banks

IMF says Europe’s economy may undergo mild recession in 2012

by on April 19, 2012

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(MENAFN) The International Monetary Fund (IMF) said that Europe’s economy may go through a mild recession in 2012, as European banks are expected to reduce lending in order to save more capital, …

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IMF says Europe’s economy may undergo mild recession in 2012

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IMF: European Banks Remain Under Pressure From Weak Growth

by on April 19, 2012

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(MENAFN – Qatar News Agency) European banks remain under pressure from weak growth and high debt repayments. They need to strengthen their balance sheets by reducing assets and increasing their …

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IMF: European Banks Remain Under Pressure From Weak Growth

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A Major Setback For Kamala Harris

April 18, 2012

For the nearly two years that Kamala Harris has been California’s Attorney General, she has made the fight against fraudulent foreclosures her signature issue. Now, largely due to pressure from business groups, legislators look like they may soon succeed in tanking her most ambitious plan yet to clean up the state’s mortgage market. Earlier this year, Harris began pushing for California to pass the “Homeowner Bill of Rights,” a collection of six bills that would make significant changes in the way the state regulates mortgages. Harris was scheduled to testify before the California Assembly’s Senate Banking and Finance Committee on Monday; however, only moments before she was supposed to appear, both of the bills she was discussing were pulled by the committee chairman, Democrat Mike Eng of Monterey Park. The sudden change reportedly prompted a chorus of catcalls from the assembled crowd. The pair of laws Harris was scheduled to discuss aim to increasing protections for mortgage borrowers by prohibiting lenders from foreclosing on a property while simultaneously negotiating a loan modification on that property and also simplifies loan documentation by establishing a single, standardized contract for foreclosures and loan restructuring. Other provisions in the bundle require banks to provide homeowners with a single point of contact during the loan modification process and levy a $25 fee on banks every time they register a default. Proceeds from the default fee would then go into a pool of money funding mortgage fraud investigations. As part of the $25 billion settlement between the nation’s five largest mortgage holders and the attorneys general of 49 states, in which Harris was a crucial player , the large institutions that hold nearly 30 percent of all mortgages in the state have already agreed to abide by some of these rules. However, that settlement expires in three years and Harris wants the rules to extend into perpetuity. The banking industry strongly opposes the measures. The Sacramento Bee reports : In letters to legislators, the state chamber said the measures amount to a “de facto moratorium on foreclosures” that would actually hurt the real estate market with a confusing new set of laws, squeeze credit for property purchases and trigger a wave of lawsuits. The chamber also contends the bills are in conflict with federal standards and are an “extraordinarily restrictive and draconian” permanent response to temporary industry abuses. Conversely, the bills have received strong support from civic leaders in San Francisco. “Too many San Franciscans have been devastated by the mortgage crisis and too many families have lost their homes due to deceiving banking practices right here in some of our most vulnerable communities,” said San Francisco Mayor Ed Lee in a statement to the San Francisco Sentinel . “Thousands of foreclosures have happened and are happening in neighborhoods in our cities. I applaud the leadership of Attorney General Kamala Harris for standing up for families and using the powers of her office to protect homeowners from mortgage fraud and abuse.” Last week, the city’s Board of Supervisors passed a non-binding resolution calling for a moratorium on all foreclosures in the city until additional protections, such as the ones in Harris’s bills, are enacted. An audit of 400 San Francisco foreclosures conducted by San Francisco Assessor-Record Phil Ting found that 84 percent were either fraudulent or missing crucial documentation. “This matters because families facing foreclosures are entitled to know exactly who holds their loan and to see for certain that the foreclosure is justified,” Ting wrote in a blog on the Huffington Post . “In one case, our audit showed a foreclosure initiated by a party that had no title to the property–and in a number of other cases, we found two competing claims to the title.” (Full disclosure: Aaron Sankin was briefly an unpaid intern on Harris’s 2003 campaign for San Francisco District Attorney.)

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U.S. Bank Faces Federal Investigation

April 17, 2012

U.S. Bank on Tuesday joined the ranks of large financial firms facing discrimination charges for the way it maintains foreclosed homes in mostly black and Latino neighborhoods. The National Fair Housing Alliance, a Washington, D.C.-based nonprofit, filed a formal discrimination complaint against the bank with the Department of Housing and Urban Development Tuesday. In the complaint, the organization accuses the bank of maintaining and marketing bank-owned foreclosed properties in predominantly white communities far more aggressively and consistently than it does homes in mostly black and Latino neighborhoods. The complaint filed against U.S. Bank and its parent company, U.S. Bancorp, marks the second charge in as many weeks brought by the National Fair Housing Alliance against a major bank. The alliance conducts housing discrimination investigations and receives some funding from HUD. Last week, the alliance accused California-based Wells Fargo , the nation’s largest mortgage lender, of similar civil rights violations. Minnesota-based U.S. Bank is the fifth largest commercial bank in the United States. On Tuesday, it also faced separate allegations logged by another nonprofit group that it offers pay day loans at annual interest rates approaching 400 percent to vulnerable consumers. Alliance investigators examined 177 U.S. Bank properties in seven cities, said Shanna Smith, the alliance’s president and CEO. Public records indicated each of the homes was owned, not simply managed, by U.S. Bank, she said. In Dayton, Ohio, alliance investigators found that 65 percent of U.S. Bank foreclosures in communities of color had broken widows or doors, according to the alliance’s complaint. Only 15 percent of the bank’s repossessed homes in white neighborhoods were in the same condition. In the Oakland, Calif.-area, 64 percent of the bank’s foreclosed properties in black or Latino neighborhoods were littered with, “substantial” amounts of trash. But, only 17 percent of properties in predominantly white Bay Area neighborhoods had the same problem. U.S. Bank said that the complaint filed with HUD Tuesday does not include the addresses of problem properties, which the bank needs to determine if it owns the properties or if it is simply the trustee managing administrative tasks for investors who own the home loans. Trustees oversee securities — in this case, mortgage securities made up of hundreds or even thousands of home loans — on behalf of investors. The investors are often large pension funds and insurance companies. Trustees, in turn, typically hire companies known as servicers to collect mortgage payments from the home buyers whose loans are part of the security. Banks often function as servicers and are responsible for dealing with loans before and after a foreclosure. So, servicers also often hire asset managers or contractors to maintain foreclosed properties. Nicole Sprenger, a U.S. Bank spokesperson, emailed a statement to the Huffington Post Tuesday that emphasized the complexity of these arrangements. As you may know, U.S. Bank is one of the nation’s largest corporate trustees. Accordingly, in the vast majority of cases where U.S. Bank is involved in a foreclosure, we serve as a trustee for an investment pool where the former mortgage was held, and have no role in servicing or maintaining the property. That is the responsibility of the servicer (typically another bank), and not the trustee. When we do own a property, we have a strong and comprehensive process in place to regularly inspect and maintain properties to marketing standards where we have legal access, regardless of their location. The bank’s argument is illegitimate, said Anne Houghtaling, executive director of HOPE Fair Housing Center in Wheaton, Ill. a city about 25 miles west of Chicago. HOPE is one of the nonprofit organizations that helped the National Fair Housing Alliance evaluate the state of foreclosed homes in cities around the country. “U.S. Bank has a list of its own properties, (and) could go and look at them, and should be going to look at them regularly,” Houghtaling said. “They could do that now.” There is clear evidence that U.S. Bank-owned properties in Chicago are treated differently if located in a community of color, she said. HUD declined to comment on the complaint but confirmed that it had been filed and will lead to a federal investigation. Should HUD find evidence that the alliance’s complaint against U.S. Bank is accurate, the federal agency can attempt to negotiate a settlement with the bank. If the parties are unable to reach an agreement, the Justice Department could file suit against the bank. The complaint filed Tuesday follows a nine-month probe during which the National Fair Housing Alliance evaluated the state of 1,000 bank-owned foreclosed homes in nine metro areas from California to Washington, D.C. Investigators found “overwhelming” and “troubling” evidence that six of the nation’s major banks market and maintain foreclosed homes in predominantly white neighborhoods differently than they do in others, according to a report issued by the agency last week. The pattern was pronounced in communities regardless of income, Smith said.

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For Once, Apple Drags Down Markets

April 16, 2012

NEW YORK — For most of the year, Apple has propelled the Nasdaq composite index forward. The stock climbed from $405 at the start of the year to more than $630 last week, and the Nasdaq easily beat the gains of other indexes. Now Apple is sliding the other way and taking the Nasdaq with it. Apple stock dropped more than $25 on Monday, its fifth straight day of declines. The losing streak has wiped out about $60 billion of Apple’s market value. That’s more than the most optimistic projections of the value of Facebook. Apple helped push the Nasdaq composite index down 22.93 points on Monday to 2,988.40. The index is now up about 15 percent for the year after almost reaching 20 percent by the end of March. “It’s been a very quirky market because it’s been a few companies that have delivered most of the rally this year,” said Mark Lamkin, CEO of Lamkin Wealth Management in Louisville, Ky. “It’s not been a broad-based rally.” Apple, still the most valuable company in the world, accounts for 12 percent of the Nasdaq, more than any other stock. It has been on an almost uninterrupted climb for three years, powered by its hot iPhones and iPads. But last week, a veteran technology analyst boldly issued a downgrade for Apple. He predicted that cellphone companies would probably stop offering such generous subsidies for customers to adopt the iPhone. Investors may also be locking in profits and getting out before Apple reports earnings April 24. Even after the five-day decline, Apple stock is up 43 percent for the year. “It’s had a huge run,” said Burt White, chief investment officer of LPL Financial in Boston. “Some investors probably said, `Might as well take some profits.’” The broader stock market was flat, helped by strong March retail sales but hurt by continuing concerns about rising borrowing costs for debt-troubled Spain. The Standard & Poor’s 500 index dropped 0.69 point to 1,369.57. Apple dragged down other technology stocks, which fell more than any other industry group in the S&P. Google, which went to trial Monday against Oracle in a copyright case over the Android phone, dropped for the second day in a row. Utility stocks and banks rose, while energy companies and so-called consumer discretionary stocks fell. The Dow Jones industrial average rose 71.82 points to 12,921.41, a gain of 0.6 percent. All but six of the 30 stocks that make up the Dow rose for the day, explaining why it rose while the S&P was flat. Apple is not part of the Dow. The government reported that retail sales rose 0.8 percent compared to the previous month, twice what analysts had been expecting. Skeptics noted that was less than February’s 1 percent increase. They also wondered whether the buying was just a result of the mild winter, rather than a sign of recovery: If people are buying lawn mowers and other warm-weather goods now, then they probably won’t be later in the year. Building materials and garden equipment enjoyed the biggest jump in March. “It’s nice to see the retail sales were strong, but it’s one month and it’s one data point and it’s not even the biggest data point,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati. “Honestly, jobs are much more important.” Earlier this month, the government reported that the U.S. added 120,000 jobs in March, about half the pace of the previous three months. Spain’s borrowing costs climbed above the closely watched 6 percent mark as investors grew more worried about the country’s ability to pay its debts. Seven percent is the rate at which other European countries have been forced to seek bailouts. Sweden cut its economic forecast for the year, saying that problems elsewhere in Europe were spreading its way. The yield on the 10-year Treasury note was steady at 1.98 percent. Among stocks making moves: _ Mattel plummeted more than 9 percent after reporting a 53 percent drop in first-quarter earnings. The country’s largest toy maker is wrestling with lower sales of Hot Wheels and Barbies. It just bought HIT Entertainment, the company behind Thomas the Tank Engine and Bob the Builder. _ Endocyte doubled to $7.62 after reporting that Merck, the world’s second-largest drugmaker, will develop and market its experimental cancer drug. Endocyte, based in West Lafayette, Ind., has no products on the market.

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U.S. Lost $1 Billion To Banks In Last 10 Years Thanks To Tax Shelter

April 16, 2012

By Megan Murphy and Vanessa Houlder, Financial Times and Jeff Gerth, ProPublica In November 2001, Bank of New York, a mid-tier U.S. bank, transferred nearly $8 billion of its own assets to a trust in the small, business-friendly state of Delaware through several layers of newly created companies. A mixture of home mortgages, shares and other securities, the transferred assets made up almost 10 percent of the bank’s total assets at the time. Yet, the transaction was not discussed with BNY’s regulators; nor was it noted in the bank’s financial statements or annual report. It had little practical effect on the lender’s day-to-day operations 2014 the assets continued to be managed and serviced by the same employees in New York. But it was a critical first step in setting up a complex structure known as STARS 2014 structured trust advantaged repackaged securities 2014 which U.S. tax authorities claim was used by several American banks as an abusive tax shelter that has cost the government more than $1 billion in tax revenue in the past decade. This week, BNY will square off against the Internal Revenue Service in U.S. Tax Court in New York over STARS and the tax benefits tit triggered for the U.S. bank and U.K.-based Barclays, its counterpart in the deal. At issue is whether STARS was set up primarily to generate artificial foreign-tax credits, as the IRS contends; or was a legal way for BNY to obtain financing at rock-bottom rates. The arguments heard this week will pose a crucial test of the U.S. government’s resolve to rein in sophisticated corporate tax planning that has sapped vast amounts of potential revenue. Tax authorities worldwide, notably in the U.S. and U.K., are under mounting pressure to show that large companies are shouldering their share of the tax burden as part of a broader political debate about fairness and corporate social responsibility. “We are upping our game in the large business area, particularly as it relates to international tax issues,” Douglas Shulman, the U.S. internal revenue commissioner, said in a speech this month in Washington, D.C. For the IRS, losing the STARS disputes would be a serious blow to its strategy in high-value cases, tax lawyers said. For the banks, the risk is both financial 2014 $900 million is at stake in the BNY case alone 2014 and to their reputations. An investigation last year by the Financial Times and ProPublica first detailed how STARS produced tax benefits for U.S. banks beginning in 1999. In all, six banks 2014 BNY (now Bank of New York Mellon), BB&T, Sovereign (now a unit of Santander), Wachovia (now part of Wells Fargo), Washington Mutual and Wells Fargo 2014 participated in STARS deals with Barclays between 1999 and 2006. Five of those banks are challenging IRS rulings that disallowed foreign tax credits generated in those transactions. WaMu has settled a STARS dispute in bankruptcy court by agreeing to forgo $160 million in claimed tax credits. In total, the IRS says, the STARS deals created $3.4 billion in foreign tax credits. Now, documents filed in BNY’s case in the past few weeks 2014 the court proceedings begin Monday 2014 provide unprecedented detail about how STARS was crafted at a time when banks and accounting firms were offering deals for multinational corporations to take advantage of loopholes in rules governing foreign tax credits. At the simplest level, foreign tax credits are designed to prevent U.S. companies from being taxed twice on overseas income by allowing them to claim credit for taxes paid in foreign jurisdictions. In the BNY case, the IRS claims STARS allowed both Barclays and BNY to claim credits for the same “illusory” foreign tax charges, ultimately reducing the U.S. government’s tax revenue by $18.15 for every $100 of income funneled through the Delaware trust. “The record will establish that STARS was a pricey financing that no prudent banker would undertake but for the tax benefits generated by the meaningless circulation of cash flows,” according to a court filing by the IRS on March 27. BNY has argued that the deal was a complex but entirely legal , allowing the bank access to low-cost financing from Barclays for its everyday business activities. Brainchild of Barclays Like hundreds of other foreign-tax-driven transactions sold to companies in the boom years before the financial crisis of 2008, STARS was developed by Barclays’ famed structured finance group, known as Structured Capital Markets. Roger Jenkins, one of Britain’s best-known dealmakers, and Iain Abrahams, the expert behind most of the bank’s tax arbitrage transactions, led SCM. The idea was for STARS to manufacture tax credits for Barclays and a U.S. corporate taxpayer by circulating U.S. income through an entity taxed in the U.K., the IRS said in its filing. Because of the differences between U.S. and U.K. accounting rules, STARS would allow Barclays to reimburse a U.S. company for half the tax paid in the U.K. while not reducing the amount of foreign tax credits that could be claimed by either party, the IRS said. Barclays is not a party to the IRS dispute with BNY and has not been accused of wrongdoing by U.S. authorities. According to the IRS, blue-chip U.S. companies including Microsoft and insurers AIG and Prudential Life passed on early versions of STARS for unspecified reasons. But the IRS said BNY, which bought the deal in 2001, had grown “addicted” to tax-driven transactions, which provided it with an important source of revenue. Before buying STARS, the IRS says, BNY had entered into more than 100 “lease-back” transactions, known as Lilos and Silos, that produced tax advantages. Shortly after participating in STARS, BNY also purchased from Barclays another foreign-tax-credit structure, nicknamed Toga, that involved high-grade debt securities, the IRS said. “Barclays understood that BNY was highly receptive to a wide range of tax-based ideas, and had targeted BNY for an SCM 2018tax product’ after discussions with BNY senior executives,” the IRS said in its court filing. The IRS also described KPMG as a pivotal player. The accounting firm provided a U.S. tax opinion blessing the structure for Barclays and sold STARS to BNY for a fee of $6 million, according to the IRS filing. David Brockway, then of KPMG, was engaged to provide the firm’s opinion on STARS, and is expected to testify at trial, according to the IRS. Brockway, a leading U.S. tax lawyer, left KPMG in April 2005 amid scrutiny of the firm’s previous sales of potentially abusive tax shelters. The IRS also has named lawyer Raymond Ruble, formerly a partner at Sidley Austin in Washington, D.C., as a key adviser on the structure. Ruble was convicted of multiple counts of income-tax evasion in a separate tax-shelter case involving wealthy taxpayers in 2009. He is in a federal prison in Lewisburg, Pa. The IRS, Barclays, BNY, KPMG and Sidley Austin declined to comment on the case. Jenkins, now a partner at the Brazilian investment bank BTG Pactual; Abrahams, still a senior executive at Barclays in London; and Brockway, now a Washington-based partner at the law firm Bingham McCutchen LLP, also declined to comment. $900 Million Disputed Both sides acknowledge that BNY’s STARS deal was executed through highly choreographed steps. First, BNY transferred about $7.9 billion of income-producing assets to the Delaware trust through layers of newly created subsidiaries. Barclays, as the counterpart, acquired shares in the trust, giving it a right to nearly all the income generated by the assets. In return, Barclays loaned $1.5 billion to BNY, also via the trust. Barclays and BNY then executed a repurchase agreement, or “repo,” under which BNY agreed to buy back the shares in the Delaware trust five years later, in November 2006. BNY appointed a U.K. company as trustee of the Delaware trust, making the income it produced subject to U.K. tax. At the outset of the deal, the trust’s pool of assets were expected to generate about $460 million of income a year 2014 of which, at a tax rate of 22 percent, $100 million would be paid to U.K. tax authorities. When the trust income failed to reach $460 million, as expected, BNY injected extra assets, essentially to boost the income stream. At the heart of the structure are differences between how it is treated under U.S. and U.K. tax law. Under U.K. rules, Barclays was allowed to take a deduction against its other taxable income in the U.K. on the condition that it immediately reinvested the income produced by the assets in the trust. But it was able to simultaneously take a credit for the tax paid by the trust. According to the IRS, those tax benefits were shared with BNY, generating gains for both banks. For every $100 of income circulated through the trust, the U.S. government lost $18.15, which funded BNY’s profit of $7.15, Barclays’ profit of $7.70 and U.K. tax receipts of $3.30, the IRS claims. But under U.S. tax law, the deal was considered a secured lending arrangement. So, subject to U.S. tax rules, BNY, as owner of the U.K. trust, could also claim a foreign tax credit for the U.K. taxes paid. In 2001 and 2002, BNY claimed nearly $200 million in foreign tax credits from the STARS structure, which the IRS has disallowed. Including interest, the total amount in dispute is about $900 million, according to the bank’s most recent annual report. “The foreign tax credits that Bank of New York claimed in the U.S. at a 22 percent rate were far more than the actual U.K. tax attributable to STARS,” the IRS said in its filing. “In other words, Bank of New York claimed credits for phantom U.K. tax expense.” BNY is challenging the IRS’ refusal to allow the credits and says it entered the STARS deal to borrow low-cost funds. Because of the U.K. tax benefits the structure generated for Barclays, BNY claims the British bank was able to provide it with the five-year, $1.5 billion loan at more than three percentage points below the prevailing benchmark lending rate. “The complication was required by Barclays’ U.K. tax objectives, not by BNY,” the bank said in a court filing March 27. “By lending to [BNY] through the structure that Barclays designed, Barclays could offer a very favorable borrowing rate.” In the coming weeks, U.S. Tax Court will hear from the bankers, lawyers and accountants involved as well as a raft of experts. A final decision is not expected for at least several months. With much at stake, BNY and the IRS appear to be digging in for a protracted battle. In its latest filing, BNY accuses the government of using “emotionally laden” arguments to try to deliver a “sweet sound bite.” The IRS says “no rational person” would have participated in STARS if not for the foreign tax credits. Let the war of words begin. Vanessa Houlder covers taxation and Megan Murphy investment banking for the Financial Times in London. Senior reporter Jeff Gerth is in Washington, D.C.

