Posts Tagged ‘congress’

Public Transport Booms in the Recession

Monday, July 2nd, 2012

Soaring gas prices lured Americans out of their cars and onto public transportation, adding up to a five percent increase in ridership in the first three months of 2012, the most significant 1st quarter increase since 1999.  According to the American Public Transportation Association (APTA),  Americans took almost 125 million more rides on public transit in the first three months of 2012 than they did in the same timeframe last year.  Ridership declined following the September 11, 2001, terrorist acts and had remained more or less stagnant until last year.

“More people are choosing to save money by taking public transportation when gas prices are high,” said Michael Melaniphy, APTA president.  Gas prices aren’t the only reason for the growth, Melaniphy said.  With local economies rebounding, more people are commuting to new jobs, some of them on public transportation, he said.  “As we look for positive signs that the economy is recovering, it’s great to see that we are having record ridership at public transit systems throughout the country.”

There are a number of reasons why more Americans are using public transportation,” according to Melaniphy.  “For example, public transportation systems are delivering better, reliable service and the use of real-time technology, which many systems use, makes it easy for riders to know when the next bus or train will arrive.”  Melaniphy said the growing public transit ridership should encourage lawmakers to reach a deal on transportation spending.  Congress has been negotiating on a possible compromise on transportation spending for some time.  “As Congress is negotiating a federal surface transportation bill that is now more than 2 ½ years overdue, our federal representatives need to act to ensure that public transportation systems will be able to meet the growing demand,” Melaniphy said.  “It’s obvious from the surge in public transit ridership in the first quarter that Americans need and want public transportation.”

The federal Energy Information Administration said that U.S. gas demand fell to a 11-year low in the 1st quarter, at less than 8.5 million barrels a day; that was 1.5 percent less than the 2011 1st quarter average.  The drop came as the average nationwide price of regular-grade gasoline set a 1st quarter record of $3.60 a gallon, an increase of 9.6 percent when compared with last year.

APTA reported that all public transit modes saw 1st quarter increases, with light-rail use up by 6.7 percent and subways and elevated train ridership up by 5.5 percent.  Commuter rail ridership rose 3.9 percent, while bus ridership was up approximately 4.5 percent.

The fact that people are finding new jobs helped, said Melaniphy.  Ridership on heavy rail — subways and elevated trains — rose in 14 of 15 systems.  Use of light rail — streetcars and trolleys  rose in 25 of 27. And 34 of 37 large cities saw increases in bus ridership.  “It’s nationwide,” Melaniphy said, resulting in fuller trains and buses straining system capacity.

Fully 12 cities saw their highest ridership ever, including New York; Boston;  Oakland; San Diego; Charlotte; Tampa; Indianapolis; Ann Arbor, MI; Fort Myers, FL; Ithaca, NY; and Olympia, WA.

Beware: Double Dip Ahead?

Thursday, May 31st, 2012

The 17-nation Eurozone is at risk of falling into a “severe recession,” the Organization for Economic Cooperation and Development (OECD) warned, as it called on governments and the European Central Bank to act quickly to keep the slowdown from becoming a drag on the global economy.  OECD Chief Economist Pier Carlo Padoan warned the euro-zone economy has the potential to shrink as much as two percent in 2012, a figure that the think tank had described as its worst-case scenario last November.  The OECD -which comprises the world’s most developed economies — said its average forecast was that the Euro-zone economy will shrink 0.1 percent in 2012 and grow a mere 0.9 percent next year.  “Today we see the situation in the Euro area close to the possible downside scenario” in the OECD’s November report, “which if materializing could lead to a severe recession in the Euro area and with spillovers in the rest of the world,” Padoan said.

The report believes that Europe will lag behind other countries, especially the United States, where the economy is expected to grow 2.4 percent this year and 2.6 percent in 2013.  “There is now a diverging trend between the euro area and the U.S., where the U.S. is picking up more strongly while the euro area is lagging behind,” Padoan said.  Europe is split between a wealthier north that is growing and the southern nations that are falling into recession, according to OECD statistics.

The global economic outlook is still cloudy,” said Angel Gurria, OECD Secretary General. “At first sight the prospects for the global economy are somewhat brighter than six months ago.  At closer inspection, the global economic recovery is weak, considerable downside risks remain and sizable imbalances remain to be addressed.”

Germany, Europe’s largest economy, will grow two percent next year after expanding 1.2 percent in 2012.  France, the Eurozone’s second-biggest economy, will grow 1.2 percent next year after expanding 0.6 percent this year, the OECD said.  By contrast, Italy’s economy is expected to shrink 1.7 percent this year and 0.4 percent in 2013.  Spain will remain mired in recession, with contraction of 1.6 percent this year and 0.8 percent in 2013.  Padoan has asked Eurozone leaders to enter into a “growth compact” to promote expansion while cutting deficits.  French President Francois Hollande has made achieving this type of pact the focus of his European diplomacy.

