"Sour economy top issue in US presidential race"

by Claire Gallen

17 AUGUST 2008

WASHINGTON (AFP) - The US economy has become the number-one issue of November's fast-approaching presidential election, and whoever ends up controlling the White House will face pressing budget and fiscal challenges.

Some analysts say a flailing economy can benefit a challenger from the party that does not control the White House as voters can assign blame for an economic downturn to a president's party, as occurred in the 1992 failed reelection bid by then-president George Bush, President George W. Bush's father.

"When it comes to voting, unemployment doesn't matter."

"Inequality doesn't matter (in the United States)."

"Growth of real after-tax income does matter."

"The stock market does matter," said Alan Reynolds, a senior fellow at the Cato Institute, a free-market think tank.

Reynolds said a rising stock market can boost the reputation of the party in power, but he said the perceived weakenss of the US economy at present could benefit the Democratic presidential hopeful, Senator Barack Obama.

In such a climate, it is not surprising that Obama and his Republican rival, Senator John McCain, have sparred hotly over economic matters, taxes and high gasoline prices.

Obama has called for a second economic stimulus package while McCain says he favors fresh tax cuts.

Each candidate insists his plans would help fire up rocky economic growth.

Americans are very troubled about their economic well-being, according to the results of a Pew poll published in late July which showed that 54 percent of respondents think the US is in recession while 18 percent view it as a depression.

A persistent housing downturn, a credit crunch in the banking industry, rising unemployment and high energy costs have all taken a toll on consumer sentiment.

That leaves the Federal Reserve walking a policy tightrope.

The central bank is trying to engineer an economic rebound, but it does not want to be accused of bending its policies to favor either Obama or McCain.

Although Fed chairman Ben Bernanke is a moderate Republican appointed to office by President Bush, he has gone out of his way to underline the central bank's independence and held a meeting with Obama last month.

"People that think that the Fed is some kind of political creature are mistaken."

"They do a disservice to assume that and it's very unfortunate that some people assume that," said Michael Swanson, an economist at Wells Fargo.

Luckily for the Fed, the economic climate does not favor interest rate changes.

Boxed in by sluggish growth and roiling inflationary pressures, the central banking has adopted a wait-and-see approach and left its main rate unchanged at 2.0 percent for it last two meetings.

The central bank's next policy meeting is scheduled for September 16 and analysts say there is little chance the economic winds will change dramatically between then and now.

Most economists expect the Fed to keep rates on hold for some time.

"There won't be any reason to change anything at this meeting," said John Lonski, the chief economist for Moody's Investor Service.

Lonski said the Fed will not do anything that could make it look like it is trying to affect the November 4 election.

While rates will likely be left unchanged, calls are mounting for a second economic stimulus, as the effect of a giant 168-billion-dollar government stimulus this year has been relatively disappointing.

Not all economists are in favor of a second stimulus, however, saying it could swell an already bulging budget deficit.

"I doubt a second stimulus package is going to happen."

"But it's rarely prudent to overestimate the wisdom or fiscal prudence of politicians during an election year," the Cato Institute's Reynolds said.

A second stimulus likely would be different from the first which was stuffed with one-off tax rebates for tens of millions of Americans, aimed at firing up consumer spending.

But the window for such a stimulus is narrowing fast.

"If it's going to happen, it must happen in September," Alec Philips, a Goldman Sachs economist, wrote in a research report.

The Democratic-controlled Congress will return from a summer recess on September 8.

The legislative process typically stalls following the November 4 presidential election until a new leader takes office in January.

"We're going to have to get the help from the government," Dwyer said referring to state and federal assistance.

This is a prime example of what I call the CORRUPTION TAX on us American citizens up here .....

The citizens of the United States of America should now have to divvy up some more money on top of all the other money they have to kick in to the federal government to make the City of Rensselaer in Rensselaer County in CORRUPT New York State whole, notwithstanding that New York State has had in place regulations since at least 1974 to prevent exactly this from happening in the first place ....

It did happen because of alleged GROSS NEGLIGENCE, MISFEASANCE and MALFEASANCE on the part of the public officials "entrusted" with keeping this from happening, as is spelled out in detail in this New York State Department of Health ENGINEERING DESIGN MANUAL above here ....

Inspection of sites and ground water conditions by developers, followed by similar on-site inspections by local public health engineers and other officials are intended to prevent development investments in areas that do not assure optimum environmental conditions.

And so .....

PONY UP, AMERICA!

IT'S YOUR CIVIC DUTY TO REWARD CORRUPTION UP HERE IN NEW YORK STATE!

And so ....

"AP IMPACT: Weak rules cripple appraiser oversight - Toothless rules, bumbling regulators cripple oversight of real estate appraisers"

By MITCH WEISS, Associated Press

Last updated: 12:13 a.m., Monday, August 18, 2008

CHARLOTTE, N.C. -- As soaring home prices set the stage for America's great housing meltdown, a critical step in making sure those home sales were a fair deal -- the real estate appraisal -- was undermined from within.

After the nation's last major banking disaster, Congress set up a system to catch rogue appraisers.

Their game: inflating the value of homes at the direction of equally unscrupulous real estate agents and mortgage brokers, whose commissions are determined by the size of the deals.

But a six-month Associated Press investigation found that the system is crippled by both the bumbling of its policemen and their inability to effectively punish those caught committing fraud.

And despite ample evidence appraisers are pressured into inflating home values -- sometimes to prices in support of loans that are more than buyers can afford -- the federal regulators charged with protecting consumers have thus far made a conscious choice not to act.

"The system is completely broken," Marc Weinberg, the former acting director at the federal agency charged with monitoring the appraisal industry, told the AP before he retired earlier this year.

"It's amazing that the system ever worked at all."

The AP conducted dozens of interviews and reviewed thousands of state and federal documents, and found:

-- Since 2005, at the height of the housing boom, more than two dozen states and U.S. territories have violated federal rules by failing to investigate and resolve complaints about appraisers within a year.

Some complaints sat uninvestigated for as long as four years.

As a result, hundreds of appraisers accused of wrongdoing remained in business.

-- The only tool federal regulators have to force states into compliance is so draconian -- it would effectively halt all mortgage lending in a state -- that it has never been used.

-- Both state appraisal boards and the federal agency charged with overseeing them are chronically understaffed, many with only one full-time investigator to handle the hundreds of complaints that arrive each year.

Some don't even have an investigator.

"The appraisal reforms of the late 1980s were good reforms," said Susan Wachter, a real estate professor at the University of Pennsylvania's Wharton School of Business.

"But they were not sufficient to prevent what we have seen ... because regulation without teeth is not regulation."

To be sure, there are many causes of the housing crisis -- lenders who allowed people with spotty credit to buy homes with little or no money down, mortgage brokers who focused on selling loans without regard to the borrowers' ability to repay, investment bankers who bought and sold risky mortgage-backed securities.

A few of the worst offenders -- appraisers included -- have been put behind bars.

But experts and industry insiders, including appraisers who feel betrayed by colleagues who don't follow the rules, believe the failure to effectively monitor the real estate appraisal industry contributed to housing's collapse.

There is no doubt, Wachter said, "that fraud has increased and appraisal fraud has increased in a way to exacerbate the problems."

This is the way the system is supposed to work:

Typically, an appraiser receives an order from a real estate agent, lender or mortgage broker to inspect a property.

Based on a physical inspection of the home and comparable sales in the area, they develop an estimated value for the property.

That figure is used by banks to set the home's value as collateral for the mortgage loan.

Appraisers are supposed to come up with a value free of any outside pressure.

But more than three dozen appraisers nationwide interviewed by the AP said they often felt pushed by a real estate agent or mortgage broker to fraudulently inflate a property's value.

They supplied the AP with documents from lenders asking them to "hit a number."

"The higher the loan amount, the more money brokers and lenders make in the deal," said Ray Haynes, an appraiser from Cherryville, N.C.

"And they threaten you."

"They say, 'If you don't play ball with us, we'll go somewhere else.'"

"And they do."

"I've seen my business shrink."

"They're all doing it."

"It's hard to stay honest."

Documents obtained by the AP also show that hundreds of appraisers complained to federal and state agencies about such fraudulent inflation of property values.

The appraisal system has broken down before.

In 1989, Congress concluded that "faulty and fraudulent appraisals were an important contributor to the losses that the federal government suffered during the saving and loan crisis."

And it passed the Financial Institutions Reform, Recovery and Enforcement Act.

Under the law's reforms, a private group known as the Appraisal Foundation wrote the rules governing appraisers.

The law also recommended that states begin licensing appraisers and disciplining those who break the rules.

A federal agency called the Appraisal Subcommittee, an independent federal agency that answers to Congress, would conduct field reviews and audits, and maintain a national registry of appraisers -- including dossiers on those who break the rules.

But problems plagued the system from the start.

It took years for some states to set up the independent review boards to supervise appraisers or hire personnel to investigate complaints.

Even today, eight states still do not require appraisers to obtain a license or certification.

"We got to this point by a lack of enforcement."

"... The public has the right to expect the appraisal boards are taking care of that problem," said Bob Ipock, an appraiser from Gastonia, N.C., who is a critic of the current system.

"And they are not."

"They're looking the other way."

The Appraisal Subcommittee is supposed to help states remove from the system those appraisers who agree to "hit a number."

But it has only four employees to conduct field reviews and audits of 50 states and four U.S. territories, and hasn't even had a permanent director since the agency's former chief retired at the end of last year.

Following Weinberg's subsequent departure in February as acting director, none of the agency's current employees -- including interim director Vicki Ledbetter -- returned more than a dozen messages left by the AP over a period of several months seeking comment.

When the agency does find a state failing to follow the law, the only tool available to force compliance is a death sentence known as "non-recognition" -- a penalty that would ban all appraisers in that state from handling deals involving a federal agency.

"Do you know what that would have meant?"

"The net effect is it would have effectively shut down mortgage lending in that state," former subcommittee director Ben Henson, who retired in December, told the AP.

"To take that action would have been an unbelievable disruption to the economy."

"I wasn't going to do that."

When field reviews began in the 1990s, states were repeatedly warned they were failing to comply with the law -- warnings that continue to this day.

But without the ability to issue fines or impose a less destructive punishment, the Appraisal Subcommittee is powerless.

It has never taken any action against a state for not obeying the law.

"Either you shut it off completely in a state, or you just send letters," said Gary Taylor, an appraiser from New York who sits on the Appraisal Foundation board that writes qualification guidelines.

"The threat of the atomic bomb is the only thing."

And so, the violations stack up year after year, largely without consequence.

In the last three years alone, as the nation's housing market went from boom to bust, 27 states or territories failed to investigate and resolve complaints within a year.

In Washington, D.C., the agency found last August that 32 of the district's 35 pending cases were older than two years.

In Florida, almost 50 percent of 169 cases older than a year concerned appraisers involved in "fraud and flipping."

Faced with such backlogs, some states just give up.

In New Hampshire, the state appraisal board decided in July 2006 to close all outstanding files dating to 2002 -- some of which included allegation of fraud -- because they "were too old to investigate."

In Ohio, the Appraisal Subcommittee found in 2005 that 40 percent of the state's 199 outstanding cases were older than a year, many older than two.

To help clear the backlog, Ohio began allowing appraisers to sign consent orders -- a deal similar to a plea bargain in which an appraiser agrees to the facts of a case in exchange for a reduced punishment.

That could be a short-term suspension, for example, instead of a license revocation.

In 2006, 11 appraisers signed such consent orders in Ohio.

That figure swelled to 148 the following year.

"They know they can keep doing what they're doing because they can get away with it," said Carl Schneider, an appraiser who serves on the Oklahoma appraisal board's disciplinary procedures committee.

"They're not getting punished."

"And states aren't doing more because they know regulators won't do a thing."

By law, the Appraisal Subcommittee must maintain a registry of appraisers that includes a disciplinary history.

But a disciplinary action stays on the Web site only as long as it's current -- once the suspension is over, the action is removed, making it appear as if the appraiser has never been in trouble.

The flaws in the system also allow appraisers to stay in business while complaints against them are under investigation.

North Carolina appraiser Jerry Gooden had eight complaints filed against him between 2001 and 2003, all related to a trainee who performed dozens of appraisals under his supervision and later pleaded guilty to mortgage fraud.

All the while, Gooden remained listed in good standing on the Appraisal Subcommittee's Web registry of appraisers.

His license was suspended in 2005 for nine months because of the complaints.

But even today, his entry shows he's never been disciplined.

When contacted recently by telephone, Gooden said he was busy and didn't have time to talk.

When Illinois appraiser Donald Martin wrote to the Appraisal Subcommittee in December 2000, he told of how lenders, mortgage brokers and real estate agents withheld business from appraisers who refused to inflate values, guarantee a predetermined value or ignore deficiencies in a property.

Honest appraisers, he wrote, were blacklisted in favor of those with a "rubber stamp."

He begged the agency to take action.

But as it would say in response to nearly a dozen such letters, the subcommittee answered that it didn't have the statutory authority to investigate such complaints.

It promised to forward the complaint to the appropriate federal agencies, such as the Federal Reserve, which could have acted out of concerns for the health of the appraisal industry.

There is no evidence that ever happened.

"They just blew me off," Martin said.

"I wasn't alone."

"We had appraisers from all over the nation writing in and urging them to take action."

That same month, subcommittee board member Thomas Watson Jr. -- then the national bank examiner at the federal Office of the Comptroller of the Currency -- did propose action.

