Posted: August 25, 2011 | Author: bostonboomer | Filed under: Foreign Affairs, Libya, MENA, morning reads, Stock Market, The Bonus Class, U.S. Economy, U.S. Politics | Tags: Barack Obama, Deven Sharma, Douglas Peterson, earthquakes, FEMA, Global Financial Crisis, Hurricane Irene, Libya, Madrid fault, Martha's Vineyard, Muammar Gaddafi, ratings agencies, Saif Al-Islam Gaddafi, Standard & Poor's, Tim Geithner |
Good Morning!! I think I have some interesting reading for you today, so let’s get right to it.
Last night I wrote about Goldman CEO Lloyd Blankfein possibly being in trouble with the feds. Interestingly, on Monday another high-profile exec announced he’ll be stepping down. I’m referring to S&P president Deven Sharma. From The New York Times:
The ratings agency Standard & Poor’s said late on Monday that its president, Deven Sharma, who has become the public face of the firm in the wake of its historic downgrade on the United States’ long-term debt rating, will step down and leave the company by the end of the year….
The management change had been in the works for months and was unrelated to either the Justice Department’s inquiry or to the emergence of the activist investors, Jana Partners and the Ontario Teachers Pension Plan, according to people briefed on the matter.
Oh really? Kind of a strange coinky-dink, then, isn’t it?
The ratings agency’s decision to downgrade the United States’ long-term credit rating to AA+ from AAA on Aug. 5 set off a storm of controversy, including criticism by President Obama and Treasury Secretary Timothy F. Geithner. The decision contributed heavily to the worst drop in American stocks since the financial crisis three years ago, as well as volatility that continues to whipsaw the markets weeks later. The other big ratings agencies, Moody’s and Fitch, maintained their top-tier rating on United States debt.
At the same time, the agency is being investigated over whether it improperly rated mortgage securities in the years leading up to the financial crisis. Standard & Poor’s, along with the other major ratings agencies, gave their highest ratings to bundles of troubled loans that appeared less risky during the housing boom, but have since collapsed in value.
Since the financial crisis, the agencies’ business practices and models have been scrutinized by Congress, and Standard & Poor’s is also being investigated by the Justice Department, people briefed on the matter have previously said. At issue is whether the agency’s independent analysis was driven by profits. The Justice Department inquiry, which began before the Standard & Poor’s downgrade of the United States’ debt, is centered on whether analysts’ decisions to assign securities a low credit rating on subprime mortgage loans were overruled by business managers.
Right. I’m sure none of that had anything to do with the president of the troubled company stepping down. /snark
The Financial Times has a piece on the incoming president, Douglas Peterson.
As head of Citigroup’s Japanese operations in 2004, Mr Peterson dramatically bowed in apology before Tokyo regulators after they shut down Citi’s private banking operations there.
Now, as he takes over the embattled ratings agency just weeks after its unprecedented downgrade of US credit, Mr Peterson is likely to find himself before regulators in the US, who are looking into the downgrade and reportedly investigating S&P’s ratings of mortgages before the financial crisis.
Yet, it is Mr Peterson’s experience in Japan, and his more recent turn running Citibank, the retail banking arm of Citigroup, that has given S&P’s owner McGraw-Hill confidence that he is the right man for the job.
Seven years ago, Mr Peterson was given the tricky task of mending relations with Japanese regulators and rebuilding Citi’s tarnished reputation after the US bank’s private banking unit was found to have illegally amassed large profits and was ordered to close down.
By all accounts, the affable Mr Peterson, who is widely described in Tokyo as “nice” and “sincere”, succeeded in reassuring the Financial Service Agency and the Japanese public alike that Citi could once again be trusted with the considerable financial assets of one of the largest economies in the world.
IOW, Peterson has been hired because of his pleasing personality and his ability to make friends and influence people.
But Sean Gregory at Time argues that “A New Leader Won’t Save S&P.”
It’s tempting to read the resignation of Deven Sharma, who stepped down as president of S&P Monday night, as an admission that the rating agency goofed in downgrading the United States’ sovereign rating from AAA to AA+, even as Fitch and Moody’s maintained America’s top grade. Warren Buffett said the U.S. should be rated “quadruple A.” The Treasury department complained that S&P overestimated the nation’s future debt by $2 trillion. Timothy Geithner said that the S&P decision shows “a stunning lack of knowledge about basic U.S. fiscal budget math. And I think they drew exactly the wrong conclusion from this budget agreement.”
