Posts Tagged ‘President Barack Obama’

Obama Inaugurated

Wednesday, January 23rd, 2013

President Obama was inaugurated for his second term — the 44th president — a day after he took his oath on the constitutionally required date at the White House.  The crowd was smaller, the weather throughout most of the nation was biting cold, and the message was hope chilled with the experience and weariness of a drawn-out recession.  Out of the lofty rhetoric and perfunctory promises, we looked for themes that point to the tenor of an Obama second term.

The President started his speech with a historical framing of the event (“The patriots of 1776 did not fight to replace the tyranny of a king with the privileges of a few, or the rule of a mob. They gave to us a republic, a government of, and by, and for the people”) before weaving in the architecture of the Obama doctrine – of government activism, of infrastructure improvement, his belief in the transformative power of education and an enlarged notion of citizenship.

It is interesting to compare Obama’s tone with the addresses of his predecessors: President Reagan declared an end to the era of big government and President Clinton signaled a move into a new century. Using phrases like “our generation’s task” Obama pronounced  “a decade of war” as “now ending”.  Much of the latter half of the speech used the Obama language of renewal to posit a third way, between FDR and Reagan,  of individualism and collectivism.  “Seize it together”, “the broad shoulders of a rising middle class”, were followed by raising the promise of a little girl rising out of poverty with the help of a social safety net. This signaled a new level of inclusiveness for an inaugural address (“ We do not believe that in this country freedom is reserved for the lucky or happiness for the few” ) with reference to “our gay brothers and sisters”.  Most memorably, he referred to “Seneca Falls and Selma and Stonewall,” a threading of social movements that drew the gay community, women and African Americans into a common civil rights narrative.

The President remains an extraordinary orator, his voice rising and dipping in pitch and volume, the meter of his delivery tightening and then relaxing throughout the speech.  No matter what side of the political spectrum one finds oneself, there is no question that the occasion of the American inauguration remains significant in human history. We are second only to England in terms of the number of consecutive peaceful transitions of power. This remains a supreme achievement at a time when the right to vote remains contested in so much of the world. Inaugural day  is a nod to the legacy of our union and a pledge to the  future.

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).

Gas Prices Coming Back to Earth

Tuesday, May 1st, 2012

After rising steadily for four months, gas prices at last seem to be stabilizing. Suddenly, pump prices have fallen six cents over two weeks to a national average of $3.88.  Experts say gasoline could fall another nickel or more in the immediate future.  Drivers might also get to say something they haven’t since October 2009 — they’re paying less for gas than they did last year.

“It’s nice, much more manageable,” said Mark Timko, who paid less than $4 per gallon recently in Burr Ridge, IL, a Chicago suburb, for the first time since March.  “I wasn’t sure how high they were going to go this year.”

Gas prices are lower than they were a year ago in 11 states, according to the Oil Price Information Service.  At $3.88, the national average is still costly, but it’s less than the peak of $3.94.  Predictions of $5 gasoline have  — thankfully evaporated.

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, believes that gas prices will drop to a national average of just above $3.80 soon.  Stuart Hoffman, chief economist at PNC Financial Services Group, said declining prices will put more money into the economy that Americans can spend on other things.  A 10-cent drop in gas prices means drivers have an extra $37 million per day.

Stabilizing crude-oil prices and “sufficient supplies” of gas have led to the price decline, Trilby Lundberg, president of Lundberg Survey, Inc., said.  The drop was the first in Lundberg’s twice-monthly surveys since December. The costliest gas in the lower 48 states was in Chicago, where the average was $4.26 a gallon, Lundberg said.  The cheapest price was in Tulsa, where customers paid an average of $3.52 a gallon.  “We can thank crude oil for allowing gasoline to do what it has been wanting to do for weeks, which is drop,” Lundberg noted.

The price of gas is becoming an issue in the 2012 presidential election.  President Barack Obama urged Congress to boost federal supervision of oil markets, including larger penalties for market manipulation and greater power for regulators to increase the amount of money traders must put up to back their energy bets.  “We can’t afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick,” Obama said.  Mitt Romney, the likely Republican nominee, has accused the Obama administration of disrupting domestic oil production with regulations.