In a letter to appraiser groups and banking regulators, he called a meeting to discuss concerns "resulting from inappropriate pressure being placed on real estate property appraisers to 'hit a certain value.'"

Henson, the subcommittee's director at the time, attended the meeting and remembers hearing story after story about appraisers being pressured.

But he called the information "mostly anecdotal," never forwarded the information to the full board and never followed up to see if any federal regulator looked into the complaints.

"People who say we should have done more don't understand how the system works," Henson said.

"Agencies just don't lobby to change things."

"We had no interest in doing anything like that."

"It just wasn't our area."

The American Society of Appraisers formally asked the Appraisal Subcommittee to act in January 2001, noting the agency was in a "good position to work with bank regulators and others on the problem."

Again, the agency responded by saying it did not have the authority to examine the issue.

"It didn't surprise me they didn't do anything," said Richard Amoling, the society's former president.

"Everything related to the issue went into a black hole."

"Why, I just don't know."

Weinberg, who worked at the Securities and Exchange Commission before he was hired as the Appraisal Subcommittee's attorney in 1991, said the agency could have pushed more.

"I tried to push, but nobody wanted to hear what I was saying," he said.

That included Congress.

When serving as president of a national appraisers trade association in June 2004, Taylor -- the Appraisal Foundation committee member -- told a House subcommittee field hearing that "problem appraisals are being allowed, and in some ways even encouraged, by a regulatory structure that promotes lax enforcement and ineffective oversight."

Taylor, president of Rogers & Taylor Appraisers Inc. in Hauppauge, N.Y., pleaded for help:

"We are here to alert Congress that the licensing system it created for appraisers is broken ... and needs to be fixed."

It wasn't.

Records obtained by the AP also show that complaints about individual appraisers filed at the state level are left unresolved for months -- and often for years -- but for a different reason: Many states have only one full-time inspector.

Some appraisal boards also are rolled into bigger regulatory agencies, where inspectors with little or no experience are assigned to investigate complaints.

"I think the design of the system is excellent," said Philip Humphries, the current director of the North Carolina Appraisal Board.

"But states don't have the money to hire personnel to carry out what the system was designed to do."

Henson said most of the complaints are frivolous, involving consumers upset because an appraiser "may have been rude or said my house wasn't worth as much as I thought."

He said few of the complaints have anything to do with inflated appraisals.

"That was just not a problem," he said.

Filed complaints are considered private and are not open to public inspection.

But consent orders are public, and the AP's investigation found that Henson's assessment that most complaints are frivolous is simply wrong.

In North Carolina, for example, of the more than 300 consent orders filed since 1994, 65 percent involved mistakes that inflated a home's value.

Even when states do investigate and find problems, rogue appraisers are rarely disciplined.

Since 1994, only 13 appraisers -- there are currently about 3,500 licenesed appraisers in the state -- have had their licenses taken away by North Carolina's appraisal board.

During the same period, California, the nation's most populous state, revoked 89 licenses; Tennessee, West Virginia and Wyoming did not revoke any, according to Appraisal Subcommittee records.

Violators are usually only reprimanded or, if their licenses are suspended, the suspension often is reduced if they agree to take remedial education classes.

Since 1994, consumers have filed 23 complaints against Richard Chapman, an appraiser from Emerald Isle, N.C.

His license was suspended for five years in a case in which he was accused of submitting appraisals with "misleading information" and "inaccurate data."

Since his license was reinstated in 2000, 11 new complaints have arrived.

"Just because you're disciplined, that doesn't make you a bad appraiser," said Chapman, who estimated he's been involved in 80,000 appraisals since 1980 and trained about 60 appraisers.

"I may have done some technical things wrong, but I've done a good job."

"I'm proud of my work."

The North Carolina board dismissed two of the 11 recent complaints outright, while two others were dismissed with warnings to be more careful.

Six were dismissed on the condition that Chapman complete appraiser education classes, and he was reprimanded for one complaint.

"There no habitual felon law for appraisers," said board attorney Roberta Ouellette, defending the agency's action.

"Why should he get super-zapped for doing a lot of little things that a lot of other appraisers are doing every day but haven't had complaints turned in on them?"

The failings of the appraisal regulatory system and its impact on the nation's housing market led Andrew Cuomo, the New York attorney general, to reach a deal in March with Fannie Mae and Freddie Mac, which purchase mortgages from other financial institutions.

Cuomo's deal requires Fannie Mae and Freddie Mac to buy mortgages only from lenders who use independent appraisers.

The new rules also prevent lenders who want to sell loans to Fannie Mae or Freddie Mac from using in-house appraisers to do the first evaluation.

The agreement, which will take effect in 2009, will create a watchdog to monitor the appraisal business: Fannie Mae and Freddie Mac will spend $24 million to create the Independent Valuation Protection Institute, which will accept complaints from consumers and appraisers.

It will also monitor the enforcement and report to Cuomo's office.

But such a system duplicates the regulations already in place, including the same lack of enforcement tools that led the existing system to failure.

And it's already under fire.

John Dugan, the U.S. comptroller of the currency, wants the deal scrapped, arguing it would increase the cost of home loans for borrowers without strengthening consumer protections.

Cuomo didn't return repeated requests for comment.

But Taylor, the Appraiser Foundation board member who asked Congress for action in 2004, doesn't see much hope for his success.

"There has to be effective enforcement of some sort."

"There has to be reality to it," Taylor said.

"What are you going to do if there is pressure on appraisers?"

" How are you going to penalize someone who puts that pressure on appraisers?"

"Who's going to do it?"

"Who's going to enforce it?"

"They need to have that or it won't work."

"Media coverage of the economy lags, study finds - Study: News coverage of economic downturn lags behind conditions and public interest"

By KRISTEN A. LEE, Associated Press

Last updated: 12:22 a.m., Monday, August 18, 2008

NEW YORK -- Media coverage of the economic downturn in the U.S. has lagged behind both economic activity and public interest, according to a study being released Monday by a Washington, D.C.-based research group.

The Project for Excellence in Journalism analyzed more than 5,000 economic stories in 2007 and the first half of 2008.

The stories, by 48 different news outlets, were delivered by cable news channels, network television, radio, newspapers and the Internet.

The study found that reliance on government data to track the economy is leading to scattershot coverage that, at times, lags months behind actual economic conditions.

"We can see little flashpoints in gas prices or a spike in joblessness but getting the whole picture is extremely difficult, in part because we're depending on government collected data, which could often be three months later," said Project Director Tom Rosenstiel.

At times, this has meant that reporters were writing about weakening economic trends at the very moment that conditions were starting to improve or vice versa.

Meanwhile, various media have focused on different aspects of the economy at different times.

Television coverage has tended to focus on gas prices, while newspapers have leaned toward banking and housing stories.

As a result, it is difficult for the casual news consumer to understand the story of the economy, Rosenstiel said.

"Is it a housing story?"

"Is it a gasoline prices story?"

"Is it an inflation story?"

The study also found that Americans' concern about the economy has far surpassed the media's focus on the topic.

The economy has been the number 2 story of 2008 so far -- ahead of the war in Iraq.

But media coverage of the presidential race has outstripped economic coverage by a five-to-one margin, although the economy has ranked as Americans' top concern.

There are no easy ways to wean journalists from depending on government statistics, Rosenstiel said.

"We need to create other listening posts than the Treasury Department and the Bureau of Labor Statistics," he said.

"Overall, this is a hard story for journalists to tell because it isn't an event, it isn't a person," Rosenstiel said.

"And yet, where they can get a handle on it, it's a story that people are eager to hear."

"Washington offers no relief for savers - Assailed by low savings rates and falling shares, savers find no relief from Washington"

By JEANNINE AVERSA, Associated Press

Last updated: 1:12 p.m., Monday, August 18, 2008

WASHINGTON -- Two giant mortgage companies get into hot water over risky investments.

The government steps in to throw them a lifeline should they need it.

Hundreds of thousands of Americans buy homes more expensive than they can afford.

Congress approves a rescue package.

Troubles erupt at a Wall Street investment firm that made bad bets on mortgage investments.

The Federal Reserve steps in and provides financial backing for the company's takeover.

Meanwhile, tens of millions of people pay their mortgages on time, don't max out their credit cards and put money into retirement funds.

They may even save a little extra on the side.

In return, they get rates on their savings that don't even keep up with inflation.

They also are witnessing the horror of their nest eggs shrinking as the value of their homes plummets and the stock market tumbles.

Washington policymakers seem more focused on rescuing those who behave badly by putting at risk taxpayers who've played by the rules and shunned the get-rich-quick schemes of Wall Street croupiers.

If the government can toss a lifeline to troubled mortgage underwriters Fannie Mae and Freddie Mac, they why won't they do something for Americans who save their money?

Why aren't the nation's savers storming the Federal Reserve or the Treasury Department or the halls of Congress demanding that something be done for them?

"Perhaps there is a mentality that you can't beat city hall," ponders financial adviser and author Ric Edelman.

Or, maybe it's just that the mentality of people who are savers also helps make them flexible enough to roll with the punches.

"I'm not a crybaby about what goes on in the world," says Cathy Tozzi, 70, a retired school finance director.

The elderly -- who are no longer working and are living off their income from savings and other investments -- are getting walloped by the current economic hard times.

"People like my mom."

"You expect them to be upset."

"People who are doing a lot of saving now versus people who are done saving are two very different groups," said John Huizinga, professor of economics at the University of Chicago's Graduate School of Business.

Tozzi, who lives in Brooklyn, N.Y. has cut back.

"I shop at the 99 cent stores."

"There are ways of saving money."

Even so, she worries about inflation "eating into my savings."

People who grew up during the hardships of the Great Depression are from a generation that was more frugal and knew how to save.

To them, debt was a dirty word.

"They grew up with the mentality that you make the best of what is handed to you."

"They don't worry they won't make it to Rome or Paris this year."

"They will settle for a car trip," says Alan Hilfer, director psychology at Maimonides Medical Center in Brooklyn, N.Y.

The average rate on a one-year CD these days is around 2.3 percent, according to Bankrate.com.

However, inflation has been rising closer to 5 percent over the past year, so savers are seeing their returns wiped out.

"Savings are taking it on the chin," says Greg McBride, senior financial analyst at Bankrate.com.

"The Fed's rate cuts geared to aiding ailing homeowners with adjustable-rate mortgages have come at the expense of savers and retirees dependent on fixed income," he said.

"For the past 12 months, there has been a double whammy for savers as interest rates have fallen and inflation has increased."

The average rate on a savings account is a rock bottom 0.37 percent, Bankrate says.

That's even worse than the 0.46 percent rate for the same time last year.

David Middleton and others are so mad about the situation in Washington that they got together and formed the grassroots group, Fed Up USA.

The group -- whose members number around 40 -- have protested in Washington and elsewhere against "federal financial irresponsibility."

Middleton, 32, who once worked in the information-technology field and is now self employed, says he was spurred to put on an "activist hat" earlier this year.

That's when the Fed provided a loan of $28.82 billion as part of JPMorgan's takeover of the ailing Bear Stearns.

"I was outraged."

"These companies make their decisions and their bets and they should be responsible for that."

"They should not be bailed out on the backs of the taxpayers," he said.

He was equally aghast at the sweeping housing-rescue package approved by Congress and signed into law by President Bush last month.

The package provides cheaper mortgages to struggling homeowners and lets the government lend money to Fannie Mae and Freddie Mac or buy their stock should they need it.

Mike Shedlock, who writes the popular blog Mish's Global Trend Analysis, urged his readers to contact their elected officials in Washington to vote against the Fannie and Freddie aid package.

Some people didn't think it would make a difference in the outcome but they wrote protest letters anyway, he says.

"People are getting disgusted," says Shedlock.

At the same time, he acknowledged trying to motivate people to rise up is tough.

Shedlock frets that the United States is "being run into the ground in debt" by Washington.

Washington policymakers -- in Congress, the Bush administration and at the Fed -- should hold banks, investment firms and other involved in the nation's financial debacles accountable for their actions, Middleton said.

And, policymakers should bolster their oversight and provide more information to the public.

Middleton said he stakes out evening church events to pass out fliers.

"We really want to get the message out to people," he said.

Getting the word out, may be easier than getting Washington to come around.

Middleton has written letters to Fed Chairman Ben Bernanke and his lawmakers in Washington.

"I got back the standard form letter ... thank you for your comment," he says.

Bernanke and Treasury Secretary Henry Paulson have said the rescues were necessary to avert a broader financial meltdown.

And, the Fed's rate cuts -- while providing some relief to distressed homeowners with adjustable-rate mortgages -- were aimed at shoring up the wobbly economy.

That benefits everyone -- savers and the profligate alike.

Older savers may feel that keeping their hard-earned money mostly in a bank is the safest way to go, especially as they watch some of the big nosedives on Wall Street.

Yet, the recent collapse of IndyMac and some other banks is increasing anxiety about that, experts say.

"Who is supposed to be more on top of financial things than a bank?"

"But banks made all these terrible mortgage loans and caused these disruptions, and we are dependent on them for our (financial) security," Hilfer says.

"'Liar loans' threaten to prolong mortgage crisis - 'Liar loans' threaten to prolong mortgage crisis for 2 more years in some parts of US"

By ALAN ZIBEL, Associated Press

Last updated: 5:52 p.m., Monday, August 18, 2008

In the mortgage industry, they are called "liar loans" -- mortgages approved without requiring proof of the borrower's income or assets.

