Thursday, June 26, 2008
Locally, here in Sacramento, the food banks are being overwhelmed:
As skyrocketing food and gasoline prices strain budgets, utilities are disconnecting many more customers who fall behind on their bills, and even moderate-income households are getting zapped.
Electricity and natural gas shutoffs are up at least 15% in several states compared with last year. Totals for some utilities have more than doubled.
"We're seeing a record number of shutoffs," says Mark Wolfe, head of the National Energy Assistance Directors' Association, which represents programs that subsidize energy bills.
An NEADA survey this month shows 8% of four-member households earning $33,500 to $55,500 have had their power turned off for non-payment. "It's hitting people in the suburbs with two cars and two kids," Wolfe says.
The disconnects are rising as warm-weather power bills increase, some state moratoriums on winter shutoffs expire, and rates are climbing in many states.
Service is typically restored within days after customers work out payment plans, but even brief outages can pose a health hazard on sweltering days. Still, customers typically pay the mortgage and car payment before utility charges, as they can usually buy more time from the power or gas company.
Construction workers are really struggling:
In 18 years of running Francis House, a C street refuge for the down and out in Sacramento, director Gregory Bunker has never seen so many desperate people.
They start forming a ragged line around 8 most mornings, 90 minutes or more before the charity opens its doors.
"For the first time ever, 20 or 30 people are inside the gate before we open for the day," Bunker said. Some wait for hours to get a referral for a bag of food, or a $10 gas voucher. Some get turned away.
Hammered by $50 fill-ups and $3 gallons of milk, more and more people classified as "the working poor" are swelling the ranks of clients at agencies like Francis House. At the same time, charities are struggling with shrinking budgets, higher food and fuel prices and fewer donations, according to Bunker and others.
"It's a vicious circle," said Dave Martinez, interim director of the Placer Food Bank. "More people are coming in, and we have less to give them."
Francis House is facing an unprecedented $80,000 budget deficit and a 25 percent increase in demand for its services, and will soon end its gas voucher program. River City Community Services in midtown has seen a 40 percent jump in clientele since last fall. Wellspring Women's Center in Oak Park is seeing at least 50 more people each day than it did a year ago. Virtually every food pantry contacted by The Bee is feeling the pinch of a poor economy and skyrocketing costs for basic staples.
"Last Saturday, we fed almost 200 families, and a lot of them told us that they were working full time and just not making it," said Blake Young, director of the Sacramento Food Bank. "They need us to help them get through the month."
Meanwhile, we continue to see reports of an imminent attack upon Iran by either the US or Israel, with Israel allegedly carrying out a rehersal earlier this month. And, how does Congress respond? By pushing through a bill that imposes sanctions upon Iran and encourages the US to interdict Iranian shipping on the high seas.
In Placer County, where the home building industry has been hit particularly hard, "we're seeing mostly construction workers, home industry and home improvement workers," said Martinez. "If we can supplement their food, that means a couple more gallons of gas for them so they can get to jobs."
Instead of dealing with the deepening economic crisis that is impoverishing more and more people, the President and the Congress accelerate towards a military conflict with the Iranians. At first glance, it seems irrational, but upon further reflection, there is a perverse logic.
Neither political party is willing to mobilize the public around an agenda that would provide meaningful relief, as that would entail an abandonment of neoliberal policies that substitute the market and the decisions of finance capitalists for the government in the making of economic policy. It would require a level of government intervention for people, instead of banks and brokerage houses, that would be unprecedented since the Great Society, and possibly the New Deal.
So, what is the alternative, when the political elite isn't willing to address growing poverty amongst the populace? The answer is obvious: war. In this instance, a war with Iran would provide an after the fact explanation for the hardship that many Americans are already experiencing. It would also have the grotesquely salutary effect of expanding this hardship across most socioeconomic groups, creating the accurate impression that almost all Americans are in this together.
Of course, there is a downside, most notably the prospect that a lot of Americans would be killed in such a conflict, and that it could spiral out of control. Social conditions could deteriorate so much that it becomes impossible to maintain order. But the President and the Congress have already put measures in place to deal with that, haven't they? And, when someone exposes a gap, like the legal exposure for telecommunications companies when they carry out the President's request for illegal wiretaps, Congress fills it.
Has this been conscious and deliberate? That is a question for future historians. But the practical consequences are clear. As I have said before, it appears that the only people preventing the politicians from leading us over the cliff are high ranking generals within the Pentagon. It's a funny thing for an anti-imperialist, anti-militarist leftist like me to say. The ability of anyone within the political system to resist the march towards war is non-existent.
Tuesday, June 24, 2008
Curiously, the writers of the obituary, Mel Watkins and Bruce Weber, apparently lacked the space to describe the motivation for his intolerance for the shortcomings of humanity and society, except to falsely imply that it was limited to the stupid, the fat, the docile. A subsequent appraisal by Charles McGrath failed to correct this misconception.
Mr. Carlin’s most recent work was especially contentious, even bitter, full of ranting against the stupid, the fat, the docile. But he defended the material, insisting that his comedy had always been driven by an intolerance for the shortcomings of humanity and society
Or, this, from the Washington Post:
But, oh, pray tell, what was it that made Carlin a disappointed idealist? One gets the impression that it was a perversion of humanity ingenuity into the creation of sneakers with lights on them, Dust Busters, Salad Shooters and snot candy. In other words, Joe Holley, the writer of this piece, presents us with a substitution of the symptoms for the disease itself, US militarism and consumerism.
Mr. Carlin claimed to be a skeptic, not a cynic, though he did tell Progressive magazine in 2001 that he had given up on the human species. "Let the insects have a go. You know, I don't think they'll come up with sneakers with lights in them, or Dust Busters, or Salad Shooters, or snot candy."
Still, he admitted, life was not totally dark. "If you'll scratch a cynic, you'll find a disappointed idealist," he said. "And the fire never goes out completely. And that part of me that made my mother say, 'You have a lovely nature,' is very true."