The Energy Information Administration weekly report noted that the nation’s crude oil stocks rose for the fourth straight week by 3.9 million barrels to 369.0 million barrels, better than anticipated.  Gas stocks fell by 3.7 million barrels to 214.0 million barrels.  Demand for gas saw a relatively small retraction of 103,000 barrels per day (bpd) to 8.681 million bpd.  Demand in the same week in 2011 was 500,000 bpd higher.  The four-week demand average for gas is still falling somewhat and currently stands at four percent.  Gas demand of 8.775-million bpd represents a 94,000 bpd increase, but reflects a 288,000-bpd drop from the same week last year.  The four-week moving average shows gas demand destruction of 2.8 percent; and the year-to-date numbers imply about 5.9 percent lower consumption.  Analysts can split hairs about actual motor fuel demand, but it is clearly lower than last year,

“April has seen more days of gas price declines than any month this year, which has motorists and analysts alike wondering if a gas price break is under way,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic.  “While several factors influencing crude oil prices remain in play, some analysts believe gas prices will continue to retreat and sometime in the next ten days or so we could be paying less at the pump than we were a year ago.”

Americans may be mending their gas-guzzling ways, according to the Washington Post. According to Steven Mufson, “As prices have neared and in some cases topped $4 a gallon, drivers have cut their consumption of gasoline to its lowest levels in a decade, driving less and buying cars that are more fuel-efficient.  The adjustment has slowed the climb in gasoline prices, which until last week had risen for 10 consecutive weeks, and could preserve some money for Americans to spend on other items as the economy struggles to recover more convincingly.  In the Washington area, there has been an increase in applications for carpooling under the Commuter Connections program, which links people seeking to share rides. Applications rose 20 percent last year and 10 percent in January and February, in each case closely tracking the increase in gasoline prices, according to Ronald Kirby, director of the department of transportation planning for the Metropolitan Washington Council of Governments.  The response to $4 gasoline is reinforcing a trend toward lower fuel consumption.  This will be the third year in the past five with historically high oil prices. Even before the latest price spike, gasoline consumption had dropped six percent from 2007 through 2011, the Energy Information Association (EIA) said.  The Federal Highway Administration adds that the number of vehicle miles driven over a 12-month period ending January was lower than in any year since 2004.”

Gasoline purchases totaled four percent of total consumer spending in 2011, noted Mark Zandi, chief economist of Moody’s Analytics.  That’s more than the 2.3 percent recorded when crude oil prices crashed in 1998, and significantly less than the six percent level in 1981 when an oil price shock shook the economy.  “I’ve been surprised, at least so far, that $4 a gallon hasn’t done more damage,” Zandi said.  “So far, it doesn’t seem to have done any.”  According to Zandi, the improving job market is one reason.  Another is that the warm winter reduced people’s heating bills and evened out total household energy costs.

Jafer Hasnain: The Housing Crisis: Where Do We Stand?

Tuesday, March 6th, 2012

With home sales increasing in six of the last nine months and prices still 30 percent below the peak, the housing market is quite confounding.  That’s the opinion of Jafer Hasnain, Principal and co-founder of Lifeline Assets, a private equity firm that invests in single-family homes.

In a recent interview for the Alter NOW Podcasts, Hasnain said that the nation has 10 million homes whose mortgages are seriously delinquent or even in foreclosure.  According to Hasnain, this is the shadow inventory, which consists of mortgages that are either 90 days late, in foreclosure or bank owned.  If you look at the next four or five years, that number will add up to between six to 10 to maybe 11 million homes.

When asked why President Obama’s Home Affordable Modification Plan (HAMP) didn’t work as intended – a program meant to help five million homeowners that saw only 800,000 sign up – Hasnain quoted the truism “The road to hell is paved with good intentions.”  As Hasnain sees it, the obstruction was in HAMP’s implementation.  Although HAMP brought down interest rates to as low as two percent, the real problem for many is that they had lost so much equity, participation simply was not worthwhile.  Because HAMP had no impact on the principal owed, homeowners still owed the same amount of money – which typically was significantly more than the house was worth in today’s market.  Many concluded that it made more sense to let the bank foreclose – a process that takes 700 or more days – live in the house for free, save money so they ultimately could pay the bank a fraction of what they really owed.