The worst of them earn the nickname "ninja loans," short for "no income, no job, and (no) assets."

The nation's struggling housing market, already awash in subprime foreclosures, is now getting hit with a second wave of losses as homeowners with liar loans default in record numbers.

In some parts of the country, the loans are threatening to drag out the mortgage crisis for another two years.

"Those loans are going to perform very badly," said Thomas Lawler, a Virginia housing economist.

"They're heavily concentrated in states where home prices are plummeting" such as California, Florida, Nevada and Arizona.

Many homeowners with liar loans are stuck.

They can't refinance because housing prices in those markets have nose-dived, and lenders are now demanding full documentation of income and assets.

Losses on liar loans could total $100 billion, according to Moody's Economy.com.

That's on top of the $400 billion in expected losses from subprime loans.

Fannie Mae and Freddie Mac, the nation's largest buyers and backers of mortgages, lost a combined $3.1 billion between April and June.

Half of their credit losses came from sour liar loans, which are officially called Alternative-A loans (Alt-A for short) because they are seen as a step below A-credit, or prime, borrowers.

Many of the lenders that specialized in such loans are now defunct -- banks such as American Home Mortgage, Bear Stearns and IndyMac Bank.

More lenders may follow.

The mortgage bankers and brokers who survived were more cautious, but acknowledge they too were swept up in the housing hysteria to some extent.

"Everybody drank the Kool-Aid" said David Zugheri, co-founder of Texas-based lender First Houston Mortgage.

They knew if they didn't give the borrower the loan they wanted, the borrower "could go down the street and get that loan somewhere else."

The loans were also immensely profitable for the mortgage industry because they carried higher fees and higher interest rates.

A broker who signed up a borrower for a liar loan could reap as much as $15,000 in fees for a $300,000 loan.

Traditional lending is far less lucrative, netting brokers around $2,000 to $4,000 in fees for a fixed-rate loan.

During the housing boom, liar loans were especially popular among investors seeking to flip properties quickly.

They were also commonly paired with "interest only" features that allowed borrowers to pay just the interest on the debt and none of the principal for the first several years.

Even riskier were "pick-a-payment" or option ARM loans -- adjustable-rate mortgages that gave borrowers the choice to defer some of their interest payments and add them to the principal.

While some borrowers were aware of their risky features and used them to gamble on their home's value or pull out money for vacations, others like Salvatore Fucile insist they were victims of predatory lending.

Fucile, who is 82, and his wife, Clara, wound up in an option ARM from IndyMac after consolidating two mortgages on their suburban Philadelphia home.

Fucile was attracted by the low monthly payments, but says the mortgage broker who signed him up for the loan didn't tell him the principal balance could increase.

It has risen about $24,000 to $276,000.

"He put me in a bad position," said Fucile, who fears he will be forced into foreclosure.

"He misled me."

IndyMac was taken over by the Federal Deposit Insurance Corp. last month.

FDIC spokesman David Barr declined to discuss the Fuciles' case, but said the agency has temporarily frozen all IndyMac foreclosures and is working on a broad plan to modify mortgages held by the Pasadena, Calif-based bank.

The low monthly payments of liar loans helped many home buyers afford to purchase in areas of the country where prices were skyrocketing.

But they also helped drive up prices by allowing people to buy more than they could truly afford.

Case in point: about 40 percent of loans made in California and Nevada in 2005 and 2006 were either interest-only or option ARMs, according to First American CoreLogic.

"It was pretty evident that the only thing that was supporting these loans was higher home prices," said Tom LaMalfa, managing director at Wholesale Access, a Columbia, Md.-based mortgage research firm.

Now that prices have fallen, almost 13 percent of borrowers with liar loans were at least two months behind on their payments in May, nearly four times higher than a year earlier, according to First American CoreLogic.

Countrywide Financial Corp., now part of Bank of America Corp., was one of the top providers of liar loans.

The company is now is paying the price.

More than 12 percent of Countrywide's $25.4 billion in pick-a-payment loans are in default, and 83 percent had little or no documentation, according to a Securities and Exchange Commission filing last week.

Critics say Fannie Mae and Freddie Mac, which bought or guaranteed liar loans from lenders including Countrywide and IndyMac, should have stuck with traditional 30-year, fixed-rate mortgages.

"I personally think that they ventured beyond their mission," said Richard Smith, a mortgage broker in Chattanooga, Tenn.

Because of their decision to back shakier loans, he said, "the home-buying public is going to have to pay."

Fannie and Freddie entered the market for risky loans just as they emerged from accounting scandals.

At the time, Wall Street giants such as Bear Stearns and Lehman Brothers Holdings Inc. were backing a growing share of ever-riskier loans, and both government-sponsored companies felt pressure to compete.

Freddie Mac wanted "to stay competitive in the market and take steps to preserve market share," spokesman Michael Cosgrove said.

Fannie Mae increased its purchases of liar mortgages "at the requests of many of our customers," according to spokesman Brian Faith.

Both companies also were able to use subprime and liar-loan investments to meet government-set affordable housing goals.

Now Fannie, Freddie and other mortgage investors are reviewing defaulted loans to see if lenders committed fraud.

If they find enough evidence, they could force lenders to assume responsibility for losses.

But it's unclear how much money they might recover, especially from lenders that have gone under or been seized by the government.

That is the understatement of the year. It's gotten very hard to keep explaining to my son why we save and why we don't borrow...

I wonder if they are going to grow up entirely different than we did - or are they already?

I'd a rather been young and just starting out when I did rather than now ...

And I sure would not want to be in debt right now ....

And that's a fact ...

And so ...

"Fannie, Freddie fall on renewed bailout fears - Mortgage finance companies Fannie Mae, Freddie Mac sink on fears of government takeover"

By ALAN ZIBEL, Associated Press

Last updated: 5:42 p.m., Monday, August 18, 2008

WASHINGTON -- Whether or not the government is actually on the verge of taking over mortgage finance companies Fannie Mae and Freddie Mac, investor fears that a bailout is imminent could turn such a worst-case scenario into reality.

Amid renewed concern that shareholders will wind up with nothing if the government intervenes to bail out the troubled companies, shares in the mortgage finance giants tumbled Monday to the lowest levels in nearly two decades.

Fannie Mae's stock slid more than 22 percent, or $1.76, to $6.15 on Monday, while shares of Freddie Mac fell 25 percent, or $1.46, to $4.39.

"Some of these things become self-fulfilling prophecies because market confidence is so fragile," said Karen Shaw Petrou, managing partner of consulting firm Federal Financial Analytics in Washington.

However, a more likely scenario, analysts say, would stop short of nationalizing the two companies and would take the form of emergency loans to Fannie and Freddie from the Federal Reserve or Treasury Department.

The Treasury Department late last month gained the authority to boost Fannie and Freddie through an investment or a loan should the companies need their finances propped up due to soaring losses from bad mortgages.

The new government power, enacted by Congress after the companies shares plunged to levels not seen since the early 1990s, for several weeks quieted worries that the companies could collapse.

But investors were spooked once again, after a Barron's magazine article over the weekend, citing an anonymous Bush administration source, reported that the government is pressing the companies to raise more money to guard against losses but doesn't expect the companies to succeed.

The Barron's report said the government is likely to buy preferred stock in the companies, wiping out common shareholders.

Treasury Secretary Henry Paulson, who had spent the last week in Beijing attending the Olympics with his family, was back at work on Monday and aides said he was monitoring financial market developments as he always does.

Jennifer Zuccarelli, a Treasury spokeswoman, said the government has "no intention" of using its authority to invest in Fannie and Freddie and declined further comment.

Denials from government officials have not been soothing investors lately.

"You don't pass that sort of legislation unless there's some sort of intent to use it," said Barry Ritholtz, chief executive of FusionIQ, an asset management and research firm in New York.

The housing slump and continuing distress in the mortgage markets have withered the profit margins of Fannie and Freddie, the government-sponsored companies that together hold or guarantee nearly half of all U.S. home mortgages.

In response to last month's steep slide in Fannie and Freddie's stock, the Securities and Exchange Commission banned some forms of trading that enable investors to bet that a stock's price will fall.

That order, intended to prevent stock manipulation, expired early last week.

Freddie Mac, in particular, has investors and analysts fearful.

The McLean-Va.-based company earlier this year promised to raise $5.5 billion to shore up its finances but has so far not done so.

The company's sinking share price makes doing so less attractive because the value of existing shareholders' stake would be diluted.

"We're certainly poised and ready when market conditions are appropriate," Chief Financial Officer Buddy Piszel said in a recent conference call.

"But there is no need for us to rush."

Government officials are likely seeking to avoid a full-fledged takeover of the companies, said Bert Ely, an Alexandria, Va.-based banking industry consultant and a longtime critic of Fannie and Freddie.

More likely, he said are less-sweeping moves to calm rattled debt investors.

Those include having the Federal Reserve or Treasury Department lend money to the companies.

A government purchase of shares, he said, is "the step of last resort."

The Federal Reserve declined to comment on whether Fannie Mae or Freddie Mac might have tapped its emergency lending facility.

The Fed in mid July said the mortgage giants would be permitted to draw overnight loans directly from the Fed if they needed to shore up their financial positions.

There have been no indications, however, in weekly reports from the Fed that the companies have tapped such funds.

Investment banks also have been allowed to borrow from the Fed's emergency lending program since mid-March.

The Fed's decision to extend this privilege, which for years was open only to commercial banks, represented the broadest expansion of its lending powers since the 1930s.

The identity of borrowers tapping the Fed's facility is not public.

Washington-based Fannie Mae and McLean, Va.-based Freddie Mac, are the nation's largest buyers and backers of mortgages.

But they lost a combined $3.1 billion between April and June.

Half of their credit losses came from so-called Alt-A loans, which were made to borrowers with solid credit but little proof of their incomes, or small or no down payments.

Brian Faith, a Fannie Mae spokesman, said in an e-mailed statement that the company "continues to exceed our regulatory capital requirements ..."

"We continue to provide stability and liquidity to the housing market and we will continue to play a key role as the market recovers from this cycle."

Freddie Mac spokeswoman Sharon McHale said the Barron's article "significantly overstates Freddie Mac's financial situation" and said the company is "financially sound."

------

AP Business Writers Martin Crutsinger and Jeannine Aversa contributed to this report from Washington.

AND AS THE COST TO US TAXPAYERS OF YEARS OF MISFEASANCE, MALFEASANCE AND GROS NEGLIGENCE BY PUBLIC OFFICIALS IN NEW YORK STATE AND RENSSELAER COUNTY CONTINUES TO MOUNT UP, WE HAVE ...

"State, federal officials to survey flood damage - Rensselaer County estimates cost at $21.75 million"

By KENNETH C. CROWE II, Staff writer, Albany, New York Times Union

First published: Tuesday, August 19, 2008

RENSSELAER -- Federal and state emergency management officials will assess the damage caused by the Aug. 11 floods during an inspection Wednesday, state and county officials said Monday.

Rensselaer County submitted to the State Emergency Management Office damage estimates of $21.75 million.

Of that amount, 93 percent -- $20.29 million -- occurred in the city of Rensselaer after the Quackenderry Creek overflowed its banks.

Based on the information provided by Rensselaer County, SEMO formally requested the Federal Emergency Management Agency to perform a Joint Preliminary Damage Assessment, County Executive Kathleen Jimino said.

"The state and federal governments will be working with our local municipalities to survey the damage to see what is eligible for federal assistance through existing federal programs," Jimino said.

State and federal officials will work with local representatives to ascertain the extent of the damage and then make recommendations on obtaining financial help, said SEMO spokesman Dennis Michalski.

"The state's job is to get any dollars we can" from FEMA, Michalski said.

Mayor Dan Dwyer said, "We need federal help. We need state help."

The city lifted its state of emergency at 5 p.m. Monday.

The Rensselaer Little League, which suffered more than $100,000 of damage to its Fedelli Field and facilities behind the city public works garage on Willow Street, received a $5,000 check from Hannaford Supermarkets on Monday.

"We wanted to do something to help the local residents," said Anthony Bottillo, manager of the Hannaford West Sand Lake store.

"It doesn't take a grand slam to win the battle," Bottillo said.

"All we want is businesses and organizations to step up to the plate."

Little League officials said they've also received donations and offers of assistance from individuals.

Anyone seeking to assist with tools, equipment or labor is asked to contact league President Thomas Burgess at 488-9922.

The city will hold a fundraiser on Aug. 28 at Casey's Banquet House, 301 Washington Ave., to help residents whose homes were damaged in the flooding, Dwyer said.

The city also has established a fund to assist residents.

Donations may be made through Key Bank.

C. Crowe II can be reached at 581-8438 or by e-mail at kcrowe@timesunion.com.

Well it looks like consumer spending is sliding despite the gummint rebate checks...
and the next shoe to drop should be employment...hold on...if it starts before Winter...
maybe it will stabilize by Summer (09).


http://www.marketwatch.com/news/story/reta...&dist=msr_2

RETAIL STOCKS
Retailers retreat, led by Saks, Staples

By Matt Andrejczak, MarketWatch
Last update: 10:15 a.m. EDT Aug. 19, 2008

SAN FRANCISCO (MarketWatch) -- Saks and Staples led a retreat for retailers in early action Tuesday amid the final wave of earnings reports.

Overall the S&P Retail Index ($RLX:$RLX,) dropped 6 points, or 1%, to 388 points.