I had more hope for the San Francisco Chronicle, after all, the background article about him was entitled, George Carlin, provocateur for the ages, but, alas, I was disappointed after a promising start:
Carlin, who died Sunday of heart failure at age 71 in Santa Monica, left his indelible mark by trampling conventions, making everyone from middle-aged couples to Supreme Court justices squirm. For half a century, he battered away at hypocrisy with the unfettered glee of a clever teenager and the verbal mastery of a modern-day Jonathan Swift. He was a '60s-style rebel whose subversiveness was never a matter of passing subject or style. He was as hard on religion and euphemistic language as he was on Richard Nixon and pro-life conservatives. He remained, with a consistency few of his colleagues could match, very funny about a whole lot of things for a very long time.
There is much to admire in the summation of Chronicle Arts and Culture Critic Steve Winn. He perceptively places Carlin within an appropriate social and artistic context, and emphasizes Carlin's hostility to religion, which was likewise ignored or marginalized elsewhere. But, while acknowledging that Carlin had something specific to say after 9/11, Winn limited his presentation to this:
Winn is partially on the right track here, Carlin certainly thought that religions were absurd, and that the notion of killing yourself for one was even more ridiculous, while recognizing, paradoxically, that it could be a very effective means of resisting the US.
"I hope you good, loyal Americans understand that in the long run the Islamist extremists are going to win," he told his post-9/11 listeners. "Because you can't beat numbers, and you can't beat fanaticism - the willingness to die for an idea.
"A country like ours, preoccupied with Jet Skis, off-road vehicles, snowboards, Jacuzzis, microwave ovens, pornography, lap dances, massage parlors, escort services, panty liners, penis enhancement, tummy tucks, thongs and Odor Eaters doesn't have a prayer - not even a good, old-fashioned Christian prayer - against a billion fanatics who hate that country, detest its materialism and have nothing really to lose."
Regrettably, though, Winn refuses to stray from the party line to observe that Carlin was appalled by US military violence as well, as he had been for much of life, and that he hated Bush. Last year, Carlin rudely asserted This country's finished because of our willlingness to accept the loss of our civil liberties and our inability to think and act independently. Winn leaves us with yet another false impression, that Carlin shared the opinion of many Americans that Muslims and Arabs are uniquely violent.
No doubt Carlin considered them violent, but primarily because he had come to believe that most humans were incorrigibly violent and destructive, something that he expressed repeatedly in his performances in the last years of his life. One suspects that Carlin expected that, upon his death, the media would sanitize his life and career so as to make it suitable for public consumption. As with many things when he was alive, he was correct.
Monday, June 23, 2008
Bless you, George. In the unlikely event that there is a heaven, I hope you run into Tim Russert and set him straight about a few things.
Farewell, George Carlin (Part 1)
Carlin deservedly achieved folk hero status for this alone, but he was much more than someone who carved a niche for himself ridiculing the cultural sterility of the establishment. Over time, he shattered the boundaries of comedy as he evolved into a sharp, incisive critic of the self-absorbed consumerism of contemporary American life. Indeed, it became increasingly difficult to construe his routines as comedy at all, at least in the conventional sense, as I found it difficult to laugh at his brutally frank exposure of our hypocrisies.
Carlin could be confrontational, profane, and offensive, but his work possessed an honesty and integrity rare in the world of entertainment, at least when he wasn't making a cameo appearance in a movie or on television to get some cash to pay his tax bills. Carlin was, if anything, one of the most skilled dialecticians of our time, a skill that he masterfully displayed even in the most seemingly inconsequential jokes:
According to the New York Times, Carlin grew more and more ascerbic as he aged:
“Why do they lock gas station bathrooms?” he once mused. “Are they afraid someone will clean them?”
Fortunately for us, they were the right ones. Consider this scaborous routine, posted by lenin over at Lenin's Tomb in December 2007, wherein Carlin profiles the nature of the US power elite and explains how little anyone within it cares about you and me. I don't think I laughed once as I watched it, possibly because Carlin concluded that there really wasn't anything funny about this country anymore.
Although some criticized parts of his later work as too contentious, Mr. Carlin defended the material, insisting that his comedy had always been driven by an intolerance for the shortcomings of humanity and society. “Scratch any cynic,” he said, “and you’ll find a disappointed idealist.”
Still, when pushed to explain the pessimism and overt spleen that had crept into his act, he quickly reaffirmed the zeal that inspired his lists of complaints and grievances. “I don’t have pet peeves,” he said, correcting the interviewer. And with a mischievous glint in his eyes, he added, “I have major, psychotic hatreds.”
There's also another good one there about the First Gulf War (posted above): We like war because we're good at it, and we're good at it because we get a lot of practice . . . That's our new job in the world, bombing brown people . . . I'm not a very good American because I like to form my own opinions . . . .
Sunday, June 22, 2008
As the McClatchy article explains, it increasingly appears that nothing will happen to the Marines that participated in the Haditha massacre. Someday, the Iraqis will liberate themselves from the predations of the occupation. One can only hope that it happens sooner rather than later.
This is how the residents of Haditha recall that day: U.S. Marines were apparently bent on revenge after a roadside bomb killed one of their own. They killed four unarmed men and an unarmed taxi driver. Then they threw grenades and entered two homes. In the Younes' household, they killed eight people, including two toddlers, a 5-year-old and a mother recovering from an appendectomy.
In an adjacent home, they killed seven people, including a 4-year-old and two women, according to death certificates and one of the children who survived. Across the street, residents of two houses shared by a family were pulled out. The men were separated from the women as the Marines asked them about weapons.
Family members said they had one AK-47 in each house, which Iraqi law allows. The Marines forced the women and children into one house at gunpoint, then took four brothers to a back bedroom and executed them, the family said.
Yousef Aid Ahmed was not at home when the killing occurred. He is now the sole breadwinner for his mother and extended family.
His father became ill after the shootings, and later, the family said, went blind from grief. Ailing, he lingered in a small bedroom where his sons were killed. One was gunned down to the left of the bed, a second to the right. The third man's body wound up inside a closet and the fourth was propped against the wardrobe. Despite a fresh coat of paint, the ceiling still bears grey spots where the men's blood spattered. They were all shot in the head.
The relatives seldom go into this room.
