House Passes $146 Billion Aide Package
Good news for the economy? Well if nothing else, most in the middle class will enjoy $300 to help them get out of debt assuming the senate passes the latest aide package.
The NY times reports:
The House vote was 385 to 35, with 169 Republicans joining 216 Democrats voting “yes.” Voting against the package were 10 Democrats and 25 Republicans.
The Senate plan, put forward by Senator Max Baucus, Democrat of Montana, the Finance Committee chairman, would cost $160.5 billion in 2008. After 10 years, the total cost would be somewhat lower at $151 billion, compared with $117 billion a year for the House plan. Both proposals include individual tax rebates and business tax incentives, and one-time payments for those who do not pay income taxes. The Senate plan also includes an extension of unemployment benefits.
House leaders complained that while their plan would deny tax rebates to the wealthiest earners, the Senate package would not have any caps, meaning that lawmakers themselves would qualify for payments.
The Senate has been arguing for the ability to add pork to the bill. Should they succeed, it will be safe to say that the President has utterly failed in his efforts to rescue the economy.
Will Bernanke Succeed?
After only two years, it would appear that Ben Bernanke has failed to rescue the economy, but some are now arguing for patience with the chairman of the fed.
Two weeks ago, the Federal Reserve chairman’s critics complained he was standing idly by while the markets sank, and they clamored for more-aggressive action. Last week, when he did what they asked, they called him a pawn of fickle investors. Had he done nothing, the same critics probably would have said he was ignoring the potential economic damage of a stock-market collapse.
In the end, all this hand-wringing about Mr. Bernanke’s style and demeanor will be long forgotten if the Princeton professor gets his economics right. He’s betting he can head off a recession by quickly lowering interest rates, possibly again tomorrow after the Fed meets. And he’s betting he can do it without igniting inflation.
If things fail to recover, those with set rates on 2nd mortgage loans will be better off than those taking them out in the future.
Blame it on U.S.
A great editorial has been written on LoanWorkout, regarding the blame game within the latest mortgage implosion.
Here’s a snippet:
Well, my hat is off to you citizens of America, you have not disappointed me once again. Just about everyone that responds to the articles in the Newspapers and Media that report on this now widening foreclosure debacle, has in their infinite wisdom, deemed that the distressed borrower is to blame.
They were greedy, stupid, ignorant, sleazy, lazy, crooks, opportunists, trailer trash, white trash, illegals……
No you have not disappointed me your overall ignorance and ability to assign blame, business as usual, the blame game, wasn’t me, we are above that, we are better than they are, we got our slice of the pie and we are not going to pay for theirs.
WELL GET THIS STRAIGHT……YOU ARE NOT PAYING FOR THEIR SLICE OF THE PIE.
Well said. Government bailout plans are not going to do the average American any good as far as helping to payoff mortgage debts.
Rather, almost everything that has been done lately has had the focus of assisting lenders, and bad banks rather than those that truly need assistance.
I love this piece best from the above article:
“You are paying for the greedy, sleazy, ignorant, dare I say criminal opportunists that proliferated Wall Street that created the markets for these toxic loan products and the Major Lending Institutions that actually made these toxic loans to borrowers to be delivered to those markets.”
Who Needs a 2nd Mortgage?
Chances are high, if you’re in the middle class, that the recent inflation and mortgage meltdown has left you slightly strapped for cash. Factoring in holiday debt, many are wondering what can be done to payoff all this consumer debt.
This is affecting people the world round, as debt continues to climb. The Wallstreetexaminer reports:
The world economy has reached a new dangerous point. It is best explained in simple terms. Basically the blowup of fictitious capital has wiped out the leveraged capital Riskloves. Simply put, ABC Risklove or XYZ Pig Man once had $1.0 billion in capital, and made spread bets on $10 billion in suspect “assets”. He (she, it) took on $9 billion in liabilities to do so. Now hypothetically the assets are worth at best $7 billion (no one really knows, as market has broken), and that’s only if a further panic can be avoided. A panic is averted by pretending the assets are still worth $9 billion, leaving $2 billion in fictitious capital (FC) on the books. FC spins are conducted by spewing out propaganda that only subprime is the problem. The credit agencies meanwhile act like they are on the old case files playing some catchup, but ignore the next tsunami wave two feet off shore. Fitch, who moves quicker, is downgrading some of the second wave, but it is slow motion. All the other blowups like commercial mortgages, and unsecured consumer loans are largely ignored.
Thankfully, at least for US consumers in debt, there is the 2nd mortgage option. Essentially, one can leverage the equity in their home to payoff their credit card debt, at a lower interest rate, though now secured with property.
Countrywide Takes A Final Beating
Speculation has increased that Countrywide may indeed seek bankruptcy protection as it announced its number of foreclosures had doubled. The more borrowers that refuse to pay off mortgage loans, the more likely it is that Countrywide will fail. Reuters is reporting:
Its shares fell as much as 20.2 percent as concern persisted that Countrywide might seek bankruptcy protection. The shares fell 27.4 percent on Tuesday though Countrywide rejected an identical rumor.
