Congress fiddles while the economy burns

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Entitlement meltdown??...

Former Comptroller General Cites $53 Trillion Shortfall: ‘No One Will Bail Out America'
Friday, October 10, 2008 : America is headed down “the wrong path" economically and neither Congress nor the presidential candidates are providing the leadership needed to right our financial course, former U.S. Comptroller General David Walker warned.

“We need leadership, not lag-ship,” Walker said. “No one is going to bail out America.” In a briefing at the National Press Club on Wednesday, Walker, concerned about the $700 billion bailout of the financial sector, sounded an alarm that the federal budget deficit has already exceeded $400 billion. Worse, if the U.S. isn’t careful, Walker said “increasing entitlement benefits” – with unfunded liabilities of Social Security and Medicare now estimated at $53 trillion--could trigger a tsunami of debt--and whopping tax increases--could drown our economic future.

An unfunded liability is the amount that taxes would have to be raised to cover the shortfall between what current payroll taxes cover and what future payouts to recipients will require. “The federal government’s finances have been out of control,” Walker, now the president and CEO of the Peter G. Peterson Foundation, told reporters. Neither Congress nor the presidential candidates “are doing anything to address America’s real economic woes,” he said. Congress, he added, “is broken, but so are other branches, as well.” Walker blamed our economic woes in part on “career politicians” who, he said, “do not want to lose their job, so (they) take few to no risks.”

Even though “good questions” about the nation’s financial situation were asked at Tuesday night’s presidential debate, Walker also said “neither candidate” offered sufficient answers or “showed how they would implement their plans to (reform) Social Security and Medicare.” “The next president must be willing to admit to the problems and work in a bipartisan way to find a solution,” Walker added. The leadership deficit and the budget deficit are two of the “deficits” explored in a new documentary video created by the Peterson Foundation that Walker previewed for reporters, called “I.O.U.S.A.” In addition, the U.S. faces a deficit in personal savings and a trade deficit – all of which are working against the nation’s economic health.

More CNSNews.com - Former Comptroller General Cites $53 Trillion Shortfall: ?No One Will Bail Out America'

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Recession PTSD resulting in violence...

Officials: Financial crisis can lead to violence
Oct. 13, 2008 - Authorities are urging people to get help before they take desperate steps

An out-of-work money manager in California loses a fortune and wipes out his family in a murder-suicide. A 90-year-old Ohio widow shoots herself in the chest as authorities arrive to evict her from the modest house she called home for 38 years. In Massachusetts, a housewife who had hidden her family's mounting financial crisis from her husband sends a note to the mortgage company warning: "By the time you foreclose on my house, I'll be dead." Then Carlene Balderrama shot herself to death, leaving an insurance policy and a suicide note on a table.

Across the country, authorities are becoming concerned that the nation's financial woes could turn increasingly violent, and they are urging people to get help. In some places, mental-health hot lines are jammed, counseling services are in high demand and domestic-violence shelters are full. "I've had a number of people say that this is the thing most reminiscent of 9/11 that's happened here since then," said the Rev. Canon Ann Malonee, vicar at Trinity Church in the heart of New York's financial district. "It's that sense of having the rug pulled out from under them."

Calls to suicide-prevention hot lines

With nowhere else to turn, many people are calling suicide-prevention hot lines. The Samaritans of New York have seen calls rise more than 16 percent in the past year, many of them money-related. The Switchboard of Miami has recorded more than 500 foreclosure-related calls this year. "A lot of people are telling us they are losing everything. They're losing their homes, they're going into foreclosure, they've lost their jobs," said Virginia Cervasio, executive director of a suicide resource enter in southwest Florida's Lee County.

More Officials: Financial crisis can lead to violence - Life - MSNBC.com

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Do-little Congress playin' the blame game...

