Meltdown

[Coopmv]

Coop, like many other high-cost, high-priced nations, Japanese companies are slashing wages, cutting bonuses, and reducing hours of their labor forces.  This will invariably feed the deflationary vortex as consumers (employees) have less disposable income and therefore spend less; and when they do spend, they try to buy at the lowest prices possible.  Those who lose their jobs will default and enter foreclosure.  This decreased consumption will, in turn, cause companies to further downsize.

deflationary spiral

As credit contracts and investors deleverage, asset prices will fall and asset bubbles will pop, further feeding the asset deflationary cycle.

self-reinforcing deflationary spiral

Will a deflationary spiral happen to other countries?  The US now has 14.7 million jobless, the most on record (dating back to 1948), and, for the first time since Great Depression I, (1) all jobs generated since the prior recession have been eliminated; (2) industrial production has been plunging at the same rate as it did in the early 1930s; (3) global trade has been tumbling at twice the rate of the early 1930s.

The US is now paying the price for its relentless outsourcing of jobs which has led to a permanent decline in the standard of living of its middle class.  Japan has no choice but to do the same in order to keep up with the US in terms of labor costs.  It is a race to the bottom that only China and India come out on top.  

[Coopmv]

Rio Tinto is now paying the price for breaking its deal with the Chinese.  Nothing is forgiven with these communists, they will get even ...

China accuses Rio workers of stealing price data
Reports: Rio employees accused of stealing information on China position in ore price talks
By Joe Mcdonald, Associated Press Writer
On Friday July 10, 2009, 9:42 am EDT
     
BEIJING (AP) -- Four detained Rio Tinto Ltd. employees are accused of paying bribes for secret information about China's stance in iron ore price talks, state media said Friday in a case that highlights the volatile Chinese mix of business and politics.

The four employees, including an Australian, were detained Sunday as Rio, the world's third-largest mining company, negotiated on behalf of global iron ore suppliers with Chinese steel mills. The government says it has proof they stole state secrets.

The Rio employees are accused of bribing Chinese steel company personnel to obtain summaries of meetings by Chinese negotiators and gain an edge in the price talks, newspapers said, citing the Ministry of State Security, China's domestic intelligence agency. They said that damaged China's "economic safety."

The accusations reflect the communist government's sensitivity about fields such as steel and energy that it deems strategic and its intense secrecy about a wide array of economic and industrial information.

"If you're foreign, information is power in China, and they tend to think most of their information is national security information," said Robert Broadfoot, managing director of Political and Economic Risk Consultancy in Hong Kong, who has advised companies on China since the 1970s.

The Australian, Stern Hu, is the Shanghai-based manager of Rio's Chinese iron ore business. Australian diplomats were allowed to meet with him Friday for the first time since he was detained but no details were immediately released.

China is the world's biggest steel producer and has criticized iron ore suppliers for sharply raising prices in recent years. Chinese mills are pressing for substantial reductions. The other major suppliers are Australia's BHP Billiton Ltd. and Brazil's Vale SA.

Information on Chinese steel company ore costs, profit margins and technology spending all are considered official secrets, according to news reports.

The maximum penalty for an espionage conviction is life in prison.

"China has its own laws about state secrets. They are clearly broader than the view that Australia might take," said Australian Foreign Minister Stephen Smith.

"Frankly it is difficult for a nation like Australia to see a relationship between espionage and national security and what appeared to be suggestions about commercial or economic negotiations," Smith said.

Rio responded to the accusation by saying Friday it is "committed to high standards and business integrity."

"The company is surprised and concerned about the allegations," said Rio spokesman Tony Shaffer in Melbourne. "We are not aware of any evidence that would support these allegations."

Chinese authorities have not given Rio any information about the case, Shaffer said.

"We remain ready to assist these authorities in their investigations," he said. "We will continue to support our employees and their families in China."

Employees of the China Iron & Steel Association, the iron ore price negotiator for Chinese steel mills, are also under investigation, the newspaper 21st Century Business Herald reported. An employee who answered the phone at CISA's Beijing headquarters and would give only his surname, Yang, said the association had no comment.

An executive who oversaw iron ore purchases for one of China's biggest steel producers, Shougang Group, was detained this week, according to the Herald. A foreign ministry spokesman declined Thursday to say whether that was linked to the Rio case.

Other Chinese steel companies also are being investigated, the newspaper Oriental Morning Post said.

Many of those caught up in criminal cases over economic and industrial information have been ethnic Chinese from abroad or Chinese-born foreign nationals.

Hu was born in 1963 in the eastern Chinese city of Tianjin and graduated from elite Peking University before emigrating to Australia, according to news reports.

In 2001, a Chinese-born American, Fong Fuming, was convicted of paying bribes to help investors obtain secret information to bid on power projects and sentenced to five years in prison. He was expelled from China in 2003 after three years in captivity.

China's foreign ministry denied speculation in Australia that the Rio case was linked to the company's decision last month to cancel a multibillion-dollar investment deal with state-owned Aluminum Corp. of China, or Chinalco.

In a possible attempt to avert a backlash in Australia, Chinalco issued a statement there Friday insisting it had nothing to do with the Rio case.

"Chinalco has been in contact with Rio Tinto expressing our mutual concern for the current situation with their staff," the statement said. "We have also reasserted that the situation is in no way related to any commercial dealings between Rio and Chinalco."

Despite such denials, the complex politics surrounding economic issues will make foreign companies wonder about Beijing's motives, Broadfoot said.

"They are going to be concerned that China's investments abroad did not go the way it wanted or that China is in the process of negotiating iron ore contracts and is using events like this either as revenge or to enhance its negotiating position," Broadfoot said. "That worries people."