The Marines told a different story. Lt. Col. Paul J. Ware, an investigating officer with the Navy Marine Corps Trial Judiciary gave this account: Lance Cpl. Justin Sharratt, a Marine who acknowledged killing three of the brothers, told investigators that the four brothers were holed up in a back bedroom where the Marines later found two AK-47s. Ware wrote in the report that the evidence made the Iraqi's story implausible and their accounts were inconsistent.
The report didn't say whether there was any evidence that the AK-47s were fired. The report also implied that the family may have made up their story for the $10,000 in compensation for the deaths of civilians and that their credibility should be questioned because they were women and a teenager.
"Witness accounts are not credible," the report said about the case of one Marine accused of killing three of the brothers. "Although $10,000 does not appear to be a large amount of money...such a sum of money was equal to 4 times the average annual salary of a typical resident of Haditha. Prior to making these claims, no payments were made to the Ahmed family."
Relatives said they accepted the money after authorities told them it would help the case. Now they wish they'd never taken the cash.
"Right now I feel hatred that will not fade," said Yousef Aid Ahmed. "It grows every day."
Thursday, June 19, 2008
No Bid Contracts for US Oil Companies in Iraq
Lisbon Treaty Stalled as EU Countries Ponder Future Steps After Defeat in Ireland
Nearly 100 People Commit Suicide a Day in Japan
Same Sex Wedding Album
Sacramento One of the Most Extravagant Users of Water in the World
Are We All North Koreans Now?
Wednesday, June 18, 2008
If you don't immediately grasp the disturbing implications of this, consider setting aside the time to read Monday's tutorial on the subject so that you can place it within the appropriate context. Furthermore, the entirety of Mr. Mortgage's post on the subject of Pay Option ARMs as they pertain to Wachovia Bank, already linked in the first sentence of this one, is grimly humorous and well worth reading as well.
While the Pay Option ARM maybe a perfect loan for someone such as an investor with a large amount of equity in a property who is waiting for the purchase market to improve before selling and wants to cash-flow, my guess is that 90% of Pay Option borrrowers are in it because they only could afford the home by paying the minimum monthly, negatively amortizing payment. These loans are the ultimate toxins, even more so than subprime 2/28’s. At least with subprime loans, the principal balanced owed doesn’t grow every month.
This is what happens when the financial system unravels because of rampant, corrupt speculation. A lot of people who had nothing to do with it go hungry. And we shouldn't consider Anita Rhodes' remarks about shooting deer and turkey to feed her children bravado.
ANITA RHODES, a single mother of three living in Oakland, Md., who makes $374 every two weeks, recently told National Public Radio that she has been forced to begin shopping at a local grocery store selling expired food and damaged goods at discount prices. "The things there are all way, way past their due date, but I tried it," Rhodes said. "The first box [of cereal] I opened had bugs in it." She returned the box to the store to get her money--$1--back, because she couldn't afford not to.
The family has been forced to cut out paper towels, bottled water, chips, cookies, candy and toiletries. "I don't even look at roast right now, just because it's so expensive. I looked at a chuck roast, and it was $15."
According to Rhodes, if prices continue to rise, she may be forced to take more drastic action. "I can shoot a deer," she says. "I can do that. I can shoot a turkey. So I will feed my kids one way or another."
And it's not just people in rural areas who are being forced to make such choices. High school senior Brighton Early, who lives in Los Angeles, told NPR that she has gotten used to "finding flexibility" in her weekly shopping trips with her mother.
When shopping at the regular grocery store became too expensive, Early and her mother started getting their food at the local Chevron gas station--where the cashier gives them a 40 percent discount on leftover apples and bananas. As she wrote in an essay:
To ensure the best selection possible, my mother and I pile into our 20-year-old car and pull up to the food mart at 5 p.m. on the dot, ready to get our share of slightly overripe fruits.
Chevron shopping started like this: One day my mother suddenly realized that she had maxed out almost every credit card, and we needed groceries for the week. The only credit card she hadn't maxed out was the Chevron card, and the station on Eagle Rock Boulevard has a pretty big mart attached to it...
Grocery shopping at Chevron has its drawbacks. The worst is when we have so many items that it takes the checker what seems like hours to ring up everything. A line of anxious customers forms behind us. It's that line that hurts the most--the way they look at us. My mother never notices--or maybe she pretends not to.
I never need to be asked to help the checker bag all the items. No one wants to get out of there faster than I do. I'm embarrassed to shop there, and I'm deathly afraid of running into someone I know. I once expressed my fear of being seen shopping at Chevron to my mother, and her eyes shone with disappointment. I know that I hurt her feelings when I try to evade our weekly shopping trips.
In the early 1990s, Lake Merritt in Oakland experienced a troubling decline in the population of geese. People were catching them to take home and eat. Just the other day, I read about an apparent decline in the number of geese and ducks in William Land Park near where I live Sacramento. For some reason, no one wanted to talk about what is really happening to them.
Tuesday, June 17, 2008
INITIAL POST: I have to admit, I never watched Russert very much. My immediate impression was that he was not someone to be taken seriously, and with the emergence of the Internet as a source for numerous alternative media sources, I decided that television news was irrelevant. I have spent more time watching NBA basketball (probably about 10 hours per season in recent years) than I have watching the networks and cable news channels.
I encountered Russert's book about his father in a book store awhile ago, and paged through it out of curiosity. Rarely have I subjected myself to anything so swarmy and sentimental, so reliant upon stereotypical characterization of anything beyond the experiences of his nostalgic blue collar Buffalo youth. Disney, especially Bambi and Lady and the Tramp, are high art by comparison. There was something offensive about it, as if he was packaging his sanitized personal, intimate familial experiences for a gullible public and personal career advancement.
On Friday night, MSNBC ran a clip from an interview of Russert and his father several years ago (my wife was watching it, I swear), and it was creepy, as his father just sat next to Russert silently as Russert droned on and on about his greatness. There was little interaction or engagement between the two of them, as if his father had begrudgingly agreed to participate for his son's benefit.
