credit-score

Jeanne Kelly: How to Fight the "Holiday Credit Hangover" in January

by Jeanne Kelly on January 13, 2012

Huffington Post…

The holiday season is such a fun time! There are parties and delicious desserts and plenty of gifts. But as fun as December is, it does come to an end. In January, we resolve to adopt better habits. And if that were the only hardship for January, maybe it wouldn’t be so bad. Unfortunately, January is also a month where we get the credit card bill for December. It can be a “holiday credit hangover”, so to speak. For many consumers, those December credit card bills can be surprising… and even financially harmful. Some of my clients enjoy lavish Decembers and then end up paying it off months later! If you have a holiday credit hangover, here are 3 tips to help you overcome it and get back on your feet: 1. Review your credit card statements When you get a big credit card bill, it can be depressing to sit down and go through each purchase. Maybe you don’t want to be reminded of what you spent! But you just might find a mistake on your credit card that you can correct. (One of my clients reviewed his bill in January and found a fraudulent $800 charge. He disputed it and knocked his bill down dramatically). As you review your purchases, you might also discover some opportunities to save money in the future. It’s always a good idea to review your credit card statements. 2. Pay as much as you can right now. Yes, pay it right now. Don’t wait until the payment due date to pay it. (You might forget or you might accidentally spend that money on something else). Pay your credit card right now. Even if you can’t pay all of it, pay at least the minimum payment and try to pay more — as much as you can. Waiting until closer to the payment due date simply deflects the “pain” of payment but does nothing to reduce the anxiety of the holiday credit hangover. But by taking a bold, immediate step of paying right away, you’ll be surprised at how much it helps to wash away the stress of those big holiday bills. 3. Make some sacrifices. I’d love it if this step was easier but I would be doing you a disservice if I softened it. You’ve enjoyed December and now it’s time to pay it back. The longer you pay it off, the more expensive your holiday becomes (because credit card interest is so high). So for the month of January, while you are already resolving to diet and exercise and quitting smoking, add one more sacrifice — cut back on extra expenses and pay off those credit cards as aggressively as possible. Keep December a great memory The holiday season is fun: It’s a wonderful time to spend with loved ones, and it’s okay if you “splurged” a little. But now get back on track and have a healthier credit new year! Please let me know about your credit story or if you have a credit question, Jeanne.Kelly@TheCreditOwl.com

Visit link:
Jeanne Kelly: How to Fight the "Holiday Credit Hangover" in January

Find our Weekly Commercial Real Estate, Private Equity and Fund Newsletters at www.WeeklyBrief.net

Japanese Officials: Europe Should Boost Its Rescue Fund

by Jillian Berman on December 26, 2011

Huffington Post…

TOKYO (Reuters) – Europe should boost the total firepower of its rescue fund and frontload its funding to send a positive signal to investors and international partners that it is determined to solve its debt crisis, Japanese officials said on Monday. Japan has repeatedly expressed its willingness to help Europe contain its debt crisis, but has also stressed it wanted to see a convincing action plan before making any firm commitments. “Japan like other non-euro countries is prepared to do something, but unless European countries take decisive action it is hard to make those steps effective,” a senior Japanese government official said. Lifting the combined size of the current bailout fund (EFSF) and the new permanent European Stability Mechanism (ESM) beyond the current 500 billion euros would be a major step and an encouraging signal. “We expect European countries will review the combined ceiling of 500 billion euro of EFSF (European Financial Stability Fund) and ESM in a very positive manner,” the official told Reuters. European leaders agreed in Brussels earlier this month to accelerate the launch of the ESM by a year to mid-2012 with an effective lending capacity of 500 billion euros ($650 billion), but questions have arisen about the size and timing of contributions. Japanese officials said that while bringing forward the launch of the fund was positive, a more ambitious ceiling might be needed given that Europe had little success in bringing in outside investors to boost the firepower of the EFSF fund. “The leveraging of EFSF money by investors’ money doesn’t look like materializing very well. That’s why they are frontloading the ESM and the review of the ceiling of 500 billion euro is very important,” said the official, who declined to be named. “European countries may think what they’ve already decided is a major step forward, but markets want Europe to act more decisively.” German Finance Minister Wolfgang Schaeuble signaled over the weekend that Europe’s biggest economy and its main paymaster could boost its contribution to the fund and support its swift launch, although any decisions would have to be made in January. Since the beginning of the crisis more than two years ago, European leaders have orchestrated bailouts of Greece, Ireland and Portugal, set up a euro zone rescue fund and earlier this month agreed to boost the International Monetary Fund’s resources by 150 billion euros. Still, throughout the crisis that has also shaken Italy and Spain, investors have repeatedly been left with the impression that whatever was agreed in Brussels was too little, too late. Japan, the United States, Canada and others have voiced their frustration with Europe’s piecemeal progress and repeatedly called for bold steps that would create effective “firewalls” around the euro zone’s weaker, heavily indebted economies. Another Japanese government official reiterated on Monday that Tokyo, which led an international effort to boost the IMF’s coffers after the Lehman crisis, was open to contributing more but that its decision depended on Europe’s actions. Officials in Tokyo said markets needed to see both effective defenses in the form of funds sufficient enough to cover the crisis-hit nations’ financing needs and commitments to fiscal discipline. “Fiscal discipline is very important. Even if we provide firewalls we need fiscal discipline,” the official said. While Tokyo has repeatedly voiced concern about developments in Europe, its plans to buy Chinese government debt did not reflect lack of confidence in the euro or U.S. dollar assets, another official said. He said the plans, discussed during Prime Minister Yoshihiko Noda’s visit to Beijing, aimed at strengthening economic ties between the two nations rather than diversifying Japan’s exchange reserves, mostly made up of dollar and euro assets. “The idea is not to depart from the dollar or U.S. government bonds or the euro, so it should not be interpreted as diversification of our portfolio,” the official said. “I don’t have any doubts about creditworthiness of the dollar or U.S. government bonds. The dollar will remain the most important currency for the foreseeable future.” Copyright 2011 Thomson Reuters. Click for Restrictions .

Go here to see the original:
Japanese Officials: Europe Should Boost Its Rescue Fund

Find our Weekly Commercial Real Estate, Private Equity and Fund Newsletters at www.WeeklyBrief.net

Dean Baker: How to Think About Standard and Poor’s Downgrade

August 6, 2011

Standard and Poor’s downgrade of U.S. government debt captured headlines across the country and around the world. It is a newsworthy event, but primarily as another colossal failure by a major credit rating agency. First, it is worth mentioning the important background here. S&P, along with the other credit rating agencies, rated hundreds of billions of dollars of subprime mortgage backed securities as investment grade. They were paid tens of millions of dollar by the investment banks for these ratings. We know that concerns were raised by their own people about the quality of many of these issues. This was at the least astoundingly incompetent. It was quite possibly criminal. This raises the question of whether S&P fears an investigation and possible prosecution. In such circumstances the desire to curry favor with powerful politicians could certainly influence their credit rating decisions. There are also rules affecting the credit rating agencies in the Dodd-Frank financial reform bill. The desire to have these rules written in a favorable way could affect the credit rating agencies’ decisions. It would be nice if we could just assume that the credit rating agencies make their rulings on an objective assessment of the evidence, but we can’t. Let’s look at the evidence. S&P made a big point of citing the fact that the debt deal did almost nothing to slow the growth of Medicare and other entitlements, obviously alluding to Social Security. S&P surely knows that Medicare’s cost growth is driven by projections of explosive growth in private sector health care costs. The projections it relies upon from the Congressional Budget Office show that the cost of providing health care to an average 65 year-old in the private sector will be almost $20,000 (in 2011 dollars) a year by 2030. Of course, this will make Medicare unaffordable if it proves true, but this projected explosion in health care costs will be devastating for the U.S. economy even if we eliminated Medicare and other public sector health care programs altogether. If S&P were being honest, it would have written about the need to fix the U.S. health care system. Instead it talked about the need to cut Medicare. Of course, if U.S. health care costs were comparable to those in any other country in the world, then we would be looking at massive surpluses in the long-term, not deficits. The reference to Social Security also cannot be supported. The program is financed by its own designated tax. Under the law, if benefits exceed the money raised by the tax, then they are not paid. If S&P assumes that Social Security will add to the deficit in future years, then they are assuming that Congress will change the law in a way that no one is now proposing. It is also worth noting that the projected increase in Social Security as a share of GDP over the next 30 years is 1.6 percent. This is roughly the same as the increase in the annual military budget since the days before September 11th. An unbiased credit rating agency would not be highlighting one increase while ignoring the other. There are other problems with the S&P downgrade. U.S. government debt and its derivatives (e.g. the $5 trillion of mortgage backed securities issued by Fannie Mae and Freddie Mac) are the backbone of the U.S. financial system and indeed the world financial system. If U.S. debt is in fact less creditworthy, then all the banks and financial companies that rely on its value should also be less creditworthy. Yet, we didn’t hear of J.P. Morgan, Goldman Sachs and the rest being put on the watch list for a downgrade. Why not? Perhaps this is because S&P doesn’t take its own rating seriously. Finally, what does the risk of default on U.S. government debt mean? The debt is issued in dollars. That means it is payable in dollars. The U.S. government prints dollars. This means that if some reasons the government was unable to tax or borrow to raise the money to pay its debt then it could always print it. This may carry a risk of inflation, but S&P is not in the business of making inflation predictions, they are in the business of assessing the likelihood that debt will be repaid. (Of course if they are worried that inflation will erode the value of U.S. debt, S&P would also have to downgrade all debt denominated in dollars everywhere in the world.) In short, there is no coherent explanation that can be given for S&P’s downgrade. This downgrade was not made based on the economics. We can only speculate about the true motive.

Read the full article →

Employers Still Ruling Out Jobless Applicants: Report

July 12, 2011

Employers are still discriminating against unemployed people in their online job ads despite an increase of scrutiny on hiring practices, a new report by the National Employment Law Project has found. HuffPost reported back in June 2010 that a number of job postings on sites such as Craigslist, Monster.com and Indeed.com explicitly ruled out jobless applicants using the language “must be currently employed,” or “no unemployed candidates will be considered.” According to the new NELP survey of a number of “heavily-trafficked job posting websites,” employers have continued to screen out applicants solely because they are unemployed. “This pernicious practice adds a tremendous burden for unemployed workers as they look for jobs,” said Christine Owens, executive director of NELP. “For the millions of jobless Americans struggling to climb out of the deepest job hole in many decades, nothing can be more demoralizing than the double-whammy of losing a job and then learning they will not be considered for new positions because they are not currently working.” The jobs crisis is far from over: As of June, nearly 6.3 million U.S. workers had been out of work for six months or longer, according the Bureau of Labor Statistics. The average length of unemployment has steadily risen to almost 40 weeks, and there were nearly five job applicants for every job opening as of the most recent data in May. In order to even out the playing field in the job market, Reps. Rosa DeLauro (D-Conn.) and Hank Johnson (D-Ga.) have introduced the Fair Employment Opportunity Act of 2011 , which makes it illegal to discriminate against the jobless in a job advertisement or otherwise. “I just thought about how unfair that was, to discriminate against people who had lost their jobs due to no fault of their own, who were just victims of corporate downsizing during a tough economy. And then to be penalized for having that status is just very unfair,” Johnson told HuffPost. “It reminded me of the days when blacks were told to not apply for jobs, or job advertisements said ‘no women allowed.’” “I’m hopeful that this can be a bipartisan effort,” he said, “because unemployment knows no demographic difference.”

Read the full article →

Subprime Lending Is Back, Thanks To Private Firms

July 12, 2011

Subprime borrowers have been largely unwelcome in the lending market since the financial crisis, but it’s becoming easier for them to get a home loan. A number of private investment firms are lending to home buyers whose credit scores do not meet the standards of banks, accordng to the Wall Street Journal . The firms are also more willing to accept alternative forms of documentation as proof of income. The WSJ report comes only a day after a paper published by Kevin Lansing, an economist at the Federal Reserve Bank of San Francisco, who argues that runaway subprime lending was one of several “red flags” policymakers might have heeded in advance of the financial crisis. Buyers with questionable credit, and the financial institutions that issued them mortgages, have received a lion’s share of blame for the financial crisis, which was presaged by widespread defaults on subprime mortgages and a collapse in mortgage-backed securities. According to the WSJ , the firms draw a distinction between what they’re doing now and what took place during the run-up to the subprime crisis. They’re requiring higher down payments than banks would, and seem to believe they’re lending to borrowers who pose less risk than those who defaulted in large numbers a few years ago. In catering to borrowers with imperfect credit, the firms’ behavior is reminiscent of that of Ally Financial, which has been deliberately courting used car buyers with subprime loans despite concerns about risk. Last week, the WSJ reported that the federal government will likely stop backing mortgage loans above a certain size in October, meaning that come fall, there may be more homeowners seeking “jumbo loans” — in most cases, a loan above $417,000 — from private firms. Currently the government guarantees loans up to $729,750, but in October that figure is expected to come down to $625,500 in major markets like New York and Los Angeles, and as low as $271,050 elsewhere. The WSJ reports that there are at least two firms making jumbo loans to borrowers with questionable credit. One of them is New Penn Financial, a subsidiary of the mortgage company Shellpoint Partners. In a recent item about Shellpoint and one of its founders, the financier Lewis Ranieri, the WSJ noted that one of the company’s goals is to to make mortgages accessible to borrowers whom banks would turn away. “Former traditional prime borrowers with good credit scores who could comfortably make mortgage payments are being precluded from home ownership due to banks’ rigid criteria,” Ranieri then told the WSJ .

Read the full article →

Jeff Madrick: Impact of Job Numbers Goes Far Beyond the Jobless

July 12, 2011

Cross-posted from New Deal 2.0 . A New York Times article on Sunday by the fine journalist Catherine Rampell suggested that a reason the jobs crisis in America (my phrase) is not getting sufficient attention is that the unemployment rate, even if a very high 9.2 percent, still means that nearly 91 percent are employed. But we need to take a moment to clarify what high unemployment really means, and how broad its implications are. It is an indicator of overall economic weakness, not merely a number about those without jobs. And as such, it suggests that much is seriously wrong. It does not mean that 14 million are hurting people and the other 125 million are not. First of all, we of course know that millions are looking for jobs and have given up or have taken part-time jobs when they want full-time jobs. That adds another 7 or 8 percent to the unemployed or underemployed. We are now are getting to the point where one out of six workers or so is having employment disappointments. We also know many have been unemployed for a very long time — a record number, in fact. Second, these people have relatives and friends who increasingly realize they may also get the axe.Their families, not only themselves, suffer. Third, when you lose a job you now usually lose your health coverage — or have to pay up big time to retain it. That adds to the misery. In fact, far more people than 9.2 percent are upset by the high unemployment rate. About a quarter say in surveys it is our number one problem. But high unemployment also implies little or no wage growth for most employees. There are two theories about this. One is the classical theory that when labor markets are loose, there is more supply and the price will not rise readily — that is, the wage. The other is a little more Marxian in orientation. When people are losing their jobs, they get scared — and they don’t ask for a raise, they work more hours if asked, and on. Since mid-2009, when the recovery technically began, there has been almost no increase in wages and salaries. But profits have soared by hundreds of billions of dollars. That’s almost never been the case before. Indeed, the relationship between job creation and GDP growth seems to have changed some time ago. Many people, including Nobel laureate Michael Spence, hardly known as a progressive economist, worry that something is deeply wrong — and a lot of it may be about globalization. But when you consider that salaries and wages have risen slowly, stagnated, or fallen for almost all workers except those at the top for forty years, the American economic condition gets pretty frightening. I think the unemployment rate suggests there is growing malaise in the nation. More and more people are pessimistic. Are Americans giving up on the future? And yet both political parties talk far more about budget deficits than jobs. Obama has fallen into one of the great political traps of all time. On average, the media follow meekly behind. Yet Americans have long fallen for the deficit scare, back in the 1930s and even before that. That is an issue worthy of more discussion. I wrote a few weeks ago on New Deal 2.0 that Obama should sound the jobs alarm. Leadership matters in America. That is the problem. Right now, we don’t have it. Leaders have to tell Americans the economy is weak and the deficit is necessary right now. But in sum, a high unemployment rate does not merely mean that 14 million Americans, and they alone, are suffering. It suggests far broader pain and suffering. And disappointment may turn to anger before we know it. The Tea Party is the first manifestation of this. What’s next?

Read the full article →

Foreclosure Notices Being Issued Via Facebook

July 12, 2011

The most distressing content most of us have ever seen on Facebook falls within the realm of the overshare: your boss’s Vegas stag party pics, or your new boyfriend’s status change from single to “it’s complicated.” But there’s a trend toward much more distressing messages being delivered via the social network: foreclosure notices.