[BachQ]

China's exports plunge 21.4% in June

[BachQ]

The price of crude is just about right, under $60 and perhaps should be a tad lower since the industrial demand is not there and people are driving a bit less.  A country like Venezuela needs oil price to be around $80 to order to pay all the promised social programs or Hugo Chavez is toast.  I do not know what that price point is for Russia, which is just another one-trick pony - almost 100% dependency on oil export.  It appears oil price of under $60 is not good for it either.

Coop, here's more evidence of your "one trick pony" summation of Russia's economic dependence on oil:



Ruble Drops Most Since February as Oil Slumps, Deficit Widens

July 10 (Bloomberg) -- The ruble weakened the most since February as oil prices dropped, Russia cut interest rates and the budget deficit widened in the country's worst economic slump in a decade.  The currency depreciated as much as 3.1 percent to 32.7649 per dollar, extending losses in the worst week since January. The 30-stock Micex Index sank to a three-month low.

Oil, Russia's main export, fell 1.5 percent to $59.48 a barrel, bringing this week's slump to 11 percent as concern deepened a prolonged global economic slowdown will damp demand for fuel. Bank Rossii cut its main rates for the fourth time in less than three months as the country slips into its first recession in 10 years. The budget gap widened as shrinking export revenue curb the state's income.

[Coopmv]

China's exports plunge 21.4% in June

And it is manipulating the exchange rate and handing out tax rebates to exporters to prevent the plunge from going even deeper.  It is also interesting to note is that Lenovo sales in the US have plunged.  People or private companies have not stopped buying PC's, they are just not buying from Lenovo.  As some have predicted, many customers who used to buy from the former IBM PC division have now switched over to HP or Dell ...

[Coopmv]

If the banks start to write off all the bad commercials loans - both corporate and real estate loans, their recapitalization effort would go down the drain since their capitals would get wiped out once again ...  Bailout II?
 

ALL BUSINESS: More toxic loans could haunt banks
ALL BUSINESS: Toxic commercial real estate loans still on banks' books; could hurt economy
By Rachel Beck, AP Business Writer

On Saturday July 11, 2009, 5:44 am EDT

NEW YORK (AP) -- Japan's economy was paralyzed for a decade as banks failed to deal with their troubled loans. That's why it's nothing short of stunning to discover some U.S. banks are doing the same thing now.

Despite all the tough talk out of Washington and Wall Street about how the U.S. can't repeat what happened in Japan, the reality is that banks are granting extensions to borrowers in one key category, commercial real-estate loans, so they don't default. It's a bet that economic conditions will improve before the loans come due.

"They are kicking the can down the road, hoping things will be better soon," said Barry Ritholtz, head of the financial research firm FusionIQ and author of the new book "Bailout Nation."

This maneuvering is being called "extend and pretend" in financial circles, reflecting banks' willingness to extend loan maturities because they believe -- or hope-- rental rates and building values could come back to levels seen during the peak of the real-estate market in 2007.

Ritholtz and other financial experts worry that banks are just delaying the inevitable by not dealing with troubled loans now. And since commercial loans are such an important part of the portfolio of many small and midsized banks, it also could constrain their ability to make other new loans. An average of 20 percent of local and regional banks' loan exposure is in commercial real estate vs 4 percent for the nation's biggest banks, according to data from Deutsche Bank.

"This is a bad strategy," said Bryan Marsal, CEO of the corporate restructuring firm Alvarez & Marsal. "It is really about not facing up to where you are today."

Unlike fixed-rate home mortgages, most commercial property loans are structured as balloon notes. Borrowers pay only interest for the first five or 10 years until the loans mature, and then the entire amount must be paid back.

In the boom years, rising rents and property values made it easy for borrowers to find multiple lenders willing to roll over these loans into new and often larger principal amounts that allowed owners to take out millions of dollars in cash to buy other properties.

That game has come to a crashing halt. Cash flows are down on many properties as rental and occupancy rates have fallen, causing the value of many properties to drop significantly. That's made it tougher for owners to refinance their loans.

Delinquency rates on commercial loans have doubled in the past year to 7 percent as more companies downsize and retailers close their doors, according to the Federal Reserve.

In some cases, banks are offering a temporary fix by granting borrowers an extension on loan maturities. On paper, that looks like a plus for the bank because the borrower pays a fee or agrees to pay a higher interest rate, or both. This allows banks to avoid having to foreclose or write down these loans as impaired assets. They also can keep the loans on their books as if nothing were amiss.

"This lets the banks post results that are misleading because the loans have more risk to them than they are disclosing," said Len Blum, managing partner at the investment-bank Westwood Capital. "They can pretend things are better than they are."

That's just what banks in Japan did back in the 1990s. After its debt-fed real estate bubble burst, Japan slid into what has come to be known the "lost decade" because of its drawn out economic and financial malaise.

Even though the Japanese government injected trillions of yen into its banking system, new lending was constrained because troubled loans clogged banks' balance sheets. In some cases, banks refused to foreclose when owners couldn't even pay the interest. Instead, they added the unpaid interest to the loan's principal in the hope that borrowers' problems would be alleviated by an improving economic climate, which never materialized.

What's worrisome is the lack of transparency about how often this is happening now in the United States. Due to privacy issues, banks aren't required to disclose details of specific loan extensions, and most news that does trickle out comes from public companies announcing that they have reached accommodations with their lenders.

Just this week, Bluegreen Corp., a Boca Raton, Fla.-based timeshare resort developer, said it had gotten the maturity dates of a combined $130.1 million in liabilities extended. Others getting loan extensions in recent months were Toys R Us, Tanger Factory Outlets and Washington Real Estate Investment Trust.