Hasnain pointed out that approximately half of all existing mortgages could no be re-underwritten today because of stricter lending standards.  In other words, half of all mortgages are potentially distressed, a fact that distresses Hasnain.  “That reflects society, and that reflects the potential to really crimp consumer spending.  I think housing is the number one, two and three issue right now.”  Part of the trauma is caused because, at one time, most people were convinced that they could always rely on the value of their home.  In the last few years, that balloon has been deflated to the point where we are now witnessing a failure in confidence.  This is a fairly unique problem that most people have never faced, one that calls for creative solutions — whether they come from the government or the private sector.

To listen to Jafer Hasnain’s full interview on where we currently stand on the housing crisis, click here for the podcast.


Is This Farewell to the BlackBerry?

Monday, February 27th, 2012

“They’re going to pry it out of my hands…”

That was President-Elect Obama protesting the idea of giving up his beloved BlackBerry. At one point, Obama suggested that retaining his BlackBerry was one way to stay connected to the real world.  “I’ve got to look for every opportunity to do that – ways that aren’t scripted, ways that aren’t controlled, ways where, you know, people aren’t just complimenting you or standing up when you enter into a room, ways of staying grounded,” he said.

Ultimately, the battle was won by the Secret Service and Obama’s legal team for fear that the device would be hacked and that a damaging national security breach could occur.

Now — five years after its manufacturer, Research in Motion (RIM), was hailed as one of the world’s leading technology companies, the Blackberry’s market share in the United States has fallen from 44 per cent in 2009 to a mere 10 per cent last year.

According to author James Surowiecki, “These days, it seems more like the SlackBerry.  The BlackBerry’s reputed addictiveness now looks like a myth; a recent study found that only a third of users planned to stick with it the next time they upgraded.  R.I.M.’s stock price is down 75 per cent in the past year, and two weeks ago the company was forced to bring in a new CEO.  The easy explanation for what happened to R.I.M. is that, like so many other companies, it got run over by Apple.  But the real problem is that the technology world changed, and R.I.M. didn’t.  The BlackBerry was designed for businesses.  Its true customers weren’t its users but the people who run corporate information-technology departments.  The BlackBerry gave them what they wanted most: reliability and security.  It was a closed system, running on its own network.  The phone’s settings couldn’t easily be tinkered with by ordinary users.  So businesses loved it, and R.I.M.’s assumption was that, once companies embraced the technology, consumers would, too”

Adoption of the BlackBerry can be compared to the latest technologies of the last century or so.  For example, the telegraph was initially used primarily by railroads, financial institutions, and big companies. Although the telephone became popular with consumers relatively quickly, it initially was a business tool.  Typewriters also were found primarily in offices.  The Internet had its origins as a means of communications by the military-industrial complex, and found an audience among academics and scientists.  The personal computer gained market dominance once IBM introduced models targeted squarely at businesses.

According to Surowiecki, “Even as the BlackBerry was at the height of its popularity, we were entering the age of what’s inelegantly called the consumerization of I.T., or simply Bring Your Own Device.  In this new era, technological diffusion started to flow the other way — from consumers to businesses.  Social media went from being an annoying fad to an unavoidable part of the way many businesses work.  Tablets, which many initially thought were just underpowered laptops, soon became common among salesmen, hospital staffs, and retailers.  So, too, with the iPhone and Androids.  They’ve always been targeted at consumers, and tend to come with stuff that I.T. departments hate, like all those extraneous apps.  Yet, because employees love them, businesses have adapted (and the iPhone and Androids have upgraded security to make themselves more business-friendly).  As a result, the iPhone and Androids now control more than half the corporate mobile market.”

The trend toward consumerization sounded a death knell for R.I.M., because the company had no idea about what consumers want. R.I.M. didn’t introduce a touch-screen phone until long after Apple; the device was a pale imitation of the iPhone.  Once seen as a ground-breaking success, the R.I.M. started to be perceived as offering too many choices and confusing model names.