In other words, from what little I know about him, Russert came across as a self-absorbed hot dog. Hence, I have to rely upon others to explain him to me, this man whose death, I am told, touches us all so deeply. Consider As'ad Abukhalil of the Angry Arab News Service:
I'm with you, As'ad, I don't get it, either. Another disturbing thing about the MSNBC coverage of Russert's death was the subtext. One doesn't become a quality journalist through intelligence, hard work, education, skill, creativity, scepticism and an artisanal pride in one's craft. Instead, Russert demonstrates that one's status as a journalist is currently defined by the extent to which a ideologically useful mythology can be constructed around you, a characterization of you as the individual embodiment of the country's purported virtues, with obligatory roots in a working class that no longer exists.
What is the big deal, I don't get it. He represents that annoying tendency in the U.S. to indulge in self-praise and self-congratulations. He is one of those who have to say "only in America" several times a day. He also represented patriotic journalism --according to which you should not question an administration in a time of war. He also has this nostalgic view of parents and grandparents: the glorification of the past, with little regard for the plight of women, minorities, homosexuals in this past. The "greatest generation" that Brokaw wrote so much about was a generation that practiced segregation, that confined women to their homes, that watched lynching of blacks, that blatantly beat homosexuals, that spoke about "the others" only in vulgar and pejorative terms. Yesterday, Chris Mathews outed him on MSNBC: he said that Russert was a supporter of the American invasion of Iraq.
Of course, the Vatican is cautiously optimistic about the prospect:
Are we to take this to mean that killing a million Iraqis and turning millions of other Iraqis into refugees is consistent with the values of the Catholic faith? Thou shalt not kill unless one has been a Prime Minister of Britain or a President of the United States? Apparently, as long as they limit their violence to Arabs and Muslims, the Church has no problem with it.
The notion was given extra mileage by the fact that the President's brother Jeb, the former governor of Florida, converted to Catholicism on marrying his wife Columba, a Mexican.
The Vatican differs from the White House on immigration and the death penalty but on other issues including stem cell research, gay marriage and abortion there has been, as the Catholic daily L'Avvenire put it, "total harmony."
Cardinal Pio Laghi, the papal envoy to the White House, said: "Bush believes in the values of the Church and his brother is a convert."
Monday, June 16, 2008
The Masque of the Red Death (Part 2)
No doubt most of you have already figured out the severity of the problem based upon the bolded parts of the definition. But let's go through it as if we were presenting a term paper to a demanding, old school professor.
An "option ARM" is typically a 30-year ARM that initially offers the borrower four monthly payment options: a specified minimum payment, an interest-only payment, a 15-year fully amortizing payment, and a 30-year fully amortizing payment.
These types of loans are also called "pick-a-payment" or "pay-option" ARMs.
When a borrower makes a Pay-Option ARM payment that is less than the accruing interest, so-called "negative amortization" will occur, which means that the unpaid portion of the accuing interest is added to the outstanding principal balance. For example, if the borrower makes a minimum payment of $1,000 and the ARM has accrued monthly interest in arrears of $1,500, $500 will be added to the borrower's loan balance. Moreover, the next month's interest-only payment will be calculated using the new, higher principal balance.
Option ARMs are popular because they are usually offered with a very low teaser rate (often as low as 1%) which translates into very low minimum payments for the first year of the ARM. During boom times, lenders often underwrite borrowers based on mortgage payments that are below the fully amortizing payment level. This enables borrowers to qualify for a much larger loan (i.e., take on more debt) than would otherwise be possible. When evaluating an Option ARM, prudent borrowers will not focus on the teaser rate or initial payment level, but will consider the characteristics of the index, the size of the "mortgage margin" that is added to the index value, and the other terms of the ARM. Specifically, they need to consider the possibilities that (1) long-term interest rates go up; (2) their home may not appreciate or may even lose value or even (3) that both risks may materialize.
Option ARMs are best suited to sophisticated borrowers with growing incomes, particularly if their incomes fluctuate seasonally and they need the payment flexibility that such an ARM may provide. Sophisticated borrowers will carefully manage the level of negative amortization that they allow to accrue.
In this way, a borrower can control the main risk of an Option ARM, which is "payment shock", when the negative amortization and other features of this product can trigger substantial payment increases in short periods of time.
For example, the minimum payment on an Option ARM can jump dramatically if its unpaid principal balance hits the maximum limit on negative amortization (typically 110% to 125% of the original loan amount). If that happens, the next minimum monthly payment will be at a level that would fully amortize the ARM over its remaining term. In addition, Option ARMs typically have automatic "recast" dates (often every fifth year) when the payment is adjusted to get the ARM back on pace to amortize the ARM in full over its remaining term.
For example, a $200,000 ARM with a 110% "neg am" cap will typically adjust to a fully amortizing payment, based on the current fully-indexed interest rate and the remaining term of the loan, if negative amortization causes the loan balance to exceed $220,000. For a 125% recast, this will happen if the loan balance reaches $250,000.
Any loan that is allowed to generate negative amortization means that the borrower is reducing his equity in his home, which increases the chance that he won't be able to sell it for enough to repay the loan. Declining property values would exacerbate this risk.
First, lenders offered these mortgages to just about everyone, not just sophisticated borrowers with growing incomes, because they could not otherwise lend money to people to buy homes in most regions of the country. Along these lines, please observe that the notion that the housing bubble was a bi-coastal one, centered predominately in California and Florida, is a myth. As noted by Mr. Mortgage, the fraud and negligence associated with the issuance of these loans, as with subprime ones, is staggering:
Second, let's go back to the wikipedia definition: When evaluating an Option ARM, prudent borrowers will not focus on the teaser rate or initial payment level, but will consider the characteristics of the index, the size of the "mortgage margin" that is added to the index value, and the other terms of the ARM. Specifically, they need to consider the possibilities that (1) long-term interest rates go up; (2) their home may not appreciate or may even lose value or even (3) that both risks may materialize.
. . . This just goes to show you how lax everything was over the past 5-years. The investment banks were so hungry for parts (loans) for their Frankenstein securities that they bought almost anything. Heck, why not when 80% of what was produced was going to be bundled up and sold anyway?
