Congress fiddles while the economy burns

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When the goin' gets tough - Congress flees on vacation...

Congress Vacations While Economy Burns
WASHINGTON, June 28, 2008 - Lawmakers Go on July 4 Break Without Passing Energy or Housing Relief Bills

With Americans still reeling from this week's report that gas may cost $7 a gallon in a few years and with millions either losing their homes to foreclosure or unable to sell their homes, people are looking looking for help. Well, don't expect quick action here. Congress has gone on holiday and told the nation, "See you after July 4th." Nobody here but tourists, who can't understand why Congress would leave with so much undone.

"I can't really say I know what they do in there," a man from Bakersfield, Calif., said outside the Capitol building. "I know what they're not doing." Congress failed to agree on energy legislation and in the most surprising failure, lawmakers couldn't come to terms on a housing bill to rescue homeowners threatened with foreclosure.

"What I find most puzzing about this time now is that there is no nervousness on the part of Democrats as an election approaches that Americans are going to hold them accountable for fiddling while the housing crisis continues to burn," said Norm Ornstein of the American Enterprise Institute, a conservative think tank.

More ABC News: Congress Vacations While Economy Burns

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Groceries stores feelin' the pinch of the economy...

America's Shrinking Groceries
Friday, Jun. 27, 2008 - American supermarkets are epics of excess: it often seems like every item in the store comes in a "Jumbo" size or has "Bonus!" splashed across the label. But is it possible that the amount of food Americans are buying is, in fact... shrinking?

Well, yes. Soaring commodity and fuel prices are driving up costs for manufacturers; faced with a choice between raising prices (which consumers would surely notice) or quietly putting fewer ounces in the bag, carton or cup (which they generally don't) manufacturers are choosing the latter. This month, Kellogg's started shipping Apple Jacks, Cocoa Krispies, Corn Pops, Froot Loops and Honey Smacks containing an average of 2.4 fewer ounces per box. Similar reductions have recently happened or are on the horizon for many other products: Tropicana orange juice containers are shrinking from 96 ounces to 89; Wrigley's is dropping its the 17-stick PlenTPak in favor of the 15-stick Slim Pack; Dial soap bars now weigh half an ounce less, and that's even before they melt in the shower. Containers of Country Crock spread, Hellmann's mayonnaise and Edy's and Breyer's ice cream have all slimmed down as well (although that may not necessarily be a bad thing).

"People are just more sensitive to changes in price than changes in quantity," says Harvard Business School Professor John Gourville, who studies consumer decision-making. "Most people can tell you how much a box of cereal costs, but they have no clue how much is actually in it." Other segments of the economy have made similar moves to pass on their higher costs to the consumer without raising prices directly. American Airlines announced in May that it would charge $15 each way for a single checked bag, part of what airlines have dubbed "a la carte" pricing, which — along with the industrywide drive to put price tags on former freebies like soft drinks, meals and headphones — some airline observers say is really an effort to avoid increasing base ticket prices.

Once they're asked about the changes, food manufacturers are quick to explain their own increasing overhead costs — a Kellogg's spokeswoman said reducing the amount of cereal per box was "to offset rising commodity costs for ingredients and energy used to manufacture and distribute these products" — but most are not exactly going out of their way to let consumers know they're getting less for their money. Some claim newly shrunk products are responses to consumers' needs. Tropicana told the New York Daily News earlier this month that its orange juice containers, which also include a newly designed cap and retail for the same price as the previous larger size, were the result of customer complaints. Said spokeswoman Jamie Stein, "We had a lot of spillage with our old products. It's a value-added redesign."

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Foreclosures higher than expected...

US foreclosure filings surge 53 percent in June
WASHINGTON Jul 10, `08 - The number of homeowners stung by the rout in the U.S. housing market jumped last month as foreclosure filings grew by more than 50 percent compared with June a year ago, according to data released Thursday.