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‘We’re Back In Full Crisis Mode’

April 16, 2012

* Spanish 10-year yields top 6 percent, contagion fears rise * German 10-year Bund yields hit record lows * Markets speculate ECB may resume bond-buying programme By Marius Zaharia LONDON, April 16 (Reuters) – Spanish 10-year government bond yields jumped above 6 percent for the first time this year on Monday as concerns over the country’s ability to keep its finances under control pushed debt markets back into “crisis mode”. Spanish yields were expected to rise further towards the 7 percent level beyond which debt costs are widely viewed as unsustainable unless the European Central Bank resumes its bond purchases after a two-month break. Yields on Germany’s benchmark 10-year Bund, viewed as the euro zone’s safest debt, hit a record low of 1.628 percent. The previous record was established in November 2011, at the height of the debt crisis and before the ECB injected around 1 trillion euros of cheap three-year funds into the banking system. “We’re back in full crisis mode,” Rabobank rate strategist Lyn Graham-Taylor said. “It is looking more and more likely that Spain is going to have some form of a bailout. Assuming there is not an (ECB) intervention you would not see a cap on Spanish yields, they would just keep increasing.” The latest blow to Spanish markets followed data on Friday that showed record borrowing by its banks from the ECB. Investors’ main fear is that banks parked most of the funds in domestic government debt, making them more vulnerable to sovereign stress. Spain faces a test of investor confidence this week with an auction of two- and 10-year bonds on Thursday. Spanish 10-year yields rose 11 basis points at 6.10 percent, five-year yields topped 5 percent, while two-year yields spiked to 3.75 percent, all 2012 highs. Six percent is psychologically important for markets as the pace at which yields rise has accelerated on previous occasions when that level was broken. Beyond 7 percent, Greece, Portugal and Ireland struggled to raise cash in the market and were forced to seek financial aid. Investec fixed income analyst Elisabeth Afseth said current yields indicated that the euro zone crisis had entered a new phase and that markets have put the effect of the ECB’s cash offerings behind them. “The ECB’s actions bought some time and provided some liquidity but it never was in a position to do anything about solvency … and this is what we’re facing now. I would not be surprised if yields go back to (record) levels,” Afseth said. Spanish yields hit euro-era highs of just under 7 percent in November last year, when Italy was considered the main source of contagion. Italian 10-year yields were over 7.5 percent at that time, compared with 5.6 percent on Monday. Underlining investor fears, the cost of insuring Spanish debt against default hit a record high at 522 basis points, meaning it costs of $522,000 a year to buy $10 million of protection, according to data from Markit. LESS SENSITIVE TO ECB Speculation the ECB could soon step in to ease the pressure was rife, although investors feared its bond-buying programme may have lost some of its potency after the central bank was given preferential treatment in Greece’s debt restructuring. The ECB seems reluctant to resume bond purchases, with Governing Council Member Klaas Knot saying on Friday he hoped the bank never has to use the programme again. “The problem … is that the bigger the position the ECB builds in a sovereign’s debt, the greater the private sector holders are likely to perceive their probability of default,” Credit Agricole rate strategist Peter Chatwell said in a note. “As such, the (programme) might be used more sparingly than in the past and we expect spreads to be less sensitive to any buying than they were last year.” Also stretching nerves in bond markets were signs that the world’s largest economies were hesitant to raise new resources for the International Monetary Fund to contain the euro zone crisis. The ongoing risk aversion should push Bund futures above their record high of 140.52 and head towards 141.20, a level projected by a trendline connecting recent highs, Commerzbank rate strategist Rainer Guntermann said.

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Confederacy Of Dunces

April 16, 2012

Four hundred miles without a word until you smile, four hundred miles on fields of fire. Less confusingly, there are only seven and a half things you need to know today. Here they are: Thing One: Europe: See, this is why nobody ever believes the Pollyannas who tell you things are just fine, so you can get on back in the stock market. Those same clowns told us everything was fine in Europe, too, a few months ago, and now look at it. It’s just a big mess again, The New York Times writes, with the euro at its lowest level in two months, super-safe German bunds at record highs and Spanish and Italian borrowing costs jumping through the roof. Why’s all this happening again? Well, funny story, the Goofball Circus that is Europe’s leadership decided that the best medicine for a starving economy was to choke off government spending, which resulted in the economy getting even weaker, which resulted in scads of people getting laid off, which resulted in lower tax revenues, which resulted in even worse government deficits and also a depression , writes Paul Krugman. Only now is Europe starting to seriously debate whether austerity is maybe possibly a bad thing, writes Reuters . Meanwhile, they’re coming hat-in-hand to the IMF for more cash to bail out their countries and banks and such. Speaking of which, the other genius idea the European Leadership had was to give European banks free money to buy up the bonds of shaky European countries. This Ponzi scheme worked for about three months, before the bond market started beating up on European bonds again — because of worries about the effects of austerity, writes Wolfgang Munchau in the Financial Times — and now suddenly these banks are saddled with more risky debt than ever and facing the prospect of rating downgrades , the Wall Street Journal reports. Thing Two: Buffett Rule Ruse: So the Senate votes on the Buffett Rule today, which would impose a minimum tax on millionaires. Don’t fret, Thurston Howell, the parliament of millionaires will shoot it down , but not before making GOP Senators shamefully take your side. Anyway, even if it did pass, it’s riddled with loopholes , writes 7.5 Things’ own Khadeeja Safdar. Thing Three: Google Fight Club: A great philosopher once opined that having more money often results simply in having more problems. Tell me about it, says Google, today entwined in not one but two legal tussles arising out of money. The first is with the FCC , which has its regulatory panties in a bunch because Google hasn’t been cooperating with its inquiry into Google’s plan to use its spare cash to take pictures of everything in the world and put them on the Internet. The second is with Oracle, which wants a cool billion dollars out of Google in a patent-infringement case going to court this week, the Wall Street Journal writes. Thing Four: Carlyle’s Modesty: Famous private-equity firm Carlyle Group, which occasionally employs former bigwigs from government, is going to sell shares of itself to the public — but not very many , writes the Washington Post . The trouble is that the stock market is not in great shape , and people really don’t like owning shares of these strange private-equity firms. Thing Five: Yuan It, You Got It: For years the United States has been griping about how China keeps its currency artificially cheap, to give it a leg up in making plastic junk that it then sells back to Americans for pennies. Well, China is starting to feel its oats a little bit and is starting to let its yuan get a little stronger , the Wall Street Journal writes. But only just a little, which means the griping from the U.S. will continue , Reuters writes. Thing Six: Mustang Sally: I tell you, these crazy kids today just aren’t interested in gas-guzzling death machines for some reason. To rectify this disappointing state of affairs, Ford wants to re-design its famous Mustang death machine to make it more appealing to the youngs somehow, by making it more Europe-y or YouTube-y or something, the Wall Street Journal writes . “The next generation would retain the shark-nosed grille and round headlights, but would look more like the new Ford Fusion than the current Mustang, these people said.” Yes, nothing quite says “buy me, youth,” like “Ford Fusion.” Thing Seven: Bond Sausage: Nothing spells the end of the last financial crisis — and the start of the new one — quite like the fact that Wall Street’s math wizards are once again busily stuffing financial instruments with all sorts of crap to sell to you, the public, so that you can spend your golden years eating cat food. The Wall Street Journal reports that asset-backed securities made out of whatever happens to be lying around the house — fast-food franchises, lottery tickets, whatevs — are back in vogue. Thing Seven And One Half: Hillary Gone Wild: Hillary Clinton is single-handedly trying to take over the Internet. Not satisfied with being her own meme , she is now living it up in South America with style , which is more than we can maybe say for the Bush twins or the Secret Service . Calendar Du Jour : Economic Data Releases : 8:30 a.m. ET: Retail sales for March 8:30 a.m.: Empire State manufacturing report for April 10:00 a.m.: NAHB housing market index for April Corporate Earnings Reports : All before 9:30 a.m.: Citigroup Gannett Mattel M&T Bank Charles Schwab Heard On The Tweets : @ritholtz : Too many people insisting that 2+2=5. Way too time consuming to overcome their cognitive dissonance. Its why Twitter’s Block was invented! @ObsoleteDogma : Who would win in a fight between Cory Booker & Chuck Norris? @ReformedBroker: Prepare to have your minds blown by this story http://t.co/lXwkv581 $GOOG @cate_long : “Titanic’s owner J. P. Morgan was scheduled to travel on the maiden voyage, but canceled at the last minute…” @zerohedge : OBAMA SAYS U.S. `ON TRACK’ TO GOAL OF DOUBLING EXPORTS. And quadrupling imports… All to Mars @zerohedge : Can everyone stop blaming the central banks already? It is not like markets are addicted to every word they utter or anything @WSJDealJournal : Just FYI: This is the second quarter in a row JPMorgan reported its earnings on Friday the 13th. Jamie Dimon is daring fate to intervene. — Calendar and tweets rounded up by Khadeeja Safdar. And you can follow us on Twitter, too: @markgongloff and @byKhadeeja

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Startup Turns Problem Solving Into Sport

April 15, 2012

SAN FRANCISCO — Strange secrets hide in numbers. For instance, an orange used car is least likely to be a lemon. This particular unexpected finding came to light courtesy of a data jockey who goes by the Internet alias SirGuessalot, who in fact wasn’t guessing at all. Instead, he and his partner, PlanetThanet, relied on the hard math skills that make them top contenders in a sport tailor-made for the 21st century: competitive number-crunching. The used car defect prediction contest is one of dozens hosted by San Francisco online startup Kaggle, whose creators believe they can tap the global geek population’s instinct for one-upmanship to mine better answers faster from the world’s ever-rising mountain of data. “Competitions bring together a wide variety of people into a wide variety of problems,” said Jeremy Howard, who became Kaggle’s president and chief scientist after winning multiple competitions himself. “You get people looking at stuff they’d never look at otherwise.” While the used car contest was fun, Kaggle has its eye on weightier scientific problems. In one contest, an English major who trained himself in data science built a model for predicting the progress of HIV infections in individual patients. In another, a scientist who studies glaciers for a living won a NASA-backed Kaggle competition to measure the shapes of galaxies by mapping the universe’s dark matter. The data problems that need solving are so important that those who find the solutions should be paid like professional athletes, said Kaggle founder Anthony Goldbloom. By turning data-mining into a crowdsourced contest, he hopes he’s created a way to make that happen. Already one of Kaggle’s contests offers a multimillion dollar prize. “We want to see the best data scientists earning more than Tiger Woods,” said Goldbloom, who started the company in his native Australia and recently came to San Francisco’s South of Market startup haven. The job market for mathematicians and statisticians has become hot as the sheer volume of data generated by ever faster, cheaper computing resources explodes. Data storage has become so inexpensive that a 2011 McKinsey and Co. report estimated that a disk drive capable of storing all the world’s music would cost about $600. Walmart stores 10 times more data on customer transactions and other parts of its operation than is contained in the entire Library of Congress, according to the same report. Analyzing the so-called “big data” deluge has become a key task for businesses in an effort to divine everything from which ads online customers will click to how much inventory they need to maintain. Political candidates analyze data to predict voting patterns. Dating websites try to predict ideal mates. Kaggle competitions focus on creating and testing formulas that can be used to make predictions based on the contents of giant datasets. The more accurate the formula, the better the chances it will accurately provide answers to complex questions, such as the orange used car being the least likely to break down. Goldbloom argues that no matter how many data scientists companies hire, relying on in-house data talent means companies can’t know if they’re getting the best solution. In a Kaggle contest, competitors find out as soon as they submit their solutions how they stack up against fellow contestants. They can keep trying for the duration of the typically three-month contests, which are highlighted on the company web site. As the first entries come in, the accuracy of competing models improves by leaps, Goldbloom said. As the contests progress, the improvement curve flattens out. Goldbloom and Howard believe that shows the competitive approach pushes data scientists toward the best solutions within human reach. “Crowdsourcing allows you to squeeze data dry,” Goldbloom said. Not all competitions are open to all comers, however. About 33,000 contestants have taken part in Kaggle’s public competitions, where prize money tends to top out at around $10,000. Winners can get invited to participate in elite private contests, which may include access to sensitive private data sets. Kaggle’s business model depends on deep-pocketed contest sponsors like banks seeking to outdo each other with more lucrative prize purses to attract the best competitors, who themselves in theory could then make their livings off Kaggle competitions alone. The biggest prize by far open to the public is $3 million offered by the California-based Heritage Provider Network medical group to the data scientist best able to use hospital admission records to predict the profiles of people most likely to end up in the hospital. The next-biggest purse is $100,000 in prizes put up by the Hewlett Foundation for algorithms that can automatically grade student essays. In its grandest vision of itself, the 11-person company backed by PayPal co-founder Max Levchin will have tens of thousands of competitions running simultaneously. Guilds of data gurus will band together to unleash software that enters competitions automatically. Kaggle becomes not just a way to push humans to perform at their best but to make machines themselves smarter as code-based contestants battle and “learn” from their mistakes. In this way, Howard said, data competitions become steps along the development of artificial intelligence systems such as self-driving cars. As for why orange used cars are most likely to be in good shape, the numbers did not hold the answer. One notion was that such a flashy color would only attract car fanatics who would be more likely to take care of their vehicles. That didn’t pan out, however, since the least well-kept used cars turned out to be purple. ___

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Eliot Spitzer: Obama ‘Has Been On Wall Street’s Side Since Day One’

April 14, 2012

When it comes to reforming Wall Street, President Obama is all talk, according to Eliot Spitzer. The former New York governor took to Reuters TV’s Fast Forward with Chrystia Freeland to slam the president for what he says is a talk-tough, act-weak approach to the financial industry, which less than five years ago brought the global economy to the brink of disaster. “I’m not persuaded that this President has really been a voice for reform when it comes to Wall Street,” he said. “Wall Street has pretended that it has taken its hits, but it really hasn’t.” Spitzer summarized Obama’s efforts as the “occasional speech” criticizing Wall Street practices, largely followed by little to no substantial legislative action. “When it has come to actually putting in place the reform-based structure that would actually have changed the way the banking system works, he has really been on Wall Street’s side since day one,” Spitzer said. Spitzer criticized the Obama administration for what he perceives as opposition to the Volcker Rule, a key piece of financial reform that aimed to curb banks’ high-risk bets with their own money. Such trading has been criticized for pitting banks against their own clients. The president first introduced the rule more than two years ago, calling it a “simple and common-sense reform” at the time. Spitzer also claims the White House did not fight to give judges the ability to reform mortgages in the wake of the housing collapse. “The White House and Treasury intervened to defeat that in the Senate, something that could have fundamentally altered the course of our mortgage crisis that still continues to this day,” he said.

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A Forehead Tatoo Too Big To Fail

April 13, 2012

America has placed too much faith in the power of markets for the past 30 years, a belief not even the financial crisis could shake. The country risks losing its soul as a result. That’s the warning of Harvard political philosopher Michael J. Sandel, expressed in a new book, “What Money Can’t Buy: The Moral Limits of Markets.” “Over the past three decades, roughly, markets have been triumphant,” Sandel told The Huffington Post on Friday, referring to the ascension, which he said began with the political rise of Ronald Reagan and Margaret Thatcher in the 1980s, of “the idea that markets are the primary instrument for achieving the public good.” This belief in the power of markets to improve our lives was reinforced by Tony Blair and Bill Clinton and survived even the financial crisis, Sandel noted, “after all financial markets were utterly discredited, or so it seemed.” Sandel said American society is steadily changing from a market economy to what he calls a “market society, a way of life in which market values and market reasoning reach into every sphere of life,” including education, health care and military service. In an excerpt of his book published by The Atlantic , Sandel cites several specific and unnerving examples of the creeping reach of markets, including a woman who earned $10,000 for having a company’s Web address permanently tattooed on her forehead. She used the money to help pay for her son’s education. The problem with being able to buy and sell increasing numbers of things is that we devalue the things we are buying and selling — including our foreheads, our health, our children’s education, Sandel argues. Ultimately this corrodes the ties that bind Americans together. “The more things money can buy, the more the affluent can buy their way out,” Sandel said. “The affluent lose a stake in the public sphere, and increasingly we lead separate lives.” “That’s not good for democracy, and it’s not a satisfying way to live,” he added. Sandel said he had little hope that the financial reforms that followed the crisis would do much to change the dominance of markets. After all, they still arise from the belief that the market knows best and that corporations should be relatively unfettered. The Dodd-Frank financial regulations have left in place banks that are too big to fail and not accountable for creating the crisis, Sandel said. That has led to a festering anger on both sides of the political spectrum, manifested in the Tea Party and Occupy movements. Sandel said that really breaking the thrall of the markets would require overcoming “an allergy we have … to bringing ethics, morality and virtue into public discourse.” That could be a particular problem for the left, which is accustomed to those realms being the home turf of the religious right, on issues such as reproduction and sexuality. A potentially higher hurdle to changing attitudes is that the allure of free markets is closely tied to how Americans see themselves. “In our society especially, markets seem to embody a certain idea of freedom,” Sandel said. “It’s a narrow, limited, impoverished idea of freedom — the freedom to buy and trade goods, a consumerist idea of freedom. And it’s deeply held. “The allure of that narrow vision of freedom is not something to be underestimated,” he added. “That is why it’s hard to break the thrall of markets and market thinking.”