This is why I firmly believe that originating banks and/or original investors will ultimately end up responsible for all of this in the end. Forced buybacks for early payment defaults (first 12-months), ‘white-lie’ fraud (liar loans), unauthorized ‘exceptions’ (outside of investor guidelines without investor approval) and lender ‘negligence’ (sloppy underwriting/quality control) are already being demanded by whole loan and securities owners if an audit on a loan in default unveils any of these deficiencies. If you are diligent enough, I am willing to bet an auditor can find one of the above mentioned deficiencies in 80% of all Prime, Alt-A and subprime loans made over the past five-years.
I have written about this many times and the WSJ recently published an article on May 28th, 2008 confirming many of my views. ‘Investors Press Lenders on bad Loans’ . The article cites a lawsuit filed in LA Superior Court where units of the mortgage insurer, PMI Group, alleged WMC Mortgage Corp breached it’s ’reps and warrants’ on a pool of subprime loans insured by PMI in 2007. Within eight months, the delinquency rate was at 30%. The suit also alleges that a detailed audit of 120 loans that PMI asked WMC to repurchase found evidence of ‘fraud, errors and misrepresentations’. WMC was owned by GE by the way.
The auditing of defaulted loans looking for fraud or lender negligence is escalating at a feverish pace. This is being spearheaded in many cases by the mortgage and bond insurers, but even Fannie, Freddie, banks and the investment banks are picking up the pace. At this point in time considering the damage that has been done to the insurers, the have nothing and everything to lose. The biggest finger-pointing contest of all time is commencing and prize maybe the firm’s very existence.
Perhaps soon one of the insurers will release detailed reports on the amount of fraud and negligence on the defaulted prime, ALT-A, subprime and home equity loans that they insure in an attempt to make themselves look good. When this news breaks it will shock the world.
As already discussed, we know that neither the lenders nor the recipients of Option ARMs were prudent. Certainly, that's cause for serious concern, and, guess what, long term interest rates have gone up and the homes of the borrowers have lost value! In other words, huge numbers of Americans can no longer pay their mortgage and can't sell their house. As Mr. Mortgage rather summarily concludes: This loan was never intended for holding for any significant length of time or in a massively declining value environment.
Really? And yet it has been used for precisely these purposes over the last 3 years. Robin Blackburn, in a New Left Review article recommended here recently, provides us with the obvious explanation in relation to the broad universe of speculative debt instruments such as this one (cdos is shorthand for collateralized debt obligation, an asset backed security commonly backed by home equity loans and various forms of consumer debt, such as credit card receivables, car loans and student debt):
Bonus points for those of you who are still alert and caught Blackburn's identification of the ideological foundation for the promiscuous extension of credit that has resulted in the credit crunch: The Bush administration’s vision of the ‘ownership society’ somehow latched onto codicils of Johnson’s ‘Great Society’ to encourage the poor to take on housing debt at the pinnacle of a property bubble. The quality of the arrangements made for poorer mortgagees was manifestly inadequate—they had no insurance provision—and also avoided the real problem, which is the true extent of poverty in the United States and the folly of imagining that it can be banished by waving the magic wand of debt creation.
How on earth could such risks build up? The source of the problems which surfaced in 2007—though some had warned about them years earlier—did not lie only in the us deficits or the Fed’s easy money policy. It also lay in an institutional complex and a string of disastrous incentives and agency problems riddling an over-extended system of financial intermediation. To start with, take the incentives relating to those notorious ‘subprime’ cdos. New subprime mortgages rose from $160 billion in 2001 to $600 billion in 2006—by which time they constituted one-fifth of mortgage originations. The salesmen responsible for this surge received a generous commission for each new loan, paid upfront but expressed as a proportion of the redemption payments to be made over several years. Brokers happily signed up ‘ninjas’—no income, no job and no assets—by the hundred thousand. This behaviour was directly encouraged by their incentive structure, while legislation dating back to the 1960s had relaxed credit standards for the low paid and jobless without reckoning with the likely consequences. The Bush administration’s vision of the ‘ownership society’ somehow latched onto codicils of Johnson’s ‘Great Society’ to encourage the poor to take on housing debt at the pinnacle of a property bubble. The quality of the arrangements made for poorer mortgagees was manifestly inadequate—they had no insurance provision—and also avoided the real problem, which is the true extent of poverty in the United States and the folly of imagining that it can be banished by waving the magic wand of debt creation. Indeed the subprime borrowers were lured into inherently bad deals by those low ‘teaser rates’ that bore no relation to the large payments required of them down the line.
The bad mortgage bets were to be hugely compounded by the investment banks that purchased the mortgage debt for resale, supposedly according to the ‘originate and distribute’ model—take on debt, repackage it, and sell it on. As a report in the Wall Street Journal explained:Just to complete the picture, one should add that such fees are not only garnered by those in investment banks who construct and sell asset-backed securities. On the day his employer announced a write-down of over $8 billion, a managing director at an investment bank explained that the bank’s own senior risk-assessment officer had received a bonus of $21 million in the previous year for his part in the great cdo bonanza. What was more, this executive still did not report directly to the board.
Upfront commissions and fees are well established on Wall Street. Investment banks get paid when billion-dollar mergers are signed. Firms that create complex new securities are paid a percentage off the top. Rating services assess the risk of a new bond in return for fees off the front end.
Clearly, a compelling subject, especially Blackburn's wise insight that LBJ and Bush are politically and psychologically linked in terms of their propensity for grandiosity, but one beyond the scope of what I can address today. For now, it is more important to target two critical aspects of the burgeoning crisis involving Pay Option ARMs. The aggregate amount of these mortgages going sour is significantly greater than the amount of the subprime ones that ignited this crisis, and the recipients of them cut across all socioeconomic groups.
Let's go back to Mr. Mortgage:
In order to get this right, we must be aspire to be as precise as possible, a challenging task for lefties like me, to be sure. Pay Option ARMs are part of a large universe of dubious mortgages known as ALT-A ones, and the ability of borrowers to pay them is being rapidly degraded by rising interest rates and declining housing values as already noted in relation to Pay Option ARMs. A quick perusal of the definition of an Alt-A instrument reveals why:
Pay Option and ALT-A loans are defaulting at an accelerating pace in recent months. A couple of months ago, I made an ALT-A video with real data from the Fed comparing the total subprime vs. ALT-A universe’s. . . The ALT-A universe is much larger than the subprime universe in the higher priced states like CA and even nationally, it is somewhat larger. But due to the sheer exotic nature of many ALT-A loans, such as the Pay Option ARM, the crisis will likely be that much more devastating.