“The workplace is changing, too,” Surowiecki said.  “The barrier between work and home has been eroded, and if people are going to have to be constantly connected they want at least to use their own phones.  And since workers often end up paying for their own devices, it can also help businesses cut costs.  One way or another, consumers are going to have more and more say over what technologies businesses adopt.  It’s a brave new world.  It’s just not the one that the BlackBerry was built for.”

Bill Gates, Sr.: The Rich Must Pay More Taxes

Monday, December 19th, 2011

Bill Gates, Sr., a retired attorney in Washington state, supports a ballot initiative that would require the state’s highest earners — including himself and his son — to pay an income tax.  Currently, the state does not collect personal income taxes.

The father of billionaire Microsoft founder Bill Gates, Jr., believes that the poor pay too much tax, and that the rich don’t pay enough.  Washington’s school system, which is a catalyst for future economic growth in the high-tech state, suffers from too little funding because the wealthy aren’t paying their fair share, according to Gates.  His 1098 initiative — an income tax on adjusted earnings that exceed $400,000 a year per couple or $200,000 for an individual — is drawing protest from Washington business leaders, as well as anti-tax groups.

Initiative 1098 would give tax credits to approximately 80 percent of Washington-based businesses and slash the state share of property taxes by 20 percent for businesses and homeowners.  According to critics, the legislation would harm the economy by taxing the earnings of people who own the businesses — money that would be used to put people back to work.  The opposition’s Defeat 1098 campaign believes that an income tax on 38,400 of the state’s highest earners would take away vital competitive advantages and drive away entrepreneurs.  Even Governor Chris Gregoire’s Commerce Department has publicized Washington’s lack of an income tax in statements about the state’s business climate.

Gates considers Washington state’s tax system to be “dramatically regressive”, something that was proved in 2002 when he led a commission created by the Legislature to study the state tax system.  The commission recommended replacing the sales tax or property tax with an income tax that would rebalance the load.  Gates cited data gathered by the national Institute on Taxation and Economic Policy that show Washington’s poorest 20 percent pay 17 percent of their income in sales, property and other taxes.  By contrast, the wealthiest one percent pays less than four percent.

The initiative would impose a state income tax on individuals earning more than $200,000 and couples earning upwards of $400,000.  In other words, single people would pay a five percent tax on income over $200,000 and nine percent tax if they earn more than $500,000.  Couples would pay five percent over $400,000 and nine percent if they earn a combined income that exceeds $1 million.

“It’s not a matter of picking on someone,” Gates said.  “It’s a matter of correcting to some extent a bad historic situation and arguing — I think absolutely persuasively — that this is a proper source for a serious financial shortfall in our operations, namely the public education system.”

Gates’ proposal also has met opposition from Steve Ballmer, Microsoft CEO, and Jeff Bezos, President of, both of whom donated $100,000 to anti-tax groups.

Another voice of opposition is Stephen Moore, who wrote in the Wall Street Journal, “I wish I had a dollar for every time a wealthy liberal has declared he thinks he should pay more taxes. That list includes Warren Buffett, George Soros, Bill Gates Sr., Mark Zuckerberg and even Barack Obama, who now says that not only should rich people like him pay more taxes, they want to pay more.”

Gates is joined by Berkshire-Hathaway CEO Warren Buffett in calling for higher taxes on the wealthy.  President Obama supports “the Buffett Rule”, a guiding principle to ensure that the rich pay as large a percentage of their income as the middle class.  Some millionaires insist that Buffett doesn’t speak for them.  “There is more of a difference between my financial position as a multi-millionaire and Buffett’s than there is between mine and a guy that makes minimum wage,” one CNN Money reader said.  “Why am I grouped with him and why does he feel he can speak for me?”

Just 24 percent of millionaires said higher taxes on large incomes is the optimal solution, according to a survey from Spectrem Group, a research firm specializing in the finances of affluent Americans.  The largest group of millionaires, 44 percent, believe that a flat-rate tax across all income brackets is the fairest system.

