Sound familiar? The UK is seeing the same situation as the US, that despite rate cuts by the central bank to banks, rates to customers have stayed high. In the US there has been some movement down though nothing in comparison to the rate drops that banks have received. A few stories have popped up in the US media, one of which went as far as to say there really isn't any connection since the rates are out in an open market, blah, blah, blah. That spin reminded me of the administration spinning the oil increases after the invasion of Iraq. In the case of the banks, if the government - meaning us - is lending banks extraordinary sums of money, shouldn't the government - again, that is us - be able to dictate a few terms such as lower rates? But that might make too much sense and go against the long standing tradition of banks screwing customers.
Britain's largest mortgage lenders were last night accused of fattening their profits at the expense of increasingly stretched homeowners as two leading firms ignored the third interest rate cut from the Bank of England in five months and pushed through price increases on some of their most popular home loan offers.
The moves are part of an increasingly rapid withdrawal by lenders from the most competitive mortgage deals as the credit crunch continues to bite and house prices fall. The Bank's three rate cuts since December have failed to halt the retreat.
The NYT has an article today about how the mortgage 'crisis' has spread to even people with good credit and prime loans. This is an example of one of the 'innocent' people caught up in the mortgage mess:
An example of the spreading credit crisis is seen in Don Doyle, a computer engineer at Lockheed Martin who makes a six-figure income and had a stellar credit score in 2004, when he refinanced his home in Northern California to take cash out to pay for his daughter’s college tuition.
Mr. Doyle, 52, is now worried that he will have to file for bankruptcy, because he cannot afford to make the higher variable payments on his mortgage, and he cannot sell his home for more than his $740,000 mortgage.
“The whole plan was to get out” before his rate reset, he said. “Now I am caught. I can’t sell my house. I’m having a hard time refinancing. I’ve avoided bankruptcy for months trying to pull this out of my savings.”
My take on this, after the jump...
He took a loan that he knew he couldn't afford because he planned on selling and making a profit before he had to pay what he knowingly agreed to pay. How is that worthy of our sympathy?
I've been looking for a condo for years and refused to buy because prices were too high and I was most certainly not going to get an ARM. I pity this guy, sure, but I don't think the government (i.e., you and I) should bail him out. He gambled and lost. He didn't have to get an ARM. He didn't have to buy such an expensive house. And from all accounts, he wasn't cheated or lied to. He knew that his rates were going to go up, he knew that when they went up they'd be more than he could afford, he just figured he'd cash in before his obligation to pay more kicked in. He knowingly gambled and lost. Not our fault. But clearly his.
Losing hundreds of billions is not something any economy can shake off right away. Wall Street is also afraid to lose the great stars of big finance so no only did they pay them handsomely for the subprime junk, they're still throwing money around in order to keep everyone from jumping to the next company. Throwing more money, a lot of money, at these people isn't going to help get beyond this self made problem any faster.
Somehow missing in this review is the complete failure by all of the G7 governments in regulation. They all knew what was going on and none took any action. Money was flowing and life was good. Thanks in for the great leadership and I guess we'll find the bill is in the mail.
One culprit was the lavish performance-pay regime on Wall Street and in the City, which, they say, 'encouraged disproportionate risk-taking with insufficient regard to longer-term risks'. The secretive 'off balance sheet' accounting used by many banks to hide their borrowing was also criticised.
But the investors who bought securities backed by the shaky American mortgages did not escape blame either: the report identified 'poor investor practices, including excessive, too often mechanical, reliance on credit rating agencies'.
No wonder the US markets were flat yesterday despite another half point cut by Bernanke. The folks who helped prop up the subprime loans are now being scorched themselves. Reagan's trickle down may have never worked but in this case, it's working. The big question is where is this going and who will be next? Even with countless financial wizards and number crunchers, Wall Street has no idea. That's why they make the big bucks and dictate policy, including the Fed.
Like other bond insurers, FGIC initially focused on municipal bond deals but ventured into riskier debt securities to boost returns. Massive defaults on U.S. subprime mortgages battered the credit quality of these products, increasing the capital bond insurers needed for an ``AAA'' rating.
Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients -- and possibly forcing them out of business.
Ambac has already received a downgrade from rating agency Fitch, but has so far been spared by Standard & Poor's and Moody's. MBIA hasn't been downgraded.