Shares of Saks (SKS:SKS,) declined 10%. The luxury retailer reported a per-share loss of 23 cents, wider than Wall Street expected, and warned its sales would fall in the last six months of the year.

Staples (SPLS:SPLS,) slid 5%. The office supplies company said second-quarter sales were soft due to weakness in the North America.

Target Corp. (TGT:TGT,) lost more than 1%. The No. 2 U.S. discount retailer said its second-quarter profit fell more than 7.6% from a year ago as more consumers were delinquent on credit-card payments and shoppers pared back on apparel purchases.

Target's per-share profit of 82 cents beat Wall Street's downbeat projection. Analysts had lowered their targets after Target issued a profit warning in May.

Home Depot (HD:HD,) lost 0.7%. The No. 1 U.S. home improvement chain said second-quarter profit fell 24% from the year-earlier quarter as it struggled with the collapse in the U.S. housing market that hurt sales of big-ticket items.
The company's results topped expectations and the company backed its 2008 outlook.
Matt Andrejczak is a reporter for MarketWatch in San Francisco.

------------------------

Shall we pray...for job security?

You've been preparing for awhile, just as our family has. We're going to be okay one way or the other even with cutting back.

I'm more concerned at the moment about this upcoming Winter that's supposed to be extra cold in the Mid-West and North East. With heating costs rising 20-40% is there anyone or any government department making sure that that the people of the U.S. don't freeze to death in their homes?

I highly doubt it ....

Is there anyone in gummint that even knows we are out here, if we don't send them money to buy their attention our way?

And who would trust the gummint in America to look out for them in the first place?

Not me, anyway ...

The VA has solved the problem of providing for health care for the IRAQINAM veterans by squeezing Viet Nam veterans like me out of the system ....

The promises of this morning are just smoke by this afternoon with them ...

And so ...

AH, YES, IH ....

THAT IS WHAT I LIKE ABOUT YOU ....

YOU'RE AN ETERNAL OPTIMIST ....

I'M LOOKING AT THIS LIKE AN AVALANCHE THAT IS JUST STARTING, MYSELF ....

MONEY IS GOING BACK OUT OF THE "SYSTEM" IN GOBS, LIKE THIS $600 MILLION THAT NYS GOVERNOR DAVID PATERSON NOW WANTS TO PULL BACK OUT ....

IT'S LIKE AN EIGHT-ENGINE PLANE LOSING ONE ENGINE AT A TIME ...

BY THE TIME YOU ARE DOWN TO ONE, YOU STILL HAVE ENOUGH ENGINE POWER LEFT TO MAKE IT TO THE CRASH SITE ....

BUT THAT IS ABOUT IT ...

And so ...

"Paterson: Fiscal crisis ranks with Great Depression - Governor goes on radio shows to gather support for plan to cut budget by $600M"

By RICK KARLIN, Staff writer, Albany, New York Times Union

Last updated: 10:58 a.m., Tuesday, August 19, 2008

ALBANY -- The state's looming fiscal crisis may turn out be the worst since the Great Depression, Gov. David Paterson suggested during an interview on Talk-1300 radio this morning.

"We may be as challenged as we have been since the Great Depression,'' Paterson said, repeating his fear that state revenues are about to "fall off the table'' due to Wall Street's woes.

Paterson went on radio stations here and in New York City this morning to gather support for his call for $600 million in budget cuts.

He's called lawmakers back for a special session today in order to try and push those cuts through.

AS I WAS SAYING ...

"Albany company expects hit from Eclipse cutback"

By ERIC ANDERSON , Deputy business editor, Albany, New York Times Union

Last updated: 10:23 a.m., Tuesday, August 19, 2008

Albany International Corp. said today it expects a short-term hit from Eclipse Aviation's decision to scale back production of its six-passenger very-light jets, reducing the need for the composite materials provided by Albany Engineered Composites, a fast-growing unit of Menands-based Albany International.

WHEN A BIG TREE IN THE FOREST IS CUT AND STARTS TO FALL ....

AT FIRST, IT SEEMS TO BE BARELY MOVING ....

BUT THEN ....

And so ...

"Housing starts dip to lowest level since March '91 - Housing starts in July drop to lowest level in more than 17 years"

By CHRISTOPHER S. RUGABER, Associated Press

Last updated: 9:22 a.m., Tuesday, August 19, 2008

WASHINGTON -- Construction of homes and apartments fell in July to the lowest level in more than 17 years, the government reported Tuesday.

The Commerce Department said that builders broke ground on 965,000 housing units on an annualized basis.

That was down from a pace of 1.08 million in June and the weakest showing since March 1991.

However, July's performance was better than analysts expected.

Wall Street economists forecast that housing starts would drop to a pace of 950,000.

Still, the latest housing figures continue to show a badly battered housing market, one of the biggest problems plaguing the already shaky national economy.

The report showed that construction of single-family homes in July fell by 2.9 percent from the previous month to a pace of 641,000.

That was the lowest since January 1991, when the economy also was in distress.

New home construction last month was down a sharp 39.2 percent compared with July 2007, illustrating how much ground the housing market has lost in the past year.

Construction of apartments and other multifamily dwellings also fell sharply in July, after a large jump in the previous month due to a change in New York City's building codes.

That change, which went into effect July 1, gave a rare lift to overall housing construction in June.

Housing permits in July fell to a rate of 937,000, a 17.7 percent drop from June, but still above analysts' expectations of 925,000.

Permits are considered a reliable sign of future activity.

Homebuilders are hoping the housing rescue package approved by Congress last month will boost the dismal real estate sector.

The law includes a temporary $7,500 tax credit for first-time homebuyers that essentially works out to a 15-year, interest-free loan.

The National Association of Home Builders/Wells Fargo housing market index, released Monday, remained at a record low of 16 in August for the second consecutive month.

Readings below 50 indicate negative sentiment about the market.

But one measure of longer-term sentiment improved slightly: a measure of builders' sales expectations in six months rose two points to 25.

Still, homebuilder Toll Brothers Inc. reported dismal quarterly results last week when its revenue fell 34 percent and its order backlog plunged 52 percent.

Shares of several homebuilders, including Toll Brothers, D.R. Horton Inc. and Pulte Homes Inc., dropped Monday, partly due to renewed fears about the financial health of mortgage giants Fannie Mae and Freddie Mac.

AND SPEAKING OF "TRICKLE-DOWN" IN THE AMERICAN ECONOMY....

"Saks reports wider 2Q loss, shares tumble - Saks reports larger 2Q loss as its affluent shoppers feel pinched by challenging economy"

Associated Press

Last updated: 9:52 a.m., Tuesday, August 19, 2008

NEW YORK -- Luxury goods retailer Saks Inc. reported a wider-than-expected loss for the second quarter on Tuesday and delivered a downbeat forecast for the year as its affluent customers cut back on apparel amid a slowing economy.

Shares of the operator of the Saks Fifth Avenue chain tumbled more than 9 percent in morning trading, falling $1.05 to $10.17.

The New York-based retailer said it lost $31.7 million, or 23 cents per share, for the three-month period ended Aug. 2.

That compares with a net loss of $24.6 million, or 17 cents per share, in the year-ago period.

Revenue fell 3.5 percent to $669.2 million from $694.1 million a year ago.

Thomson Reuters says that analysts it surveyed expected a smaller loss of 19 cents a share on higher revenue of $679.2 million.

Saks said it expects its 2008 operating margins, excluding certain items, to decline from 2007 levels.

It also expects same-store sales, or sales at stores open at least a year, to be anywhere from unchanged to down by low-single digit percentages for the second half of the year.

Same-store sales are considered a key indicator of a retailer's health.

"...we know we are continuing to face the headwinds of the economic and retail environment," Stephen I. Sadove, Saks' chairman and chief executive, said in a statment.

"Home Depot's 2Q profit drops 24 percent - Home Depot says 2nd-quarter profit falls 24 percent, expects similar full-year drop"

By ASHLEY M. HEHER, Associated Press

Last updated: 11:52 a.m., Tuesday, August 19, 2008

CHICAGO -- The Home Depot Inc. said Tuesday that its second-quarter profit sank 24 percent and reiterated its downbeat outlook for the year amid a weak housing market that shows no signs of recovery.

For the three-months ending Aug. 3, the nation's largest home improvement chain said its net income fell to $1.2 billion, or 71 cents per share.

That's down from $1.59 billion, or 81 cents per share, during the same period last year.

Meanwhile, revenue slid 5.4 percent to $21 billion, down from $22.2 billion last year.

And same-store sales, an important retail industry metric of sales at stores opened at least a year, fell 7.9 percent.

The results handily beat expectations as do-it-yourselfers began to take their hammers and paint brushes out of retirement.

Analysts surveyed by Thomson Reuters had projected earnings of 61 cents per share on revenue of $20.58 billion.

Goldman Sachs analyst Matthew Fassler told investors in a research note that the better-than-expected results indicate a "reprieve" from an earlier slowdown by shoppers who postponed projects as the nation's housing market slows.

"These results confirm that the DIY market received a reprieve from some combination of better weather, fiscal stimulus, and a floor in demand," he wrote.

Still, the results paint a grim picture of the cost-conscious American consumer, and Home Depot shares fell 56 cents, or 2 percent, to $26.40 in midday trading.

The company said comparable sales were negative for each of the company's selling departments and the average spending per customer in a visit fell 1.2 percent to $57.58.

But a bright spot was basic repair jobs that are shoppers are undertaking, even as bigger-ticket purchases continue to fall, executives said.

"Customers are spending to maintain their homes," said Craig Menear, Home Depot's executive vice president of merchandising.

Amid so much economic uncertainty, Home Depot said it expects earnings per share from continuing operations to decline by 24 percent for the year.

The company had said in May that it felt "more comfortable" that it would meet the low end of its full-year guidance for a drop of 19 percent to 24 percent in earnings per share, but did not elaborate.

The earnings per-share guidance does not include the company's charge related to the closing of 15 stores and its reduction of 50 stores from its future expansion plan, the company said.

Home Depot also projects that full-year sales should decline by 5 percent.

"As we look forward into the second half of the year, we see continued pressure on our markets," Chief Executive Frank Blake told investors during a conference call.

Home Depot's results come on the heels of better-than-expected second-quarter results from competitor Lowe's Cos. Inc.

The Mooresville, N.C.-based company said second-quarter profit fell nearly 8 percent, but managed to top Wall Street expectations.

The company offered a weaker-than-expected outlook for the third quarter, but raised its guidance for the full year.

AND AS PROFITS CONTINUE TO DECLINE ....

THE COST OF DOING BUSINESS IS ON THE RISE ...

And so ...

"TVA directors to consider big rate increase - TVA directors to consider hike in quarterly charge, possibly base electricity rate increase"

Associated Press

Last updated: 1:13 p.m., Tuesday, August 19, 2008

KNOXVILLE, Tenn. -- Tennessee Valley Authority directors are considering budget proposals that could hike electric rates sharply for millions of consumers across the agency's seven-state region.

TVA officials said two weeks ago that a quarterly fuel adjustment charge of 10 to 20 percent, which would take effect Oct. 1, will be on the TVA board's agenda Wednesday in Knoxville.

It could be TVA's largest single hike in decades.

But directors may be weighing an increase in TVA's base rates as well for fiscal 2009.

TVA spokesman Gil Francis said both are on the agenda, "but no decision has yet been made."

The combined impact could boost TVA electric rates in the next year by nearly $2 billion and raise the average homeowner's electric bill by more than $15 a month.

TVA's last general rate increase was a 7 percent jump that took effect April 1.

Meanwhile, the agency has lowered its fluctuating quarterly charge for fuel only once since it adopted the approach in 2007.

In recent days, agency officials have been briefing major industrial customers and TVA's 159 power distributors serving some 8.8 million consumers in Tennessee and parts of Mississippi, Alabama, Kentucky, Georgia, North Carolina and Virginia.

The Chattanooga Times Free Press reports that TVA officials estimate the quarterly fuel allowance will boost rates about 17 percent this fall for most customers.

The increase is in response to rising coal prices, which have more than doubled, and natural gas prices, which are up by more than 60 percent this year.

About 60 percent of TVA's electricity comes from its 11 coal-fired power plants.

Natural gas supplies small turbine plants that meet peak power demands on the system.

But even a fuel adjustment charge may not be enough.

TVA is spending more for fuel inventory and for hedge contracts to limit future fuel-rate increases, and those costs are not included in the quarterly fuel adjustments, TVA officials reportedly told their major customers.

In addition, a three-year drought has cut sharply into TVA's ability to generate cheap hydroelectric power from its 29 generating dams.

TVA is spending $3.3 million a day to buy power from other producers.

The fuel adjustment charge "is going to be fairly substantial," said Jack Simmons, president of the Tennessee Valley Public Power Association in Chattanooga, which represents TVA distributors.

"The jury is still out if there is also going to be an increase in base rates or not."

But John Van Mol, spokesman for the Nashville-based Tennessee Valley Industrial Committee, said it was clear that "the crunch on TVA and its customers is very, very tough."

------

TVA: http://www.tva.gov

"HELP!"

"HELP!"

"I SHOPPED TIL I DROPPED!"

"AND NOW, I CAN'T GET BACK UP AGAIN!"

and so ...