The Federal Deposit Insurance Corp. believes that extending the maturity on commercial real-estate loans can be a "value-maximizing and prudent approach," said FDIC spokesman Andrew Gray.

Gray said that its examiners are trying to make sure the loan extensions are being done prudently, and that credit losses are being recognized appropriately. The FDIC directly examines and supervises about 5,160 banks and savings banks.

Bob Seiwert, who heads the Center for Commercial Lending and Business Banking at the American Bankers Association, said loan extensions should be done on a case-by-case basis and aren't necessarily a bad thing. Banks need to assess the chances of the principal amount being repaid and evaluate the viability on the loan on an ongoing basis, he said.

"It may still be a good project," Seiwert said. "It just may need more time."

There are already clear signs that worries about the commercial real estate market have constrained lending. The latest Federal Reserve Senior Loan Officer Opinion Survey, from April, showed almost two-thirds of domestic banks had reported tightening lending standards and terms on commercial real estate loans over the previous three months.

"When lenders do the 'extend and pretend' routine because they don't want to deal with the problem ... what that causes them to do is to restrict their future lending. They pull back into their shell," said Marsal, who is also leading the liquidation of Lehman Brothers. "When and if we do have an economic recovery, what it will do is slow the pace."

Now imagine if the loans that are being extended turn up rotten a year or two from now. That could further hamper lending at local banks -- the backbone of many small-town economies -- meaning companies wouldn't be able to get loans to build new facilities or do renovations or repairs. Hiring would be curbed or more jobs cut, slowing consumer spending.

"The banks seem to think it is OK to hide their head in the sand and keep these kinds of loans on their balance sheets," said Westwood Capital's Blum. "Until the banks really clean up their books, we risk repeating what happened in Japan."

[Coopmv]

These political idiots in CA are working on another band-aid solution instead of planning for a major surgery ...

Talks resume in addressing California's deficit
Schwarzenegger, lawmakers resume weekend talks over California's $26B deficit
By Judy Lin, Associated Press Writer

On Saturday July 11, 2009, 10:07 am EDT

SACRAMENTO, California (AP) -- Gov. Arnold Schwarzenegger and legislative leaders were scheduled to resume work Saturday on bridging California's $26 billion budget shortfall following an unexpected resumption of negotiations the day before.

Late Friday, lawmakers from both parties expressed optimism about the direction of the talks but cautioned that a lot of work remains. That is particularly true in meeting the demands for government reform by Schwarzenegger and Republican lawmakers.

"It was the most productive negotiation we have had in weeks," said Senate leader Darrell Steinberg, a Democrat. "We still have a ways to go."

California has been especially hard hit by the recession. Efforts to balance the budget have been hampered by rules that require a two-thirds vote in both houses of the state legislature to raise taxes or approve other budget measures.

The renewal of negotiations comes after a week of partisan infighting that temporarily stalled talks. Assembly Speaker Karen Bass, a Democrat, declined to participate in negotiations Monday because of disagreements with Schwarzenegger's demands for reforms to welfare, pension, health care and in-home supportive service programs.

"Things are moving forward. So I feel much more positive today than I did earlier this week," Bass said Friday.

The governor and lawmakers said they were prepared to work through the weekend.

At issue is their attempt to close a $26.3 billion shortfall for the fiscal year that began July 1. The Legislature passed a budget for the current fiscal year during an unusual midyear session in February, but quickly declining tax revenue threw the spending plan out of whack within weeks.

It's not clear how the two sides will bridge the gap, which represents roughly a quarter of the general fund, the state's main account for paying its daily operating expenses.

The governor initially proposed eliminating welfare and children's health care programs, while heavily reducing in-home care for the elderly and disabled. He backed off those plans but then angered Democrats and welfare advocates when he turned his attention to weeding out what he described as "waste, fraud and abuse" in California's social service programs.

Schwarzenegger continues to seek changes in eligibility and benefits within California's welfare-to-work program, while Democrats want to protect the state's poor and elderly from cuts they say would be crippling.

Revenue is running so far behind spending obligations that sometime in September the state will run short of cash to pay for most of its core functions, including contributions to state pension funds. It also could be forced to issue IOUs instead of paychecks to state workers, despite previous court rulings against the practice.

The national recession and a steep drop in tax collections has steered California way off course from the spending plan adopted in February. On Friday, the state controller confirmed that California was billions in the red at the end of the previous fiscal year on June 30.

Controller John Chiang said the state spent $10.4 billion more than it collected last year and is now without enough cash to cover all of its payment obligations.

"California continues to pay for its history of unbalanced budgets," he said in a statement.

To preserve cash, Schwarzenegger ordered public employees furloughed three days a month, shutting many state offices on those days. The controller has begun issuing IOUs to thousands of state vendors to save about $3 billion in July alone, but several major banks stopped honoring them on Friday.

That has left some contractors scrambling for a way to get paid.

At the urging of state Treasurer Bill Lockyer, Citigroup Inc. agreed to a one-week extension and Bank of the West reversed its decision and will continue to cash the IOUs, formally known as registered warrants.

Meanwhile, officials with the largest state employees union said they would ask their members to vote on whether they wanted to strike or take some other action in response to the governor's proposal for additional pay cuts.

The three-day-a-month furloughs translate into a roughly 14 percent pay cut for the state's 235,000 employees.

In response to the union's threat, Schwarzenegger acknowledged the cuts to state government were difficult on everyone, from general taxpayers to state workers.

