Financial turmoil in Europe is no longer a problem of small, peripheral economies like Greece. What’s under way right now is a full-scale market run on the much larger economies of Spain and Italy. At this point countries in crisis account for about a third of the euro area’s G.D.P., so the common European currency itself is under existential threat.

And all indications are that European leaders are unwilling even to acknowledge the nature of that threat, let alone deal with it effectively.

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Filed under: * Economics, Politics • Economy • Credit Markets • Currency Markets • Euro • European Central Bank • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • Politics in General • * International News & Commentary • Europe • --European Sovereign Debt Crisis of 2010 • France • Germany • Greece • Italy • Spain

The nation’s banks are holding a much higher rate of defaulted mortgages on their books than mortgage giants Fannie Mae and Freddie Mac, according to a report released Wednesday by the Office of the Comptroller of the Currency, which regulates national banks.

The report said that some 19.7% of mortgages held in banks’ portfolios were delinquent at the end of March. By contrast, nearly 6.8% of mortgages backed by mortgage giants Fannie Mae and Freddie Mac were nonperforming, and 11.4% of all mortgages that are serviced by banks.

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Filed under: * Economics, Politics • Economy • Corporations/Corporate Life • Housing/Real Estate Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007--

Estimates of monthly GDP indicate that the only growth in the first quarter of 2011 was from February to March. After a temporary rise in March, the economy began sliding again in April, with declines in real wages, in durable-goods orders and manufacturing production, in existing home sales, and in real per-capita disposable incomes. It is not surprising that the index of leading indicators fell in April, only the second decline since it began to rise in the spring of 2009.

The data for May are beginning to arrive and are even worse than April's. They are marked by a collapse in payroll-employment gains; a higher unemployment rate; manufacturers' reports of slower orders and production; weak chain-store sales; and a sharp drop in consumer confidence.

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Corporations/Corporate Life • Housing/Real Estate Market • Labor/Labor Unions/Labor Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The U.S. Government • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate

The Congressional Budget Office (CBO) says the real cost of the federal government guaranteeing the business of failed mortgage giants Fannie Mae and Freddie Mac is $317 billion -- not the $130 billion normally claimed by the Obama administration.

In a report delivered to the House Budget Committee on June 2, the CBO said a “fair value” accounting of guaranteeing the two defunct mortgage companies – known as Government Sponsored Enterprises (GSEs) – was more than twice as high as the Office of Management and Budget had accounted for.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The U.S. Government • Politics in General

The Obama Administration and Chairman Ben Bernanke's Federal Reserve have bet on a recovery based on reflating asset prices with easy money, federal spending and temporary stimulus programs. Part of that bet was reflating the housing bubble.

The results are what we now see: higher stock prices for Americans lucky enough to own shares, but 2% growth and mediocre job creation, a housing recession stretching well into its fourth year, and soaring commodity prices that reduce real income growth.

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Corporations/Corporate Life • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The U.S. Government • Federal Reserve

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • The National Deficit • The United States Currency (Dollar etc) • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate

From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.

In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.

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It is hard to believe, but it looks like the government will soon use the taxpayers' checkbook again to create a vast market for mortgages with low or no down payments and for overstretched borrowers with blemished credit. As in the period leading to the 2008 financial crisis, these loans will again contribute to a housing bubble, which will feed on government funding and grow to enormous size. When it collapses, housing prices will drop and a financial crisis will ensue. And, once again, the taxpayers will have to bear the costs.

In doing this, Congress is repeating the same policy mistake it made in 1992. Back then, it mandated that Fannie Mae and Freddie Mac compete with the Federal Housing Administration (FHA) for high-risk loans. Unhappily for both their shareholders and the taxpayers, Fannie and Freddie won that battle.

Now the Dodd-Frank Act, which imposed far-reaching new regulation on the financial system after the meltdown, allows the administration to substitute the FHA for Fannie and Freddie as the principal and essentially unlimited buyer of low-quality home mortgages. There is little doubt what will happen then.

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Jeff Horton has a job, two cars and money in the bank. Yet, he stopped paying his mortgage a year ago. With shoddy documentation by mortgage lenders now delaying foreclosures across the US, Jeff thinks he will continue living for free for at least another six months, and probably longer.

The 33-year-old IT specialist is keen to put an end to his disastrous home purchase that will likely leave his bank with a loss of at least $100,000. Until the bank actually makes him leave, he will keep living in the Orlando house, and pocket the $2,200 he used to pay on his monthly mortgage. “I’m not stupid,” he says. “I will live for free until the bank takes over the house.”

Shasta Gaughen, an anthropologist living in California, stopped paying her mortgage in February. She has no idea when her home will actually be taken over. “I have been able to save significantly,” she says. “Every penny that was supposed to go to my mortgage went into savings, around $1,200 a month.”

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Housing/Real Estate Market • Personal Finance • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The U.S. Government • Politics in General • * Theology • Ethics / Moral Theology

... if, as appears to be the case, the overwhelming majority of homeowners facing foreclosure have fallen far behind on their payments, then it is a good deal harder to summon up the same moral outrage over reports that the banks and loan service companies cut corners, failed to keep the right documents and engaged in shoddy and even fraudulent practices. Just because the banks and servicers have screwed up doesn't mean they and their investors are no longer entitled to get their money back.

Certainly banks and servicers should, at their own expense, be sent back to do things right. Those who engaged in fraud should be punished. And if there are legitimate questions about who owns a loan, those will need to be resolved before the proceeds of any foreclosure are distributed.

But none of that changes the basic reality that there are millions of Americans who took out mortgages they could not support on houses they could not afford. It may be necessary to postpone their day of reckoning for a few months to get the paperwork in order and ensure that all the proper procedures are followed, but the reckoning is inevitable.

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(Please note the above title is from the print edition--KSH).

A snapshot of the problems can be seen at the real estate agency that sold Ms. [Amanda] Ducksworth her home, Marc Joseph Realty, based in Fort Myers.

The agency had 35 deals that were supposed to close this month. As of Thursday, Fannie [Mae] had postponed 11 of them. Another handful of homes that did not have offers or were being prepared for market had also been withdrawn.

“If this wipes out half my inventory, that’s a scary thing,” said Bill Mitchell, the agency’s closing coordinator.

As he spoke, his computer pinged and another message from Fannie [Mae] came through about withdrawing a house. It had the subject line, “Unable to Market Notice.”

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Corporations/Corporate Life • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The U.S. Government

The U.S. government will face pressure to bail out struggling states in the next 12 months, said Meredith Whitney, the banking analyst who correctly predicted Citigroup Inc.’s dividend cut in 2008.

While saying a bailout might not be politically viable, Whitney joined investor Warren Buffett in raising alarm bells about the potential for widespread defaults in the $2.8 trillion municipal bond market. She said state and local issuers have taken on too much debt and that the gap between public spending and revenue is unsustainable.