Convicted Illinois Governor Sentenced to 14 Years

Monday, December 12th, 2011

Former Illinois governor Rod Blagojevich became the state’s second chief executive in a row to be sentenced to federal prison for corruption.  Blagojevich, who – among other charges was convicted of attempting to sell President Barack Obama’s Senate set to the highest bidder – was sentenced to a stiff 14-year sentence in a federal prison.  He must report to the Federal Bureau of Prisons on February 16, 2012.

Blagojevich’s predecessor, George Ryan, is currently serving a 6 ½-year sentence at a federal prison in Terre Haute, IN, also for corruption.

“The governor was not marched along this path by his staff.  He marched them,” Zagel said before he imposed the sentence.  Blagojevich governed the fifth-most populous state from January 2003 until his impeachment and removal from office in January of 2009.  He had been arrested the previous month for what Chicago U.S. Attorney Patrick J. Fitzgerald called “a political corruption crime spree.”  Blagojevich was convicted on 17 counts in a trial that ended in June.  An earlier jury deadlocked on 23 of the 24 counts it considered, but found the ex-governor guilty of lying to federal agents.

Blagojevich admitted to the judge that he made “terrible mistakes” and acknowledged that he broke the law in his attempt to sell the Senate seat.  His attorneys admitted for the first time that Blagojevich is guilty of corruption.  The defense also presented sincere appeals from Blagojevich’s family, including letters from his wife Patti and one of his two daughters, that pleaded for mercy.  But the judge made it clear that he believed that Blagojevich had lied on the witness stand when he tried to explain his scheming for the Senate seat, and he did not believe defense suggestions that the former governor was duped by his advisers.

Assistant U.S. Attorney Reid Schar wasn’t impressed by Blagojevich’s emotional plea.  “He is incredibly manipulative and he knows how to be,” Schar said.  “To his credit he’s clever about it.  Judge, the defendant is corrupt, he was corrupt the day he took office, he was corrupt until the day he was arrested,” Schar said.  “Judge, the people have had enough.  They have had enough of this defendant.  They have had enough of people like him.”  The lengthy legal ordeal began when President Obama’s U.S. Senate seat became available upon his election.  Wiretaps of Blagojevich were recorded saying that Obama’s seat was “f — ing golden” and that it wouldn’t go “for f — ing nothing.”

So now what does Blagojevich do? He’ll spend the holidays with his family.  Next, his legal team will ask Judge Zagel to choose a prison, preferably in the Midwest, said Kent College Law professor Richard Kling.  Because the sentence is more than 10 years, he’ll be classified in a low-security prison with double-fence razor wire.

Judge Zagel sternly told Blagojevich that “abuse of the office of governor is more damaging than the abuse of any office in the United States except for president.  “I cannot comprehend that even if you are guilty,” Zagel said.  “You don’t think you caused harm to Illinois.”

“Blagojevich betrayed the trust and faith that Illinois voters placed in him, feeding great public frustration, cynicism and disengagement among citizens,” Fitzgerald said.  “People have the right to expect that their elected leaders will honor the oath they swear to, and this sentence shows that the justice system will stand up to protect their expectations.”  “This sentence sends a clear message that public officials cannot engage in corruption for personal benefit in exchange for political favors,” said James Vanderberg, special agent-in-charge of the Chicago Regional Office of Inspector General.

If Judge Zagel has any second thoughts about the sentence, he can take satisfaction in the fact that some of the jurors from the corruption trials approve of the 14-year sentence.  James Matsumoto, the jury foreman from the first trial, said he and other jurors were “satisfied” by the sentence.  John McParland, a juror at the second trial, saw a less-cocky Blagojevich today but wasn’t certain the former governor in fact apologized for his actions.  “He’s like two different men,” McParland said.  “His apology was a little circumspect,” according to Matsumoto.

Under federal sentencing guidelines, Blagojevich won’t be eligible for release until early 2024 when he will be 67 years old.  Additionally, Blagojevich is planning to appeal his sentence, a process that could take years.

