Economic stimulus/tax rebates

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That may be all of the prime rate cuts...

The Fed may be done - Get over it
March 19, 2008: Yes, the central bank delivered another big rate cut. But it may also be getting ready to stop cutting rates so it can fight inflation and the weak dollar.

For the first time since the credit markets began to unravel last summer, the Federal Reserve didn't buckle to Wall Street's demands. It looks like Fed chair Ben Bernanke may be growing into this job. In the wake of the near collapse of Bear Stearns in the past few days, many were calling for the central bank to slash interest rates by at least a full percentage point on Tuesday.

Instead, the Fed lowered two key short-term rates by three-quarters of a percentage point. But a lot of investors wanted a full point. The fact that the Fed resisted the urge to make a historically large rate cut is a good sign. Bernanke and the rest of the Fed's policy makers need to be as concerned with keeping inflation in check as preventing a recession - or minimizing the length and severity of a recession if we're already in one.

And even though more rate cuts may finally help get the economy back on track by encouraging banks to lend again, the rate cuts also wreak havoc on the dollar, causing spikes in the prices of oil, gold and other commodities. With that in mind, one market strategist said the Fed seemed to be sending a statement to investors. It won't let the dollar continue its free fall and will try to put an end to the run-up in commodity prices, a surge that many believe has been fueled by hedge funds and other speculative investors.

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Takin' from the taxpayers to save the haves' butts

Their Bear Stearns, your money
March 21, 2008: The press release said JPMorgan Chase bought the troubled investment bank. Taxpayers should know otherwise.

Congratulations. You just bought Bear Stearns. You, me and all taxpayers. We're not getting any ownership, of course, no share of the investment firm that at the beginning of the month had a stock market value of $10.5 billion. That prize goes to JPMorgan Chase, spending a symbolic $2 a share of its own stock, which on March 16, the day of the deal, amounted to a measly $236 million. Even if Bear Stearns shareholders succeed in pressuring JPMorgan to raise its price slightly by a few dollars, for the giant bank it's just pocket change.

U.S. taxpayers are assuming the real cost of JPMorgan's buy: up to $30 billion to cover losses from Bear Stearns' lousy, risky investments in mortgage-backed securities and even more exotic investment paper that had plunged in value. In similar fashion, U.S. taxpayers have suddenly become financiers of last resort for investment banks, thanks to the Federal Reserve generously opening up its discount lending window to securities firms to the tune of $200 billion.

That's on top of another $200 billion the central bank is offering to lend securities firms in return for their out-of-favor investments in mortgage-backed securities and corporate debt. The Fed is trying to ensure no other investment firms suffer a Bear Stearns-style "run on the bank" in which trading partners collectively demand cash. "It's like having a big brother stand behind you in the schoolyard," said Ray Stone of bond research firm Stone & McCarthy. "You're not going to get beat up."

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Savin' for a rainy day...

Rebate checks won't get spent
Last Updated: March 24, 2008: Majority of Americans say they plan to put their tax rebate checks in the bank or use it to pay off debt, according to a recent poll.

Tax rebates are the centerpiece of the government's plan to stimulate the economy, but many Americans are planning to put the money in the bank or use it to pay off debt, according to a survey released Monday. A CNN/Opinion Research Corp. poll found that 41% of respondents plan to use their rebates to pay off bills, and 32% will put the money in savings. Just 21% of those polled intend to spend the money, while 3% said they will donate the extra money to charity.

The rebate checks are part of a $170 billion economic stimulus package passed by Congress last month that also includes tax rebates for small businesses, as well as payments to disabled veterans and some senior citizens.

The package will pay $600 to most individual taxpayers who earn less than $75,000, and $1,200 for married taxpayers filing joint returns who together earn less than $150,000. There is also a $300-per-child tax credit. Overall, the rebates will put $120 billion in the hands of individuals, with the aim to get them spending in order to boost the faltering U.S. economy.

Follow the money

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Don't trust the Wall St rally
March 24, 2008: Divining future profitability of the nation's financial firms tells us stock market valuations are still too high.

Up until now, all eyes have been on the losses that are hitting the financial sector from the acronym soup of new instruments such as CDOs and SIVs. Everyone is scared, and rightly so, of the MUB (Monster Under the Bed) that might be lurking in supposedly safe havens. Still, financial stocks staged a big rally on the last trading day before the weekend, and again Monday, due to the belief that the worst is past, and that the government will step in to save the Street should that MUB pop out from under the bed.