Guess Sharma and Geithner won’t be hanging out at any holiday parties. If the S&P downgrade was indeed a mistake, it was an expensive one. In the week after the Aug. 5 S&P downgrade, according to Bloomberg, the market value of global stocks tumbled by $7.6 trillion. Sharma, a former Booz Allen Hamilton consultant who has headed S&P for the past four years, might not be trumping this fact on his newly-polished resume. So you’re the guy who cost the world $7.6 trillion in wealth? You’re hired!
Like FT, Gregory points out that S&P has been shopping for a new leader for months, mostly because Sharma has failed the company in a number of ways. So will a new president make a difference? No, because the ratings agencies simply aren’t qualified to evaluate the credit of sovereign states.
There’s a frightening earthquake story at The Daily Beast: The Quake We Should Fear. Apparently it’s the Midwest that is due for a big one–not the east coast.
Early in the morning of May 16, while most of America was being titillated and transfixed by the appearance in court of the then-suspect Dominique Strauss-Kahn, an urgent message was suddenly received at the headquarters of the Federal Emergency Management Agency (FEMA) in Washington, D.C.
Reports were streaming in of a catastrophic earthquake, magnitude 7.7, that had struck the Midwest near the town of Marked Tree, Ark. First reports were alarming: phenomenal property damage; casualty figures were unprecedented; transportation links were severed; and cities like St. Louis, Memphis, Little Rock, and Cincinnati had been thrown into utter turmoil. Eight states were believed to have been directly affected, and it was thought the death toll would be in the thousands.
A gigantic federal relief mission swung into action. Nine thousand National Guardsmen were ordered to be deployed. Triage centers were opened in all the affected cities—a list that grew longer as a secondary magnitude 6.0 earthquake struck close to the city of Mt. Carmel, Ill. The Red Cross deployed emergency teams. Power companies were given priority to restore electricity and gas supplies. Heavy equipment was sent in to clear highways and railway tracks.
Within 72 hours some kind of order was restored. Hospitals found themselves more able to cope with the vast number of patients suffering injuries. Refugees fleeing in panic were being assembled into special camps. Temporary tent cities were set up along the main refugee routes.
Huh? Oh wait. That was a FEMA exercise. But it was based on the real possibility of a major earthquake on the Madrid fault. It’s happened before and is due to happen again.
This year marks the bicentennial of the great swarm of earthquakes that afflicted New Madrid between December 1811 and February 1812—hundreds of them, day after day, but punctuated by four enormous ruptures, two occurring on Dec. 16, and one each on Jan. 23 and Feb. 7. These caused spectacular effects all across the then young, sparsely settled United States—toppling church steeples in South Carolina, ringing church bells in Boston, causing the Mississippi to reverse it course, and sinking numerous properties deep into the liquefied earths of the prairies.
Yikes! But I’m still worried that Boston hasn’t had a major earthquake since 1755–so we’re probably due also.
Yesterday I came across a couple of interesting stories on Muammar Gaddafi and his son Saif that you might want to check out.
From Scientific American: Egotist Rex: Are a Dictator’s Defiant Statements Indicative of Self-Delusion? It’s an interview with George Washington University Professor of Psychiatry Jerrold Post.
The interviewer asks Post about the many bizarre statements that Gaddafi has made since the rebellion began. He seems out of touch with reality. Is he delusional? Post discusses the circles of sycophants that surround every world leader–this may make it difficult for the leader to see what is really happening outside this protective bubble of supporters.
They can have a very unrealistic understanding and believe, as Qadhafi stated again and again, “My people, they all love me.”
I found this language of his quite remarkable. And with Qadhafi as an exaggerated example, this is true of any of the other leaders, too—namely, they believe they have widespread support. If there are public demonstrations against them, that must reflect outside agitators. This was true with [ousted Egyptian president Hosni] Mubarak as well. He spoke of outside conspiracies.
But it is particularly true of Qadhafi. There is an interesting kind of almost syllogism for him: “My people all love me, and therefore if there is anyone protesting against me, they are not really my people, and that must be a consequence of outside provocation.” And one of the points that he made early on was that this was crazed youth who were on hallucinogens with which their Nescafe had been laced, which I thought was rather creative, really.