Spending Rises as Savings Fall

Monday, November 7th, 2011

Are Americans shopping until they drop again? It could be, judging by the latest government report showing that consumer spending rose by a surprisingly vigorous 0.6 percent in September, even as personal incomes barely grew.  Adjusting for inflation, after-tax income declined slightly by 0.1 percent, according to the Department of Commerce.  The bottom line is a sharp drop in the saving rate in September, to just 3.6 percent.  That’s the lowest level since 2007 and a drop from a healthy five to six percent during most of the last two years.

Scott Hoyt, who studies consumer spending for Moody’s Analytics, says it’s possible that the September numbers may have been inflated by spending for repairs and other things after Hurricane Irene.  At the same time, other data suggest that people are spending more because lenders are suddenly more willing to give credit and as households — which had deferred buying new cars and other goods — feel more optimistic about the direction of the economy.  Consumer spending is perceived as a critical economic component,  and is often cited as representing 70 percent of the nation’s GDP.

The improvement in consumer spending helped boost the economy through the 3rd quarter while policymakers ranging from President Barack Obama to the Federal Reserve took additional action to stimulate growth and hiring.  Unless paychecks grow, Americans may not be able to continue their spending sprees.  “Given the state of consumer sentiment and the savings rate, we should see moderate spending, at best, going forward,” said Sean Incremona, a senior economist at 4Cast Inc., who accurately predicted the consumer spending boom.  “The savings rate is just one of those warning signs that says we’re not pulling ourselves out vigorously, so the economy still has a lot of vulnerability.”

Fed policymakers are considering options for additional monetary easing even as the economy improves.  Vice Chairman Janet Yellen said that a 3rd round of significant asset purchases “might become appropriate if evolving economic conditions called for significantly greater monetary accommodation.”

“Consumers today are still facing inflationary pressures on food, high unemployment, minimal job and income growth and waning consumer confidence,” BJ’s Restaurants, Inc., Chief Financial Officer Gregory Levin said after the chain reported a 6.5 percent increase in sales for the 3rd quarter.  “It is difficult to ascertain if the current trends represent the trend we will end up seeing throughout the remainder of this year, or how strong the holiday retail selling season will be.”

“Income growth will have to be watched closely in coming months as the recent trend of spending at the expense of savings is not sustainable,” economists at Nomura Securities wrote.  Inflation rose 0.2 percent in September, based on the latest analysis of the personal consumption expenditure price index.  The PCE (Personal Consumption Expenditures) grew by 2.9 percent over the past year.

“Sluggish growth in U.S. consumer income in September led households to cut back on saving to increase their spending, casting doubts over the durability of the economy’s third-quarter growth spurt,” Reuters wrote.

According to The Hill, “Purchases of new and used cars drove spending.  Clothing sales rose 1.1 percent.  Purchases such as utility payments were up 0.2 percent, as consumers paid to cool their homes during a brutally hot summer.

Obama Bypasses Congress to Boost Housing

Monday, October 31st, 2011

President Barack Obama executed an end run around Congress when he announced a significant retooling of a plan designed to help homeowners who are paying their mortgages, but still underwater, refinance their loans at a more affordable interest rate.  Administration officials said the changes will streamline the government’s Home Affordable Refinance Program (HARP) and could dramatically increase the number of borrowers who have refinanced their loans under the program past the current 894,000.  They did not specify how many borrowers might be eligible or likely to participate.  The program, which is voluntary to lenders, will be available only to homeowners whose mortgages were sold to Fannie Mae and Freddie Mac on or before May 31, 2009, and who have a loan-to-value ratio above 80 percent.

The downside is that hundreds of thousands more could not qualify — primarily because of the previous 125 percent loan-to-value limit on the program or because banks refused to take on the risk.  Raising the loan-to-value restrictions may help a limited number of borrowers, according to Jaret Seiberg, an analyst for MF Global Inc.’s Washington Research Group, which analyzes public policy for institutional investors.  The difficulty is that mortgage holders still must be up-to-date on their payments for the past six months — with no more than one missed payment in the past year.  Additionally, they also must qualify for a new loan.

