Congress fiddles while the economy burns

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The days of job security are long gone...

Growing insecurity grips low-wage workers
Sun., Aug. 3, 2008 - Many still inspired by American dream and expect better for their children

Low-wage workers in the United States are gripped by increasing financial insecurity as they inch along an economic tightrope made riskier by pervasive job losses and rising prices. Many struggle to pay for life's basics -- housing, food and health care -- and most report having virtually no financial cushion should they stumble.

Still, they remain inspired by the American dream, with most saying they are more apt to move up economically than slip backward even if they are frustrated now. Most also expect better for their children.

This complex picture of low-wage workers emerges from a survey conducted by The Washington Post, the Henry J. Kaiser Family Foundation and Harvard University. The nationwide poll, conducted June 18 to July 7, included 1,350 randomly selected people between ages 18 and 64 who work at least 30 hours a week and earned no more than $27,000 last year.

Nearly quarter of adults

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How serious is downturn? Even rich get frugal
Sun., Aug. 3, 2008 - Pain may seem insignificant, but it could have an effect on larger economy

The rich are sharing America's financial pain — and contributing to it. It may have taken longer and it may not be as acute as for the middle class, but there are early hints that the economic slump is crimping the lifestyles of rich Americans.

They are investing more conservatively, spending less on luxury goods and are being more thrifty with their credit cards. Many are asking their personal shoppers and private-jet travel providers to seek the best deals rather than over-the-top extravagances. That news may produce a shrug from many people who have lost their jobs or homes in this economy. The problem is that when the wealthy get stingy, it trickles down.

"It's a sluggish economy, and its difficulties are felt all over," said Joseph DiRenzo, a married 38-year-old father of three who left a hedge fund two years ago to enter commercial real estate. DiRenzo says he's feeling the hit in many places, especially in the value of his house on Long Island's upscale Gold Coast in Muttontown, New York.

More How serious is downturn? Even rich get frugal - Stocks & economy - MSNBC.com

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Credit crisis not gettin' better anytime soon...

Credit crunch far from over
August 4, 2008: The star analyst tells Fortune magazine that housing woes will force banks to keep taking writedowns.

The credit crisis is far from over, star analyst Meredith Whitney tells Fortune magazine in its upcoming issue. Whitney, who audaciously - and correctly - predicted last October that Citigroup would have to cut its dividend, tells the magazine that banks in general today are still facing much bigger credit losses than what they've reported so far.

The Oppenheimer & Co. analyst warned last year - and continues to warn today - that the "incestuous" relationship between the banks and the credit-rating agencies during the real estate bubble will have a long-lasting impact on banks' ability to recover. For years the ratings agencies, which are paid by the issuers of bonds, gave high marks to securities backed by subprime mortgages. Many of those bonds, of course, turned out to be anything but safe. With Moody's and Standard & Poor's now trying to make up for past wrongs, the pace of downgrades on mortgage securities is quickening.

This is a problem, because every time their portfolios are hit by significant credit downgrades, banks are forced to improve their capital ratios. Often that means issuing reams of new stock, which leads to serious dilution, as shareholders at Citi, Merrill Lynch, and Washington Mutual now know. "You're going to have this stealth pressure on bank balance sheets until you start to see the ratio of downgrades to upgrades change," Whitney tells the magazine.

Modern-day Cassandra

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Why foreign banks aren't buying
August 4, 2008: Several high-profile deals show that cross-border mergers aren't dead. But overseas financial firms are avoiding their American peers, and for good reason.

More and more foreign companies are scooping up American rivals. But U.S. banks are turning out to be the wallflower at the global merger dance.

The cheap dollar and swoons in the U.S. stock market have spurred some cross-border deals for high-profile companies. Take Belgian-based InBev's successful bid for Anheuser-Busch (BUD, Fortune 500), for example, or plans announced last month by the Swiss drugmaker Roche to take over the remaining shares of the biotech giant Genentech Inc (DNA). that it didn't already own.

American financial institutions, however, aren't getting the same kind of love from their peers around the globe. "The other sectors are where the deals seem to be getting done," said Bruce Packard, a London-based analyst who covers UK-based banks at broker Pali International.

Not cheap enough yet

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More banks gonna fail...

Hundreds of banks will fail, Roubini tells Barron's
Sun Aug 3, 2008 - The United States is in the second inning of a recession that will last for at least 18 months and help kill off hundreds of banks, influential economist and New York University Professor Nouriel Roubini told Barron's in Sunday's edition.

Taxpayers will pay a big price for helping bail out the rest of the financial services industry as well, Roubini said -- at least $1 trillion and more likely $2 trillion.