Seriously, who is funding this guy? What organizations is he still affiliated with, and who is funding them? He needs to be put to pasture once and for all (what's that slaughterhouse in California, again?) From ABC:
Ralph Nader has formed a presidential exploratory committee, and said in an interview Wednesday that he will launch another presidential bid if he's convinced he can raise enough money to appear on the vast majority of state ballots this fall.
Nader, who ran as an independent candidate in each of the past three presidential elections, told ABCNews.com that he will run in 2008 if he is convinced over the next month that he would be able to raise $10 million over the course of the campaign — and attract enough lawyers willing to work free of charge to get his name on state ballots.
So, are we better off now than we were before Ralph Nader helped throw the 2000 and 2004 elections to George Bush? How has his grand plan helped our country? There has been NO positive change, whatsoever, from Nader having entered either race. The only possible impact anyone can point to is that Nader may have handed the presidency to George Bush, twice. That's all Nader has going for him - the possibility that he's responsible for giving the country waterboarding, the Iraq war, the mortgage mess, skyrocketing oil prices, massive budget deficits, signing statements, Alito and Roberts, Gitmo...
UBS just announced another ugly write-down, $14 billion and a $4 billion loss for 2008, and that won't be the last of it for the industry. How can the former CEOs continue to hold their millions when it was based on such bogus business? Now that the investigation is moving, will anything come of it?
The Federal Bureau of Investigation has opened criminal inquiries into 14 companies as part of a wide-ranging investigation of the troubled mortgage industry, F.B.I. officials said Tuesday.
The F.B.I. said it was looking into possible accounting fraud, insider trading or other violations in connection with loans made to borrowers with weak, or subprime, credit.
The agency declined to identify the companies under investigation but said the inquiry, which began last spring, involves companies across the financial industry, including mortgage lenders, loan brokers and Wall Street banks that packaged home loans into securities.
Bush took all of the credit for policies that led to the booming CEO economy (that never trickled down beyond CEOs) and record rates of home ownership. Is he still a stand up guy now or will he run from his words and his record?
Bush in 2004: "Thanks to being the most productive workforce in America, and I might say, thanks to good policies, this economy is strong and it's getting stronger," Bush told supporters.
Noting that 68 percent of Americans own their own homes, Bush said, "Home sales were the highest ever recently. That's exciting news for the country."
Fast-forward to 2008: The housing and mortgage meltdown caused the biggest one-year drop in the rate of homeownership on record, according to government figures released Tuesday.
The Census Bureau report showed that home owners accounted for 67.8% of occupied homes in the fourth quarter, down 1.1 points from a year earlier. It's the largest year-over-year drop recorded in the report. The ownership rate was also well below the 68.2% ownership rate in the third quarter of 2007.
Who needs regulation and oversight anyway? Surely there are billions of extra cash just laying around to bail out this next group, right? If these cowboys weren't dragging us all down, it would be easier to let them lose so much money, but because of their own failures, we're all having to pay the price for greed and incompetence.
Regulators fear a possible chain of events in which the troubled bond insurers, MBIA and Ambac, might be unable to keep their promise to pay investors if borrowers default on their debt.
That could leave the buyers of the bonds — including many banks and pension funds — on the hook for untold billions of dollars in losses, shaking confidence in the financial system.
To avoid a possible crisis, insurance regulators met with representatives of about a dozen banks on Wednesday to discuss ways to shore up the insurers by injecting fresh capital, much as Wall Street firms have turned to outside investors recently after suffering steep losses related to subprime mortgages.
I'm one of those "lucky" ones who did the right thing when I bought my home back in the fall of 1999. I was just about to get married and just kind of went with it, got a fixed rate mortgage because that seemed prudent. I agree with the opinion that if someone can prove that they were suckered into something then they have just cause for anger and possibly damages. But if it's someone who thought they'd take a chance in order to make a quick buck, especially after seeing how easy it can be done via all those home makeover shows such as "Flip This House," then that's too bad. You gambled, you lost. And while I may feel bad for your situation, why should I be bailing out someone for doing something similar to a guy who starts his own restaurant? That person took a chance and the customers didn't show and the restaurant went belly up. Well so did the gamble on your house or houses. Where's my "reward" for being cautious?