"The key thing is to recognize that we have a shortfall of $26 billion," he said. "It's a huge drop in revenues. It's historic. We've never seen this before in California."

[Coopmv]

The Democrats are panicking now, many of them who vote for a tax increase on the middle class in order to fund healthcare reform can be goners after the mid-term election next November ... 

Jul 11, 2009, 4:56 p.m. EST

Tax on wealthy mulled to fund heath care reform

By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) -- House Democrats intend to pay for their health-care reform plan with higher taxes on wealthy Americans.

A tax on the wealthy is the "best way" to raise money for the overhaul, Rep. Charles Rangel, the New York Democrat who is chairman of the House Ways and Means Committee, told reporters late Friday.

The House Democratic proposal, which includes a government-run insurance plan, is expected to be formally unveiled on Monday.

It faces an uphill battle, as even many Democrats are concerned about the political repercussion of higher taxes.

House Republican leader John Boehner, R-Ohio, said the tax plan would be a "job-killer."

"House Democrats have finally made clear that they will fund their government takeover of health care by raising taxes on hard-working American families and small businesses in the midst of one of the worst recessions in recent memory. With unemployment nearing double digits nationwide, the last thing we need is a massive tax hike that will punish small businesses and cost even more American jobs," Boehner said in a statement.

President Obama promised during the campaign not to raise taxes on Americans earning less than $250,000 per year.

Obama was heading back to Washington over the weekend from a foreign trip that included the Group of 8 summit in Italy. He is expected to wade into the health-care debate upon his return.

Progress on health-care legislation has stalled over the central issue of who will pay for the changes.

Rangel told reporters that the tax could start in 2011.

Married couples making $350,000 would have to pay a surtax of 1%. The surtax would increase for higher-income families.

The tax plan is expected to raise $500 billion, about half of the price tag of health care reform. The remainder of the costs would come from program savings, officials said.

The rates would be set to go higher in later years. But the increases might not go into effect if other ways to pay for the health plan are found.

[BachQ]

I never realized there are this many mindless Americans until this housing meltdown hit .  

Foreclosure: Now an Upscale Blight

Rising job losses and falling home prices are dragging down people who never dreamed they would get in trouble

With the U.S. economy and financial markets showing signs of life, optimistic analysts are looking for a recovery in the all-important housing sector. They got some ammunition on June 2 from the National Association of Realtors, which said that its Pending Home Sales Index jumped in April by the most in more than seven years.

But housing can't revive as long as the market is being flooded with homes that are falling into foreclosure. And far from going away, the problem is broadening. It's not just about subprime anymore. Now, people with excellent credit who never dreamed of getting in financial trouble are being dragged down by a dangerous cycle of rising unemployment and falling home prices. That is going to prolong the foreclosure crisis and, inevitably, inhibit the recovery of the rest of the economy.

Any illusion that prime loans would emerge unscathed was shattered by a May 28 report from the Mortgage Bankers Assn. "For the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures," the bankers said. The grime in prime was responsible for the worst performance on record for the U.S. mortgage sector in the first quarter: Nearly 13% of loans were delinquent or in foreclosure, the most since the bankers started keeping tabs in 1972. The problems were worst in the bubble states of California, Florida, Arizona, and Nevada.

The biggest factor in this second wave of foreclosures is the inability of distressed homeowners to sell in order to pay off their debts. Prices in bubble cities such as Los Angeles, Phoenix, and Miami are down less at the high end of the market than at the bottom, according to data from Standard & Poor's/Case-Shiller home price indexes. But that's cold comfort to people who haven't managed to sell at all. According to research by the National Association of Realtors, there are enough $750,000-plus homes on the market to cover more than 40 months' worth of demand at the current rate of sales. That's four times the rate of oversupply in the housing market as a whole.

Unemployment is exacerbating the problems at the top of the market. The jobless rate for adults with a bachelor's degree or more may not sound too high at 4.4% in April given the overall April jobless rate of 8.9%. But it's more than double the rate of 2% a year earlier. And many families in that segment of the population built their finances on the assumption of continuous full employment, so they can't cover the mortgage when even one spouse is out of work.

Consider the plight of Stephanie and Bob Walker, who bought a $799,000, three-bedroom home in Los Angeles with a view of the Hollywood sign in 2006 but are losing it because last year Bob stopped getting computer consulting work that used to pull in about $240,000 a year. Bob eventually landed a job paying $60,000, and Stephanie found work as a $13-an-hour temp, but it wasn't enough to cover their mortgage and credit-card debt, which was swelled by about $130,000 worth of home renovations. They listed the house last year for an "optimistic" $875,000 but didn't get any takers. After months of price cuts and threats of foreclosure from the bank, they're days from closing on a sale at $700,000 that will assuage their primary mortgage lender—but leave them under pressure from other creditors. "We had no expectation things would come crashing down as fast as they did," says Stephanie. "We had no one to blame but ourselves. We didn't have a backup plan if he lost his job."

The economics at the top of the market aren't as advantageous as they are at the bottom, where first-time home buyers are flocking to lower-priced homes, spurred by low interest rates, temporary tax credits, and a drop in prices that has made owning cheaper than renting in many cities. At the high end, homes are too expensive for most first-time buyers, and move-up buyers can't purchase a home without selling property they already own. What's more, financing is far costlier, if it's available at all, because private investors have lost their appetite for big mortgages. Rates on "jumbo" loans—that is, those too big to be purchased by Fannie Mae (FNM) or Freddie Mac (FRE)—are roughly a percentage point higher than those for loans that conform to Fannie and Freddie's purchase limits. (Those limits range from $417,000 to $730,000, depending on local housing costs.)

