czar to Oversee Companies[/url]: [i]President-elect Barack Obama is pushing Congress this year to approve as much as $50 billion to save cash-starved U.S. automakers and appoint a czar or board to oversee the companies, a move that would require President George W. Bush's support, people familiar with the matter said. [/i]


[url=http://biz.yahoo.com/rb/081113/business_us_intel_shares.html?.v=1]Tech shares fall after Intel warning[/url]: [i]U.S. technology shares slumped on Thursday morning after Intel Corp slashed its revenue forecast, in the latest sign of falling global demand for computers and other electronic products.[/i]
[quote]Several analysts lowered their price targets on Intel and other tech companies, after the biggest maker of chips for personal computers said it expects fourth-quarter revenue of $9 billion, plus or minus $300 million.

That was much worse than Intel's October forecast of $10.1 billion to $10.9 billion, and far short of the average analyst estimate of $10.3 billion according to Reuters Estimates.[/quote]

Stunned Icelanders Struggle After Economy’s Fall
 

[url=http://www.nytimes.com/2008/11/09/world/europe/09iceland.html?em]NY Times | Stunned Icelanders Struggle After Economy’s Fall[/url]
[quote][i]By SARAH LYALL
Published: November 8, 2008[/i]

REYKJAVIK, Iceland — The collapse came so fast it seemed unreal, impossible. One woman here compared it to being hit by a train. Another said she felt as if she were watching it through a window. Another said, “It feels like you’ve been put in a prison, and you don’t know what you did wrong.”

This country, as modern and sophisticated as it is geographically isolated, still seems to be in shock. But if the events of last month — the failure of Iceland’s banks; the plummeting of its currency; the first wave of layoffs; the loss of reputation abroad — felt like a bad dream, Iceland has now awakened to find that it is all coming true.

It is not as if Reykjavik, where about two-thirds of the country’s 300,000 people live, is filled with bread lines or homeless shanties or looters smashing store windows. But this city, until recently the center of one of the world’s fastest economic booms, is now the unhappy site of one of its great crashes. It is impossible to meet anyone here who has not been profoundly affected by the financial crisis.

Overnight, people lost their savings. Prices are soaring. Once-crowded restaurants are almost empty. Banks are rationing foreign currency, and companies are finding it dauntingly difficult to do business abroad. Inflation is at 16 percent and rising. People have stopped traveling overseas. The local currency, the krona, was 65 to the dollar a year ago; now it is 130. Companies are slashing salaries, reducing workers’ hours and, in some instances, embarking on mass layoffs.

“No country has ever crashed as quickly and as badly in peacetime,” said Jon Danielsson, an economist with the London School of Economics.

The loss goes beyond the personal, shattering a proud country’s sense of itself.

“Years ago, I would say that I was Icelandic and people might say, ‘Oh, where’s that?’ ” said Katrin Runolfsdottir, 49, who was fired from her secretarial job on Oct. 31. “That was fine. But now there’s this image of us being overspenders, thieves.”

Aldis Nordfjord, a 53-year-old architect, also lost her job last month. So did all 44 of her co-workers — everyone in the company except its owners. As many as 75 percent of Iceland’s private-sector architects have probably been fired in the past few weeks, she said.

In a strange way, she said, it is comforting to be one in a crowd. “Everyone is in the same situation,” she said. “If you can imagine, if only 10 out of 40 people had been fired, it would have been different; you would have felt, ‘Why me? Why not him?’ ”

Until last spring, Iceland’s economy seemed white-hot. It had the fourth-highest gross domestic product per capita in the world. Unemployment hovered between 0 and 1 percent (while forecasts for next spring are as high as 10 percent). A 2007 United Nations report measuring life expectancy, real per-capita income and educational levels identified Iceland as the world’s best country in which to live.

Emboldened by the strong krona, once-frugal Icelanders took regular shopping weekends in Europe, bought fancy cars and built bigger houses paid for with low-interest loans in foreign currencies.

Like the Vikings of old, Icelandic bankers were roaming the world and aggressively seizing business, pumping debt into a soufflé of a system. The banks are the ones that cannot repay tens of billions of dollars in foreign debt, and “they’re the ones who ruined our reputation,” said Adalheidur Hedinsdottir, who runs a small chain of coffee shops called Kaffitar and sells coffee wholesale to stores.

There was so much work, employers had to import workers from abroad. Ms. Nordfjord, the architect, worked so much overtime last year that she doubled her salary. She was featured on a Swedish radio program as an expert on Iceland’s extraordinary building boom.

Two months ago, her company canceled all overtime. Two weeks ago, it acknowledged that work was slowing. But it promised that there would be enough to last through next summer.

The next day, everyone was herded into a conference room and fired.

Employers are hurting just as much as employees. Ms. Hedinsdottir has laid off seven part-time employees, cut full-time workers’ hours and raised prices. The Kaffitar branch on Reykjavik’s central shopping street was perhaps half full; in normal times, it would have been bursting at its seams.