The banks will become insolvent because of mounting losses as a result of the housing bust and because they have only written down their subprime loans so far, he said. Still in front of them are their consumer-credit losses, for which they lack the reserves, Barron's reported. He also said there are hundreds of millions of dollars outstanding in home-equity loans that could be worth zero, too.

U.S. consumers, meanwhile, are "shopped out" and saving less, while the Federal Reserve's performance in handling the crisis has been poor, Roubini said, because it failed to see that the problem extended beyond subprime mortgage debt. Now, Roubini told Barron's, the government is overregulating, bailing out troubled participants and intervening in every market.

More Hundreds of banks will fail, Roubini tells Barron's | Reuters

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Credit crisis poised to spread well beyond U.S. roots
Tue Aug 5, 2008 - The side effects of the year-long global financial market upheaval have hit hardest in the countries that had binged on easy credit -- first and foremost the United States, but also Britain and Spain.

Thanks to steep food and energy prices that are shrinking consumer discretionary spending and hindering central banks from responding to the credit crisis with lower short-term interest rates, the problems look set to spread far and wide. "Amid convulsing financial markets, we see increasing evidence that the global economy is entering a significant slowdown period, with the weakest readings to come," said Steven Wieting, an economist with Citigroup in New York.

One year after markets seized up on concerns over failing subprime mortgages, banks have incurred some $400 billion in losses and write-downs. That leaves them with less to lend, slowing the flow of credit to the consumers and companies that power the global economy. U.S. consumers who banked on rising home values to finance their retirements and pad their disposable income are now faced with the prospect of saving the old-fashioned way -- spending less than they earn. That points to a prolonged period of subpar economic growth in the United States, with collateral damage spreading globally.

"In Asia, Europe, and Latin America, while the pace differs, growth is slowing virtually everywhere," said Morgan Stanley economist Richard Berner. "The culprits: spillovers from the U.S. slowdown, higher inflation, reduced energy subsidies, tighter monetary policies and tighter financial conditions."

More Credit crisis poised to spread well beyond U.S. roots | Special Coverage | Reuters

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Economic malaise settlin' in...

Rising prices, flat paychecks worry consumers
Fri., Aug. 8, 2008 - Pew study: Almost two-thirds say that their incomes lag behind inflation

The current economic downturn began with a sharp drop in housing prices and has been exacerbated by seven straight months of job losses. But ask Americans what worries them most about the lousy economy, and they are most likely to mention the rising prices of necessities. Carol Netzel, a retired elementary school teacher, says shrinking budgets make this feel like a recession although one hasn’t been officially declared.

“It doesn’t matter what the economists say,” said Netzel, 78, of Coulee Dam, Wash. “All the people I chat with at the grocery store, the gas station, shopping for school clothes, all are feeling very depressed because of the beating their budgets are taking.” Economists, led by top policymakers including Federal Reserve Chairman Ben Bernanke, are of two minds on the issue.

On the one hand, they acknowledge that rising inflation is becoming a greater threat to the economy. But with the gross domestic product growing at a snail’s pace, policymakers are reluctant to take any steps to slow inflation, because that might just tip the economy into a deeper downturn. That is why central bankers left interest rates unchanged when they met Tuesday, declaring in a statement that “the inflation outlook remains highly uncertain” but that “downside risks to growth remain.”

Prices outpace paychecks

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Credit crisis triggers unprecedented response
Sat., Aug. 9, 2008 - Worst debt turmoil since Depression sparks government action

Since the credit crisis erupted a year ago, the Bush administration has presided over one of the broadest expansions of the government into private lending in U.S. history, risking public money to prop up financial firms both large and small. The administration has transformed federal agencies into dominant players in such diverse realms as student lending and mortgage finance while exposing itself to trillions of dollars in loans.

The scope of these commitments demonstrates the unprecedented nature of the challenge facing the nation. Not since the Great Depression have so many debt markets been in turmoil at the same time, financial historians say. During the savings and loan crisis of the late 1980s and early 1990s, for example, the financial upheaval was largely contained to banks and thrifts, though the real estate market also felt the impact.

Now, the contagion has rapidly spread from mortgages to bonds and exotic securities, student and corporate lending, credit cards and home equity loans, and residential and commercial real estate. The disruption has buffeted investment and commercial banks, mortgage finance agencies, and insurance firms of different stripes.

More Credit crisis triggers unprecedented response - Washington Post - MSNBC.com

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New round of mortgage defaults coming...

The next wave of mortgage defaults
August 12, 2008: More borrowers with good credit are defaulting on their home loans, and that's going to make it even harder for the staggering housing market to recover.

Prime mortgages are starting to default at disturbingly high rates - a development that threatens to slow any potential housing recovery. The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier, according to LoanPerformance, a unit of First American CoreLogic that compiles and analyzes residential mortgage statistics.

