Investing Curiouscatblog

Tag: economy

  • JPMorgan Chase Freezes Mortgage Foreclosures

    JPMorgan Chase Freezes Foreclosures

    For the next 90 days, JPMorgan will not place any new homes into foreclosure. The banking behemoth, which acquired troubled lender Washington Mutual on Sept. 25, says it hopes to modify terms for 400,000 homeowners, accounting for $70 billion in loans. Among the steps it is taking: eliminating toxic “pay option” loans, offering new loan terms to homeowners before they default
    …
    According to the most recent data compiled by the Hope Now Alliance of lenders, counselers, and other industry players, lenders started the foreclosure process on 565,000 homeowners in this year’s third quarter. Some 265,000 homes were actually foreclosed on, nearly twice the number from the third quarter of 2007. Moreover, more than 2.2 million homeowners are more than 60 days delinquent in their mortgage payments, also a near doubling from last year.

    FDIC Chairman, Sheila Bair, has been encouraging banks to take such action and instituted such action on the mortgages the FDIC acquired when they took over Indymac – Loan Modification Program for Distressed Indymac Mortgage Loans

    IndyMac Federal Bank, FSB (“Indymac Federal”) will implement a new program to systematically modify troubled mortgages. The program is designed to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. This in turn will maximize value for the FDIC, as well as improve returns to the creditors of the former IndyMac Bank and to investors in those mortgages.

    Related: Ignorance of Many Mortgage Holders (July 2007) – Foreclosure Filings Continue to Rise – Historical 30 Year Fixed Mortgage Rates – Homes Entering Foreclosure at Record (Sep 2007) – 2nd Largest Bank Failure in USA History

  • Farmer in Chief

    Farmer in Chief by Michael Pollan

    After cars, the food system uses more fossil fuel than any other sector of the economy — 19 percent. And while the experts disagree about the exact amount, the way we feed ourselves contributes more greenhouse gases to the atmosphere than anything else we do — as much as 37 percent, according to one study.
    …
    Spending on health care has risen from 5 percent of national income in 1960 to 16 percent today, putting a significant drag on the economy. The goal of ensuring the health of all Americans depends on getting those costs under control. There are several reasons health care has gotten so expensive, but one of the biggest, and perhaps most tractable, is the cost to the system of preventable chronic diseases. Four of the top 10 killers in America today are chronic diseases linked to diet: heart disease, stroke, Type 2 diabetes and cancer.
    …
    You cannot expect to reform the health care system, much less expand coverage, without confronting the public-health catastrophe that is the modern American diet.
    …
    It must be recognized that the current food system — characterized by monocultures of corn and soy in the field and cheap calories of fat, sugar and feedlot meat on the table — is not simply the product of the free market. Rather, it is the product of a specific set of government policies that sponsored a shift from solar (and human) energy on the farm to fossil-fuel energy.

    Read the full, long, interesting article. I have discussed both the failed special interest focused federal spending on farmers and the failed health care system.

    Related: Farming Without Subsidies in New Zealand – Eat food. Not too much. Mostly plants. – International Health Care System Performance – USA Paying More for Health Care –

  • Will Americans Actually Save and Worsen the Recession?

    Americans need to save much more money. This is true for people’s personal financial health. And it is true for the long term health of the economy. Of course the credit card immediate gratification culture doesn’t put much weight on those factors. And if Americans actually do reduce their consumption to save more that will harm the economy in the short term. But since those reading this are people (the economy can’t read) the smart thing for most readers is to save more to create a stronger financial future for themselves.

    Turmoil May Make Americans Savers, Worsening ‘Nasty’ Recession

    U.S. retail sales fell in September for the third straight month, the longest slump since the government began keeping records in 1992.
    …
    From 1960 until 1990, households socked away an average of about 9 percent of their after-tax income, Commerce Department figures show. But Americans got out of the saving habit starting in the 1990s
    …
    “Consumers are starting to realize that they’ve been living in a fantasy world,” says Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington. “They will have to begin salting away money for retirement, their children’s education and other reasons.”

    Americans have a way to go to catch up with their counterparts in other countries. The 0.4 percent of disposable income that U.S. households saved last year compares with 10.9 percent for Germany and 3.1 percent for Japan

    Related: Americans are Drowning in Debt – Too Much Stuff – Financial Illiteracy Credit Trap

  • FDIC Doubling Bank Fees to Pay for Increased Takeovers

    FDIC to double bank fees in face of $40bn loss

    The Federal Deposit Insurance Corporation yesterday proposed doubling the fees it charges US banks, as it warned that it faced about $40bn in losses from bank failures in the coming years.