While business is dwindling, costs are soaring. When the government took over the country’s failing banks in October, Ms. Hedinsdottir’s latest shipment of coffee — more than 109,000 pounds — was already on the water, en route from Nicaragua. She had the money to pay for it, but because the crisis made foreign banks leery of doing business with Iceland, she said, she was unable to convert enough cash into foreign currency.

“They were calling me every day and asking me what the situation was, and they got really nervous,” Ms. Hedinsdottir said of her creditors. They got so nervous that they sent the coffee to a warehouse in Hamburg, Germany, where it now sits while she tries to find the foreign currency to pay for it.

Her fixed costs are no longer fixed. Five years ago, the company built a new factory, borrowing the 120 million kronur — about $1.5 million — in foreign currencies. But the currency’s fall has increased her debt to 200 million kronur. This summer, her monthly payments were 2.5 million kronur; now they may be double that — the equivalent of $38,500 in Iceland’s debased currency.

“My financial manager is talking to the banks every day, and we don’t know how much we’re supposed to pay,” Ms. Hedinsdottir said.

In a recent survey, one-third of Icelanders said they would consider emigrating. Foreigners are already abandoning Iceland.

Anthony Restivo, an American who worked this fall for a potato farm in eastern Iceland and was heading home, said all of the farm’s foreign workers abruptly left last month because their salaries had fallen so much. One man arrived from Poland, he said, then realized how little the krona was worth and went home the next day.

At the Kringlan shopping center on the edge of Reykjavik, Hronn Helgadottir, who works at the Aveda beauty store, said she could no longer afford to travel abroad. But the previous weekend, she said, she and her husband had gone for a last trip to Amsterdam, a holiday they had paid for months ago, when the krona was still strong.

They ate as cheaply as they could and bought nothing. “It was strange to stand in a store and look at a bag or a pair of shoes and see that they cost 100,000 kronur, when last year they cost only 40,000,” she said.

In Kopavogur, a suburb of Reykjavik, Ms. Runolfsdottir, the recently fired secretary, said she had worried for some time that Iceland would collapse under the weight of inflated expectations.

“If you drive through Reykjavik, you see all these new houses, and I’ve been thinking for the longest time, ‘Where are we going to get people to live in all these homes?’” she said.

The real estate firm that used to employ Ms. Runolfsdottir built about 800 houses two years ago, she said; only 40 percent have been sold.

By Icelandic law, Ms. Runolfsdottir and other fired employees have three months before they have to leave their jobs. At the end of that period, she will start drawing unemployment benefits.

Meanwhile, her husband’s modest investment in several now-failed Icelandic banks is worthless. “They were encouraging us to buy shares in their firms until the last minute,” she said.

She feels angry at the government, which in her view has mishandled everything, and angry at the banks that have tarnished Iceland’s reputation. And while she has every sympathy with the hundreds of thousands of foreign depositors who may have lost their money, she wonders why the Icelandic government — and, in essence, the Icelandic people — should have to suffer more than they already have.

“We didn’t ask anyone to put their money in the banks,” she said. “These are private companies and private banks, and they went abroad and did business there.”

Despite all this, Icelanders are naturally optimistic, a trait born, perhaps, of living in one of the world’s most punishing landscapes and depending for so much of their history on the fickle fishing industry. The weak krona will make exports more attractive, they point out. Also, Iceland has a highly educated, young and flexible population, and has triumphed after hardship before.

Ragna Sara Jonsdottir, who runs a small business consultancy, said she had met for the first time with other businesses in her office building. “We sat down and said, ‘We all have ideas, and we can help each other through difficult times,’ ” she said.

But she said she was just as shocked as everyone else by the suddenness, and the severity, of the downturn. When the prime minister, Geir H. Haarde, addressed the nation at the beginning of October, she said, her 6-year-old daughter asked her to explain what he had said.

She answered that there was a crisis, but that the prime minister had not told the country how the government planned to address it. Her daughter said, “Maybe he didn’t know what to say.”[/quote]

Is anyone else, reading about Iceland, reminded of Enron? Not that there was dishonesty (rather than poor judgement) at the top in Iceland's case, but in their similar apparent rises and sudden falls?

[QUOTE=cheesehead;149185]Is anyone else, reading about Iceland, reminded of Enron? Not that there was dishonesty (rather than poor judgement) at the top in Iceland's case, but in their similar apparent rises and sudden falls?[/QUOTE]

I have been reading ewmayers post here about Iceland. Because I am in the middle of the situation here in Iceland and I am curious about the abroad news about the situation. Big thanks for the updates here. How the Icelandic government has been sleeping on their duty for years and how clueless they were when the crises hit them/us in the face is embarrassing. Poor judgment in so many situations for years says how the system has been running here.

Cheers.