The OECD is chiefly concerned that problems with European sovereign debt are a significant threat to growth around the world. “The crisis in the Eurozone remains the single biggest downside risk facing the global outlook,” Padoan said.  “This is a global crisis which is largely a debt crisis.  It is a result of excessive debt accumulation in both the private and public sectors.  One can not safely say we’re out of the crisis until debt comes down to more manageable levels.”

To protect its economic recovery, the OECD urged the American government to move very gradually to tighten its budget.  A wave of U.S. spending cuts and tax hikes – known as the “fiscal cliff” — are set to take effect in January unless politicians agree to delay at least some of them.  Bush-era tax cuts and benefits for the long-term jobless are both expected to expire.  Another $1.2 trillion in spending cuts on federal programs would take effect as a result of Congress’ failure last year to find a comprehensive deal to cut the budget deficit.  The OECD said these actions would be the wrong fiscal policy given the still-fragile condition of world’s largest economy.  “The programmed expiration of tax cuts and emergency unemployment benefits, together with automatic federal spending cuts, would result in a sharp fiscal retrenchment in 2013 that might derail the recovery,” according to the OECD.

Wall Street economists say that fiscal policy could tighten by about $600 billion in 2013, or about four percent of GDP, if lawmakers cannot agree on what programs to cut.  Goldman Sachs estimates the “fiscal cliff” could trim approximately four percent from GDP in the first half of 2013.  The majority of economists, however, expect lawmakers to act before that particular hammer has an opportunity to fall.

Congress Talks at a High School Level

Wednesday, May 30th, 2012

In a body known for such talented orators as Senator Everett McKinley Dirksen and Senator Robert Byrd, it’s disheartening to learn that a new study has determined that the average member of Congress speaks at the same level as a high school sophomore – that’s nearly a full grade lower than in 2005.  According to the independent watchdog group, Sunlight Foundation, some people will view its findings as “a dumbing down of Congress” while others will interpret the report as “more effective communications” from lawmakers.  To contrast, the typical American reads between an eighth-grade and ninth-grade level.

Representative Mick Mulvaney, a freshman from South Carolina, scored the lowest, speaking at a 7.94 level, a level between the seventh and eighth grades.  Mulvaney, who received his bachelor’s degree at Georgetown University and law degree at the University of North Carolina – Chapel Hill, said he follows a simple rule: Avoid using big words when a little one will do.  “Gosh, I guess I should be disappointed that I’m not using my higher education to better use, but, oh well,” Mulvaney said.  “I hope people don’t take it as a substitute for lack of intellect, but small words can be just as powerful as big words sometimes.”  California’s Representative Dan Lungren was ranked the highest by the Sunlight Foundation, speaking at a 16.0 level on the Flesch-Kincaid scale.

The Washington Post’s Ezra Klein wonders if political polarization is dumbing down Congress. According to Klein, “Polarization has changed the way that members of Congress vote.  But it turns out it may also be changing the way they talk.  Generally speaking, the most moderate members on both sides of the aisle speak at the highest grade levels, whereas the most politically extreme members speak at the lowest grade levels.  Before 2005, Republicans had spoken at a higher grade level than Democrats; now it’s flipped.  Newer members are also likely to speak more simply than more senior ones, so freshmen Republicans are most likely to speak at the lowest grade level in Congress.

Sunlight plugged speeches by members of Congress into a searchable database and then applied the Flesch-Kincaid test to determine the lawmaker’s score.  Longer words and longer sentences equal a higher grade level, according to Flesch-Kincaid.  Sunlight found that members of Congress, on average, spoke at a 10.6 grade level, a change from 11.5 score in 2005.

Lee Drutman, a political scientist at Sunlight, who ran the speeches through an algorithm to determine the grade level of congressional dialogue said “We just kind of did it for fun, and I was kind of shocked when I plotted that data and I saw that, oh my God, there’s been a real drop-off in the last several years.”  According to Drutman, an infusion of new members into Congress – many aligned with the Tea Party movement — could be part of the reason for the overall grade-level decline.  “Particularly among the newest members of Congress, as you move out from the center and toward either end of the political spectrum, the grade level goes down, and that pattern is particularly pronounced on the right.”

The Sunlight Foundation noted that two speeches viewed among the best in American history the Gettysburg address by President Abraham Lincoln’s Gettysburg address, or the “I Have a Dream” speech by Martin Luther King Jr. only scored at 11.1 and 9.4 grade levels.  Another point is that before 2005, Republicans spoke at a slightly higher grade level than Democrats.  Since that time, Democrats have spoken at a slightly higher grade level than Republicans.