Don't you just love that antiseptic language of the financial industry? An alternative to conforming, GSE-backed mortgages. An amusing way to describe the extension of credit to people on terms who otherwise would not qualify for it. Pay Option ARMs, because of their sensitivity to increase rate increases and reductions in property values, are in the vanguard of Alt-A instruments to go into default.
Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of "conforming" or "agency" mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.
There are numerous factors that might cause a mortgage not to qualify under the GSEs' lending guidelines even though the borrower's creditworthiness is generally strong. A few of the more important factors are:
--Reduced borrower income and asset documentation (for example, "stated income", "stated assets", "no income verification")
--Borrower debt to income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
--Credit history with too many problems to qualify for an "agency" loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
--Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved
In this way, Alt-A loans are "alternatives" to the gold standard of conforming, GSE-backed mortgages.
Remember, Pay Option ARMs reset at markedly higher interest rates after the expiration of the introductory teaser rate, and permit people to make monthly payments at a rate that results in negative amortization, that is, the cashing out of any remaining equity in the property, so, when property values fall, the borrower reaches a principal ceiling amount. Either events triggers a substantially higher monthly payment, and both combined pushes it through the stratosphere. And, yes, you guessed it, by the time the lender gets the property, the house is not worth anything near the amount of the loan. They therefore signal a contagion that will spread throughout all Alt-A instruments.
Strikingly, we are now beginning to see delinquencies and foreclosures in middle and upper middle income neighborhoods, as noted by our friends over at Calculated Risk:
Of course, long time readers of this blog with good memories are not surprised, James Cramer predicted this last year here and here when he said that he considered nearly all loans issued in 2006 and 2007 to be worthless.
This is not a subprime problem. The reason the delinquency rate is rising rapidly in Orange County is because homes are very expensive, and a large number of recent home buyers used ARMs, especially Option ARMs, as affordability products.
Now that the interest rate is increasing - and in some cases the loans are hitting the maximum allowed principal ceiling - these loans are no longer affordable. Since these same homeowners have negative equity, selling the home is not an alternative.
The important point here is that delinquencies are starting to increase rapidly in middle to upper middle class neighborhoods where buyers used "affordability products" to buy more house than they could really afford.
The consequences are likely to be profound. Mr. Mortgage has already outlined some of the dire consequences for the financial sector in the lengthy quote near the top of this post. We can anticipate more writedowns, more dubious interventions by the Federal Reserve and a continued curtailment of the extension of credit, even in transactions between major instituions, due to loss of confidence in the system as it becomes evident that, by traditional accounting standards, much of the US banking system is bankrupt. Time to return to Robin Blackburn:
For careful readers, Level 3 securities are frequently CDOs, which have no market that attaches a value to them in daily trading activity, and have been exposed in many instances, such as the obvious subprime catastrophe and the emerging Alt-A one, as worth much less than the value attributed to them by mathematical models created by the financial industry, if not completely worthless. And, yes, you read it right, the Federal Reserve is lending billions and billions of dollars to the financial institutions and accepting them as collateral. I will leave it to you to draw your own conclusions as to whether the market in these instruments will recover sufficiently to enable the Fed to obtain the full recovery of principal.
If the major banks are forced to reduce the book value of their cdos by 50 cents on the dollar, this will wipe out the equity value of their businesses and make them technically bankrupt. Banks which face this danger include Citigroup, Merrill Lynch, Lehman Brothers and Morgan Stanley, but there are likely to be surprises too. Of course no major bank will be allowed to fail. Instead the authorities will devise rescues, buy-outs and mergers. Rather than the stern treatment meted out to Enron and Worldcom, we shall see ‘socialism for bankers’ as public money is mobilized to prop up finance houses that are too big to fail. The Bear Stearns rescue was hard on shareholders but not bondholders or counterparties. JP Morgan, the purchaser, is the beneficiary of a Federal Reserve guarantee covering $29 billion of assets held by Bear. In the weeks following this rescue the Fed lent a broadly similar sum, in confidence, to several other banks, with Level 3 securities as collateral. The main alternative to the injection of public funds would be further input from sovereign wealth funds.
But there are also alarming social consequences as well. Last summer, as the crisis was first beginning to generate a lot of public attention, I made the following observation:
I still believe that this will happen, if it has not already started. After all, you don't tend to hear a lot about people who have lost their homes. Paradoxically, the people who can afford to pay their mortgage, but live in homes with zero or negative equity, are now stuck in these houses. They can't move for more lucrative and/or fulfilling jobs elsewhere. As noted over at Calculated Risk:
For the lending industry and Wall Street, it was a great party while it lasted, as the loans were securitized and purchased by hedge funds, with lucrative fees pocketed by all.
Of course, they now have their own problems, as you can read on all over the web, but what about the people who are losing their homes? What is going to happen to them? The answer is, as we all know, it is going to be brutal. Many of them are going to be pushed into the rental market for the rest of their lives, and many are going to have to leave the locations where they currently reside because even the cost of rent is going to be too much for them. So, we are looking at the prospect of two migrations, one from houses to rentals, and the other from expensive parts of the country to less expensive ones. Furthermore, quite a number of communities built for home owners will rapidly become rental ones. Some may even resemble ghost towns, as it becomes impossible to fill all of the homes with residents.
Left academics would say that the socioeconomic life of the US will subtlely display more and more features of sub proletarization, as more and more people in the lower middle class and even the middle class find themselves forced to migrate internally within the country (an economically generated group of internally displaced people?) and live under conditions of financial insecurity.
Fore more on the subject, go here. As I said in July 2007, the era of globally subsidized credit, and the conspicuous consumption facilitated by it, is over. Yet the left seems, except in rare instances, to have little to say about it. Meanwhile, if Daily Kos is any indication, liberals are trapped within the debilitating cul-de-sac of presidential electoral politics. Later this week, I will explain why I believe the economic disruption caused by the credit crunch is something that leftists need to begin to address.