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Americans Buying Huge Number Of Electric, Hybrid Cars

April 13, 2012

— ___ Hybrid and electric cars see record sales in March DETROIT (AP) – Americans are buying record numbers of hybrid and electric cars as gas prices climb and new models arrive in showrooms, giving the vehicles their greatest share yet of the U.S. auto market. Consumers bought a record 52,000 gas-electric hybrids and all-electric cars in March, up from 34,000 during the same month last year. The two categories combined made up 3.64 percent of total U.S. sales, their highest monthly market share ever, according to Ward’s AutoInfoBank. The previous high was 3.56 percent in July 2009, when the Cash for Clunkers program encouraged people to trade in old gas guzzlers for more fuel-efficient cars. And while their share of the market remains small, it’s a big leap from the start of the year, when hybrids and electrics made up 2.38 percent of new car sales. ___ Bank reports point to a healing housing market NEW YORK (AP) – Earnings reports from two major banks Friday painted a picture of a healing housing market, with more Americans taking out mortgages, paying them on time and taking advantage of low interest rates to refinance. At JPMorgan Chase, the biggest bank in the United States, income from new home loans set a record from January through March. The bank issued 6 percent more mortgages than a year ago and got 33 percent more applications. Wells Fargo, which issues the most home loans, booked the most mortgage fees since 2009. It issued 54 percent more mortgages than a year ago and took 84 percent more applications. ___ JPMorgan Chase earns $5.4 billion in 1Q, beats Street NEW YORK (AP) – JPMorgan Chase, which holds the most assets of any bank in the country, said Friday that it issued more mortgage loans in the first three months of the year and turned a bigger profit than Wall Street expected. The bank said it earned $5.4 billion for the first quarter, or $1.31 per share. Analysts expected $1.16 per share. Revenue and profit declined at most of JPMorgan’s businesses, including investment banking. As the nation’s largest bank, JPMorgan is a barometer of the economy and the financial industry. It is also the first major bank to report its results for the quarter. ___ Wells Fargo beats earnings expectations NEW YORK (AP) – Wells Fargo’s profit jumped 13 percent in the first three months of the year, thanks to strong mortgage lending and a drop in delinquent loans, the bank said Friday. Net income available to common shareholders climbed to $4.02 billion from $3.57 billion a year ago. On a per-share basis, earnings were 75 cents, beating the 73 cents expected by analysts polled by FactSet. The bank also beat on revenue, bringing in $21.6 billion instead of the predicted $20.4 billion. The San Francisco-based bank, the country’s fourth-largest, has fared better than many of its peers throughout the global economic meltdown, muscling its way to become both the biggest mortgage lender and servicer as rival Bank of America dramatically scaled back its own mortgage business. Nearly a third of mortgages made in the U.S. now come from Wells, according to Guy Cecala of Inside Mortgage Finance. ___ US inflation mild as gas prices rise more slowly WASHINGTON (AP) – Rising gas prices slowed in March, keeping overall U.S. inflation mild. The consumer price index rose 0.3 percent in March, the Labor Department said Friday, compared with February’s 0.4 percent rise. Excluding food and gas, so-called “core” prices increased 0.2 percent in March. Inflation has eased since last fall and is expected to stay tame. In the 12 months that ended in March, prices rose 2.7 percent. That’s below last year’s peak year-over-year rate of 3.9 percent. Core prices have risen 2.3 percent in the past 12 months, close to the Federal Reserve’s inflation target of 2 percent. ___ China’s economic growth falls to near 3-year low BEIJING (AP) – China’s declining economic growth fell to its lowest level in nearly three years in the first quarter, but analysts said it should rebound in coming months. The world’s second-biggest economy grew by a still-robust 8.1 percent in the three months ending in March, down from the previous quarter’s 8.9 percent, data showed Friday. It was the weakest expansion since the second quarter of 2009 but above the government’s 7.5 percent target for the year. China’s rapid growth has fallen steadily since 2010 as a slump in global demand battered its exporters and Beijing tightened lending and investment curbs to cool an overheated economy and surging inflation. ___ Bernanke defends Fed response to financial crisis WASHINGTON (AP) – Chairman Ben Bernanke said Friday that the Federal Reserve was left with few good options when it stepped in to shore up the largest U.S. financial institutions during the 2008 crisis. Bernanke defended the central bank’s actions to support insurance giant American International Group and help with the sale of investment bank Bear Stearns, during a speech to a New York conference examining the crisis. While there were risks associated with that support, Bernanke said that the billions of dollars in loans the Fed provided were backed by adequate collateral and taxpayers did not lose money. And he noted that the Fed and other U.S. regulators are better positioned to deal with a crisis because Congress passed an overhaul of financial regulations in 2010. ___ Goldman Sachs CEO Blankfein paid $16.1 million NEW YORK (AP) – Goldman Sachs CEO Lloyd Blankfein received total compensation of $16.1 million in 2011, a 14 percent increase from the year before. In a regulatory filing posted Friday morning, the New York investment bank detailed Blankfein’s compensation for last year. Goldman paid its chairman and CEO a salary of $2 million, a bonus of $3 million and stock awards worth $10.7 million. Blankfein’s total pay included $9,800 in matching payments to his retirement plan, $51,467 for a car and driver and $258,701 for security services. The amount Goldman paid for his security more than doubled from the year before. ___ Gulf sheen smaller; source may be natural seepage NEW ORLEANS (AP) – A federal agency says natural seepage of oil and gas from the floor of the Gulf of Mexico may be the source of an oil sheen off the Louisiana coast. The Bureau of Safety and Environmental Enforcement said Friday that the sheen is near an area where seepage is known to occur. The bureau said an investigation by Royal Dutch Shell, which has operations in the area, indicates oil and gas are being released from the seep area. The sheen was initially measured as about 10 miles long and a mile wide when it was spotted Wednesday. The Coast Guard said that by Thursday night it was about five miles long and 100 yards wide and is breaking up, about 130 miles southeast of New Orleans. ___ Procter & Gamble raises dividend by 7 percent NEW YORK (AP) – Consumer products maker Procter & Gamble Co. is raising its quarterly dividend by 7 percent to 56.2 cents. The Cincinnati company had been paying a quarterly dividend of 52.5 cents. It pays dividends on common shares and certain preferred shares. Its next dividend is payable May 15 to shareholders of record as of April 27. Procter & Gamble makes Tide laundry detergent, Crest toothpaste, Pampers diapers, and other products. ___ By The Associated Press(equals) The Dow Jones industrial average lost 136.99 points to close at 12,849.59, a loss of 1.1 percent. The Standard & Poor’s 500 index fell 17.31 points, or 1.3 percent, to 1,370.26. The Nasdaq composite fell 44.22 points, 1.5 percent, to 3,011.33. Benchmark U.S. crude fell by 81 cents to end at $102.83 per barrel on Friday in New York. Brent crude lost 31 cents to end at $121.21 per barrel in London. In other energy trading, natural gas stayed near 10-year lows, nearly unchanged, to finish at $1.981 per 1,000 cubic feet. Heating oil was up less than a cent to finish at $3.1746 per gallon and gasoline futures lost 1.06 cents to end at $3.3461 per gallon.

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Sheila Bair: ‘Look Out 1 Percent, Here We Come’

April 13, 2012

Are you concerned about growing income inequality in America? Are you resentful of all that wealth concentrated in the 1 percent? I’ve got the perfect solution, a modest proposal that involves just a small adjustment in the Federal Reserve’s easy monetary policy. Best of all, it will mean that none of us have to work for a living anymore. For several years now, the Fed has been making money available to the financial sector at near-zero interest rates. Big banks and hedge funds, among others, have taken this cheap money and invested it in securities with high yields. This type of profit-making, called the “carry trade,” has been enormously profitable for them. So why not let everyone participate?

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Renting Out Foreclosed Homes Ready To Become Big Business

April 13, 2012

The business of turning foreclosed homes into rentals is set to boom. The practice could be a $100 billion industry this year, according to a report from real estate tracker CoreLogic . That’s equivalent to $125 for every Facebook user , the cost of halving global poverty for two years and 250,000 times the salary of the President of the United States, according to The Guardian . Why is the market for foreclosed properties-turned-rentals poised for a boom? In the aftermath of the housing bust, demand for owning homes has fallen, pushing rents up and home prices down . In response, everyone from big banks to smaller firms are increasingly taking advantage of the disparity by turning foreclosure properties into rental homes. Bank of America is currently running its own pilot program to rent homes to families that have been foreclosed on, called Mortgage to Lease . In addition, private equity firms and hedge funds are now spending hundreds of millions of investment dollars and racing to buy up foreclosed properties. In turn, Bank of America and government mortgage giants Fannie Mae and Freddie Mac are responding to the demand, selling off their holdings of foreclosed homes by the hundreds. Just this week, Bank of America announced a bulk offering of 500 foreclosed homes in six different states, following up on an offering of 200 properties late last year. Meanwhile, Fannie Mae and Freddie Mac have sparked a bidding war when it put up 2,500 of the 200,000 foreclosed homes it currently owns for sale. That’s because Wall Street firms say they’re interested in buying up the properties and renting them out. The practice of turning foreclosed homes into rentals is becoming so popular that the Federal Reserve issued guidelines earlier this month for banks to use when they’re flipping foreclosures into rentals. But the practice also faces criticism: Namely, some are concerned that the very banks and agencies responsible for the housing crisis in the first place will now benefit from their own questionable practices.

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Mother, Disabled Daughter Forced Out Of Home Even After BofA Modification

April 13, 2012

A Los Angeles-area woman and her severely disabled daughter were forced to flee their home of 25 years in a matter of minutes, allegedly in large part because of Bank of America. Dirma Rodriguez fell behind on her payments after taking out a loan to renovate her house, the Los Angeles Times reports. The reason for the renovation? Rodriguez’s daughter needed to better accomodate her daughter, who has cerebral palsy. BofA modified her loan, but then sold the house to a flipper at a foreclosure auction, who moved to evict her. There’s still hope though. After the Occupy Fights Foreclosure movement intervened, BofA said it’s considering giving Rodriguez a loan modification that would give her her home back. Though tragic, Rodriguez’s story isn’t that unusual for a variety of reasons. First of all, despite a pledge from President Obama in 2009 that his Home Affordable Modification Program would help 3 to 4 million struggling homeowners, there have only been 768,773 active permanent modifications as of last month. That means millions of homeowners are still having trouble paying off their loans with little hope in sight to stave off foreclosure. Secondly, Rodriguez isn’t the first homeowner that’s needed the intervention of the Occupy movement to keep her house. Helen Bailey, an elderly Civil Rights Era-activist , will now be able to stay in her Nashville, Tennessee home, thanks in larger part to Occupy Nashville and other organizations who started an online petition and ultimately convinced JPMorgan Chase not to foreclose on Bailey’s home. Finally, BofA has a history of foreclosing on homeowners under unusual circumstances. Earlier this week Atlanta homeowner Pamela Flores accused the bank of foreclosing on her home even after bank officials advised her to skip payments. Last year, BofA threatened to foreclose on an elderly Florida couple after they paid their bill too early. In addition, one Texas man was faced with the prospect last year that BofA would foreclose on his home, which was already destroyed in Hurricane Ike. But in what is perhaps one of the saddest cases, a quadriplegic man living in Oregon has been battling with banks , including BofA, to keep his home since 2003. Check out some of the biggest foreclosure fails in recent months:

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Bernanke: Fed Responded To Crisis With ‘Best Of Bad Options’

April 13, 2012

WASHINGTON — Chairman Ben Bernanke said Friday that the Federal Reserve was left with few good options when it stepped in to shore up the largest U.S. financial institutions during the 2008 crisis. Bernanke defended the central bank’s actions to support insurance giant American International Group and help with the sale of investment bank Bear Stearns, during a speech to a New York conference examining the crisis. While there were risks associated with that support, Bernanke said that the billions of dollars in loans the Fed provided were backed by adequate collateral and taxpayers did not lose money. And he noted that the Fed and other U.S. regulators are better positioned to deal with a crisis because Congress passed an overhaul of financial regulations in 2010. “The Federal Reserve’s responses to the failure or near failure of a number of systemically critical firms reflected the best of bad options, given the absence of a legal framework for winding down such firms in an orderly way in the midst of a crisis – a framework we now have,” Bernanke said. Some have criticized the Fed for helping rescuing those institutions rather than letting them fail. They said the Fed sent a message: banks could expect the government to bail them out after taking extraordinary risks that threatened the larger financial system. In his speech, Bernanke disputed this view. And he said the regulatory overhaul gave the Fed new powers to wind down those institutions without threatening the larger financial system. In his speech, Bernanke made no comments about the current state of the economy or the Fed’s policies taken to boost growth. But he did emphasize that the Fed’s regulatory duties are just as important as that mission. “Going forward, for the Federal Reserve as well as other central banks, the promotion of financial stability must be on equal footing with the management of monetary policy as the most critical policy priorities,” Bernanke said.

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Bailout Money Fails To Reach Neediest Homeowners: Report

April 12, 2012

A federal housing program funded with taxpayer money left over from the government’s bailout of the banks and auto companies is failing to deliver on its promised relief to struggling homeowners. The Hardest Hit Fund, a $7.6 billion initiative established by the federal government in February 2010 to help families in states most crippled by the collapsed housing market, has distributed just 3 percent of its money — or $217.4 million — to help homeowners, according to a report released Thursday by the Office of the Special Inspector General for the Troubled Asset Relief Fund, or SIGTARP. “Look at the TARP money that goes out to the banks,” said Special Inspector General Christy Romero in an interview with The Huffington Post. “That goes out in a matter of days. This has been two years and only 3 percent of these funds have trickled out to homeowners.” The Hardest Hit Fund has helped just slightly more than 30,000 homeowners, or 7 percent of the roughly 480,000 homeowners targeted for assistance by the end of 2017 when the program expires, according to the report. The program is funded by TARP, the 2008 legislation that has provided a $600 billion to bail out various banks and other companies in the wake of the nation’s financial crisis. “The Hardest Hit Fund is really struggling to get off the ground and it’s a real concern about whether this money can get out to these homeowners,” Romero said. The 76-page report reads like the autopsy of a dead housing program, placing the blame for the program’s paltry performance squarely on the Treasury Department, the government agency responsible for TARP and, in turn, the Hardest Hit program. According to the report, Treasury initially dragged its heels in getting the largest mortgage servicers to participate in the initiative, instead relying on the individual states to broker arrangements with the servicers. Some of the states lacked the necessary clout to secure servicer participation, thus limiting the program’s ability to reach needy homeowners, concluded the report. “These states don’t have the bargaining power that Treasury has with these large servicers,” Romero said. “Treasury is already working with these same servicers, having similar conversations with them for other housing programs, so Treasury should be using its influence to really get these servicers on board.” The Treasury Department was similarly slow in securing support from Fannie Mae and Freddie Mac, the government-owned mortgage giants that collectively control nearly half of all outstanding loans, further curtailing the initiative’s reach. The report also blames the Treasury Department for giving states too little time to roll out the program and for failing to establish clear, specific goals that would let the government and the public measure the program’s success. “Treasury actively and consistently engaged with servicers and [Fannie and Freddie] from the earliest stages of the program, encouraging support and addressing impediments to participation,” wrote Tim Massad, the department’s assistant secretary for financial stability, in a letter responding to the report’s findings . Massad also called the report “disappointing” for its focus on the program’s early months instead of more recent progress asserting that last quarter the number of homeowners helped by the fund grew 60 percent and the amount of money delivered to homeowners increased 93 percent. “This report misses the mark by not acknowledging the hard work of participating states and the innovative ways they are preventing foreclosures in their local communities,” wrote Massad in an email to The Huffington Post. “The Hardest Hit Fund is helping states address some of the most difficult problems caused by the housing crisis in ways that suit local conditions and have already kept tens of thousands of families in their homes.” While the Hardest Hit Fund’s performance is weak, it is not unique. Many of the federal government’s housing assistance programs have underdelivered, most notably the flagship Making Home Affordable loan modification program. Announced in the spring of 2009, the program was designed to help 3 million to 4 million homeowners avoid foreclosure by changing the terms of loans and lowering monthly payments. Nearly three years later, fewer than 1 million homeowners have received a permanent loan modification . The Home Affordable Refinance Program was also introduced in 2009 with the intent of helping 4 million to 5 million homeowners refinance their mortgages, taking advantage of the nation’s historically low interest rates. As of this past January, fewer than 1.1 million homeowners have refinanced through the program, which is reserved for borrowers whose loans are backed by Fannie Mae or Freddie Mac. Thursday’s report concludes with suggestions for how the Treasury Department can strengthen the Hardest Hit Fund’s effectiveness, including establishing measurable program goals, making performance data available online for the public and developing a plan to win “industry support” for the initiative. “If Treasury doesn’t make a change, the Hardest Hit Fund risks becoming another government housing program with limited impact,” Romero said. “It’s time to change the status quo.”

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STOP! San Francisco’s Board of Supervisors Calls To End Foreclosures

April 11, 2012

In a unanimous 11-0 vote on Tuesday afternoon, the San Francisco Board of Supervisors passed an official resolution calling for a moratorium on all foreclosures in the city. “The foreclosure crisis has already devastated so many lives,” Supervisor John Avalos, the legislator who introduced the bill last month, said in a statement . “This resolution is an important step to support solutions to prevent millions of Americans from losing their homes.” Avalos has said that he, like legions of other homeowners in his neighborhood, is about $100,000 underwater on his own mortgage. While the resolution is non-binding, meaning that banks can still legally foreclose on properties in San Francisco, the bill gives voice to the frustrations many local housing activists have with the foreclosure practices of the major banks operating in the city. “The banks have torn apart our communities and caused a financial and health crisis by unjustly foreclosing and evicting our neighbors from their homes,” said Christine Hakim, an organizer of the neighborhood group Occupy Bernal , in a statement. “We support those city officials who have joined with the state Attorney General [Kamala Harris] in calling for an immediate halt to predatory and for-profit foreclosures and related auctions and evictions.” Harris, who previously served as San Francisco’s District Attorney, was one of the leading proponents of increasing the dollar figure of what ultimately turned out to be a $25 billion settlement between 49 state attorneys general and the country’s banks over allegations of widespread mortgage fraud. Harris has also proposed a ” Homeowner’s Bill of Rights ,” a series of six state-level bills that would offer Californians a number of protections against predatory lending. In addition to calling for a temporary end to foreclosures until an appropriate system of statewide and/or national protections are put into place, the resolution voiced support for Harris’ bills and called on city officials to work on behalf of citizens in danger of losing their homes. The Board’s resolution comes on the heels of an audit of some 400 recent San Francisco foreclosures conducted by city Assessor-Recorder Phil Ting that found a staggering 84 percent were illegal or were missing crucial documentation. “This matters because families facing foreclosures are entitled to know exactly who holds their loan and to see for certain that the foreclosure is justified,” Ting wrote in a blog on The Huffington Post . “In one case, our audit showed a foreclosure initiated by a party that had no title to the property–and in a number of other cases, we found two competing claims to the title.” “The system is completely broken,” Ting told the Bay Citizen . The Huffington Post reported last month: San Francisco Bayview resident Vivian Richardson told The Huffington Post that the audit revealed the validity of homeowner claims. “It’s not like we all just drank the Kool-Aid one day or called each other up and said, ‘Lets stop paying our loans,’” she told HuffPost. “Something is obviously wrong with the loans. This audit proved that we aren’t crazy; this crisis is affecting so many of us.” Foreclosures have displaced over 12,000 San Francisco residens since 2008. Check out this video looking at forced foreclosures:

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Two More Private Equity Firms Ready To Go Public

April 11, 2012

Two more private equity companies are going public, as a once-secretive industry continues to make its way into the sunlight. Carlyle Group, the third-largest private equity firm in the world, is expected to offer a 10 percent stake in its company as early as next week, according to a Reuters report late Tuesday . The private equity firm, which invests in a wide variety of companies around the world, including everyday consumer brands like Hertz Corporation, is reportedly looking to raise $750 million to $800 million, giving it a total market valuation of up to $8 billion. According to Reuters, JP Morgan Chase, Citigroup and Credit Suisse are leading the 21 financial institutions underwriting the deal. At the same time, Bloomberg reports that Oaktree Capital Group, the Los Angeles-based private equity firm, is looking to sell $517.5 million of its company in its own public offering this week. The two firms, among the 20 largest in the world in 2011 , according to the research group and trade publication Private Equity International, join a growing list of large private equity operations that have offered stakes to the public in recent years. In 2007, Fortress Investment Group became the first hedge fund and private equity firm to go public. That was followed a few months later by the Stephen Schwarzman-led Blackstone Group filing a massive IPO . In 2010, private equity giant KKR went public, followed, last March, by Apollo Global Management . For those who follow the private equity world closely, it’s all part of a much larger trend: a mainstreaming of the industry. Traditionally, some in the private equity world have had an uneasy relationship with public scrutiny. Many firms were simply private pools of money investing in private companies, with little need or incentive to interact with the outside world. Now, though, the biggest PE firms are beginning to look and act like the rest of Wall Street. “This is part of the trend of private equity becoming a regular industry, not a collection of obscure boutiques,” said David Snow, CEO of private equity trade publishing company PrivCap. Snow pointed out that these private equity firms that turn public often have businesses that stray beyond the traditional private equity model and into territory occupied by Old Wall Street, including offering investment advice and hedge funds. These firms, Snow said, are almost like “old world merchant banks.”