The GOP is not going to like hearing this news. They might actually have to defend their disastrous economic policies to voters.
The US as a whole may yet escape a recession. But important individual states – some with upcoming primaries – may already be mired in a slump.
"California, Arizona, Florida, Michigan, Wisconsin: they're in recession. [And] they account for 25 to 30 percent of the nation's GDP," said Mark Zandi, chief economist for Moody's Economy.com, at a Brookings Institution seminar last week.
Compounding the problem will be the massive increase in mortgage problems hitting the traditional swing state of Ohio. Mortgage-aid hotlines have been flooded with calls, with ten times the number of calls in the fourth quarter compared to the first quarter of 2007. There's a lot of explaining to do out there by the GOP and it ain't going to be pretty.
Of course...taxpayers. The middle class. Hell, let's just round up all of the bad debt from the war, the fools that tried get rich quick schemes with subprime mortgages, Wall Street executive payouts and then just send the bill to regular folks. Oh sorry, it's already happening. Naturally options for writing off losses by individuals is slightly more limited, with limits of only a few thousand dollars per year.
A $270 million annual deduction would save Bank of America something more than $100 million a year in federal and state income taxes. The long-term tax-exempt rate, which is based on Treasury rates and other things so complicated that they make my teeth hurt. The rate changes each year, Willens says, but not by much. When I asked how it's calculated, Willens, a master of tax arcana, threw up his hands. (Metaphorically, of course.) "It's like the formula for Coca-Cola," he said, "no one outside the circle knows it" and it's so complicated that, "no one else wants to find out."
Seriously, any plan to bail these people out had better include a test to prove that they were hoodwinked by their mortgage broker. Otherwise, they gambled and they lost. Lots of people bought homes and did what it took to make their payments, and did make their payments, and others opted not to buy at all until the market settled down. We should not be bailing people out for being idiots, or for trying to make a fast buck, especially when it means the rest of us will now have to pay more for OUR next home as a result of this bail out. Where's the plan to reimburse the rest of us for not being idiots? Once again, always have a plan to help the rich, the poor, or the stupid. Never a plan to help the rest of us.
Passing through the Orlando airport, the headline of the Orlando Sentinel caught my eye "Personal bankruptcies jump 96% in Metro Orlando." That's almost double. The economy of Florida is clearly tanking. And, they've got two Bushes to thank, George and Jeb. We'll see if Floridians stick with Republicans again this year after all the economic damage wrought. And, they can thank Bush and the GOPers for the new bankruptcy law that screws people while enriching the industries that brought about the fiscal crisis. More after the break.
The economic downturn seems to be affecting a wide swath Floridians -- across the economic spectrum:
Amid the growing mortgage-debt crisis, personal bankruptcies nearly doubled in Metro Orlando last year, although they remained far lower than the record levels earlier this decade, according to court figures released this week.
Nearly 7,060 debtors declared insolvency in Orlando's federal bankruptcy court in 2007, up 96 percent from 2006, the U.S. Bankruptcy Court for the Middle District of Florida reported.
Fueled by the mortgage crisis, personal bankruptcy is reaching all levels of the income spectrum -- from affluent professionals to lower-income subprime borrowers, bankruptcy lawyers said.
Looking to buy your first home, but you waited because prices were just a bit too high? Or did you buy a home and have been diligently paying your mortgage on time?
The Bush administration is now talking about expanding their little mortgage bail out to people with prime loans too. That means pretty much everyone who simply gambled and lost or just didn't want to pay their bills on time. And what's worse, it means people who pay a lot less than you for the same mortgage will get to keep that sweet little deal for the next five years, courtesy of the Bush administration, simply because they didn't pay their bills on time and you did. Yes, they not only pay less than you each month for the same freaking mortgage, but because they didn't pay their bills on time, they get to keep paying less than you for years to come. Had they paid their bills on time, or simply not gambled, their mortgage payment would now be in line with yours, or even higher. But why not reward stupidity? We've been doing it for 7 years!
After the jump, how Bush is planning to make your next home purchase more expensive!