Lawmakers Blame Execs for Meltdown
October 22, 2008 - Congress Grilled Credit Rating Executives on Capitol Hill Today

Angry lawmakers from both parties assailed the top dogs of the big three credit rating companies Wednesday morning, assigning severe blame for the financial crisis on their firms' failure to assess the risk of trillions in subprime-mortgage related investments. "You're the gatekeepers, you're the guys," chided a visibly frustrated Rep. Elijah Cummings, D-Md. "You're the ones who make all the money. That's why you're there. Now we face a situation where we've got a house of cards that has fallen, and here we are trying to resurrect it."

"The story of the credit rating agencies is a story of colossal failure," Rep. Henry Waxman, D-Calif., chair of the House Oversight and Government Reform Committee told the men who appeared before his committee this morning. "The result is that our entire financial system is now at risk."

The top executives – Moody's Corporation CEO Raymond W. McDaniel, Standard & Poor's president Deven Sharma, and Fitch Ratings' president and CEO Stephen Joynt – said in prepared statements that the meltdown of mortgage-backed securities was "unanticipated" and "unprecedented." "It's clear greed led to not just, 'see no evil, hear no evil,' but 'report no evil,'" charged Rep. Mark Souder, R-Ind. "I believe there is possible legal culpability."

Rep. Dennis Kucinich, D-Ohio, agreed, calling the situation "criminal." Rep. Chris Shays, R-Conn., charged the firms, which took fees from the investment banks which were packaging and selling the mortgage-backed securities they were rating so highly, had "sold their independence to the highest bidder." Confidential documents obtained by Waxman's investigators show that the firms' executives anticipated much of what has happened, and were aware that their ratings were quite possibly shaky, according to the chairman.

More ABC News: Lawmakers Blame Execs for Meltdown

... and who failed to enact legislation to prevent the unbridled greed resulting from lack of regulation??

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The tipping point...

Growth Report Signals US Recession
30 October 2008 - As many analysts expected, the U.S. gross domestic product, or GDP - the value of goods and services produced in the United States - experienced negative growth during the third quarter of this year. The Commerce Department says economic activity contracted at a 0.3 percent annual rate.

Economists say it is a sign that the U.S. economy is headed toward recession. Consumer spending fell sharply in September as people worried about their jobs, savings and value of their homes, contributing to negative economic growth - a sharp contrast to nearly three percent annualized GDP growth during the second quarter. On Thursday, Nouriel Roubini from New York University told the U.S. Congress Joint Economic Committee that recession - officially defined as at least two consecutive quarters of negative economic growth - is looming. "Everybody out there feels it is a recession," said Roubini. "It is obviously a recession. The only debate at this point is how severe, how long and how protracted, in my view."

A three percent drop in consumer spending was the first decline since 1991 and the biggest drop since 1980. The cut back had a particularly adverse effect on auto sales. Consumer confidence fell as the global credit squeeze and stock market decline intensified. Former International Monetary Fund chief, economist Simon Johnson told the Joint Economic Committee that the U.S. government needs to boost spending to avert a catastrophic downturn. "We should consider a fiscal stimulus on the order of $450 billion, roughly three percent of U.S. GDP, which would be an extraordinary step to take under any circumstances unless you think we are entering into a potentially serious and prolonged recession," he said. An earlier stimulus plan approved by Congress in February totaled only $150 billion.

Economist Nouriel Roubini, who predicted the fall in home prices, says Congress needs to turn from supporting financial institutions on Wall Street to helping struggling consumers. "Unless we also support Main Street by making sure that aggregate demand is not going to collapse, six months from now everything we've done to backstop the banks is going to be undone by collapse in aggregate demand," he said. Roubini says the government has already committed $3 trillion to recapitalize the banking system. Massive increases in government spending have already pushed the federal deficit to near record levels.

VOA News - Growth Report Signals US Recession

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Memo to Washington: Wake up!...

A wakeup letter to Washington
November 5, 2008: Note to lawmakers: It's high time to take care of unfair costs for consumers. Let's have some change for fair play.