“People will think the federal government will bail these states out,” Whitney, 40, the founder of Meredith Whitney Advisory Group Inc., said in an interview on Bloomberg Television’s “In the Loop.” “It’s going to be an incredibly divisive issue.”

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate • State Government

Winston Churchill once moaned about the long, dishonourable tradition in politics that sees commerce as a cow to be milked or a dangerous tiger to be shot. Businesses are the generators of the wealth on which incomes, taxation and all else depends; “the strong horse that pulls the whole cart”, as Churchill put it. No sane leader of a country would want businesspeople to think that he was against them, especially at a time when confidence is essential for the recovery.

From this perspective, Barack Obama already has a lot to answer for. A president who does so little to counter the idea that he dislikes business is, self-evidently, a worryingly negligent chief executive. No matter that other Western politicians have publicly played with populism more dangerously, from France’s “laissez-faire is dead” president, Nicolas Sarkozy, to Britain’s “capitalism kills competition” business secretary, Vince Cable (see article); no matter that talk on the American right about Mr Obama being a socialist is rot; no matter that Wall Street’s woes are largely of its own making. The evidence that American business thinks the president does not understand Main Street is mounting

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Filed under: * Economics, Politics • Economy • Corporations/Corporate Life • Housing/Real Estate Market • Labor/Labor Unions/Labor Market • Taxes • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The U.S. Government • Politics in General • Office of the President • President Barack Obama

....given the combination of the expiration of the home buyer tax credit and the increasing number of loans moving to final foreclosure, we knew that home prices overall would take a hit, but it would take a while.

Well we're here.

Two new reports out today prove the consequences of oversupply of organic inventory (12.5 months on existing homes in July according to the National Association of Realtors) and the shadow inventory of foreclosed properties (estimates vary widely and wildly). CoreLogic's Home Price Index shows home prices "flat" in July as transaction volume continues to decline. "This was the first time in five months that no year-over-year gains were reported," according to the release. In June, prices were up 2.4 percent year over year. In addition, "36 states experienced price declines in July, twice the number in May and the highest number since last November when prices nationally were still declining."

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Pundits are restless, an election looms – so this week, President Barack Obama is proposing yet another round of special favors, aimed at improving the economy. Prominent columnist Paul Krugman wants the plans to be “bold” and to involve huge amounts of money. Here’s a contrasting view: government should stop declaring recovery plans, bold or otherwise.

Maybe the constant announcing of new plans – especially plans backed by borrowing or tax cuts – is, itself, an impediment to economic growth.

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Corporations/Corporate Life • Credit Markets • Housing/Real Estate Market • Labor/Labor Unions/Labor Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

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The Obama administration and the Federal Reserve want to fix the United States economy by spending more money. But while that approach might work for Europe, it is risky for the US. The nation would be better off embracing traditional American values like self-reliance and small government.

There's no question about it: The 20th century was America's era. The United States rose rapidly from virtually nothing to become the most politically powerful and economically strongest country in the world. But the financial crisis and subsequent recession have now raised doubts about its future. Are we currently witnessing the beginning of the end of the American era?

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Corporations/Corporate Life • Credit Markets • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The U.S. Government • Federal Reserve • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama • * International News & Commentary • America/U.S.A. • Europe • Germany

We don’t have alternative universe laboratories to run control bailout experiments, but we can imagine the alternative outcomes if different actions were taken.

So let’s do just that. Imagine a nation in the midst of an economic crisis, circa September-December 2008. Only this time, there are key differences: 1) A President who understood Capitalism requires insolvent firms to suffer failure (as opposed to a lame duck running out the clock); 2) A Treasury Secretary who was not a former Goldman Sachs CEO, with a misguided sympathy for Wall Street firms at risk of failure (as opposed to overseeing the greatest wealth transfer in human history); 3) A Federal Reserve Chairman who understood the limits of the Federal Reserve (versus a massive expansion of its power and balance sheet).

In my counter factual, the bailouts did not occur. Instead of the Japanese model, the US government went the Swedish route of banking crises: They stepped in with temporary nationalizations, prepackaged bankruptcies, and financial reorganizations; banks write down all of their bad debt, they sell off the paper. Int he end, the goal is to spin out clean, well financed, toxic-asset-free banks into the public markets.

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Filed under: * Culture-Watch • History • * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Federal Reserve • Treasury Secretary Timothy Geithner • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate

From the FT's Alphaville blog:

So the US Treasury’s centrepiece mortgage modification programme — Hamp — is something of a failure. That much we knew already.

But Laurie Goodman over at Amherst Securities brings up another point.

The programme actually has a lower success rate than other modification programmes — even those that involve a similar amount of payment reduction.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The U.S. Government • Treasury Secretary Timothy Geithner

The sales momentum that had been slowly lifting local home sales came to a jarring halt in July, raising questions about the long-awaited recovery of the real estate market.

Monthly home sales data released Tuesday show that 643 area homes sold during July, a striking drop-off from the 1,022 transactions recorded in June.

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Filed under: * Economics, Politics • Economy • Corporations/Corporate Life • Housing/Real Estate Market • Labor/Labor Unions/Labor Market • Personal Finance • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • * South Carolina

The administration's second assumption, meanwhile, is a matter of academic theories about the sizes of the relevant economic multipliers. Textbook Keynesian economics tells us that government-purchases multipliers are larger than tax-cut multipliers. And, as we have seen, the Obama administration's economic team consulted these standard models in deciding that spending would be significantly more effective than tax cuts.

But a great deal of recent economic evidence calls that conclusion into question. In an ironic twist, one key piece comes from Christina Romer, who is now chair of Obama's Council of Economic Advisers. About six months before she took the job, Romer teamed up with her husband and fellow Berkeley economist David Romer to write a paper ("The Macroeconomic Effects of Tax Changes") that sought to measure the influence of tax policy on GDP. Crucial to the Romers' method was their effort to identify changes in tax policy made during times of relative economic stability, and driven by a desire to influence economic behavior or activity (to encourage growth, say, or reduce a deficit), rather than those changes made in response to a recession or crisis. By studying such "exogenous" tax-policy changes, the Romers could be more confident that they were in fact measuring the effects of taxes and not those of extraneous conditions.

The Romers' conclusion, which is at odds with most traditional Keynesian analysis, was that the tax multiplier was 3 — in other words, that every dollar spent on tax cuts would boost GDP by $3. This would mean that the tax multiplier is roughly three times larger than Obama's advisors assumed it was during their policy simulations.

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Government watchdogs told a Senate panel Wednesday that the Obama administration's effort to help homeowners avoid foreclosure isn't working and that the Treasury Department has failed to fix the program.

Special inspector general for the financial bailouts Neil Barofsky said the program has not "put an appreciable dent in foreclosure filings," during a Senate Finance Committee hearing on the $700 billion bank bailout. He also said the Treasury Department has ignored earlier demands that it set clearer goals for the program.