Or, take cases like mine, where I haven't bought my first home because prices were too high and I didn't want to speculate or overstretch my budget. People like me thought we'd wait until prices came down a bit. Well surprise! The Bush administration is talking about artificially keeping those prices up so you can pay another ten, fifty, 100 thousand or more for that first condo or home. You see, the market was finally self-correcting, moving back in the direction of normal price levels. But our politicians can't stomach letting the free market do its work and holding people responsible for their lifestyle choices. So, yet again, we get a federal bail-out that helps everyone but you and me. In fact, it doesn't just not help us, it hurts us because these mortgage bail-out plans guarantee that the next home we buy will now be more expensive than it would have been. Prices were coming down, now they won't. And just guess how this little bail-out is going to affect the price of YOUR new mortgage? Think even more expensive. All because you were neither greedy nor an idiot.
So where's my bail-out now that the Bush administration has just put a virtual tax on my first condo? Where's my check for $50,000 to help pay for the inflated prices they're socking the rest of us with? Don't expect any help any time soon. Those of us in the middle, neither rich nor poor, never get any help from either party. We're just expected to pay to help everybody else, over and over again. And they wonder why much of the American public is fed up with both parties.
The UK in many ways is more like the US than Europe, with credit being one major similarity. In France, house/flat loans generally require 30%-40% cash upfront and then terms of 10-12 years, with 15 or more years much less common. Credit cards to anyone breathing just doesn't exist. Compare that to the UK which has been high flying for years with an easy credit model closer to what we have in the US. The UK economy has been booming compared to Euroland though so has spending on credit. 2008 may be the year that changes. More on the credit issues facing the UK after the jump.
The latest figures indicate that 23 per cent of people – 9.5 million adults – were finding their current level of debt "unmanageable". Although the Bank of England cut the base rate of interest last month, an estimated 1.4 million people will still have to pay more for their home loans when their fixed-rate deals come to an end this year, costing an extra £150 to £250 a month.
Tomorrow, Grant Thornton will forecast that 10,000 individuals will hit the financial wall each month in 2008, with 28,000 individuals sliding into insolvency in the first quarter. As many as one third of bankruptcies in the first three months of the year will be caused by "excessive Christmas spending".
Mike Gerrard, the head of Grant Thornton's personal insolvency practice, said: "Sadly, many individuals spend up on credit at Christmas and pay no heed to the financial warning bells. Come January, they find themselves in a situation where previous financial woes are compounded by the bills arriving from the festive season and in these situations insolvency becomes the only way out."
Mike Naylor, a personal finance expert at uSwitch.com, remarked: "People have enjoyed easy access to cheap credit for quite some time, but for some, the party really could be over." He said those with a poor credit record would experience a particularly tough time.
In a survey last month, the Bank of England found that more than one fifth of those whose mortgage deals had come to an end last year struggled to meet higher payments.
Experts predict a rise in Individual Voluntary Agreements (IVAs), a less stringent form of bankruptcy, because banks are once again accepting them after quibbling with their terms last year. Bankruptcies are also expected to be more readily accepted by individuals because they have become so commonplace and so their stigma has fallen.
Wouldn't it have been easier if "leaders" bothered to provide some reasonable ground rules? Obviously when people want to push the limits, they're going to find a way to do what they want to do. However, I reject the arguments that claim we could not have done anything and that "the market" will ultimately solve such excesses. Perhaps, but at what cost?
Our leaders both at the Fed and in Congress could have minimized the fallout but they all were too busy playing Republican financial experiments with our financial system. Just like the Republican societal experiments with supposed safe sex (abstinence programs), I wish they would just experiment amongst themselves and leave everyone else out of their little games.
A few examples of the lawsuits, after the jump.
This time, investors are aiming not only at mortgage lenders, brokers and investment banks but also insurers (American International Group), bond funds (State Street, Morgan Keegan), rating agencies (Moody's and Standard & Poor's) and homebuilders (Beazer Homes, Toll Brothers et al).
Borrowers, too, are suing both their lenders and the Wall Street firms that wrapped up their loans. Several groups of employees and pension-fund participants have filed so-called ERISA/401(k) suits against their own firms. Local councils in Australia are threatening to sue a subsidiary of Lehman Brothers over the sale of collateralised-debt obligations (CDOs), the Financial Times has reported. Lenders are even turning on each other; Deutsche Bank has filed large numbers of lawsuits against mortgage firms, claiming they owe money for failing to buy back loans that soured within months of being made.