An inflation panic in the fixed-income market is the latest blow to homeowners who are trying to sell to avoid foreclosure, because it's pushing up mortgage rates and pushing potential buyers out of the market. Rates on 30-year fixed, conforming mortgage loans jumped nearly half a percentage point, to 5.25%, in the week ended May 29 from a week earlier, according to the Mortgage Bankers Assn. Meanwhile, the market is unlikely to get much help from the Obama Administration's foreclosure-prevention program. Although it's somewhat more ambitious than the Bush Administration's program, it is voluntary for lenders and is off to a slow start since its March inception.

When will this second wave of foreclosures crest? David Crowe, chief economist of the National Association of Home Builders, doesn't see the peak coming until 2011, later than most other experts predict. Foreclosures typically top out after unemployment does, and Crowe doesn't expect that to occur until late this year. After that, Crowe says, more people will lose their homes because of upward resets on adjustable-rate mortgages. Credit Suisse says mid-2010 is the peak for scheduled resets, and resets will stay high well into 2012. While most of the subprime loans issued during the boom years have been washed out by now, there are still about half a trillion dollars' worth of option ARMs, which allow borrowers to add unpaid interest to the principal they owe. There's an even more alarming $2.5 trillion in "alt-A" loans, which are between prime and subprime and include a big chunk of the mortgages that required little or no proof of income or assets. Most of these loans were issued to people with relatively good credit who were buying more expensive homes.

A key unknown is how many middle- and upper-income homeowners will simply walk away from homes that are worth less than the mortgages on them. So far few have. Whitney R. Tilson, managing partner of New York investment firm T2 Partners and co-author of the book More Mortgage Meltdown, expects the ranks of walk-aways to increase, exacerbating foreclosures. But Rick Sharga, senior vice-president of RealtyTrac, a foreclosure data specialist, disagrees. "To sign a contract for a house and then walk away from it runs counter to everything we were taught," says Sharga, who predicts foreclosures will dip slightly in 2010.

Even if foreclosures don't rise, the rate is already so high that it will put considerable pressure on the national housing market for at least two more years, says Mark Hanson, managing director of Field Check Group, a Menlo Park (Calif.) research firm.

While forecasts differ in detail, the clear message is that foreclosure is going upscale. And that means the housing bust won't end anytime soon.

Option-ARM Mortgages Turning Worse Than Subprime


Wall St. Journal
10 Jul 09
Marshall Eckblad, Dow Jones Newswires


NEW YORK (Dow Jones)--For the third straight month, option adjustable-rate mortgages are generating proportionally more delinquencies and foreclosures than subprime mortgages, the scourge of the housing crisis.

A further acceleration of troubles among the loans could mean higher-than-expected losses for Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM), as well as the Federal Deposit Insurance Corp.'s own insurance fund. "The realization of the issues related to option ARMs is just beginning," says Chris Marinac, director of research at Atlanta-based FIG Partners.

Known as Pick-A-Pays - a brand name popularized by Wachovia Corp. - the mostly adjustable-rate loans were typically issued to creditworthy homeowners, and allowed borrowers to make a range of monthly payments. The payment options include a partial-interest payment that adds the unpaid interest to the loan's balance. On many of the loans, balances have risen while values of the underlying properties have plummeted amid the nationwide housing crisis.

As of April, 36.9% of the loans were at least 60 days past due, while 19% were in foreclosure, according to data from First American CoreLogic, a unit of Santa Ana, Calif.-based First American Corp. (FAF). By contrast, 33.9% of subprime loans were delinquent as of April, while 14.5% were in foreclosure.

The loans are heavily concentrated in the worst-hit regions in the housing market, including California and Florida, making option-ARM borrowers inordinately vulnerable to declining property values.  *** Troubles among option ARMs could well get worse, since the bulk are due to "recast" - industry lingo for reset - over the next three years or even earlier. ... " We're just beginning to enter the cycle of resets" on option-ARM loans, says Matt Stadler, chief risk officer of National Asset Direct Inc.

(continued)

[BachQ]

The Democrats are panicking now, many of them who vote for a tax increase on the middle class in order to fund healthcare reform can be goners after the mid-term election next November ... 

Jul 11, 2009, 4:56 p.m. EST

Tax on wealthy mulled to fund heath care reform

By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) -- House Democrats intend to pay for their health-care reform plan with higher taxes on wealthy Americans.

A tax on the wealthy is the "best way" to raise money for the overhaul, Rep. Charles Rangel, the New York Democrat who is chairman of the House Ways and Means Committee, told reporters late Friday.

The House Democratic proposal, which includes a government-run insurance plan, is expected to be formally unveiled on Monday.

It faces an uphill battle, as even many Democrats are concerned about the political repercussion of higher taxes.

House Republican leader John Boehner, R-Ohio, said the tax plan would be a "job-killer."

"House Democrats have finally made clear that they will fund their government takeover of health care by raising taxes on hard-working American families and small businesses in the midst of one of the worst recessions in recent memory. With unemployment nearing double digits nationwide, the last thing we need is a massive tax hike that will punish small businesses and cost even more American jobs," Boehner said in a statement.

President Obama promised during the campaign not to raise taxes on Americans earning less than $250,000 per year.

Obama was heading back to Washington over the weekend from a foreign trip that included the Group of 8 summit in Italy. He is expected to wade into the health-care debate upon his return.

Progress on health-care legislation has stalled over the central issue of who will pay for the changes.

Rangel told reporters that the tax could start in 2011.

Married couples making $350,000 would have to pay a surtax of 1%. The surtax would increase for higher-income families.

The tax plan is expected to raise $500 billion, about half of the price tag of health care reform. The remainder of the costs would come from program savings, officials said.