Take a memo.

To: Our new Congress; the President-elect

From: Nickeled-and-dimed Americans

Re: The (other) financial mess

Congratulations on winning your elections. We trust you won't spend too much time celebrating, though. We taxpayers have had to lay nearly $1 trillion on the line to keep the banking and credit system from collapsing. Cross our fingers, it just might work.

Your task now is to reform the financial industry that helped get us into this jam in the first place. Already there's a fervor in Washington to clamp down on the wholesale side of Wall Street's business, to tighten capital requirements and to get on top of derivatives and the other kooky securities investment banks trade.

All good. But please don't ignore the retail end - that is, the way lenders and brokers do business every day with us consumers. That's a mess too. You've allowed these companies, including some of the very ones we're bailing out now, to do pretty much whatever they want to drain us of our money.

More Memo to Washington: Wake up - Nov. 5, 2008

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Fed lending program not yet taking hold
November 5, 2008: Central bank is buying corporate debt, but other investors have been resistant to lend in a still nervous market.

Despite a nearly $150 billion Federal Reserve effort to boost the critical business lending market, early indications show the central bank's program has not yet encouraged investors to buy up corporate debt. The Fed last week started buying corporate debt that matures in three months through its so-called Commercial Paper Funding Facility. The aim: boost liquidity in the dried-up market. But according to Fed data released Wednesday, total commercial paper issued Tuesday with maturities of more than 80 days stood at just $9.6 billion. That's significantly lower than the $19.9 billion on Monday and last week's daily average of $52.7 billion.

Commercial paper is short-term debt that big businesses and financial institutions sell primarily to money market fund managers and other institutional investors. The companies use the loans to fund day-to-day business operations. Dozens of companies have made use of the program, selling billions of dollars of paper to the Fed over the past week-and-a-half. But the central bank placed limits on what each company can sell to the Fed, and as those limits were reached the market apparently contracted again - as it did after the credit crisis erupted in mid-September.

The Fed will release a weekly measure of the overall commercial paper market on Thursday. Still, the drastically lower issuance numbers compared to the prior week suggest that the Fed remains the only major buyer for three-month paper. "The Fed's program was not a magic solution," said Andrew Brenner, senior vice president of MF Global. "People are still nervous about buying, especially those who are worried about where they're going to stand at the end of the year."

Critical time

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A million jobs lost this year...

Layoffs hit every corner
November 7, 2008: Eight companies spanning several different industries announce nearly 15,000 layoffs in first week of November.

The first week of November has been brutal for the job market, with nearly 15,000 announced job cuts from a slew of companies across multiple industries. Eight companies announced job cuts this week as a means of cost-cutting during desperate times, representing industries as widespread as retail, finance, leisure, pharmaceutical and toy and automobile manufacturing.

On Friday, the Labor Department reported that the U.S. economy sloughed nearly 1.2 million jobs through October. Just in the month of October, the economy lost 240,000 jobs, raising the unemployment rate to 6.5%. "We're losing jobs just about everywhere," said Robert Brusca, chief economist and Fact and Opinion Economics. "People are slowing their spending on everything. Now, even wealthier people are reluctant to spend money."

Circuit City an electronics retailer based in Richmond, Va., kicked off the week by announcing on Monday that it was reducing its domestic workforce by 17%. The company would not comment on the number of employees that would be affected, but according to a recent 10K filing, Circuit City employs about 43,000 people in the U.S. That would mean roughly 7,300 positions are being lost, the biggest of the cuts in November so far.

MORE

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Jobs lost in 2008: 1.2 million
November 7, 2008: Payrolls shrink by 240,000 in October, 10th straight month of cuts. Unemployment soars to 6.5%

The government reported more grim news about the economy Friday, saying employers cut 240,000 jobs in October - bringing the year's total job losses to nearly 1.2 million. According to the Labor Department's monthly jobs report, the unemployment rate rose to 6.5% from 6.1% in September and higher than economists' forecast of 6.3%. It was the highest unemployment rate since March 1994. "There is so much bad in this report that it is hard to find any silver lining," said Morgan Keegan analyst Kevin Giddis.