Nationwide, 252,363 homes received at least one foreclosure-related notice in June, up 53 percent from the same month last year, but down 3 percent from May, RealtyTrac Inc. said. One in every 501 U.S. households received a foreclosure filing last month. Foreclosure filings increased from a year earlier in all but 11 states. Nevada, California, Arizona, Florida and Michigan continued to have the highest foreclosure rates.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. More than 71,000 properties were repossessed by lenders nationwide in June, the company said. While foreclosures continue to rise nationwide, efforts in some states to give borrowers more time before losing their homes appear to be working. In Maryland, where a new law has increased the time to finalize a foreclosure to 150 days from just 15, foreclosure filings dropped by almost 18 percent from last year's levels. In Massachusetts, which last year passed a similar law, filings dropped almost 3 percent.

Still, the combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't refinance into an affordable loan. Economists project 2.5 million homes nationwide will enter the foreclosure process this year, up from about 1.5 million in 2007.

More My Way News - US foreclosure filings surge 53 percent in June

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Cruelest summer for teen jobs since 1958
July 10, 2008: June employment for teenagers drops nearly 40% below 2007 levels as companies cut extra positions. Summer hiring for teens at lowest pace in 50 years.

Teenagers are finding jobs much harder to come by this summer, as employers trim payrolls amid a slumping economy. According to an analysis of U.S. Bureau of Labor Statistics data by global outplacement consultant Challenger, Gray & Christmas, teen employment grew by only 683,000 jobs in June, 38.7% below the 1.1 million new positions that teens were able to fill in June of last year. "This tells you how sparse and thin the job market is right now," said Challenger, Gray & Christmas Chief Executive John Challenger. "Companies are cutting back to their core and cutting out their extras."

June is typically the peak month for teen hiring, yet this June marks the first since 2004 in which companies added fewer than one million new jobs for 16- to 19-year olds. "Companies tend to hire teens to build their pipelines for the future and give kids a chance to get into the workplace," said Challenger. "But those jobs are the first ones that companies cut back when they need to pare down." A rebound in July is unlikely, Challenger said, because July employment has fallen an average of 43% from June levels over the past 10 years.

If the average holds, total summer hiring in May, June, and July would be about 1.2 million, which would be the smallest gain in teen summer employment since 1958. Teen employment also fell in the most recent recessions of 2001 and 1991, but the drop was not nearly as pronounced, noted Challenger. "This is pretty drastic," Challenger said. "You don't see drops like this too often unless the economy is in a recession."

The struggling U.S. economy has put a stranglehold on companies looking to hire new employees. In just the first half of 2008, the economy lost 438,000 jobs. "This is about the sluggishness in the economy, rather than a long term change that's part of companies discounting teens," said Challenger. "Our economy, from a labor standpoint, has taken a nosedive in the last 3 months."

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Fannie an' Freddie havin' a rough time of it...

Fannie, Freddie: 45% and sinking fast
July 11, 2008: Fannie, Freddie plunge spurs bailout talk; Continued sharp slide in shares of mortgage finance firms raises new concerns about need for new capital, threat of government takeover.

The anxiety over Fannie Mae and Freddie Mac, which support $5 trillion in home loans, reached fever pitch on Friday as shares of the mortgage finance giants plunged in early trading. Immediately after the markets opened, shares of Fannie and Freddie fell more than 47% from their already battered closing price the day before. They soon rebounded slightly but Fannie shares were down 36% and Freddie shares were off 43% about a half hour after opening. In the first four trading days of the week, the shares of Fannie have lost 30% of their value, while Freddie shares have tumbled 45%. For the year, Fannie is down 67% and Freddie 77%.

The two firms play a central role in the U.S. housing market, providing a crucial source of funding for banks and other home lenders. If they were unable to do so, it would significantly raise the cost and restrict the availability of mortgage loans, causing significantly more problems for already battered housing prices and sales. That in turn would be another significant problem for the overall U.S. economy, as well as global credit markets. The New York Times reported Friday that senior Bush administration officials are considering a plan to have the government take over one or both of the companies if their problems worsen.

The shares seemed to rebound when word came that Treasury Secretary Henry Paulson was set to speak. A number of scenarios were being discussed by bankers and analysts about what the government may do to deal with investors' current crisis of confidence in the firms. Jaret Seiberg, a financial services analyst for the Stanford Group, a Washington research firm, said Thursday options that among the options are: The Federal Reserve could purchase some of the Freddie and Fannie debt or mortgage-backed securities; the Treasury Department could make billions of dollars in loans to the companies or even buy stock in the companies.