Elizabeth Warren, who chairs a separate Congressional Oversight Panel on the bailouts, said Treasury's failure to act more quickly could be hurting the recovery.

More foreclosures could force down the price of homes and further hurt the already-ailing housing industry.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The U.S. Government • Politics in General • Office of the President • President Barack Obama

A new Time poll reveals just how hard the task is: Two-thirds of respondents say they oppose a second government stimulus package. And 53% say the country would have been better off without the first one.

The result is a White House pulled in three directions at once as it tries to repair the economy — and ensure that Obama and the Democrats can survive a rising tide of public anger. First, the Obama team is improvising ways to pass piecemeal spending items through a Congress where stimulus has become a toxic word. At the same time, the White House is signaling its concern about that budget deficit that has Tea Partyers raging — both through token gestures, like a White House contest that lets the public vote on cost-cutting ideas submitted by federal employees (the winner gets to meet Obama and see his or her idea go in the President's next budget), and through Obama's support for the work of a bipartisan deficit commission. And finally, the White House is trying to explain to angry liberals that it's doing everything possible to keep the economy moving and fight Republican resistance to new spending.

It's a delicate balancing act, on a par with Obama's effort to pass health care reform without appearing to get too involved in the details. And just as it did in the health care battle, the future of Obama's presidency — as well as the fate of the American economy — may hang on the outcome.

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Filed under: * Culture-Watch • History • Psychology • * Economics, Politics • Economy • Housing/Real Estate Market • Labor/Labor Unions/Labor Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Federal Reserve • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • House of Representatives • Office of the President • President Barack Obama • State Government

...the bottom line is Home prices remain too high: There can be no doubt that home prices have moved way down from the 2005-06 peaks. How did I reach the conclusion that, even after a 33% decrease in prices?

By using traditional metrics. Whether we are looking at US housing stock as a percentage of GDP or Median income vs home prices or even ownership vs renting costs, prices remain elevated. Indeed, we see prices remain above historic mean.

Consider price relative to income. From 1977 to 2010, the median US home price was 4.1 times median household income. But as the chart below shows, Home prices are still above that mean. Oh, and that mean is artificially elevated due to the 2002-07 boom. Same with home prices relative to rentals, or housing value as percentage of GDP.

Further, we should not assume that prices will merely mean revert back to historic levels. In most markets, a near 3 standard deviation price move is resolved not by reverting to the mean, but by by careening far below it.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007--

Nearly 1,300 prison inmates wrongly received more than $9 million in tax credits for homebuyers despite being locked up when they claimed they bought a home, a government investigator reported Wednesday.

The investigator said 241 of the inmates were serving life sentences.

In all, more than 14,100 taxpayers wrongly received at least $26.7 million in tax credits that were meant to boost the nation's slumping housing markets, said the report by J. Russell George, the Treasury Department's inspector general for tax administration.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • * Theology • Ethics / Moral Theology

Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.

The bleak report from the Commerce Department is the first sign of how the end of federal tax credits could weigh on the nation's housing market.

The credits expired April 30. That's when a new-home buyer would have had to sign a contract to qualify.

"We fear that the appetite to buy a home has disappeared alongside the tax credit," Paul Dales, U.S. economist with Capital Economics," wrote in a note. "After all, unemployment remains high, job security is low and credit conditions are tight."

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Housing/Real Estate Market • Personal Finance • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector

The Obama administration's flagship effort to help people in danger of losing their homes is falling flat.

More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.

Last month alone,155,000 borrowers left the program -- bringing the total to 436,000 who have dropped out since it began in March 2009.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • Personal Finance • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The U.S. Government • Politics in General • Office of the President • President Barack Obama

To believe Christopher Dodd, the Connecticut Democrat who is chairman of the Senate Banking Committee, the end of government bailouts is near. In truth, the financial-overhaul legislation now before Congress would do little to arrest the bailouts already in progress.

When the U.S. government rescued American International Group Inc. in 2008, it reasoned that a disorderly failure of the financial-services giant would lead to an economic catastrophe. What the Treasury and Federal Reserve said they needed was a way to wind down systemically important institutions without sending them into bankruptcy courts, to keep the companies from triggering defaults on their obligations that would cascade throughout the broader financial system.

Congressional leaders say their final bill will deliver the resolution authority regulators have been seeking. “It will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatening the stability of our economy,” Dodd said June 10 at the House-Senate conference committee where the differences between the two chambers’ bills are being negotiated.

It wouldn’t end AIG’s rescue, though. The reason AIG hasn’t failed is that the Fed and the Treasury continue to stand behind it. There’s no sign this will change anytime soon. Nor would the legislation force the government to do otherwise.

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Filed under: * Economics, Politics • Economy • Corporations/Corporate Life • Stock Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Senate

Obama administration officials on Friday ramped up their attempts to help struggling homeowners, announcing major changes to the government's much-criticized $75-billion program to modify mortgages to avoid foreclosures.

The most significant change is a set of complex new incentives for banks and investors to reduce the principal on so-called underwater mortgages -- loans for homes now worth less than what is owed.

In addition, the administration announced that many unemployed homeowners could receive three to six months of reduced mortgage payments while they look for a job.

Together, the revisions are designed to spur the Home Affordable Modification Program to reach its target of helping 3 million to 4 million homeowners avoid foreclosure through 2012.

While the changes are significant to a year-old program that so far has helped just 170,000 homeowners receive permanently lowered mortgage payments, administration officials stressed they would only make a dent in the projected 10 million to 20 million foreclosures expected in the next three years.

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The U.S. Government • Budget • The National Deficit • Politics in General • Office of the President • President Barack Obama

....Elkhart also symbolizes the failure of federal efforts to turn around the housing slump at the heart of the economic crisis. Housing in this community has become almost entirely dependent on a string of federal support programs, which are nonetheless failing to prevent a fall in prices and a rise in mortgage delinquencies.

More than one in 10 mortgage holders in Elkhart is seriously behind on payments. The median sales price has plunged to the level of a decade ago. Many homeowners owe more than their home is worth, freezing them in place for years. Foreclosures recently hit a record.

To the extent that the real estate market is functioning at all, people here say, it is doing so only because of the emergency programs, which have pushed down interest rates on mortgages and offered buyers a substantial tax credit.

Equally important is an expanded mortgage insurance program run by the Federal Housing Administration, which encourages private lenders to accept borrowers with small down payments. The government takes the risk of default.

A few years ago, only one in 10 buyers in Elkhart used the housing agency program. Now about half do. Across the country, the agency has greatly expanded its reach so that it now insures six million mortgages.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007--

The US economy is in a mess – even if growth has resumed, and bankers are once again receiving huge bonuses. More than one out of six Americans who would like a full-time job cannot get one; and 40% of the unemployed have been out of a job for more than six months.