Writing for The Atlantic, Eric Randall points out that “Strunk and White put it even more plainly in their famed writing manual, noting,  ‘Do not be tempted by a twenty-dollar word when there is a ten-center handy, ready and able.’  Flesch-Kincaid rewards long words and winding sentences, but clarity rewards the opposite.  The Sunlight Foundation, to its credit, notes this interpretation, too, but it still seems that most people will walk away from the report thinking only that our leaders talk like a bunch of high schoolers.  We wondered how others might measure up, so we used an online Flesch-Kinkcaid calculator to find out.  A recent post by this writer scored at a 10th grade level.  (So you can see why we’re not bashing Congress too badly.)”

According to the Sunlight Foundation’s analysis of some of the country’s most prominent documents, the U.S. Constitution is written at a 17.8 grade level; the Federal Papers at a 17.1 level; and the Declaration of Independence at a 15.1 level.  An analysis determined that President Barack Obama’s 2012 State of the Union (SOTU) address had an eighth-grade comprehension level – the third lowest score of any SOTU address since 1934).

Consumer Watchdog to Keep Eye on Debt Collectors, Credit Reporting Agencies

Wednesday, February 29th, 2012

Debt collectors and credit reporting agencies — businesses that impact thousands of consumers — would face federal supervision for the first time under a rule a new federal watchdog proposal, which would allow the Consumer Financial Protection Bureau (CFPB) to examine approximately 200 firms, including large debt collectors.

According to the proposal, these two segments of the consumer finance industry will be a high priority for the CFPB as it scrutinizes the inner-workings of banks, as well as thousands of firms that offer a wide-range of financial services.  The bureau is planning to police payday lenders as well as non-bank firms that offer home and student loans.  Congress created the agency through the 2010 Dodd-Frank financial bill to control misleading financial practices and  examine segments of the financial marketplace that had previously escaped federal scrutiny.

“This oversight would help restore confidence that the federal government is standing beside the American consumer,” said CFPB Director Richard Cordray.  The number of Americans with debt under collection has grown to about 30 million Americans over the past 10 years, according to the New York Federal Reserve.  The average amount under collection has also steadily grown over the years to $1,400.  According to the CFPB, the market is dominated by firms that collect debt owned by another company in return for a fee; firms that purchase debt and collect the proceeds for themselves; and debt collection attorneys and law firms that litigate to collect.

“Our proposed rule would mean that those debt collectors and credit reporting agencies that qualify as larger participants are subject to the same supervision process that we apply to the banks,” Cordray said.

Considering that there are so many consumers struggling with unemployment and debt, Cordray said that more Americans are indebted to debt collectors and credit reporting companies, which employers frequently consult prior to hiring.  Cordray said that employers’ use of credit reports in hiring decisions “may not always be fair for consumers, but it reflects the reach and scope and importance of the consumer reporting field.”  That explains why the bureau wants to target those who gather and analyze consumer financial data, as well as those who are tasked with collecting on unpaid bills.  The consumer bureau will soon announce what other kinds of non-banking financial firms it plans to scrutinize in coming months, Cordray said.

The process of examining records and collecting data from these firms can lead to enforcement if regulators find violations of the law.  In these cases, the consumer bureau could find breaches of the Fair Debt Collection Practices Act or the Fair Credit Reporting Act.  Under the proposal, debt collectors with more than $10 million in yearly receipts from collection will undergo supervision by the consumer bureau.  This threshold would cover nearly 175 debt collection companies — four percent of all such companies — that collectively account for 63 percent of the industry’s annual revenue.

Cordray said the goal is to hold these companies to the same oversight as banks. “This oversight would help restore confidence that the federal government is standing beside the American consumer.”  Cordray continued, “The supervision tool is a very powerful tool. It’s a very powerful way for us to secure compliance with the law. It’s an authority I wish I had had in previous positions.”  He stressed that smaller companies in the two industries are still required to follow consumer protection laws and could be subject to CFPB regulation. But under the proposed rule, the CFPB would gain “complete access” to the books and information of large companies to ensure they are following those requirements, and will devote individual attention to each.

According to Dodd-Frank, the rule must be finalized by July 21, one year after the agency opened its doors.

Are Gas-Sipping Cars Leaving Hybrids in the Dust?

Tuesday, February 7th, 2012

When Cadillac is staking its comeback on a compact car that boasts fuel economy approaching 40 mpg, what does it mean for hybrid and electric vehicles?  Cadillac’s ATS sedan is one example of how carmakers at the Detroit Auto Show are re-emphasizing small, powerful models with more fuel-efficient engines such as sport-utility vehicles; even, please note that we are talking gas here, hybrids are taking a back seat. Additionally, General Motors’ luxury brand says that the ATS will have a turbo-charged four-cylinder 270-horsepower engine that offers impressive fuel economy. Meanwhile, Ford is dropping plans for a hybrid version of its popular Escape SUV.