“Rumors of bankruptcy are still surrounding Countrywide,” said William Lefkowitz, options strategist at brokerage firm vFinance Investments. “Investors still believe that they need an infusion of capital.”
In its monthly operating report, Countrywide said the foreclosure rate among the 9.03 million mortgages for which it collects and processes payments doubled to 1.44 percent from 0.70 percent a year earlier, and rose from November’s 1.28 percent. The delinquency rate rose to 7.20 percent of unpaid balances from 4.60 percent a year earlier.
With shares taking such a beating, bankruptcy threats loom. Many investors are jumping from holding Countrywide, before the shares get any lower. Whether the lender succeeds in getting out of debt will be interesting to see.
Australia Sues US Underwriter
As US borrowers continue to default and not payoff mortgage loans, many international markets are taking a beating as a result of US held securities. Bloomberg is reporting on the latest bad news:
Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage-backed bonds, faces legal action by Australian municipal governments after the value of their subprime-related investments dropped as much as 86 percent.
Wingecarribee Shire Council, in the Southern Highlands in New South Wales state, is suing Lehman for “deceptive and misleading conduct” in selling A$3 million ($2.6 million) of subprime-linked collateralized debt obligations, the council’s managing director Mike Hyde said in a media statement today.
Given the array of errors made by lenders in the past few years, it should come as no surprise that many investors are upset at the nonsensical and illicit actions taken in the US.
Facing Foreclosure? New Hampshire wants to give you money
Yet another state has opened its coffers up for those in over their heads with mortgage debt.
AllAmericanPatriots reports:
New Hampshire Governor John Lynch today alerted New Hampshire homeowners who may be at risk of foreclosure to about a new program created by the Federal Reserve Bank of Boston and five New England Banks.
The initiative, called the Mortgage Relief Fund, is intended for homeowners with adjustable rate mortgages due to reset to higher levels in the coming months. The five banks have committed $125 million to the program to allow consumers with adjustable rate mortgages to refinance their loans.
Those unable to get a second mortgage may find this a helpful solution to mortgage debt. One must wonder however what led to a state issuing such a relaxed form of relief for those who least deserve it.
45,000 Homeowners Request Aid
The soup kitchen line keeps growing as more and more homeowners seek government aid for loans they can’t afford.
MarketWatch has the latest:
In a speech in New York, Paulson said the Treasury-backed plan to prevent subprime foreclosures has now been joined by firms representing 90% of the subprime market. Within a few weeks, the industry will begin “fast-tracking” some qualified borrowers into new, affordable loans, Paulson said.
The effort could be extended to other adjustable-rate loans, not just subprime loans, Paulson suggested.
“A housing correction was inevitable and necessary,” Paulson said.
In brief remarks on the economy, Paulson said he expected it to “continue to grow.”
“Our economy remains resilient,” he said.
Why thousands of people requesting government aid is a sign that the housing market is in trouble is debatable; when the government is offering hand outs, why wouldn’t homeowners desire to take advantage of such?
Those unable to qualify for government aid often consider other solutions such as 2nd mortgage loans.
Bad News For Big Banks
Gary North has a wonderful editorial addressing the current banking situation:
The subprime mortgage crisis constitutes the worst banking error in my lifetime. Nothing else comes close.
It has visibly begun to unravel. The European Central Bank on Tuesday, December 18, opened a line of credit of $500 billion to commercial banks.
The Federal Reserve System under Greenspan was the prime instigator. It forced down short-term interest rates by supplying the overnight bank-to-bank loan market with sufficient liquidity to drop the rate to 1%. This encouraged banks to make loans at low rates.
These loans were short-term loans. The borrowers then went out and bought long-term assets: bonds and mortgages. This is known as the carry trade. The pioneering central bank in the carry trade was the Bank of Japan. It lowered short-term rates from about 7% in 1990 to just above zero in 1999, where it stayed until mid-2006. But the yen is not the world’s reserve currency. The U.S. dollar is.
This may have a negative effect on home equity line of credit rates. Those considering such a loan may find it prudent to lock in a rate now, as they won’t likely fall.
Bear Stearns Still Struggling To Recover
Bear Stearns, which posted its first loss ever this past fourth quarter has a lot of work left to do in order to get out of the red.
Bloomberg is reporting:
Bear Stearns Cos., the securities firm that helped trigger the collapse of the subprime market, reported its first-ever loss after writedowns for mortgage holdings and declines in trading and investment banking.
The fourth-quarter loss of $854 million, or $6.90 a share, was almost four times wider than the average estimate of analysts surveyed by Bloomberg. Moody’s Investors Service cut the firm’s credit rating one level to A2, the lowest since 2003. Bear Stearns, which has fallen almost 44 percent this year in New York Stock Exchange trading, rose 0.9 percent today.
Barring a recovery, Bear Stearns could have a rough 2008 along with most others working with investments. Keeping this in mind, a 2nd mortgage may prove a better investment than playing the market this year.