As Europe learned long ago, hardship increases with the length of unemployment, as job skills and prospects deteriorate and savings gets wiped out. The 2.5-3.5 million foreclosures expected this year will exceed those of 2009, and the year began with what is expected to be the first of many large commercial real-estate bankruptcies. Even the Congressional Budget Office is predicting that it will be the middle of the decade before unemployment returns to more normal levels, as America experiences its own version of “Japanese malaise....”

Three things can make a difference: a second stimulus, stemming the tide of housing foreclosures by addressing the roughly 25% of mortgages that are worth more than the value the house, and reshaping our financial system to rein in the banks.

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Filed under: * Economics, Politics • Economy • Labor/Labor Unions/Labor Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • The National Deficit • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate

A professor at Columbia University, Mr. Stiglitz uses his experience teaching to give the lay reader a lucid account of how overleveraged banks, a shoddy mortgage industry, predatory lending and unregulated trading contributed to the meltdown, and how, in his opinion, ill-conceived rescue efforts may have halted the freefall but have failed to grapple with more fundamental problems.

He is eloquent on how the American economy was sustained before the crisis by “a debt-financed consumption binge supported by a housing bubble” and impassioned in describing what he sees as the government’s failure to make substantial reforms to the economic system: though “excesses of leverage will be curbed,” he writes, “the too-big-to-fail banks will be allowed to continue much as before, over-the-counter derivatives that cost taxpayers so much will continue almost unabated, and finance executives will continue to receive outsized bonuses.” In each case, he writes, “something cosmetic will be done, but it will fall far short of what is needed.”

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Filed under: * Culture-Watch • History • * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Federal Reserve • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

The effect of free money is remarkable. A year ago investors were panicking and there was talk of another Depression. Now the MSCI world index of global share prices is more than 70% higher than its low in March 2009. That’s largely thanks to interest rates of 1% or less in America, Japan, Britain and the euro zone, which have persuaded investors to take their money out of cash and to buy risky assets.

For all the panic last year, asset values never quite reached the lows that marked other bear-market bottoms, and now the rally has made several markets look pricey again. In the American housing market, where the crisis started, homes are priced at around fair value on the basis of rental yields, but they are overvalued by almost 30% in Britain and by 50% in Australia, Hong Kong and Spain.

Stockmarkets are still shy of their record peaks in most countries. The American market is around 25% below the level it reached in 2007. But it is still nearly 50% overvalued on the best long-term measure, which adjusts profits to allow for the economic cycle, and is on a par with two of the four great valuation peaks in the 20th century, in 1901 and 1966.

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Filed under: * Culture-Watch • Globalization • * Economics, Politics • Economy • Stock Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Federal Reserve • Treasury Secretary Timothy Geithner • Politics in General

Banks and other lenders are still foreclosing on Americans' homes at a rate that's outpacing the Obama administration's main effort to stem the crisis.

In fact, while the Treasury Department's Home Affordable Modification Program, or HAMP, has started the mortgage modification process on almost 760,000 homeowners who are at risk of losing their homes, less than 5 percent of those workouts have become permanent, government data show.

"HAMP has made only limited progress for nine months now, and the residential foreclosure crisis continues to mount," said Richard Neiman, the superintendent of banks in New York state and a member of the Congressional Oversight Panel that was formed to monitor the Treasury bank bailout funds that support the mortgage program. He was appointed to the post by the Democratic leadership in the House of Representatives.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The U.S. Government

The second important lesson involves understanding why markets often do not work the way they are meant to. There are many reasons for market failures. In this case, too-big-to-fail financial institutions had perverse incentives: if they gambled and succeeded, they walked off with the profits; if they lost, the taxpayer would pay. Moreover, when information is imperfect, markets often do not work well - and information imperfections are central in finance. Externalities are pervasive: the failure of one bank imposed costs on others, and failures in the financial system imposed costs on taxpayers and workers all over the world.

The third lesson is that Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.

Whenever an economy goes into recession, deficits appear, as tax revenues fall faster than expenditures. The old orthodoxy held that one had to cut the deficit - raise taxes or cut expenditures - to "restore confidence." But those policies almost always reduced aggregate demand, pushed the economy into a deeper slump, and further undermined confidence - most recently when the International Monetary Fund insisted on them in East Asia in the 1990's.

The fourth lesson is that there is more to monetary policy than just fighting inflation....

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Filed under: * Culture-Watch • Globalization • History • * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Federal Reserve • The National Deficit

The last two quarters were even more extreme: Productivity in the nonfarm business sector grew at a shocking 8.1% annual rate. There are two possible explanations. One: The last two quarters were among the most technologically innovative and entrepreneurial in the history of the United States. Two: Fearful businesses pared payrolls to the bone. If the second is closer to the truth, payrolls are extraordinarily lean right now. Which means that firms will need to hire more workers as their sales and production grow. Which means that employment may start growing sooner than the pessimists think.

I have been pointing this out for months, but until the last employment report, it was a hypothesis supported by no evidence. Not anymore. While payrolls continued to decline in November, it was by only a scant 11,000 jobs; and the job counts for September and October were revised upward. The data now show a clear trend that suggests that net job creation may be only a month or two away. We'll see.

There is more to the case for optimism. For one thing, less than 30% of February's $787 billion fiscal stimulus has been spent to date; over 70% is still in the pipeline. Pessimists dote on the fact that the rate of increase of stimulus spending has probably peaked and will be lower in 2010. True. But the level of GDP will continue to get support from fiscal policy, and a second job-creation package ("Please don't call it a stimulus!") looks to be in the works.

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Corporations/Corporate Life • Credit Markets • Housing/Real Estate Market • Labor/Labor Unions/Labor Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Federal Reserve

For the country [ofAmerica] as a whole...homebuyers have paid no more than the old-fashioned standard of 25% of their incomes for housing in any year since 1985. Renters have in recent years paid a somewhat higher percentage of their smaller incomes but not more than 30% in any year over the past several decades.

Neither by comparison with the recent past nor by comparison with other countries today is most housing in the United States unaffordable. The median-priced home in the United States as a whole is 3.6 times the median income of Americans. For Great Britain, the median-priced home is 5.5 times the median income and, in Australia and New Zealand, the ratio of home prices to income is 6.3.

Acknowledging this reality would cause a widely accepted vision, and the national crusades and policies built upon it, to collapse like a house of cards. Instead, facts that would undermine this vision and this political crusade have been largely ignored.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The U.S. Government

Yet the urgent problem now isn't TBTF [too big to fail], or even banker bonuses. These are distractions. The urgent problem is the giant riverboat gamble that Washington can save the economy by doing what comes naturally—spending money carelessly, creating massive new entitlements without funding them, dishing out cheap credit to politically favored sectors, telling business people where and how to invest.

Mr. Feinberg is an apt symbol indeed, for this gamble is built on the conceit that Washington can hector the recipients, whether auto companies, banks or homeowners, into behaving in ways that are "responsible." So far, however, human nature is proving a disappointment: Take the outbreak of tax fraud related to the government's emergency home-buyer's credit.