Although recent auto shows have been stocked with gas-electric hybrids and SUVs, slow hybrid sales have brought a dose of reality.  Carmakers realize they can give buyers what they want and avoid the expense of electric motors and batteries by making cars smaller and getting significantly improved fuel economy from traditional gas engines.

“The advantages of hybrids are getting harder to justify,” said Scott Corwin, a vice president with consulting firm Booz & Co.  “It’s the cost differential. Consumers are rational and they understand the cost of ownership.”  Hybrid sales slowed in 2011 to just 2.2 percent of auto sales, down from 2.4 percent in 2010, according to researcher LMC Automotive.

Mike Jackson, CEO of Fort Lauderdale, FL-based auto retail chain AutoNation Inc., said that approximately 75 percent of his customers want to talk about hybrids, although they constitute only 2.5 percent of his sales.  “What happens from the 75 percent consideration to the 2.5 percent commitment?” Jackson said. “They look at the price premium for the technology, which is already subsidized and discounted, and say “the payback period is too long; not for me.  It’s a back-of-the envelope conversation on the part of the American consumer.”

After a decade of hybrids and oil hovering near $100 a barrel, consumers still aren’t ready to pay the premium for hybrid models, said Reid Bigland, president of Chrysler Group LLC’s Dodge brand.  “The delta you get in fuel-economy lift with a hybrid is continuing to shrink because of the efficiencies with the internal combustion engine” through direct engine, turbochargers and advanced transmissions, Bigland said. “The pure economics are a tough case.”

The Chevrolet Volt plug-in hybrid lures people into the showroom, said Chris Perry, Chevrolet’s vice president of U.S. marketing. With fewer than 8,000 sales last year, consumers often went to a Chevy dealer to look at the Volt and settled on something else less pricey.

Despite slower-than-anticipated sales, the Obama administration has defended tax incentives for electric vehicles.  Transportation Secretary Ray LaHood said that the program has worked, “It’s real money and people have utilized it.”

The administration is advocating aggressive fuel efficiency mandates for the U.S. fleet to decrease oil dependence, particularly through more electrical vehicles. President Barack Obama would like to see one million electric vehicles on the roads three years from now, a goal that industry insiders say is too optimistic. The industry is simultaneously investing in battery technology while making more affordable gains through improvements in conventional engine and transmission systems.  Administration officials are fighting Congressional and consumer skepticism about the wisdom of the $7,500 tax credit that mainly has benefited more well-heeled buyers, who experts say would have been able to purchase the technology without it.

Jeremy Anwyl, CEO of online consumer research group, said plug-ins are most popular on the West and East coasts with “early adopters,” or educated consumers passionate about using less gasoline.  “For these folks, affordability is not the issue,” Anwyl said.

Automakers have little choice but to promote more hybrids as they prepare for fuel-efficiency requirements that will require significant increases by 2020. However, advances such as Ford’s EcoBoost technology have raised mileage for gas-powered engines —the new Fusion midsize sedan can get 37 miles to the gallon — though bigger gains are still needed.

That’s why many are bullish on alternative engines.  “Internal combustion can’t get all the way there, so you need an alternative,” said Russell Hensley, a partner with the consulting firm McKinsey & Company. “The only alternative we have at the moment is electrification.”  McKinsey listed “uncertainty around future adoption of hybrid/electric powertrain technology” as one of several challenges facing automakers in coming years. According to McKinsey, hybrids could account for up 25 percent of sales by 2020, with battery-powered cars making up five percent. It confirmed that internal-combustion engines would dominate the industry through at least 2030.

Over at the Rocky Mountain Institute, Randy Essex and Ben Holland point out that when gas-electric hybrids first rolled out in 2000, the Honda Insight and Toyota Prius had sales of just 9,350. Those figures looked anemic at the time, too. But in the ensuing years, the technology caught on and more than two million hybrids have been sold in the United States. If that’s any prologue, it could bode well for future plug-ins.

“But is this comparison apt? On the one hand, the new generation of electric vehicles enjoy a few advantages that Priuses didn’t. Gasoline prices sat below $2 per gallon back in 2000, considerably lower than today. What’s more, the latest round of fuel-economy standards, under which carmakers have to get their fleet averages up to 54.5 miles per gallon by 2025, should give the big auto companies incentive to roll out more plug-in vehicles in the coming years.  But then again, today’s electric cars also face special hurdles that the old hybrids didn’t. For one, there’s ‘range anxiety,’ in which would-be buyers of electric cars sometimes fret that their batteries will run out of juice and leave them stranded.”