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Lehman shares plunge 18% at open
July 11, 2008: Investors send shares of Wall Street firm down 18% in early trading, a day after it releases more details about quarterly loss.

Shares of Lehman Brothers got socked yet again Friday, falling in early trading one day after the Wall Street firm provided more details about last quarter's nearly $3 billion loss. Lehman shares tumbled 18% at the start of the session. So far this year, Lehman shares are down 73%.

Late Thursday, the nation's fourth-largest investment bank provided greater details about the stunning $2.8 billion loss it suffered in the second quarter. Lehman revealed that it had $41.3 billion in Level 3 assets - those that are hard-to-value - at the end of the quarter, down from $42.5 billion in the previous quarter. Nearly half of those assets were mortgage-related and asset-backed positions, the company said.

Friday's decline continues what has been a particularly tough week for Lehman Brothers. Lehman shares tumbled over 12% amid market speculation that several of the company's business partners were scaling back their ties with the New York City-based investment bank.

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Could turn a recession into a depression...

The $5 trillion mess
July 12, 2008: Fannie Mae and Freddie Mac were created by Congress to help more Americans buy homes. Now their shaky condition threatens the entire housing market.

They own or guarantee $5 trillion worth of mortgages* - nearly half of all the country's outstanding home loan debt-and they're crashing. Big time. Fannie Mae and Freddie Mac are struggling with an investor loss of confidence so great that, while they're unlikely to go under, they could conceivably see their ability to function impaired. That would wreak yet more havoc on an already wrecked housing market- making loans tougher to come by and possibly pushing hundreds of billions of dollars in cost onto U.S. taxpayers. How could the companies end up in such awful straits? Given the way they were created and run, a better question might be: how could they not?

The two companies are so-called government-sponsored enterprises, created by Congress in 1938 (Fannie) and 1970 (Freddie) to help more Americans buy houses. Their mandate is to maintain a market for mortgages - buying loans from banks, repackaging them as bonds, and selling those securities to investors with a guarantee that they will be paid. This makes lending more tempting for banks because Fannie and Freddie take on risks like missed payments, defaults and swings in interest rates.

But the companies are also publicly traded, with the usual mandate of trying to maximize profits for shareholders. That effort, of course, involves risk, but as quasi-government programs, they've long carried an implicit guarantee that the feds wouldn't let them fail. Their hybrid nature created both the opportunity and the temptation for the enterprises to take on more risk and to make themselves ever larger, more important and thus more profitable players in the mortgage market.

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The rise and fall of IndyMac
July 12, 2008: Feds seize bank - once a leading mortgage lender. It may turn out to be most expensive collapse ever. One thing is sure: The credit crisis is still with us.

In what could turn out to be the most expensive bank failure ever, troubled mortgage lender IndyMac Bancorp Inc. was taken over by federal regulators on Friday. The operations of the Pasadena, Calif.-based thrift - once one of the nation's largest home lenders - were shut down at 3 p.m. PDT by the Office of Thrift Supervision and transferred to the Federal Deposit Insurance Corp.

About 95% of the $19 billion in deposits in the bank are insured, but that leaves $1 billion that was not covered by FDIC guarantees. According to the agency, 10,000 IndyMac customers could lose as much as half of that amount, or $500 million. The agency says the failure will cost the Deposit Insurance Fund between $4 billion and $8 billion, based on preliminary estimates.

"This will certainly be a costly failure. Whether it's the costliest, we just don't know at this point," FDIC Chairman Sheila Bair said on a conference call late Friday night. The failure could also affect premiums paid by all banks for deposit insurance, she added.

The closure of IndyMac capped a dramatic day that offered a stark reminder that the credit crisis is not abating. An investor panic sent shares of mortgage finance giants Fannie (FNM, Fortune 500) Mae and Freddie (FRE, Fortune 500) Mac on a wild ride and fueled speculation of a government rescue.

How IndyMac rose in the boom

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More bank failures??...