Qualifying homeowners will be able to refinance their mortgages at the current low rates, which are currently near four percent. Obama’s move comes at a time when there is a fast-growing consensus that the nation’s declining housing market is negatively impacting the economic recovery.  Home values are at eight-year lows; and more than 10 million people are underwater, meaning that they owe more than their homes are worth.  “It’s a painful burden for middle-class families,” Obama said.  “And it’s a drag on our economy.”  The administration’s proposal underscores the scale of the problem, as well as the limits of public policy in resolving it.  By cutting monthly payments, the Obama administration hopes to make cash available for consumers to spend elsewhere.

According to housing regulators, one million borrowers might be eligible to participate in the program.  Unfortunately, that is just 10 percent of the number of homeowners who need help.  Although the Obama administration’s estimates say the average homeowner could save $2,500 per year, other projections said savings would be in the range of $312 annually.  This depends on the upfront fees the borrower pays, which can include thousands of dollars in closing costs.

Obama promoted the plan under his “We Can’t Wait” campaign, in which he will use the executive branch’s existing tools to improve the economy while Congress debates further legislation.  “We can’t wait for an increasingly dysfunctional Congress to do its job,” he said.  “Where they won’t act, I will.”

“We know there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), which administers Fannie Mae and Freddie Mac. The program expires at the end of 2013.  “We believe these changes will make it easier for more people to refinance their mortgage,” DeMarco said.  “Breaking this vicious cycle is one of the most pressing issues facing policy makers,” Federal Reserve Bank of New York President William C. Dudley said.  The HARP revamp is part of multiple efforts the government is making to boost home prices and consumer spending.  “It’s the equivalent of a tax cut for these families,” HUD’s Donovan said.

Mortgage lenders are “particularly gratified” at the revised plan, said David H. Stevens, president and chief executive officer of the Mortgage Bankers Association.  “These changes alone should encourage lenders to more actively participate.”

Writing in The Atlantic, Daniel Indiviglio believes that the revised program has potential.  “The administration appears to have accounted for all of the major obstacles to refinancing and eliminated them.  A home’s value no longer matters.  The cost should be less prohibitive to borrowers.  Much legal red tape has been cut.  Other loans tied to the home won’t stand in the way.  Ample time to refinance is provided.  This should help to allow at least a million Americans to refinance who haven’t had the opportunity to do so in the past.  If this works as hoped, then those consumers will have more money in their pockets each month.  Borrowers who see their mortgage interest rates drop from five percent or six percent to near four percent will often have a few hundred dollars more per month to spend or save.  If they spend that money, then it will stimulate the economy and create jobs.  If they save it or pay down their current debt, then their personal balance sheets will be healthier sooner and their spending will rise sooner than it would have otherwise.  The effort may even prevent some strategic defaults, as underwater borrowers won’t feel as bad about their mortgages if their payment is reduced significantly,” Indiviglio said.

Felix Salmon, writing in Reuters, could not disagree more. “For many reasons, it is very difficult to project the number of mortgages that may be refinanced under the enhancements to HARP, including the future path of interest rates, borrower willingness to undertake a refinance transaction and the number of lenders and servicers who choose to offer the program.  Given current market interest rates, our best estimate is that by the end of 2013 HARP refinances may roughly double or more from their current amount but such forward-looking projections are inherently uncertain.  First, by the end of 2013?  Never mind mortgage relief now, we’ll try and get you mortgage relief in two years’ time?  Secondly, the current pace of HARP refinancing is pathetic.  We’ve been managing to do less than 30,000 HARP refinancing a month.  And in the 28-month history of HARP, we’ve managed a grand total of 894,000 HARP refinancing, which works out to about 32,000 per month.  The FHFA is projecting that the pace of HARP refinancing won’t increase at all as a result of this plan. We’ll still average out at about 30,000 per month — maybe a bit more, maybe a bit less, but you’re never going to make a dent in the mountain of 11 million underwater mortgages at that rate.”

A Lifeline for Underwater Homeowners?