The rates would be set to go higher in later years. But the increases might not go into effect if other ways to pay for the health plan are found.

Yep, democrats will never change.  And of course they want to tax the rich to pay for their welfare state.

[Coopmv]

Option-ARM Mortgages Turning Worse Than Subprime


Wall St. Journal
10 Jul 09
Marshall Eckblad, Dow Jones Newswires


NEW YORK (Dow Jones)--For the third straight month, option adjustable-rate mortgages are generating proportionally more delinquencies and foreclosures than subprime mortgages, the scourge of the housing crisis.

A further acceleration of troubles among the loans could mean higher-than-expected losses for Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM), as well as the Federal Deposit Insurance Corp.'s own insurance fund. "The realization of the issues related to option ARMs is just beginning," says Chris Marinac, director of research at Atlanta-based FIG Partners.

Known as Pick-A-Pays - a brand name popularized by Wachovia Corp. - the mostly adjustable-rate loans were typically issued to creditworthy homeowners, and allowed borrowers to make a range of monthly payments. The payment options include a partial-interest payment that adds the unpaid interest to the loan's balance. On many of the loans, balances have risen while values of the underlying properties have plummeted amid the nationwide housing crisis.

As of April, 36.9% of the loans were at least 60 days past due, while 19% were in foreclosure, according to data from First American CoreLogic, a unit of Santa Ana, Calif.-based First American Corp. (FAF). By contrast, 33.9% of subprime loans were delinquent as of April, while 14.5% were in foreclosure.

The loans are heavily concentrated in the worst-hit regions in the housing market, including California and Florida, making option-ARM borrowers inordinately vulnerable to declining property values.  *** Troubles among option ARMs could well get worse, since the bulk are due to "recast" - industry lingo for reset - over the next three years or even earlier. ... " We're just beginning to enter the cycle of resets" on option-ARM loans, says Matt Stadler, chief risk officer of National Asset Direct Inc.

(continued)

Yeah, the folly of that California dream, not only for the illegals but for many people who should not have been there.  Unfortunately, the Japanese-style 50-year mortgage loans will not work in this country since Americans are not like the dutiful Japanese sons and daughter who will continue to pay the mortgage after their parents have passed on.  Instead, those schemes like pick-your-payments were selling like hotcakes when home prices had nowhere to go but up.  Those mortgage holders figured they would flip the houses in 5 years and reap some handsome profits.  Now they are left holding the bag ...

[Coopmv]

The once in 100 years major earthquake that last flattened SF is overdue.  A natural disaster coupled with the current financial disaster will put CA in a mega-depression and will probably take 20 years for CA to dig itself out ...

1906 SF Quake

Tremors Detected on San Andreas Fault By ALICIA CHANG, AP
posted: 12 HOURS 13 MINUTES AGO

LOS ANGELES (July 9) - Scientists have detected a spike in underground rumblings on a section of California's San Andreas Fault that produced a magnitude-7.8 earthquake in 1857. 

What these mysterious vibrations say about future earthquakes is far from certain. But some think the deep tremors suggest underground stress may be building up faster than expected and may indicate an increased risk of a major temblor.

Researchers at the University of California, Berkeley, monitored seismic activity on the fault's central section between July 2001 and February 2009 and recorded more than 2,000 tremors. The tremors lasted mere minutes to nearly half an hour.

Unlike earthquakes, tremors occur deeper below the surface and the shaking lasts longer.

During the study period, two strong earthquakes hit — a magnitude-6.5 in 2003 and a magnitude-6.0 a year later. Scientists noticed the frequency of the tremors doubled after the 2003 quake and jumped six-fold after 2004.

Tremor episodes persist today. Though the frequency of tremors have declined since 2004, scientists are still concerned because they are still at a level that is twice as high as before the 2003 quake.

[BachQ]

This is just San Jose ... but it's even worse in San Francisco, Oakland, etc.

Note to Californians:  WAKE UP!  YOUR STATE IS OUTTA CONTROL!



Six-figure pensions for hundreds of retired San Jose cops, firefighters
John Woolfolk

Posted: 07/11/2009 06:36:50 PM PDT
Updated: 07/11/2009 11:59:04 PM PDT

... All told, San Jose's $100,000-plus pension club includes 256 retired officers and firefighters and 34 other city workers. 18% of the city's retired officers and firefighters have six-figure pensions.

[Coopmv]

This is just San Jose ... but it's even worse in San Francisco, Oakland, etc.

Note to Californians:  WAKE UP!  YOUR STATE IS OUTTA CONTROL!



Six-figure pensions for hundreds of retired San Jose cops, firefighters
John Woolfolk

Posted: 07/11/2009 06:36:50 PM PDT
Updated: 07/11/2009 11:59:04 PM PDT

... All told, San Jose's $100,000-plus pension club includes 256 retired officers and firefighters and 34 other city workers. 18% of the city's retired officers and firefighters have six-figure pensions.

My next town Fairfield, which had part of its public employees pension invested with Bernie Madoff.  So exclusive of the losses sustained from the market meltdown, a loss of $70MM was attributable to Madoff.  Now the town residents are on the hook to make up that shortfall. 

My sister has a neighbor whose son is a NYC cop.  The son told my sister and her hubby that he makes $90K a year and does not do much.  Over one week, the only significant thing he did was to deliver a car for his boss to some NJ location. 

There is a need for a taxpayer revolt in the US.  Why should taxpayers be paying these outrageous pensions and other benefits for the public employees?  Are we getting our money worth?