More banks may fail after IndyMac: analysts
Sun Jul 13, 2008 - More U.S. banks may fail after the collapse of mortgage lender IndyMac Bancorp Inc, straining a financial system seeking stability after years of lending excesses.

More than 300 banks could fail in the next three years, said RBC Capital Markets analyst Gerard Cassidy, who had in February estimated no more than 150. Banks face pressure as credit losses once concentrated in subprime mortgages spread to other home loans and debt once-thought safe. This has also led to investor worries about the stability of mortgage finance companies Fannie Mae and Freddie Mac; IndyMac is not related to either.

While analysts decline to speculate about which banks might fail, several smaller lenders and even larger ones appear to have elevated levels of soured loans relative to their sizes. "You have to look at companies with the greatest exposure to the highest-risk assets, which include construction loans and exotic mortgages," Cassidy said. "The final nail in the coffin for any depository institution would be a funding crisis where it is unable to gather deposits at reasonable cost, or wholesale funding markets are cut off."

The Federal Deposit Insurance Corp (FDIC) seized IndyMac on Friday after a bank run in which panicked customers withdrew more than $1.3 billion of deposits in 11 business days. This followed comments on June 26 by U.S. Sen. Charles Schumer questioning the Pasadena, California-based thrift's survival. Some withdrawals also followed IndyMac's July 7 decision to fire half its work force and halt most mortgage lending.

More More banks may fail after IndyMac: analysts | Special Coverage | Reuters

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A run on the bank...

IndyMac customers line up to withdraw money
July 14, 2008: Hundreds gathered Monday to pull savings; many fear losses as largest regulated thrift fails.

Hundreds of worried IndyMac Bancorp Inc. customers lined up Monday to pull as much money as they could from the failed financial institution. However, federal regulators said it could be years before the affairs of the bank were fully resolved.

Charles Tengeri, a retired school teacher, was the first customer to emerge from the Pasadena headquarters of the bank. He held a check for $171,000 -- an amount that he said represented most of his savings. "I didn't think this could happen," he said. "But I'm glad to get anything out."

Customer Harvey Soldan said he had more than $100,000 in the bank whose assets were seized Friday by federal regulators. "It's a question of how much we can get and how soon," he said while waiting in line. Soldan spent Sunday night at a hotel near the bank so he could be at the door more than three hours before it opened at 9 a.m.

Two-hundred people were in line when the bank opened. A security guard at the door was allowing 10 people at a time to enter the branch. Customers were orderly as the line stretched around the block. The mortgage lender, which succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures, is the largest regulated thrift to fail and the second-largest financial institution to close in U.S. history, regulators said.

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WaMu and National City plummet
July 14, 2008: Shares of the two troubled banks each plunge about 30% as investors fear the possibility of more bank failures.

Shares of Washington Mutual and National City both plunged Monday as fears grew about the credit crisis plaguing big banks. Both banks have been hit particularly hard by the subprime mortgage meltdown and ensuing credit crisis, as they had to raise significant capital to cover bad home loans from their residential mortgage lending businesses.

Washington Mutual shares plummeted 34.8% after a note from a Lehman Brothers analyst suggested that the bank may need to "substantially" raise its reserves over the course of 2008 to cover losses from home loans. Lehman analyst Bruce Harting said he expects the bank will report $26 billion in cumulative losses - $21 billion of which are expected to come from home loans - when the company announces its results on July 22.

WaMu responded after the market close with a statement, saying it is sufficiently capitalized, with more than $40 billion in excess liquidity after it recently raised $7.2 billion in capital. "The company significantly exceeds all regulatory 'well-capitalized' minimums for depository institutions," the bank said in a statement.

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Bank failures muckin' things up...

Little foreclosure relief seen from housing bill
17 July, `08 - Problems with Fannie, Freddie complicate prospects in Congress

After a year of debate, Congress appears close to passing a bill intended to stem the rising tide of home foreclosures and stabilize the shaky housing market. But even if the bill wins final passage — far from a certainty — the most optimistic forecasts suggest it would help only about 400,000 of the estimated 3 million homeowners who will likely lose their homes in the next year.