Read the full article →

Starbucks Wins Dismissal Of Worker Tips Lawsuit

July 11, 2011

NEW YORK (Jonathan Stempel) – Starbucks Corp on Monday won dismissal of a lawsuit by former assistant store managers in New York who accused the world’s largest coffee chain of cheating them out of customer tips. U.S. District Judge Laura Taylor Swain in Manhattan said the plaintiffs failed to show that they had a right to share in money left in the plexiglass cube containers, known as tip boxes, that Starbucks places beside cash registers. She also said the plaintiffs did not support their claim that Seattle-based Starbucks coerced or else required them to put tips that customers left them personally into the boxes. According to the opinion, Starbucks’ written policy on tips lets baristas and shift supervisors, who are typically part-time hourly workers, handle and receive tip box proceeds. In contrast, store managers and assistant store managers, who are typically salaried, full-time workers receiving other benefits such as holiday and sick pay and life insurance, do not handle tips. The policy is silent about individual tips. Adam Klein, a lawyer for the workers, did not immediately return a request for comment. Starbucks spokesman Alan Hilowitz had no immediate comment. The 2008 lawsuit was brought by five former assistant store managers who worked in Starbucks stores in New York City or Long Island and sought class-action status. They said Starbucks violated state labor law by denying them tips, given that they performed similar duties to eligible workers, and forcing them to contribute to tip pools. But Swain said the “plain language” of state labor law does not grant workers any right to share in such pools. “Plaintiffs’ claims that Starbucks improperly retained gratuities that plaintiffs were entitled to receive fail as a matter of law,” she wrote. The case is Winans et al v. Starbucks Corp, U.S. District Court, Southern District of New York, No. 08-03734. (Additional reporting by Lisa Baertlein in Los Angeles. Editing by Robert MacMillan) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Robert F. Brands: Defeating Devil’s Advocates to Become an Innovation Champion

July 11, 2011

In an organization, it’s human nature to resist change and to stick with the status quo that’s often more comfortable and safe. Some of your teammates in your company may be devil’s advocates who claim they want what’s best for the business while they oppose initiatives for Innovation. As a leader and innovator-in-chief of your company, it is critical to drive the culture of innovation throughout the organization even in the face of opposition. To defeat devil’s advocates, first you must examine why innovation efforts fail. A major reason is tied to an organization’s culture and its people. In a BusinessWeek survey of top-ranked companies in innovation including Google, Apple, 3M, Toyota and Microsoft, the companies attributed their success to the avoidance of certain culture-related issues. These issues included Innovation that was only “lip service” — all talk and no support. Having isolated initiatives instead of an ongoing culture of innovation was a deterrent. Fragmented support within the company was certainly an Innovation killer, as well as resources concentrated by certain innovation blocs. So how does one defeat the devil’s advocates to become a true innovation champion for change? I asked Nic Hunt, Director of Innovation for an international manufacturing corporation, who takes a three-step approach. 1. Define the desired culture . What does innovation mean for your company? Quantify your goals, in terms of sales numbers and time frame, which will identify and justify the resources needed to achieve the goal. Identify who will be your key players from all departments within your organization. 2. Establish the foundation. Create an identity or brand for innovation in terms of something the business engages with, that becomes the overarching theme for programs and initiatives created over time. Then establish the framework necessary to achieve Innovation, such as quarterly idea reviews, monthly development meetings, brainstorming sessions, off-site team activities or recognition programs. Build a calendar and stick to it so these initiatives are taken seriously and do not fall off the map. 3. Engineer sustainability . Develop a system that brings the innovation program to life such as awards, patent recognition badges and innovator lunches. Share success stories of great examples of teamwork that led to superior outcomes. Create regular activities that help build a sense of purpose and spread excitement of the new innovation program. Building morale sets the stage for organization members to want to actively participate and have their voices heard. A successful innovation strategy is multi-faceted and involves many methods, but leads to big pay-off in the end. For the full guide on achieving innovation, see ” Robert’s Rules of Innovation: A 10-Step Program for Corporate Survival”.

Read the full article →

Foxes Guarding The Henhouse? Auditors Criticize Self-Regulation Of Hedge Funds

July 11, 2011

Allowing the hedge fund and private equity fund industry to regulate itself might not be very effective, according to a new Government Accountability Office audit released Monday . Since the Securities and Exchange Commission lacks adequate resources to police the sector, the GAO was tasked under the Dodd-Frank Act with determining the feasibility of forming a self-regulatory organization to provide primary oversight of private fund advisers. Though such an SRO could supplement oversight, it presents challenges and trade-offs, according to the report. By “fragmenting regulation between advisers that advise private funds and those that do not, a private fund adviser SRO could lead to regulatory gaps, duplication and inconsistencies,” concluded the GAO. Some of the disadvantages of a private fund adviser SRO include its potential to (1) increase the overall cost of regulation by adding another layer of oversight; (2) create conflicts of interest, in part because of the possibility for self-regulation to favor the interests of the industry over the interests of investors and the public; and (3) limit transparency and accountability, as the SRO would be accountable primarily to its members rather than to Congress or the public. Treasury Deputy Secretary Neal Wolin offered a vigorous defense of Dodd-Frank in Politico, warning that to carry out the reforms effectively, “we need to make sure regulators have the resources they need to do their jobs.” Warren Heads Back Into The Lion’s Den Elizabeth Warren, the presidential adviser who temporarily heads the Consumer Financial Protection Bureau, heads back to the lion’s den on Thursday — to testify before the House Oversight Committee. At the close of her last appearance before the committee, Rep. Patrick McHenry (R-N.C.) accused her of lying during a YouTube-worthy exchange about how much time she would be testifying. As iWatchNews.com notes, the hearing to be led by Chairman Darrell Issa (R-Calif.) is ominously titled, “”Consumer Financial Protection Efforts: Answers Needed.” Elsewhere in the world of financial regulatory reform, Monday is the deadline for public comments on a proposal to set margin and capital requirements for swap dealers and traders, and on an SEC proposal to raise the threshold at which investment advisers can charge a performance fee. ‘Fracking’ Wastewater Ruins National Forest Wastewater from natural gas hydrofracturing — known as “fracking” — decimated a national forest in West Virginia, according to a new study by a U.S. Forest Service researcher. The fracking fluids killed more than half of the trees and caused radical changes in soil chemistry in a quarter-acre section of the Fernow Experimental Forest in the Monongahela National Forest, reported Public Employees for Environmental Responsibility . The study found the following effects of the application of 75,000 gallons of fracking fluids over a two-day period in June 2008: • Within two days all ground plants were dead; • Within 10 days, leaves of trees began to turn brown. Within two years more than half of the approximately 150 trees were dead; and • “Surface soil concentrations of sodium and chloride increased 50-fold as a result of the land application of hydrofracturing fluids…” These elevated levels eventually declined as chemical leached off-site. The exact chemical composition of these fluids is not known because the chemical formula is classified as confidential proprietary information. SEC Slow to Police Problems at U.S.-Listed Chinese Companies After the SEC promised to overhaul and beef up its enforcement in the wake of the Bernie Madoff scandal, the agency been caught flat-footed with mounting problems at U.S.-listed Chinese companies. Since March, more than two dozen companies have announced auditor resignations or accounting problems, reported Reuters . Yet the SEC has been slow to respond, say critics, taking too long to tighten oversight of U.S. shell companies acquired by Chinese firms through “reverse mergers,” which allow the companies to avoid initial public offerings. Part of the problem is that such mergers fall under state law. This week, SEC officials are in China trying to get Chinese auditors access to inspect such companies. How Big Pharma Cornered Market On Asthma Inhalers Today’s must-read: how pharmaceutical companies took advantage of the 1987 ban on the use of ozone-depleting chlorofluorocarbons to corner the market on CFC-free asthma inhalers — squeezing out competitors and raising prices. Mother Jones’ Nick Bauman reports: Many of the patents for the new inhalers won’t expire for another six years, so there likely won’t be any generics until then, unless the patents are challenged in court. The switch to the new inhalers will cost American consumers, insurance companies, and the government some $8 billion by 2017, according to FDA estimates. That’s money in the drug companies’ pockets. In 2007, a top market-research firm alerted investors that the US inhaler market “will soon change from low-value to significant.” Sure enough, at nearly $1 billion a year, sales of the market-leading inhaler, ProAir, now rival Viagra’s. The FDIC vs. Forbes After Forbes published a tough piece on the Federal Deposition Insurance Corporation’s outgoing director, Sheila Bair, the agency’s counsel penned a sharp retort, calling the editorial “more personal attack than commentary.” That of course prompted editorial co-author Vern McKinley to write his own reply to the reply. It’s not exactly as scintillating as the volleys between Nadal and Djokovic at Wimbledon, but here’s the back and forth . Meanwhile, Bair will have plenty of space to vent in her upcoming book for the Free Press. In a proposal obtained by the New York Times , she wrote: “I will share perspectives on the problems of regulatory capture and the continuing reluctance of bank regulators to fully acknowledge current problems in the financial sector, which are substantial.” The Goat Watching Over The Lettuce Patch A 14-year-old program in Puerto Rico that allows companies to regulate themselves on workplace health and safety issues may not be adequately protecting the workers, reported the Centro de Periodismo Investigativo. Since 1997, the program has resulted in only two findings of a serious nature — one involved a non-work-related death in a parking lot of a company and a second incident, which was resolved outside of court and is confidential. CPI reports : Think it sounds too good to be true? Well, maybe that is precisely the problem with the Voluntary Protection Programs (VPP) – that it contradicts its own definition because it leaves in the hands of employers the establishment of health and safety parameters, with the supposed participation of the workers, and far from the eye of the state’s regulatory agencies. All of this in exchange for less inspections and exemption from fines in the majority of cases.

Read the full article →

Paul Szep: The Daily Szep — Sen. Schumer, Wall Street Cheerleader

July 11, 2011
Read the full article →

Spanish Mortgage Defaulters Face Debt Nightmare

July 10, 2011

ALCALA DE HENARES, Spain — Inma Rodriguez lost her job, and now that she’s defaulted on her mortgage, she’s about to lose her home. But the nightmare doesn’t end there: Once creditors kick her out, she’ll still need to pay back the money she borrowed to buy her house. It’s a mortgage anomaly seen in much of Europe, but especially acute these days in Spain, a nation grappling with an economic crisis triggered by the collapse of a real estate bubble. Since the 2008 property crash, more than 300,000 have been hit by the potential double-whammy of eviction and mounds of mortgage debt. “It hurts so, so much,” says Rodriguez, choking up as she looks up at the ceiling of the home where she’s lived for 30 years and raised two children. Under the terms of her contract, Rodriguez will probably have to pay almost half of her euro200,000-plus ($290,000) bank debt, plus court costs and penalties after she leaves – in stark contrast to the U.S., where defaulters can return the keys to the bank and walk away from their debt. Defaulters are a small minority in Spain – nearly 98 percent of mortgage holders are up to date on payments. But their plight is generating a wave of solidarity as unemployment soars to record highs: When an eviction appears imminent, demonstrators often gather by the hundreds outside the property to try to block it. In the rallies, protesters form a human cushion and physically prevent court clerks and bank officials with a locksmith in tow from ejecting residents. The association behind the demonstrations has succeeded about 50 times since 2009, although ultimately it just delays the inevitable. Last week, the government passed a decree that seeks to address the plight of evicted debtors. It protects more of their wages from being claimed by banks, and changes the way such people’s post-foreclosure debt is calculated, to try to trim it. If the bank manages to sell a foreclosed home, that amount is struck off the remaining debt. But the norm these days is that the property is put up for auction and nobody bids. That has meant the bank then takes over the house for just half its originally assessed value, and wipes the amount off the remaining debt – leaving the borrower still owing a bundle. The legislation passed last week raises the proportion the bank has to effectively pay in the event of non-sale to 60 percent. The Platform for Mortgage Victims – the association staging the doorstep rallies – wants Spain to usher in U.S.-style mortgage legislation. But the Spanish Banking Association says that would wreck Spain’s low interest rate mortgage system: Even now, as loan-shy banks raise rates, they can be below 3 percent, with repayment periods of as much as 40 years and no mandatory mortgage default insurance. The result, it says, would be banks granting fewer, smaller and more costly loans that are repayable in a shorter time, meaning the nearly 98 percent of mortgage-holders who do make their payments on time would suffer. “The good payers would be the ones to be hurt,” it said. But Rodriguez, a 56-year-old unemployed cleaning lady, said she fell victim to a rapacious system eager to lend money. She says she can barely read or write and gets confused in the thick gumbo of her financial woes, shared with her estranged husband. Rodriguez and her husband Manuel, who worked as a painter and carpenter, took out a big second mortgage in 2006 to pay off debts, remodel their 3-bedroom apartment in this town outside Madrid and buy furniture and a new car. “I did not even know what I was signing,” Rodriguez says in a living room with empty shelves and a broken cuckoo clock, as three small Yorkshire terrier yapped at her heels. Six months after taking out the mortgage, Rodriguez and her husband separated. Since then, she complains, he hasn’t chipped in a dime toward the euro1,000-plus a month mortgage payment. She hasn’t worked in nearly two-and-a-half years, and even when she did she earned just euro500 a month. “They made it so easy. So easy,” Rodriguez said of the credit. “If we had not bought anything or done all this, we would not owe anything now.”

Read the full article →

Greece, Italy Center Of Focus At Emergency Meeting

July 10, 2011

European Council President Herman Van Rompuy has convened an emergency meeting of top EU officials for Monday morning to discuss efforts to assemble a second rescue package for Greece and growing concerns about market pressure on Italy, three EU sources told Reuters. European Central Bank President Jean-Claude Trichet, Eurogroup Chairman Jean-Claude Juncker, European Commission President Jose Manuel Barroso and the European commissioner for economic and monetary affairs, Olli Rehn, have been invited to the meeting in Brussels, the sources said. The talks are expected to focus on the stalled effort to secure the private sector’s involvement in a second bailout package for Greece, and mounting concerns about Italy after a heavy sell-off in Italian assets on Friday. The meeting will aim to forge a clearer consensus among policymakers before euro zone finance ministers meet later on Monday to discuss Greece and the results of stress tests on European banks, which are scheduled for release on July 15. Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Payday Lenders, Pawn Shops Benefit As America’s Economy Sputters

July 10, 2011

NEW YORK (AP) — As the jobless rate inches up and the economic recovery sputters, investors looking for a few good stocks may want to follow the money — or rather the TV, the beloved Fender guitar, the baubles from grandma, the wedding ring. Profits at pawn shop operator Ezcorp Inc. have jumped by an average 46 percent annually for five years. The stock has doubled from a year ago, to about $38. And the Wall Street pros who analyze the company think it will go higher yet. All seven of them are telling investors to buy the Austin, Texas, company. Is the economy still just in a soft patch? A hard patch? Will the market rise or drop? Even experts are just guessing. In investing, it’s often better to focus on what you can safely predict, even if that safety is found in companies that thrive on hard times. One good bet: The jobless aren’t likely to find work anytime soon. And companies profiting from their bad fortune will continue to do so. Among them: — Stock in payday lender Advance America Cash Advance Centers (AEA) has doubled from a year ago, to just under $8. Rival Cash America International Inc. (CSH) is up 64 percent, to $58. Such firms typically provide high interest loans — due on payday — to people who can’t borrow from traditional lenders. — Profits at Encore Capital Group, a debt collector that targets people with unpaid credit cards bills and other debts, rose nearly 50 percent last year. Encore has faced class action suits in several states, including California, over its collection practices. The Minnesota attorney general filed a suit in March. No matter. The stock (ECPG) is up 59 percent from a year ago, to more than $30. — Stock in Rent-A-Center (RCII), which leases televisions, couches, computers and more, is up 57 percent from a year ago to nearly $32. Nine of the 11 analysts covering the company say it will rise further and that investors should buy it. The idea of investing in companies catering to the hard-up might not be palatable to some people. But it is profitable. Mark Montagna, an analyst at Avondale Partners in Nashville, has developed what he calls “value retail” index of 11 companies — dollar stores, off-price shops and clothing and footwear chains favored by shoppers looking for deals. The index is up 149 percent since February 2009, which marked the lowest month-end closing value for the S&P 500 during the recession. Desperation stocks continue to be lifted by a drumbeat of bad news. Consumer spending, adjusted for inflation, has fallen for two months in a row — the first back-to-back fall since November 2009. On Friday, the government reported the unemployment rate rose to 9.2 percent in June, sending stocks in tailspin. On top of that, one in seven Americans now live below the poverty line, a 17-year high. “It’s been a good year,” says John Coffey Jr., a Sterne Agee analyst, referring to the companies he follows, not the economy. Coffey created a stir late last month when he issued a report arguing shares of Ezcorp (EZPW), which also makes payday loans, were worth a third more than their price and urged investors to buy. The stock rose 7 percent in just a few hours. The next day a widely followed survey showed consumer confidence at a seven month low. “Here we are celebrating the second year of recovery and confidence is at levels consistent with a recession,” says David Rosenberg, an economist at money manager Gluskin Sheff. “The folks in the survey are probably not the same folks shopping at Tiffany’s.” (That company’s stock is also up nearly 50 percent since March, to about $82.) But they probably are shopping at Dollar General Corp. Stock in the discount retailer recently hit $34.13, up 50 percent from its IPO in late 2009. And it may be worth about a third more, at least according Avondale’s Montagna. “People are broke. They’re all chasing value. It’s a seismic shift in mindset,” he says. Some experts think these down-and-out stocks are just as likely to fall now instead of rise. It’s not that they think the recovery will turn brisk and people will get jobs and shop elsewhere. It’s that things could get worse — making customers too poor to borrow or buy even from these outfits. Rent-A-Center, the furniture store, is already suffering. Some of its core low-income shoppers have seen money they would have spent leasing a couch or cocktail table eaten up by rising food and fuel bills. But not to despair. According to Nick Mitchell, an analyst at Northcoast Research, wealthier customers, say those making $45,000, are feeling so strapped lately that they’re starting to rent furniture, too. Montagna, the Dollar General bull, says he’s seeing people earning $70,000 or more at that chain, too. Even he shops there now. “If I’m driving past one, I stop in,” he says, adding triumphantly, “I just bought toothpaste — Crest — two tubes for $4.”