"Target's 2Q profit declines 7.6 percent - Target says 2nd-quarter profit drops 7.6 percent, offers cautious outlook"

By ANNE D'INNOCENZIO, Associated Press

Last updated: 1:32 p.m., Tuesday, August 19, 2008

NEW YORK -- Target Corp. posted a 7.6 percent drop in second-quarter profit Tuesday and offered a cautious outlook for the third quarter as its customers focused on necessities like milk and paper towels and had trouble making their monthly credit card payments.

The Minneapolis-based retailer also said it had seen an erratic start to the back-to-school season and that it would open new stores at a slower pace in fiscal 2009 amid the uncertain economy.

Target said it earned $634 million, or 82 cents per share, for the three-month period ended Aug. 2, down from $686 million, or 81 cents per share, a year earlier.

Sales grew 5.7 percent to $15 billion from $14.2 billion.

Same-store sales, or sales at stores opened at least a year, slipped 0.4 percent.

Same-store sales are considered a key indicator of a retailer's health.

Analysts surveyed by Thomson Reuters had expected a profit of 76 cents per share on revenue of $15.46 billion.

Target shares slipped more than 1 percent, or 64 cents, to $49.41 in midday trading.

The company had for several years outperformed its rival Wal-Mart Stores Inc., the world's largest retailer, but has stumbled in recent months largely due to its heavier emphasis on items like clothing and home furnishings, which accounts for 40 percent of its business.

"The customer is very cash-strapped right now and in some ways, our greatest strength (has) become somewhat of a challenge," Target's President and Chief Executive Gregg Steinhafel told investors during a conference call.

"During these tough times, some of our consumers don't want to be tempted as much as they have in the past."

Target said that gross profit margin rates fell moderately from last year, because sales grew faster in low-margin categories -- which generally include food and essentials like paper goods.

In its credit card operation, Target said it earned $74 million, down 65 percent from $213 million a year earlier.

The drop was due to Target's reduced investment in the portfolio and to a higher bad debt expense resulting from higher write-offs in the current period and additions to the reserve for the future.

In May, Target closed its transaction to sell 47 percent of its credit card receivables to JPMorgan Chase for $3.6 billion.

Chief Financial Officer Doug Scovanner told investors that while the company is comfortable with meeting full-year Wall Street guidance, the third quarter is presenting a challenge amid erratic sales patterns in August.

For August, Target estimates same-store sales declines from 1 percent to 3 percent.

Scovanner told analysts that sales were weak in the first 10 days of the month but have since improved.

For the third quarter, it expects same-store sales to be unchanged from the year-ago period.

Analysts surveyed by Thomson Reuters expects Target to earn $3.42 per share for the full year and 56 cents per share for the third quarter.

Target also told investors that the company plans to open 70 to 75 stores in 2009, down from a pace of 90 to 95 stores in the current fiscal year.

Scovanner said that the slower pace reflects a soft economic environment as well as challenges among its outside real estate development partners who have run into hurdles in obtaining funding or filling in space in some mall projects that were expected to open in 2009.

Wal-Mart reported its own results Thursday, raising its full-year earnings forecast after second-quarter profit rose more than expected, helped by tight inventory controls and a renewed focus on low prices.

But the company predicted slower same-store sales growth in the U.S. for the current quarter, as the benefits of the federal stimulus checks dry up and customers find it more difficult to stretch their paycheck to the next payday.

THE BUSHCO PRIME BORROWED $92 BILLION ON OUR FEDERAL CREDIT CARD ....

AND HE SHOVED THAT $92 BILLION THROUGH US AND INTO THE ECONOMY ....

AND I WOULD SAY THAT WE ARE NOW WORSE OFF THAN WE WERE BEFORE ...

AND THAT $92 BILLION APPEARS TO HAVE LARGELY GONE UP IN SMOKE ...

NOT TO BE SEEN AGAIN OVER HERE, ANYWAY ...

And so ...

I HOPE THAT THIS IS THE LAST TIME IN MY LIFETIME THAT AMERICA PUTS AN IDIOT WITH AN MBA LIKE GEORGE W. BUSH IN THE WASHINGTON WHITE HOUSE ....

BUT IT IS NEVER WISE TO OVERESTIMATE THE JUDGMENT OF THE AMERICAN PEOPLE WHO PRODUCED THIS IDIOT AS OUR PRESIDENT IN THE FIRST PLACE, NOT ONCE BUT TWICE ......

And so ...

"Wholesale prices rising at fastest pace since 1981 - Wholesale inflation surged in July; economists say peak may be near but prices to drop slowly"

By MARTIN CRUTSINGER, Associated Press

Last updated: 5:42 p.m., Tuesday, August 19, 2008

WASHINGTON -- Wholesale inflation soared in July, leaving prices rising at the fastest pace in nearly three decades.

While recent declines in oil and other commodity prices raise hopes inflation may have peaked, some economists worry about the widespread nature of the July price surge and caution it will take more time for that pressure to ease on Wall Street and Main Street.

The Labor Department reported Tuesday that wholesale prices shot up 1.2 percent in July, pushed higher by rising costs for energy and a variety of other products from motor vehicles to plastic goods.

The increase was more than twice the 0.5 percent gain that economists expected and left prices rising over the past 12 months by 9.8 percent.

That marked the biggest annual increase since the 12 months ending in June 1981, a period when the Federal Reserve was driving interest rates to the highest levels since the Civil War in an effort to combat a decade-long bout of inflation.

Core prices, which exclude food and energy, rose 0.7 percent last month.

That increase was the biggest since November 2006 and more than triple the 0.2 percent rise in core prices that had been expected.

Elsewhere, the Commerce Department reported that construction of new homes and apartments slid to an annual rate of 965,000 units in July, a 17-year low.

Builders continued to slash production as they battled slumping sales and soaring mortgage defaults dumping more homes on an already glutted market.

Wall Street tumbled on the gloomy economic news as investors worried the worst housing slump in decades was showing no signs of a rebound and that the Federal Reserve's tool to combat the weakness -- lowering interest rates -- was unlikely to be used given the sharp jump in inflation seen last month in both wholesale and consumer prices.

The Dow Jones industrial average fell 130.84 points to close at 11,348.55 after losing 180 points on Monday.

It was the worst two-day performance for the Dow since late June.

Last week, the government reported that consumer prices had jumped by 0.8 percent in July, leaving prices over the past 12 months rising at the fastest pace since 1991.

The steep slump in housing, rising unemployment and a severe credit crisis have worked to offset $92 billion in economic stimulus payments made from April through July intended to keep the economy out of a deep recession.

Retail giants Target Corp. and Home Depot Inc. on Tuesday reported that profits sank in the second quarter.

Home Depot said it continued to have a downbeat outlook for the year as the housing market shows no signs of recovery.

The July price pressures reflected in part the surge in energy costs that pushed crude-oil and gasoline prices to record highs.

Crude-oil prices have fallen by more than $30 per barrel since then, raising hopes that inflation pressures will soon ease.

But the price spikes seen elsewhere in July prompted concerns that the prolonged surge in energy was beginning to show up more broadly throughout the economy, and that while prices may rise quickly, they tend to come back down much more slowly.

"Inflation is way too hot," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa.

"It took a long time for the surge in commodity prices to seep into the general economy so don't expect one month of commodity price declines to suddenly turn off the inflation pump."

But other economists said they believed the July inflation report could represent the worst for inflation pressures this year if -- and they concede this is a big if -- energy prices continue to decline in coming months.

"A firmer dollar, retreating commodity prices and continued economic weakness should damp inflation by the fall," said Sal Guatieri, an economist at BMO Capital Markets in Toronto, who said he looked for elevated inflation numbers at both the consumer and wholesale levels for another month before they start declining.

Economists saw a silver lining in the continued plunge in housing construction, saying it is needed to help reduce the glut of unsold properties as builders compete with foreclosed homes selling at steep price discounts.

In Crawford, Texas, where President Bush is vacationing, spokesman Tony Fratto said the big jump in July producer prices did not "reflect the recent significant fall in oil prices, which everyone would like to see continue."

The Federal Reserve is caught between a slumping economy, as reflected by the further plunge in housing construction, and the big jump in inflation pressures, which has some Fed officials lobbying for the central bank to start boosting interest rates.

The Fed, which aggressively cut interest rates from last September through April, has held rates unchanged at meetings in June and earlier this month.

Richard Fisher, president of the Fed's Dallas regional bank, dissented at both those meetings, arguing the central bank should start raising interest rates to make sure the inflation surge does not become embedded in the economy.

"We cannot afford to gamble away our credibility," Fisher said Tuesday in a speech in Colorado.

He warned that the recent burst of inflation could threaten the economy as "a lingering inflationary fever."

Rebecca Braeu, an economist at John Hancock in Boston, said that the big jump in core inflation in the wholesale price report would definitely set off alarm bells at the Fed.

But she and other analysts said they did not believe the central bank will start raising rates, especially before the November election, as long as price pressures begin to moderate in upcoming reports.

For July, wholesale energy prices jumped by 3.1 percent following a 6 percent gain in June.

That increase reflected big increases in the price of natural gas, home heating oil and liquefied petroleum gas, which offset a 0.2 percent dip in gasoline costs.

Food prices rose by 0.3 percent in July after a 1.5 percent surge in June.

Beef prices jumped by 7.4 percent, the biggest increase in nearly four years.

Milk prices shot up by 5 percent, the biggest gain in a year, while soft drink prices rose by 2.4 percent, the largest increase in four years.

Excluding energy and food, the 0.7 percent rise in core inflation reflected big gains in the prices of passenger cars and light trucks, pharmaceutical preparations and plastic products.

------

AP reporters Deb Riechmann in Crawford and Jeannine Aversa and Christopher Rugaber in Washington contributed to this report.

HEY!

LET THE BON TEMPS ROLL!

PARTY HARDY!

AND MAY WE ALWAYS LIVE IN INTERESTING TIMES!

WHY, I MIGHT JUST RUN RIGHT OUT AND BUY MYSELF A GREAT BIG MERCEDES-BENZ ....

'CAUSE MY FRIENDS THEY ALL DRIVE PORSCHES ....

AND ME, I MUST MAKE AMENDS ...

And so ...

"Large U.S. bank collapse ahead, says ex-IMF economist"

By Jan Dahinten

19 AUGUST 2008

SINGAPORE (Reuters) - The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday.

"The U.S. is not out of the woods."

"I think the financial crisis is at the halfway point, perhaps."

"I would even go further to say 'the worst is to come'," he told a financial conference.

"We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004.

"We have to see more consolidation in the financial sector before this is over," he said, when asked for early signs of an end to the crisis.

"Probably Fannie Mae and Freddie Mac -- despite what U.S. Treasury Secretary Hank Paulson said -- these giant mortgage guarantee agencies are not going to exist in their present form in a few years."

Rogoff's comments come as investors dumped shares of the largest U.S. home funding companies Fannie Mae and Freddie Mac on Monday after a newspaper report said government officials may have no choice but to effectively nationalize the U.S. housing finance titans.

A government move to recapitalize the two companies by injecting funds could wipe out existing common stock holders, the weekend Barron's story said.

Preferred shareholders and even holders of the two government-sponsored entities' $19 billion of subordinated debt would also suffer losses.

Rogoff said multi-billion dollar investments by sovereign wealth funds from Asia and the Middle East in western financial firms may not necessarily result in large profits because they had not taken into account the broader market conditions that the industry faces.

"There was this view early on in the crisis that sovereign wealth funds could save everybody".

"Investment banks did something stupid, they lost money in the sub-prime, they're great buys, sovereign wealth funds come in and make a lot of money by buying them."

"That view neglects the point that the financial system has become very bloated in size and needed to shrink," Rogoff told the conference in Singapore, whose wealth funds GIC and Temasek have invested billions in Merrill Lynch and Citigroup.

In response to the sharp U.S. housing retrenchment and turmoil in credit markets, the U.S. Federal Reserve has reduced interest rates by a cumulative 3.25 percentage points to 2 percent since mid-September.

Rogoff said the U.S. Federal Reserve was wrong to cut interest rates as "dramatically" as it did.

"Cutting interest rates is going to lead to a lot of inflation in the next few years in the United States."

(Editing by Neil Chatterjee)

IS THAT SMOKE THAT I SEE ON THE HORIZON?

"Fannie Mae, Freddie Mac shares plummet - Shares of Fannie Mae, Freddie Mac fall on accelerating bailout fears"

By STEPHEN BERNARD and ALAN ZIBEL, Associated Press

Last updated: 5:13 p.m., Wednesday, August 20, 2008

NEW YORK -- Investors are betting that time is running out for Fannie Mae and Freddie Mac.

Shares of the mortgage finance companies lost more than a fifth of their value on Wednesday as fears mounted that the companies will soon need government support and any bailout would hang stockholders out to dry.

Since Monday, stock in the two companies -- which together hold or guarantee half the U.S. mortgage debt -- have plunged nearly 40 percent and are now trading at lows not seen in nearly two decades.

"There's a big negative feedback loop and there's no way out of it," Friedman, Billings, Ramsey & Co. analyst Paul Miller said in an interview.

"As the stock falls more and more, it's more likely the government steps in and more likely equity holders get wiped out."

Fannie Mae's chief executive sought to reassure investors that no bailout is imminent.

"They haven't offered anything and we haven't asked for anything," Fannie Mae CEO Daniel Mudd said in a public radio interview Wednesday morning.

"I don't anticipate that they will do that."

Mudd said the company's financial position "remains very strong," and that he intends to remain the CEO.