Congress Bids Gabby Giffords a Fond Farewell

Tuesday, January 31st, 2012

A rare glimpse of bi-partisanship was seen today in the House of Representatives as Representative Gabrielle Giffords (D-AZ) officially resigned, slightly one year after being shot in the head at a “Congress on Your Corner” session in her native Tucson.  Giffords, who resigned to devote her time to undergoing intensive rehabilitation, walked with a limp.  With the guidance of her friend, Democratic Debbie Wasserman Schultz (D-FL), Giffords slowly made her way to the well at the front of the House chamber.  Another friend, Representative Jeff Flake (R-AZ), held her hand.  Wasserman Schultz praised her colleague’s strength.  “I am so proud of my friend,” she said.  “It will always be one of the great treasures of my life to have met Gabby Giffords and to have served with her in this body,” the Florida congresswoman said.

According to Giffords’ resignation letter, “Even as I have worked to regain my speech, thank you for your faith in my ability to be your voice.  Everyday, I am working hard.  I will recover and will return, and we will work together again, for Arizona and for all Americans,” she pledged to her former colleagues and constituents.  Giffords, who has promised that she will return to public service when she is fully recovered from her gunshot wound, faces months – even years – of rehabilitation.

One of Giffords’ final actions in her five years in Congress was to vote in favor of a bill that she had co-sponsored and which dealt with smuggling on the United States Mexico border. The measure passed unanimously. The legislation outlaws the use of ultralight aircraft to smuggle drugs.  Giffords’s congressional district includes part of Arizona’s southern border with Mexico.  The legislation, which the Senate is expected to approve quickly, would subject violators to up to 20 years’ imprisonment and a $250,000 fine.

The session was emotional at times. Democratic Minority Whip Representative Steny Hoyer (D-MD) said “The House of Representatives of America has been made proud by this extraordinary daughter of this House, who served so well during her tenure here, who felt so deeply about her constituents and cared so much for her country.  Gabby, we love you. We have missed you.”  Speaker of the House John Boehner (R-OH) was teary-eyed as he formally declared Giffords’ resignation.

Giffords’ husband, Mark Kelly – a retired Navy Captain and former astronaut – summed up his wife’s position.  “She realized she was not going to run for re-election and this point the right thing to do was for her to step down,” Kelly said.  “But I’m more optimistic than anybody else about her future.  She just needs some more time, whether it’s a year or two years or three years, I’m very confident she’s going to have a long and effective career as a public servant.”

Writing in the Tucson Citizen, Carolyn Classen said that “There is a bumper sticker ‘Gabrielle Giffords continues to inspire’ which was placed at the Tucson three impromptu memorials that sprang up after the shooting.  It was a testament of her courage and inspirational fight back to health, which is still ongoing (and the reason for her resignation).  Because the Glock 9mm bullet entered the left side of her brain, Gabby’s right leg, right arm/hand, and speech were affected by the injury, and she now is working in rehab with her aphasia –speech & language difficulties — and reduced physical mobility.  Prior to this shooting, Gabby was an avid hiker, and rode horses, a bicycle, and a motorcycle.  But I know what a healthy, friendly, strong-willed individual she was as a politician and community activist, and I know she will work tirelessly now at age 41 to recover fully from her injury.  She took a bullet in the line of duty as a U.S. Congresswoman and should be praised for her courage and resiliency, and hard work for over 10 years as a state & federal legislator.”

With Giffords’ resignation, Arizona Governor Jan Brewer is required to schedule a special election to fill the term.  The primary is likely to be in April and the general election in June.  The winner will then be up for re-election to a full two-year term in November.

Arizona law requires that the governor act within 72 hours to schedule a special election to fill a vacant U.S. House.  According to Brewer spokesman Matthew Benson, the 72 hours begins Wednesday, January 25, at 5 p.m. because that is when Giffords’ resignation takes effect.


Government Wants to Sell Foreclosed Properties in Bulk as Rentals

Tuesday, January 24th, 2012

The Obama administration plans to work closely with federal regulators, Fannie Mae and Freddie Mac to start a pilot program to sell government-owned foreclosures in bulk to investors as rentals, according to administration officials.

There currently are approximately 250,000 foreclosed properties on the books of Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), and millions more are expected.  Last year’s foreclosure processing delays created an enormous backlog of properties yet to be processed and are just now being restarted. One of the program’s initiatives is for the federal government to mitigate and manage new foreclosures.  Late-stage delinquencies still number close to two million, according to a report from Lending Processing Services (LPS).  Foreclosure starts are double foreclosure sales and “the trend toward fewer loans becoming delinquent, which dominated 2010 and the 1st quarter of 2011, appears to have halted,” according to LPS.

“I think there is a fair amount of money in the wings waiting to buy, investors doing cash raises to buy properties on a large scale,” said Laurie Goodman of Amherst Securities. “But that means they have to build out a rental organization; it means they build out a management company, because if you’re accumulating a hundred homes in Dallas that’s very different than running a multifamily building.”

This is good advice. The recession began with housing, and is one of the main things holding back the recovery.   The most recent unemployment numbers — which showed that non-farm payrolls grew by 200,000 in December, and the jobless rate declined to 8.5 percent from 8.7 percent  — join other cautious signs of an improving economy, although the housing situation is worsening.  There’s still a serious risk it might put a halt to and not just delay expansion.