Read the full article →

10 Artistic Jobs With Bright Futures

July 9, 2011

With the country in the middle of a jobs crisis, finding any former of employment is tough, let alone jobs in the arts. It turns out, however, that the future of America’s creative-types might be far less bleak than it seems at present moment, according to a report by the National Endowment for the Arts , using data from the Bureau of Labor Statistics . Over the next seven years, job growth in the arts will exceed job growth as a whole, the report states. In fact, according to the report, artistic careers for painters, architects and photographers are expected to increase by 11 percent by 2018, compared to the projected 10 percent total increase in the American labor force. Due to long-term structural changes, there will be approximately 2,196,100 people working in artist occupations in 2018 compared to 1,977,800 in 2008, the most recent year with data available, according to the report. Certain arts industries are expected to see especially significant jobs growth. Jobs associated with museums, such as curators, archivists and technicians, are expected to rise 20 percent, or “much faster than average employment growth.” According to the Bureau of Labor Statistics, the public’s continued interest in arts, sciences, and history, when coupled with growing amounts of content and material to manage, will create demand for such jobs. Still, finding a viable career as an artist remains a challenging pursuit. As pointed out by The Atlantic , people with educations in the humanities are among the lowest earners, and the expected job growth may be in part due to the fact that artists will often work for less — the median annual wages of archivists in May 2008 was $45,020, for example. Likewise, expect competition to remain high in nearly all artistic fields, with landscape architects, librarians and floral designers the only exceptions. Radio and TV announcers will have an especially hard time, as competition is expected to remain high, while jobs in those industries are projected to decrease. Below are the ten art jobs expecting the the largest increase in job growth by 2018:

Read the full article →

Federal Prosecutors Take Softer Approach To Corporate Crime

July 8, 2011

As the financial storm brewed in the summer of 2008 and institutions feared for their survival, a bit of good news bubbled through large banks and the law firms that defend them.

Read the full article →

JPMorgan Close To Overtaking BofA As Biggest U.S. Bank

July 7, 2011

NEW YORK (David Henry) – JPMorgan Chase & Co is close to vaulting past Bank of America Corp to become the biggest bank in the United States, but it will likely get there in an odd way — by shrinking less than its rival. Both JPMorgan Chase and Bank of America are getting smaller as they shake off the excesses of the years leading up to the financial crisis. If JPMorgan becomes the biggest, chief executive Jamie Dimon could see the validation of his cautious management before and during the crisis. Bank of America’s drop to second would illustrate how former Chief Executive Ken Lewis saddled the bank with bad acquisitions that are hampering current CEO Brian Moynihan. But bigger might not be better. Being the largest does not necessarily translate to higher profitability, or a higher market value. Global banking regulators are imposing higher capital requirements on the largest banks and threatening even higher capital charges if they grow. “Big is more a burden than it is a bragging right,” said Gary Townsend, chief executive of asset manager Hill-Townsend Capital, a Chevy Chase, Maryland-based money manager that specializes in financial stocks and owns shares of both banks. That is a switch from the years when Bank of America was buying up banks to cater to the American appetite for more and more borrowing, said Ray Soifer, a long-time bank analyst and now industry consultant at Soifer Consultant in Green Valley, Arizona. “Bigger was better and banks were happy to be at the top,” said Soifer. JPMorgan has been gaining ground on Bank of America for three straight quarters. At the end of March, JPMorgan’s $2.20 trillion of assets were just 3.4 percent short of Bank of America’s $2.27 trillion. JPMorgan already is the most valuable bank in the stock market, with its equity worth nearly 50 percent more than Bank of America’s. Analysts differ as to how soon the switch could happen. Deutsche Bank’s Matt O’Connor sees JPMorgan becoming the largest by year end. FBR Capital Markets’ Paul Miller says it will be the next 12 to 18 months. But however long it takes, analysts agree neither bank is going to be stretching. “It is really going to be who shrinks the least,” said Gerard Cassidy, an analyst at RBC Capital Markets. Even if JPMorgan becomes the largest U.S. bank by assets, it would not be the biggest in the world. The bank is about $600 billion short of that title and there are six other banks between it and the biggest. That honor at last count went to BNP Paribas SA. (For a list of the biggest banks in the world, please double click: r.reuters.com/zyq52s ) JPMorgan spokesman Joseph Evangelisti declined to comment. COUNTRYWIDE A BIG MISTAKE The trend down in the U.S. might not follow a straight line. Banks sometimes temporarily pump up balance sheets to manage their interest rate risk, said Soifer. And there may be lending upturns along the way in borrowing by businesses, as just happened. Federal Reserve data show the combined assets of 25 large U.S. banks grew by one-half of one percent in the second quarter, largely because of more lending to companies. But in general, analysts said, banks are no more likely to grow now than their customers are to try to borrow their way to happiness on the strength of higher home prices. Bank of America and JPMorgan have particular reasons to shrink. To start, they have portfolios of bad assets acquired just before or during the financial crisis. JPMorgan Chase still has more than $80 billion of low-credit quality mortgage and credit card loans, largely acquired when it took over failed lender Washington Mutual in 2008. As of March 31, Bank of America had more than $100 billion of loans in runoff, mainly in a shrinking portfolio known as the legacy asset servicing division formed in January. Many of the assets are mortgages or home equity loans acquired from Countrywide Financial, which it bought in 2008. Both banks are likely to let those loans mature without making new ones to replace them, a process known as “running off” assets. The Countrywide acquisition was a particularly big mistake for Bank of America, FBR’s Miller said. The deal has already cost the bank more than $20 billion of its capital, he said. Some of that money is going out the door in the bank’s recent $8.5 billion settlement of warranty claims by more than 22 institutional investors over allegedly faulty mortgage-backed securities Countrywide sold. Bank of America is selling assets and even closing some bank branches as it tries to strengthen its balance sheet by getting smaller. The bank’s goal is “to balance the appropriate amount of assets and risk,” said Jerry Dubrowski, a Bank of America spokesman. “Having the largest amount of assets does not make you the best financial services provider and, right now, we’re focused on that.” (Additional reporting by Joe Rauch in Charlotte, North Carolina; Editing by Andre Grenon) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

S&P Raises California Credit Rating To Stable

July 7, 2011

NEW YORK (Edith Honan) – Standard & Poor’s raised its credit outlook on California to stable on Thursday in one of the first significant pieces of good news for state and local governments as they work their way out of the Great Recession. The outlook was revised to stable from negative on what S&P said was the better balance between the money coming and cash being spent on state operations. The S&P action comes on the heels of a $129.5 billion budget agreement for fiscal 2012 that closed a gap projected to reach $26.6 billion through the end of fiscal 2012. “The state’s economy does seem to show some signs of life and I think the deficit that was projected six months ago ended up being a little smaller than most of us anticipated,” said Kenneth Naehu, a managing director at Bel Air Investment Advisors, a California firm that oversees $6 billion in assets. Like California, state and local governments suffered terribly during the financial crisis as tax revenues crashed and unemployment soared. That caused havoc throughout the $2.9 trillion municipal bond market where investors dumped their holdings on growing fears about the stability of municipal finances. S&P said its change for California covers the “two-year outlook horizon. “We believe the enacted budget makes a lot of progress in improving the state’s fiscal structure and should reduce the risk to its liquidity,” S&P said in the release. “The negative outlook had been linked to the possibility of a recurring cash deficiency that we now believe the enactment of the fiscal 2012 budget is likely to mitigate for the most part.” The rating agency also said California’s enacted budget “represents a bit of a missed opportunity” because it did not address the “backlog of budget obligation accumulated during the past decade.” S&P affirmed its A-minus long-term and underlying ratings on California’s general obligation debt, as well as affirmed the A-minus and BBB-plus long-term and underlying ratings on the state’s Proposition 1A and appropriation-backed debt. (Editing by Andrew Hay) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Almost Half Of Americans Have Dealt With Bad Bosses

July 7, 2011

Having a dysfunctional boss can ruin any job. And unfortunately for employees across the country, having a bad boss turns out to be a pretty common experience. A recent poll by OfficeTeam , a leading staffing agency with 315 locations across the country, finds that 46 percent of employees reported having worked for an unreasonable boss. Employees often feel trapped by bad managers, too: 59 percent reported having kept the job despite having an unreasonable superior. Still, there’s a lot of American workers who know a bad working situation when they see one. Of those polled, 27 percent said they left their job due to a bad boss immediately after lining up a new job, while 11 percent were bold enough to quit outright without the safety net of another position. . As the executive director of OfficeTeam says: “Friction between supervisors and employees can stem from differing work styles. It’s not possible to control your boss’s actions, but you can change how you respond to them.” If that simply doesn’t work, Steve Tobak of BNET, who has written extensively on problem bosses, offers some other strategies . He writes that employees can put in for transfers, try to regroup with a vacation or fight back by either sabotage or appealing to a higher authority. However, he says taking your boss head-on can be risky and more often than not, it’s best to just get over it . “When you behave like a victim, wallow in self pity, or act like you’re entitled to something better, not only does it do you no good, but you may end up getting yourself fired or doing real harm to your career,” he writes. Below are the poll results provided by OfficeTeam .

Read the full article →

Companies Moving Jobs To U.S. From China To Avoid Inflation

June 28, 2011

MILWAUKEE (Scott Malone) – On a recent morning at Master Lock’s 90-year-old factory in Milwaukee, a cluster of machinery was whirring, every 2 seconds spitting out one of the combination locks used by American high schoolers as the company readied for the back-to-school rush. The seven-day-a-week, three-shift-per-day whirlwind of activity marked a change from two years ago, when the machine normally ran for just a few hours a day because the unit of Fortune Brands Inc was ordering more padlocks from suppliers in China instead of making them. Why move production from the world’s low-cost workshop back to a unionized U.S. factory where wages are six times higher than in China? Efficiency: The machine in Milwaukee is about 30 times as fast as the Chinese factories the company had been buying from, more than making up for the difference in wages. “I can manufacture combination locks in Milwaukee for less of a cost than I can in China,” said Bob Rice, a senior vice president at the largest U.S. padlock manufacturer. The factory has added about 78 workers over the past two years, boosting its workforce to 440. That is a small bit of good news for the long-suffering U.S. manufacturing sector, which shed about 2 million jobs, or some 14.6 percent of its employees, in the last recession. It has not recovered since and now employs 11.7 million people, down 34,000 from the recession’s official end in June 2009. Master Lock is not alone. General Electric Co and Boeing Co are also part of the small group of U.S. companies that are boosting production at their U.S. factories. A variety of factors are driving the shift, including rising wages in parts of Asia, surging fuel prices and the complexity of transporting goods across the Pacific. (Reuters Insider show: “Made in USA” Making Comeback as U.S. Manufacturers Expand: link.reuters.com/nuf42s ) ECONOMIC IRONY “What you’re starting to see is the economics shifting more into the United States’ favor regarding sourcing from the United States versus sourcing from a low-cost country,” said Daniel Meckstroth, chief economist at the Manufacturers Alliance/MAPI, a Washington trade group. There is an element of irony here. The United States’ sluggish economic recovery, coming at a time when emerging economies including China and India are enjoying brisk growth, is helping its manufacturers to close the cost gap on their foreign rivals. China’s inflation rate hit 5.5 percent in May, well ahead of the United States’ 3.6 percent headline rate. With Chinese wages rising at 15 to 20 percent per year, the labor costs of manufacturing in the two countries could pull even by 2015, a Boston Consulting Group study predicted in May. Rising oil prices, which drive up the cost of shipping goods by boat or plane, are also eating in to China’s edge. Automation also helps tilt the balance toward the United States. Bruce Crass, the Master Lock plant’s general manager, estimated that his plant — where the average worker oversees the operation of six high-speed machines — produces 24,000 locks a day with about one-sixth the number of workers needed by the company’s Chinese suppliers and rivals. Master Lock today makes about 55 percent of its padlocks in North America — in Milwaukee and at a satellite location in Nogales, Mexico — with the rest made in China. That is down from a 50-50 split two years ago. To be sure, these companies are the exception in the U.S. economy, where businesses from Apple Inc to Nike Inc focus on design and marketing, leaving production to independent contractors. Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Jim Randel: How Debt Collectors Play Unfair

June 27, 2011

Like it or not, your credit score is hugely important. One expert told me that even small differentials in credit scores can — over time — create large differences in net worth. Since a credit score will affect the cost at which you can borrow money (the interest rate), over a period of years the difference in interest rate will have a major impact on your disposable income and thus your assets. It is well known that the #1 way to maintain a good credit score is to pay your bills on time. Credit experts also know that your score is heavily weighted toward RECENT payment history — a debt or late payment that is a few years old, for example, affects your credit score much less than any such event within the preceding six months. But, here is where you can get tripped up (unfairly so): Let’s say that on January 1, 2010 John Doe owed ABC Bank $1,000 and made a decision that he could not pay the debt. For about a year, that non-payment will have a big impact on John Doe’s credit score. Now it is January 1, 2011 and that debt is a year old. ABC Bank sells the debt to DEF Collections for $.10 on the dollar. Now here is the RUB: DEF Collections reports the debt to the big three credit reporting agencies — such that it appears as a NEW debt/non-payment. DEF Collections should not be doing that but the laws are not clear enough and enforcement is very spotty. The upshot to John Doe is a new CURRENT hit on his credit report and thus a big SMACK on his credit score. If John Doe is aware of what is happening, he can make a claim to the credit reporting agencies and they should remove the DEF claim. But, there is most often a big gap between what happens, and what consumers know or do. So, if you are being chased by a collection agency, check your credit report to ascertain whether any old debts are showing as NEW debts and thereby unfairly impacting your credit score. Jim Randel is the founder of Rand Media Co. and the primary author of The Skinny On Book series. His latest publication titled Street Smarts teaches 125 critical life skills that are not traditionally taught at universities.

Read the full article →

Interest Rates Must Rise Globally To Curb Inflation: International Report

June 26, 2011

BASEL, Switzerland (Sakari Suoninen) – Global interest rates must rise to avoid high inflation becoming entrenched, the Bank for International Settlements said on Sunday. It also warned that delaying deficit cuts could risk intensifying the sovereign debt crisis and have grave consequences were investors to lose confidence in a major economy such as the United States. “With the arrival of sharper price increases for food, energy and other commodities, inflation has become a global concern,” the BIS said in its annual report. “Tighter global monetary policy is needed in order to contain inflation pressures and ward off financial stability risks.” Of the four major central banks, the European Central Bank is the only one which has raised rates since the intensification of the financial crisis in late 2008. Central banks may have to raise rates at a faster pace than previously, BIS said, adding that as long as global growth is robust, food and commodity prices may remain high or even rise further. The Group of 20 economic powers agreed in Paris on Thursday to tackle high food prices by boosting farm output, food market transparency and policy coordination, after world food prices hit a record high earlier this year. The deal is another sign that global policymakers are reaching beyond traditional economic policy tools to sustain global growth, which has shown signs of slowdown in recent months. BIS said inflation expectations suggest central banks’ long-term credibility has so far survived the inflation surge, but added that rates have to rise to ensure this anchoring. “The great danger is that long-term inflation expectations will start to climb, and current price developments and policy stances are sending us in the wrong direction.” The annual report also said the Bank of England should think about tightening its policy in the face of high inflation. “In the United Kingdom, CPI inflation had exceeded the Bank of England’s 2 percent target since December 2009,” it said. “As yet, there has been no move by the Monetary Policy Committee, but one wonders how long its current policy can be sustained.” FISCAL TIGHTENING Turning to fiscal policies, the BIS said that a major economy being drawn into the debt crisis could have catastrophic consequences. “We should make no mistake here: the market turbulence surrounding the fiscal crises in Greece, Ireland and Portugal would pale beside the devastation that would follow a loss of investor confidence in the sovereign debt of a major economy,” it said. “The time for public and private consolidation is now.” It added that markets might not continue to view U.S. public debt as favorably as now were it to continue carrying heavy deficits. “The current ability of the United States to easily finance its deficit cannot be taken for granted. Past examples of a number of smaller economies in deficit suggest that market confidence can evaporate quickly, forcing sudden and costly adjustment.” Emerging countries should do their part to reduce global imbalances by easing exchange rate pegs, the BIS said, adding that China should let the yuan appreciate against the dollar. “The large costs of monetary instability mean that adjustment should principally work through more flexible nominal exchange rates,” the report said. “In the case of the United States and China, the costs of that adjustment would probably fall mostly on China.” The BIS also said that while extremely low interest rates help commercial banks, they can delay necessary action. “At the same time as ultra-low interest rates have given banks the breathing space to take the necessary actions, they have weakened incentives to pursue the clean-up,” the report said. “When banks are not forced to write down loans, they are actually provided with incentives to “evergreen”, i.e.. to roll over non-performing loans to firms that should have been bankrupt.” (Reporting by Sakari Suoninen) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Global Regulators Agree To Impose Extra Capital Charge On Biggest Banks