Delinquencies jumped even more for prime loans of more than $417,000, so-called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier. And prime loans issued in 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006, according to LoanPerformance. "The extent of how bad these loans are doing is very troubling," said Pat Newport, real estate economist with Global Insight, a forecasting firm.

Washington Mutual CEO Kerry Killinger said last month that the bank's prime loan delinquencies are on the rise. As of June 30, 2.19% of the prime loans issued by WaMu in 2007 were already delinquent, compared with 1.40% of prime loans issued in 2005. Also last month, JP Morgan Chase CEO Jaime Dimon called prime mortgage performance "terrible" and suggested that losses connected to prime may triple. For the second quarter, the bank reported net charges of $104 million for prime rate delinquencies, more than double the $50 million recorded three months earlier.

The latest shoe

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Small businesses hurtin'...

Small-business owners' outlook bleak
August 15, 2008: Soft sales, job cuts and weak capital-spending plans have owners hunkering down for continuing economic pain.

Is the country in a recession? While economists debate the question, small-business owners live it. The National Federation of Independent Business' monthly Index of Small Business Optimism fell one point to 88.2 in July, continuing one of the longest strings of recession-level readings in the 22-year history of the survey. Weak capital-spending plans, lower earnings, a soft labor market and heavy inventory reductions contributed to the continuing decline.

Inflation remained the number-one concern of those polled for the second month in a row; the government announced earlier this week that inflation jumped to 5.6% in July, its highest point in 17 years. "I'd like to see the light at the end of the tunnel," said Tom Ulbrich, president and CEO of Mow More Landscape Supplies in Alden, NY.

Ulbrich, who also works at the University of Buffalo's Center for Entrepreneurial Leadership, speaks with small-business owners on a daily basis and sees a number of factors contributing to owners' frustration. "I've been hearing a lot about increasing costs of health care, fuel and materials," he said. "In my own business, we have to get our lawnmower replacement parts from the south, then ship them back out for delivery, but the parts are heavy and the fuel costs are impacting us."

MORE

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Homebuilders still hurtin'...

Home Builds Lowest Since 1991
Tuesday, Aug. 19, 2008 (WASHINGTON) — Construction of homes and apartments fell in July to the lowest level in more than 17 years, the government reported Tuesday.

The Commerce Department said that builders broke ground on 965,000 housing units on an annualized basis. That was down from a pace of 1.08 million in June and the weakest showing since March 1991. However, July's performance was better than analysts expected. Wall Street economists forecast that housing starts would drop to a pace of 950,000. Still, the latest housing figures continue to show a badly battered housing market, one of the biggest problems plaguing the already shaky national economy. The report showed that construction of single-family homes in July fell by 2.9 percent from the previous month to a pace of 641,000. That was the lowest since January 1991, when the economy also was in distress.

New home construction last month was down a sharp 39.2 percent compared with July 2007, illustrating how much ground the housing market has lost in the past year. Construction of apartments and other multifamily dwellings also fell sharply in July, after a large jump in the previous month due to a change in New York City's building codes. That change, which went into effect July 1, gave a rare lift to overall housing construction in June. Housing permits in July fell to a rate of 937,000, a 17.7 percent drop from June, but still above analysts' expectations of 925,000. Permits are considered a reliable sign of future activity.

Homebuilders are hoping the housing rescue package approved by Congress last month will boost the dismal real estate sector. The law includes a temporary $7,500 tax credit for first-time homebuyers that essentially works out to a 15-year, interest-free loan. The National Association of Home Builders/Wells Fargo housing market index, released Monday, remained at a record low of 16 in August for the second consecutive month. Readings below 50 indicate negative sentiment about the market.

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Dog Day Afternoon in the economy...

Economy Languishes In Low Gear
Aug. 21, 2008 - Private Sector Measure Of Economic Health Shows Largest Drop In A Year

A private sector measure of the economy's health showed the largest drop in a year, and while new jobless claims fell for the second straight week, they remain near the highest levels since 2002. The reports are the latest evidence the languishing American economy remains stuck in low gear. The New York-based Conference Board said Thursday its monthly forecast of future economic activity fell 0.7 percent in July, far more than the consensus estimate of a 0.2 percent decline by Wall Street economists surveyed by Thomson/IFR. The last time the index showed a drop this great was last August, when it fell by 1 percent.

The largest drag on the index was the decline in building permits, followed by dropping stock prices, rising unemployment claims, a tightened money supply and falling manufacturers' orders for consumer goods. The index has slipped 0.9 percent for the six months ending in July. "The economy is stuck somewhere between sluggish growth and recession," said Mark Vitner, senior economist at Wachovia Corp. "We're in economic purgatory."