    About 90 per cent of US banks will see their basic deposit insurance fees double in the first quarter of 2009, from between 5 cents and 7 cents for each $100 of deposits to between 12 cents and 14 cents, according to a plan laid out yesterday by the FDIC, a government-backed agency that insures consumer deposits up to $250,000. From the second quarter that range would widen to from 10 to 14 cents per $100.
    …
    Banks with the riskiest profiles could end up paying fees as high as 77.5 cents for every $100 of insured deposits under the plan, compared with a maximum of 43 cents under the current structure.

    The FDIC insures bank deposits with fees charged to banks. The recent increase of the FDIC Limit to $250,000 seems to indicate that taxpayers will now pay for any costs for covering above $100,000 per account-holder (which I think is a mistake – the fund should be self supporting). But this increase in fees is to restore the fund to the minimum capital requirements of the insurance fund.

    Related: posts on banking – Avoid Getting Squeezed by Credit Card Companies – Where to Keep Your Emergency Funds?

  • Jim Rogers on the Financial Market Mess

    Jim Rogers webcast: Fannie Mac and Freddie Mac should not have been bailed out. Jim Rogers is one of the most successful investors in the last 50 years. He and George Soros (together with the Quantum Fund) and then separately along with Warren Buffett have made the most as investors (that I know of – I could easily be wrong).

    How you want to accept their opinions on the current crisis is up to you. I believe they are worth listening to – more than anyone else. That does not mean I believe they are totally right. To me the long term track record of each is very impressive. Especially Jim Rodgers and George Soros have been making big investment gains largely on macro economic predictions in the last 20 years.

    In The Dollar is Doomed (July 2008) Jim Rogers predicts the United States Federal Reserve is so badly run it will be gone in a decade or two. I disagree with that sentiment. He certainly has much more expertise than I do but in evaluating such a comment you need to look at what really matters to him. He doesn’t need the Federal Reserve to actually cease to exist to make profitable trades based on his prediction that the Federal Reserves policies are dooming the dollar.

    Another thing to note with Rogers and Soros is they will make strong statements and take huge positions but will change their mind when conditions change (often quickly). So you can’t assume what they said awhile back is still their belief today.

    Related: Jim Rogers: Why would anybody listen to Bernanke? – investment books – Rodgers on the US and Chinese Economies – A Bull on China

  • Soros on the Financial Market Collapse

    George Soros published his most recent book in May 2008 – The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. Yesterday Bill Moyers Interviewed George Soros:

    Markets have the ability to adjust and they’re very flexible. There is this invisible hand. But it is also prone to be mistaken.
    …
    This current economic disaster is self-generated. It was generated by the market itself, by getting too cocky, using leverage too much, too much credit. And it got excessive.
    …
    The financial system is teetering on the edge of disaster. Hopefully, it will not go over the brink because it very rarely does. It only did in the 1930s. Since then, whenever you had a financial crisis, you were able to resolve it.
    …
    the sort of period where America could actually, for instance, run ever increasing current account deficits. We could consume, at the end, six and a half percent more than we are producing. That has come to an end.
    …
    Right now you already have 10 million homes where you have negative equity. And before you are over, it will be more than 20 million.

    Related: Soros Says Credit Crisis Will Worsen Before Improving (April 2008) – Warren Buffett Webcast on the Credit Crisis – Rodgers on the US and Chinese Economies – – Personal Investment Failures

  • Canadian Banks Avoid Failures Common Elsewhere

    Canada’s banking system kept high and dry by strict regulation: Flaherty

    High banking standards have kept Canada’s financial institutions afloat and out of the kind of trouble that has sunk many of their international peers, Finance Minister Jim Flaherty said Wednesday.
    …
    Some of the fundamentals credited with keeping Canada’s banks in the safe zone were put in place nearly a decade ago by the Liberal government of Jean Chretien, including a refusal to approve any Canadian bank mergers.
    …
    The finance minister said Canada is in a strong position to deal with the global crisis, with a strong banking system, a stable housing market and a federal budget surplus. “Other countries have been increasing their deposit standards, but they’re still for the most part below the high Canadian standard,” he said.