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The Student’s Bucket List: Things You Need To Do Before Graduation

April 10, 2012

Get those resumes ready — graduation is fast approaching. Though still a couple of months away, June marks that time for students to trade in attending lectures in sweatpants and pajamas for graduation gowns. It’s a period of transition for the hundreds of thousands of Canadian students graduating this summer, but it’s also a scary time to be joining the workforce. According to Statistics Canada, the youth unemployment rate amongst 15-to-24-year-olds is at 17.4 per cent , nearly double the newest national rate of 7.2 per cent. And although a university degree decreases your chances of unemployment, as shown by national unemployment rate dropping to 6.3 per cent for people in that age bracket, some analysts attribute that to students returning for graduate studies because they were unable to find work with only an undergraduate degree. Then there’s the mounting crisis of student loans across the country. According to the Globe and Mail, the average amount of debt taken on by students when graduating is $27,000 , and the interest built on that can fall between five per cent to nine per cent, depending on your residing province. With so much doom and gloom, taking a few more courses or applying for a graduate program doesn’t seem like such a bad option, does it? Fortunately for students, universities and companies have taken notice that being a student can be synonymous with being strapped for cash. The result is a series of perks that students — particularly soon-to-be-graduates — should take advantage of while they still can. Do you take advantage of any university-specific perks? Let us know what they are below in the comment section or share your thoughts with us on Twitter @HuffPostCaLiv. Cashing In On Extended Healthcare Coverage Thinking of making that last trip to the dentist? Better do it soon. That’s because once you’ve graduated from university or hit a certain age (anywhere from 18-25), you can no longer claim any benefits under your parents’ healthcare insurance. Other procedures that students lose out when they graduate include prescription drugs and eye care, but for the basic healthcare needs, there’s always provincial health insurance. Student Savings: Public Transit While driving offers a sense of freedom, it can be a financial death trap. Between monthly payments if you’re leasing, the cost of insurance and the price of gas, your wallet is more likely to run empty before the gas tank does. Instead, make use of the discounts offered on public transit — universities like Carleton and University of Toronto, for example, give their students unlimited use of the city’s public transportation as part of their enrolment. Student Savings: Food Next to transportation, the most valuable discount students can take advantage of is in the food department. From restaurants to grocery stores, students generally save at least 10 per cent off their total purchase. Just think of all the Kraft Dinner you can buy with the savings. Student Savings: Finances Finally, in addition to saving money for transportation and food, students can take advantage of savings when it actually comes to their finances. Most of Canada’s major banks offer student bank accounts that include perks such as no-fee banking or accounts with no minimum transactions. Gather All Your References While you could start networking after landing your first job, the smarter thing to do would be to start networking while in university. Professors, teaching assistants, even older students with connections in your industry can all make excellent references. All you have to do is get them to notice you amongst the other hundreds of students they see on a weekly basis. Eat A Combination Of Kraft Dinner And Ramen Noodles Did you know that if you combine Kraft Dinner and instant noodles together, it still tastes like student poverty? Still, that shouldn’t deter you from trying such bold concoctions while you still have the “starving student” stereotype to justify it. Organize Your Email’s Inbox If you”re about to graduate, chances are that you’ve been working out of a university assigned email the last few years. But once you’ve graduated, schools close off these accounts, locking you out of whatever contacts or emails you may need. Instead, take the time to start importing all your precious info into an email account that’s less temporary. Visit A Career Counsellor For many students, university is a time for self-discovery and one of those discoveries could be what your ideal career to pursue once you graduate. That’s not to say you can’t consult career counsellors once you’re out of school, only that it’ll cost you to do so. Take Advantage Of Your Student Athletic Centre If you thought paying a few dollars for a semester’s worth of access to your school’s gym was ridiculous, you haven’t seen the membership fees to join gyms outside of campus. Centres like L.A. Fitness, Goodlife or Extreme Fitness tend to require year-long memberships, which can easily put costs in the hundreds. Enjoy That Last Tax Return It’s not often you get to expense your moving costs, nor is it often you get to add in the expenses you’ve incurred if you’ve received research grants, but both are deductibles students can file on their tax returns. Some other deductibles students can take advantage of include child care services and the cost of your tuition.

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Bank Of America Sues Itself

April 10, 2012

WASHINGTON — Bank of America is suing itself for foreclosure. “It’s crazy,” housing data analyst Michael Olenick told HuffPost. “They shouldn’t be suing themselves.” Over the past two years, the nation’s largest banks and the Obama administration have repeatedly vowed to clean up the foreclosure fraud mess. In February, banks agreed to pay $25 billion and overhaul their foreclosure processes as part of a 50-state investigation into bank wrongdoing, resulting from practices that included robo-signing . But in Florida’s Palm Beach County alone, Bank of America has sued itself for foreclosure 11 times since late March, according to foreclosure fraud activist Lynn Szymoniak , who forwarded one such foreclosure filing, dated March 29, 2012, to The Huffington Post. (A white-collar crime expert, Szymoniak was recently awarded $18 million for her work helping the government recover $95 million as a result of bank foreclosure problems in North Carolina.) In the March 29 filing, Bank of America is seeking to foreclose on a condominium and names the condo owner and Bank of America as defendants in the suit. The company is literally seeking damages from itself in order to foreclose on the condo owner. “We are servicing the first mortgage on behalf of an investor and we own the second mortgage,” Bank of America spokeswoman Jumana Bauwens told HuffPost. “Naming the second-lien holder in the suit is necessary to eliminate the junior interest,” Bauwens said. “This just strikes me as classic robo foreclosure,” Professor Alan White of Valparaiso University Law School told HuffPost. White, a predatory lending expert who tracks and analyzes data on loan modifications and foreclosures, said that lawyers for the bank likely performed an electronic title search to see if any other liens on the property existed and simply wrote down the name of whatever bank came up in the search. Lawyers and paralegals who perform these tasks typically fill out dozens of such forms a day, White told HuffPost. “I’m sure the paralegal who did this did 100 others that day,” he said. Banks have been caught suing themselves before. In 2009, Dow Jones columnist Al Lewis uncovered a case in which Wells Fargo had sued itself in connection with a foreclosure in Florida’s Hillsborough County. The bank owned both the first and second liens on the property and ended up hiring two separate attorneys to deal with the snafu — one to bring the lawsuit and another to defend itself. The Bank of America self-suits seems to have emerged from a scenario that investors have complained about for years involving home equity loans. Big banks like Bank of America service mortgages on behalf of other investors. Bank of America processes payments, negotiates with borrowers and operates the foreclosure process but does not actually own the loan. Many properties from the housing bubble had an additional home equity loan, or second lien. Banks could charge higher interest rates on these second liens because they were riskier loans — the second lien is supposed to eat losses before anything happens to the first lien. When a bank brings a foreclosure case in court, it has to notify whoever owns the second lien that it is taking action. In this case, Bank of America owns the second lien. But meticulous attorneys would not ordinarily let their clients sue themselves. “It is a little bit mindless on the part of the lawyer,” White said. “They don’t need to sue themselves.”

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Worst Market Streak Since August

April 10, 2012

This is starting to get out of hand a little bit. Stocks on Tuesday suffered their worst selloff of the year and their fifth straight day of losses, the worst such streak since last August. The Dow Jones Industrial Average tumbled 213.66 points on Tuesday, or 1.7 percent, to 12,715.93, its lowest close since early February. This was the fifth straight losing day for the blue-chip stock index, the longest losing streak since July to August of last year, when the United States lost its AAA credit rating and financial markets lost their minds for a while. The S&P 500-stock index fell 1.7 percent to 1358.59, also its fifth straight loss and its lowest close since early March. And the Nasdaq fell 1.8 percent to 2991.22, its lowest close since early March. This collapse follows a months-long drunken rally, fueled by easy money from the Federal Reserve and European Central Bank and a mistaken hope that the European debt crisis was all fixed up. Well, surprise, surprise, the European debt crisis is not all fixed up . Spanish and Italian bonds have been getting hammered for the past several days . Borrowing costs for Spain have jumped to their highest levels since last fall , when Europe’s last flare-up. Back then, European policy makers gave Europe’s debt problems a big swift kick down the road, led by the ECB, which pumped free cash into European banks. Now we’ve finally gotten to the place where the can landed, and apparently it’s time for another kick. Threats of a global economic slowdown continue to frighten the markets. Europe’s economy is in recession, while China’s economy is slowing , and the disappointing March jobs report raised fears the U.S. economy is losing steam, too. Expectations for f irst-quarter corporate earnings are low , in part because of the ongoing debacle in Europe. Making matters worse for stimulus-hungry markets, the Fed recently denied them an immediate fix of fresh cash . European stock markets took an even more brutal beating on Tuesday, with Germany’s DAX index down 2.5 percent, Italy’s main stock index down 5 percent and Spanish stocks down 3 percent. The Chicago Board Options Exchange’s Volatility Index, the market’s so-called “fear gauge,” jumped to its highest level in more than a month. The VIX has risen for eight straight days, its longest such streak in nearly nine years, according to Reuters . In another sign of market fear, investors fled back to the relative safety of U.S. Treasury bonds — don’t laugh! Yields on those bonds dropped to 1.98 percent, the lowest in more than a month. Bank of America was the biggest loser in the Dow industrials, dropping more than 4 percent. Financial stocks in general had an awful day, as they tend to suffer the most whenever financial crises flare up, which sort of makes sense. JPMorgan Chase lost nearly 2 percent, while Citigroup fell 3 percent. European banks naturally took it even worse, with France’s Societe Generale down about 6 percent, Spain’s Banco Santander off 4 percent and Germany’s Deutsche Bank down 4 percent. With the help of a rally that started last fall — and included the best first quarter for the Dow and S&P since 1998 — U.S. stocks surged to their highest levels since before the crisis, almost without stopping. Many investors thought stocks had gotten ahead of themselves. It’s still too early to call this a full-fledged market panic, the Dow is only down about 4 percent from its high in early April, after all. But it’s also still too early to say it’s all over.

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Major Lender Accused Of Discrimination

April 10, 2012

WASHINGTON — A group of U.S. nonprofit housing advocates has filed a discrimination complaint against Wells Fargo, accusing the nation’s largest mortgage lender of failing to maintain and market foreclosed properties in black and Hispanic neighborhoods. The National Fair Housing Alliance on Tuesday filed the complaint against San Francisco-based Wells Fargo and Co. and Wells Fargo Bank with the U.S. Department of Housing and Urban Development. Wells Fargo declined to comment, saying officials at the bank have yet to see the complaint. The bank services one out of every six home loans in the United States, The federal Fair Housing Act requires banks, investors, servicers and other parties to maintain and market homes without regard to race or ethnicity. The advocacy group began investigating the conditions of bank-owned properties in 2010. It looked more than 200 homes in a handful of cities: Atlanta, Baltimore, Dallas, Dayton, Ohio, Miami and Fort Lauderdale, Fla., Oakland, Calif., Philadelphia and Washington. Bank-owned homes in white communities were treated in a “far superior manner,” the complaint alleges. Those homes were 33 percent more likely to be marketed with a professional “For Sale” sign than homes in black or Hispanic communities. Nationwide, about 2.7 million homeowners faced foreclosure last year. .

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Bank Of America Tells Woman To Miss Mortgage Payments, Then Forecloses On Her House

April 10, 2012

Here’s how Pamela Flores tells it : A couple years ago, she found that she couldn’t keep making mortgage payments on her Atlanta house. She says she then tried to get a loan modification, according to CBS Atlanta . Instead, Bank of America advised her to stop making payments altogether so that she could qualify for the Making Home Affordable Program , a federal initiative meant to provide mortgage relief. According to Flores, BofA gave her the advice to stop making payments on more than one occasion. Flores says BofA put her on a trial plan, then told her she’d missed a payment during the trial period and rejected her application. Flores contends she made that payment. Now BofA is foreclosing on Flores’s home , saying it will go up for auction in less than a month. Flores is far from the first homeowner to come forward with a story like this. Since the implosion of the housing market a few years ago — followed by a spike in unemployment — millions of people have been looking for ways to cope with mortgages that they suddenly can’t maintain. In many cases, banks have advised struggling homeowners to miss payments in order to qualify for a loan modification — only to turn around and foreclose on the homeowner instead. The same thing allegedly happened to Frank and Deana Dixon of Scituate, Massachusetts and Annette Lake of Santa Clara , the latter also dealing with BofA. The practice is so common that it was one of the central subjects of a Senate banking committee hearing in December 2010. Flores’s case is also the latest public-relations snafu for BofA, which has been at the center of a litany of homeowner horror stories since the housing crisis took hold. The bank has foreclosed or threatened to foreclose on homeowners who have never missed payments, in some cases putting those homeowners through months of unnecessary court battles . In another case, in 2009, BofA contractors entered the home of Angela Iannelli, a borrower who was believed to be in default. The contractors padlocked Iannelli’s doors, cut off the electricity and water and confiscated her parrot. The bank later apologized, admitting that they’d made an error and Iannelli was not actually in default . And last summer, BofA mistakenly foreclosed on a retired Florida couple whose only crime was to make a mortgage payment a week early and file another payment online without a signature. The foreclosure was eventually halted. As for Pamela Flores, BofA sent a statement to CBS Atlanta saying it never got the disputed payment and has made several unsuccessful attempts to contact Flores. The bank says it will keep trying to reach out to Flores to consider her for a loan modification. Flores, meanwhile, has aligned herself with the Atlanta chapter of the Occupy movement, whose members say they are setting up a site at her house and will work to reach an agreement with the bank. Check out some other foreclosure fails:

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Occupy Groups Unite Over Foreclosures

April 9, 2012

* Occupy groups working in several cities * Foreclosure crisis inspires middle class * Some banks cooperate, wanting to avoid publicity By Nick Carey April 9 (Reuters) – Mercedes Robinson-Duvallon turned 83 in February, but there was little time for celebration. On her birthday, as she sat in a wheelchair recovering from surgery, sheriffs’ deputies arrived to evict her from the Miami home where she has lived since 1966. A year earlier her property had moved into foreclosure after she defaulted on a refinanced loan. Robinson-Duvallon says she would be homeless now but for the intervention of about 40 members of Occupy Fort Lauderdale, a Florida branch of the national movement that is protesting income inequality and corporate greed. The group took over her lawn and house and even baked her a birthday cake. The deputies decided to let her stay. “I owe the Occupy people,” said Robinson-Duvallon, who is now challenging the eviction in court. “This has all been so horrible, I can’t tell you how many times I’ve cried and cried.” What happened in Miami is also occurring in Cincinnati, Los Angeles and Minneapolis, as local Occupy groups pursue an issue they believe has emotional resonance among America’s struggling lower and middle classes. Fighting foreclosures and evictions, activists say, gives the disparate movement a unifying focus and embodies its anti-Wall Street message. It also has offered a way for Occupy – up till now a largely white, middle-class movement – to broaden its reach to minorities. Interviews with Occupy activists in 11 states show groups from coast to coast have taken up foreclosure fights through rallies, home occupations and court appearances. Matt Browner Hamlin of occupyourhomes.org, a national group focused on this cause, counts “more than 100 Occupy groups” that have taken direct action or formed foreclosure working groups. Cheryl Aichele of Occupy Los Angeles said activists there have helped a dozen homeowners thus far and have many more requests. “This cause,” she said, “brings together everything that we are fighting against – corporate greed, bank bail outs, a corrupt judiciary and corrupt government.” There is little evidence that the banking industry is taking notice, however. Robert Davis, executive vice president of an industry lobby group, the American Bankers Association, said, “It is unlikely that protests are going to have any bearing on the court process” where foreclosures often are challenged. He said banks rely on law enforcement to quash eviction protests that constitute “unlawful occupation of a property … They need to be removed so the property can be sold.” In Cincinnati, a group called Occupy the Hood has found the issue a rallying point in the city’s East Price Hill neighborhood, an ethnically mixed, working-class area hard hit by the economic downturn. Average neighborhood home values have fallen 41 percent since 2002. Amid chants of “Banks got bailed out, we got sold out,” Rigel Behrens and other activists in Cincinnati recently conducted a “foreclosure tour,” visiting seven boarded-up homes. “Abandoned homes are the most obvious, physical manifestation of what is wrong with our system,” said Behrens. Those who have watched the Occupy movement since its September beginnings say the foreclosure focus may help it recover from a slump that followed forced shutdowns of encampments in New York, Washington and other cities. “The Occupy movement seems to have lost some of its punch,” said Susan MacManus, a University of South Florida political science professor. “Focusing on an issue that affects the working class and leaves people feeling alienated is potentially a good strategy. If they can make it work.” FINDING COMMON GROUND Activists in Cincinnati and elsewhere say foreclosures are a serious political issue in minority neighborhoods, where the five-year-old housing crisis cast a long shadow. Housing counseling groups have cataloged how black Americans and Hispanics – even those with good credit – were more likely to end up victims of predatory lenders. Millions of Americans lost their homes in the downturn and around one in four American homeowners is “under water” — owing more than their homes are worth. Again, minorities suffered disproportionately, studies show. A recent study by the non-profit Woodstock Institute, examining properties in six Chicago area counties, showed 17 percent of those located in predominantly white areas were under water. In predominantly black and Hispanic areas, the number soared above 40 percent. In Minneapolis, Anthony Newby, a black housing counselor, appealed to the Occupy group to take on the case of struggling black homeowner Monique White. “It was very much a conscious decision to approach the Occupy movement,” said Newby, now a member of Occupy Homes MN. “The African-American community has been dealing with hardship for decades. But it was new for those white kids on the plaza who were falling out of the middle class for the first time.” In Atlanta, Occupiers say fighting evictions began as an impromptu battle that became a long-term strategy. “This is a strategy to generate tangible wins and build a broader base for the movement,” said Tim Franzen of Occupy Atlanta. “You don’t have to go to a park downtown to make a difference. You can go two doors down and help your neighbor.” “BANKS DON’T LIKE BAD PRESS” Evan Rosen, a lawyer in southern Florida, said the interest of Occupy Fort Lauderdale helped in a foreclosure case he was handling. Occupiers showed up in court to back his client, which he believes influenced the judge’s favorable ruling. “I am not a religious man, but it felt like divine intervention,” said Rosen, who asked that his client’s name be withheld while negotiations with the lender continue. Jeff Weinberger of Occupy Fort Lauderdale said the group has helped four homeowners avoid eviction. “The banks really don’t like bad press,” he said. “So when we show up with the local TV station, it has an effect.” But Bobby Hull says the Occupy movement can only do so much; the rest depends on homeowners themselves. “Occupy is a movement and the best they can do is to help us organize our communities,” he said. “That’s what it takes to win.” Hull, 57, faced eviction in Minneapolis when his health failed and his contracting business tanked. Occupiers rallied for him in December, and he renegotiated his Bank of America mortgage, though he says he is under a gag order and cannot discuss his loan terms. A Bank of America spokesman confirmed a loan modification is underway. Now, Hull and his neighbors have formed an “eviction-free zone” to fight foreclosures. Occupy groups claim the response they get is overwhelmingly positive. The first home on the “foreclosure tour” in East Price Hill was sold off in foreclosure for $1,347. It lost its roof and mildew is eating through the walls. “It’s truly great that these folks are doing something,” said Ron Etter, nodding toward the Occupiers as they approached the next house on the tour. “No one else is.”