Executives with McLean, Va.-based Freddie Mac met with Treasury department officials on Wednesday morning, according to two sources familiar with the meeting who were not authorized to discuss its contents publicly.

They described it as part of a regular series of meetings that have been occurring since last month when the Bush administration announced a plan to aid the two companies.

Armando Falcon, who served for six years as Fannie and Freddie's chief government regulator, expects a full-fledged government takeover before year-end.

The companies' financial picture is far worse than they have acknowledged, he said, particularly for riskier loans they purchased as investments.

"They can't keep playing games with the accounting rules to avoid taking their losses," Falcon said.

The first intervention, he said, is likely to be government support for sales of the companies' debt.

After that, he said, "everything quickly snowballs."

The two government-sponsored companies are the largest source of funding for home mortgages in the U.S.

But they have struggled with soaring losses from mortgage defaults.

Washington-based Fannie Mae and Freddie Mac, have lost a combined $3.1 billion between April and June, and investors fear the losses will continue to grow.

Fannie Mae's stock fell $1.61 to close at $4.40, after hitting a low of $3.95.

Shares of Freddie Mac fell 92 cents to $3.25, after earlier hitting a low of $2.95.

Both are down about 90 percent for the year.

Freddie Mac, in particular, has investors and analysts fearful.

The company earlier this year promised to raise $5.5 billion -- more than double the company's $2.1 billion in market value Wednesday -- to shore up its finances.

Fannie's market capitalization was about $4.7 billion at the market's close.

The precipitous slide in Fannie and Freddie's stock prices are a sign investors assume the government is on the brink of taking control of the mortgage giants.

"It could be tomorrow, it could be six months from now," Miller said.

The Bush administration on July 13 unveiled a plan to provide unlimited government loans to the two mortgage giants and to purchase stock in the two companies if needed for a period covering the next 18 months.

Critics charged that the open-ended nature of the support for Fannie and Freddie would expose taxpayers to billions of dollars of potential losses.

Treasury Secretary Henry Paulson has insisted that the package needed to be structured in this way to boost financial markets' confidence as the companies deal with mounting losses from mortgages that have gone bad.

But investors started dumping shares of Fannie and Freddie this week after a Barron's article on Saturday -- citing an anonymous Bush administration source -- said the government is pressing the companies to raise more money to guard against losses but doesn't expect them to succeed.

The Barron's report said the government is likely to buy preferred stock in the companies, wiping out common shareholders.

Paulson has declined to comment on whether a rescue is imminent.

Many observers say Paulson is not interested in shareholders and only in Fannie and Freddie's ability to provide support to the battered mortgage market.

That means a government rescue might not occur until there is evidence the mortgage companies' are unable to sell short-term debt -- an indication they would no longer be able to operate normally.

Bert Ely, a banking consultant and longtime critic of the mortgage companies said, "the rationale for government involvement is to maintain (Fannie and Freddie's) role in the marketplace, which comes through buying mortgages."

A recent debt auction by Freddie Mac indicated the sale of short-term debt is becoming more difficult and expensive.

On Tuesday, a $3 billion offering of five-year notes by Freddie Mac was priced at 1.13 percent above five-year U.S. Treasury notes.

That's up from May, when Freddie Mac's notes were priced at just 0.69 percent above Treasury notes of a similar length.

The current lack of action by both Fannie and Freddie to raise capital, coupled with the government's silence, is freezing up liquidity in the mortgage market, Miller said.

And that's trickling down to traditional retail banks that rely on Fannie and Freddie to purchase loans and provide cash to make new mortgages.

"Until they get funding," Miller said, "it hurts everyone."

----------

AP Business Writer Alan Zibel reported from Washington, and AP Business Writer Martin Crutsinger in Washington contributed to this report.

WOW!

IS THAT MORE SMOKE?

"Lehman under mounting pressure to take action - Lehman pressured to unveil plan to save bank as Wall Street worries about another collapse"

By JOE BEL BRUNO, Associated Press

Last updated: 5:32 p.m., Wednesday, August 20, 2008

NEW YORK -- The pressure is increasing on Lehman Brothers Holdings Inc. to come up with a plan to restore itself to financial health -- or possibly face the worst-case scenario of selling itself off in pieces and at bargain prices.

The nation's fourth-biggest investment house is considered the most vulnerable amid the financial sector's continuing losses from the credit crisis.

This week, Lehman has been the subject of analyst downgrades and projections that it will lose $4 billion in the third quarter.

There is rising speculation -- most of it negative -- about its short-term prospects, leading more investors to bail out of Lehman stock, which closed Wednesday at $13.73, well off its 52-week high of $67.73.

Lehman needs to come up with a plan to purge itself of its risky mortgage-backed assets and raise new capital.

But neither task is easy:

Prospective buyers for those assets want to pay as little as they can get away with, and the big offshore investors that invested in Citigroup Inc. and Merrill Lynch & Co. months ago are wary about sinking more money into the financial industry.

What makes the situation harder for Lehman Chief Executive Richard Fuld is that Wall Street is still smarting from the near-collapse of rival Bear Stearns & Co. in March.

"If people think they (Lehman) are heading toward bankruptcy, nobody will want to do business with them or make them new loans."

"That's Fuld's biggest problem," said Richard Sylla, financial historian and economist at New York University's Stern School of Business.

Fuld, who took the company public in 1994 after splitting it off from American Express Co., is said to be considering the sale of all or part of Lehman's investment management arm.

That includes the highly profitable money manager Neuberger Berman, which it bought for $2.6 billion in 2003.

That business, with about $277 billion under management, could fetch between $7 billion and $13 billion, according to analyst reports.

It would be the latest move by Wall Street to sell off assets, including last month's sale by Merrill Lynch & Co. of its stake in news and data provider Bloomberg LP.

Buyers could potentially include large private equity firms, which were among the bidders for Bear Stearns before it was taken over by JPMorgan Chase & Co.

A spokeswoman for Lehman Brothers declined to comment about a possible sale of the division.

Another option for Lehman is to secure funding from a sovereign wealth fund or another big institutions.

However, reports that a deal to raise $5 billion from South Korean investors fell through points to the caution among potential investors.

"They are clearly not as keen on investing in the financial sector until the credit crisis plays out," said Elisa Parisi, lead finance and banking analyst for RGE Monitor.

"Selling off assets would be at fire-sale prices -- and investors will bark if you try and sell some of the crown jewels of the company."

Global banks and brokerages have been forced to raise new capital after writing down more than $300 billion of mortgage-backed securities and other risky investments in the past 12 months.

Lehman currently has more than $60 billion of exposure to real estate and mortgage-backed securities.

Many of Lehman's troubled assets still have value, but the firm can't sell them because the market is just about paralyzed.

It's likely that the only way to get the investments off Lehman's books is to sell them at a steep discount, much as Merrill Lynch did last month when it sold risky assets for 22 cents on the dollar.

"We anticipate that Lehman will reduce its overall mortgage exposure by 20 percent, suggesting about a $15 billion reduction," said Goldman Sachs analyst William Tanona in a note to clients.

Though Lehman won't get much for the sales, analysts like Tanona believe that such a drastic step will help rid the bank of perceptions it is loaded with heavy risk.

If Lehman can also raise enough capital, the moves will "buy them some time, and allow them to emerge from the crisis and rebuild," Parisi said.

However, with the market changing so quickly, any missteps by Fuld could cost him not only the CEO job but the entire company.

Selling off profitable pieces of Lehman might raise capital, but would hurt long-term profitability.

And there is also the possibility that Fuld might consider selling the company, possibly to a retail bank that has little exposure to turmoil in the credit markets.

"The finance sector needs massive consolidation," said Merrill Lynch strategist Rich Bernstein in a report.

"There is simply too much lending capacity in the global economy."

"Lehman needs to come up with a plan to purge itself of its risky mortgage-backed assets and raise new capital."

That's all?

I remember watching Cramer screaming for the Fed to drop interest rates to save
the stock market (DOW down 55.94 -0.49% this a.m. to 11,361.49) and I mean
screaming. As a stock advisor he now is screaming for a government takeover
of Fannie Mae and Freddie Mac.

I find myself listening to him...to hear what not to do...

http://www.bloggingstocks.com/2008/08/21/c...e-martyr/print/

Cramer on BloggingStocks:
Fannie and Freddie could be the martyrs
Posted Aug 21st 2008 9:09AM by Jim Cramer
Filed under: JPMorgan Chase (JPM), Federal Natl Mtge (FNM), Wells Fargo (WFC), Housing, Cramer on BloggingStocks

TheStreet.com's Jim Cramer says the common would be crushed on a government takeover, but everything else would be saved.

The most important positive that must occur in this economy is for housing to stop going down. It is even more important than oil going down, because it cuts to the core of consumer confidence and credit.

House prices are coming down, but that's not enough. We also need lower mortgage rates, and the spread between the mortgage rates and Treasuries is so high that it's hard to make case that you are getting any sort of bargain at all on the money you are trying to borrow. It should be a great time to buy a house -- no demand, plenty of supply -- but mortgage rates are just too high.

But we all know how they would go down and go down big -- if Treasury took over Fannie (NYSE: FNM) (Cramer's Take) and Freddie (NYSE: FRE) (Cramer's Take) this weekend. If you back off Fannie's and Freddie's bonds, you get a decline in rates of mammoth proportions. It might make sense to buy a house simply because the rates would be so low.

I believe that's one of the reasons Wells Fargo (NYSE: WFC) (Cramer's Take) and JPMorgan (NYSE: JPM) (Cramer's Take) rallied yesterday. The possibility of the long national housing price depreciation ending-- with the congressional housing legislation, the decline in housing starts, the tax credit for buying, the 30% to 40% declines in many markets and now an end to the Fannie/Freddie chaos -- could be in our grasp.

Sure, the common-stock shareholders would be crushed. But if they make the bond holders whole -- and that's all, but that must happen -- you are going to see good things occur, not bad.

It's time people started thinking that way.

----------------------

It's all about borrowing more, more, more...it's why I don't understand his reasoning.

"Fannie, Freddie rescue plans leave many anxious - Various rescue plans for Fannie, Freddie could harm insurance, banking industries, taxpayers"

By ALAN ZIBEL, Associated Press

Last updated: 4:32 p.m., Thursday, August 21, 2008

WASHINGTON -- A government rescue of Fannie Mae and Freddie Mac could be costly for scores of investment, banking and insurance companies that hold billions in preferred shares of the mortgage finance giants as assets.

Speculation has been building on Wall Street that a government investment to rescue Fannie and Freddie would come in the form of a cash infusion through the acquisition of preferred shares in the companies.

Those shares, which pay a bond-like yield, get preference over common shares in the event a company is liquidated.

While existing common stockholders would likely see the value of their stakes reduced to zero, the outcome is less certain for preferred shareholders.

"That depends on how big Fannie and Freddie blow up," said Michael Shedlock, an investment adviser for SitkaPacific Capital Management who writes the financial blog "Mish's Global Economic Trend Analysis."

With Fannie and Freddie's existing preferred shares currently paying yields of around 17 percent to 19 percent, compared with original yields of about 6 percent, credit markets are indicating that "some hit is going to come from existing preferred shareholders," Shedlock said.

Investors generally believe that stakes in Fannie and Freddie's debt would be protected under any government rescue plan.

But congressional analysts estimate a government rescue of the mortgage giants could cost taxpayers $25 billion, with the exact amount based on how far the housing market falls and how severe their financial situation turns out to be in the long run.

Tony Plath, an associate professor of finance at the University of North Carolina at Charlotte, said the entire financial industry is trying to figure out what will happen to Fannie and Freddie because investment in their equity and debt is so widespread.

"There's not protection for shareholders of common or preferred shares," he said.

The U.S. insurance industry has $4 billion in exposure to Fannie and Freddie's preferred stock, according to A.M. Best Co. Inc.

But that represents less than 1 percent of the surplus the industry holds against losses.

"While some companies will probably have some writedowns, I don't think there's a widespread effect on the whole industry," said Edward Keane, senior financial analyst with A.M. Best Co.

Fannie and Freddie are the largest source of funding for home mortgages in the U.S.

But they have struggled with soaring losses from mortgage defaults.

Washington-based Fannie and McLean, Va.-based Freddie, have lost a combined $3.1 billion between April and June, and investors fear the losses will continue to grow.

The Bush administration last month unveiled a plan to provide unlimited government loans to the two mortgage giants and to purchase stock in the two companies if needed for a period covering the next 18 months.

Many observers say Treasury Secretary Henry Paulson is not interested in protecting common shareholders, only in Fannie and Freddie's ability to support the battered mortgage market.

That means a government rescue might not occur until there is evidence the mortgage companies' are unable to sell short-term debt -- an indication they would no longer be able to operate normally.

Shares of the two companies -- which together hold or guarantee half the U.S. mortgage debt -- have lost more than half their value this week on fears that a government bailout would wipe out common stockholders.

Fannie Mae shares rose 35 cents, or 8 percent, to $4.75 in afternoon trading, while Freddie Mac fell 13 cents, or 4 percent, to $3.12.

Freddie in particular has investors and analysts fearful.

The company earlier this year promised to raise $5.5 billion to shore up its finances but has not yet done so and its sinking share price makes raising that money far less feasible.

Fannie Mae's chief executive has sought to reassure investors that no bailout is imminent, and that the company's financial position remains solid.

------

AP Business Writer Ieva M. Augstums in Charlotte, N.C. contributed to this report.