Economists surveyed by Briefing.com had forecast a loss of 200,000 jobs in the month. October's monthly job loss total was less than September's revised loss of 284,000. Payroll cuts in August were revised up to 127,000, which means more than half of this year's job losses have occurred in the last three months. September had the largest monthly job loss total since November 2001, the last month of the previous recession and just two months after the Sept. 11 terrorist attacks.

With 1,179,000 cuts, the economy has lost more than a million jobs in a year for the first time since 2001 - the last time the economy was in a recession. With most economic indicators signaling even more difficult times ahead, job losses will likely deepen and continue through at least the first half of 2009.

"It's pretty clear that we're in a recession," said Robert Brusca, economist at FAO Economics. "There is reason for us to believe we'll see a drumbeat of heavy job losses for a while, and there's room for them to get even worse." Brusca noted that separate readings on the manufacturing and auto industries indicated economic conditions are the worst in about 30 years. "We may be in a severe recession, in which case these job numbers are not even big yet," he said, suggesting monthly job loss totals could grow in excess of 300,000 an unemployment could rise to around 7%.

Losses across the board

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How about this one on the Fed?...

It's No Joke: Fed Hires Failed Bank Executive
November 4, 2008 - Heckuva Job, Fed?

The Federal Reserve Bank is drawing jeers for hiring a former top executive from the now-defunct investment bank Bear Stearns to help it gauge the health of other banks. "How's this for sweet irony?" business publication Portfolio.com needled the pick. Michael Alix was head of risk management for Bear Stearns for two years until the institution imploded this spring, a victim of its (risky) subprime-mortgage related investments. Last Friday, the Federal Reserve Bank of New York quietly announced it had hired Alix to advise it on bank supervision.

"You're kidding me," said economic policy expert Dean Baker, of the Washington, D.C.-based Center for Economic Policy and Research. While he didn't know Alix personally, he said, "You would think [his record] would be a big strike against him." The collapse of Bear Stearns led to its pennies-on-the-dollar buyout by J.P. Morgan Chase; the bank's shareholders saw their wealth plummet. To facilitate the buyout, the Fed agreed to assume potential billions in losses on bad Bear Stearns investments.

"[Alix] was the guy on the mast charged with yelling 'iceberg' just before the Titanic introducted its bow to a floating chunk of ice," wrote financial expert and blogger John Carney on the web site Clusterstock.com, where he flagged the hire. The Fed's move "is sure to put to rest the notion that there are no second acts in American life," Carney observed drily. A spokesman for the Federal Reserve declined to comment.

ABC News: It's No Joke: Fed Hires Failed Bank Executive

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Elderly stuck in their homes, unable to sell...

Unable to sell, elderly stranded at home
23 Nov 2008, The housing crisis has kept thousands of older Americans who need support and care from moving into retirement communities or assisted-living centres, effectively stranding them in their own homes.

Without selling their houses or condominiums, many cannot buy into retirement homes that require a payment of $100,000 to $500,000 just to move in. So they are scratching themselves off waiting lists, cancelling plans with packing services and staying put, in houses that fit well 30 years ago. “It is part of the hidden problem of the recession,” said Larry Minnix, president of the American Association of Homes and Services for the Aging. “Every neighbourhood, every family’s got them.”

Facilities that have watched their waiting lists wither and their occupancy rates fall in the last year are now scrambling to bring people through their doors. Some assisted-living centers have called in real estate agents to teach prospective residents about online advertising and how to clean and preen their homes for showings. Others have set up programs with banks to provide bridge loans to homeowners, or are discounting apartments and offering low-interest loans. The Cedar Community, which provides a range of housing for the elderly in West Bend, Wis., has seen independent-living occupancy rates drop by 4% this year. There were so many people waiting for their homes to sell that the facility decided, in some cases, to let new residents pay month-to-month until they could unload their houses and use the proceeds on the facility’s entry deposit.