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Neil McCarthy: Radical

April 9, 2012

Time to go radical. Reasonable is not working. If I hear one more politician or ersatz journalist rail about the need to find bi-partisan common ground in the sweet spot of a centrism where immediate deficit reduction and job growth live in some sort of economic harmony, I am going to get sick. It isn’t going to happen. It can’t. Over the last thirty years, conservative orthodoxy has simply pulled too much demand out the economy. That is what happens when (1) wages stagnate, the result of unions collapsing and globalized wage arbitrage taking over, and (2) bankers get unregulated free rein to peddle “products” that put consumers in long-term hock, which is what they accomplished when everyone was allowed to use their home as a credit card. Once those same bankers turned mortgages into cash for speculators via the now-infamous mortgage-backed securities, the con was complete. The ensuing real estate bubble created the impression that there was a free lunch (in the form of ever rising asset values). And then the bubble burst. Today, consumers are still over-leveraged (thanks to that explosion of private debt over the last decade), but banks can’t lend enough (given the shakiness of their balance sheets — where all those mortgage-backed securities are still being held at par — and the perceived need to adhere to credit standards that were ignored in the run up to 2008). So private spending is still weak. The March jobs report was a big disappointment. The private sector produced a mere 120,000 jobs that month . Wall Street (and just about everyone else) expected the number to be in the 200,000 range and it wasn’t even close. The recovery from 2008 continues unabated. But its pace is anemic and uncertain. In this world, conservatives continue to talk about immediate deficit reduction, business confidence and fears of inflation, certain that dealing with the first and the second is necessary to curb the third and produce jobs. All of this, however, is pure economic bunk. As Paul Krugman has continually pointed out to anyone willing to listen, we have not begun to put a dent in the job losses that came in the wake of 2008. The percentage of “prime age” workers who are actually employed — a real number, unlike the unemployment rate, which is distorted by failing to count those who stop looking — went down by about five points during the collapse and has gone up by less than one in the “recovery.” At the same time, our nominally low inflation rate (about 2% overall, even with the recent gas price hike) shows no sign of precipitously rising any time in the near future. Businesses are not hiring and producing because there is not enough demand (unemployed debtors don’t have a lot of walking-around money), not because they are worried about the tax and regulatory environment. The near term solution to all of this was a sufficient stimulus and some inflation. The conservatives, however, made the former impossible, and the chattering classes (including a lot of professional economists who should know better) have scuttled the latter. What we have, therefore, and have had for some time now, is an economic crisis that our political culture seems powerless to confront and solve. The problem here is not a lack of ideas. We have known how to pull ourselves out of depressions and severe recessions for at least 80 years. You do it by getting the government to increase consumer demand given that the private sector can’t or won’t. This typically involves some form of government spending — either on infrastructure (which creates both an immediate bump up in demand and also helps with long term productivity), welfare spending (food, housing, etc., which just increases demand), or targeted tax cuts (which increase demand so long as they are properly targeted to those who will spend the money rather than bank it). None of this, however, is politically possible now. A deficit which could create problems in the medium and long term is being used to eliminate any rational economic response to demand problems in the short term. It is also being used to eliminate any policies which could devalue private debt, which is what inflation and/or various forms of foreclosure relief would do. And the folks manning the barricades as deficit hawks circa 2012 are the same people who brought you the Bush tax cuts of 2001 and the two unpaid-for wars of the last ten years, which cumulatively turned the Clinton surplus into Bush’s sea of red ink. But hypocrisy has no cost in American politics. So it is practiced with abandon. I am a believer in incremental progress. I understand that American federalism is very slow. It is far easier to stop something than it is to pass anything. And that was the Founders’ collective intent. Over our two hundred plus years of history, therefore, progressives have always had to fight a two-steps-forward-three-steps-back war against reactionaries and the status quo. Their opponents changed — from slaveholders to industrialists to stock speculators to sexists. But the process rarely changed. Except when it did. Because, from time to time, progressives have abandoned the marble temples of incremental American federalism and… Gone radical. They’ve raised hell, hit the streets, jumped to the front of the bus, crossed the bridge, burned the draft cards, or camped out on the Mall. Unable to change the conversation from within, they altered it from without. Unwilling to defer to authority, they defied it. And underestimated by a smug establishment, they created a new one. That is where we are today. The system isn’t working. Twenty years ago, in his presidential campaign, former Massachusetts Senator Paul Tsongas made a point of admonishing unreconstructed New Dealers and trade unionists to stop bashing business. And the Democrats heard him and stopped. But now the other side has turned bashing labor… or women… or gay people… into a cottage industry. And that has to be stopped too. Progressives have to hit the streets. The kids have to vote like they did in 2008. The Wall Street occupiers have to return to Zuccotti Park. The conversation has to change. The people who change it will not be the bankers, hedge funders, or politicians checking out the “internals” on their polls. Because we have to stop talking just about margin… or return on investment… or individual responsibility… or the swing voter. And begin talking about redistribution… and economic fairness… and justice. We need to rediscover what it means to be a citizen in a democratic republic. Rather than just a consumer in a capitalist economy. We need to go radical.

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Sen. Fritz Hollings: Untying the Knot

April 9, 2012

Grover Norquist has the President and Congress tied in a knot. Norquist’s pledge against taxes forbids bipartisanship. Defeating a bipartisan budget last week in the House of Representatives patterned after Bowles-Simpson, Norquist said : “… the need for compromise is ‘nonsense.’” Budget rhetoric in Washington is askew. Instead of discussing taxes we ought to be discussing the merit of programs and how to pay for them. But programs are never debated. It’s always “for taxes” or “against taxes.” It’s the “size of government.” It’s never paying for government by cutting programs or increasing taxes. For eight years under President Bush, Congressmen Boehner, Cantor, and Ryan voted for tax cuts, wars and prescription drugs and never paid for them. Now, Congressmen Boehner, Cantor and Ryan want to pay for tax cuts, war, and prescription drugs with spending cuts. President Obama is running annual deficits of $1 trillion or more. I would like to see their list of $1 trillion in spending cuts. In 1948 we had a rule in the South Carolina House of Representatives that on second reading, any spending bill had to have a certificate from the Controller that the expenditures were within the revenues or the bill was sent back to the Ways and Means Committee. In 1959, as Governor of South Carolina, we raised taxes and in 1960, South Carolina was the first southern state to receive a AAA credit rating. All Governors think of paying for this year’s government. We used to in Congress. In 1993 without a single Republican vote in either the House or Senate, we cut spending and increased taxes — even on Social Security — and the U.S. enjoyed its strongest economy for 8 years. We gave President Bush a balanced budget in 2001. But today in Washington, we never pay for this year’s government. We just debate 10 year plans to cut $4 trillion in spending for later Congresses to do the cutting. It’s a grand charade. To untie the knot in Washington, we have to excise the cancer of money on the body politic. First, we must amend the Constitution: “The Congress is empowered to regulate or control contributions and spending in federal elections.” This doesn’t commit to a particular solution — that’s for later Congresses. But authorizing Congress to limit spending will limit Norquist and the lobbyists, limit fundraising, give time for the Senator to do his or her work, and return control of the government back to the people. This will take time. There is an immediate solution to deficit spending and creating jobs — just replace the 35 percent Corporate Tax with a 6 percent VAT. The 2011 Corporate Tax produced revenues of $181.1 billion. A 2011 6 percent VAT would have produced $728 billion. This will cut taxes, eliminate loopholes, give instant tax reform, promote exports, free up $2 trillion in offshore profits for Corporate America to create jobs in the United States, provide billions to avoid deficits, and create millions of jobs. Everyone in Congress is for these initiatives, but not one of the 535 members will introduce the VAT solution, nor will President Obama. Why not? Because Corporate America doesn’t want to increase the cost of their China exports to the United States. U.S. exports to China are taxed twice: the 35 percent corporate tax and a 17 percent VAT when exports reach China. China’s exports to the United States are tax free. 141 countries compete in globalization with a VAT that is rebated on exports. Wall Street, the big banks, and Corporate America are the biggest contributors to the President and Congress. Contributions for reelection in Washington come before the nation’s economy. Talk shows and the political pundits don’t mention the VAT solution because the press and media are owned or in bed with Corporate America. In 2006, the Princeton economist, Alan Blinder, estimated that for the next decade off-shoring would cost the U.S. Economy an average of 3 to 4 million jobs per year. We are off-shoring jobs faster than we can create them. The recession ended over 2 ½ years ago and we wonder why the recovery is anemic. The economy would come alive by replacing the 35 percent corporate tax with a 6 percent VAT.

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Jerry Jasinowski: A Mixed Economic Picture

April 9, 2012

I’ve just spent an interesting weekend with a group of CEOs discussing the global economic outlook, and how firms are striving to compete and grow in a challenging economic environment. They described a world of rapid change, financial and stock market volatility, and uncertainty. On balance, they are fairly upbeat about the U.S. economy, but have major concerns about Europe, China, and — of course — what’s going on in Washington. After major restructuring, most companies have dramatically reduced their breakeven points and strengthened their balance sheets so they can generate good earnings even in this slow growth environment. The CEOs believe that the U.S. economy is in better shape than most of the rest of the world, and is today the best place to invest. There was uniform agreement that Europe is in a recession and has done little to reduce its sovereign debt problem. More specifically, Spain’s economy is in deep trouble and will have difficulty financing its debt this spring. There were similar concerns about Italy and France. In general, the CEOS are skeptical that the Euro community has put in place the kinds of reforms necessary to make them more competitive and reduce debt. Few companies see a slowdown in China as a problem. Rather, the majority see China as a big opportunity as the Chinese hike investment in infrastructure and switch to a more consumer driven market. The CEOs were concerned about intellectual property protection and unfair business and trading practices by the Chinese. Many companies believe the Chinese government will always tip the scales in favor of Chinese firms, discriminating against U.S. business. I contended the recent run-up in the stock market was in large measure due to the easy credit environment driven by zero interest rates here, a short-term central bank bailout in Europe, and quantitative easing by most central banks. While it is clear that these actions have helped restore economic growth in some areas, particularly mining, oil, housing, commodities, and finance, there have also been negative impacts on economic fundamentals. More importantly, there is growing concern that more quantitative easing will stoke the fires of inflation either here or abroad. Overall, there was near uniformity of opinion among the CEOs that the U.S. will experience 2% to 2.5% growth in the months ahead. Although not satisfied about that, most of the CEOs felt quite able to operate profitably in that environment. They all stressed that they have in place lean manufacturing, new sourcing practices, and new product development that will allow them to be successful in both this country and abroad. Moreover, virtually everyone in the room was looking at acquisitions as a possible add-on to their organic growth models. They were not so optimistic about employment. All the companies were concerned about the high level of unemployment and inadequate training of the U.S. workforce. Friday’s weak — 120,000 payroll — number reinforces their view that too many workers are being left behind in this weak recovery, either because of weak growth, inadequate skills, or uncertainty emanating from Washington. What we need now is a public-private partnership backing a bi-partisan, pro-manufacturing, pro-growth agenda that creates jobs. Jerry Jasinowski, an economist and author, serve d as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements.

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Companies Feel Your Pain, Sort Of

April 9, 2012

Though you cannot roll each one of them up and smoke them , you still need to know seven and a half things each day, and here they are: Thing One: Strong Like Bull: One of the hallmarks of the economy the past few years has been that, unlike American humans, American companies have been making tons of money. The Wall Street Journal today, in two separate stories, points out that big ginormous companies are still making tons of money , but at what seems to be a slightly slower pace . “Big U.S. companies have emerged from the deepest recession since World War II more productive, more profitable, flush with cash and less burdened by debt,” Scott Thurm writes. Yay. “This week will bring the first trickle of U.S. corporate earnings in a season that many analysts are predicting will be lackluster,” Jonathan Cheng writes of first-quarter earnings season, which kicks off on Tuesday. Boo. The net result? That you still will not have a job , with companies are doing less great, too, which could cause the stock market to finally come down off its crack high , at least until the next fix of stimulus from Ben Bernanke. But don’t worry, those companies will keep on cutting costs, so it’s all cool. Take, for example, Sony, which is laying of 10,000 people , or 6 percent of its global work force. Thing Two: No Training For You: These companies are always complaining that they can’t find enough skilled workers to fill higher-tech jobs than good old burger-flipping or ditch-digging. And yet government money is running out to teach new skills to those who have been out of work for a long time , The New York Times reports. If only companies had the extra cash to do some of the training themselves! Oh, wait. Thing Three: Ben Speaks: A slower week for economic data, following Friday’s disappointing jobs report , kicks off at 7:15 p.m. ET tonight with a speech from Federal Reserve Chairman Ben Bernanke . People laughed at Gentle Ben when he suggested the Fed didn’t think the job market was out of the woods yet, but nobody’s laughing now. People will be reading this speech for signs of more Fed easing to come. Thing Four: What’s In The Pipeline: If you want to know why normal people don’t trust the stock market any more, consider the case of Pipeline Trading Systems, as Scott Patterson and Jenny Strasburg do in the WSJ today. The “dark pool” operator promised to protect clients as they traded stocks away from public exchanges, but last fall settled claims it had traded against those clients. “That revelation… delivered a stark lesson in how today’s computer-driven stock market, replete with complex algorithms, agile trading firms and obscure computerized trading platforms, has in many ways become less transparent than when most buying and selling took place in the open on the floor of an exchange,” Patterson and Strasburg write. Thing Five: JPMorgan’s Voldemort: Meanwhile, a JPMorgan Chase credit-derivatives trader in London has earned himself the quaint nickname “Lord Voldemort,” reports Bloomberg , because of his massive, market-moving trades. In fact, he has single-handedly highlighted the dangers of proprietary trading, in which banks make bets with their own money, Bloomberg writes. Thanks, Voldemort! Thing Six: About Those Sovereign Bonds: Late last year and early this year, the Europan Central Bank pumped many billions of dollars in free money to European banks, in part to encourage them to buy up risky European sovereign debt. European banks did exactly that, and now everybody’s worried about all the risky European sovereign debt they own, the NYT reports. Some day we’ll all look back on this and laugh, as we warm our hands around our burning wallets. Thing Seven: The Price Of Everything In China: Here’s a conundrum for Chinese policy makers, and a test for the thesis in the West that nothing could ever go wrong with China’s economy. Chinese growth is slowing down, meaning policy makers are looking for ways to goose the economy. Except, whoops, China this morning reported a surge in inflation , driven by food and energy prices meaning policy makers can’t stimulate too much, the Financial Times reports. Thing Seven And One Half: R.I.P. Mike Wallace: I’ll never forget, about eight years ago, seeing Mike Wallace waiting to cross 57th Street in Manhattan. In his early 80s then, he was smoking and staring down the oncoming traffic with grim fury, the same look we’d all seen him give helpless interview subjects for decades. One of the greats of this or any business . Economic Data : 7:15 p.m. ET: Ben Bernanke speaks in Atlanta Corporate Earnings Reports : None to speak of

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7 Months Later, Storm Cleanup Continues

April 8, 2012

CHARLESTON, N.Y. (AP) — Seven months after the deluge of Tropical Storm Irene, cleanups continue and worries remain in upstate New York and Vermont. Farmers in the fields this spring are still grappling with crop-smothering rocks, trees, gravel and sand left behind when the flood waters receded. And some local governments worry about new floods as they continue to clear piles of trees, rocks and household debris from stream banks. “If we get a normal high-water spring, this stuff is not going to stay here,” Marty Navojosky said as walked through a maze of debris on his land along the Schoharie Creek west of Albany. Rural, hilly areas in New York and Vermont were hit especially hard hit by flooding when Irene soaked the East Coast last August. In the Adirondacks, Essex County officials say there is still a “tremendous amount of debris” to remove along rivers and tributaries. Farther south along the Schoharie Creek, Navojosky’s land is one of a series of debris-laden spots along the Schoharie. “If you have another flooding situation, this stuff will become projectiles as they run down the river again, impacting bridges and plugging streams up. … You really need to clean it up,” said Essex County’s head of emergency services, Don Jaquish. Farmers are concerned that the gray or even sandy white soil left behind by Irene will affect yields. At Liberty Hill Farm along the White River in Rochester, Vt., the flood waters deposited a layer of gravel, sand and silt that is choking grass in some spots of the normally rich, loamy soil and hampering spring planting of other feed crops for their dairy cows. “Our pasture was obliterated,” farmer Beth Kennett said. “There are areas where we have to reseed to hay, areas where we would normally have grass and hay and pasture. We’re talking about planting them to corn. We can then plow it under and then get more nutrient matter under the soil.” The federal government has set aside $4.7 million to reimburse Vermont farmers for work to restore their land to productive use. The grants will cover up to 75 percent of the cost of work, which must be done first. The Federal Emergency Management Agency through the state can reimburse municipalities up to three quarters of expenses for debris removal along stream banks. But FEMA will only reimburse for debris removal that meets certain thresholds. The agency recently turned Montgomery County down for reimbursement for a series of messes along the Schoharie, including Navojosky’s land, because it didn’t meet the reimbursement criteria. The county is appealing. FEMA spokesman Matthew Russell said there are “occasions” when an applicant and FEMA disagree about eligibility, and the appeal can address that. ___ Rathke reported from Rochester, Vt.

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Great Expectations

April 8, 2012

* Earnings reports follow 24 pct rise in bank stocks this year * Some big banks could show profit decline from year ago * Investors count on eventual rise in interest rates, loan income By David Henry and Rick Rothacker April 9 (Reuters) – U.S. bank executives face great expectations from investors when they report first-quarter results beginning Friday. Bank stocks have shot up 24 percent this year, as measured by the KBW Banks index, in their steepest ascent in any quarter since the end of September 2009. Now investors want to know if they should stick with their bets that the economy will strengthen and lift bank lending margins and profits, or take their gains and get out. “Investors are out on a limb,” said Jack Ablin, chief investment officer at Harris Private Bank. They won’t get much help from the earnings, which are expected to be murky this quarter and confused by accounting items. Investors may have to rely on their own hunches to sort conflicting numbers and comments from bank executives about the unfolding course of the economy. Chris Bingaman, a portfolio manager at Diamond Hill Capital Management in Columbus, Ohio, is among the buyers. Bingaman, whose firm manages $9 billion, said he’s been picking up shares of Wells Fargo & Co, JPMorgan Chase & Co, U.S. Bancorp and PNC Financial Services Group Inc lately. The prices, compared with expected future cash flows, are still attractive, he explained. Still, Bingaman called the banks “revenue challenged” because bank customers remain reluctant to borrow and profit margins are being held down by low interest rates. “That puts a damper on revenue growth overall,” Bingaman said. At the least, Bingaman said, he wants to see the banks report that their lending margins have stopped contracting. Net interest margins at JPMorgan, for example, were down to 2.70 percentage points in the fourth quarter of 2011 from 2.88 points a year earlier and 3.33 points in 2009. Even if the contraction were to stop, at least another three to six months must pass before lending margins actually increase, said Chris Kotowski, an analyst at Oppenheimer. “You need to see more loan growth,” he said. But Kotowski said that the current slow growth in loan portfolios is a big step from the shrinkage two years ago and points toward increasing momentum in borrowing and a stronger recovery in bank profits. “Slowly, but surely, people are going to realize that this is for real,” Kotowski said. In the meantime, sorting out what is real could be difficult. Some banks will likely report loan growth that stems not from new demand from customers for funds, but from taking business from competitors, said analyst Paul Miller of FBR Capital Markets & Co. “The overall economic growth needed for loan growth still is not there,” Miller said. Loan balances at banks in recent weeks have been running about 4.0 percent higher than a year earlier, according to Federal Reserve data, but some of that increase is thought to have come at the expense of European banks and lenders in the capital markets. JPMorgan and Wells Fargo kick off bank earnings Friday morning. For 81 financial companies in the S&P 500 stock index, first-quarter earnings are expected to be up 6.5 percent from a year ago, according to surveys of analysts by Thomson Reuters I/B/E/S through April 4. For the full year, analysts expect the earnings will be up 22.4 percent from 2011. Underneath the averages are likely to be confusing cross-currents about whether the quarter was good or bad. For example, while profits are expected to be higher for banks in general, earnings per share will be down in the first quarter from a year earlier for JPMorgan and Citigroup Inc, according to surveys of analysts. But c ompared with the fourth quarter, profits for JPMorgan and Citigroup are expected to be higher. The big reason for the expected flip-flop in fortunes for the two banks: Their trading and investment banking business in the first quarter were worse than a year before but better then three months ago. Profit from making new mortgages is expected to counterbalance the loss of fee income from new restrictions on how much banks can charge merchants for debit card transactions. Wells Fargo and JPMorgan have big mortgage operations and some regional banks, such as SunTrust Banks Inc and Fifth Third Bancorp could get a lift, too. Though most new mortgages are used now to refinance existing loans, the are generating additional revenue for the banks. “We’re going to see decent earnings for banks that embrace mortgage banking,” said Miller of FBR Capital Markets & Co. “It’s probably some of the most profitable stuff you can do.” With overall revenue weak, bankers know investors will be looking hard at their expenses. At Bank of America Corp, whose shares are up 66 percent this year, more than any other big bank, executives are expected to supplement their April 19 earnings report with details of the second phase of a campaign that has already set out to eliminate $5 billion in annual expenses and 30,000 jobs. Analysts caution that there are at least two wild cards that could rock the results of the biggest banks: trading revenue and the impact of accounting adjustments, known as debt valuation adjustment or DVA, which must be made for changes in the value of debts the banks owe. Bond trading increased as investors were more willing to take on risk in the quarter than they were at the end of the year. But profit margins for the dealers tightened. Overall, quarterly revenue from fixed income, currency and commodity trading at the investment banks was likely down more than 20 percent from a year earlier, but up more than 100 percent from three months earlier, analyst David Konrad of Keefe, Bruyette & Woods wrote in a report April 2. Equity capital markets volumes and fees for advising completed takeovers were down about 25 percent in the quarter from a year earlier, according to Thomson Reuters data. The accounting adjustments known as DVA perversely reduce the reported earnings of banks when their creditworthiness improves. Because analysts vary in how much work they do to factor DVA into their earnings estimates, the adjustments can create confusion about whether banks actually missed or beat Wall Street expectations. Bank stock buyers may chose to ignore the accounting noise and the mixed signals. “The psychology seems to be getting better,” said Frank Barkocy, director of research at Mendon Capital Advisors. “We’re continuing to see signs of improvement in the US economy.” (Reporting by David Henry in New York and Rick Rothacker in Charlotte, North Carolina. Editing by Alwyn Scott.)