June 25, 2011

BASEL (Huw Jones) – Global banking regulators have agreed on a proposal to slap an extra capital charge on the world’s biggest banks to make them safer by 2019. The surcharge is part of a series of regulatory reforms launched in response to the financial crisis, which forced countries worldwide into costly bailouts of their banking sectors to prevent systemic collapses. The Group of Governors and Heads of Supervision (GHOS) said after a meeting in Basel on Saturday the proposal would be put out to public consultation next month. “The additional loss absorbency requirements are to be met with progressive common equity tier 1 capital requirement ranging from 1 percent to 2.5 percent, depending on a bank’s systemic importance,” the group said in a statement. An additional 1 percent surcharge would also be imposed if a bank becomes significantly bigger, pushing the total to 3.5 percent. The plans, which need approval from world leaders (G20) in November, would be phased in between January 1 2016 and end of 2018. The capital surcharge will come on top of the new 7 percent minimum core capital all banks across the world will have to hold under new Basel III rules being phased in over six years from 2013. However, many of the world’s biggest banks already hold core tier 1 capital ratios of 10 percent or more and therefore easily meet or exceed the top end of the surcharge band. The central bankers have opted for a smaller surcharge than forseen but, in return, the surcharge will have to be in the form of top quality capital — retained earnings or common equity. This marks a victory for hardline countries such as Britain and the United States but will disappoint some banks that have been hoping to use hybrid debt such as contingent capital (CoCos) to pad out the surcharge band. Dirk Jaeger, Managing Director for supervision matters at Germany’s banks association BdB said the decision was not much of a surprise: “But we regret that bank levies and CoCo bonds do not count for the additional capital buffer.” COCOS REVIEWED The proposal, which was due to be finalized by last November but faced opposition from banks and some countries, will apply initially to so-called globally systemically important banks (G-SIBs). “These measures will strengthen the resilience of G-SIBs and create strong incentives for them to reduce their systemic importance over time,” the statement said. The consultation paper in July will indicate how many banks face a capital surcharge but it is not clear yet if their names will be published. The number of banks affected is likely to change over time as lenders grow or shrink and the consultation will spell out how often a snapshot of the sector will be taken. Banks will face a surcharge according to an indicator that draws on five elements — size, interconnectedness, lack of substitutability, global (cross-jurisdictional) activity, and complexity. The group of central bankers and the Basel Committee it oversees said they will continue to review the use of contingent capital. The central bankers said they would support the use of contingent capital to meet higher national requirements than the global minimum surcharge. However, even then, there would have to be a high-trigger for converting the debt into equity to help absorb losses on a going concern basis, the central bankers said. (Additional reporting by Alexander Huebner in Germany; Editing by Toby Chopra) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Madoff Trustee Triples Size Of JPMorgan Lawsuit

June 25, 2011

NEW YORK (Jonathan Stempel and Jochelle Mendonca) – The trustee seeking money for Bernard Madoff’s victims is now demanding $19 billion in damages from JPMorgan Chase & Co, more than tripling what he hopes to recover from what had been the main bank for the now-imprisoned Ponzi schemer. The amended complaint by the trustee Irving Picard adds new charges and was filed three days after the second-largest U.S. bank agreed to pay $153.6 million to settle U.S. Securities and Exchange Commission fraud charges. Picard maintained that JPMorgan was “thoroughly complicit” in Madoff’s fraud and ignored red flags. In his original complaint, made public in February, he had sought $6.4 billion, including $5.4 billion of damages and $1 billion for fraudulent transfers and claims. “JPMorgan Chase chose to enable Madoff’s fraud, not just through the various ways it participated in its activity, but by helping to cover Madoff’s naked theft with the imprimatur of a globally recognized financial institution,” the 155-page amended complaint said. The higher damage request reflects “life-to-date damages,” or what the trustee considers the minimum losses over the entirety of Madoff’s Ponzi scheme. Picard is also seeking at least $500 million that JPMorgan made “off the backs of Madoff’s victims,” and more than $400 million of alleged fraudulent transfers. Tasha Pelio, a JPMorgan spokeswoman, repeated in an email the bank’s earlier statement that Picard’s lawsuit is meritless and distorts the facts and law. “JPMorgan did not know about or in any way become a party to the fraud orchestrated by Bernard Madoff,” she said. “At all times, JPMorgan complied fully with all laws and regulations governing bank accounts.” Picard has filed roughly 1,050 lawsuits seeking more than $100 billion for former investors at Bernard L. Madoff Investment Securities LLC. “BEFORE THEIR VERY EYES” The amended JPMorgan complaint adds new allegations that another financial services company around 1997 investigated nearly daily transfers of $1 million to $10 million between Madoff’s account there and his account at Chase. It said that company questioned Madoff’s employees about the suspicious back-and-forth transfers. Having failed to be satisfied about them, they closed Madoff’s account, it said. “JPMorgan Chase’s bankers literally watched the fraud unfold before their very eyes,” Deborah Renner, a lawyer representing Picard, said in a statement. Both are partners at the law firm Baker & Hostetler. The amended complaint also discusses Madoff’s longtime relationship with Sterling Equities, a private banking customer of JPMorgan founded by Fred Wilpon and Saul Katz, owners of the New York Mets baseball team. Picard has sued the Mets’ owners for $1 billion, prompting them to enter talks to sell part of the team to hedge fund manager David Einhorn for $200 million. [ID:nN26247232] The owners have denied knowing Madoff was committing fraud. In a regulatory filing last month, JPMorgan estimated that as of March 31 it might have to pay out as much as $4.5 billion more for litigation than it had set aside for that purpose. It also said it faced more than 10,000 legal proceedings. Tuesday’s SEC accord resolved charges that JPMorgan did not tell investors that a hedge fund helped shape — and then bet against — complex mortgage securities they bought. HSBC, BANK MEDICI, UNICREDIT ALSO SUED Picard’s case against JPMorgan is being overseen by U.S. District Judge Colleen McMahon. It is one of three high-profile Madoff lawsuits that have been moved to federal district court, where juries can hear cases, from bankruptcy court, where Picard originally sued. U.S. District Judge Jed Rakoff is reviewing some issues in Picard’s $9 billion case against HSBC Holdings Plc. Rakoff is also considering whether the trustee can invoke racketeering law in a $58.8 billion lawsuit against Italy’s UniCredit SpA, Austria’s Bank Medici AG and its founder Sonja Kohn, and other defendants. JPMorgan has until August 1 to respond to the amended complaint, Picard said. Madoff, 73, was arrested on December 11, 2008, and after pleading guilty is serving a 150-year prison sentence. JPMorgan shares fell 16 cents in after-hours trading, after closing Friday’s session down 58 cents at $39.49. The cases are Picard v. JPMorgan Chase & Co et al, U.S. Bankruptcy Court, Southern District of New York, No. 10-ap-04932; and Picard v. JPMorgan Chase & Co et al, U.S. District Court, Southern District of New York, No. 11-00913. (Reporting by Jonathan Stempel in New York and Jochelle Mendonca in Bangalore; editing by Andre Grenon, Gary Hill Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Stocks Fall On Concerns Over Greece

June 24, 2011

NEW YORK (Edward Krudy) – Stocks headed for three days of losses on Friday on worries about the Italian banking sector and Greece’s austerity plan, but the S&P 500 managed to hold its 200-day moving average in a sign of market strength. Italian banks UniCredit SpA (Milan:CRDI.MI – News) and Intesa Sanpaolo (Milan:ISP.MI – News) fell sharply on concerns about their capital positions alongside uncertainty about the euro-zone crisis. Trading in the banks’ shares was briefly suspended. Greece’s government faced an electorate vehemently opposed to austerity measures that must be passed in parliament next week to avert default. But progress is being made in persuading banks to take part in a second bailout. “They (politicians) may not believe that financial markets are as sensitive to their decisions as they actually are, and there is a worry that somewhere along the line, some political vote goes against the market,” said Nicholas Colas, chief market strategist of the ConvergEx Group in New York. The S&P 500 remained within striking distance of its 200-day moving average — a line that has been tested twice in recent trading and has so far acted as a springboard for stocks. The level was at 1,263.49. “Every time you test a resistance or support level, you make it weaker,” Colas said. “It’s almost like a piece of metal. Every time you hit it, it grows more fragile and that’s why people are really worried the third or fourth time.” The Dow Jones industrial average (DJI:^DJI – News) dropped 82.04 points, or 0.68 percent, to 11,967.96. The Standard & Poor’s 500 Index (^SPX – News) fell 10.82 points, or 0.84 percent, to 1,272.68. The Nasdaq Composite Index (Nasdaq:^IXIC – News) lost 26.51 points, or 0.99 percent, to 2,660.24. The KBW Banks Index (Philadelphia:^BKX – News) lost 0.8 percent and the S&P Financial Sector Index (^GSPF – News) shed 0.7 percent. On Thursday, the market welcomed Greece’s agreement to a five-year austerity plan. The euro declined against the dollar for a third straight session on worries Greece’s parliament might not pass austerity measures needed for the country to secure more bailout funds. In the latest economic data, new orders for long-lasting U.S. manufactured products, known as durable goods, increased 1.9 percent in May after dropping 2.7 percent in April as bookings for transportation equipment rebounded strongly. Oracle Corp (NasdaqGS:ORCL – News), off 3.9 percent at $31.21, was the biggest drag on both the S&P 500 and Nasdaq 100 indexes (Nasdaq:^NDX – News) a day after the world’s No. 3 software maker posted disappointing results, especially in hardware sales. Oracle’s results sparked concerns about a bigger slowdown in technology spending. Micron Technology Inc (NasdaqGS:MU – News) tumbled 13.8 percent to $7.27 after the memory chipmaker recorded results below expectations late Thursday. (Reporting by Edward Krudy; Editing by Jan Paschal) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Steve Mariotti: Subjective Versus Objective Costs: How the Labor Theory of Value Almost Destroyed the World

June 20, 2011

Over the past 200 years or so, many of the world’s conflicts have developed around a little-known debate in economic theory. The outcome of this argument has had an impact equal to that of a major war. As an educator, I find it one of the most important but difficult concepts to teach to students, but let me take a shot at explaining it to adults. The issue is valuation, what something is worth. The debate started in 1776 with the publication of Adam Smith’s landmark book The Wealth of Nations (it was a pivotal year on this side of the Atlantic as well!). In his text, Smith posed this question: Why are diamonds more valuable then water? His answer, synopsized, is that there is more labor involved in obtaining diamonds. In one of the most erroneous sentences ever written, Smith explained, “The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” This was not an accurate answer. It led directly to the Labor Theory of Value and the Exploitation Theory of Capitalism, which became the cornerstone of Marxism/Leninism. One could say that this one misstep in economic analysis led to the virtual imprisonment of over a billion people in the USSR and China and other nations, and brought the world close to nuclear destruction. What made this mistake so tragic was that Smith originally had it right: the price of diamonds is higher than that of water because of the difference in supply and demand. Smith wrote in 1763: “It was only on the account of the plenty of water that it is so cheap as to be got for the lifting and on account of the scarcity of diamonds that they are so dear.” (Quoted in Mark Skousen, The Making of Modern Economics , 2nd ed. (Armonk, NY: M. E. Sharpe, 2009), p. 175.) Nobody knows why Smith forgot this true principle of marginal utility when he wrote his magnum opus, The Wealth of Nations , 13 years later. The price of anything is determined by the intersection of the marginal supply and demand for it. From that idea comes the concept that prices are signals to both entrepreneurs and consumers about the relative value and availability of particular goods and services. Prices carry information that drives people’s behavior at the margin — guiding the “invisible hand” of the market to respond by increasing the amount supplied when there is an increase in price, and by a decrease in the amount demanded as prices rise. A price will be reached that balances the two forces, determined at the margin; this is “the market clearing price.” Example: Suppose a tornado hits a midwest city and disrupts the supply distribution of milk, creating a temporary shortage of milk — the price of milk soars. The local government, unaware of basic economics, puts controls on milk prices. Supplies shrink even further, because there was no signal (price rise) to entrepreneurs saying: “Bring milk quick!” If officials lift the price freeze, suppliers will respond, flooding the area with milk so that prices will soon go down dramatically, until the normal balance of supply and demand is restored. Understanding the role prices play in communicating value is based on an insight made by Carl Menger in 1871, that prices and values are determined on the margin; that is, the “last unit” of any product is the key building block of analysis. The contemporary economist Mark Skousen (whom I regard as the nation’s top economist today) writes: “Menger demonstrated that prices and costs are determined at the margin — by the marginal benefit-cost to buyers and sellers.” Much of the world took a dark road down the path of totalitarianism by the acceptance of Smith’s earlier error. The English economist David Ricardo had the brilliant insight of “comparative advantage,” creating the argument for international free trade, but he compounded Smith’s mistake and defended the Labor Theory of Value, arguing passionately that the value of something is determined by how much labor goes into making it. Ricardo had second thoughts about this, however, and repeatedly posed the question as to why bottles of wine increased in value over time. So, what gives something value? It was not until almost a century later after the publication of The Wealth of Nations that, working independently, three economists made what is called “the subjective value breakthrough.” Menger was the most clear: a product’s value was determined by the demand for it by consumers in the marketplace and its marginal supply. Hence, value could change moment by moment and was ultimately determined by consumers responding to the current supply. Both Jevon and Walrus also argued in favor of the subjective value theory of value. Together Menger, Jevons, and Walrus created the Marginalist Revolution of the 1870s and transformed political economy (as it was called back then) to the science of economics. This was a radical departure from the Labor Theory of Value, and it had important political implications. If value is subjective, then one person cannot tell another what the worth of something is. Ultimately, it gave an individual the right to voice opinions on what was of value, and these could change and no doubt would. People were free as consumers. This scenario became the basis for “voluntary trade.” When values are objective, on the other hand, it gives the government the right to tell its citizens what the monetary worth of goods and services are and, by extension, how the citizens should best spend their time and earn their livelihoods. This scenario became the basis for totalitarianism, both communism and fascism. Under communism, the Labor Theory of Value became a science of oppression. Until the collapse of the Soviet Union and its satellites, in 1989, most prices were determined by central authority, as they are now in North Korea. This fatal conceit — that government bureaucrats in an office can determine how goods and services should be priced and allocated — violates a basic human concept: every individual has unique knowledge of personal needs and wants and how those could best be satisfied. That was Nobel Prize economist Friedrich Hayek’s brilliant insight. This knowledge leads to the voluntary decisions that, collectively, drive the prices of goods and services. Without this economic base of subjective value, a government will become totalitarian. At one time or another, over a billion people in about three dozen countries have lived under a political system which, at its heart, was driven by the Labor Theory of Value. This concept of subjective value is often misunderstood at the pre-college level (and beyond!). Here is how I teach it to my junior- and high-school-level students. (Thanks to Les Charm for imparting this lesson at the SEE seminar at Babson college.) I hold up a picture (say, from a magazine) of something of value that would not be known to the students — like a house — and ask each to write down its worth. Typically, students list a wide range of estimates. This lesson brings home the fact that value is subjective, and that everyone has the right to an opinion. In addition, it is a great way to teach young people about ignoring fixed costs and focusing on the next marginal decision. This can have special implications for those children who are suffering from poor choices made in the past, and gives them a mental framework to begin again with a clean slate. Subjective value may be the hardest concept to teach to young people but is perhaps the most important, because of its implications for human freedom.

Read the full article →

Citi: Greek Situation Could Be ‘Tough To Constrain’ In Europe

June 20, 2011

ST PETERSBURG (Ekaterina Golubkova and Kiryl Sukhotski) – Greece’s debt crisis may be contagious and poses one of the biggest risks to global financial markets alongside Middle East uprisings, Citigroup’s Chief Risk Officer told Reuters. Greece, on the verge of a debt default following Portuguese and Irish bailouts, is being pressured by European finance ministers to introduce harsh austerity measures before they agree to 12 billion euros ($17 billion) in emergency loans. “In Europe, you have to think about whether there will be contagion beyond (Greece),” Brian Leach, told Reuters Insider Television in an interview on the sidelines of the International Economic Forum in St Petersburg. “I think it will be tough to constrain (the debt crisis) to Greece, (but) other countries have made remarkable progress,” he added. Another significant market risk comes from the Middle East and North Africa (MENA), Leach said. “The regime changes that are taking place (in MENA) are quite significant. Depending on where those regime changes take place you could imagine a very different world,” he said. Socio-political unrest, which spread across some Middle East and North African countries this year, has pushed up global commodity prices, with crude prices rising more than 22 percent since January. Leach sees no further threat from the issues that caused the 2008-09 financial crisis, but instead sees new problems emerging. “There will always be a new problem on the horizon… So as we all are trying to address whether this is MENA, whether it is the sovereign debt crisis in Europe, whether it is the domestic U.S. debt crisis (…), each of us has to adjust our books to adjust to the new horizons. I think the old ones have been addressed,” he said. Citi’s lending strategy was revised a couple years ago to adjust to changing markets and tougher regulation. Despite all these risks, Citi continues to lend and will not compromise its lending standards, Leach said. (Writing by Nastassia Astrasheuskaya, editing by John Bowker and David Cowell) Copyright 2011 Thomson Reuters. Click for Restrictions .