“We’ve never done that before,” said Tracey MacGregor, a spokeswoman at Cedar Community. But for people like Ruth Scher, 85, selling their home is a critical first step before moving on, or moving anywhere. Scher put her two-bedroom condominium on the market last year, but has no offer yet. In the 34 years since she moved to South Florida, Scher’s husband has died, the siblings who moved south from New York to join her have died, and her friends have moved away. She is recovering from a fall that broke her clavicle and suffers from arthritis in one shoulder, and she says it is time to move back.

“It’s lonesome,” Scher said. “So many other people have passed away or moved away. It’s very lonely. The children would love me to come up and I would love to, but I just can’t sell.” Scher hoped to move to a retirement community in Cornwall, NY, where she has friends. But in the year her home sat on the market, she could not even find a broker willing to sell the property, she said. She finally de-listed her condominium. “They tell you, ‘We’re sorry, we can’t get any people to come and look,” Scher said. “If I can’t sell here, I can’t go nowhere.” There is no way to say how many older Americans are in similar straits, as no statistics track how many of America’s 4.27 million unsold homes are owned by people 65 or older. But industry groups and administrators at retirement homes call the problem a growing one, which worsened as the financial crisis spread from real estate to lending markets.

Source

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Notice the time lag to when they finally get around to telling us?...

Government warned of mortgage meltdown
WASHINGTON (AP) -- December 1, 2008: Regulators ignored warnings about risky mortgages, delayed regulations on the industry.

The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents. "Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job. Bowing to aggressive lobbying -- along with assurances from banks that the troubled mortgages were OK -- regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

"These mortgages have been considered more safe and sound for portfolio lenders than many fixed-rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history. The administration's blind eye to the impending crisis is emblematic of its governing philosophy, which trusted market forces and discounted the value of government intervention in the economy. Its belief ironically has ushered in the most massive government intervention since the 1930s. Many of the banks that fought to undermine the proposals by some regulators are now either out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come. Many executives remain in high-paying jobs, even after their assurances were proved false.

In 2005, faced with ominous signs the housing market was in jeopardy, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

--Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.

--Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.

--Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.

--Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.

--Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.

More Government warned of mortgage meltdown - Dec. 1, 2008

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Home sellers suffer amid wave of foreclosures
December 2, 2008: Ordinary home sellers have a hard time competing against the cut-rate bank owned properties that are currently dominating the market.

Selling a home in this market is hard enough. Competing in a neighborhood flooded with foreclosed homes that are heavily discounted is nearly impossible. There are nearly a million repossessed homes on the market right now. And these homes, dubbed in the industry as REO (real estate owned) properties, are being marketed by the most motivated of all sellers - that is, the lenders stuck holding the bag when homeowners default.

On average, foreclosed homes are priced almost 40% lower than normal real estate listings, according to data supplied by Trulia.com, the real estate Web site. "Distressed sales [like foreclosures and short sales] put pressure on the whole market," said Robert Kleinhenz, an economist with the California Association of Realtors.

The lenders selling foreclosed homes have already taken a financial bath, in missed mortgage payments and administrative costs. And every month that an REO home sits empty means another month that the lender has to pay to cover property taxes, insurance and maintenance. What's more, as home prices continue to fall throughout the country, these homes are rapidly depreciating as they sit on the market.

With foreclosures priced so low, there is just only so much an ordinary seller can charge for a comparable house. Consider these figures: In California, the median price for an REO listing was $259,000 during the week of November 10, 23% lower than the non-REOs on the market according to Trulia.com.

More http://money.cnn.com/2008/12/02/real...lers/index.htm

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Hey dude, party on...