“It seems that everyone is suing everyone,” says Adam Savett of RiskMetrics' securities-litigation group. “It surely can't be long before we get the legal equivalent of man bites dog, where a lender sues its borrowers for some breach of contract.”
The authorities, too, are baring their teeth. Several Wall Street banks have received subpoenas from New York's attorney-general, Andrew Cuomo, requesting information on their packaging of now-stricken securities. This comes on top of a deepening probe into possibly inflated home-price appraisals by brokers and lenders, including Washington Mutual and First American Corporation. Ohio's attorney-general, Marc Dann, has been just as hyperactive, suing over a dozen lenders and brokers.
No less important is the spadework being done by the Securities and Exchange Commission, America's main markets watchdog. It is conducting more than 20 investigations, including one into the arrangements banks entered into with hedge funds that may have been designed to hide or delay mark-to-market losses.
So instead of proper guidance and regulation, we are stuck in this cycle of lawsuits, counter lawsuits and probably counter-counter lawsuits. How is this any easier or less painful than regulation? I'd like to hear how this model is superior because it just looks nuts to me.
The other point that jumps out is the issue of lawsuits. Republicans always want to limit the right to sue though if we're not providing any oversight or regulations to protect people, what other options are there? Funny too that there are plenty of businesses suing, showing that they are just as open to lawsuits as regular people, despite their complaints about lawsuits. The old do as I say, not as I do from big business.
An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.
Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.
A housing bubble and government (over)spending is not just an American problem. The Blair legacy is now taking its toll and Gordon Brown is going to have more explaining to do.
The UK's current account deficit leapt by almost 50 per cent in the third quarter, hitting a record £20bn and raising fresh concerns about the stability of the country's economy.
The deficit was almost twice as large as expected, as the strong pound saw the level of imports far exceed exports, and the levels of investment fell. More troubling news on the UK economy, after the jump.
Public sector borrowing also hit a new high of £11.2bn last month, up from £9.1bn at the same time last year, while gross mortgage lending fell by 7.7 per cent during the month, confirming the slowdown in the housing market.
Jonathan Loynes of Capital Economics said the data showed the UK economy to be "dangerously unbalanced". "This morning's flurry of UK data paints a worrying picture of a dangerously unbalanced economy," he said. "The UK's external position now looks pretty much as bad as that in the US, suggesting the pound needs to fall sharply like the US dollar."
Peter Spencer, chief economic adviser to the Ernst & Young ITEM Club, added: "What is really shocking about these figures is that they reveal that the Exchequer was running a large current deficit before the credit crisis hit home, when the economy was doing very well and it should have been showing a large current surplus.
"Now, the economy is slowing sharply and the public finances will deteriorate equally rapidly. The first hit will come in February when the January tax receipts will be published. These will be well down on last January's figure, which was of course swollen by huge City bonuses and profits last year. We have revised our forecast of this year's current deficit up to £16bn, twice the Treasury pre-Budget report forecast of £8bn. As if the Chancellor had not got enough problems on his plate already."
Not only from outside consumer groups, but also from another member of the Fed. Mr Bubble can spin it anyway he likes, but this problem is jointly owned by Greenspan and Bush. Neither had any interest in stopping the good times and blindly ignored all of the warnings for the bad times ahead.
Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.
But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.
(More warnings that were ignored, after the jump.)
In 2001, a senior Treasury official, Sheila C. Bair, tried to persuade subprime lenders to adopt a code of “best practices” and to let outside monitors verify their compliance. None of the lenders would agree to the monitors, and many rejected the code itself. Even those who did adopt those practices, Ms. Bair recalled recently, soon let them slip.
And leaders of a housing advocacy group in California, meeting with Mr. Greenspan in 2004, warned that deception was increasing and unscrupulous practices were spreading.
John C. Gamboa and Robert L. Gnaizda of the Greenlining Institute implored Mr. Greenspan to use his bully pulpit and press for a voluntary code of conduct.
“He never gave us a good reason, but he didn’t want to do it,” Mr. Gnaizda said last week. “He just wasn’t interested.”
Today, as the mortgage crisis of 2007 worsens and threatens to tip the economy into a recession, many are asking: where was Washington?
Indeed. Where was Washington and why are they asking everyone else to pay for problems that the allowed?