I found Qadhafi’s language in general very striking. And what is most interesting about it is it is entirely in the first person singular: “My people all love me. They will support me. My people, they love me.” It was very “me” centered.
Next the interviewer asks whether narcissism is a characteristic of many national leaders? The response could perhaps be applied to someone a little closer to home, if you know what I mean. Check it out.
Vanity Fair has a new article up about Saif Al-Islam Gaddafi. It’s rather long, but here’s the introductory paragraph:
Saif al-Islam Qaddafi—son of Muammar, and long regarded as his heir—was subjected to an arrest warrant months ago by the Criminal Court for crimes against humanity. Libyan rebels in Tripoli reported that he was in custody, but Saif soon appeared in public, rallying what’s left of pro-Qaddafi forces. As NATO bombs fell on Libya, the distinguished international lawyer Philippe Sands sat down with those who know Saif Qaddafi best—a London professor, his Libyan mentor, and the prosecutor who may decide his fate. Saif Qaddafi may claim that he was merely an intermediary, or a force for moderation, or perhaps even a victim. But whatever the claims, according to the prosecutor, he was deeply complicit in his father’s crackdown this year.
Hurricane Irene could become a category 3 sometime today. It’s still predicted to go right up the coast to New England. States all along the east coast are preparing for the worst. Will it hit the Cape and islands? The LA Times suggests President Obama might have to be evacuated.
First, President Obama’s golf game was interrupted by an earthquake. Now, it appears that Hurricane Irene is beating a path toward Martha’s Vineyard, where the president is vacationing with his wife and two daughters.
The National Hurricane Center’s latest forecast shows Hurricane Irene reaching landfall in the Carolinas late Friday and early Saturday before raking its way up the East Coast and into New England. Coastal areas are urged to keep tabs on the storm’s path and remain alert for possible evacuation orders as the hurricane continues to grow in intensity.
It swelled to a Category 3 storm overnight with winds that could exceed 110 mph, and remains on track to gain in strength and ferocity to become a Category 4 hurricane.
Obama is supposed to be in Washington on Sunday to speak at the opening of the Martin Luther King Memorial and then return to the Vineyard. The storm is supposed to hit DC before moving up to Massachusetts.
The eye of the storm appears to be sticking to the coastal outlines, which could spell trouble for Martha’s Vineyard, an island accessible only by boat or plane. As it has done throughout the storm, the National Hurricane Center stresses that the projected path could change dramatically as weather projections come into sharper focus over the next several days.
Hmmm…. Perhaps Mother Nature is trying to send a message to our obtuse leader: Americans need jobs!! Or maybe not.
That’s all I’ve got for you today. What are you reading and blogging about?
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Posted: August 22, 2011 | Author: dakinikat | Filed under: financial institutions, U.S. Economy, U.S. Politics | Tags: bad economy, bad housing market, foreclosure, HOLC, homeowners, housing crisis, mortgage-backed securities, SEC, Standard & Poor's, TARP |
The Great Recession of 2007-2008 took out some one in every sector of the economy. Worst hit, however, was the housing sector where the financial contagion was hatched by folks betting on the forever upward trend in real estate prices. Prices and sales of homes have plummeted. However, the government focused clearly on reviving the same group of people that were most responsible for the damage. Both the Bush and Obama administrations have raptured Wall Street while leaving US families behind. Granted, many homeowners jumped into loans they could not afford and bought houses at price levels that should’ve sent them clear warning symbols. But remember, even the most sophisticated investors–like AIG and Lehman Brothers–got sucked into the mortgage and housing madness. You can’t exactly expect every home owner to read through the fine print and look for trends in underlying home values using the Case-Shiller Index. Buying a home is an emotional process. Investing is supposed to be the cautious practice.
So, what’s really different between this housing crisis and the two previous, similar crises that happened during the Great Depression and Savings & Loan crisis is that there is no vehicle to redress homeowners’ wiped-out balance sheets and foreclosure problems. There has been largess all over the place for banks and other financial institutions. During the 2008 elections, then-candidate Hillary Clinton emphasized the important role of the HOLC during the Great Depression and argued that something akin to it should be considered today. The purpose of the HOLC was to renegotiate mortgages so that people could stay in their homes. The HOLC was dismantled in 1951 when the last of its assets–dating from as late as 1935–were liquidated.