But even once the current crisis is past, there's another issue facing the financial sector: Will it look like it used to? "I think it is important to step back and ask some broader questions about our financial system," wrote Ben Inker, the chief investment officer for quantitative equities in global developed markets at money management firm GMO, in a recent paper. "What it does, how big it should be; and what its sustainable level of profitability might be."

These questions are obviously important for financial services firms. At its recent peak stock price in December 2006, Citigroup, for instance, sold for $53.34, or over 2 times its reported book value (and over 4 times if you exclude goodwill and intangibles) and almost 13 times its reported 2006 earnings. Do those numbers represent a baseline to which we'll return when this crisis has passed, or are they anomalies?

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'Mortgage Rescue' Scams on the Rise...

'Mortgage Rescue' Scams Hit Close to Home
March 24, 2008 - Authorities Report a Spike in Scams Targeting Homeowners Facing Foreclosure

As the mortgage crisis continues to unfold, the FBI says incidents of suspicious financial activity banks reported to the bureau has skyrocketed, jumping from 28,000 cases in 2005 to 48,000 last year. Among the factors fueling this two-year, 71 percent increase is a spike in scams targeting citizens facing foreclosure, one of which is known as the "home foreclosure rescue scam." It's a familiar story, according to state and federal authorities, as well as homeowners interviewed by ABC News. In the scheme, predatory con artists promise financially strapped homeowners a lifeline, but it's a ruse. Sometimes they charge a fee and then disappear. And sometimes they push homeowners over the cliff into financial ruin.

Pamela Fowler, 49, found herself in such a position after she bought her dream home in Richmond, Va. "The house was perfect," Fowler said, describing the four-bedroom brick house she shared with her daughter. It had ample space for her arts and crafts projects, a huge lot in a great location and "really good neighbors." "I thought that was where we would spend the rest of our lives," she said. But after a foot injury forced Fowler to leave her job with the State Police for three months, the Navy veteran and single mom was in financial crisis, sliding toward foreclosure.

With bills piling up, Fowler tried to refinance her home. Her bank said no. Then a mortgage firm offered what appeared to be a way out. "These people came to me as my guardian angels to save me and I listened to them because I was desperate at that point in time," she said. "When you reach a point to where you can't see the light at the end of the tunnel, you think these people are gonna be your light." But the people from the mortgage firm were no angels. Fowler says they told her they would buy the house and let her live in it for a year — rent free — until she could rebuild her credit and buy it back. She says she signed off on their paperwork, but instead of honoring their agreement with Fowler, she says they sold the house to another party and Fowler was forced out.

After the property was sold, Fowler says the mortgage company kept all the equity out of the home. As part of the FBI investigation into the scheme, a Virginia woman, Anna Essex Thorne, pleaded guilty to conspiracy to commit wire fraud in connection with the mortgage documents she executed to buy the home. Fowler's entire life savings, which was tied up in her home, is gone. She moved to North Carolina, where she lives in a mobile home. Fowler hopes to someday see the restitution money the defendant in the case is supposed to pay her as part of the plea agreement. "I worked hard my whole life. I came from poverty and I had achieved the American Dream, and I feel they ripped it away from me," she said, tears welling up in her eyes. "I mean they took my future, my daughter's future … all that work, and now I feel like such a failure. I feel my whole life has been a failure."

More ABC News: 'Mortgage Rescue' Scams on the Rise

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Where's all the money for this gonna come from??...

The next bailout: Homeowners
March 26, 2008: Federal government help for Bear Stearns and other Wall Street firms increases the chance that assistance for those facing foreclosure will be approved.

The federal government is keeping Bear Stearns out of bankruptcy. Are you next? Momentum for federal assistance to struggling homeowners, a non-starter with the Republican administration and many members of Congress only a few months ago, has picked up steam in Washington.

The tipping point came March 16, when the Federal Reserve agreed to back up to $30 billion in Bear Stearns losses as part of JPMorgan Chase's fire sale purchase of Bear Stearns. (The Fed cut its guarantee by $1 billion earlier this week when JPMorgan boosted its offer for Bear.) "I think there's a growing populist feeling that if you're going to bail out Bear Stearns you better bail out individuals," said Greg Valliere, political economist with the Stanford Group, a Washington think tank.

And some consumers clearly are in an uproar about the bailout. According to a Reuters report, about 60 protesters entered the lobby of Bear Stearns's New York headquarters Wednesday and made a fuss about how consumers needed more help from the government than Wall Street investment banks. The Bear Stearns deal isn't the Fed's only direct exposure to the problems in the financial markets either.