Read the full article →

Fred Wilson: Startup Visa Movement Gains Ground

June 16, 2011

Yesterday, Mike Bloomberg went to Washington and spoke at the Council on Foreign Relations on the topic of immigration reform. The text of the entire speech is here . I just read the whole thing and I’m encouraged and excited that the chorus for intelligent immigration reform has gotten louder. This quote was my favorite: we must stop telling foreign entrepreneurs to build their companies in other countries We have seen so many great entrepreneurs struggle with visa issues over the years that we were founding members of the startup visa movement . In his speech, Mike Bloomberg specifically called for passage of a startup visa provision: A foreign entrepreneur with backing from American investors should be given a temporary visa to start a company in America. If after two or three years, the business has successfully yielded new American jobs, the entrepreneur should be allowed to continue to run his or her business and receive permanent legal status. We are a nation of entrepreneurs because we are a nation of immigrants and in the 21st century, the global economy will revolve more than ever around entrepreneurs. Yes! But he didn’t stop there. The Mayor of our fine city also proposed the following reforms: – A green card stapled to a diploma: We are investing millions of dollars to educate these students at our leading universities, and then giving the economic dividends back to our competitors – for free. The two parties should be able to agree on a policy that allows any university graduate, with an advanced degree in an essential field, to obtain a green card — and a chance to help us grow our economy. We must allow these students to stay here and be part of our future or we will watch our future disappear with them. – More H1B visas: right now, the cap on H1-B visas and green cards is much too low, and caps on green cards are set by country. So Iceland gets the same number of visas as India. That may be fair to each country, but it’s not fair to American businesses. We should end these arbitrary limits and end the cap on the high-skill H1-B visas. Let the market decide. It’s basic free-market economics — and both parties ought to be able to get behind it. – immigration reform for agriculture and tourism: we must ensure that major industries, such as agriculture and tourism, that rely on those workers just starting up the economic ladder have access to foreign workers when they cannot fill the jobs with American workers. These employers want a legal work force, but our current system makes that extremely difficult. Farmers have to go through multiple levels of approvals to do basic hiring, and in Georgia, where they have cracked down on illegal farm-workers, farm owners are experiencing severe labor shortages. That’s driving up their costs and leaving crops un-harvested. At a time when food prices are rising, this is the last thing American consumers — and farmers — need. Do yourself a favor and read the entire speech . It’s not long. Mike lays out a sensible and intelligent way to reform immigration laws without getting into the contentious issues that have held back immigration reform for many years. And if you agree with the Mayor, do everyone a favor and call your elected officials in Washington and tell them you are also for intelligent immigration reform (as opposed to comprehensive immigration reform). I’ve done that and it has helped. Getting your voice into the chorus on intelligent immigration reform would be helpful too.

Read the full article →

Simon Johnson: The Big Banks Fight On

June 16, 2011

The bank lobbyists have a problem. Last week, they lost a major battle on Capitol Hill, when Congress was not persuaded to suspend implementation of the new cap on debit card fees. Despite the combined efforts of big and small banks, the proposal attracted only 54 votes of the 60 needed in the Senate.

Read the full article →

Eben Esterhuizen: Please, Stop Stimulating the Stock Market and Start Stimulating the Economy

June 15, 2011

I’m just going to get to the point right away. “Helicopter Ben” Bernanke’s quantitative easing campaign has been a massive failure. On the surface, it sounds like a great idea. Crank up the printing presses, and flood the financial system with cheap money. Fund managers realize that it’s unwise to fight the Fed’s bubble machine, and everyone rushes to buy stocks. Rising stock prices boost consumer sentiment, and the euphoria on Wall Street inspires Main Street to keep spending money we don’t have. Sadly, this is a flawed policy based on the misguided belief that a rising stock market will boost economic activity… Consider this: The S&P 500 index has rallied more than 90% from its March 2009 lows, one of the biggest rallies in stock market history. Now, if the stock market did in fact drive economic activity, you’d expect a picture of rainbows and unicorns. Instead, we’re faced with a situation where food stamp usage is up 57% since 2007, with 15 million jobs lost over the same period. It should come as no surprise that there’s very little evidence to suggest that stock market fluctuations have a significant wealth effect. Variations in the housing market, by contrast, have far more significant effects upon consumption . The bottom line: A rising and robust stock market is a byproduct of a healthy economy, not the source of it. By using quantitative easing to stimulate the stock market, the Fed has been treating the symptoms, not the causes–effectively putting the cart in front of the horse. Economic demand is stimulated by investing in infrastructure, education and entrepreneurship. And perhaps more importantly, the probability of economic growth is maximized by removing the political barriers that prevent decisive action during times of crisis, as former Treasury Secretary Larry Summers wrote over the weekend. More stimulus is needed, but the stimulus needs to be allocated to projects that actually create jobs and close the competitive gap between America and its economic competitors. If you can revitalize the economy, the stock market will follow… Both sides of the fiscal debate must realize that we now have a window of opportunity to kick-start these infrastructure projects, as Summers points out. Long-term interest rates are below 3%, and construction unemployment stands at 20%. The time has come to start rebuilding America into a real, sustainable and competitive economy. To do this, we’ll have to allocate stimulus to people who actually need jobs, instead of propping up hedge fund managers looking for their next big bonus. It’s time to get the horse in front of the cart again…

Read the full article →

Bank Of America Faces New Probe; New York Attorney General Launches Investigation Into Mortgage Securitization

June 13, 2011

New York Attorney General Eric Schneiderman has targeted Bank of America, the biggest U.S. bank by assets, in a new probe that questions the validity of potentially thousands of mortgage securities and their associated foreclosures, two people familiar with the matter said. The investigation, which began quietly in recent weeks, is part of a larger inquiry that is scrutinizing whether mortgage companies and Wall Street firms took the necessary steps under New York state law when creating mortgage-backed securities, these people said, who requested anonymity because they weren’t authorized to speak publicly about the probe. Court testimony and independent studies have raised questions over whether banks and other financial firms passed along the required documents to trusts, the independent entities that oversee securities for investors. In some cases where trusts moved to seize borrowers’ homes, judges have determined the trusts lacked legal standing due to faulty documentation. The inquiry could prove explosive: Wall Street’s great mortgage securitization machine took millions of home loans and bundled them into securities for sale to investors. If the legal steps that guide securitization — like taking mortgage documents from one party to another, a critical step under New York law — were not undertaken, then the investors who bought the bundled loans could force the companies to buy them back, compelling them to eat enormous losses. New York state investigators could also find that those securities aren’t valid financial instruments at all and take action under state law. The probe is part of a comprehensive investigation into Wall Street’s activities before and after the credit crisis undertaken by New York’s top cop. Schneiderman, a Democrat who rode to office by pointing out Wall Street’s misdeeds, requested documents earlier this year from Bank of America, the largest lender and mortgage servicer, Goldman Sachs and Morgan Stanley regarding their mortgage operations. But an investigation into whether the securities these companies created are even valid represents a new front in his ongoing probe and raises fresh questions into the potential liability sellers of these mortgage instruments face. Last November , the Congressional Oversight Panel, a federal watchdog created to keep tabs on the bailout, said widespread paperwork problems involving mortgage securities could cause the largest U.S. banks to swallow unknown billions in losses, threatening the stability of the financial system. “If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever,” Adam J. Levitin, a bankruptcy expert and professor at Georgetown University Law Center, said at a House panel last November . Levitin said the problem could “cloud title to nearly every property in the United States” and could lead to trillions of dollars in losses. The six largest U.S. banks, including Bank of America, Goldman and Morgan, currently hold nearly $668 billion in so-called Tier 1 capital, cash banks are required to hold as a backstop against unforeseen losses, Federal Reserve data as of March 31 show. All six companies are defined as “well capitalized” by federal bank regulators. Schneiderman’s inquiry also raises questions about the speed the Obama administration and a coalition of state attorneys general and bank regulators are moving towards a settlement agreement to resolve claims of widespread foreclosure abuse. The states’ top cops and representatives of the Department of Justice, Federal Trade Commission, Department of Housing and Urban Development and the Treasury Department are pushing the nation’s largest mortgage companies to pay about $20 billion in a deal to end the months-long probes into shoddy and possibly illegal practices employed by Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. While several investigations remain ongoing at the state and federal level, no agency has systematically examined loan-level documents to ensure the creation of mortgage securities complied with state laws or to examine the scope of sloppy paperwork in foreclosure proceedings, like the so-called “robo-signing” fiasco. In its November report, the bailout watchdog said that the “robo-signing of affidavits served to cover up the fact that loan servicers cannot demonstrate the facts required to conduct a lawful foreclosure.” “In essence, banks may be unable to prove that they own the mortgage loans they claim to own,” the panel said. Sheila Bair, the chairman of the Federal Deposit Insurance Corporation, said at a Senate panel last month that ” flawed mortgage banking processes have potentially infected millions of foreclosures .” “The extent of the loss cannot be determined until there is a comprehensive review of the loan files and documentation of the process dealing with problem loans,” she added. Despite that appraisal, Bair, along with Treasury Secretary Timothy Geithner and Shaun Donovan, secretary of Housing and Urban Development, have said they want a quick settlement. Schneiderman’s investigation of defective mortgage practices comes on the heels of public reports that Bank of America systematically failed to transfer essential documents to other entities in the daisy chain that turned home loans into securities to be sold on Wall Street. A review of 104 New York foreclosure cases between 2006 and 2010 where Countrywide Financial made the original loan found that the nation’s once-biggest home lender did not follow proper procedures in securitizing the mortgages, according to Abigail C. Field , a New York-based attorney who wrote a column about her findings for Fortune . Bank of America purchased Countrywide in 2008. The review “calls into question the securitization of these loans,” Field wrote. She added that the findings also raise questions over the right of investors to foreclose on the borrowers who defaulted on their loans since the mortgage securities may be invalid. In a New Jersey bankruptcy case last November , a Bank of America executive, Linda DeMartini, testified that Countrywide routinely did not convey crucial documents for loans sold to investors. The judge cited the testimony in dismissing the bank’s claim against the borrower. Bank of America later said DeMartini essentially did not know what she was talking about. The case caused an uproar in mortgage banking and securitization circles because if Countrywide held onto essential documents — rather than pass them onto the entity representing investors who bought their securities — then investors could question whether the security was legal and force Bank of America to buy the investments back. Investors in mortgage securities, which include pension funds and insurance companies, are currently embroiled in numerous lawsuits and private actions to compel banks to repurchase faulty mortgages. Some of the lawsuits raise questions over such paperwork problems. Danny Kanner, a spokesman for Schneiderman, declined to comment. * * * * * Shahien Nasiripour is a senior business reporter for The Huffington Post. You can send him an email ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 917-267-2335.

Read the full article →

Duncan Quirk: Is Congress Taking Debt Ceiling Advice From Billionaire Who Routinely Made Huge Profits Shorting Currency?

June 10, 2011

As readers of my writings know, I am a deficit hawk, however, I am also a pragmatic defect hawk. I believe strongly in the recommendations of last year’s bipartisan debt commission , mainly decreasing our spending and increasing taxes and overhauling our tax code to cut deductions therefore raising tax revenues. Last week, I argued for no vacations, no pay, and no campaigning until the debt ceiling was resolved : in order to strengthen our economy and get out of debt, we must raise the debt ceiling. A week later, with the media focused on Weiner’s stupidity and the elections of 2012, we are still no closer to solving this problem. In fact, many more main stream Republicans are saying that a technical default will do more good than harm if it reins in spending. Whether this is political posturing for the 2012 elections or if they truly believe it is still to be seen. In either case, more Republicans have taken this stance after Stan Druckenmiller announced that he is behind it as well . While Stan Druckenmiller is one of the nation’s largest philanthropists, he has made billions off of shorting currencies. In 1992, he engineered a $1 billion profit for George Soros by shorting (basically betting against a stock or currency) the British Pound Sterling on Black Wednesday , which by the UK Treasury’s estimates cost the country £3.3 billion. A few months later, Druckenmiller made another $1 billion shorting the Swedish Krona. I can’t say for certain that Druckenmiller is planning on shorting the dollar in the event of a debt default, in fact he is saying that he is currently longing US treasury bonds, but he has shown a knack for betting against currencies and coming out on top. If he is using his position and influence to push a debt default and short the US dollar for his own profit, then we really should not be listening to him. We do not want to be the guy at the craps table being led on to roll the dice by the guy next to him who at the last second bets on him failing. One may ask, “how would a debt default lower the value of the dollar?” By not paying our obligations, Moody’s, Fitch, and Standard and Poor’s will reevaluate and in all likelihood downgrade the US credit rating . These agencies evaluate the quality of financial instruments and debt, including US bonds, and if they see the US default on these loans they will call into question the security of other existing bonds and debts. With the deficit where it stands, the US needs to take out loans to meet all of its obligations to our creditors and citizens. Similar to an individual’s credit score, a downgrade in the US credit rating will mean that creditors will be less likely to loan to the US and those that do loan will do so at a higher rate. A lack of international demand for the dollar, a drop in confidence in US debts and borrowing combined with overextension of stimulus packages and government spending will drive the down the value of the dollar. The higher interest rates that a lower credit rating will cause will in turn raise the prime rate that the US charges banks. Raising the prime rate is a standard tactic to combat inflation, but in a stagnant economy it can have drastic effects. An increase in the prime rate translates into higher interest rates on new loans and, if you have a flexible APR, old loans and credit cards from consumer banks. In times of rapid expansion and inflation, this is used to slow down the economy for its own good, in a recession it hinders economic growth in a two pronged approach. Businesses are less likely to borrow with higher interest rates and therefore less likely to expand and less likely to build or hire more people. Consumers are less willing to take out loans from banks on larger items and goods which in turn means less sales and less money for businesses further reducing their expansion and possibly leading to further layoffs. A farmer will hold off on buying a new tractor at a higher interest rate, therefore the tractor is not sold and the company that is making it will not make a profit off of the tractor and be less likely to continue to build more tractors. While it is true that rising interest rates benefit lenders and savers, with US Household debt outstanding totaling $13.3 trillion (it’s lowest in nearly four years), they will not be good for generating growth. Despite corporate profits and signs that companies are stabilizing, we still see a high and fairly stagnant unemployment rate. Companies are profiting and in some cases growing, but the are not hiring more people. It can be argued that this is due to companies having one employee do the amount of work that a few years ago would have been done by two or more employees, the initial phase of a massive corporate anorexia problem. Whatever the cause, the unemployment rate has not gone down significantly and with more people entering the work force and the Baby Boomers having to work longer due to massive losses in their retirement savings, it is not likely to do so if businesses and consumers do not spend. Add in ever rising gas prices, which in turn effect food and every other marketable good and we will have fewer dollars to spend on the things we need and have to make further sacrifices including the quality of food we eat (which would increase long-run healthcare costs), our homes and the education of our youth. Our tax dollars will go shorter distances and our economy will remain in a stagnant recession. By allowing the country to default by not raising the debt ceiling, we are tying the hands of the American people and American businesses behind their backs at a time where we need to encourage job growth and spending. This does not include the damage that default will do to international markets. Greece is a small player in the international level and look at the damage which that potential default is causing. A US default would ripple through Asian and emerging markets where the majority of economic growth currently is. The dollar’s status as the world’s reserve currency will surely be shattered, as would our economic parity and purchasing power. Cutting the deficit is an extremely important goal, and we will need to reform our entitlements and our taxes, but it should not be done at the expense of sending us into a further recession on the advice of a man who has made his name on betting against currencies and economies. We would not stop paying our mortgage because our utility bill was too high. We need our elected officials to not pay themselves for a job they are not doing with money they don’t have, and to not campaign for a future election when the real problems need to be dealt with now. They need to reach a compromise to raise the debt ceiling to encourage the economy and buy time to build a responsible budget for October’s new fiscal year and the future. And we need to tell them: not at the polls in 2012, but today. Do not contribute any money to a political campaign. Sign the No Labels petition to keep the legislature at work. Write, call, email, text, moon them with a very elaborate tattoo, just contact your congressman, your senator, and your news station. Stay tuned as my next post up is a tax compromise we can all agree on: forget about the top 1%, let’s close the loopholes and get the taxes that are owed by the top 400 people. PS: Stan Druckenmiller , if you’re reading this please explain to me how the beneficiaries of your donations at the Harlem Children’s Zone can take their educations and job training into a job market that is nonexistent.

Read the full article →

Jeanne Kelly: How Your Credit Impacts Your Success

March 23, 2011

Can your credit score determine how successful you are not just in your business but also in your everyday life? Knowing your credit score can lead you into the right direction of becoming more successful. It is more important now than ever for you to check your credit score to make sure that it is not only accurate but at an optimal level. Every day decisions are being made based on your credit score. If it’s too low, your credit could be costing you thousands of dollars each and every year. It could prevent you from getting a new cell phone plan, a new car or even a new job. But your credit score does not just show you how much in-debt you are financially; it also expresses how you manage everyday tasks, because it is base on your daily purchases, how on-track you are with your bills and how organized you and your business are financially. I created a quiz for you to take to determine how successful you are when it comes to your credit score: All credit scores are the same, so there is no point paying extra to get your FICO Score. True or False Your monthly and yearly income helps/hinders your FICO score. True or False Paying a collection in full will give your FICO score a quick boost. True or False Keeping your balances very low on your credit card accounts will help your FICO score. True or False Closing an account that you have been late on will help improve your FICO score. True or False Having just a few accounts on your credit report give you the best chance for a very high FICO score. True or False Having many different types of accounts on your credit helps your FICO score. True or False Checking your credit too often will hurt your FICO score. True or False When you get married, your spouse’s credit will help/hinder your credit. True or False Having credit cards or loans that are charging you high interest rates negatively effect your credit. True or False Having a high balance in your savings/checking account will help you improve your FICO score. True or False Obtaining and using a debit card issued by your bank is an easy way to bolster your FICO score. True or False Answers: 1) False, 2) False, 3) False, 4) True, 5) False, 6) False, 7) True, 8) False, 9) False, 10) False, 11) False, 12) False Here is where you can take control of your life and become more successful. If you have gotten all of these correct, you are in a great financial situation. But if you got one or more questions wrong, you should visit www.thecreditrules.com to learn more about being successful with your credit. Originally published by the Women’s Leadership Exchange (WLE).