There were some efforts by the Obama administration that accompanied the Bush 43 TARP program to try to get private financial institutions to renegotiate loans in lieu of foreclosure, but those programs have failed miserably. At least the SEC is beginning to look into possible criminality leading to the financial crisis like the role of rater Standard & Poor’s in overrating toxic mortgage-backed securities. Still, the victims of these practices have had little to no relief. The NYT reminds us today that many homeowners need help. We should be further reminded that the overall economy will not improve until the housing market stabilizes.
Tens of millions of Americans are being crushed by the overhang of mortgage debt. And Congress and the White House have yet to figure out that the economy will not recover until housing recovers — and that won’t happen without a robust effort to curb foreclosures by modifying troubled mortgage loans.
Instead of pushing the banks to do what is needed, the Obama administration has basically urged them to do their best to help, mainly by reducing interest rates for troubled borrowers. The banks haven’t done nearly enough. In many instances, they can make more from fees and charges on defaulted loans than on modifications.
The administration needs better ideas. It can start by working with Fannie Mae and Freddie Mac, the government-run mortgage companies, to aggressively reduce the principal balances on underwater loans and to make refinancing easier for underwater borrowers. If the president championed aggressive action, and Fannie and Freddie, which back most new mortgages, also made it clear to banks that they expect principal reductions, the banks would feel considerable pressure to go along.
The housing numbers are chilling. Sales of existing homes fell in July by 3.5 percent, while prices were down 4.4 percent in July from a year earlier. In all, prices have declined 33 percent since the peak of the market five years ago, for a total loss of home equity of $6.6 trillion.
There’s no letup in sight. Currently, 14.6 million homeowners owe more on their mortgages than their homes are worth, and nearly half of them are underwater by more than 30 percent. At present, 3.5 million homes are in some stage of foreclosure. Nearly six million borrowers have already lost their homes in the bust.
There are 10 states where basically no one is buying a house. That’s a pretty good indicator of a still sick market. What’s most appalling is that on top of these statistics comes the story about how much money the creators of both the housing bubble and the housing crash were bailed out by both the FED and the Federal Government. The FED’s main purpose is to stabilize the financial system and thet basically did what they had to do under the charter they were given, but the numbers are beyond astounding. None of these institutions were punished for their bad decisions or fined. The SEC and the FED seem toothless in the face of such perfidy.
Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits.
By 2008, the housing market’s collapse forced those companies to take more than six times as much, $669 billion, in emergency loans from the U.S. Federal Reserve. The loans dwarfed the $160 billion in public bailouts the top 10 got from the U.S. Treasury, yet until now the full amounts have remained secret.
Fed Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from plunging into depression included lending banks and other companies as much as $1.2 trillion of public money, about the same amount U.S. homeowners currently owe on 6.5 million delinquent and foreclosed mortgages. The largest borrower, Morgan Stanley (MS), got as much as $107.3 billion, while Citigroup took $99.5 billion and Bank of America $91.4 billion, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress.
“These are all whopping numbers,” said Robert Litan, a former Justice Department official who in the 1990s served on a commission probing the causes of the savings and loan crisis. “You’re talking about the aristocracy of American finance going down the tubes without the federal money.”
The FED is mandated with stabilizing the financial system. It’s sole connection to borrowers is to ensure truth in lending laws are applied which still leaves borrowers stuck reading the fine print. The Federal Government, however, has a completely different mandate. There’s a lot of fuzziness surrounding the idea of promoting the general welfare. I’m pretty sure that letting business put a market on steroids then helping them recover while letting home owners swing in the wind isn’t promoting any one’s general welfare. However, the government has chosen to stabilize mortgage investors while still leaving the actual market for houses in a declining state. Then, they wonder why the economy is so bad. Folks with declining incomes and wealth do not go on spending sprees. They retreat.
There is so much unfinished business left over from the 2007-2008 financial crisis it’s hard to know where to start the complaints. It’s one of the major reasons for budget shortfalls all over the country. But, you wouldn’t know that if you listen to political rhetoric. Again, undoing the damage that caused the problems from the start would be a lot more judicious than creating additional ones. We don’t need deficit commissions. We need to deal with the root causes of the current deficit. That would be too many wars, too many tax cuts, and way too many people who don’t have jobs and homes because Wall Street broke the economy.
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