[Coopmv]

Taxachusetts cannot even afford to keep a zoo open.  Speaking of terrible fiscal mismanagement at the second highest tax state in the union after New York ...

Franklin Park Zoo may have to close
Patrick budget cuts also threaten Stone Zoo Some animals might have to be euthanized



Franklin Park Zoo, a Boston institution that has drawn generations of city and suburban families, may be forced to close its doors and possibly euthanize some of its animals as a result of the deep budget cuts imposed by Governor Deval Patrick, zoo officials said yesterday.

Without more state funding, those zoo officials said, they will run out of money by October and have to close both the Franklin Park Zoo and its smaller counterpart, Stone Zoo in Stoneham. The zoo would lay off most of its 165 employees and attempt to find new homes for more than 1,000 animals, the officials said.

The zoo officials, in a written statement that echoed a letter sent earlier to legislative leaders, said they would be unlikely to find homes for at least 20 percent of the animals, "requiring either destroying them or the care of the animals in perpetuity.''

The zoos, which are both run by Zoo New England and attracted nearly 570,000 visitors over the past year, are operated through a public-private partnership funded by taxpayers and revenues from visitors. If the partnership dissolves, as it could in October if it runs out of money, the custody of the zoos is turned over to state officials, according to state law.

Zoo officials estimate that it would take three years and cost at least $9 million to completely shut down the zoos, and they said the state would be in charge of that process.

The Legislature had originally provided $6.5 million to the zoos - which accounts for more than half of its budget - but Patrick, using a line-item veto, cut the state funding to $2.5 million.

Zoo New England, headed by John Linehan, sent the letter to legislative leaders on Tuesday urging them to override Patrick's veto and effectively restore their funding. Linehan did not respond to requests for comment yesterday. Instead, a private public relations company hired by the zoos released a lengthy statement.

"The only areas left to cut are in nonanimal care, revenue-generating departments,'' the zoos statement reads. "This would result in a bare bones staff that would care for the animals and the facility, but would eliminate any that would service the public.''

Even the threat of closures illustrates the far-reaching consequences of state budget cuts and the fallout they can have on those who make the decisions. As word of the crisis broke, Patrick and his entire Cabinet, senior aides, and political advisers were gathered yesterday at the governor's estate in the Berkshires, plotting strategy for the months ahead.

"These are extremely difficult times across the state, and there have been tough cuts in every area,'' a Patrick spokeswoman, Cyndi Roy, said in a statement.

"This is an example of an unfortunate cut that had to be made in order to preserve core services for families struggling during the economic downturn.''

But for every cut, there is an affected constituency, and with a zoo, the users are far and wide and the targets - exotic animals - unusually sympathetic.

"This is just another bad decision on budget cuts, affecting working families,'' Mayor Thomas M. Menino of Boston said yesterday.

"It's a big deal,'' he said of the possible closure of Franklin Park Zoo in Dorchester. "It's a great resource for the community. The zoo is an inexpensive place to spend a day in tough economic times.''

Franklin Park Zoo, which was founded in 1913, has faced closure numerous times in the past because of a lack of funding, including recently in 2002 when State House lawmakers cut its funding from $6 million to $3.5 million.

Zoo officials have been lobbying House and Senate lawmakers, and are hoping they can persuade a two-thirds' majority to override Patrick's veto in each chamber. The Legislature is expected to begin addressing Patrick's line-item vetoes, which totaled nearly $150 million, on Tuesday.

"They just can't make the math work,'' said Representative Elizabeth A. Malia, a Democrat from Jamaica Plain, speaking of the finances of Zoo New England with the cut in state funding.

"It's very upsetting. It would be a horrible, horrible loss for the community.''

The Franklin Park Zoo, located in a section of the city where Dorchester, Roxbury, and Jamaica Plain come together, represents something of a touchstone for virtually anyone who grew up in Boston and walked through its gates.

The zoo was a featured site in the 1980 science fiction film "Altered States,'' where a Harvard professor devolves into a gorilla and goes on a rampage. It also achieved notoriety in 2003, when a gorilla named Little Joe escaped from his cage and attacked a 2-year-old girl and her baby sitter.

Franklin Park Zoo was operated by city and state agencies until 1991, when a nonprofit, private corporation was founded to oversee it. The same corporation operates the Stone Zoo, which is located on a 26-acre site near Spot Pond in Stoneham. The partnership has a clause that states that if the zoos shut down, the state would have to assume control of the property and the animals.

The total operations budget for the zoos last year was $11 million, about 60 percent of which came from state funding. The remainder came through admissions, food and gift shop sales, membership, and fund-raising.

The Globe reported yesterday that a film crew is laying the groundwork to begin filming a live-action comedy, "The Zookeeper'' starring Kevin James and Rosario Dawson, near an unused outdoor gorilla exhibit near the zoo's rear entrance. Filming is scheduled to run from July 20 through October, and the zoo was paid a "substantial'' location fee that zoo officials would not disclose.

"We all know it's a tough time economically, and cuts are going to have to be made,'' said Representative Linda Dorcena Forry, a Dorchester Democrat. "But with families losing their jobs and not able to go out of state, we have an amazing jewel here for people to visit.''

Senate President Therese Murray's spokesman did not return requests for comment, but a high-ranking Senate source said it was among the proposals that they plan to override.

House Speaker Robert A. DeLeo was less definitive.

"The House is still reviewing the governor's vetoes and deciding what action to take,'' he said through a spokesman, Seth Gitell.

[Coopmv]

DM:  Here is an interesting read on China from the view of a real insider - the purged premier of that country ...

China: A Look Back at a Missed Opportunity

What if party boss Zhao Ziyang, purged after the Tiananmen crackdown in 1989, had been able to promote political reform?