Read the full article →

Chris Birk: Rent Payments May Soon Affect Your Credit Score

February 2, 2011

Consumers who struggle to build a solid credit profile may soon get a boost by simply paying their monthly rent on time. One of the country’s three major credit reporting agencies is now incorporating positive rental payment data into its scoring methodology. Experian will track the information through its RentBureau division, a specialty credit bureau that gathers payment data from a network of property managers covering more than 8 million renters nationwide. Until now, only negative rental information would appear on a consumer’s credit report, typically after a landlord sent the account to a collection agency. But the Experian announcement means millions of consumers can build and strengthen their credit by staying current with their rent. “Given that one-third of the U.S. population rents, we felt it was imperative to reflect the true creditworthiness of those individuals who responsibly pay their rent,” Brannan Johnston, vice president and managing director at Experian RentBureau, said in a news release . “We are thrilled to be industry leaders in this initiative, and look forward to providing this credit-building avenue to residents.” Renters should take heed, though, as this will soon become a two-way street. Experian plans to report only positive data in 2011. But negative rent information, i.e., late payments, are likely to become part of the mix in 2012. That means renters could actually damage their credit score by getting behind on their rent. At this point, Experian is the only credit bureau to include rental information — and, again, that’s only for renters whose landlords and property managers participate in the RentBureau reporting system. But this first foray could certainly whet the appetites of lenders and underwriters nationwide and spur serious demand across the board. Experts at FICO, the predominant credit scoring system for the lending industry, have said their experts will evaluate the Experian rental data to determine whether it should factor into their scoring model. The inclusion of rental data could ultimately provide a jolt to the home lending industry. In the short term, it is likely to help thousands of responsible, underbanked consumers gain access to credit they richly deserve. It’s also important to remember that consumers of all stripes can take simple, concrete steps to improve their credit score . Diligence and commitment are essential.

Read the full article →

Ireland Credit Rating Slashed Again

February 2, 2011

DUBLIN — Ratings agency Standard & Poor’s cut its credit grade for Ireland on Wednesday and warned it could fall further because of doubts about the true scale of defaulting loans yet to surface in the country’s largely state-owned banks. S&P joined fellow agencies Moody’s and Fitch in dropping Ireland’s credit score following the nation’s November negotiation of a potential euro67.5 billion ($93 billion) credit line from the European Union and International Monetary Fund. Ireland already has drawn down euro8.4 billion ($11.6 billion) this year from that rescue fund – and plowed much of it straight into the cash-strapped coffers of Dublin banks. Still, S&P’s reduction Wednesday was just one notch to A minus, one step above the multi-grade cuts imposed last month by Moody’s and Fitch. Both dropped Ireland into the higher-risk BBB tier in the immediate wake of the EU-IMF bailout deal. The BBB level is considered the lowest investment-grade rating, whereas BB and lower indicate “junk bond” status. S&P senior analyst Frank Gill warned the agency could also drop Ireland’s rating somewhere into the BBBs in April, once a new Irish government settles in and the impact of the current infusion of EU-IMF cash into Dublin banks can be assessed. The S&P announcement coincided with Wednesday’s formal launch of campaigning for Ireland’s Feb. 25 election. The free-market government of Prime Minister Brian Cowen – who presided over the country’s spectacular collapse from Celtic Tiger success in 2007 to a bank-crippled debtor today – is universally forecast to be ousted from power in favor of a left-leaning coalition. The two parties expected to form the next coalition government, Fine Gael and Labour, are both campaigning on promises to reopen negotiations with the EU and IMF to loosen some of the strings attached to the aid deal. Both question Cowen’s determination to slash euro15 billion ($21 billion) from the economy over the next four years through spending cuts and tax hikes. Troublingly, the two would-be government partners criticize Cowen’s brutal austerity effort from opposite extremes, with Fine Gael favoring more cuts and Labour insisting on more taxes for the rich. Gill warned that Ireland’s economic forecasts presume that the total bank-bailout bill funded by taxpayers won’t top euro50 billion ($70 billion) while the current unemployment rate of 13.4 percent – near a 17-year high – will stabilize in 2011 and decline in 2012. He noted the total debts of the six Irish banks – Allied Irish Banks, Bank of Ireland, Irish Life & Permanent, Anglo Irish Bank, Irish Nationwide and Educational Building Society – actually approach euro275 billion ($375 billion), more than 170 percent of Ireland’s gross domestic product. “Irish domestic banks currently depend almost entirely on the (European Central Bank) to refinance expiring market debt,” Gill said. “Were the labor market to deteriorate further, a rise in the level of delinquencies in the domestic banks’ mortgage books could result in higher new capital requirements than we presently assume,” Gill said. On the flip side, he said Ireland’s prospects would be boosted if European Union leaders agree to change its bailout rules, which currently require donors to tack a profit margin on its loans of approximately 3 percentage points. That means Ireland’s EU-IMF loan package comes with an average interest rate of 5.8 percent rather than the donors’ actual financing costs of 2.8 percent. This premium will add tens of billions to Ireland’s annual deficits, which last year soared to a modern European record of 32 percent of GDP. European leaders are also planning to discuss this week possible bailout-rules reforms that would make it easier for governments to negotiate hefty discounts on repayments to a bank’s foreign creditors. Ireland so far has repaid tens of billions to those banks and hedge funds rather than risk poisoning the country’s credit worthiness with a major default. Ireland’s government and main opposition parties remain publicly committed to a goal of slashing the deficit to just 3 percent of GDP by 2014, the limit that eurozone members are supposed to observe. But that plan presumes Ireland’s economy will grow by at least 2 percent each year, whereas the most recent forecasts from the Irish Central Bank and the Economic and Social Research Institute, Ireland’s main think tank, expect much weaker growth if any in 2011.

Read the full article →

Citigroup Says It Didn’t Use ‘Robo-Signers,’ Still Faces Increased Risk Due to Sour Mortgages

October 19, 2010

Top Citigroup executives sought to assure investors and the public Monday by proclaiming that the firm’s foreclosure process and its handling of key documents in securitizing home mortgages was “sound,” despite growing concerns over how lenders like Citi may have skirted the law when bundling home mortgages and selling them, and again when kicking delinquent borrowers out of their home. The nation’s biggest banks have come under increased scrutiny over the past few weeks as revelations surfaced over how the firms routinely mishandled basic documents like the note to the property in their rush to securitize loans for sale on Wall Street. These came to light as bank employees and those of contractors and law firms employed by the banks to repossess homes admitted to carelessly handling mounds of paper. It may have seemed trivial at the time, but it may have been against the law. The validity of claims to properties has been called into question over false notaries, failing to read documents before signing them, and omitting names when transferring documents just to make it easier to securitize the loan. In response, some of the nation’s biggest mortgage servicers, like Bank of America, JPMorgan Chase and Ally Financial, announced temporary moratoriums on foreclosure sales. For the first time in the long fight between aggrieved homeowners and rapacious bankers since the onslaught of the housing crisis, the homeowners appear to be winning. It was under these circumstances that John Gerspach, Citi’s chief financial officer, sought to assuage analysts who have quantified possible losses arising from this fiasco in the billions to the hundreds of billions. “[R]egarding foreclosures, as we have been saying publicly, we continuously view our document handling procedures and we believe the integrity of Citi’s foreclosure process is sound,” Gerspach said during a conference call with analysts, investors and journalists. “While we use external attorneys to prepare documents, each package is reviewed by a Citi employee who verifies the information and signs the foreclosure affidavit in the presence of a notary. When errors are found, the documents are returned to the attorney who revises the package and resubmits the documents for review.” “We have intensified our ongoing process reviews and … have not identified any systemic issues,” he added. Other lenders and servicers face accusations that they employed so-called “robo-signers” whose sole job was to sign thousands of documents a day, each time attesting to carefully reviewing each one in compliance with the law. Presented with evidence, some judges have ruled that planned foreclosures couldn’t go through. Others have said that the transfer of documents bordered on the illegal and refused to recognize parties’ right to foreclose. Citi executives say they didn’t do that, and thus won’t be affected. Analysts were relieved. “It sounds as though they have avoided that issue,” said Jeffery Harte, a managing director at Sandler O’Neill & Partners, L.P. who analyzes big banks and prominent securities firms. “They were pretty direct in saying, ‘We don’t have a robo-signing issue.’” Harte found it interesting given Citi’s history of missteps. “If you go back historically, Citigroup has found itself in the midst of a lot of differnet issues,” the top-ranked analyst said. “For them to have potentially sidestepped something, when it happens to be the first real issue that came under [CEO] Vikram Pandit’s watch, so it’s not so much a legacy thing but something directly under Vikram, I think is a vote of confidence that the management attitude has kind of changed.” But Citi, still partly owned by taxpayers, faces other hurdles surrounding its past mortgage activities. Namely, the bank faces uncertainty regarding the ultimate impact of the many soured mortgages it will likely have to buy back. In selling mortgages, the originators make certain claims that, when found to be false, open up an avenue for the buyer to force the seller to take it back or make them whole. Citi, the nation’s third-largest bank by assets, said Monday that it has received 7,200 such claims this year from buyers of their mortgages. Just 300 of those loan requests came from private investors; the rest came from government-owned mortgage giants Fannie Mae and Freddie Mac. Since 2008 buyers of Citi mortgages have requested that Citi take back 17,500 poor mortgages or cover the buyers’ losses. Including this year’s loans, about a quarter of those requests remain outstanding, Gerspach said. The bank said that’s out of about 3.5 million loans it likely originated and sold to investors and Fannie and Freddie. Those loans have a balance of about $504 billion, the bank said, which Gerspach noted “best represents our outstanding loan originations held by third parties.” About a third of that, or $166 billion, are loans in which Citi has liability if errors are found, and which were originated from 2006 to 2008 — the height, end and aftermath of the housing boom. They also generate the “bulk” of mortgage buyers’ demands for repurchases. Of the 12,800 loan requests the bank has resolved, in about half the cases Citi was forced to either repurchase the loan or make the buyer whole on their losses, Gerspach said. The numbers are likely to get worse. Already, claims through nine months this year have eclipsed last year’s total by nine percent, with all of that increase coming from a resurgent federal regulator who’s trying to ensure that taxpayers aren’t the only ones left holding the bag when it comes to Fannie and Freddie’s reckless behavior. Also, the bank, like others, faces increased risk because of the microscope its practices have been put under. With bank and securities regulators looking into the megabanks’ documentation practices when it comes to foreclosures, and all 50 state attorneys general launching a joint investigation into the same thing — during an election year — some analysts say the immediate investigation could easily morph into one that examines the entire chain of documentation, from origination through securitization. So borrowers’ income, credit score, other outstanding debts — information on the original mortgage application that helps sellers of mortgages price them for investors — could now all be checked to make sure the original lender didn’t falsify anything or willingly ignore its falsification. Essentially, investigators could pore over lenders’ underwriting files. That the fears are real suggest that either lenders often disregarded the rules, or that the threat of such an investigation is so strong that big banks will spend lots of time and money defending themselves against a multitude of inquiries or simply agree to an expensive settlement. One analyst on Monday’s call, James F. Mitchell of Buckingham Research Group, brought this up. “[P]eople are worried about not just the documentation issue but the poor quality of the underwriting of the loans,” Mitchell said about Citi’s loans that were ultimately securitized and sold. “Does that somehow … break the representation and warranties in the prospectus, and therefore investors can put the whole securitization back, not just on documentation but on loan quality issues? Did you have a discussion with your counsel on that?” Gerspach, Citi’s chief financial officer, responded. “We had several counsels. I couldn’t find anyone that indicated that there was this big red button that gets pushed and completely blows up a transaction based upon underwriting quality,” Gerspach said. “But I’m going to leave that one up to all the lawyers in the world to argue about,” he added, dodging the larger question about Citi’s underwriting practices. Against that backdrop, Citi increased the amount of money it sets aside to handle repurchase requests from investors and Fannie and Freddie. It now has $952 million reserved to fund the fulfillment of those repurchase requests, up 31 percent from June 30 and 223 percent from this time last year. Citi has originated $653.2 billion in home mortgages since the start of 2005, a review of the lender’s quarterly earnings announcements show. It was holding $131.5 billion in mortgages on its balance sheet as of Sept. 30. The remaining $522 billion was sold and securitized, the bank’s standard practice when it comes to home mortgages, it said in its last annual federal regulatory filing with the Securities and Exchange Commission. Because the bank has lost about $211 million thus far this year from repurchase requests, and it has $952 million set aside, or more than four times as much, “it would appear they’ve got a pretty big reserve set up,” Harte said. The Sandler O’Neill analyst added that he found it reassuring especially considering that the bank didn’t buy a “less pristine” lender like its peers. JPMorgan Chase bought Washington Mutual, Bank of America took over Countrywide Financial, PNC bought National City, and Wells Fargo bought Wachovia (which was hobbled by its purchase of Golden West, a California-based lender whose mortgages proved to be especially toxic). Those banks now face substantial demands given the kind of loans the likes of WaMu and Countrywide churned out in inflating the housing bubble. But because Citi didn’t buy such a lender, it should be better off. Harte said he thought Citi may ultimately have to repurchase about $1.5 billion in bad loans. He added that he could easily double that estimate if he were more aggressive in his assumptions. Citi declared net income of about $2.2 billion in the three-month period ending in September. The bailed-out bank — a beneficiary of tens of billions of dollars in direct investment by taxpayers, asset and debt guarantees totaling in the hundreds of billions, an assortment of other federal programs designed to shield big banks from losses, and the Federal Reserve’s easy-money policy of near-zero percent interest rates — has turned a profit every quarter this year. ************************* Shahien Nasiripour is the business reporter for the Huffington Post. You can send him an e-mail ; bookmark his page ; subscribe to his RSS feed ; follow him on Twitter ; friend him on Facebook ; become a fan ; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

Read the full article →

Third Of Americans Can’t Get Mortgages As Interest Rates Hit Record Lows: Zillow

September 27, 2010

Even as a glut of unsold inventory keeps the housing market from recovering, nearly a third of Americans can’t qualify for home mortgages, according to new data from online real estate search company Zillow . Would-be homeowners with credit scores below 620 points were largely unable to take out 30-year mortgages in the first half of September, even if they offered down payments as high as 25 percent, Zillow found after analyzing more than 25,000 loan quotes and purchase requests on its website. A full 29.3 percent of Americans have a credit score that low, Zillow says, citing data from myFICO . Mortgage interest rates, meanwhile, are at a low not seen in at least 40 years. According to data compiled by the St. Louis Fed , the average interest rate on a 30-year mortgage was 4.37 percent as of September 16. The St. Louis Fed has data going back to 1971 and, in that period, before 2009, the interest rate never dipped below 5 percent. These days, according to Zillow, the lowest interest rate is 4.3 percent, available only to those with a credit score above 720 points — about 47 percent of Americans. The higher rates, ranging from 4.44 to 4.9 percent, are available to about 23.8 percent of Americans. The remaining 29.3 percent of the population can’t get loans at all. A variety of factors, including a high volume of foreclosures and weak demand, have depressed the housing market to such an extent that some experts say it won’t rebound for three years . But lenders are understandably cautious. While easily accessible mortgages might contribute to a housing recovery, lenders are still shell-shocked from the aftermath of the housing bubble. Banks have been writing off debt in record numbers — the charge-off rate this year has been higher than any year since at least 1988 , according to data from the Saint Louis Fed.