Nor is the larger gamble looking so good either. Banks continue to fail at an alarming rate, the dollar is under assault, and Washington is looking at a future of trillion-dollar deficits. One might have guessed it would take a decade of Obamanomics to produce European welfare state levels of youth unemployment, but at 18.5% we're there.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • The National Deficit • The United States Currency (Dollar etc) • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

Jeff Nielsen called the couple's lender, Wells Fargo, and said he'd like to apply for a home loan modification.

"The bank didn't quite know what to do with that," he says. He remembers them telling him, "We don't know anything more than you know. Just send in all kinds of documents and we'll get to it as soon as we get the details from corporate."

The Nielsens tried to guess what kinds of documents Wells Fargo might want and sent them in. Two months passed with no response, aside from a form letter saying the lender received the application. Jeff Nielsen began calling the bank twice a week. After another month, he heard that his file was on someone's desk, but no one could tell him who that person was or whether anyone had looked at his file.

"Do you remember that scene in Kill Bill where Uma Thurman is trying to fight Lucy Liu," he says, "but Lucy Liu has all these henchmen, so she has to fight all the henchmen and then Lucy Liu has like 50 more henchmen? But I feel that instead of being this samurai warrior, I'm like Jonathan Lipnicki with all these henchmen. So I have no chance to get to Lucy Liu."

Read or listen to it all, a great examiniation of a government program from the inside.

Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector

Many of Mr. Obama's supporters surely thought this young, dynamic generation of public leaders would elevate the hip, cutting edge of the U.S. economy -- nanotechnology, genomics, robotics, even health and medicine technology. Instead, we've gotten the Old Economy on dialysis. General Motors has been commanded to restart aging UAW factories to output product on behalf of the administration's hybrid-car obsession. Where's the New Economy in any of this?

Or ObamaCare. How will a build-out of Medicare (b. 1965) to cover everyone and costing $1.2 trillion over 10 years not kill innovation in medical and health technology by siphoning away growth capital and its potential financial rewards?

All of this seems so out of sync with the persona and promise Barack Obama conveyed in the campaign. A lot of his Web-based supporters probably thought Mr. Obama was going to be about promoting young guns with new ideas seeking risk capital for the next big thing. Instead, it looks as if the Obama years will be about managing soft landings for mature industries and old unions in the American autumn.

Congress is talking about a "bad behavior" tax on beer and soda pop to reduce obesity and fund mega-Medicare. How about a bad-behavior tax on government? Slim as the president looks, Uncle Sam is looking like quite the fat boy.

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Filed under: * Culture-Watch • Science & Technology • * Economics, Politics • Economy • Consumer/consumer spending • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Politics in General • Office of the President • President Barack Obama

Such government micromanagement of the economy is everywhere. The Post recently reported that Richard Wagoner, the former CEO of General Motors who was removed by the government, remains on GM's payroll "because senior Treasury officials have yet to decide whether he should get the $20 million severance package that the company had promised him." His 2009 compensation -- $1 -- is payable Dec. 31. The $20 million promised to him includes contractual awards, deferred compensation and pension benefits accrued over 32 years with the company. Promise-keeping, including honoring contracts, is the default position of a lawful society. But suddenly, many citizens' legal claims are merely starting points for negotiations with an overbearing government.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

There will be no recovery until there is a halt in the relentless rise in foreclosures. Foreclosures threaten millions of families with financial ruin. By driving prices down, they sap the wealth of all homeowners. They exacerbate bank losses, putting pressure on the still fragile financial system. Lower monthly payments are a balm, but they are no substitute for home equity. And until more Americans can find a good job and a steady paycheck, the number of foreclosures will continue to rise.

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Housing/Real Estate Market • Personal Finance • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007--

Two weeks ago, the U.S. Treasury released additional details (link opens .pdf) about the homeowner bailout, or in Washington-speak the "Making Home Affordable" program. Part of those details included some new ways for homeowners to avoid foreclosure. I thought the far more fascinating part, however, was the so-called "Home Price Decline Protection Incentives" (HPDP). It's the most interesting part of the homeowner bailout that you probably haven't heard about. I have been fascinated with the HPDP since the bailout was announced in February, and now we finally have some detail to dig into.


For some strange reason, virtually no one is talking about the HPDP. I haven't seen a single article on it. Here's how the new fact sheet describes it:

This initiative provides lenders additional incentives for modifications where home price declines have been most severe and lenders fear these declines may persist. These incentives will encourage servicers to undertake more modifications by assuring that incremental investor losses will be partially offset.

All of the initiatives within the homeowner bailout have attempted to stabilize the housing market. But this is the only one that provides a sort of insurance to investors if home prices continue to decline. In February I remarked that it seemed like the housing bailout included everything but the kitchen sink. I was wrong: this is the kitchen sink.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The U.S. Government • Treasury Secretary Timothy Geithner

They're back. We refer to the global investors once known as the bond vigilantes, who demanded higher Treasury bond yields from the late 1970s through the 1990s whenever inflation fears popped up, and as a result disciplined U.S. policy makers. The vigilantes vanished earlier this decade amid the credit mania, but they appear to be returning with a vengeance now that Congress and the Federal Reserve have flooded the world with dollars to beat the recession.

Treasury yields leapt again yesterday at the long end, with the 10-year note climbing above 3.7%, its highest close since November. Treasury yields had stayed low, and the dollar had remained strong, as long as investors were looking for the safest financial port amid the post-September panic. But as risk aversion subsides, and investors return to corporate bonds and other assets, investors are now calculating the risks of renewed dollar inflation.

They have cause to be worried, given Washington's astonishing bet on fiscal and monetary reflation. The Obama Administration's epic spending spree means the Treasury will have to float trillions of dollars in new debt in the next two or three years alone....

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Filed under: * Economics, Politics • Economy • Credit Markets • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The U.S. Government • Budget • The National Deficit • The United States Currency (Dollar etc) • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

[BARRY] RITHOLTZ: Most of Wall Street is furious at what happened. Most of Wall Street aren't involved in mortgage securitization or derivatives or any of the other bad assets that have been blowing up. The average guy -- you know Wall Street is a meritocracy, eat what you kill, as much as you can earn in profits you get to take as a bonus -- and I know a lot of guys, everywhere from Merrill Lynch to Bear Stearns to Lehman, that actually were really profitable. But because this one division was run by rogue pirate traders and reckless derivatives salesmen, they wiped up the entire bonus pool for the entire firm, and then some, all the while engaging in really reckless behavior.

[Kai] Ryssdal: Do you figure we're stuck now as a bailout nation? We're going to be subsidizing banks and car companies and insurance companies for some time to come.

RITHOLTZ: You know we've already seen the trucking industry make hints they want stuff. And we've seen the homebuilders who are key players in this, who just overbuilt everything. They've been asking for a bailout. That's the slippery slope. Once you reward people for their worst behavior, for speculative, irresponsible investing and punish the prudent and the people who are careful with that money. Everybody seems to think it's a free for all. Hey, you've got yours. How do I get mine?