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Report: Predominantly Latino and African American Neighborhoods Suffer A New Front of Discrimination

April 7, 2012

Three years since a Wells Fargo Bank loan officer shared the details of how she and her colleagues targeted and directed prospective African American homebuyers into taking out expensive high-interest subprime mortgages to The New York Times, racial discrimination in the housing market is still an issue. According to a new investigative report by the National Fair Housing Alliance (NFHA), a coalition of fair housing non-profit organizations, six major banks are engaging in discriminatory practices in the maintenance and marketing of foreclosed Real Estate Owned (REO) properties in predominantly Latino and African American neighborhoods. CEO and President of the NFHA, Shanna L. Smith, said in a press release that the report “offers evidence that banks responsible for peddling unsustainable loans to communities of color and triggering our current foreclosure crisis are continuing to damage those communities by failing to properly maintain and market the properties they own.” The report looked at nine cities and cited “extremely troubling disparities.” For instance, in Philadelphia, PA, 41 percent of foreclosed homes in African American communities were cited with more than 10 distinct maintenance or marketing problems. In contrast, not one property in a predominantly white community was cited with the same. And in Phoenix, AZ, 73 percent of REO properties in Latino neighborhoods were missing a “For Sale” sign. The same could only be said for 31 percent of homes in predominantly white neighborhoods. Marred by disrepair and neglect, the report goes on to state that the abandoned homes, “degrade the quality of life in these neighborhoods.” Under the federal Fair Housing Act , it is illegal to engage in discriminatory practices with regards to real estate-related transactions. The NFHA and the U.S. Department of Housing and Urban Development plan to file administrative complaints against the banks in question. A 2009 report by the Center for American Progress found that among 14 major banks, all engaged in predatory lending practices that targeted people of color. In 2006, a whopping 41.5 percent of African American and 30.9 percent of Hispanic borrowers received higher-priced mortgages than necessary. 17.8 percent of white borrowers received higher-priced mortgages. Moreover, a study by the Center for Responsible Lending published last year found that borrowers of color were more than twice as likely than white households to lose their homes. The reason? “African Americans and Latinos were consistently more likely to receive high-risk loan products, even after accounting for income and credit status,” according to the report.

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China Calls Banks to Break Up Monopoly

April 7, 2012

(MENAFN – Qatar News Agency) Chinese Premier Wen Jiabao has said that China’s biggest banks are “a monopoly that needed to be broken up”. This was the first time that top leadership acknowledged the …

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Buy The Moon? Loophole Might Let Companies Own Outer Space

April 6, 2012

Got an extra couple of billion dollars lying around? Need a hot investment tip? To the moon, Alice! A shift in policy could open up the moon and other celestial bodies to ownership by private companies. Rand Simberg, a space policy consultant, laid out his proposal, called the Space Settlement Prize Act in a paper published April 2 by the libertarian think tank The Competitive Enterprise Institute, according to a report by Wired . In order for the large-scale colonization of space to move forward, governments such as the U.S. would provide “property rights for those who seek to develop space resources and infrastructure,” the draft act states . The proposal places the onus of space exploration on private enterprise rather than taxpayer contributions and, if passed, would signal a radical change in the way we think about outer space. The 1967 Outer Space Treaty prohibits sovereign nations from owning a celestial body — such as a planet or asteroid — and has been ratified by 100 countries, including the United States. But the treaty does not explicitly prohibit ownership of space resources by private enterprises. This is the loophole that Simberg’s plan would seek to use, and he plans to shop it around on Capitol Hill , according to Popular Science . “It would have great potential to kick the development of extraterrestrial resources — and perhaps even the human settlement of space — into high gear,” Simberg wrote in the summary of the proposal . But space attorney Michael Listner maintains that sidestepping the treaty and granting extraterrestrial property rights could provoke political backlash. “The government would take a hit. It’s sort of a nonstarter,” Listner told Wired . Simberg’s plan comes at a time when the U.S. government has made dramatic cuts to its space program. The last space shuttle mission was completed in July 2011. Additionally, a future series of manned deep-space exploration missions, the Constellation program, was cancelled in June 2011 . These developments have brought economic hard times on the residents of Brevard County, Fla., as reported by “60 Minutes.” While there is some private interest in space exploration — Richard Branson’s Virgin Galactic enterprise is probably the most familiar name in commercial sub-orbital flight — there is no clear heir to the large void created by the absence of government-led programs. In the spirit of American expansion into the old west, Simberg’s proposal banks on the assumption that issuing property rights to space resources will create a kind of gold rush that would bring the national economy along for the ride. But with no one to build the wagons — let alone drive them — the trail ends where it starts. As yet, there’s no destiny to manifest on the final frontier.

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Morgan Stanley May Claw Back Pay For ‘Improper Employee Behavior’

April 6, 2012

Bankers at Morgan Stanley may have less of a reason to pop the champagne cork this year. The firm says it is expanding its list of events that can trigger a bonus pay “clawback,” in which bankers are forced to give back a portion of their deferred bonus. Triggers for such clawbacks can now include “restatements,” when a bank’s earnings on a given deal end up lower than originally thought. Violation of the bank’s risk policies and standards can also result in clawbacks, Bloomberg reports. Other examples include “poor risk outcomes, significant losses and improper employee behavior,” according to Morgan Stanley . The new rules can reportedly also apply to some lower-level, non-executive employees. Morgan Stanley noted in its proxy statement that a “significantly greater portion of total compensation” is now subject to potential clawbacks, and argued that the move will enhance the company in the long term. Clawbacks have become a heated topic of debate among bank regulators and finance executives in the wake of the financial crisis. By tying executive compensation to performance, and to the performance of the firm as a whole at the upper-most levels, employees and executives will be less inclined to make short-sighted and risky bets, the theory goes. That theoretically would help to stabilize trading operations. The U.S. Securities and Exchange Commission could soon codify clawbacks into law for the first time ever, as noted by Bloomberg. In the meantime, while other firms have unveiled varying types of clawback provisions , Morgan Stanley appears near the front of the pack. Already this year, Morgan Stanley announced it would cap last year’s upfront bonus pay at $125,000, and, along with Goldman Sachs, announced it would be tying executive pay to performance. Morgan Stanley CEO James Gorman, who made $13 million last year, told employees earlier this year that they should “just leave” if they’re unhappy with their job.

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Homeowners Stuck With High Rates Even After Refinancing Program

April 6, 2012

By Cora Currier ProPublica Some homeowners are getting stuck with relatively high interest rates even after they participate in the government’s program to help them refinance their mortgages. The biggest banks are not lowering rates as much as they could be — and homeowners have few options to go elsewhere. Analysts say that the big banks are set to make major profits off of the Home Affordable Refinancing Program, also known as HARP , which allows homeowners with loans backed by government-owned Fannie Mae and Freddie Mac to refinance if they owe more than their home is worth. The program, launched in 2009, is designed to let struggling borrowers take advantage of lower market interest rates. So far, about 1.1 million people have refinanced under the program, which was expanded last fall to make it more attractive for banks and to let more homeowners participate. Since then, the government says there has been ” tremendous borrower interest ” and estimates that another 1 million could qualify over the next two years . But while the expansion may let more people refinance, it may not be at the lowest rate possible because the incentives don’t favor competition, according to a new report by an investment group Amherst Securities. The report says the big banks are able to make a considerable profit from refinancing their existing customers under HARP, and that there is little incentive for them to go outside their own customer base and seek out more HARP business on mortgages that originated with other lenders. Few other companies have stepped in to offer HARP refinancing for people who’d like to leave their current lender, partly because it is still risky for them to take on the underwater loans, even with the HARP incentives. The result is that homeowners in many cases are stuck with what they’ve got, Amherst says, and the big banks can charge them more. Guy Cecala, who runs the publication Inside Mortgage Finance, said that there is “virtually no competition” for the big banks. “It’s normal business practice for mortgage lenders — when you can, you charge a higher interest rate.” Here’s how this situation came about. For Banks, Built-In Incentives Last fall’s expansion of HARP tries to make it more appealing to mortgage lenders, since the initial response to the program fell short of expectations. New rules removed the cap on how much a borrower could be underwater and still qualify. It also eased appraisal requirements and — critically for banks — removed some of the liability for bad loans that banks had when selling their mortgages to Fannie and Freddie. The Amherst report points out that the biggest lenders — JP Morgan Chase, Bank of America, and Wells Fargo — are responsible for more than 60 percent of HARP refinancing applications. The report also says the cost of refinancing an existing customer under HARP is minimal. The big banks already have plenty of demand in-house. As such, it’s easier and more profitable to stick with the loans they already service than to compete for new business, which could result in lower rates for homeowners. The report says that the extra steps required under HARP to refinance a loan from another lender make the process onerous and risky. A spokeswoman for the Federal Housing Finance Agency (FHFA), which is in charge of HARP, disputed the notion that it’s difficult to sign up new borrowers. “The additional information collected is minimal and appropriate, given that these lenders have no experience with or information on these (new) borrowers,” she said. JP Morgan Chase, Wells Fargo and Bank of America all confirmed to ProPublica that they have seen an increase in the volume of applications for HARP refinancing since the new rules came into effect. Last month, American Banker reported that banks were scrambling to bolster their mortgage-servicing units to deal with the influx of applications from HARP. The program is voluntary for banks, and they can place their own restrictions over and above those set by the government. JP Morgan Chase and Bank of America say they are only doing HARP refinancing for existing customers — not seeking out new business on loans originated by other lenders. Wells Fargo is accepting refinance applications from borrowers at other servicers, but it is putting a cap on the amount that the loan can be underwater. In January, according to the FHFA , roughly 50,000 people refinanced under the new HARP rules, and HARP’s share of all refinancing increased. Some smaller lenders, especially in states with the worst housing markets, are hoping to jump in and offer lower rates to people looking to leave their current bank, even with the greater risk.

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Bank Lets Old Woman Rack Up Astronomical Fees

April 6, 2012

So much for local banks behaving better than the big ones. Webster Bank, a regional bank with 165 branches southern New England and New York, allowed a longtime customer to bounce more than 70 checks and charged her $2,500 in overdraft fees over a period of three months last year, the Hartford Courant reported. Instead of calling the customer to inquire about what was happening, the bank cleared dozens of checks–most made out to charities–and charged a hefty $36 fee per check. The elderly bank customer, who is 88 years old, lives on a monthly income of less than $2,000. After her family intervened, the bank reduced some of the fees–but still defended its actions. The family requested anonymity to protect their privacy, according to the Courant . “Our policy is to notify everyone in writing,” Jeffrey Brown, the chief administrative officer for Webster Bank and Webster Financial Corp, told the Courant . “You can’t always reach people by phone and we want to ensure everyone has all the facts we do. So we send them a written notification. We provide a number they can call us at any time.” But this seems to be a pattern for Webster Bank. In 2010, the bank agreed to pay $2.8 million to settle in a class action lawsuit over the bank’s predatory overdraft practices. And this latest story further highlights how vulnerable the poorest are to bank fees –9 percent of bank customers pay nearly 85 percent of all overdraft fees, according to a 2008 report from the FDIC . In February, the Consumer Financial Protection Bureau announced it would look more closely at how overdraft fees are marketed and explained to customers –an investigation that could result in additional rules, perhaps even lawsuits, the CFPB said. Since 2010, banks have not been able to automatically enroll customers in so-called overdraft protection programs for debit card or ATM transactions. Following the Courant’s most recent story about the egregious fees, Webster Bank has said it is looking into its overdraft policies. “We are in the process of adopting changes that will enable us to identify instances of high numbers of overdrafts so that we can offer customers advice on managing their checking account,” Sarah Barr, Webster Bank’s vice president for external communications, told the newspaper.

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Blair Bowie: Disempowered Bankers Start Super PAC, Reveal Plans for World Domination

April 6, 2012

The American Banker Association recently announced that after years of being ignored in the halls of power, it will at last be creating its own super PAC to serve as its proverbial “big stick.” For too long, the banking industry has been stuck at 13 on the list of industries giving the most to members of Congress , drowned out by such vehemently anti-banking interests as “Misc. Finance” (12), “Lobbyists” (7), “Real Estate” (5), and “Securities and Investment” (3). American Banker editor-at-large Barbara Rehm writes, “Frustrated by a lack of political power and fed up with blindly donating to politicians who consistently vote against the industry’s interests, a handful of leaders are determined to shake things up.” While I am highly skeptical of the sentiment that “Congress is not afraid of bankers”, given that banking lobbyists outnumber banking reform advocates 25-1 and that the Chairman of the Senate Financial Services Committee seems to believe that “the banks own the place,” the most ridiculous thing about this announcement may just be ABA’s willingness to reveal its strategy for skirting the non-coordination rules. The Supreme Court and FEC explicitly prohibit Super PACs from coordinating with candidates and their campaigns. I generally interpret this to mean that having a direct conversation with a candidate is a violation of the rules. Yet Matt Packard, the Super PAC’s chairman, is apparently quite excited about using his new stick in that context, “If someone says I am going to give your opponent $5,000 or $10,000, you might say, ‘Yea, okay’. But if you say the bankers are going to put in $10,000 or $500,000 or $1 million into your opponent’s campaign, that starts to draw some attention.” When is Packard imagining himself having this conversation and what will he be asking for to call off the hounds? This statement speaks volumes about how the industry thinks about its involvement in politics. Note too that Packard says they may be directing money “into your opponent’s campaign.” He means that in the same way that one might give to Restore Our Future to support Romney right? Nope. While the coordination rules are twisted enough when it comes to candidate specific super PACs, Friends of Traditional Banking plans to go even further. The independen expenditure-only committee, according to Rehm’s description, will exist not to “touch the money,” but to direct it to the candidate’s actual campaigns. This is starting to feel like the scene where the Bond villain reveals his whole plan for world domination. Even with a feckless FEC on the beat, Friends of Traditional Banking seems to be inviting federal investigation. Rehm reports that the first thing prospective donors have been asking Utah Bankers Association president Howard Headlee is, “Is this legal?” Luckily, Headlee seems to have a Trevor Potter button for that.

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European markets are down ahead of the opening today 

April 4, 2012

European equities set to drop for the second day on Wednesday alongside the sharp drop for high yielding assets after the FOMC minutes showed that the central banks is less likely to announce …

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Wall Street No Longer Taking Up The Most Space In Manahattan

April 3, 2012

When it comes to New York office space, Wall Street’s no longer king. For the first time ever, financial services firms aren’t renting the most office space in New York City, according to a report from consulting firm Cushman & Wakefield Inc. , cited by Crain’s New York . The financial sector rents 26 percent of overall square footage in New York, compared to the 28 percent rented by media companies, the report found. Forfeiting the title as Manhattan’s biggest renter is just the latest indication that the financial industry is being forced to cut back. Last year, Wall Street bonuses fell 14 percent as banks laid off more than 200,000 workers as of November, Bloomberg reports. While it may be hard to feel bad for the still-employed Wall Street workers, who are making an average of $121,000 even with the pay cuts, the financial industry’s shrinking impact is affecting New York’s economy more generally. Declining Wall Street pay has also meant cuts in the revenue the New York state government collects from taxes on that pay , according to the Buffalo News . And if Wall Street doesn’t shrink all by itself, it may be forced to do so. The nation’s biggest banks, such as JPMorgan Chase, Bank of America and Citigroup, could one day be broken up by regulators, according to a recent report from bank analysts . But the desire to shrink may not be the only reason the finance industry is shying away from leasing space in New York, which is the city with the sixth most expensive office space in the world , according to Cushman and Wakefield .

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4/4: Occupy, Unions Plan Day Of Action For Public Transportation

April 3, 2012

Last week’s “fare strike” on the New York City subway won’t be the last time Occupy turns its attention to mass transit. On Wednesday, activists in at least 18 cities are teaming up with the nation’s largest transit union for a national day of action. The day is part of a concerted effort to place the blame for rising fares and diminishing service on the same banks that got the country into the recession — and it comes just as Congress is haltingly trying to pass a major transportation bill. In Massachusetts, where the Massachusetts Bay Transportation Authority (MBTA) has proposed a range of draconian service cuts, Occupy Boston will hold a rally in front of the State House and then a candlelight vigil in memory of Martin Luther King, Jr., who died on April 4, 1968. Rallies, vigils, leafleting and voter registration are also planned for other cities where public transportation has been hit hard by the recession: New York, Detroit, Milwaukee and Indianapolis, to name a few. “Public transit is a right, and it needs to be funded,” said Ariel Oshinsky, an organizer with Occupy Boston. She noted that public transportation is disproportionately used by people of color and with low incomes. The MBTA there has proposed a number of deep service cuts which Oshinsky said would “pit communities against each other.” But “as riders and workers together, there’s real strength.” Oshinsky said she had not heard of any actions planned like the “fare strike” in New York, when masked activists chained subway gates opened and offered free rides. Or, at the very least, “I am not involved in the planning of an action like that,” she stated carefully. Transportation authorities alone are not responsible for fare hikes and bus cuts — legislators in places like Albany and Boston also share part of the blame, she said. But the Occupy protesters also hope that by teaming up with unions they can shed light on one often-overlooked facet of the complicated world of transportation funding: the role of banks. To keep capital construction programs humming, cities must often issue massive bonds, in turn creating the need to pay off huge amounts of debt service to banks every year before they can address funding shortfalls. In the 2000s, some transit agencies also entered into complicated interest rate swaps with banks that were supposed to provide cover in case of wild interest rate swings. But interest rates are now so low that New York’s Metropolitan Transportation Authority (MTA) is essentially losing $118 million a year, and the Port Authority of New York and New Jersey $28 million a year, according to the union-backed United NY coalition . “It’s another form of taking the MTA budget to the casino,” said Larry Hanley, president of the Amalgamated Transit Union. The MTA, the NYPD and the FBI are all on the hunt for the masked bandits who chained open a few subway entrances last week and declared a fare strike — but Hanley said they should be looking to Wall Street instead. Adam Lisberg, a spokesman for the MTA, said the fare strike was “an offense against the system, and frankly it’s an offense against everybody else who pays their fare.” But Hanley suggested looking for the people behind it is a waste of time. “Notice how the detectives are combing the city,” Hanley said. “To allow poor people to get a free ride on the subway — that’s a crime in America. But creating all these financial derivatives? … That’s okay.” Hanley’s union supports passing the U.S. Senate’s transportation bill. But he said he hopes the country will go further in supporting public transportation. “Everybody’s blaming someone else for the high gas prices,” he lamented, “but no one’s looking at transit as an alternative.”