There are probably close to 10 million households currently with zero or negative equity in the U.S. For these homeowners, it will be very difficult to accept a job transfer to a different county or state.
Friday, June 13, 2008
I, Neo-Conservative (Part 2)
Perhaps, there is nothing ideological about the visit at all. Could it be, as the last sentence of the quoted article suggests, that the Pope is just vain?
Pope Benedict gave George W. Bush an unprecedented welcome in the tranquility of the Vatican Gardens on Friday before the U.S. president resumed his campaign to rally European support for sanctions against Iran.
Under tight security, Bush was driven from the bustle of Rome into the idyllic setting. As birds chirped, the two entered a restored medieval tower and held 30 minutes of private talks.
"Such an honor, such an honor," Bush said to the pope.
After the meeting in the tower, they stood on a terrace to take in the view of 44 hectares (108 acres) of manicured gardens, buildings, ancient walls and St Peter's Basilica that make up Vatican City.
Bush asked: "How big is it?" A Vatican aide responded: "Not quite as big as Texas." Bush then said: "Yes but more important ... this is spectacular."
The talks in the tower, walk in the gardens and a performance by the Sistine Choir as the two sat on wooden lawn chairs were a break with normal protocol.
It was the first time a meeting with a head of state at the Vatican was not held in the pope's private study and was meant to repay Bush for the warm White House lawn reception the pope got in April on his 81st birthday.
Doubtful. Instead, the honors underscore a profound personal and political affinity between the two men. Clearly, the Church's reactionary struggles against reproductive rights and gay rights, basically the notion that individuals possess the capability of making their own sexual decisions without recourse to the heavy handed autocratic morality of the Church, take precedence over the horrors of the occupation of Iraq.
One wonders if this visit will result in another embarassing black eye for this Pope and the Church. As the article states, the Pope provided this unique honor to Bush during the course of his travels through Europe to solicit support for sanctions against Iran. The global media is full of stories about the prospect of an impending attack upon Iran to be launched by either the US or the Israelis. And, yet . . there is Bush, trading pleasantries with Benedict as they walk through the Vatican Gardens. So much for the doctrine of papal infallibility.
Wednesday, June 11, 2008
Meanwhile, according to Mr. Mortgage, the mortgage crisis in California continues to worsen, with an increasing amount of foreclosed loans and number of notices of default. California, with Sacramento in the forefront, is experiencing a historically unprecedented degree of wealth destruction. It is consistent with the social consequences of the housing bubble that I described in July 2007.
If you want to buy a home in Sacramento, Calif., the banks have a deal for you.
The Sacramento Association of Realtors says that a whopping 65.5% of 1,654 homes sold by Realtors in May were bank-owned, foreclosed, homes. The median sales price in Sacramento County and the City of West Sacramento May was $230,250, down 34.2% from a year ago.
Except that I didn't anticipate that people would also have trouble affording the cost of gas to drive to work, and the price of food to feed their families. Is an entire way of life unraveling before our eyes? Consider this excerpt from this frightening article, The Next Slum?, published by The Atlantic in March:
Meanwhile, Obama and McCain travel the country, invoking the same weary neoliberal nostrums that we've heard for the last 30 years. Neither has displayed any willingness to abandon the notion that the financial institutions that created this disaster will cure it without government intervention.
Strange days are upon the residents of many a suburban cul-de-sac. Once-tidy yards have become overgrown, as the houses they front have gone vacant. Signs of physical and social disorder are spreading.
At Windy Ridge, a recently built starter-home development seven miles northwest of Charlotte, North Carolina, 81 of the community’s 132 small, vinyl-sided houses were in foreclosure as of late last year. Vandals have kicked in doors and stripped the copper wire from vacant houses; drug users and homeless people have furtively moved in. In December, after a stray bullet blasted through her son’s bedroom and into her own, Laurie Talbot, who’d moved to Windy Ridge from New York in 2005, told The Charlotte Observer, “I thought I’d bought a home in Pleasantville. I never imagined in my wildest dreams that stuff like this would happen.”
In the Franklin Reserve neighborhood of Elk Grove, California, south of Sacramento, the houses are nicer than those at Windy Ridge—many once sold for well over $500,000—but the phenomenon is the same. At the height of the boom, 10,000 new homes were built there in just four years. Now many are empty; renters of dubious character occupy others. Graffiti, broken windows, and other markers of decay have multiplied. Susan McDonald, president of the local residents’ association and an executive at a local bank, told the Associated Press, “There’s been gang activity. Things have really been changing, the last few years.”
In the first half of last year, residential burglaries rose by 35 percent and robberies by 58 percent in suburban Lee County, Florida, where one in four houses stands empty. Charlotte’s crime rates have stayed flat overall in recent years—but from 2003 to 2006, in the 10 suburbs of the city that have experienced the highest foreclosure rates, crime rose 33 percent. Civic organizations in some suburbs have begun to mow the lawns around empty houses to keep up the appearance of stability. Police departments are mapping foreclosures in an effort to identify emerging criminal hot spots.
Sunday, June 08, 2008
The article is approximately 45 pages long, but well worth the time it takes to read, a good introductory presentation of the circumstances that have generated the current credit crunch from an informed left perspective. Blackburn also provides the reader with numerous citations of additional materials of interest, for example, a biography of Fischer Black by Perry Mehrling, a man whose work Blackburn describes as an inspiration for the development of contemporary financial risk modeling.
Blackburn proposes a number of social democratic solutions for managing the crisis, and turning it into an opportunity for harnessing some of creative forces of finance capital towards the fulfillment of the daily requirements for survival, such as housing, all of which, from my cynical, alienated US perspective, appear utterly implausible in regard to the prospects for implementation.
Alternatively, you'd also be tempted to think that the implementation of Blackburn's proposals require nothing short of revolutionary conditions, and, if such conditions existed, why would you stop there, instead pushing the revolution forward to its ultimate conclusion, the destruction of capitalist finance that forms the skeleton of a system of commodity production and consumption? But you shouldn't let my reductive cynicism stop you from reading the article, which presents an essential context for understanding contemporary socioeconomic conditions. Again, you can find it here.