Ryssdal: What's the alternative to these bailouts? I mean should we have just done nothing?

RITHOLTZ: What you do is what the FDIC does when a bank is found to be insolvent. Look what happened with Washington Mutual....

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Filed under: * Economics, Politics • Economy • Corporations/Corporate Life • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner

The U.S. Treasury auction of long-term bonds on Thursday was “terrible”, in the words of one Wall Street economist, with the rate on the 30 year bond jumping from 4.1 to 4.3 percent. This is just the first sign that the debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.

The economic news is not all bad. We are seeing signs the rate of contraction is abating quickly, promising a bottom to the recession sometime this summer as many forecasters have expected. But therein lies another piece of the interest rate puzzle, and the trouble ahead.

There are two critical consequences to the economy stabilizing. The first is that the massive liquidity injected into credit markets by the Federal Reserve and central banks around the world transforms from economic medicine to inflationary heroin. Central banks are going to face a difficult task of extracting the excess liquidity before inflation soars and without causing another recession. Doubt about the fight against soaring inflation means higher inflation premiums in interest rates.

The second dangerous consequence is that President Obama is on course to double the national debt in just four years....

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Filed under: * Economics, Politics • Economy • Credit Markets • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The U.S. Government • The National Deficit • Politics in General • Office of the President • President Barack Obama

Still, the tea parties are not based on the cold wonkery of budget data. They are based on an "ethical populism." The protesters are homeowners who didn't walk away from their mortgages, small business owners who don't want corporate welfare and bankers who kept their heads during the frenzy and don't need bailouts. They were the people who were doing the important things right -- and who are now watching elected politicians reward those who did the important things wrong.

Voices in the media, academia, and the government will dismiss this ethical populism as a fringe movement -- maybe even dangerous extremism. In truth, free markets, limited government, and entrepreneurship are still a majoritarian taste. In March 2009, the Pew Research Center asked people if we are better off "in a free market economy even though there may be severe ups and downs from time to time." Fully 70% agreed, versus 20% who disagreed.

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Filed under: * Economics, Politics • Economy • Taxes • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Politics in General • Office of the President • President Barack Obama

. Asked about the tea parties, President Barack Obama responded that he was not aware of them. As Marie Antoinette said, "Let them drink Lapsang Souchong." His Imperial Majesty at Barackingham Palace having declined to acknowledge the tea parties, his courtiers at the Globe and elsewhere fell into line. Talk-show host Michael Graham spoke to one attendee at the 2009 Boston Tea Party who remarked of the press embargo: "If Obama had been the king of England, the Globe wouldn't have covered the American Revolution."

The American media, having run their own business into the ground, are certainly qualified to run everybody else's into the same abyss. Which is why they've decided that hundreds of thousands of citizens protesting taxes and out-of-control spending and government vaporization of Americans' wealth and their children's future is no story. Nothing to see here. As Nancy Pelosi says, it's AstroTurf – fake grass-roots, not the real thing.

Besides, what are these whiners so uptight about? CNN's Susan Roesgen interviewed a guy in the crowd and asked why he was here:

"Because," said the Tea Partier, "I hear a president say that he believed in what Lincoln stood for. Lincoln's primary thing was he believed that people had the right to liberty, and had the right …"

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Filed under: * Economics, Politics • Economy • Taxes • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • The National Deficit • Politics in General • Office of the President • President Barack Obama

Mr. Obama is betting that the totality of economic policies his team and the Federal Reserve have put in place will act, like radiation therapy, to halt the spread and reduce the size of the cancerous tumors eating away at our financial system — and stimulate enough new growth and optimism so that Phase II will be small enough to get past Congress and the public.

As Treasury Secretary Timothy Geithner told ABC News, “If we get to that point” — where more funds are needed — “we’ll go to the Congress and make the strongest case possible and help them understand why this will be cheaper over the long run to move aggressively.”

Have no doubt, Phase II is coming. At best, it will require hundreds of billions of dollars more, at worst more than a trillion, to deal with more bad loans and toxic assets weakening the economy — problems that Phase I can’t fully absorb. Because unemployment is still rising — ensuring that the initial spate of mortgage defaults, which came from loans to people who could never repay, will be followed by another spate of defaults from those who could repay but now can’t because the deteriorating economy has stripped them of their jobs, their businesses or their credit lines.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The U.S. Government • Budget • Federal Reserve • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

The good news from our historical study of eight centuries of international financial crises is that, so far, they have all ended. And we confidently predict this one will end, too. We are just not quite so sure it will be nearly as soon as the chirpy forecasts coming from policymakers around the globe. The U.S. administration, for example, is now predicting that growth will renew in the latter part of this year and continue at a brisk pace of 4 percent for several years thereafter. Is this a fact-based forecast or wishful thinking?

A careful look at the international evidence on severe banking crises suggests a far more cautious assessment. The recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises, as it has until now, output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11–12 percent in 2011.

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Filed under: * Culture-Watch • History • * Economics, Politics • Economy • Consumer/consumer spending • Credit Markets • Housing/Real Estate Market • Labor/Labor Unions/Labor Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

An infographic that flowcharts the nearly $12 Trillion allocated in government progams affecting the financial services industry.

Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Budget • Federal Reserve • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

When President-elect Barack Obama picked Timothy F. Geithner to be his Treasury secretary four months ago, numerous analysts praised the choice because of Geithner's expertise in the financial industry. He was president of the Federal Reserve Bank of New York at the time, and had helped craft the response to the troubles roiling global credit markets. But as the debacle over the American International Group bonuses has made clear, Geithner's knowledge about Wall Street is matched by his ignorance about the political culture of Washington. And the blunders committed by Geithner (and others, including the Federal Reserve and previous Treasury Secretary Henry M. Paulson) could undermine key elements of President Obama's economic recovery plan.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

What has happened - not only in America but also in Britain - to this promise of a calm, pragmatic response to the world's economic problems? This week Mr Obama expressed outrage at the $165 million bonuses paid by AIG, the stricken insurance group, to executives in its financial products division who are responsible for most of its tens of billions of dollars in losses.

In Britain the row over Sir Fred Goodwin's pension continues to grow. And in both countries, hatred of bankers is making it difficult for governments to take further action to stabilise the banks and support economic growth.

The behaviour of the bankers who first blew up the world financial system and then proceeded to loot it, is genuinely outrageous and deserves political retribution. But that should take the form of recovering the booty by the normal processes of law.

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Filed under: * Culture-Watch • Globalization • * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama • * International News & Commentary • England / UK • Europe

President Barack Obama’s approval rating has slipped, as a growing number of Americans see him listening more to his party’s liberals than to its moderates and many voice opposition to some of his key economic proposals. Obama’s job approval rating has slipped from 64% in February to 59% currently, while disapproval has jumped from 17% to 26% over this period.