Read the full article →

Bill Maher: New Rule: Rich People Who Complain About Being Vilified Should Be Vilified

September 24, 2010

New Rule: The next rich person who publicly complains about being vilified by the Obama administration must be publicly vilified by the Obama administration. It’s so hard for one person to tell another person what constitutes being “rich”, or what tax rate is “too much.” But I’ve done some math that indicates that, considering the hole this country is in, if you are earning more than a million dollars a year and are complaining about a 3.6% tax increase, then you are by definition a greedy asshole. And let’s be clear: that’s 3.6% only on income above 250 grand — your first 250, that’s still on the house. Now, this week we got some horrible news: that one in seven Americans are now living below the poverty line. But I want to point you to an American who is truly suffering: Ben Stein. You know Ben Stein, the guy who got rich because when he talks it sounds so boring it’s actually funny. He had a game show on Comedy Central, does eye drop commercials, doesn’t believe in evolution? Yeah, that asshole. I kid Ben — so, the other day Ben wrote an article about his struggle. His struggle as a wealthy person facing the prospect of a slightly higher marginal tax rate. Specifically, Ben said that when he was finished paying taxes and his agents, he was left with only 35 cents for every dollar he earned. Which is shocking, Ben Stein has an agent? I didn’t know Broadway Danny Rose was still working. Ben whines in his article about how he’s worked for every dollar he has — if by work you mean saying the word “Bueller” in a movie 25 years ago. Which doesn’t bother me in the slightest, it’s just that at a time when people in America are desperate and you’re raking in the bucks promoting some sleazy Free Credit Score dot-com… maybe you shouldn’t be asking us for sympathy. Instead, you should be down on your knees thanking God and/or Ronald Reagan that you were lucky enough to be born in a country where a useless schmuck who contributes absolutely nothing to society can somehow manage to find himself in the top marginal tax bracket. And you’re welcome to come on the show anytime. Now I can hear you out there saying, “Come on Bill, don’t be so hard on Ben Stein, he does a lot of voiceover work, and that’s hard work.” Ok, it’s true, Ben is hardly the only rich person these days crying like a baby who’s fallen off his bouncy seat. Last week Mayor Bloomberg of New York complained that all his wealthy friends are very upset with mean ol’ President Poopy-Pants: He said they all say the same thing: “I knew I was going to have to pay more taxes. But I didn’t expect to be vilified.” Poor billionaires — they just can’t catch a break. First off, far from being vilified, we bailed you out — you mean we were supposed to give you all that money and kiss your ass, too? That’s Hollywood you’re thinking of. FDR, he knew how to vilify; this guy, not so much. And second, you should have been vilified — because you’re the vill-ains! I’m sure a lot of you are very nice people. And I’m sure a lot of you are jerks. In other words, you’re people. But you are the villains. Who do you think outsourced all the jobs, destroyed the unions, and replaced workers with desperate immigrants and teenagers in China. Joe the Plumber? And right now, while we run trillion dollar deficits, Republicans are holding America hostage to the cause of preserving the Bush tax cuts that benefit the wealthiest 1% of people, many of them dead. They say that we need to keep taxes on the rich low because they’re the job creators. They’re not. They’re much more likely to save money through mergers and outsourcing and cheap immigrant labor, and pass the unemployment along to you. Americans think rich people must be brilliant; no — just ruthless. Meg Whitman is running for Governor out here, and her claim to fame is, she started e-Bay. Yes, Meg tapped into the Zeitgeist, the zeitgeist being the desperate need of millions of Americans to scrape a few dollars together by selling the useless crap in their garage. What is e-Bay but a big cyber lawn sale that you can visit without putting your clothes on? Another of my favorites, Congresswoman Michele Bachmann said, “I don’t know where they’re going to get all this money, because we’re running out of rich people in this country.” Actually, we have more billionaires here in the U.S. than all the other countries in the top ten combined, and their wealth grew 27% in the last year. Did yours? Truth is, there are only two things that the United States is not running out of: Rich people and bullshit. Here’s the truth: When you raise taxes slightly on the wealthy, it obviously doesn’t destroy the economy — we know this, because we just did it — remember the ’90′s? It wasn’t that long ago. You were probably listening to grunge music, or dabbling in witchcraft. Clinton moved the top marginal rate from 36 to 39% — and far from tanking, the economy did so well he had time to get his dick washed. Even 39% isn’t high by historical standards. Under Eisenhower, the top tax rate was 91%. Under Nixon, it was 70%. Obama just wants to kick it back to 39 — just three more points for the very rich. Not back to 91, or 70. Three points. And they go insane. Steve Forbes said that Obama, quote “believes from his inner core that people… above a certain income have more than they should have and that many probably have gotten it from ill-gotten ways.” Which they have. Steve Forbes, of course, came by his fortune honestly: he inherited it from his gay egg-collecting, Elizabeth Taylor fag-hagging father, who inherited it from his father. Of course then they moan about the inheritance tax, how the government took 55% percent when Daddy died — which means you still got 45% for doing nothing more than starting out life as your father’s pecker-snot. We don’t hate rich people, but have a little humility about how you got it and stop complaining. Maybe the worst whiner of all: Stephen Schwarzman, #69 on Forbes’ list of richest Americans, compared Obama’s tax hike to “when Hitler invaded Poland in 1939.” Wow. If Obama were Hitler, Mr. Schwarzman, I think your tax rate would be the least of your worries. Bill Maher is host of HBO’s “Real Time with Bill Maher”, Friday’s at 10:00PM

Read the full article →

Did Deutsche Bank Use Goldman Sachs-Style Securities To Trade Against Clients?

August 4, 2010

Was Deutsche Bank guilty of Goldman Sachs-style conflicts of interest during the mortgage boom? That’s the question posed by a Wall Street Journal piece this morning that delves into a potentially sticky position the bank seems to have put itself in with mortgage securities it sold to clients in the pre-crisis era. Like Goldman Sachs before them, which last month agreed to pay $550 million in penalties over its “Abacus” deals, Deutsche’s tangled web of trades, hedges and credit protections may now face scrutiny from Federal authorities. Unlike Goldman, however, Deutsche could face a probe from an ex-employee. Robert Khuzami , the SEC’s head of enforcement, was Deutsche’s general counsel in America during the mortgage crisis. The WSJ examines mortgages from the now defunct lender NovaStar, which Deutsche combined into complex mortgage securities and sold to various clients. But these were anything but sterling mortgages, the WSJ notes: “A promotional flier from NovaStar in 2003 said, “Ignore the Rules and Qualify More Borrowers with our Credit Score Override Program!” As housing boomed, NovaStar thrived.” Deutsche’s “dual role” as a peddler of mortgage securities found it selling securities that would increase in value and as well as other bets, including a CDO called “START,” that were constructed to let clients bet on a housing downturn. In short, Deutsche is portrayed as a megamarket for any possible bet on real estate. Goldman Sachs — and many on Wall Street — played similar roles. The theory, that banks could act as disinterested middle men, simply brokering transactions without trading against clients, now seems naive. Despite enabling the SEC to impose a “fiduciary duty ” on Wall Street broker-dealers, the Dodd-Frank bill, however, stops short of eliminating these potential conflicts of interest. Like Goldman Sachs, Deutsche seems to have not fully disclosed that some of its CDOs were, in part, constructed by hedge fund manager John Paulson . Here’s the WSJ : Paulson & Co. helped select assets that went into the Deutsche CDO and then bet against the assets, the people said. That was a role similar to the role Paulson played at Goldman. Deutsche, like Goldman, didn’t tell investors in its CDO that Paulson had helped pick the assets and was making a bearish bet. A key difference: Goldman told investors that the assets were picked by an independent third party; Deutsche didn’t use a third party or give its investors such assurances. In order to bet against the housing market, Paulson reportedly handpicked Goldman’s Abacus securities, which would suggest Deutsche could face a similar penalty.

Read the full article →

Children’s Social Security Numbers Targeted For Identity Theft

August 2, 2010

KANSAS CITY, Mo. — The latest form of identity theft doesn’t depend on stealing your Social Security number. Now thieves are targeting your kid’s number long before the little one even has a bank account. Hundreds of online businesses are using computers to find dormant Social Security numbers – usually those assigned to children who don’t use them – then selling those numbers under another name to help people establish phony credit and run up huge debts they will never pay off. Authorities say the scheme could pose a new threat to the nation’s credit system. Because the numbers exist in a legal gray area, federal investigators have not figured out a way to prosecute the people involved. “If people are obtaining enough credit by fraud, we’re back to another financial collapse,” said Linda Marshall, an assistant U.S. attorney in Kansas City. “We tend to talk about it as the next wave.” The sellers get around the law by not referring to Social Security numbers. Instead, just as someone might pay for an escort service instead of a prostitute, they refer to CPNs – for credit profile, credit protection or credit privacy numbers. Julia Jensen, an FBI agent in Kansas City, discovered the scheme while investigating a mortgage-fraud case. She has given presentations to lenders across the Kansas City area to show them how easy it is to create a false credit score using these numbers. “The back door is wide open,” she said. “We’re trying to get lenders to understand the risks.” It’s not clear how widespread the fraud is, mostly because the scheme is difficult to detect and practiced by fly-by-night businesses. But the deception is emerging as millions of Americans watch their credit scores sink to new lows. Figures from April show that 25.5 percent of consumers – nearly 43.4 million people – now have a credit score of 599 or below, marking them as poor risks for lenders. They will have trouble getting credit cards, auto loans or mortgages under the tighter lending standards banks now use. The scheme works like this: Online companies use computers and publicly available information to find random Social Security numbers. The numbers are run through public databases to determine whether anyone is using them to obtain credit. If not, they are offered for sale for a few hundred to several thousand dollars. Because the numbers often come from young children who have no money of their own, they carry no spending history and offer a chance to open a new, unblemished line of credit. People who buy the numbers can then quickly build their credit rating in a process called “piggybacking,” which involves linking to someone else’s credit file. Many of the business selling the numbers promise to raise customers’ credit scores to 700 or 800 within six months. If they default on their payments, and the credit is withdrawn, the same people can simply buy another number and start the process again, causing a steep spiral of debt that could conceivably go on for years before creditors discover the fraud. Jensen compared the businesses that sell the numbers to drug dealers. “There’s good stuff and bad stuff,” she said. “Bad stuff is a dead person’s Social Security number. High-quality is buying a number the service has checked to make sure no one else is using it.” Credit bureaus can quickly identify applications that use numbers taken from dead people by consulting the Social Security Administration’s death index. Social Security numbers follow a logical pattern that includes a person’s age and where he or she lived when the number was issued. Because the system is somewhat predictable, sellers can make educated guesses and find unused numbers using trial and error. A “clean” CPN is a number that has been validated as an active Social Security number and is not on file with the credit bureaus. The most likely source of such numbers are children and longtime prison inmates, experts said. Robert Damosi, an analyst with Javelin Strategy & Research, said the crime can come back to hurt children when they get older and seek credit for the first time, only to discover their Social Security number has been used by someone else. “Those are the numbers criminals want. They can use them several years without being detected,” Damosi said. “There are not enough services that look at protecting the Social Security numbers or credit history of minors.” Since the mortgage meltdown of 2008, banks have tightened lending policies, but many credit decisions are still based solely on credit scores provided by FICO Inc. and the three major credit unions: Experian, TransUnion and Equifax. Federal investigators say many businesses do not realize that a growing number of those credit scores are based on fraudulent information. “Lenders don’t understand that when they pay money to go through a service, they may be receiving false information,” Jensen said. “They think when they order the information from credit bureaus, it must be true.” Without special scrutiny, credit profiles created with the scheme are not immediately distinguishable from other newly created, legitimate files. Investigators say the businesses clearly know they are selling Social Security numbers, but it’s difficult to prove. The sellers use complex disclaimers that disavow illegal activity and warn customers against using their numbers in place of Social Security numbers. The businesses also instruct customers to provide false information when using the number to apply for credit. Customers are told to use their real name and date of birth, but to avoid listing any addresses or phone numbers they’ve used in the past. They’re also told to avoid any other information that connects the new, clean credit profile with the old, damaged one. Craig Watts, a spokesman for credit reporting agency FICO Inc., said FICO has tools available for businesses to protect themselves from this type of fraud, but they are not cheap. And many lenders are slow to adopt FICO’s new formulas, which are updated every few years. Some companies that sell the numbers have lavish, high-tech websites. Others run no-frills ads on sites like Craigslist. Jim Buckmaster, president and CEO of the San Francisco-based Craigslist, recently told the AP in an e-mail that there were “fewer than 200″ classifieds on his site that used the word “CPN.” Within an hour of that e-mail exchange, dozens of the ads in cities such as Las Vegas, Los Angeles and New York had been pulled from the site. Many were reposted the next day. An AP reporter called several of the sites, but got only recordings asking callers to leave a message with contact information. Experts say the fraud will be difficult to stop because it’s so easily concealed and targets such vulnerable people. Other than checking with the credit bureaus to see if there is a credit file associated with your child’s Social Security number, spokesmen at FICO, the Social Security Administration and the FTC said there are no specific tools for safeguarding the number. “This is an invisible crime, with invisible victims who don’t have enough support out there to help them,” said Linda Foley of the ID Theft Resource Center in San Diego.

Read the full article →

Brian Clark Howard: World’s Worst Credit Cards (Infographic)

July 8, 2010

In these tumultuous times with high unemployment, mounting debts, and depressed home prices, the last thing you want is your credit score ruining your life. To make sure that you make the right decision when it comes to your plastic, we’ve picked out the worst cards we could find so at least you know what to avoid. Source: Credit Score EMBED THE IMAGE ABOVE ON YOUR SITE Via: Credit Score

Read the full article →

Jennifer Openshaw: Survey Shows Recession Gets Consumers to Make Sacrifices but 65% Still Haven’t Negotiated Credit Card Rates

June 25, 2010

I’m stumped. If the recession has made one thing clear, it’s that Americans understand the importance of well-managed personal finances. Why, then, do the findings of a new poll from Harris Interactive and Lending Club show that Americans still aren’t money savvy? Not only that, they’re missing out on some critical moves that could put them on a better financial footing, even as Washington hammers out the details of financial reform. The survey shows that when it comes to credit, many Americans aren’t as savvy as they should be. While Americans are heavy credit card users, many are unaware of their credit scores and interest rates. Also, many still don’t understand the impact that certain actions can have on credit scores and, ultimately, the rates they’ll pay on car, mortgage and other loans. Look at these findings: The majority of Americans know the rates they are paying on their credit card and their credit rating Despite this awareness, they continue to carry high interest credit card debt and many do not know how to improve their credit scores Of those who know the rates on their credit cards, 31 percent have an interest rate of 20 percent or more and 64 percent pay 14 percent or more Perhaps the most startling is that only 29 percent of credit card users have ever tried to negotiate their rate, even though 93 percent know it’s possible. This is like leaving money on the table, not only for those Americans struggling with a job loss, but also for those needing to build those retirement accounts. Of those who did negotiate their rates, two-thirds were successful in lowering them. Even from experience — whether working with Ohio school teacher Kristine Burns on the Dr. Phil Show or knowing the insides of those big banks from my own experience — I know that more often than not, a request will lead to a favorable outcome. As Lending Club’s Chief Consumer Advisor, it’s my job to help Americans understand what this means and what to do, especially when it comes to borrowing. Credit cards can be convenient, but they’re an extremely expensive way to borrow money. Many people are paying 20 percent interest on their credit cards, maybe more, and they don’t realize there are alternatives available. So, let me share a few tips and strategies that will put a measurable dent in your finances — your credit scores, the rates you pay, even your bank account. Negotiate Your Rate — If you aren’t aware of your card rates, find out. And once you do, take the initiative to ask for a lower rate. Some 68 percent of those who ask, receive — and build confidence in their financial savvy too. Start with a target rate in mind, be assertive, and ask for the supervisor if necessary. Call In A Favor — You probably didn’t stop to think that, instead of paying up to 15 on a credit report website for your credit score, you may be able to learn it just by asking your lender. Your score is that financial barometer that tells the financial world how likely you are to repay your debts. Of course, it’s always smart to know your credit score before applying for a loan so you can boost it with a few smart moves. Cut Your Costs — Don’t pay more than you have to on current debt. If you’ve got credit card debt, consider consolidating. Find a fixed rate personal loan from a bank or peer lending company like Lending Club, which offers personal unsecured loans for paying off high interest debt at rates starting at 7.93 percent APR; which is 53 percent lower than the overall national credit card APR of 16.81 percent* and can translate into thousands in savings over the life of a loan. For example, a three-year loan of 25,000 at the current average credit card APR would cost approximately 3,800 more in interest than a three-year unsecured personal loan from Lending Club with a 7.93 percent APR. Then, be sure you stick to a budget and avoid using cards unless you can pay them off in full each month. Take A Team Approach — Many people don’t realize that credit scores can be impacted by their spouse through joint accounts and loans. So, be sure that your partner is making any payments you’ve both agreed to. Don’t just assume; check in occasionally. Be a team. A wrong assumption — as I’ve seen through many couples — could cost you thousands on future borrowings. Know What Affects Your Score — Many people believe that closing credit card accounts will help improve their credit score. It usually won’t. In fact, closing older accounts can reduce your balance-to-credit card limit ratio, which may actually lower your score. If you have trouble controlling your credit card spending, it may be better to take the temporary hit to your score, so you have fewer sources of temptation. Cut A Deal With Creditors — For the millions of Americans out of work, now is a good time to work with creditors to restructure debt, lower costs and get on a solid financial footing. You can avoid using third-party debt settlement organizations if you know the rules of the game and learn about “forbearance” and “hardship” programs offered by many lenders. So, even as we await reform in Washington, at least there are some things consumers can do right now. Not only to get more financially literate, but to boost their savings accounts. Jennifer Openshaw is CEO of Family Financial Network and Chief Consumer Advisor for LendingClub . A nationally known commentator who’s appeared on Oprah, CNN and Dr. Phil, Jennifer is also author of two books, including The Millionaire Zone, and founder of SuperFutures , helping teens discover and build their futures in a new economy. *Source for overall national average credit card rates: http://tinyurl.com/2cv5vhz