The Fed also announced earlier this month that it would make billions in loans directly to Wall Street firms at the Fed's so-called discount rate, a right previously reserved for commercial banks. In addition, the Fed has said it will now accept troubled mortgage-backed securities as collateral on up to $200 billion in loans to Wall Street. But some economists think the Fed's moves are only the beginning. Mark Zandi, chief economist with Moody's Economy.com., said he thinks the Fed is telling the presidential administration that more needs to be done to fix the mortgage mess.

Using FHA to help borrowers

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Fed 'loan' faces serious scrutiny...

Where no Fed has gone before
Thurs., March. 27, 2008 - Central bank's 'loan' for Bear Stearns deal faces serious scrutiny

The Federal Reserve has stretched its mandate up, down, and sideways to prevent a financial market deluge. Now it appears to be stretching the English language a bit as well. What the Fed is calling a $29 billion "loan" to help finance JPMorgan Chase's purchase of Bear Stearns looks much more like a $29 billion investment in securities owned by Bear. Although the Fed insists that it isn't technically buying any assets, in practical terms it's doing exactly that. All this adds up to a big and unacknowledged step up in the central bank's financial intervention with Wall Street investment banks.

The Fed, of course, is the only part of government with the speed, power and flexibility to arrest a bout of market panic. By rapidly intervening in mid-March to keep Bear from filing for bankruptcy, it may well have prevented a series of cascading failures that could have severely damaged the financial system and the economy. Many economists and analysts are happy that the Fed stepped into the breach. Nevertheless, now that things have quieted down a bit, the Fed is likely to face some tough questions about the precise nature of its actions as well as the legal justification for them.

The second-guessing has already begun. On Wednesday, Senate Banking, Housing and Urban Affairs Chairman Christopher Dodd, D-Conn., announced an April 3 hearing to explore the "unprecedented arrangement" between the Fed, JPMorgan and Bear. Top officials from the Fed and other regulators, as well as Bear Stearns CEO Alan Schwartz and JPMorgan CEO Jamie Dimon, will likely be grilled about the details.

'That looks like equity'

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Fed Offers Banks $100B More
Friday, Mar. 28, 2008 (WASHINGTON) — The Federal Reserve will auction another $100 billion in April to cash-strapped banks as it continues to combat the effects of a credit crisis.

The central bank said Friday it would make $50 billion available at each of two auctions on April 7 and April 21.

Through the end of March, the Fed has provided $260 billion in short-term loans to commercial banks through an innovative auction process. It also has employed Depression-era provisions to provide money to investment banks.

All the moves are designed to cope with a financial crisis that has roiled U.S. and global markets and caused the near-collapse of Bear Stearns, the nation's fifth largest investment bank.

Fed Offers Banks $100B More - TIME

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Fearless W gonna fix it...

Bush administration proposes financial overhaul
Sunday, March 30, 2008 - The Bush administration is proposing a sweeping overhaul of the way the government regulates the nation's financial services industry from banks and securities firms to mortgage brokers and insurance companies.

The plan would give major new powers to the Federal Reserve, according to a 22-page executive summary obtained by The Associated Press. The Fed would be given broad authority to oversee financial market stability. That would include new powers to examine the books of any institution deemed to represent a potential threat to the proper functioning of the overall financial system. The proposal, which will be outlined Monday in a speech by Treasury Secretary Henry Paulson, is certain to set off heated debates within different sectors of the financial services industry and in Congress, where some Democrats are likely to complain that the proposal does not go far enough to crack down on abuses.

The administration divided its recommendations into short-term goals that could be adopted quickly, intermediate recommendations and an "optimal" regulatory framework, which contains a radical restructuring of how the government supervises banks and other financial institutions. The recommendations are the product of a yearlong review that was begun in an effort to modernize the government's regulatory structure so that the country's financial services industries could better compete in a fast-changing global economy. The plan also seeks to address problems that have been brought to light in recent months since a severe credit crisis began roiling financial markets last August. That crisis has already claimed as its biggest victim Bear Stearns, the nation's fifth-largest investment bank, which came to the brink of collapse before a government-arranged purchase by JP Morgan Chase & Co.

"I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years," Paulson will say in the remarks he will deliver on Monday. But the plan does seek to address problems highlighted by the current crisis in which the Fed in an unprecedented move has begun making direct loans to securities firms in an effort to shore up a system badly shaken by billions of dollars of losses stemming from sour mortgage loans. The proposal would allow the Fed, in its new role as "market stability regulator," to dispatch examiners to check the books not just of commercial banks but of all segments of the financial services industry.

More Bush administration proposes financial overhaul - The China Post

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Not much confidence it will work...