“Foreclosed homes are a complex problem. We need some creative thinking and new processes to solve the problem of so many distressed homeowners.  I would love to see the market handle it on its own but what makes sense for a single home is likely to destroy confidence in the housing market in aggregate,” said Jafer Hasnain, Partner at Lifeline Assets.  “Housing distress needs a Michael Dell to think about streamlining process details, and a Steve Jobs to make it elegant and human.”

House prices fell again in October, according to the S&P/Case-Shiller index.  The pipeline of delinquencies and future foreclosures is full, which continues to dim the prospects of a quick recovery.  Efforts so far, such as the Home Affordable Modification Program (HAMP), have helped, but less than hoped.

According to the Federal Reserve, there are no simple answers, but it makes several suggestions that Congress should examine.  One is to encourage conversions from owner-occupied to rental because that market has strengthened in recent months: Rents have risen and vacancies have declined.  A faster conversion rate would hold down rents and ease the pressure of unsold homes on house prices. Fannie, Freddie and the Federal Housing Administration account for about 50 percent of the inventory of foreclosed properties.  Many of these are viable as rentals.  A government-sponsored foreclosure-to-rental program to clear away regulatory hurdles would make a big difference.

A second suggestion is to encourage refinancings.  The administration tweaked the existing HAMP program in October, easing some of the earlier restrictions on eligibility.  Even more could be done, according to the Fed.  One possibility involves the fees that lenders pay to Fannie and Freddie for assuming new risks when loans to distressed borrowers are refinanced. These charges could be cut or eliminated, even though Congress just voted to increase them to help pay for the payroll-tax extension.

Some institutional investors have shown interest in bulk REO deals, but the plan has to incorporate ways to help facilitate financing.  That has been one of the biggest barriers to deals already in the works between hedge funds and the major banks.  There is plenty of cash to buy properties, but creating a management structure for the rentals is costly, and some investors are finding the math doesn’t add up to make it worth their while.

Larger investors want to get real scale in any government program, in the range of 50, 100, 500 properties per deal, or $1 billion-plus in assets. That’s why the government is looking to test several different approaches.  Fannie Mae did a $50 million sale in June, although that was on the small side. Officials are evaluating what larger asset sales would look like.

“We expect several pilots that will involve both local investors and institutional investors. The goal here is to reduce supply by converting foreclosed homes into rental units,” says Jaret Seiberg of Guggenheim Securities. “Less supply – even less fear about a flood of foreclosed homes hitting the market – could stabilize (home) prices.”

We Deliver – More Slowly – For You

Wednesday, December 21st, 2011

First-class mail is likely the next casualty as the United States Postal Service (USPS) looks for ways to stave off bankruptcy. The USPS is planning to shutter 252 mail processing centers nationally and slow first-class delivery as soon as spring, citing steadily declining mail volume.

According to USPS vice president David Williams, the agency wants to effectively eliminate the likelihood that stamped letters will arrive at their destination the next day.  Williams says the postal service is not “writing off first class mail”; rather, it must respond to changing market realities in which people are turning more to the Internet for email communications and bill payment.  After peaking in 2006, first-class mail volume is now at 78 million.  It is projected to drop by approximately 50 percent by 2020.

The estimated $3 billion in reductions are part of a wide-ranging effort by the cash-strapped USPS to cut costs without receiving any help from Congress.  Although the changes would provide short-term relief, they ultimately could prove counterproductive by moving more business onto the Internet.  The move has the potential to slow everything from check payments to Netflix’s DVDs-by-mail, add costs to mail-order prescription drugs, and threaten the existence of newspapers and time-sensitive magazines.

Ideally, first-class mail would be delivered in two to three days, a change from the current one to three days in the 48 contiguous United States.  But, the postal service said mailers “who properly prepare and enter mail at the processing facility prior to the day’s critical entry time” could have their mail delivered the following delivery day.”  Magazine delivery could take two to nine days.

“It’s a potentially major change, but I don’t think consumers are focused on it and it won’t register until the service goes away,” said Jim Corridore, an analyst with S&P Capital IQ, who tracks the shipping industry.  “Over time, to the extent the customer service experience gets worse, it will only increase the shift away from mail to alternatives.  There’s almost nothing you can’t do online that you can do by mail.”

The post office already has announced a penny increase in first-class mail to 45 cents, whch goes into effect on January 22.  “We have a business model that is failing.  You can’t continue to run red ink and not make changes,” said Patrick Donahoe, Postmaster General.  “We know our business, and we listen to our customers. Customers are looking for affordable and consistent mail service, and they do not want us to take tax money.”