D.C. Lobbyists Party On Despite Recession
December 3, 2008 - Lawmakers and Their Staff Invited for Open Bars, Free Food This Holiday Season

One day after the U.S. officially acknowledged it was in a recession, it was party time in Washington for lawmakers and their staff, courtesy of the nation's corporate lobbyists. For weeks, invitations and event lists have been circulating on Capitol Hill, carrying promises of open bars and free food. Though some organizations say they have cut back on events in the wake of the sharpest economic downturn since the Great Depression, many of 2008 's parties are shaping up to look a lot like the parties of earlier years. "The partying always goes on," said Nancy Watzman of the Washington, D.C.-based nonprofit Sunlight Foundation.

Watzman directs the group's "Party Time" project, which tracks fundraising events and other parties where lawmakers rub shoulders with special interests. The ABC News Investigative Unit is reporting on the holiday party scene again this season, continuing last year's coverage. Defense contractors, energy companies and telecoms are all sponsoring parties this year, taking over restaurants and renting out museums in the expectation of crowds hundreds strong. Watzman said her group objects to the parties because "even though you or I might have an opinion, we're not invited. We don't have the same chances to hobnob with congressmen."

The Nuclear Energy Institute plied Capitol Hill guests with food and drink Tuesday night at a swank restaurant in Union Station, just blocks away from the U.S. Senate. Spokesperson Steve Kerekes said the economy hadn't had any impact on this year's event. "We budget well in advance for this event," he said. NEI officials intercepted ABC News reporters minutes after they began filming outside the event. But unlike last year, when private security personnel ejected ABC cameras from the premises, NEI did not object to their presence. They even invited them into the party -- as long as the cameras stayed outside.

Inside staffers, lobbyists and industry officials mingled over drinks and appetizers. There was a live piano player too, and attendees were encouraged to bring a gift for charity. On Wednesday night, the Southern Company is planning an event at Union Station hall while, across town, Lockheed Martin is scheduled to have a 300-person holiday event at a Washington hotel.

More ABC News: Despite Recession, Lobbyists Kick Off Holiday Parties

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'One Buck' CEOs Still Make Their Millions
Dec. 3, 2008 - The Other Side of the $1 Salary; A Handful of CEOs Earn $1 in Salary but Make Millions Elsewhere

The chief executives of the Big Three automakers might give up most of their salary if they get assistance from the federal government. Ford CEO Alan Mulally, General Motors CEO Rick Wagoner and Chrysler CEO Robert Nardelli all pledged to earn $1 a year in salary as part of their respective companies' plans to remain profitable. That is, if the government helps them out and if they take that help.

This is in stark contrast to two weeks ago when Mulally and Wagoner rejected a suggestion from Congress that they slash their salaries to $1 a year. Rep. Peter Roskam, of Illinois, asked the CEOs if they would cut their salaries in exchange for federal aid. "I don't have a position on that today," Wagoner said. "I understand the intent, but I think where we are is okay," Mulally said. Pressed further, he added: "I think I'm O.K. where I am."

Yesterday was a different story. "The plan calls for shared sacrifice, including further reduction in the number of executives and total compensation paid to senior leadership," GM said in a news release. "For example, the chairman and CEO will reduce his salary to $1 per year. The plan also requires further changes in existing labor agreements, including job security provisions, paid time-off and post-retirement health-care obligations. The common stock dividend will remain suspended during the life of the loans."

What was unclear Tuesday was whether that $1 salary is for 2009 and whether the executives would still get stock options, retirement benefits and other perks. These three CEOs aren't the first corporate bigwigs to forgo their salaries and they probably won't be the last. The $1 salaries are meant to be a symbol to shareholders, employees and taxpayers that the bosses are doing everything possible to fix their companies' problems. In the last year, the chief executives of 32 companies in the Russell 3000 took $1 or no base salary, according to executive compensation firm Equilar.

More ABC News: The Other Side of the $1 Salary