Prospects for the bill have been complicated by the mortgage meltdown's latest chapter — the severe turmoil surrounding Fannie Mae and Freddie Mac, the government-sponsored companies that provide much of the capital to the mortgage market. A Bush administration plan to help prop up the two faltering enterprises has been tacked on to the housing bill, generating some backlash from congressional Republicans.

Federal Reserve Chairman Ben Bernanke warned this week that the ongoing housing crisis is having a serious ripple effect. “The declines in home prices have contributed to the rising tide of foreclosures,” Bernanke told a congressional panel. “By adding to the stock of vacant homes for sale, these foreclosures have in turn intensified the downward pressure on home prices in some areas.”

More Little foreclosure relief seen from housing bill - Eye on the Economy - MSNBC.com

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Gas tax holiday turns into talk of gas tax increase...

Talk grows of gas tax increase
Sat., July. 19, 2008 WASHINGTON - Idea of gas-tax holiday runs into a dead end; Talk now is to raise tax a dime a gallon to fund road improvements

The political vision of a summer gas tax holiday died a quick death in Congress, losing to a view that federal excise taxes on gasoline and diesel fuel will have to go up if they go anywhere. Despite calls from the presidential campaign trail for a Memorial Day-to-Labor Day tax freeze, lawmakers quickly concluded — with a prod from the construction industry — that having $9 billion less to spend on highways could create a pre-election specter of thousands of lost jobs. Now, lawmakers quietly are talking about raising fuel taxes by a dime from the current 18.4 cents a gallon on gasoline and 24.3 cents on diesel fuel.

With gas prices setting records daily, Republican presidential hopeful John McCain and former Democratic candidate Hillary Rodham Clinton called for a 90-day suspension of the federal fuel tax to give drivers a little relief at the pump. The fuel taxes go into the Highway Trust Fund, which is used for road construction and repair and mass transit. Clinton suggested making up for the loss by imposing a windfall profit tax on oil companies, an idea that Republicans rejected. McCain said the money could come out of the general Treasury fund, in effect adding to the federal deficit, and is still getting mileage from the idea.

"Some economists don't think much of my gas tax holiday," he said in a speech this month. "But the American people like it, and so do small business owners." Barack Obama, the likely Democratic nominee, opposed the idea from the beginning and the White House gave it a cold shoulder. Depriving the 52-year-old Highway Trust Fund of $9 billion at a time when it is heading into the red doomed the notion of a gas tax holiday in Congress.

More Idea of gas-tax holiday dies quick death - Capitol Hill - MSNBC.com

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Almost gotta be a Rockefeller to get a mortgage these days...

Mortgages: More expensive, more scarce
July 14, 2008: As rumors of big mortgage companies' collapse swirl, many Americans are unable to find affordable home loans.

The fate of Fannie Mae and Freddie Mac may be hanging in the balance but many mortgage borrowers already find themselves struggling to find affordable loans. Because of the turmoil surrounding Fannie and Freddie, recent borrowers are likely paying at least 10% more in monthly mortgage payments than they would have. The added cost stems from an erosion in confidence in Fannie and Freddie, according to Mark Zandi, chief economist for Moody's Economy.com.

Fannie and Freddie borrow money in the bond markets to pay for the mortgages they buy from lenders and then sell them to hedge funds and other investors. Their cost of borrowing that money has now gone up, and that filters down to lenders who have to charge more to borrowers. "It does have an impact on mortgage interest rates," said Richard DeKaser, chief economist for National City Corp. "It will be more expensive for Fannie and Freddie to acquire mortgages and that will ripple through the market."

Indeed, borrowers have been spending more for mortgage loans than usual ever since credit markets went through an upheaval last summer. Before then, the interest rate on a 30-year, fixed-rate mortgage was about 1.5 percentage points higher than yields on 10-year Treasury notes, according to Keith Gumbinger, vice president of HSH Associates, a publisher of consumer loan information. Treasuries are a benchmark for mortgage rates. Now, the difference is closer to 2.5 percentage points and has expanded by about a 0.3 percentage points since late June, as angst over the futures of Fannie and Freddie reached fever pitch.

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