Wednesday, October 26th, 2011

Federal officials and some of the nation’s largest banks are collaborating on a plan that would make refinancing available to some borrowers whose houses are worth less than their loans, with the caveat that they must be up-to-date on mortgage payments.  Typically, these borrowers can’t refinance because they don’t have enough equity in their homes.  The plan would apply only to bank-owned mortgages.

Federal officials have been trying to negotiate a deal with the five largest mortgage servicers – Ally Financial, Inc, Bank of America, Citigroup Inc, J.P. Morgan Chase and Wells Fargo & Co.  Officials favor a plan that would break a legal impasse with big banks over alleged foreclosure abuses such as robo signing and ease problems in the housing market.  Discussions are still underway and the final outcome is not yet known.

Pressure is building in Washington, D.C., to help underwater homeowners with a generous refinance plan.  President Barack Obama told Congress that he wants to help “responsible homeowners” refinance, saying it would “give a lift to an economy still burdened by the drop in housing prices.”  A bipartisan coalition of 16 senators wrote to the administration urging swift action on a refinance plan.

“A huge floodgate would open up” if underwater refinancing were broadly available, said Fif Ghobadian, a broker at Guarantee Mortgage in San Francisco.  “It would provide the help that lowering interest rates cannot do alone.  Someone who’s been making payments at 7.5 percent religiously but cannot qualify to refi – boy, would that four percent make a huge difference in their life.”

A program has existed for some time that provides guidelines to lenders for refinancing some Fannie Mae- and Freddie Mac-backed underwater mortgages.  The program is called HARP (Home Affordable Refinance Program), it’s two years old and has resulted in approximately 800,000 refinances, far short of the five million originally envisioned.  Only a fraction of those homeowners were deeply underwater.  HARP’s main impediment has been the lenders themselves.  Concerns about issues such as being forced to take responsibility for refinances that default (known in the industry as “buybacks”) has made lenders reluctant to issue HARP mortgages.  The proposed new plan would likely expand HARP to make it more acceptable to lenders and more usable by a broader swath of homeowners.  “Changes (being contemplated) would address several HARP obstacles,” said Erin Lantz, director of the mortgage marketplace for Zillow.  “The industry now makes it hard for people to qualify.  The process would be more streamlined.”

According to a recent Harvard study, approximately 11 million homeowners with mortgages are underwater.  This accounts for roughly one-fourth of all homes with mortgages in the nation.  An additional five percent have near-negative equity (<five percent home equity).

Writing for Reuters, Felix Salmon doesn’t think much of the potential mortgage plan.  “It’s pretty weak tea: under the terms of the deal, if (a) you’re underwater on your mortgage, and (b) you’re current on your mortgage payments, and (c) your mortgage is owned by the bank outright, rather than having been securitized, then you would be given the opportunity to refinance your mortgage at prevailing market rates.  It’s worth remembering, at this point, that mortgages are by their nature pre-payable.  When you write a fixed-rate mortgage, you make a general assumption that if mortgage rates fall substantially, the borrower is going to pay you off and refinance.  The underwater questions we’re talking about here were written during the housing boom, when banks simply assumed that house prices always went up; those banks cared massively about prepayment risk at the time, and spent huge amounts of money and effort trying to hedge it.  As it happened, mortgage rates did fall substantially — with the result that the banks’ hedges paid off.  But then the banks realized that they could make money on both legs of the deal — that they could collect on their mortgage-rate hedges, without having to worry about prepayment.  Because now the borrowers are underwater, they’re not allowed to refinance. So the banks continue to cash above-market mortgage payments every month — something they never expected that they would be able to do.

“It’s not inconceivable at all.  In fact, wholesale mortgage refinance for underwater borrowers is a major part of Barack Obama’s jobs bill, and the Congressional Budget Office (CBO) has been costing it in various ways.  At heart, it’s a way of rectifying a market failure, and thus makes perfect sense.  But that’s precisely why I don’t think that this plan deserves a place in the mortgage-settlement talks.  For one thing, it’s downright unfair and invidious to allow 20 percent of underwater homeowners to refinance while ignoring the other 80 percent.  More to the point, giving homeowners the ability to refinance their mortgages is what you do, if you’re a bank.  It’s not some kind of gruesome punishment.”