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The Runaway Problem Putting The Recovery At Risk

April 3, 2012

WASHINGTON — The federal student loan program seemed like a great idea back in 1965: Borrow to go to college now, pay it back later when you have a job. But many borrowers these days are close to flunking out, tripped up by painful real-life lessons in math and economics. Surging above $1 trillion, U.S. student loan debt has surpassed credit card and auto-loan debt. This debt explosion jeopardizes the fragile recovery, increases the burden on taxpayers and possibly sets the stage for a new economic crisis. With a still-wobbly jobs market, these loans are increasingly hard to pay off. Unable to find work, many students have returned to school, further driving up their indebtedness. Average student loan debt recently topped $25,000, up 25 percent in 10 years. And the mushrooming debt has direct implications for taxpayers, since 8 in 10 of these loans are government-issued or guaranteed. President Barack Obama has offered a raft of proposals aimed at fine-tuning the system and making repayments easier. Yet the predicament of debt-burdened former students has failed to generate much notice in the GOP presidential campaign. Instead, the candidates are dismissive of government student loan programs in general and Obama’s proposals in particular. Rick Santorum went so far as to label Obama “a snob” for urging all Americans to try to obtain some form of post-high-school education – even though some polls show over 90 percent of parents expect their children to go to college. Front-runner Mitt Romney denounces what he calls a “government takeover” of the program. Newt Gingrich calls student loans a “Ponzi scheme” under which students spend the borrowed money now but will “have to pay off the national debt” later in life as taxpayers. And Ron Paul wants to abolish the program entirely. Lifting student debt higher and higher is the escalating cost of attending schools, with tuition increasing far faster than the rate of inflation. And enrollment has been rising for years, a trend that accelerated through the recent recession, fueling even more borrowing. Mark Zandi, chief economist at Moody’s Analytics, argues that government loans and subsidies are not particularly cost-effective for taxpayers because “universities and colleges just raise their tuition. It doesn’t improve affordability and it doesn’t make it easier to go to college.” “Of course, it’s very hard on the kids who have gone through this, because they’re on the hook,” Zandi added. “And they’re not going to be able to get off the hook.” It’s not just young adults who are saddled. “Parents and the federal government shoulder a substantial part of the postsecondary education bill,” said a new report by the Federal Reserve Bank of New York. And some of the borrowers are baby boomers, near or at retirement age. The Fed research found that Americans 60 and older still owe about $36 billion in student loans. Overall, nearly 3 in 10 of all student loans have past-due balances of 30 days or more, the report said. Complicating the picture further: Like child support and income taxes, student loans usually can’t be discharged or reduced in bankruptcy proceedings, as can most other delinquent debt. This restriction was extended in 2005 to also include student loans made by banks and other private financial institutions. “This could very well be the next debt bomb for the U.S. economy,” said William Brewer, president of the National Association of Consumer Bankruptcy Attorneys. “As bankruptcy lawyers, we’re the first to see the cracks in the foundation,” Brewer said. “We were warning of mortgage problems in 2006 and 2007. The industry was saying we’ve got it under control. Nobody had it under control. Now we’re seeing the same signs of distress. We’re seeing huge defaults on student loans and people driven into financial difficulties because of them.” A report by his group noted that missing just one student loan payment puts a borrower in delinquent status. After nine months, the borrower is in default. Once a default occurs, the full amount of the loan is due immediately. For those with federal student loans, the government has vast collection powers, including the ability to garnishee a borrower’s wages and to seize tax refunds and Social Security and other federal benefit payments. Nigel Gault, chief U.S. economist at IHS Global Insight, said the student loan crisis may not torpedo the financial sector as the mortgage meltdown nearly did in 2008, but it could slam taxpayers and the still-ailing housing market. “When student loans don’t get repaid, debts are going to be transferred from the borrower to the taxpayer,” further raising federal deficits, he said. And overburdened student-loan borrowers may fail to qualify for mortgages and “stay much longer in their parents’ homes,” Gault said. Young adults forming households have historically been the bulk of first-time home buyers – and their scarcity could dampen any housing recovery. “When kids do graduate, the most daunting challenge can be the cost of college,” Obama said in his State of the Union address, asking Congress to extend a temporary cut – due to expire in July – in federal student-loan rates. The reduced federal rate is now 3.4 percent. It the cuts aren’t extended, it will rise to 6.8 percent. Still, Obama said: “We can’t just keep subsidizing skyrocketing tuition. We’ll run out of money.” Obama also asked Congress to extend the current tuition tax credit, double work-study jobs over five years and let borrowers consolidate multiple student loans at reduced interest rates. But in this intensely partisan year, any congressional action seems dubious. “I wish I could tell you that there’s a place to find really cheap money or free money and pay for everyone’s education, but that’s just not going to happen,” Romney says. “Now the government is taking over the student loan business. I think you’ll get less competition.” The government has not taken over the student loan business. The private loan industry is still writing student loans, usually at interest rates far above the government ones. What the Republicans are zeroing in on is a section in Obama’s health care overhaul that eliminated big banks as middlemen in managing federal school-loan programs. Also, the new federal Consumer Financial Protection Bureau is clamping down on the lightly regulated private student loan industry. Santorum, who now says calling Obama a “snob” for promoting higher education was “probably not the smartest” choice of words, has been seeking to rally blue-collar support by emphasizing that many jobs do not require college degrees – and suggesting many colleges are liberal bastions. ___

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Woman Denies Buying Hundreds Of Dollars Worth Of Pay-Per-View Porn

April 2, 2012

Porn on the cable bill can be embarrassing enough, but imagine being forced to pay up for lewd movies you didn’t even watch. That’s exactly what Vicki Hart of Woodbridge, New Jersey claims she’s dealing with. Hart says Comcast has charged her for hundreds of dollars for pay-per-view adult movies that Woodbridge says she never ordered, nj.com reports . Comcast has reimbursed Hart twice for the allegedly false porn movie charges but says it’s not going to credit her account a third time. The root of the charges remains somewhat of a mystery considering that the movies were often ordered when neither Hart nor her boyfriend of nine years was at home. According to experts interviewed by nj.com , it’s possible that Hart could be the victim of cable box hackers. Still, additional porn movies or not, charging customers for services they didn’t buy is nothing new for cable providers. The few extra hundred bucks on Hart’s bill is pittance compared to one Ohio man who discovered Time Warner Cable once tried to charge his credit card $16.4 million due to human error . Even without mistaken charges, most Americans are still paying more for cable than they did in the past. Over the last ten years, the average cable bill has almost tripled to about $128 per month in 2011, up from $48 in 2001. Cable companies could be at risk of losing customers if prices continue to go up, according to the Los Angeles Times . That’s partly because of the lower cost of using services like Netflix and Hulu. And it’s not just cable companies that are making mistakes when it comes to customers’ bills. It wasn’t until Alina Simone, a Sprint customer in New York, cancelled her automatic bill pay that she discovered the company had been charging her for texts, even though her contract guaranteed 1,000 texts free of charge each month. Simone spent hours on the phone with Sprint, eventually earning an $800 refund, before the company again started overcharging her for texts, The Huffington Post reports . Banks have also faced scrutiny for charging their customers money that they don’t owe. CitiBank reportedly charged some customers twice when they attempted to make bank payments using the company’s iPad app.

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WB Head: World’s Easy Money Obsession Only Buys Time

April 2, 2012

By Kevin Yao BOAO, China, April 2 (Reuters) – Policymakers in both developing and developed countries must embrace structural reforms to sustain economic recovery and cope with the hangover from loose monetary policy that could fuel new risks, World Bank President Robert Zoellick said on Monday. In an interview with Reuters on the sidelines of the 2012 Boao Forum for Asia on the southern Chinese island of Hainan, Zoellick sharpened his warnings that any delays to painful structural shifts could “plant the seeds” for new problems. “While the IMF focuses on macroeconomic stability, I’m trying to say: Keep your eyes on structural reforms for growth, whether it’s India, China, Europe, the United States, Japan or others,” he said, referring to the International Monetary Fund. “If countries don’t undertake the structural reforms for growth, there will be pressures on monetary authorities to continue the abnormal policies even though that’s not really a solution,” he said. The global economy has stabilised as the United States is showing a modest recovery, but the European economy may experience a period of “slower (growth) or no growth”, he said. Zoellick is wary of new economic risks, including asset bubbles, that could crop up after major central banks, especially those of the United States and Europe, have pumped out huge amounts of easy money to stimulate economic growth. “I’m not critical of those steps, but I think it’s important to recognise that the steps simply buy time. They don’t solve the fundamental problems,” he said. “The nature of monetary bubbles is that you never can quite predict where it’s going to develop.” For China, more efforts should be made to boost consumption to wean the economy off its reliance on investment and exports, and economic reforms and opening up are needed, Zoellick said, although he did not foresee any “big bang” raft of changes. China’s growth momentum unleashed by the country’s accession to the World Trade Organisation (WTO) a decade ago could be weakening, adding some pressures for Chinese leaders to push through some tough reforms, he said. In February the World Bank said in a report that the world’s second-largest economy is near a turning point and should push through structural changes and move towards free markets. Zoellick is pinning his hopes on the next generation of Chinese leaders, who are due to take office next year. “This is not the year that I would expect the government to take big steps because it’s a political transition year.” President Hu Jintao and Premier Wen Jiabao are due to retire from their party posts late this year and from the presidency and premiership early next year, when Vice President Xi Jinping is likely to be named president and Li Keqiang premier. When they hand over power in late autumn, China could be headed for its slowest full year of growth since Hu and Wen took office a decade ago. The economy ended 2011 with its slackest quarter of growth in 2-1/2-years at 8.9 percent. Turning to the yuan, Zoellick said it may be too early to tell if the Chinese currency has reached its equilibrium level as it’s not fully convertible, which means the yuan’s rate may not reflect real market supply and demand. Both Wen and central bank chief Zhou Xiaochuan have recently said the yuan is probably near a balanced level, even as they pledged to let the currency float more freely. (Reporting by Kevin Yao)

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Simon Johnson: Volcker Rule Would Cause Irreparable Damage to the Muppets — and Much More Broadly

April 1, 2012

A major new research report — released this weekend by the renowned international consulting firm, IMS — finds conclusively that implementation of the proposed Volcker Rule would damage not just the irreplaceable Muppets but also “all children-oriented television or other media-based educational program content.” The logic in the report is straightforward and, quite frankly, compelling. The Volcker Rule — which aims to limit proprietary trading and excessive risk-taking by the country’s largest banks — would reduce the ability of “too big to fail” institutions to bet heavily on the price of commodities used to produce puppets (mostly cotton, but also apparently wood, aluminum, and some rare earths). “In response to the changing demands of their customers, banks have expanded their role of providing financial resources and services to include risk management and intermediation services to [various kinds of puppets](p. ES2) These services are highly profitable and of great value to the skilled artisans who produce puppets, but if the very biggest banks are not allowed to engage in these activities, then no one else will. This, of course, is elementary economics — dating back as far as Adam Smith. If there is a profit-making opportunity to be had, then everyone will spurn it, unless they work for a massive international bank. The history of the United States is replete with examples of business sectors that would never have come into existence were it not for the proprietary trading of banks that were large enough to damage the economy when they failed. Thomas Edison worked long and hard for J.P. Morgan (the man) before being allowed into the speculative trading side of the business. Henry Ford’s entire model was a spin-off from Bankers’ Trust — with a substantial equity investment from his former employer. And the Wright Brothers’ business concept — as well as their most basic notions of aeronautics — derived from their early work with paper airplanes on the trading floor of what became First National City Bank of New York (i.e., Citigroup today). Put simply, there has never been real entrepreneurship in the U.S. financial markets or economy — other than what these banks have put there, directly or indirectly. The fact these banks were very small relative to the economy until the 1980s is irrelevant. And the fact that these banks now draw on huge government implicit subsidies — while also creating an enormous and dangerous tax payer liability — is neither here nor there. Malfeasance by these banks has brought us to the brink of fiscal disaster. In political terms, we are manipulated by bankers just as if they are pulling our strings. But you have to consider the benefits, as well as the costs. Do you enjoy watching the Muppets or not? If the Volcker Rule is implemented as planned, that would have a major negative effect on the bond yields — the spread over the “risk-free” interest rate — paid by the Muppets and other leading providers of children’s entertainment. No one else will ever trade these bonds to any significant degree — just as no one would have produced cars or planes without the dominance of big banks in those sectors. Even the electricity you are using to read this piece was made possible by the market dominance and overbearing presence of deeply entrepreneurial and ethical entities such as Enron. The Muppets themselves have come out strongly in favor of the financial sector as currently structured. As Lloyd Blankfein, head of Goldman Sachs, reportedly said recently: “It’s not the dealers and it’s not the investment bankers and providers that have to grapple with regulation. It’s users and [puppets of all kinds] in the market that have to deal with different margin requirements…have to deal with unfortunately and inevitably higher cost in managing their portfolios…and have to pay the price for the higher cost of holding inventories.” The IMS report was paid for by Morgan Stanley (see p. 3), further evidence of smart entrepreneurial investments by big banks that support the deeper development of the economy and help create puppets everywhere. Simon Johnson is the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You , available from April 3rd. This post is cross-posted from The Baseline Scenario .

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Good News For College Seniors

April 1, 2012

By Jilian Mincer and Jennifer Merritt NEW YORK, April 1(Reuters) – Sean Chua expected the hunt for his first job after college to be tough. After all, he watched his brother struggle to find a position when he graduated back in 2008. But his fears were unwarranted. The 21-year-old justice major at American University sent out only seven resumes before getting an offer earlier this month from IBM for an IT consulting job, making him a beneficiary of a turnaround in the labor market for U.S. graduates. “My mom’s first position was with IBM so she is particularly proud,” says Chua. Hiring is back in a big way on many college campuses, one of several signs a recovery in the U.S. jobs market is gaining traction. After four years during which many students graduated to find no job and had only their loans to show for their studies, most college campuses are teeming with companies eager to hire. A survey by the National Association of Colleges and Employers (NACE) found 2012 hiring is expected to climb 10.2 percent, above a previous estimate of 9.5 percent. Companies such as General Electric, Amazon, Apple and Barclays Global are looking for new staff, even if some firms remain below the pre-recession levels of new hiring. In another sign of the recovery, some first-time job seekers are receiving multiple offers. At University of North Carolina-Chapel Hill, the career service office has seen up to now a 7.4 percent increase in the number of interviews of students by potential employers from last year and the number of companies seeking to recruit for full-time jobs is up 9.2 percent. Undergraduate business majors reporting full-time job offers is up about 10 percent. Career experts at a dozen of U.S. schools said they have seen an increase of 15 to 30 percent in the number of companies attending campus career fairs. At University of Florida, the fall career fair garnered 15 percent more companies in attendance than in 2010. And 150 companies asked to conduct interviews versus about 100 in recent years, said Ja’Net Glover, associate director of employer relations at the school. The increase in demand was so significant that it was the first time in years the school had to use both the first and second floors of the school’s basketball facility for interviews. “It’s kind of like a no-brainer,” says Kathy Sims. Director of Career Services at UCLA. “The economy is better and the college recruitment market is improving.” While the U.S. jobless rate fell to 8.3 percent in February, unemployment among college graduates over the age of 25 stood at 4.2 percent. Historically, their jobless rate is half that of Americans with only a high school education. Over the recession, unemployment among graduates climbed as high as 5 percent, sparking protests over the rising tuition cost of some U.S. colleges. U.S. unemployment data for March, due for release on April 6, is expected to show a total of just over 200,000 jobs were created in the month, keeping the overall unemployment rate at 8.3 percent. ———————————————————- ———————————————————– BACKLOG FROM PAST YEARS, INTERNS SOAR College graduates’ earnings are also on the rebound. NACE says the median wage for first-time job seekers after college for 2012 is up 4.5 percent higher than a year ago to $42,569. That initial pay level can resonate over the span of a career. Several studies show that the life-time earnings for workers who enter the labor force at time of economic recession are lower than lifetime earnings of those who are hired amid an economic recovery. Given the tepid recovery of the economy, some caution is required. In 2008, many college graduates who had already accepted job offers were later away. After the run of lean years, many graduates are stuck in low-paying jobs and professions that never intended to follow, meaning there could be a backlog of well-educated workers who need to get their careers on track as well as new graduates. However, with a wide range of employers — from automakers to investment banks — back on campus offering internships and full-time jobs, and not just to engineering, computer science and math majors, the outlook for the Class of 2012 looks rosy. General Electric wants to hire 5,000 interns this year, up from its usual 3,000 to 4,000. Since 70 percent of its full-time hires come from the interns pool, Steve Canale, head of global recruiting, said that uptick will also translate into more full-time jobs after graduation. “(Companies) are saying, ‘we have an aging workforce, and we have to replenish the pipeline.’ GE has always done it, but this year a lot of other companies are also reloading their talent pool,” Canale said. Chrysler said it plans to hire 400 interns this year compared to 256 in 2011. The automaker has also hired almost 4,000 salaried employees since June 2009, about a quarter of which are new college graduates. The pick-up in hiring extends to industries that were among the hardest hit during the financial crisis. Schools report that banking and financial services companies have returned to campus for the Class of 2012. It’s a stark contrast from just a few years ago when smaller firms appeared on campuses to replace the corporations no longer showing up. “Even students with lower grades are finding opportunities,” says Notre Dame’s Svete, who believes job placement at the school is up about 7 percent. In 2009, only 75 percent of students had jobs or plans for graduate school at graduation. This year, the school expects that to climb to 85 to 88 percent, closer to the 90 percent level of 2007. Nathan Pace, a senior at American University, hasn’t yet found a job, but is confident for his future job. He started the college four years ago and he has since seen each class of graduating seniors have better luck finding jobs. Many of his friends recently secured job offers. “The vibe on campus is that people are excited,” says Pace.