Although most people think the new president is doing as much as he can to fix the economy and relatively few say Obama’s policies have made the economy worse, the public expresses mixed views of his many major proposals to fix the economy.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

Zach is feeling the icy fingers of the recession gripping his throat. He’s a small-business man with a retail store in New York and an investment in a small apartment renovation that hasn’t gotten a buyer. Suddenly, his income is down by 25 percent or so. He has a mortgage on the house in Brooklyn where he lives that he used to be able to afford, but now he’s dipping into his savings to the tune of $2,000 or $3,000 a month to cover his costs, and he’s worried.

So he called his mortgage bank to see what might be done. The answer was: not much, certainly nothing from any government plans to help homeowners get through the crisis. And for Zach, who’s never gone to the government for anything before, there’s a larger point in that fact.

To wit: If you’ve behaved responsibly and prudently all these years, you’re on your own. But if you’ve made colossal mistakes of greed and misjudgment — either by selling billions in mortgages to people who couldn’t afford to pay you back or by being one of the people whose eyes were bigger than their wallets— you might just get rescued, at the expense of taxpayers like Zach.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • Personal Finance • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • Politics in General • Office of the President • President Barack Obama

The misguided policy response from Washington has focused almost exclusively on squandering public money and burdening our children with indebtedness in order to defend the bondholders of mismanaged financial institutions (blame Paulson and Geithner – I've got a lot of respect for our President, but he's been sold a load of garbage by banking insiders). Meanwhile, I suspect that the little tapes in Bernanke's head playing “we let the banks fail in the Great Depression” and “we let Lehman fail and look what happened” are so loud that he is making no distinction about the form of those failures. Simply letting an institution unravel is quite different from taking receivership, protecting the customers, keeping the institution intact, replacing management, properly taking the losses out of stockholder and bondholder capital, and issuing it back into private ownership at a later date. This is what it would mean for these banks to “fail.” Nobody is advocating an uncontrolled unraveling of major financial institutions or permanent nationalization as if we've suddenly become Venezuela.

Make no mistake. Buying up “troubled assets” will not materially ease this crisis, nor will it even improve the capital position of financial institutions (see You Can't Rescue the Financial System if You Can't Read a Balance Sheet). Homeowners will continue to default because their payment obligations have not been restructured to any meaningful extent. We are simply protecting the bondholders of mismanaged financial institutions, even though that bondholder capital is more than sufficient to cover the losses without harm to customers. Institutions that cannot survive without continual provision of public funds should be taken into receivership, their assets should be restructured to better ensure repayment, their stockholders should be wiped out, bondholders should take a major haircut, customer assets should (and will) be fully protected, and these institutions should be re-issued to the markets when the economy stabilizes.

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Filed under: * Economics, Politics • Economy • Consumer/consumer spending • Stock Market • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

The day after the report I heard from a young Naval aviator in predeployment training north of San Diego. He flies a Super Hornet, sister ship to the plane that went down. He said the Marine investigation "kept me up last night" because of how it contrasted with "the buck-passing we see" in the government and on Wall Street. He and his squadron were in range of San Diego television stations when they carried the report's conclusions live. He'd never seen "our entire wardroom crowded around a television" before. They watched "with bated breath." At the end they were impressed with the public nature of the criticism, and its candor: "There are still elements within the government that take personal responsibility seriously." He found himself wondering if the Marines had been "too hard on themselves." "But they are, after all, Marines."

By contrast, he says, when the economy came crashing down, "nowhere did we see a board come out and say: 'This is what happened, these are the decisions these particular people made, and this was the result. They are no longer a part of our organization.' There was no timeline of events or laymen's explanation of how a credit derivative was actually derived. We did not see congressmen get on television with charts and eviscerate their organization and say, 'These were the men who in 2003 allowed Freddie and Fannie unlimited rein over mortgage securities.' Instead we saw . . . everybody against everybody else with no one stepping forth and saying, 'We screwed up.'" There is no one in national leadership who could convincingly "assign blame," and no one "who could or would accept it."

Read it all or you may also find it here.

Filed under: * Culture-Watch • Military / Armed Forces • * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Politics in General

Supporters regard the threat of a mortgage modification in bankruptcy as a crucial tool to prod banks to negotiate with homeowners for more affordable terms. Critics argue the measure will create a flood of bankruptcy filings that ultimately will drive up mortgage rates and further destabilize the battered housing market.

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Filed under: * Culture-Watch • Law & Legal Issues • * Economics, Politics • Economy • Housing/Real Estate Market • Personal Finance • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • Politics in General • House of Representatives

How to rescue housing? The Obama administration doesn't have a plan -- or, more accurately, it has only half a plan. It presupposes that preventing or minimizing home foreclosures is a formula for revival. It isn't.

Almost everyone agrees that a housing recovery is essential for a broader economic upswing, in part because housing's collapse brought on the recession. Mortgage delinquencies triggered the financial crisis. Tumbling home prices (down 26 percent from their peak) ravaged consumer confidence, borrowing and spending. Since late 2007, housing-related jobs -- carpenters, real estate agents, appraisers -- have dropped by 1 million, a quarter of all lost jobs.

Housing's distress is too much supply chasing too little demand. Huge inventories of unsold homes have depressed prices and construction. Given that prices rose too high in the "bubble" -- homes were affordable only because credit was dispensed so recklessly -- much of this painful adjustment was unavoidable. But that process should be mostly complete....

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • Politics in General • Office of the President • President Barack Obama

Bill Clinton declared more than a decade ago "the era of big government is over." With his new budget, President Barack Obama has brought it back.

Obama's $3.55 trillion budget proposal represents a gamble that Americans are ready for the sort of change they embraced by electing him in November, including a tax increase on Americans making more than $250,000 a year.

He proposes expansion of spending on the U.S. healthcare system, on greater energy independence and on education, hoping Americans weary of paying for a raft of expensive bailouts for banks and the car industry will go along.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

President Barack Obama forecast the biggest U.S. deficit since World War Two in a budget on Thursday that urges a costly overhaul of the healthcare system and would spend billions to arrest the economy's freefall.

An eye-popping $1.75 trillion deficit for the 2009 fiscal year is projected in Obama's first budget. That is equal to 12.3 percent of U.S. gross domestic product -- the largest share since 1945 when the country ran a shortfall of 21.5 percent of GDP.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The U.S. Government • The National Deficit • Politics in General • Office of the President • President Barack Obama

President Obama has concentrated enormous power on a few aides in the West Wing of the White House. These aides are unrolling a rapid string of plans: to create 3 million jobs, to redesign the health care system, to save the auto industry, to revive the housing industry, to reinvent the energy sector, to revitalize the banks, to reform the schools - and to do it all while cutting the deficits in half.

If ever this kind of domestic revolution were possible, this is the time and these are the people to do it. Yet they set off my Burkean alarm bells.