According to Donahoe, “We are in a deep financial crisis today because we have a business model that is tied to the past.  We are expected to operate like a business, but we do not have the flexibility to do so.  Our business model is fundamentally inflexible.  It prevents the postal service from solving problems and being effective in the way a business would.”

Senator Susan Collins, (R-ME), the ranking Republican of the Senate Homeland Security and Governmental Affairs Committee, was unhappy with the USPS’ plans.  “Time and time again in the face of more red ink, the Postal Service puts forward ideas that could well accelerate its death spiral,” Collins said.  “Closing thousands of rural post offices, eliminating Saturday delivery, and slowing first-class mail delivery could harm many businesses and their customers.”

Writing in the Washington Post’s Federal Eye column, Ed O’Keefe commiserates with postal customers, but offers no quick fixes. “And what about those customers who rely on first-class mail to get letters delivered the next day?  Donahoe and other officials hope those customers will switch to Priority or Express Mail, a more expensive option that can guarantee deliveries by a certain date.”

If the plan is approved by the Postal Regulatory Commission, the changes have the potential to save about $3 billion, and allow the Postal Service to cut approximately 28,000 jobs.

According to USPS spokesman Dave Partenheimer, the changes allow increased time between deliveries, clearing the way to close or consolidate mail processing centers across the country.  “It’s no longer a challenge of growth — it’s a challenge of staying ahead of the cost curve,” Partenheimer said.  “The fact of the matter is, our network is too big.”

Sally Davidow, a spokeswoman for the American Postal Workers Union, said the changes will hurt communities and take the Postal Service in the wrong direction.  “They should be trying to speed up and modernize the mail, not slow it down and make it less relevant in the digital age,” she said.

Davidow said the retirement payment mandate and overpayment into the Postal Service’s pension accounts are the main culprits.  She believes that USPS leadership should focus on pressuring Congress to fix them instead of cutting service and jobs.  “Addressing those two things would go a very long way toward resolving the crisis and giving the Postal Service the breathing room and the capital it needs to modernize and to be relevant in the digital age,” Davidow said.

The postmaster general offered his opinion on that.  “The American public pays bills online,” Donahoe concluded.  “We can’t sit back for another five, or six, or 10 years and wait for these changes.”

The Fed’s Secret Bank Loans Revealed

Wednesday, December 7th, 2011

In a stunning revelation, Bloomberg has obtained 29,000 pages of Federal Reserve documents detailing the largest bailout in American history.  According to an article that will appear in the January issue of Bloomberg Markets magazine, the “Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on December 5, 2008, their single neediest day.  Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy.  And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates.”

The $7.77 trillion that the central bank made available stunned even Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009.  According to Stern, he “wasn’t aware of the magnitude.”  It overshadows the Treasury Department’s better-known $700 billion Troubled Asset Relief Program (TARP) program.  When you add up guarantees and lending limits, it becomes clear that the Fed had committed $7.77 trillion as of March, 2009 to rescuing the financial system. That is more than half the value of the U.S. GDP that year.  “TARP at least had some strings attached,” said Representative Brad Miller (D-NC), a member of the House Financial Services Committee.  “With the Fed programs, there was nothing.”

According to Bloomberg’s editors, “Even as they were tapping the Fed for emergency loans at rates as low as 0.01 percent, the banks that were the biggest beneficiaries of the program were assuring investors that their firms were healthy.  Moreover, these banks used money they had received in the bailout to lobby Congress against reforms aimed at preventing the next collapse.  By keeping the details of its activities under wraps, the Fed deprived lawmakers of the essential information they needed to draft those rules. The Dodd-Frank Wall Street Reform and Consumer Protection Act, for example, was debated and passed by Congress in 2010 without a full understanding of how deeply the banks had depended on the Fed for survival.  Similarly, lawmakers approved the Treasury Department’s $700 billion Troubled Asset Relief Program to rescue the banks without knowing the details of the far larger bailout being run by the Fed.

“The central bank justified its approach by saying that disclosing the information would have signaled to the markets that the financial institutions that received help were in trouble.  That, in turn, would make needy institutions reluctant to use the Fed as a lender of last resort in the next crisis.  Fed officials argue, with some justification, that the program helped avert a much bigger economic cataclysm and that all the loans have now been repaid.”

Derek Thompson, a senior editor at The Atlantic, argues that the Fed’s secret bailout is a sign that it was doing its job.  According to Thompson, “First, you can be furious that the Federal Reserve ‘committed’ $7.7 trillion — a sum of money equal to half of the U.S. economy — to save the financial system.  I understand the shock, but we were at the precipice of catastrophe and that money wasn’t ‘spent’ so much as it was put at risk and subsequently recouped.  The economy has struggled in the three years since, but we avoided meltdown.  The trillions worked.

