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Archive for October, 2008

Massive Effort by J.P. Morgan to Save Mortgages

J.P. Morgan Chase & Co. launched an ambitious plan Friday to modify the terms of $70 billion in mortgages for borrowers who are behind on their payments or soon could be.

The move by the New York bank will cover as many as 400,000 borrowers. They’ll be moved into loans carrying lower interest rates, smaller principal amounts and other more-affordable terms.

Credit Cards Are the Next Economic Crisis for Banks

First came the mortgage crisis. Now comes the credit card crisis.

After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.

The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.

Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.

“If unemployment continues to increase, credit card net charge-offs could exceed historical norms,” Gary L. Crittenden, Citigroup’s chief financial officer, said.

Faced with sobering conditions, companies that issue MasterCard, Visa and other cards are rushing to stanch the bleeding, even as options once easily tapped by borrowers to pay off credit card obligations, like home equity lines or the ability to transfer balances to a new card, dry up.

Barack Obama For President

The United States is battered and drifting after eight years of President Bush’s failed leadership. He is saddling his successor with two wars, a scarred global image and a government systematically stripped of its ability to protect and help its citizens — whether they are fleeing a hurricane’s floodwaters, searching for affordable health care or struggling to hold on to their homes, jobs, savings and pensions in the midst of a financial crisis that was foretold and preventable.

As tough as the times are, the selection of a new president is easy. After nearly two years of a grueling and ugly campaign, Senator Barack Obama of Illinois has proved that he is the right choice to be the 44th president of the United States.

The Economy

The American financial system is the victim of decades of Republican deregulatory and anti-tax policies. Those ideas have been proved wrong at an unfathomable price, but Mr. McCain — a self-proclaimed “foot soldier in the Reagan revolution” — is still a believer.

Mr. Obama sees that far-reaching reforms will be needed to protect Americans and American business.

Mr. McCain talks about reform a lot, but his vision is pinched. His answer to any economic question is to eliminate pork-barrel spending — about $18 billion in a $3 trillion budget — cut taxes and wait for unfettered markets to solve the problem.

Mr. Obama is clear that the nation’s tax structure must be changed to make it fairer. That means the well-off Americans who have benefited disproportionately from Mr. Bush’s tax cuts will have to pay some more. Working Americans, who have seen their standard of living fall and their children’s options narrow, will benefit. Mr. Obama wants to raise the minimum wage and tie it to inflation, restore a climate in which workers are able to organize unions if they wish and expand educational opportunities.

Only Half a Bailout

A week into the big bailout, banks are beginning to charge each other less for loans and companies are finding it easier to borrow short term. The Dow has been up and down, but so far this week, it is back above 9,000.

So has the worst passed? Probably not.

The unfortunate reality is that as long as millions of Americans continue to default on their mortgages and housing prices continue to slide, banks will continue to suffer big losses. Unless something is done quickly to help American homeowners avoid foreclosure and stay in their homes, those losses could swamp the bailout effort by exceeding the sums being spent to rescue the banks.

Despite the danger posed by foreclosures — to the bailout, homeowners, taxpayers and the economy — the Bush administration and Congress are still depending on banks and other participants in the mortgage industry to voluntarily modify troubled loans, say, by giving borrowers more time to pay or by reducing interest rates.

Mandatory modifications, bankruptcy, lawsuits — no one likes them, but they are tough tools for a tough problem. The bailout has dealt with only half of the problem: the credit freeze. Unless the government deals as aggressively with foreclosures, the system will likely face the abyss again.

Middle Class Americans’ Retirement at Risk

Three years ago, it unraveled. His company filed for bankruptcy. The collapse reduced his expected pension to around $5,000 a year and canceled his retiree health insurance. And, in three years of unemployment since then, West blew through all the money in his 401(k) as he trained for a new career.

“I lost my job after 27 years before I got my retirement,” said West, 52, of Hazel Park, Mich. “I ain’t going to get nothing.”

Of all the threats to the American middle-class standard of living, from stagnating incomes to piles of consumer debt, perhaps the least understood and among the most serious is the looming crisis in retirement. Several trends, each debilitating alone, are due to converge on the middle class over the next decade or so.

Preparation Not Panic is the Answer to the Troubled Economic Times Ahead

NEW YORK (CNN) — Despite the best efforts of our politicians to convince us otherwise, there is no easy way out of the financial crisis we’ve created.

Gimmicks and Band-Aids won’t solve the underlying problem; they just delay its impact until after the election. While that might help politicians keep their jobs, it won’t help you and me keep ours.

A lot of us saw what was coming before the dam broke. We didn’t need fancy graphs or prize-winning economists to warn us. We just used common sense. But now that same common sense is now telling us something else: Every action has an equal and opposite reaction.

We can’t print billions of new dollars and expect there to never be a consequence for it down the road. We can’t unwind a bubble built on historic levels of greed by simply writing a check or passing a law.

Preparation, not panic.

Things could get really bad before they get better. Really, really bad. But you’ll never know what’s coming by watching the Dow every day — it’s a terrible indicator. In fact, the four largest percentage gains in the Dow’s history happened between 1929 and 1933, a period that wasn’t exactly a great time to buy.

The chorus of Billy Joel’s famous song about the Vietnam War still rings true today: We will all go down together.

What we’re experiencing right now are the outer bands of a hurricane with an eye that likely won’t hit us for another year or two. In the meantime, there will be plenty of sunny days, but they’ll just distract us from what’s coming. Stay focused on what your gut tells you is still churning just offshore.

When the eye of the storm finally comes ashore, nothing will be less relevant than whether you’re a registered Democrat or Republican. It didn’t matter during Pearl Harbor, the Cuban Missile Crisis or Oklahoma City, and I certainly don’t remember anyone asking to see a voter ID card before they gave you a hug on 9/11.

If September 11 was the worst day in American history, then September 12 was one of the best. Do you remember what it was like? Lines at blood banks; filled-up churches; neighbors watching out for each other; families sitting around the dinner table and talking to each other.

It was the America we all long for — and we can have it back. But if you’re waiting for another historic crisis to convince you to put the donkeys and elephants aside and reconnect with each other, then open your eyes; we’re in the middle of it.

Fear, Greed, Speculation, and Bargain Hunting Drive Stocks Higher

NEW YORK (AP) — Wall Street stormed back after its worst week ever and staged the biggest single-day stock rally since the Great Depression on Monday, catapulting the Dow Jones industrials to a 936-point gain and finally offering relief from eight consecutive days of stock market carnage.

While no one was saying the worst was over for the staggering financial system or troubled economy, buyers returned to the stock market with gusto, with some saying stocks had been driven down to fire-sale prices.

The surge came as executives from leading banks were summoned by the Bush administration to Washington to work out a plan to get loans, the lifeblood of the economy, moving again. And it followed signals that European governments would put nearly $2 trillion on the line to protect their own banks.

The Dow gained more than 11 percent, its biggest one-day rally since 1933, and by points it shattered the previous record for a one-day gain of 499, during during the waning days of the technology boom in 2000.