I fear that in trying to do everything at once, they will do nothing well. I fear that we have a group of people who haven't even learned to use their new phone system trying to redesign half the U.S. economy.

I fear they are going to try to undertake the biggest administrative challenge in American history while refusing to hire the people who can help the most: agency veterans who are registered lobbyists.

I worry that we're operating far beyond our economic knowledge.

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Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The Possibility of a Bailout for the U.S. Auto Industry • The September 2008 Proposed Henry Paulson 700 Billion Bailout Package • The U.S. Government • The National Deficit • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

These are difficult times for economic policy makers, especially given what the new Administration inherited. But after five weeks of watching the repeated muffs of the Obama financial team, we're inclined to recall Casey Stengel's famous crack about the 1962 New York Mets: "Can't anyone here play this game?"

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Filed under: * Economics, Politics • Economy • Credit Markets • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

Vigeland: Let's start with a little definition. How do you define ethical behavior?

Cohen: Ethics concerns are the effects of our actions on other people. And so ethical behavior is that which has a benign effect on other people, or certainly doesn't do harm to other people.

Vigeland: Given that definition, you know, as we've just heard from Nancy, there's a lot of, shall we say, frustration out there from people who say, "Look. I did nothing wrong. I was responsible. My neighbor's going to get a bailout. Where's mine, even though I don't really need it?" How are we supposed to reconcile, I guess kind of the greater good, versus individual fairness, especially when it comes to the dollars in our pockets?

Cohen: It's an understandable feeling, but it's a poor guide to public policy. Once you start conjuring up this Victorian notion of the undeserving poor. Look, we help people who make mistakes all the time. When someone goes to the emergency room, the doctors don't question their moral worth, they make a medical decision. We send the fire department to someone's house without asking why did their house catch fire? What it is to live in a community is to shoulder the burden of responding to the needs of those around you, without making moral judgments.

Vigeland: But, you know, there seems to be this notion that helping people in trouble is equivalent to rewarding them for bad behavior. But, as you said, we choose as a society to help people all the time. Why is this different?

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The U.S. Government • * Theology • Ethics / Moral Theology

Watch and read it all and follow all the links.

Filed under: * Culture-Watch • Media • * Economics, Politics • Economy • The 2009 Obama Administration Housing Amelioration Plan • Politics in General • Office of the President • President Barack Obama

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Filed under: * Culture-Watch • Media • * Economics, Politics • Economy • The 2009 Obama Administration Housing Amelioration Plan

Rick Santelli, the CNBC reporter who went into a certifiable rant against the Obama housing plan Thursday, found himself in the White House bullseye 24-hours later: the object of scorn and humorous derision from the president's press secretary Robert Gibbs.

"I'm not entirely sure where Mr. Santelli lives or in what house he lives," Gibbs said during the daily briefing. "But the American people are struggling every day to meet their mortgage, stay in their jobs, pay their bills to send their kids to school, and to hope that they don't get sick or somebody they care for gets sick that sends them into bankruptcy. I think we left a few months ago the adage that if it was good for a derivatives trader, that it was good for main street. I think the verdict is in on that."

Read or watch it all. Put this down on a growing list (Tim Geithner's first appearance announcing his 'plan,' Tom Daschle's nomination collapsing etc.) of rookie mistakes by members of the Obama administration. Whether you agree with Santelli or not, it is just plain poor judgment to go after him in detail by name in this manner. Of course, it is a dream set up for CNBC abd NBC (which of course had the Santelli story on again last night). It also ensures that the story will have even more legs than it already does--KSH.

Filed under: * Culture-Watch • Media • * Economics, Politics • Economy • Credit Markets • Personal Finance • Stock Market • The 2009 Obama Administration Housing Amelioration Plan • Politics in General • Office of the President • President Barack Obama

Right now, the economic landscape looks like that movie of the swaying Tacoma Narrows Bridge you might have seen in a high school science class. It started swinging in small ways and then the oscillations built on one another until the whole thing was freakishly alive and the pavement looked like liquid.

A few years ago, the global economic culture began swaying. The government enabled people to buy homes they couldn’t afford. The Fed provided easy money. The Chinese sloshed in oceans of capital. The giddy upward sway produced a crushing ride down.

These oscillations are the real moral hazard. Individual responsibility doesn’t mean much in an economy like this one. We all know people who have been laid off through no fault of their own. The responsible have been punished along with the profligate.

It makes sense for the government to intervene to try to reduce the oscillation. It makes sense for government to try to restore some communal order. And the sad reality is that in these circumstances government has to spend money on precisely those sectors that have been swinging most wildly — housing, finance, etc. It has to help stabilize people who have been idiots.

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Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • The Credit Freeze Crisis of Fall 2008/The Recession of 2007--

Well worth the time--just under 40 minutes.

Filed under: * Economics, Politics • Economy • The 2009 Obama Administration Bank Bailout Plan • The 2009 Obama Administration Housing Amelioration Plan • The Banking System/Sector • The Credit Freeze Crisis of Fall 2008/The Recession of 2007-- • The Fiscal Stimulus Package of 2009 • The U.S. Government • Treasury Secretary Timothy Geithner • Politics in General • Office of the President • President Barack Obama

Rick Santelli's rant on CNBC Thursday morning really did go viral all through the day, so I suppose I shouldn't have been surprised to see it open the news--but I was. Watch it all.

Filed under: * Culture-Watch • Media • * Economics, Politics • Economy • The 2009 Obama Administration Housing Amelioration Plan • Politics in General • Office of the President • President Barack Obama • * International News & Commentary • America/U.S.A.

For homeowners there are two key paragraphs: first the lender is responsible for bringing the mortgage payment (sounds like P&I) down to 38% of the borrowers monthly gross income. Then the lender and the government will share the burden of bringing the payment down to 31% of the monthly income. Also the homeowner will receive a $1,000 principal reduction each year for five years if they make their payments on time.

This is not so good. The Obama administration doesn't understand that there were two types of speculators during the housing bubble: flippers (they are excluded), and buyers who used excessive leverage hoping for further price appreciation. Back in April 2005 I wrote: Housing: Speculation is the Key

[S]omething akin to speculation is more widespread – homeowners using substantial leverage with escalating financing such as ARMs or interest only loans.

This plan rewards those homebuyers who speculated with excessive leverage. I think this is a mistake.

Another problem with Part 2 is that this lowers the interest rate for borrowers far underwater, but other than the $1,000 per year principal reduction and normal amortization, there is no reduction in the principal. This probably leaves the homeowner far underwater (owing more than their home is worth). When these homeowners eventually try to sell, they will probably still face foreclosure - prolonging the housing slump. These are really not homeowners, they are debtowners / renters.

Read it carefully and read it all.

Filed under: * Economics, Politics • Economy • Housing/Real Estate Market • The 2009 Obama Administration Housing Amelioration Plan • Politics in General • Office of the President • President Barack Obama