“Second, you can be furious that the banks made a profit off of their own mistakes — but $13 billion is a small price to pay for staving off Armageddon.  Third, you can be furious that the Federal Reserve went to court to keep this information out of the hands of journalists.  There, I’d agree.  It’s Congress’s job (not the Federal Reserve’s job) to pass laws that govern the banking sector, but Congress needs information to make good decisions about regulating banks and it’s disappointing that the Federal Reserve withheld details about its bailouts while the commission and the Dodd-Frank debate were ongoing.  Fourth, you can be furious that our central bank basically did the right thing when it had to, and its counterpart in Europe won’t — at the risk of a continental meltdown.”

Times’ Massimo Calabresi agrees. According to Calabresi, “But the Fed saved the world economy through all this lending without losing a penny in the process.  And after its initial heavy breathing, the article does give the Fed an opportunity to explain itself.  ‘Supporting financial-market stability in times of extreme stress is a core function of central banks,’ said William B. English, director of the Fed’s Division of Monetary Affairs.  “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.’  In other words, lending money to banks in a crisis is the whole point of the Fed:  saving the world economy by flooding the system with money when it is about to freeze up is exactly what the central bank was created to do.”

The Fed has been lending money to banks since just after it was established in 1913. By the end of 2008, the Fed had created or expanded 11 lending facilities catering to financial firms that were unable to obtain short-term loans from their usual sources.  “Supporting financial-market stability in times of extreme market stress is a core function of central banks,” said William English, director of the Fed’s Division of Monetary Affairs.  “Our lending programs served to prevent a collapse of the financial system and to keep credit flowing to American families and businesses.”


Companies Are Stocking Up on Durable Goods

Wednesday, November 30th, 2011

American companies ordered more heavy machinery, computers and other long-lasting manufactured goods in September, an encouraging sign for the shaky economy.  The increase in demand for these durable goods suggests businesses are staying with investment plans, despite slow growth and a lack of consumer confidence.

Durable goods are products expected to last a minimum of three years.  Core capital goods are products that have nothing to do with defense or aircraft.  The gains are driven by tax breaks given to businesses for investments made this year, an incentive Congress approved last December to boost the lethargic economy.

“Demand for big ticket items seems to be alive and well,” said John Ryding, an analyst at RDQ Economics.  “Outside of the volatile transportation sector, the gains in durable orders were broad based in September, and point to a manufacturing sector that continues to expand at a solid rate.”

“Despite the understandable concern about economic growth, businesses are still investing,” said Jennifer Lee, senior economist at BMO Capital Markets.

Robust demand for core capital goods is a strategic reason why economists expect an annual growth rate of 2.4 percent in the 3rd quarter.  That would be a major improvement from the first six months of the year, when the economy expanded at just 0.9 percent, the worst growth since the recession ended more than two years ago.  A 2.4 percent growth rate could ease fears that the economy is on the verge of sliding back into a recession.  Even so, the growth rate needs to nearly double to make a substantial dent in the unemployment rate, which remained stuck at 9.1 percent in September for the third consecutive month.

“Manufacturing is in pretty decent shape, and this ends the quarter on a high note,” said Brian Jones, a senior U.S. economist at Societe Generale, who accurately forecast demand for non-transportation equipment.  “We’ve got decent momentum going into the 4th quarter.”  Orders for computers and related products jumped as much as six percent.  A Commerce Department report is projected to show the world’s largest economy grew at a 2.5 percent annual pace in the 3rd quarter, an increase of the 1.3 percent rate in the previous three months.  Societe Generale’s Jones said the gain in durable goods demand has the potential to bring GDP growth for last quarter closer to three percent.

Boeing, the largest American aircraft maker, received 59 airplane orders in September, compared with 127 the preceding month.  September’s decline came on the heels of a 25 percent gain in August.  Orders for non-defense capital goods excluding aircraft jumped 17 percent at an annualized rate compared with an 11 percent increase in the previous three months, an indication that business investment is picking up.

Additional indicators show that manufacturing, which accounts for approximately 12 percent of the economy, continues to grow.  The Institute for Supply Management’s factory index rose a full point to 51.6 in September, compared with 50.6 in August.  A level greater than 50 indicates that expansion is taking place.  Industrial production advanced in September on demand for items such as cars and computers, according to the Federal Reserve.

According to Mike Shea, Managing Partner and Trader at Direct Access Partners LLC, “The number wasn’t bad, and having a decent number in durables is far better than having a bad number, since with the overhang of Europe, if we were getting lousy data here, then we wouldn’t have anything to hang our hats on.  If not for what was going on in Europe, this market would be running on all cylinders.  The summit in Europe is the tradable event.  We could have one hundred percent earnings positive surprises today, we could have great economic data come out, all of that could come in rosy domestically, but if the news out of Europe is judged to be bad, none of what happens in the U.S. will matter.  This market will not shrug off a lousy plan coming out of Europe.  It will not shrug off any plan that is not fundamentally based in reality.”