Analysis: Fed overhaul offers little housing relief
Mon., March. 31, 2008 • Odds are long for regulatory system overhaul before election

The broad regulatory changes proposed by the White House Monday add to an ongoing debate in Washington about what is needed to clean up the mess created by Wall Street’s failure to manage its own risky investments — and keep it from happening again. With millions of homeowners at risk of losing their homes, Democrats have focused on heading off an expected rise in mortgage defaults — and the resulting losses to investors who bought bonds backed by those now-shaky mortgages. Republicans tend to favor a series of regulatory reforms to streamline the current alphabet soup of agencies created during the Great Depression to rebuild the American dream of homeownership.

Regardless of which approach the government ultimately takes, the most important question is: Can the government can act quickly enough to keep the current credit crunch from spreading? That part of the story is still being written. The proposal formally spelled out Monday by Treasury Secretary Hank Paulson was widely reported over the weekend. The goals of the reform would be to improve consumer protections, tighten regulation of some business practices and improve stability of the financial markets. To do that, Paulson proposed giving the Federal Reserve broader powers and more information about investments held by Wall Street brokerages and investment firms.

The hope is that by providing the Fed with more authority to step in and limit investment activity that poses a threat to the financial system, the central bank can act to head off bigger problems down the road. “That authority at current is limited only to where the Fed identifies a potential systemic, downside risk if they do not act," said Richard Baker, CEO of the Managed Funds Association and former member of the House Finance Services Committee. “It's merely saying, 'We see the train coming.' Today, I have to wait for the train to run over me before I can act. Now we’re going to say, ‘I hear the whistle, I see the steam, I smell the smoke: let's do something before it gets here.’ ”

More White House plan offers little foreclosure relief - Eye on the Economy - MSNBC.com

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Stearns deal under scrutiny...

Bear deal goes under the microscope
April 3, 2008: Regulators and top execs defend extraordinary deal, but lawmakers questioned whether Bear Stearns had to fail.

The Senate took a long, hard look at JPMorgan Chase's planned purchase of Bear Stearns on Thursday, grilling both executives and federal regulators who helped shepherd the controversial deal. Members of the Senate Banking Committee, digging into the terms of the extraordinary tie-up at a five-hour hearing, pulled back the curtain on a merger that many critics have argued amounts to a bailout of Wall Street. Federal Reserve Chairman Ben Bernanke, making his second straight appearance before lawmakers this week, was among those who defended the 11th-hour deal. Bernanke argued that preventing the collapse of Bear Stearns, the nation's fifth largest investment bank, staved off a run on other investment banks, damage to the broader American financial system and the U.S. economy.

"The truth is that the benefactors of our actions were not Bear Stearns or principally Wall Street - it is Main Street," said the central bank chief. Those remarks were echoed by other witnesses, including Timothy Geithner, president of the Federal Reserve Bank of New York, one of the chief architects of the deal, and JPMorgan Chase Chairman and CEO Jamie Dimon and Bear Stearns CEO Alan Schwartz. "One thing I can say with confidence: if the private and public parties before you today had not acted in a remarkable collaboration to prevent the fall of Bear Stearns, we would all be facing a far more dire set of challenges," JPMorgan's Dimon said. Thursday's hearing marked the first time the two Wall Street execs have spoken publicly on the merger since the deal was announced on March 16.

At the time, JPMorgan agreed to buy Bear Stearns for $236 million, or only $2 a share. A little over a week later, JPMorgan raised its bid for the investment bank to $10 a share amid anger from both shareholders and employees over the deal. To pull off the purchase, however, the Federal Reserve Bank of New York agreed to take control of $30 billion of Bear Stearns' assets. As a result, JPMorgan will now bear the risk of the first $1 billion in losses were Bear Stearns assets to go bad. The New York Fed would cover the remaining $29 billion. The Fed's unusual maneuver drew the scrutiny of lawmakers, who questioned the central bank's decision to put public funds at risk by essentially agreeing to back Bear Stearns' portfolio, which included those same mortgage-backed securities that have plummeted in value since the housing market took a nosedive.

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Grassley: Why Did SEC Drop Bear Stearns Probe in '05?
April 3, 2008 - SEC Investigated Allegations Bear Stearns May Have Fraudulently Priced Mortgage-Related Investments Back in 2005

A curtailed fraud probe of failed financial giant Bear Stearns has led one senior lawmaker to question the Securities and Exchange Commission's ability to do its job. Three years ago, the SEC investigated allegations Bear Stearns may have fraudulently priced mortgage-related investments -- some of the very products whose plummeting value led to the firm's meltdown last month. But it declined to file suit against the firm, even though some of its own employees thought it was advisable.