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EU Considering New Way To Make Banks Pay For Bailouts

April 1, 2012

COPENHAGEN, Denmark — Tentative support from Sweden for a small levy on share purchases may open the door for a limited tax on financial transactions in the European Union. Europe is looking for a way to recoup some of the billions of euros (dollars) national governments spent on saving banks during the financial crisis. However, a Franco-German plan for a broad tax on financial transaction, including purchases of bonds and derivatives, has been rejected by Britain and Sweden. Derivatives are complex financial instruments whose use has grown exponentially in recent years. The U.K. and Sweden fear that taxing most financial trades would push banks and other financial institutions to relocate to other financial centers in the U.S. and Asia – ultimately leaving governments with even less tax revenue. But on Saturday, Sweden’s finance minister indicated that he may back a small levy that would likely primarily target shares – a much less radical proposal than the one Germany and France had foreseen for Europe. “There are stamp duties in, for example, France and in the U.K. that (are) less costly for the economy and would not have a detrimental effect on the financial markets,” Anders Borg told journalists at a meeting of EU finance ministers in Copenhagen, Denmark. “If we want to find a solution for all the 27 EU countries we have to be pragmatic.” Taxing banks is hugely popular among voters across Europe, who feel that they are bearing the whole burden of a crisis largely caused by financial speculation. However, without a global plan for a broad financial transaction tax, which has been ruled out by the U.S. and others, Europe is worried about dashing ahead. Faced with opposition for an EU-wide solution in some countries, France, which is in the middle of a presidential election campaign, is already introducing a small levy on purchases on shares of large French companies, high-frequency trading as well as trades in some credit instruments linked to eurozone sovereign bonds. The U.K. has had a duty on share purchases for some time. However, Danish Finance Minister Margrethe Vestager, whose country currently holds the presidency of the EU, cautioned against expecting anything on an EU-level too quickly – even if there is great agreement among politicians that financial institutions should share the cost of future crises. “It’s difficult to be very precise on the timeline,” she told journalists after Saturday’s meeting. Ministers would try to get back to the issue in May or June, but before any concrete steps could be taken, the European Commission, the EU’s executive, would have to present a new legislative proposal, Vestager said. Currently, the Commission is still advocating for a broad financial transaction tax. __ Sarah DiLorenzo in Paris contributed to this story.

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Tribune Broadcasting: No Deal Reached With DirecTV

April 1, 2012

NEW YORK (AP) — DirecTV Inc. subscribers in 19 U.S. markets have lost access to certain programming, after Tribune Broadcasting said it failed to reach a settlement with the satellite television provider in their contract negotiations. Tribune Broadcasting said late Saturday in a statement that without a deal in place, DirecTV was barred by federal law from carrying the signal of Tribune’s local television stations after midnight, when their agreement expired. The affected markets include New York, Chicago, New Orleans and Philadelphia. Customers could lose TV programs including “American Idol,” ”Gossip Girl,” and Major League Baseball, depending on who owns local affiliates that carry the shows. Tribune president Nils Larsen called the situation “extremely unfortunate.” In its own statement, DirecTV said it had hoped Tribune would allow its programming to remain up while negotiations continue. But as it struck midnight in each time U.S. time zone, Tribune channels carried by DirecTV went blank. Earlier, DirecTV said that it had accepted the financial terms that Tribune’s management offered it by telephone two days ago. But Tribune came out with its own statement shortly after, saying it had not reached a deal or come to terms with DirecTV on any aspect of the contract. DirecTV fired back, saying in another statement that it had a handshake deal with Tribune on Thursday with an agreed upon rate for their channels. “Their actions are the true definition of ‘bad faith’ in every sense of the term,” DirecTV said. The satellite TV provider also wondered whether Tribune was having difficulty negotiating because of its bankruptcy process. “Threatening station blackouts to extract an exorbitant fee for all of Tribune’s content may provide an improved return for certain banks and hedge funds, but is not in the interest of its viewers and is not a cure for bankruptcy,” DirectTV said. Negotiations have been ongoing for months. DirecTV subscribers in the markets where Tribune owns the local Fox affiliate lost access to programs such as “American Idol” and Major League Baseball. Where Tribune owns the local affiliate of The CW Network, DirecTV subscribers are unable to see shows such as “Gossip Girl” and “Vampire Diaries.” Larsen said in a statement Thursday that if an agreement was not reached, DirecTV subscribers would still be able to watch programs on broadcast stations for free in high definition with a TV antenna or by signing up with an alternative pay-TV provider. Tribune’s broadcasting group owns or runs 23 television stations, WGN America on national cable and Chicago radio station WGN-AM. Its publishing arm includes daily newspapers such as the Los Angeles Times, Chicago Tribune and The Baltimore Sun. DirecTV serves 32 million people in the U.S. and Latin America.

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ECB and BoE to hold current monetary policy in April

April 1, 2012

The main focus this week will be on rate decisions by the two giant European banks, the European Central Bank and the Bank of England, in addition to bond selling by some euro area governments. …

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‘Do You See The Shadow Yet?’

March 31, 2012

WEST PALM BEACH, Fla. — When Frank Verna pulls up to a battered, four-unit apartment building at lunch hour, he’s just over a mile as the seagull flies from the gated oceanfront palaces of South Florida’s wealthiest. But this stretch of 21st Street, pocked by homes with boarded-up windows and dead-ending at railroad tracks, is unlikely to make it to a tourism poster. Verna turns the car around in case he needs to make a quick exit and reaches into the center console for a Smith & Wesson M&P40. The real estate agent tucks the pistol into his jeans. “Just watch your step,” he says, pulling back the tangle of bushes grown across the building’s entry path. Beyond is the darkened doorway to Unit 1 – missing its door. “I think there’s a dead animal over there,” says Verna, traces of New York’s Queens still present in his accent despite two decades in the Sunshine State. He aims his flashlight at a mat of brown fur in the center of a living-room floor blanketed in garbage. The stench of whatever’s in there is already potent and the summer heat is still months away. Nobody is home. Verna is here because he specializes in distressed properties and Florida, thrashed by the mortgage and foreclosure disaster, has thousands of them. But figuring out just how many is not so simple. Each month, analysts issue reports detailing the number of homes nationwide in foreclosure or held by banks. The implication is that if we can just find a cure for these loans and homes – either by matching buyers with houses or helping the borrowers stay put – the economy will be able to heal at last. At ground level, though, it’s more complicated. The building on 21st Street is a good example. The last buyer paid $309,000 for this place six years ago. But today the county appraiser says it’s worth less than a quarter of that amount. A bank filed foreclosure papers against the owner in 2008, but a year later withdrew the case. Legally, it still belongs to the original owner, subject to fines and liens by the city. But the bank sold the underlying mortgage note to a hedge fund for pennies on the dollar. That company has hired Verna to check the condition and occupancy status of its investment, on the way to making it profitable (His research indicates the owner has left the country.) It’s one thing to take measure of the foreclosure crisis in the black and white of statistics. But here’s a reminder that reality also comes shaded in gray. People in the foreclosure trade have a name for buildings like the one on 21st Street: “shadow inventory.” Broadly speaking, it refers to all the homes in the foreclosure pipeline that will eventually flow in to the market but aren’t there yet. In practical terms, the definition of shadow inventory varies considerably depending on which analyst you ask, and there is truth to be gleaned from each of their carefully calculated studies. Numbers matter because figuring out how long the crisis will last requires knowing the extent of the damage. But if we’re going to take stock of the nation’s progress in working its way through the mortgage debacle, reading reports may not be enough. The only way to fully comprehend what’s going on out there is to wade into the wreckage. And to do that requires moving beyond the figures and the charts, and venturing into the shadows. ___ All rise and come to order. Judge Diana Lewis’ court is now in session. On a Monday afternoon, the three rows of benches in Courtroom 4B are packed. Lawyers and home owners who weren’t early enough to snag a seat cluster around the doorway and stand along the walls. The lawyers are the ones in the suits who look like they belong. The borrowers are the ones in T-shirts and sneakers, clutching overnight-mail envelopes stuffed with fraying documents, looking around nervously like maybe they’ve already missed something. Taped to a white board in the lobby, 16 sheets of paper list the 136 foreclosure cases scheduled to be heard in Judge Lewis’ courtroom on this one afternoon. Too late for a seat, Leanna Lalla, a lawyer representing homeowners, leans over to explain that today’s crowd in 4A is merely the norm, reflecting all those houses piling up in the pipeline. “Do you see the shadow yet?” she whispers. Florida, home to a quarter of all the nation’s foreclosures, is one of 20 states that rely entirely on the courts to deal with the crisis and the system is overwhelmed. A big part of the reason cases drag on for an average of two years is that last year’s robo-signing scandal forced banks to put the brakes on many cases with suspect documents. A settlement with state and federal officials has allowed the process to get moving again. But the proceedings in Lewis’ courtroom hint at the confusion, as well as delaying tactics by both lenders and borrowers, leaving scores of homes stuck in the pipeline. One of the first cases Lewis calls is Wells Fargo v. Killgore. The lawyer for a condo association steps forward, pursuing $15,000 in unpaid dues and fines on a Boynton Beach apartment in foreclosure. But a woman named Sue Elmore objects. Elmore is the daughter of the man who lived in the condominium at the heart of this case. She tries explaining to the judge that her father has Alzheimer’s disease and now lives in a nursing home. Years ago, he took out a reverse mortgage on his home and when he got ill, the family agreed to surrender it to the bank, a deal they thought was long done. “In our minds, we didn’t own it any more. We gave it back,” Elmore says later. “We just did what they told us to do.” Maybe someone forgot to tell the bank. Because the condo that the family thought they no longer owned is still listed in their name on the tax rolls. It’s not clear exactly how a home like this one should be classified or what it will take to figure out a solution. Later, Lewis calls up the parties in another case, Nationstar Mortgage v. Sands. The homeowner tells the judge he thought a loan modification had been finalized, allowing him to keep the home, until a lawyer called to say it was back in foreclosure. “That’s ridiculous,” Lewis tells the lawyer for the bank. “I’m not doing this thing two or three times. You’re making my head spin.” ___ From the courthouse, it’s a 15-minute drive to a neighborhood called Eden Place – a scene that is much more peaceful. On alphabetically named streets, well-tended, if modest homes built a half-century ago snuggle amid tropical foliage. But it’s not the same paradise it was 15 years ago when Jimella McKeag fled Pennsylvania winters for a pink stucco refuge on J Street. “That one on the corner, he didn’t pay his mortgage. He just moved out to Okeechobee and let it go,” McKeag says, surveying the block from a plastic Adirondack chair beside her front door. “This one here, he rented it a couple of times. … He let it go and it went back to the bank.” Of the 13 houses on McKeag’s block in Lake Worth, two are currently owned by banks after going through foreclosure. But neither is listed for sale. On this afternoon, a crew of three men is hauling mildewed mattresses and a sofa out of one of them; its living-room ceiling has caved in from leakage despite a blue tarp covering its roof. At the opposite end of the block sit two more homes that are clearly abandoned, but whose fate remains unclear. One was bought out of foreclosure by a local doctor last fall, but appears uninhabitable. The other, boarded up, still belongs to its original owner. At the peak of the market, houses on this block sold for $250,000 or more; they’ve lost at least half their value. One day, these vacant homes will come out of the shadows and on to the market, affecting the worth of neighboring houses. Analysts pore over data trying to figure out just how many homes like this are hidden from view. But it’s not easy. Economists at CoreLogic, a California company that analyzes mortgage data, weigh in at the low end, charting 1.6 million homes in shadow inventory nationwide. They count homes not listed for sale, with loans that are at least 90 days overdue, in foreclosure or bank-owned. Others say the shadow is much bigger. Laurie Goodman of Amherst Securities in New York says it covers from 8.3 million to 10.4 million homes. Goodman’s analysis includes homes with loans that are at least 60 days overdue, have been delinquent in the past and are likely to go into default again, and thousands of homes whose owners are making payments but are likely to give up because they are so far “underwater,” in homes worth less than they owe. “The question is `how long is the shadow?’” Goodman says. “I think some people are definitely underestimating the seriousness of the problem.” Mark Fleming, chief economist for CoreLogic, says his analysis is a snapshot of the problem at the moment, while Goodman’s is more of a forecast. “In many ways, we can both be right,” he says. The difficulty of trying to measure shadows becomes more obvious the further you go down J Street. A couple of blocks south of McKeag’s house, more homes are cut into rental units and there are fewer trees. More homes are empty here, some marked with “No Trespassing” signs posted by the sheriff’s office. But the houses that are occupied are the most difficult to figure. Take a two-family home with a carport in the 1400 block. According to county records, it has gone through foreclosure and is now owned by the Federal Home Loan Mortgage Corp. But tenants say they are still paying rent to the previous owner. There are scores of homes like this, experts say, owned by lenders who have yet to pursue an eviction of borrowers who are not making payments. Lenders have good reasons to delay. Empty homes require upkeep. Once banks claim a home, they are responsible for the taxes and fines from cities and homeowner’s associations. The loss on the loan goes on to their books. As long as a case in still in process, loan servicers continue to collect their fees. A recent check of records in this one county found more than 10,000 cases in which a bank secured a final judgment more than a year ago, yet there has still been no change in title, says Michael Olenick, a West Palm Beach computer programmer who tracks the system. Then there are houses like the white one in the 1300 block of J Street where Peter Gardner answers the door. Gardner, a former laser technician, bought this house for $44,000 in 1995. After a car accident left him disabled four years ago, he says he fell behind on his payments and tried repeatedly to work out a catch-up plan, borrowing enough money from his mother to cover the money owed, but not late fees. This is a variation of accounts often heard from borrowers and lawyers who represent them – for years, banks waited until people fell behind, then began imposing heavy late fees, while refusing to give ground. Gardner, who says he hasn’t made a payment on his loan in years, thought about selling. A real estate agent advised listing it for $275,000 to get a quick sale. But he resisted. The lender began foreclosure proceedings three years ago. Gardner asked for a loan modification, but every three months the bank told him he needed to reapply. Finally, last fall, the house went to auction. The lender claimed it for $500. The story doesn’t end there. The home is owned by a subsidiary of Bank of America. Gardner expects to be evicted one of these days. In the meantime, though, employees of the bank still call every few weeks to tell him he’s behind on his payments and responsible for the house. “They want me to live in the house, mow the lawn, keep the air conditioning on so the fungus doesn’t grow in it,” Gardner says. He keeps telling the bank employees that he no longer owns the place, but they don’t believe him. “Somebody went and sold my house and they’re telling me I’m not even in foreclosure,” Gardner says, standing in the driveway he no longer owns, but where he still parks. “I was mad crazy with it and every time you just have to laugh. Otherwise, you’d just kill yourself inside.” ___ The housing market is working through a riddle, trying to determine what homes are worth given limited demand. But shadow inventory keeps part of the supply hidden. “It goes deep and you have no clue,” says Danielle Giunta, who checks up on distressed homes on behalf of lenders. Giunta sold real estate until the market tanked. But she’s repurposed herself for the times. Now, a few days a week, she drives a 120-mile route through six Palm Beach County zip codes, knocking on doors, noting broken windows or water damage and snapping pictures. She usually spends just a few minutes at each house and earns a few dollars per stop. “The first few weeks I worked, I was very depressed,” Giunta says. Part of it was all the vandalism and garbage she came across. Other times, it was the conversations with families certain they were about to evicted. But, as an agent who stills watches the listings, she was also bothered by the difference between the number of homes for sale and all the others she was seeing. “I go online and see what they’re reporting and it’s not the same,” she says. “It’s not going to be better for years …and the reason I say that is the truth is not out yet.” There is, however, substantial demand for foreclosures at the right price. Driving through inland neighborhoods, agent Sharon Restrepo slows to point out small houses and condominiums. In a development called The Forest, she stops in front of a condo she bought for $30,000 a few months ago and resold to an investor for $40,000. After the investor paid $1,600 to fix it up, the place now rents for $950 a month. Restrepo says she’s buying five to 10 homes like this a month, turning most around as profitable rentals. You can’t build these houses for what they cost, she and others say. But investors and those who represent them complain banks are not realistic about the prices they’ll accept. Verna, the real estate agent specializing in distressed properties, says that slowing the flow of homes into the market creates an artificially low inventory in some neighborhoods, which can temporarily lift prices. At the same time, lenders are increasingly selling homes or the underlying loans in bulk to hedge funds. That’s where Verna comes in, tracking down borrowers to convince them to trade deeds for cash, and turning around homes like the building on 21st Street for resale. This takes patience and a strong stomach. Abandoned homes are frequently trashed or occupied by squatters. Borrowers are difficult to track down and reluctant to talk. Verna has tracked one homeowner from address to address to address. Each time the real estate agent thinks he’s caught up, the man has moved again. At this rate, Verna figures it will be three to five years before lenders let all the homes go. The risk is that, by moving too slowly they could artificially raise prices in some areas, which might spur investors who bought homes as rentals to put them up for sale. “The truth of the matter is we would have already gotten over it if they just let the properties get out there and get sold,” Verna says. “So what are you doing? You’re not stabilizing the market. You’re creating more chaos.” ___ When Lynn Szymoniak moved to South Florida three decades ago as a lawyer for migrant farm workers, the land stretching west along Lantana Road was planted with cash crops. Today, a Home Depot store has taken over a tomato field. And what was once a U-Pick farm is now a neighborhood of 262 homes called Strawberry Lakes. “Sometimes you can’t tell when a house is in foreclosure unless you go back two or three times, because the neighbors will do things like park their cars in the driveway, all in an effort to make things more secure,” Szymoniak says, driving slowly through the subdivision. She points out houses with waterlogged newspapers piled on front steps and fabric hung across windows. One of her “favorites” is a house whose shingled roof has worn a blue rain tarp so long it has disintegrated to fringe, hanging from the eves like a monk’s haircut. “But one of the things you may have noticed,” Szymoniak says, “is that with all these foreclosed homes we’ve come upon, we’ve come upon zero `For Sale’ signs.” Szymoniak hasn’t counseled farm workers since the 1980s. But she found her way to Strawberry Lakes after battling to keep her own house. In 2008, Deutsche Bank filed foreclosure papers against her. By then, Szymoniak had spent years representing insurance companies in fraud cases and she’d become expert in spotting deception. She took note of suspect signatures on loan documents. Her detective work was instrumental in exposing the robo-signing scandal, reflected in $18 million awarded Szymoniak as part of the recently announced settlement between major banks and government officials. Szymoniak’s frustration, though, extends well beyond what happened with her loan. She is convinced banks still are not doing enough to resolve the crisis. She points to Strawberry Lakes as Exhibit A. The two- and three-bedroom homes here now sell for just a third of the $275,000 or more they fetched at the top of the bubble. Few of the neighborhood’s homes are owned by lenders. But many bear stickers on doors and windows, posted by banks and loan servicers with a vested interest in their fate. “This property is managed by Chase,” reads one, at a home on Strawberry Lakes Circle. A look through the window reveals a dining room ceiling that is caving in. At least three dozen homes are currently in foreclosure, with many cases dating back three or four years. Of those, at least five are houses where lenders won final judgments years ago, but have not moved forward. In addition, at least 57 houses not in foreclosure are owned by people who paid far above what they’re now worth. Prudent Alcindor, who paid $253,000 for a house currently appraised at less than $112,000, says he thinks often about whether to give up. “I still pay, but I will never have the house. I pay to stay in it. But it will never be mine. It’s like I rent it,” says Alcindor, who works at a vitamin manufacturer. The financial pressure on his neighborhood is “getting worse and worse every day.” It’s hard to know how others are doing in paying their loans. But Jeremy Vassalotti, president of the homeowner’s association, points out that as his neighbors have fallen behind, more responsibility lands on everyone else. Vassalotti, who owns a masonry company, lives in one of the neighborhood’s most carefully tended homes, with cast iron dragonfly sculptures on the walls by the entryway and stone frogs set amid the cedar chips. But he spends substantial effort now trying to keep up with what’s going on at the houses around him. In Strawberry Lakes, 105 of the homeowners are behind on their payments to the HOA, a hint that more of them could be headed to foreclosure. That uncertainty makes it difficult to measure the reach or duration of the crisis. But Szymoniak cautions against assuming that, just because the streets here are peaceful and the grass in front of the empty homes kept trimmed, the problem is going away. “You know,” she says, pointing out yet another vacant house, “when anybody tells me we’re coming out of the foreclosure crisis, I always take them for a ride and let them see what’s happening” in neighborhoods like this one – bathed in South Florida sunshine, but set deep in the shadows. ___ Adam Geller, a New York-based national writer for The Associated Press, can be reached at features(at)ap.org

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