    Related: Monopolies and Oligopolies do not a Free Market Make – Too Big to Fail – What Should You Do With Your Government “Stimulus” Check? – The Budget Deficit, the Current Account Deficit and the Saving Deficit – 2nd Largest Bank Failure in USA History

  • Poll: 60% say Depression Likely

    I would say the chance of a depression in the next 5 years is very unlikely. The last 2 years have been full of bad economic news but a depression is still not likely, in my opinion. However, much of the public, seems to think it is likely – Poll: 60% say depression ‘likely’

    The CNN/Opinion Research Corp. poll, which surveyed more than 1,000 Americans over the weekend, cited common measures of the economic pain of the 1930s:

    * 25% unemployment rate
    * Widespread bank failures
    * Millions of Americans homeless and unable to feed their families

    In response, 21% of those polled say that a depression is very likely and another 38% say it is somewhat likely. The poll also found that 29% feel a depression is not very likely, while 13% believe it is not likely at all.
    …
    The economists surveyed by CNNMoney.com said they saw a drop of 2% to 4% in a worst case scenario.

    I must say I don’t think those polled don’t really hold their belief very firmly. If you actually see a depression as likely you have to take drastic steps with your finances. I really doubt many of them are and instead think they are casually saying they think it is likely without really thinking about what that would mean.

    I don’t see it as likely and don’t see any need to change significantly what made good personal financial sense 2 years ago. The biggest change I see (over the last couple of months) is the importance of taking smart person finance actions has increased dramatically. The smart moves are pretty much the same but the risks to failing to create an emergency fund, abusing your credit card, losing a job… have increased dramatically.

    Related: Uncertain Economic Times – Personal Finance Basics: Health Insurance – Financial Illiteracy Credit Trap

  • Warren Buffett Webcast on the Credit Crisis


    Warren Buffett     quotes from the interview:

    • “In my lifetime I don’t think I have ever seen people as fearful economically as they are now”
    • “The major institutions in the world are all wanting to de-leverage”
    • “I don’t like what is going on with executive compensation“
    • “unemployment is going to go up under any circumstances, the 6.1 [% unemployment rate] is going to go higher, but whether it quits at 7% or whether it quites at 10, 11 or 12, depends on, among other things the wisdom of congress, and then the wisdom of caring out the plan congress authorizes”
    • “I just wonder if it [the $700 billion bailout] is enough”
    • “AIG would be doing fine today if they never heard of derivatives… I said they were possibly financial weapons of mass destruction and they have been, I mean they destroyed AIG, they certainly contributed to the destruction of Bear Stearns and Lehman”
    • The biggest single cause was that we had an incredible residential real estate bubble.
    • [on consuming more than we are producing] I don’t think it is the most pressing problem at all. We are trading away a little bit of our country all the time for the excess consumption that we have, over what we produce. That is not good. I think it is terrible over time.

    Related: Warren Buffett related posts – Credit Crisis Continues – Credit Crisis (August 2007)

  • Buffett’s Fix for the Economy

    I give more credence to Warren Buffett’s thoughts on this than anyone else, though, of course, he could be wrong. Buffett: My fix for the economy

    Warren Buffett suggested Thursday that the U.S. Treasury team with private investors to buy the distressed mortgage assets at the center of the controversial $700 billion Wall Street bailout, and said the price tag of the rescue plan may have to rise.

    Buffett, the chairman and CEO of Berkshire Hathaway (BRK.A), called the problems facing world markets “unprecedented” and warned of a “disaster” if Congress does not move faster to shore up the economy.
    …
    Under Buffett’s plan, Treasury would lend hedge funds, Wall Street firms or any other investors 80% of the price for distressed assets. Investors would benefit from borrowing at lower rates available to the Treasury. But the government would get first claim on the sale of those assets, which means it would get its loan back plus interest and possibly turn a profit. Only then would investors see a penny.

    “Now you have someone with 20% skin in the game,” explained Buffett. “Believe me, I won’t be overpaying if I’m buying with that kind of leverage. And you have someone [the investors] to manage the assets to the extent they need to be managed.”

    Buffett also noted that the presence of the government in the transactions would raise the price of assets above the absolute firesale levels for which they could now be sold. That would benefit the banks trying to unload them.

    It is a mess. And politicians should be held accountable for eliminating regulation (through law changes, political appointees that were chosen specifically to not enforce regulations, restricting money for enforcement…) to reward those that paid them a lot of money. But they won’t be, so there you go. I would love to be wrong about that but I don’t think I will.

    Related: 2005 annual meeting with Buffett and Munger – Misuse of Statistics, Mania in Financial Markets – General Air Travel Taxes Subsidizing Private Plane Airports – Central Bank Intervention Unprecedented in scale and Scope (March 2008)