By Pete Engardio

By the late 1980s, China's economic takeoff was well under way and the benefits of free-market reforms were abundantly evident. Yet as he traveled the booming coastal provinces, then-Premier and Communist Party chief Zhao Ziyang, an architect of several key reforms, was troubled by mounting evidence of rampant corruption, which he considered a symptom of a structural flaw in China's model. The Communist Party's monopoly on political power and heavy hand in business not only distorted competition, it also created enormous opportunities for officials at all levels of government to extract graft. "The only solution for resolving this issue is continued deepening of reform to separate government and enterprise," Zhao wrote in a diary. China also needed a system of political checks and balances and a rule of law. "To fight corruption, reform of the political system must be carried out." As Zhao saw it, without such reforms China would never become a modern market economy.

In 1989, when hundreds of thousands of people took to the streets of Beijing to demand a cleaner and more open government, Zhao's worries about corruption led him to express sympathy with the Tiananmen Square protesters. That prompted his purge by hard-liners, who placed Zhao under house arrest until his death, 16 years later. Today, two decades after Tiananmen, his observations are recorded in the book Prisoner of State: The Secret Journal of Zhao Ziyang, published last month by Simon & Schuster. The book, edited by Bao Pu, Renee Chiang, and Adi Ignatius, is based on translations of audiotapes that Zhao had recorded and kept hidden during his years under house arrest.

When Prisoner of State first appeared, most attention focused on Zhao's inside accounts of power battles within the Chinese leadership and his observations on Tiananmen. The book also triggered speculation about how China's political system would look today had Zhao remained in power: He endorsed Western parliamentary democracy as the best political system.

Zhao: Key Architect of Reforms
But Zhao's journal also raises the intriguing question of what the Chinese economy would look like today had he been able to usher in his agenda of political reform. While late paramount leader Deng Xiaoping garnered most of the credit, Zhao was a key architect of some of the most important reforms enabling China to achieve decades of rapid growth and emerge as a modern industrial power. He fought relentlessly behind the scenes to promote agricultural reform, foreign investment, and the economic opening of the coastal provinces.

Perhaps Zhao's biggest contribution to economic reform was to keep it on track and find a way to defuse ideological objections over capitalism, says editor Bao Pu, son of former top Zhao aide Bao Tong (who also was arrested after the June 4, 1989, crackdown) and editor and publisher of Hong Kong-based New Century Media. For instance, rather than use the term "market economy," Zhao used the term "merchandise economy." The nomenclature, Bao says in an interview, helped Beijing "bypass a costly debate among the leaders over whether they should go down the road of market reform or not."

Zhao's faith in democracy had nothing to do with ideology, Bao contends. "He was always a practical leader and tried to find real-world solutions," he says. "What he is saying [in his journal] is that since parliamentary democracy has proven to work in modern industrialized nations, there is no reason it would not work for China."

Prescient Concerns About Structural Flaws
By the time Zhao began dictating his journal, Bao says, "he knew China had way passed the turning point and had to be committed to a free-market economy." But he worried that without political reform, a market economy would lead to greater social injustice. "He thought it was time to address that."

Zhao's concerns about China's structural flaws, meanwhile, seem prescient today. Even though China's economy has enjoyed three decades of breathtaking growth—and is faring far better than the U.S., Europe, and Japan in the global recession—party officials from the central government down to the townships still have huge sway over most industries, while successful court challenges to abuse of power are rare. Corruption is a bigger problem than ever. And state-owned banks still funnel most of China's savings to big state corporations that crowd out more dynamic and innovative private entrepreneurs. Meanwhile, the growing gap between rich and poor has become a major concern for Beijing's leadership.

China's top leaders recognize the flaws in the current economic model and are pushing to address them. But as Zhao clearly realized decades ago, there's reason to doubt these flaws can be fixed without reforming the political system.

[Sydney Grew]

. . . He endorsed Western parliamentary democracy as the best political system. . . .

Democracy = government by the rabble (Kant)

Who would wish to be "governed" by low-class northern Americans? Only other low-class northern Americans and possibly not even they.

[BachQ]

Republicans unify against stimulus.

July 12 2009
WASHINGTON (AP) — Republicans lined up Sunday in opposition to a second economic stimulus package, a rare demonstration of unity from an out-of-power political party in search of a rallying cry against President Barack Obama. Republicans called Obama's $787 billion spending plan a "flop" and said it hasn't fulfilled its hype. They criticized the White House for increasing the federal deficit and doing little to combat an unemployment rate that hit 9.5 percent in June. "The reality is it hasn't helped yet," said Sen. Jon Kyl, R-Ariz. "Only about 6.8 percent of the money has actually been  spent. What I proposed is, after you complete the contracts that are already committed, the things that are in the pipeline, stop it."

[BachQ]

CNN: California vendors fight for their cash --
Small business owners plan layoffs and furloughs if they're saddled with hard-to-redeem IOUs. "This means that the state is casting off its cash-flow problems onto hundreds of families and small businesses in California," says Jacob Roper, a spokesman for the state controller's office. So far, California has mailed $354 million worth of IOUs and plans to issue a total of $3 billion by the end of July. Around $140 million of the warrants are expected go to small business owners.

[MishaK]

The US is now paying the price for its relentless outsourcing of jobs which has led to a permanent decline in the standard of living of its middle class.  Japan has no choice but to do the same in order to keep up with the US in terms of labor costs.  It is a race to the bottom that only China and India come out on top.  

Not really. The Chinese labor market is dependent on there being a US middle class to buy its products. If you eliminate the US middle class, so goes the Chinese export market.