Lehman Brothers economist Zach Pandl blamed the drop on technical factors, saying a change in New York City's building code, effective July 1, led to a June spike in new permits followed by last month's steep decline. He also attributed part of high jobless claims data to the 13-week extension of unemployment benefits approved by Congress in June.

"The decline in the leading index should therefore not be interpreted as a sign the outlook is quickly deteriorating," Pandl wrote in a research note. Meanwhile, the Labor Department's jobless claims data showed new filings dropped to 432,000, down by 13,000 from the previous week, a greater improvement than analysts expected. However, the four-week average climbed to 445,750, the highest level since November 2003.

More Economy Languishes In Low Gear, Private Sector Measure Of Economic Health Shows Largest Drop In A Year - CBS News

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Feather-bedding on the gov't. payrolls...

Report Finds Govt. Workers Missing in Action
Aug. 21, 2008 - Report Highlights Growing Trend of Federal Employees Missing in Action; 2.8 Million Hours of Work Lost Per Year Because of AWOL Absences

The federal government has 2.6 million civilian workers, making it the nation's largest employer. But, it turns out a growing number of these workers are not working. "People have just flat not shown up for work," said Sen. Tom Coburn, R-Okla. "My question is: If people aren't showing up for work, why are they still employed by the federal government?" Coburn commissioned the report "Missing in Action: AWOL in the Federal Government," which tracked the number of absent workers without leave, AWOL workers, across 18 government agencies from 2001 to 2007.

It found that federal workers missed nearly 20 million hours of work in the last six years, not including vacation time or sick leave. On average, 2.8 million hours of work are lost per year because of AWOL absences. The numbers show the formation of a growing trend: Forty-five percent more workers are absent without leave throughout different government agencies than in 2001. But the question remains: How do they get away with it?

Coburn blamed layers of bureaucracy and inefficiency in government that have allowed the numbers to spiral without proper administration. "There's no management consequence for them not showing up for work," Coburn said. "And what that does is undermine the effectiveness of any organization." The union that represents many federal employees doesn't blame its workers, but rather the Bush administration.

"To me it's a scathing indictment of the Bush administration, their total incompetence and mismanagement and disdain for government and running government," said Mark Roth, general counsel of the American Federation of Government Employees/AFL-CIO. "Apparently, they are so asleep at the wheel that they're letting people go for months without any consequences."

While most employees said that their staff was diligent, some acknowledged that they noticed the problem. "I think it depends on the agency," said Sarah Kennel, a federal government worker. But "it is true that there's, I think, a certain lack of accountability in certain offices." Junius Scott, who works in the Department of the Treasury, said that while "everybody doesn't have the same mindset and work ethic to produce. … You kind of got to just acknowledge it, but don't let it bring you down."

More ABC News: Report Highlights Growing Trend of Federal Employees Missing in Action

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More Americans pushed into poverty...

Number Of Americans In Poverty Up Slightly
WASHINGTON, Aug. 26, 2008 - But Those Without Health Insurance Fell By More Than 1 Million Last Year; Median Income Up

The Census Bureau reports that 12.5 percent of Americans, or 37.3 million people, were living in poverty in 2007, up from 36.5 million in 2006. The Bureau said the rate is not statistically different from the previous year. However, the data released Tuesday do not take into account the consequences of the economic downturn that began late last year. Although poverty rates were statistically unchanged for non-Hispanic Whites (8.2 percent), Blacks (24.5 percent), and Asians (10.2 percent) from the previous year, it increased for Hispanics (21.5 percent in 2007, up from 20.6 percent in 2006).

The rate also increased for children under 18 years old (18.0 percent in 2007, up from 17.4 percent in 2006). The rates remained statistically unchanged for those 18-to-64 years old (10.9 percent) and those 65 and over (9.7 percent). The data also revealed that the number of people lacking health insurance dropped by more than 1 million in 2007, the first annual decline since President Bush took office. Census says 45.7 million people - 15.3 percent of the population - were uninsured in 2007. That's down from 47 million in 2006.

Government health insurance coverage increased to 83.0 million people (up from 80.3 million in 2006), while there was little change in the number of those covered by private health insurance (202 million in 2077, up from 201.7 million in 2006) Both the percentage and number of children under 18 years old without health insurance were lower than in 2006 (11.0 percent and 8.1 million, respectively). Although the uninsured rate for children in poverty decreased last year, from 19.3 percent to 17.6 percent, children in poverty were more likely to be uninsured than all children. In 2007, 24.5 percent of people in households with annual incomes of less than $25,000 had no health insurance coverage.

More Number Of Americans In Poverty Up Slightly, But Those Without Health Insurance Fell By More Than 1 Million Last Year; Median Income Up - CBS News