"Economy remains stuck in low gear - Economy languishes as July's leading indicators fell sharply, weekly jobless claims improved"

By ELLEN SIMON, Associated Press

Last updated: 5:52 p.m., Thursday, August 21, 2008

NEW YORK -- A private sector measure of the economy's health showed the largest drop in a year, and while new jobless claims fell for the second straight week, they remain near the highest levels since 2002.

The reports are the latest evidence the languishing American economy remains stuck in low gear.

The New York-based Conference Board said Thursday its monthly forecast of future economic activity fell 0.7 percent in July, far more than the consensus estimate of a 0.2 percent decline by Wall Street economists surveyed by Thomson/IFR.

The last time the index showed a drop this great was last August, when it fell by 1 percent.

The largest drag on the index was the decline in building permits, followed by dropping stock prices, rising unemployment claims, a tightened money supply and falling manufacturers' orders for consumer goods.

The index has slipped 0.9 percent for the six months ending in July.

"The economy is stuck somewhere between sluggish growth and recession," said Mark Vitner, senior economist at Wachovia Corp.

"We're in economic purgatory."

Lehman Brothers economist Zach Pandl blamed the drop on technical factors, saying a change in New York City's building code, effective July 1, led to a June spike in new permits followed by last month's steep decline.

He also attributed part of high jobless claims data to the 13-week extension of unemployment benefits approved by Congress in June.

"The decline in the leading index should therefore not be interpreted as a sign the outlook is quickly deteriorating," Pandl wrote in a research note.

Meanwhile, the Labor Department's jobless claims data showed new filings dropped to 432,000, down by 13,000 from the previous week, a greater improvement than analysts expected.

However, the four-week average climbed to 445,750, the highest level since November 2003.

"The labor market is soft, but not collapsing," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa.

"That's critical."

"While consumers may be cautious and conservative in their spending, as long as the rate does not spike ... there should be enough income growth to keep the economy muddling along."

Unemployment claims have increased in the past several weeks, partly reflecting an outreach effort by the Labor Department to notify people of the benefit extension.

The action has turned up some people eligible to file new claims.

That effort -- coupled with businesses cutting jobs due to higher energy costs, tighter credit markets and a slowing economy -- caused claims to spike to a six-year high of 457,000 for the week of Aug. 2.

The number of people continuing to receive benefits last week also dropped slightly to 3.36 million, but the four-week average rose to 3.33 million, its highest level in almost five years.

That number doesn't include the government's extended benefits program.

The Labor Department estimated an additional 1.29 million unemployed workers are getting benefits under that program.

Wall Street shrugged off the numbers.

Financial stocks rebounded after an analyst upgraded Lehman Brothers Holdings Inc. to "buy," saying the investment bank has become a hostile takeover candidate.

The Dow Jones industrial average rose 12.78 to 11,430.21.

The Standard & Poor's 500 rose 3.18 to 1,277.72, and the Nasdaq composite lost 8.70 to 2,380.38.

Still, companies likely will increase layoffs in the next several months as profits continue to suffer from higher food and energy prices, Vitner said.

The unemployment rate could reach 6.5 percent by mid-2009, from 5.7 percent in July, he added.

Several companies have announced job cuts recently.

Newspaper publisher Gannett Co. Inc. said it would lay off 600 workers, Ford Motor Co. said it would cut 300 workers at an engine plant, and chip designer Rambus Inc. is trimming 90 jobs.

To be sure, some companies are bucking that trend.

"We're always hiring," said Fred Bock, vice president of marketing and business planning at Peerless Pump Co. in Indianapolis, which makes fire protection pumps for high rises.

Peerless Pump has seen international sales increase 20 percent in the last four years, helped by new construction in the Middle East and Asia.

------------

AP Business Writer Christopher S. Rugaber contributed to this report.

THE BEARDED BUSHIAN "GENTLE BEN" BERNANKE HAS DEFINITELY MASTERED THE POLITICIAN'S "ART" OF TALKING OUT OF BOTH SIDES OF HIS MOUTH AT ONCE IN THIS SPEECH HERE ....

WHICH IS PROBABLY WHY GEORGE W. BUSH PICKED HIM TO BE FED CHIEF IN THE FIRST PLACE ....

BECAUSE HE IS A MEALY-MOUTH ....

WHO WILL SAY WHAT NEEDS TO BE SAID FOR THE SAKE OF POLITICAL EXPEDIENCY ....

ALL THE WHILE, PROTECTING AND ENHANCING THE STATUS QUO ...

And so ...

"Bernanke: Financial crisis taking toll on economy - Regulators might assess health of entire financial system, not just each bank"

By JEANNINE AVERSA, Associated Press

Last updated: 1:12 p.m., Friday, August 22, 2008

JACKSON, Wyo. -- Federal Reserve Chairman Ben Bernanke said Friday the financial crisis that has pounded the country -- coupled with higher inflation -- is taking a toll on the economy and poses a major challenge to Fed policymakers as they try to restore stability.

"Although we have seen improved functioning in some markets, the financial storm that reached gale force" around this time last year "has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment," Bernanke said in a speech to a high-profile economics conference here.

While Bernanke welcomed the recent drops in oil and other commodities' prices, and believes inflation will moderate this year and next, the Fed chief also warned the inflation outlook remains highly uncertain.

The Fed, he said, would monitor the situation closely and will "act as necessary" to make sure that inflation doesn't get out of hand.

The current financial and economic environment is one of the most challenging to Fed policymakers "in memory," he acknowledged.

Given those dueling economic cross-currents-- weak economic growth and higher inflation -- many economists believe the Fed will leave rates where they are at its next meeting on Sept. 16, and probably through the rest of this year.

"They won't act until the coast is clear on financial stability and the state of the economy," said Allen Sinai, chief global economist at Decision Economics Inc.

Many fear the economy will hit a rough patch later this year as the bracing effect of the government's tax-rebate checks fades.

Wall Street was buoyed by Bernanke's remarks, a dip in oil prices and growing speculation that Lehman Brothers Holdings Inc. could be sold.

In afternoon trading, the Dow rose 135.49 to 11,565.70, the Standard & Poor's 500 index added 7.45 to 1,285.17, and the Nasdaq composite index rose 19.41 to 2,399.79.

The economy is the top concern for voters and of keen interest to presidential contenders Sens. Barack Obama and John McCain, who are gearing up for their party's conventions.

Financial and credit problems are expected to smolder into next year.

And, the unemployment rate, which jumped to a four-year high of 5.7 percent in July, is expected to keep rising.

The bulk of Bernanke's speech dealt with the need to bolster oversight of the nation's financial system to make it better able in the future to withstand future shocks.

To that end, Bernanke recommended that regulators work on ways to assess the health of the entire financial system, rather than the condition of individual banks, Wall Street investment firms or other financial companies -- as is currently the focus.

"Such an approach would appear well justified as our financial system has become less bank centered," he said.

"Some caution is in order, however, as this more comprehensive approach would be technically demanding and possibly very costly both for the regulators and the firms they supervise."

He added that "stress tests" for a range of financial firms might also be helpful.

Bernanke's remarks come amid renewed worries on Wall Street about the financial health of Fannie Mae and Freddie Mac.

The mortgage giants' stocks have gotten hammered this week as investors became increasingly convinced a government bailout is inevitable.

Although the Fed chief didn't mention the companies, he said one of the critical questions facing the country is how to strengthen the financial system and at the same time protect against "moral hazard," where financial companies might feel more inclined to gamble with risks because they believe the Fed or the government will ultimately bail them out.

"Some particularly thorny issues are raised by the existence of financial institutions that may be perceived as 'too big to fail,' and the moral hazard issues that may arise when governments intervene in a financial crisis," Bernanke said.

Mitigating that problem is another challenge facing policymakers, he said.

Bernanke repeated his call for Congress to provide new regulatory powers to insulate the economy from damage if a Wall Street firm collapses.

He again urged Congress to give the central bank explicit authority to oversee systems that process payments and other financial transactions by investment firms and banks.

This year's Fed conference examines past and present financial crises, and the challenges confronting Bernanke and other central bankers as they try to help stabilize financial markets worldwide.

The Fed's handling of the credit, financial and housing debacles is likely to spur debate at the forum, which is sponsored by the Federal Reserve Bank of Kansas City and draws Fed policymakers, economists, academics and international central bank officials.

The Fed has taken unprecedented steps over the past year to battle the nation's worst credit and financial crises in decades.

To brace the wobbly economy, the Fed has slashed its key interest rate by 3.25 percentage points, the most aggressive rate-cutting campaign in decades.

The Fed also has taken some unconventional -- and controversial -- actions to shore up the shaky financial system and to get credit -- the economy's lifeblood -- flowing more freely.

In the broadest expansion of its lending powers since the 1930s, the Fed agreed in March to let investment houses draw emergency loans directly from the central bank.

As part of JPMorgan Chase & Co.'s takeover of Bear Stearns Cos., the Fed provided a $28.82 billion loan.

In July, the Fed said Fannie and Freddie also could tap the program.

For years, such lending privileges were extended only to commercial banks, which are subject to stricter regulatory supervision.

Critics question whether taxpayers are being put at risk and if expanded safety nets will encourage financial companies to act more recklessly in the future.

But Bernanke on Friday again defended the Fed's decisions saying they were needed to avert a financial catastrophe that could have plunged the economy into a deep recession.

SMOKE PLUMES TO THE LEFT OF US ....

SMOKE PLUMES TO THE RIGHT OF US ....

SMOKE PLUMES ALL AROUND US ....

AS ECONOMIES GO DOWN IN FLAMES ...

And so ...

"UK economic growth ground to a halt in Q2 - UK economic growth ground to a halt in Q2, ending more than 15 years of continuous growth"

By EMILY FLYNN VENCAT, Associated Press

Last updated: 7:02 a.m., Friday, August 22, 2008

LONDON -- British economic growth ground to a halt between April and June, ending more than 15 years of continuous expansion, the government said Friday, as many fear the country is headed for recession.

The growth figure of 0.0 percent is below even the modest 0.2 percent that the Office for National Statistics had predicted.

It ends a run of 63 consecutive quarters -- nearly 16 years -- of growth since the April to June period of 1992, when Britain's gross domestic product shrank.

The figures are the strongest indicator yet -- amid a crashing housing market, falling consumer confidence and inflation running at double government targets -- that Britain is teetering on the brink of a recession.

Economists say that preliminary data shows that the British economy is performing even worse now than it did in the second quarter, meaning that GDP shrinkage is likely to be recorded in the upcoming July to September quarter.

"We've entered a period of quite acute weakness that's unlikely to be short-lived," said Jonathan Loyns, chief European economist at Capital Economics.

"There's a good chance we're facing at least two consecutive quarters of negative growth."

Two quarters of contraction is one common definition of a recession.

In the midst of the worst housing crash for 30 years, Britain's construction industry has been hit the hardest, the national statistics office said, with construction output falling 1.1 percent.

Meanwhile, manufacturing output fell by 0.8 percent, according to the government figures.

That confirms a survey published by the Chartered Institute of Purchasing and Supply earlier this month showing that the Britain's manufacturing activity declined by the most in almost a decade in July.

I THINK IF WE ALL JUST GO OUT AND BORROW A LOT MORE MONEY THAT EVERYTHING WILL THEN TURN OUT ALRIGHT ....

BECAUSE IF WE ALL BORROW A LOT MORE MONEY, THEN WE ARE ALL GOING TO BE WEALTHIER ...

AND THAT IS WHAT THIS COUNTRY REALLY NEEDS ....

A LOT OF REAL WEALTHY PEOPLE TO KEEP THE ECONOMY GOING ....

And so ...

MAYBE I'LL GO OUT AND BORROW A MILLION DOLLARS ....

THEN I'LL BE A MILLIONAIRE ....

AND THAT WOULD BE GOOD FOR THE ECONOMY ...

And so ...

"Billionaires say US debts need attention - 'I.O.U.S.A.' film and billionaires behind it want nation's debts to get attention in campaign"

By JOSH FUNK, Associated Press

Last updated: 1:22 a.m., Friday, August 22, 2008

OMAHA, Neb. -- Two billionaires used the screening of a documentary in theaters across the United States on Thursday to urge the country to come to grips with its staggering debt load.

Warren Buffett and Pete Peterson were at the premiere of the movie "I.O.U.S.A." to add their views to the film's message: An economic disaster will befall the nation if the federal government's $53 trillion in debts continue to grow.

But Buffett said at a news conference before the movie's showing that he doesn't think the country's financial picture is quite as dire as the filmmakers portray.

"I do not regard our national debt as unduly alarming," said Buffett, who is chairman and chief executive of Berkshire Hathaway Inc., and is listed by Forbes magazine as the world's richest man.

Buffett said he's confident the country will be able to address its debts and remain prosperous, but he doesn't want to see the share of the U.S. gross domestic product devoted to debt continue to grow.

"We've overcome things far worse than what is going on right now," Buffett said, who was interviewed in the movie but is not backing it financially.

The film that was shown Thursday in 358 theaters nationwide details the federal government's debts.

The movie is backed by Peterson -- who co-founded the Blackstone Group LP private equity firm and served as commerce secretary under President Nixon -- and is part of his foundation's campaign to give the ballooning debt a central role in the presidential campaign.

"What concerns me more than anything is our savings rate," Peterson said.

Peterson said the meager U.S. rate of savings today means that roughly 70 percent of the nation's debts are being bought by foreign investors, and that could create geopolitical and economic problems for the country.