Read the full article →

BP Cancels Dividend, Plans Asset Sales to Finance Spill Fund

June 16, 2010

By Brian Swint June 17 (Bloomberg) — BP Plc , seen as a rising default risk by credit investors, scrapped dividends and pledged asset sales to meet President Barack Obama ’s demand for a $20 billion fund to help victims of the worst oil spill in U.S. history. BP’s Chairman Carl-Henric Svanberg met Obama at the White House yesterday and agreed on payments over four years to finance an independent body that will settle claims resulting from a damaged oil well that’s spewing as much as 60,000 barrels of crude a day into the Gulf of Mexico. Halting the $10 billion-a-year dividend , reducing investments in drilling and selling oil and gas fields will do enough to ensure the company’s financial stability, Chief Financial Officer Byron Grote said yesterday. Credit swap contracts before the announcement showed investors pricing in a 39 percent risk of default within five years. “It reduces the bankruptcy risk a little bit,” said Philip Weiss , senior energy analyst with Argus Research in New York. “The timing of the payments to the escrow accounts is sufficiently slow” that it increases confidence in the company’s ability to pay, he said. BP probably would have disposed of most of the assets being considered for sale anyway, Weiss said in a telephone interview. It’s unlikely the company would sell assets like the Prudhoe Bay fields in Alaska or Gulf of Mexico holdings that would substantially reduce revenues. The blown-out well wasn’t expected to begin producing until about 2015, he said. Production Impact BP has said production growth may be reduced following the accident and that industry drilling costs will increase because of added safety requirements. BP American depositary receipts reversed losses after the White House deal was announced to close up 45 cents, or 1.4 percent, at $32.85 in New York yesterday. Shares in the London-based company have dropped 49 percent since the Deepwater Horizon rig exploded on April 20, killing 11 workers. That’s wiped about 50 billion pounds ($74 billion) off the value of the company. “This move protects the long-term value of BP and draws a line in the sand for the speculation and wild uncertainty that’s been thrown around,” said Jason Kenney , an analyst at ING Wholesale Banking in Edinburgh. “The hope is that it’s far too much for what is actually going to be required. This doesn’t mean the downfall of BP; it can get through this.” Credit Score Cut BP had come under pressure to reach an agreement with the U.S. Administration this week after Fitch Ratings lowered BP’s credit score by six to BBB, two levels above junk, on concern that costs from the spill would undermine the company’s ability to operate. The board “believes it’s right and prudent to take a conservative financial position,” CFO Grote said on a conference call with investors. The deal to phase payments into the fund “allows us to stage our injections in a way that I hope now provides comfort to debt and equity markets.” Speaking after his meeting with Svanberg, Obama said the fund won’t cap BP’s liability for cleanup costs or supersede the rights of individuals or states to sue the company. BP also will contribute $100 million to a fund to help support unemployed oil rig workers. “This $20 billion will provide substantial assurance that the claims people and businesses have will be honored,” Obama said. “The people of the Gulf have my commitment that BP will meet its obligations to them.” Hayward Apologizes Chief Executive Officer Tony Hayward , who accompanied his chairman to the White House yesterday, will testify before Congress today. In prepared testimony, Hayward said he was “deeply sorry” for the Gulf explosion and oil spill. An “unprecedented combination of failures” led to the accident, he said. “We can expect a lot less political heat going forward,” said Fadel Gheit , an analyst at Oppenheimer & Co. in New York. “BP still has an uphill battle in public opinion. Tony Hayward is walking into the lions’ den in Congress. But this gives BP a breather to regain its footing.” BP will raise $10 billion this year selling assets, Grote said in his call with investors, concentrating on oil and gas fields that aren’t central to the company’s business. A $7 billion deal to buy offshore production assets from Devon Energy Corp. announced in March will go ahead. In addition, the company will cut planned capital spending about 10 percent to $18 billion, Grote said. Most of the savings will come from the Gulf of Mexico, where Obama’s six-month moratorium on deep-water drilling will prevent planned investments, he said. “BP is going to slim down significantly,” said Gheit, rated the most accurate active BP analyst by StarMine. “It’s going to survive this, but it’s going to be smaller.” Dividend Savings The company said in a statement it will cancel the first-quarter dividend, already announced at 14 cents a share in April and due for payment June 21. Dividend payments for the second and third quarters also will be canceled, saving a total of $7.5 billion. The company will review the dividend policy in early 2011, Grote said. BP generated $27.7 billion in cash flow from operations last year and posted profit of $6 billion in the first quarter. BP had $5 billion of cash available, $5.25 billion of credit lines it hadn’t used and another $5.25 billion of stand-by bank facilities, BP said in an investor conference call June 4. “BP is going to have enough money,” said Peter Hitchens , an analyst at Panmure Gordon & Co. in London. “This is the low point now. We’ve drawn a bottom line, got Obama on side and have phased payments. The market will react favorably.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

Read the full article →

BP Stops Dividends, Pledges Asset Sales to Finance Obama’s Oil-Spill Fund

June 16, 2010

By Brian Swint June 16 (Bloomberg) — BP Plc canceled three quarterly payments of its $10 billion-a-year dividend after President Barack Obama demanded it put up cash for victims of the Gulf of Mexico spill. BP said it will reduce expenditures and sell more assets than planned to free up cash. The previously announced first-quarter payment due on June 21 will be canceled, it said in a statement today. No dividend will be paid for the second and third quarters, BP said. We “are confident that the agreement announced today will provide greater comfort of the citizens of the Gulf coast and greater clarity to BP and its shareholders,” Chairman Carl- Henric Svanberg said after a meeting with Obama in Washington today. Svanberg and Chief Executive Officer Tony Hayward agreed to set aside $20 billion over several years to compensate victims of the spill after Obama in an Oval Office address yesterday called for the creation of a fund. “We’ve sorted out a lot of the uncertainty, and that’s what the market didn’t like,” Peter Hitchens , an analyst at Panmure Gordon & Co. in London, said in a telephone interview. “This is a painful measure, but the market has got used to the idea.” ‘Not as Bad’ BP’s American depositary receipts were up 45 cents to $31.85 in New York trading. Earlier they touched $33. The shares are down 46 percent since the April 20 explosion aboard the Deepwater Horizon drilling rig that killed 11 workers and triggered the oil spill. “Now that everyone is on the same side, it should restore confidence,” Panmure’s Hitchens said. “BP’s not the winner, but it’s not as bad as some people thought.” BP’s payments accounted for about 14 percent of all dividends in the U.K.’s benchmark FTSE 100 stock index last year. Fitch Ratings yesterday lowered BP’s credit score by six grades to BBB, two levels above junk, on concern costs will escalate. To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

Read the full article →

BP Cancels Dividend to Set Aside $20 Billion for Spill-Compensation Fund

June 16, 2010

By Brian Swint June 16 (Bloomberg) — BP Plc canceled three quarterly payments of its $10 billion-a-year dividend after President Barack Obama demanded it put up cash for victims of the Gulf of Mexico spill. The previously announced first-quarter payment due on June 21 will be canceled, it said in a statement today. No dividend will be paid for the second and third quarters, BP said. We “are confident that the agreement announced today will provide greater comfort of the citizens of the Gulf coast and greater clarity to BP and its shareholders,” Chairman Carl- Henric Svanberg said after a meeting with Obama in Washington today. Svanberg and Chief Executive Officer Tony Hayward agreed to set aside $20 billion over several years to compensate victims of the spill after Obama in an Oval Office address yesterday called for creation of a fund. BP said it will reduce capital expenditure and sell more assets than planned to free up cash. “The dividend is off the table,” said Alastair Syme , an oil and gas analyst at Nomura Holdings Inc. in London, before the announcement. “Until they have some clarity on the costs of the spill, they can’t do anything.” BP’s payments accounted for about 14 percent of all dividends in the U.K.’s benchmark FTSE 100 stock index last year. Fitch Ratings yesterday lowered BP’s credit score by six grades to BBB, two levels above junk, on concern costs will escalate. To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

Read the full article →

BP Likely to Suspend Dividend as Obama Demands Clean-Up Fund, Analysts Say

June 16, 2010

By Brian Swint June 16 (Bloomberg) — BP Plc will suspend its $10 billion dividend as President Barack Obama ’s demand to set aside cash for the Gulf of Mexico spill stretches the company’s finances, analysts said. “The dividend is off the table,” said Alastair Syme , an oil and gas analyst at Nomura Holdings Inc. in London. “Until they have some clarity on the costs of the spill, they can’t do anything.” BP Chairman Carl-Henric Svanberg will meet Obama at the White House today to discuss how to compensate victims of the spill after Obama in an Oval Office address yesterday called for creation of a fund. Lawmakers, who will question Chief Executive Officer Tony Hayward tomorrow, have said the company should suspend the dividend and put $20 billion in an independently administered escrow account to pay claims. Bloomberg forecasts show that BP is unlikely to pay a cash dividend in the second and third quarters. BP’s payments accounted for about 14 percent of all dividends in the U.K.’s benchmark FTSE 100 stock index last year. Fitch Ratings yesterday lowered BP’s credit score by six grades to BBB, two levels above junk, on concern costs will escalate. “Hayward’s response to the president is very important, and the dividend could be fairly easy to give,” said Gudmund Halle Isfeld , an analyst at DnB NOR ASA in Oslo. “If I were an investor, I would say it’s okay to suspend the dividend for a quarter or two to ensure the company gets through the storm.” BP spokeswoman Sheila Williams said no decision on the second-quarter dividend has been made. Fitch said it would be “surprised” if BP didn’t suspend the quarterly payout until the full costs are known. Cleanup and liabilities may reach $40 billion, Standard Chartered Plc estimated last week. ‘Lack of Access’ “It’s not financially obvious how they could set up an escrow, given their credit rating and lack of access to credit markets,” Nomura’s Syme said. “It’s in the interest of BP to do something rather than nothing but they’re constrained by liquidity.” Credit investors are pricing in a more than 39 percent chance BP will default within five years. The rising risk implied by credit-default swaps is up from 7 percent a month ago, according to CMA DataVision. BP had $5 billion of cash available , $5.25 billion of credit lines it hadn’t used and another $5.25 billion of stand- by bank facilities, BP said in an investor conference call June 4. Fitch said yesterday it expects BP’s lenders to allow the company to use the credit lines if needed. BP generated $27.7 billion in cash flow from operations last year and posted profit of $6 billion in the first quarter. Capital spending will total about $20 billion the company said in this year’s strategy presentation. Cleaning Up The company has spent about $1.6 billion on containing and cleaning up the spill so far. If BP maintains its dividend this year at the 2009 level the dividend yield, or annual payout as a percentage of the current share price, will be more than 10 percent. That compares to 2.8 percent for Exxon Mobil Corp. and 5.9 percent for Royal Dutch Shell Plc. “BP has the strength of balance sheet and free cash flow to sustain dividends at existing levels for now,” Collins Stewart analyst Gordon Gray wrote in a note today. “However, the rising level of public anger in the U.S., including pressure for BP to establish an escrow account for spill compensation, now point to the likelihood that BP will not pay a cash dividend for the second quarter.” To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

Read the full article →

Richard Zombeck: New Plan To Help Homeowners: Here We Go Again

April 7, 2010

Based on the past dismal failures of mortgage-related rescue plans proposed by current or past administrations, it’s difficult to believe that the latest set of plans, proposed by the Obama administration will be any more successful. In fact, it may serve as yet another way for banks and servicers to suck more money out of homeowners who are currently treading water as it is. Past attempts include Barney Frank’s Hope for Homeowners plan , started under the Bush administration, costing $300 billion. It helped one (1) homeowner. The recent plan to modify second mortgages has helped no one . The Making Home Affordable plan , also called HAMP, set out last year to help 4-6 million people. It has in fact potentially hurt approximately 940,000 and has served as a means for banks to suck $4-5 billion out of homeowners . According to Treasury reports 160,000 homeowners have been helped in one form or another, but in many cases a $20 reduction counts as a successful modification and often times the principal has been increased by adding arbitrary fees and charges to the original amount of loan on properties whose values have drastically decreased. A contributing writer at ShameTheBanks.org and former Ocwen loan specialist wrote, “I challenge our government to audit these alleged loan modifications and I know for a fact they will find a huge discrepancy in the numbers.

Read the full article →

New Free Credit Report Law: How To Get Your Report For Free

March 31, 2010

NEW YORK — Now that it will be easier to find your free credit report, you may be curious about who else can see it and how it can be used. Starting Friday, a new Federal Trade Commission rule will require Web sites advertising free reports to direct consumers to the government-approved . TV and radio ads must do the same starting Sept. 1. http://www.annualcreditreport.com The problem is that these ads typically don’t disclose that the advertised free reports are part of a package of services that can cost as much as $14.95 a month. Consumers may not realize they can get free reports with no strings attached. Once a report is in hand, however, it only raises a slew of other questions. Here’s what you need to know about credit reports and scores. _______ THERE’S MORE THAN ONE FREEBIE A YEAR Let’s start by clarifying when you can get free credit reports. You’re entitled to a free copy every year from each of the credit reporting agencies – Equifax, Experian and TransUnion. Off the bat, that means you get three free reports a year. On top of that, you can request free reports if you’re the victim of identity fraud or unemployed and looking for work. In the latter case, the idea is that you should know what’s on your report in case a potential employer wants to pull it. You’re also entitled to free copies if you think your report has errors or if it’s ever used against you. So if a bank turns you down for a loan based on a report, it’s required to disclose where it got the report so you can request a copy. Reports from the three agencies should contain pretty much the same information, but differences can arise when lenders don’t provide data to all three. And despite the official-sounding names, credit reporting agencies, also known as credit bureaus, are for-profit companies. _______ KNOW WHO CAN PULL YOUR REPORT Only banks, debt collectors, landlords or those with a valid interest can pull credit reports. “Curiosity is not a permissible purpose,” said Rebecca Kuehn of the Federal Trade Commission. “You can’t just pull a report, not even on your husband.” Prospective employers also need to get written consent to run checks on job applicants. Hawaii and Washington ban the practice in most cases, however, and lawmakers in about a dozen states are debating whether to do the same. The thinking is that companies shouldn’t be able to use a person’s credit history to make hiring decisions, especially at a time when so many are struggling financially. That said, credit checks are typically only used for filling positions with access to sensitive financial information, said Mike Aitken of the Society for Human Resource Management. Even then, he said companies mainly want to see that there aren’t any outstanding judgments or collections. Credit reports sent to employers also don’t include a date of birth or the names of spouses on joint accounts, since employers can’t discriminate based on age or marital status. _______ A CREDIT SCORE DOESN’T DEFINE YOU – SEVERAL DO By now, most people understand that credit reports are the foundation for credit scores. What you may not realize is that a person can have multiple scores. A company called FICO develops the most widely used scores, but they’re not the only ones on the market. VantageScore has gained popularity and all three credit bureaus now sell both to lenders. The version you’ll get depends on the credit bureau you go to. TransUnion sells both to consumers. But Equifax only sells FICO scores, which range from 300 to 850. Experian sells VantageScores, which range from 501 to 990. In case that isn’t complicated enough, the FICO scores you get from credit bureaus can differ for a couple reasons. The first is that there may be slight differences in the credit reports each bureau has for you. Additionally, FICO develops a specific formula for each credit bureau. In most cases, the differences shouldn’t amount to more than a few points, said Craig Watts, a FICO spokesman. Then there are so-called educational scores, such as Experian’s PLUS score. These are sometimes called “Fako” scores because they’re sold to consumers, but lenders don’t use them. All that said, keep in mind that the basis for any credit score is a credit report. So one score should give you a good idea of where you stand with the others. Credit scores aren’t free, however. You can buy them from a credit bureau or from MyFico.com for $15.95. _______ THERE COULD BE OTHER REPORTS ON YOU Credit reports are the most widely known, but they’re not the only information available on consumers. For example, banks and lenders are increasingly running additional checks on loan applicants, said Teresa Grove, a spokeswoman for Kroll Factual Data, a screening company. “It used to be people could qualify for large transactions based on a credit score,” she said. “Now more lenders want income verification too.” Other consumer reports provide records on check fraud, driving violations and rental histories. As long as there’s a valid interest – say a landlord who wants to check an applicant’s rental records – your permission isn’t needed for those reports to be pulled. Prospective employers, however, need permission to obtain any type of consumer report on a job applicant. For example, it’s not uncommon for companies to run background screenings on prospective hires to check for criminal histories. For a high-level position, a company might also request permission to verify past employment, salary or education, Grove said. As with credit reports, companies are required to disclose if a consumer report was the basis for denying you a job, loan or other service. And if so, you’re entitled to a free copy of that report. _______ If you have a consumer question or comment, e-mail Candice Choi at cchoi(at)ap.org. (This version CORRECTS Corrects range for FICO scores in graf 26 to 300, sted 350)

Read the full article →

Janis Bowdler: Consumer Empowerment 101: Financial Guidance Gives Families a More Stable Future

February 3, 2010

It sounds simple–a more informed consumer is likely to make better decisions at the time of purchase. While many agree that financial literacy may build awareness, it is unlikely by itself to help someone better navigate the fine print. Often, the information misses the key questions confronting a consumer at the time of a big financial decision. A pamphlet about balancing the checkbook, for example, does not equip a homebuyer with the know-how to avoid scams or identify loopholes in his contract. Financial planning, on the other hand, caters to a family’s unique personal finance goals. Those with the means to do so wisely seek out professional advice on how to stretch their dollar and secure their retirement. The same approach has been shown to work for low- and moderate-income families. However, planners are out of reach for many average Americans. In some communities, nonprofit financial counselors are stepping up to help their neighbors open bank accounts, make sound homebuying decisions, or identify an affordable credit card. Especially in today’s economic climate, families need relevant, real-time advice from professionals who offer objective guidance on a range of financial issues. Thanks to Representative Luis Gutierrez (D-IL) –who sponsored the “Financial Counseling Language” amendment to the “Wall Street Reform and Consumer Protection Act of 2009″–the nation is one step closer to increasing the availability of financial counseling through local nonprofits without a big hit to the budget. These efforts contribute to the promotion of highly effective services, such as those offered by The Resurrection Project (TRP) in Chicago, Illinois. TRP’s free one-on-one financial counseling program helps families establish short- and long-term goals. They have had great success with more than 100 participants, many of whom did not have a credit score and earn an average wage of $10.40 an hour. Since entering the program, approximately 60% of them have opened bank accounts, 30% have lowered debt, and 16% have begun a credit history for the first time. To learn more about the benefits of one-on-one financial counseling, please join NCLR for a national call this Thursday, February 4 at 2:00 p.m. EST.

Read the full article →

← Previous Entries