Friday, June 06, 2008
The US is holding hostage some $50bn (£25bn) of Iraq's money in the Federal Reserve Bank of New York to pressure the Iraqi government into signing an agreement seen by many Iraqis as prolonging the US occupation indefinitely, according to information leaked to The Independent.
US negotiators are using the existence of $20bn in outstanding court judgments against Iraq in the US, to pressure their Iraqi counterparts into accepting the terms of the military deal, details of which were reported for the first time in this newspaper yesterday.
Iraq's foreign reserves are currently protected by a presidential order giving them immunity from judicial attachment but the US side in the talks has suggested that if the UN mandate, under which the money is held, lapses and is not replaced by the new agreement, then Iraq's funds would lose this immunity. The cost to Iraq of this happening would be the immediate loss of $20bn. The US is able to threaten Iraq with the loss of 40 per cent of its foreign exchange reserves because Iraq's independence is still limited by the legacy of UN sanctions and restrictions imposed on Iraq since Saddam Hussein invaded Kuwait in the 1990s. This means that Iraq is still considered a threat to international security and stability under Chapter Seven of the UN charter. The US negotiators say the price of Iraq escaping Chapter Seven is to sign up to a new "strategic alliance" with the United States.
As Brecht or Trotsky would say, this is global gangsterism, pure and simple. It is also important to recall that the security agreement, an agreement that would establish permanent American control over Iraq, is just one piece of a larger puzzle. The US is also aggressively pushing the Iraqi government to agree to the privatization of the Iraqi oil industry on terms favorable to transnational oil companies, a proposal vehemently opposed by many Iraqis, including the oil workers union and Moqtada al-Sadr.
Just a couple of weeks ago, Congress passed a bill authorizing continued funding for the war that additionally provided for withdrawing reconstruction funds unless the Iraqi government agreed to the privatization proposal. With the end of the Bush presidency just over the horizon, the endgame , or, more accurately, the conclusion of this stage of the conflict, is now visible. With UN authorization for the occupation of Iraq about to lapse, Bush intends to internationally legitimize by treaty the right of the US to permanently station troops there for any purpose, including offensive military operations outside the country, and the transfer of control over Iraq's most value resource, oil, to foreign investors.
As the recent congressional vote on funding for the war makes clear, don't expect any significant Democratic opposition. Indeed, if Bush succeeds, Democrats may well believe that he will have done them a great favor by taking much of the question of how to deal with Iraq off the table. An incoming President Obama could claim that the Iraqis have voluntarily agreed to a continued US military presence through treaty, leaving him with the relatively minor determination as to the number of troops to be stationed there. Unlike Bush, and probably McCain, Obama would permit the Iraqi government to play act as if it governs independent of the dictates of the US State Department and Pentagon.
There is only one credible reason to condemn violent Iraqi resistance to the US occupation in these circumstances: pacifism. I respect people who attempt to conduct their lives according to the principles of this philosophy, but I must suggest that they have an obligation to the people of Iraq to explain how they can extricate themselves from US dominion non-violently. Oh, by the way, did I mention that a soldier who allegedly ordered the destruction of photographic evidence of the Haditha massacre was found not guilty yesterday? Prosecutors have already declined to bring murder charges against against the killers, relying upon the lesser offense of voluntary manslaughter, and the prospect of any convictions appears increasingly unlikely.
Thursday, June 05, 2008
In fact, the resistance is international in nature, an effort to provide the territory and resources of Iraq from being seized by the US so that they can be used as an instrument to intimidate, and potentially even militarily attack, other countries. Consider this summary of a proposed Iraqi-American security agreement:
Of course, this has undoubtedly been the goal of the US all along, but the eruption of the resistance in Fallujah on April 28, 2003 has prevented the implementation of it for over five years. If the Iraqis had passively relied upon the efforts of the global peace movement, the agreement would have been approved long ago.
A proposed Iraqi-American security agreement will include permanent American bases in the country, and the right for the United States to strike, from within Iraqi territory, any country it considers a threat to its national security, Gulf News has learned.
Senior Iraqi military sources have told Gulf News that the long-term controversial agreement is likely to include three major items.
Under the agreement, Iraqi security institutions such as Defence, Interior and National Security ministries, as well as armament contracts, will be under American supervision for ten years.
The agreement is also likely to give American forces permanent military bases in the country, as well as the right to move against any country considered to be a threat against world stability or acting against Iraqi or American interests.
The military source added, "According to this agreement, the American forces will keep permanent military bases on Iraqi territory, and these will include Al Asad Military base in the Baghdadi area close to the Syrian border, Balad military base in northern Baghdad close to Iran, Habbaniyah base close to the town of Fallujah and the Ali Bin Abi Talib military base in the southern province of Nasiriyah close to the Iranian border."
In effect, the agreement renders the occupation of Iraq permanent, as reported by Patrick Cockburn:
The Iraqi resistance is seeking to prevent the US from transforming Iraq into an essential outpost of military neoliberalism. One can only hope that the endeavor is ultimately successful. Otherwise, war with Iran is inevitable.
Under the terms of the new treaty, the Americans would retain the long-term use of more than 50 bases in Iraq. American negotiators are also demanding immunity from Iraqi law for US troops and contractors, and a free hand to carry out arrests and conduct military activities in Iraq without consulting the Baghdad government.
The precise nature of the American demands has been kept secret until now. The leaks are certain to generate an angry backlash in Iraq. "It is a terrible breach of our sovereignty," said one Iraqi politician, adding that if the security deal was signed it would delegitimise the government in Baghdad which will be seen as an American pawn.
The US has repeatedly denied it wants permanent bases in Iraq but one Iraqi source said: "This is just a tactical subterfuge." Washington also wants control of Iraqi airspace below 29,000ft and the right to pursue its "war on terror" in Iraq, giving it the authority to arrest anybody it wants and to launch military campaigns without consultation.
Tuesday, June 03, 2008
Can't you just see the ad already? Enjoy paying over $4 a gallon for gas? Espress your gratitude to Ben Barnacke and Wall Street . . . Time for a change, Obama 2008. Oops, I forgot, Wall Street bought the Republicans and the Democrats a long time ago.