Bear Stearns announced the SEC probe in public filings in July 2005, as well as its decision to set aside $100 million in legal reserves to handle the investigation and possible litigation. One SEC office reportedly planned to recommend civil charges against the firm for allegedly inflating the value of certain mortage-related securities. But by December 2005, the SEC had informed Bear Stearns it had closed the investigation and would bring no charges, according to a December 2007 article in the Wall Street Journal. Another 2005 probe of the firm, by then-New York Attorney General Eliot Spitzer, also reportedly ended without prosecution.

"Given the later collapse and federally-backed bailout of Bear Stearns, Congress needs to understand more about this case and why the SEC ultimately sought no enforcement action," Sen. Charles Grassley, R-Iowa, wrote SEC Inspector General David Kotz on Tuesday, asking him to investigate. Grassley implied the SEC may have gone easy on Bear Stearns because of the firm's perceived clout. He cited a congressional probe from last fall which found that SEC investigators treated Morgan Stanley CEO John Mack with "undue deference" because of his "Wall Street prominence and ability to hire prestigious counsel."

More ABC News: Grassley: Why Did SEC Drop Bear Stearns Probe in '05?

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Legal Steps to Protect Yourself From Foreclosure...

Legal Steps to Prevent Foreclosure
April 3, 2008 - One Victim of Predatory Lending Got Legal Help to Refinance and Protect Her Home

Shelia Cruz thought she had found a small piece of the American dream, her own home in Staten Island, N.Y. But what she got was a terrifying headache that would take almost three years to quell. It started in 2004, as she readied to plunk down $30,000 of hard-earned savings for a down payment on a new home. Much to her surprise, a mortgage broker told her she could keep her money and borrow the entire purchase price of a $400,000 townhouse.

That seemed like a lot of money for a single mother making about $50,000 a year, but Cruz was prepared to believe. She trusted the broker, a friend of a friend, who told her that her payments would be $2,000 a month and over time would likely go down. So she signed the mortgage papers and moved in. It was about six months later that she began to have her doubts. She read the documents carefully. They called for a sizeable boost in the interest rate after five years. They revealed that she was paying only interest and none of the principal that would eventually give her ownership of her home. And at the end of 30 years, she would have to come up with an additional $50,000.

Nobody had explained any of this to Cruz, and she suddenly realized that she was in trouble. It was tough enough to meet the monthly payments of $2,000. If they went up at all, she could go into default. "I realized, 'I'm going to lose the house,'" she said.

Like untold thousands of American homeowners in recent years, Cruz was a victim of predatory lending: The practice of luring borrowers into mortgages that they cannot afford or even hope to understand. Many such victims never recover, losing their homes to lenders in foreclosure proceedings. But others turn their misfortune around, getting out from under bad loans to save their house and home. How do they do it?

More ABC News: Legal Steps to Protect You From Foreclosure

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Fighting Back Against Foreclosure
April 3, 2008 - New York Judge Denies Foreclosure Based on Alleged Predatory Lending

David and Karen Shearon decided to buy their first house so they could give their three children stability and security. It seemed easy: Though they made less than $30,000, the couple was able to put nothing down on a $335,000 house in Staten Island, N.Y. But within a year, facing rising interest rates and loan payments that were much higher than what they said they were promised, a process server was banging on their door. "He was trying to make us more embarrassed by screaming it out at the top of his lungs and banging on our door and going, 'The Shearons are in foreclosure! They're in foreclosure!'" David Shearon told ABC News.

But unlike many of the thousands of American families who are on the verge of losing their homes, the Shearons fought back -- and so far appear to be winning. A New York state trial court judge in February found that the bank that is trying to foreclose on their house violated the state's predatory lending laws. In what lawyers in the case say is the first ruling of its kind in New York, Judge Joseph Maltese denied the bank's bid for foreclosure and ruled that the Shearons may be entitled to a refund of their mortgage payments and attorneys fees. The case "gave the judge … reason to pause and consider in the current climate what is going on here, not just with these borrowers but with the industry in general," said Noah Pusey, the Shearons' attorney.

Lasalle Bank attorney Tom Solferino said no predatory lending took place and said the law was misapplied. "There's such a thing as predatory borrowing going on," he said. "There are people going out and buying property with no cash down, not making any payment and then pointing the finger at the people who lent them the money." Maltese has agreed to rehear arguments about his decision to stop the foreclosure, and LaSalle Bank has also appealed. But among all the talk of subprime mortgages and predatory lending, the Shearons are the uncommon example of consumers who were able to beat the lenders, at least so far. In several states, home buyers are beginning to successfully fight off foreclosure in court.

More ABC News: Fighting Back Against Foreclosure