A panel discussion in Omaha followed the movie and was broadcast live to the other theaters, except on the West Coast where it was shown tape-delayed.

Thursday's panel discussion featured Buffett, Peterson, AARP Chief Executive Bill Novelli and William Niskanen, chairman of the libertarian-leaning CATO Institute.

Niskanen said the nation has to increase the retirement age in Social Security to at least 70 from the current range of 65 to 67.

He also backed adding an income test to Medicare so those with more money pay a larger share of their health costs.

Peterson said he hopes the movie will help explain the problems debt can bring, so politicians will feel more pressure to act.

"The problem is getting the public understanding and the political will to do something about it," he said.

The "I.O.U.S.A." filmmakers followed former U.S. Comptroller David Walker as he toured the country, speaking to college groups, newspaper editorial boards and community groups about the nation's financial problems.

Most of the talks in the movie took place while Walker still ran the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government.

Walker and the movie cite GAO figures that show the U.S. government owed roughly $53 trillion more than it had at the end of the 2007 fiscal year, the most recent figure available.

About $11 trillion of that covers publicly traded government debt, the amount the federal government owes to employee pensions and the cost of environmental cleanup of federal land.

The rest of the $53 trillion figure accounts for projected shortfalls in Medicare and Social Security.

The cost of covering those obligations is expected to soar as more baby boomers become eligible for the two programs.

Buffett said he doesn't believe those programs that help provide for the elderly will consume the bulk of the government's resources in the future because America will be wealthier.

"The important thing to remember is that the pie gets larger over time, and there's more to divide up," Buffett said.

But Walker, who also took part in the panel discussion, said he disagrees with Buffett's assessment because the predictions the movie highlights about the country's debt already assume the nation will be wealthier.

Walker said he hopes both the Democratic and Republican candidates for president will acknowledge the staggering amount of debt the nation carries, and pledge to appoint a bipartisan coalition next year to look for solutions.

The film also featured interviews with prominent businessmen and officials from both major political parties, such as former Federal Reserve chairmen Alan Greenspan and Paul Volcker and former U.S. Treasury secretaries Paul O'Neill and Robert Rubin.

Greenspan warned that the nation cannot continue consuming more than it produces indefinitely.

"Without savings, there is no future," Greenspan said in the movie.

Thursday's screenings and panel discussion will be followed by a 12-city theatrical run beginning Friday.

Peterson says he wants to have the movie shown on TV next year.

------

On the Net:

I.O.U.S.A. movie: http://www.iousathemovie.com

Peter G. Peterson Foundation: http://www.pgpf.org

NCM Fathom: http://www.fathomevents.com

Roadside Attractions: http://www.roadsideattractions.com

Berkshire Hathaway Inc.: http://www.berkshirehathaway.com

WOW!

I JUST GOT THINKING ....

IF I BORROW A BILLION DOLLARS ....

WHY, I'LL BE A BILLIONAIRE ....

THEN I CAN DO ANYTHING THAT I WANT TO DO ....

And so ...

"Buffett says economy's troubles will continue - Buffett says recession will persist as ripples of credit mess spread but economy will recover"

By JOSH FUNK, Associated Press

Last updated: 4:52 p.m., Friday, August 22, 2008

OMAHA, Neb. -- Billionaire investor Warren Buffett said Friday the economy continues to be in a recession, by his definition, and will continue to be for at least several more months.

During a live appearance on CNBC, Buffett said ripples of the credit crunch are continuing to cause problems in financial businesses and the economy.

Earlier this year he said a financial crisis reveals which players have been "swimming naked," because the tide goes out.

That picture has worsened along with the crisis.

"We found out that Wall Street has been king of a nudist beach," said Buffett, who is chairman and chief executive of Berkshire Hathaway Inc., which is based in Omaha.

Buffett said activity at businesses Berkshire owns, especially ones related to housing construction such as Shaw carpet and Acme Brick, continued to slow during the summer.

He's confident the nation will be doing better five years from now, Buffett said, but the economy could be worse five months from now.

Buffett said the economy is in a recession because most Americans aren't doing as well today as before.

The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product.

Regarding the nation's credit crunch, Buffett said he believes mortgage giants Fannie Mae and Freddie Mac are too big to fail, but that doesn't mean that all the shareholder equity in those companies can't be wiped out.

"They're looking for help, obviously."

"And the scale of help is such that I don't think it can come from the private sector," Buffett said.

So the Oracle of Omaha predicted that the federal government eventually will have to step in to help because the troubles of Fannie Mae and Freddie Mac seem to be growing and feeding on themselves.

Together the companies hold about half of U.S. mortgage debt and are the largest source of funding for home mortgages.

But they are seeing too many defaults.

Losses between April and June for the two companies totaled $3.1 billion, and investors fear they will continue to grow.

Buffett said it's likely more banks will fail, especially in areas where there was a real estate bubble and the bank got heavily involved in the housing market.

"What we'll see is failures where the bankers were dumb in what they did," Buffett said.

But Buffett said the Federal Deposit Insurance Corp.'s guarantee on accounts up to $100,000 should prevent bank failures driven by panic.

Buffett said the nation's current economic struggles create investment opportunities, and his phone is ringing more lately than it was three months ago.

But Buffett said many of those calls have come from desperate people and didn't represent good investment opportunities.

As the stock market problems continue, Buffett is looking for ways to use Berkshire's roughly $31 billion in cash.

"The cheaper they get, the harder I'll look," he said, referring to shares.

He said Berkshire added to some of its holdings because share prices fell enough to be attractive.

The company had been buying shares of either Wells Fargo & Co. or American Express Co. in recent months, he said, but wouldn't specify which.

On Friday, American Express shares gained $1.78, or 4.8 percent, to close at $38.79, while Wells Fargo gained 92 cents, or 3.2 percent, to $29.36.

Buffett also said Friday he sold nearly two-thirds of Berkshire's 35.6 million shares of Anheuser-Busch Cos. stock because he hadn't been sure Belgian brewer InBev SA's takeover bid of $65 a share would succeed.

Anheuser agreed to the $52 billion bid in July.

"In retrospect, I was wrong to partially sell the holdings," Buffett said, disclosing that he sold the stock for about $61 or $62 a share.

At the end of June Berkshire still held 13.8 million shares of Anheuser.

Buffett said the trip he and friend Bill Gates took earlier this week to Canada to look at Alberta's oil sands shouldn't be interpreted as a sign that he or Berkshire will invest in mining companies.

Buffett said what he learned on the trip may be useful a couple years down the road, but he has no current plans to invest in oil sands mining.

On the political front, Buffett encouraged Americans not to expect perfection from candidates.

He said the presidential race features two good candidates this year, but he favors Democrat Barack Obama even though he doesn't agree with all of his proposals.

"The only way to get somebody who agrees with you 100 percent is to run yourself, and I have no interest in that," Buffett said.

Berkshire subsidiaries include insurance, clothing, furniture, candy companies, restaurants, natural gas and corporate jet firms.

Berkshire also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

------

On the Net:

Berkshire Hathaway Inc.: http://www.berkshirehathaway.com

My friend just brought by a coupla bottles of muskadine wine he made.

I gave him some veggies I grew in trade...when it goes back to barter...I'm okay.

A very simple, basic understanding...that will be important in Tax Times...
I may not want to understand the psycho-corporate-international mind-set...
but if ya get hungry...or need a relaxin' buzz...y'all come see us... ya' hear?

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Freddie, Fannie Drop Dims Prospects of New Investors (Update1)

By Dawn Kopecki and Shannon D. Harrington

Aug. 25 (Bloomberg) -- The cost to Freddie Mac and Fannie Mae of raising capital is getting more prohibitive by the day, making it likely that the government will have to inject cash into the largest U.S. mortgage finance companies.

Declines in the common stocks of the government-chartered companies accelerated last week to more than 90 percent for the year and yields on their preferred shares more than doubled on speculation Treasury Secretary Henry Paulson may need to bail them out, reducing or wiping out the value of the securities.

As long as a rescue is likely, investors will be reluctant to take part in any offering, said Richard Hofmann, an analyst at CreditSights Inc., a bond research firm in New York.

``The stocks' freefall becomes sort of a self-fulfilling prophecy if it goes far enough, and we're getting pretty close to far enough,'' Hofmann said.

McLean, Virginia-based Freddie fell 52 percent last week and rose 12 cents, or 4.3 percent, to $2.93 as of 9:59 a.m. in New York Stock Exchange composite trading. Fannie of Washington declined 1 cent to $4.99, after dropping 37 percent last week. Their preferred shares are trading as low as 19 cents on the dollar on speculation their dividends may be suspended.

The companies were created by Congress to boost homeownership and profit by holding mortgages and mortgage bonds as investments and by charging a fee to guarantee and package loans as securities.

Losses Grow

The two companies, which own or guarantee at least 42 percent of the $12 trillion in U.S. residential-mortgage debt outstanding, posted combined losses of $14.9 billion in the past four quarters as delinquencies rose to record levels. The losses depleted their capital and sparked concern they may not be able to weather the biggest housing slump since the Great Depression.

Freddie agreed in May to raise $5.5 billion of capital to appease regulators, though has yet to complete the financing. Fannie raised $7.4 billion that month in a similar agreement.

Fannie had $47 billion of capital as of June 30, according to company filings. The company is required by its regulator to hold $37.5 billion. Freddie's capital stood at $37.1 billion, compared with a requirement of $34.5 billion, filings show.

The companies may need to raise at least $15 billion to convince investors they have enough capital, said Paul Miller, an analyst with Friedman Billings Ramsey & Co. in Arlington, Virginia. Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, estimates the Treasury will probably be forced to buy a combined $60 billion of preferred shares by October.

`Propitious Time'?

Freddie Chief Executive Officer Richard Syron told investors earlier this year he was waiting for the ``propitious time'' before raising money. That time may not come, Hofmann said.

Freddie has reached out to potential investors, spokeswoman Sharon McHale said last week. Private-equity firms TPG Inc., Kohlberg Kravis Roberts & Co., the Carlyle Group and the Blackstone Group LP told the company they are unwilling to invest in the company until it's clear what steps Paulson may take, The New York Times reported on Aug. 23.

Carlyle spokeswoman Ellen Gonda, Blackstone spokesman John Ford and TPG spokesman Owen Blicksilver all declined to comment.

Fannie spokesman Brian Faith declined to comment.

Moody's Investors Service on Aug. 22 cut Fannie and Freddie's $36 billion in preferred stock five levels to Baa3, the lowest investment-grade, saying a bailout that causes dividend payments to be halted is increasingly likely.

Holders `Panicking'

``Any additional capital raises by Fannie and Freddie were going to have trouble being absorbed in the financial system without some intervention by the government,'' Peoples Bancorp Inc. Chief Financial Officer Edward Sloane said in an interview.

Marietta, Ohio-based Peoples sold its $12.1 million of preferred shares in Freddie and Fannie, recording a pretax loss of about $1.04 million.

While Paulson said he was trying to ``add stability and buy some time'' by seeking authority to pump unlimited amounts of capital into the companies through a credit line or equity investment, the opposite is happening because ``the holders at the bottom of the capital structure are panicking,'' Hofmann said.

``They've got themselves in this negative loop where the only way they can raise capital is for the Treasury to put something in'' first, said Friedman Billings' Miller.

`Lack of Clarity'

The yields Freddie would have to offer to attract investors are two to three times what Fannie paid in its $7.4 billion preferred offering in May. Fannie gave investors a yield of 8.75 percent on 51.8 million shares of preferred stock that can be converted into common shares.

Freddie's $1.1 billion of 5.57 percent preferred stock dropped 36 percent last week to $7.40, pushing the yield to 19.5 percent. Fannie's $7 billion of 8.25 percent perpetual preferred stock fell 26 percent to $11.29 as the yield rose to 18.9 percent. Freddie has paid an average yield of 6.3 percent on its $14.1 billion in outstanding preferreds, according to Friedman Billings. Fannie's average yield is 6.5 percent on its $21.7 billion preferred shares.

``It is the lack of clarity of what exactly the government is going to do,'' said Axel Merk, president of Merk Investments LLC in Palo Alto, California. ``To make this politically viable, why would the government even think about coming in junior to somebody else?''

-------------------

It seems I remember all this mushrooming soon after Bush made noises about everyone being able to
buy a house...to fullfill The American Dream (and to boost investment banking profits). The way I
understand it...this multi-billion bail-out the investors and bankers are crying for... will have to come
before any new health, education or other entitlement funding. Watch the tax rates in the middle income
brackets...all this can't be done by a Robin Hood plan, IMHO.

"Realtors say existing home sales rose in July - Existing home sales rose 3.1 percent in July, nearly double expected amount"

By ALAN ZIBEL, Associated Press

Last updated: 10:52 a.m., Monday, August 25, 2008

WASHINGTON -- Sales of existing homes rose 3.1 percent in July, easily beating Wall Street's expectations, as buyers snapped up deeply discounted properties in parts of the country hit hardest by the housing bust.

However, the number of unsold properties hit an all-time high, the latest indication that the worst housing market slump in decades is far from over.

The National Association of Realtors reported Monday that sales rose to a seasonally adjusted annual rate of 5 million units.

Sales had been expected to rise by only 1.6 percent, according to economists surveyed by Thomson/IFR.

Home sales were 13.2 percent lower than a year ago and prices were down dramatically.

The median price for a home sold in July dropped to $212,000, down by 7.1 percent a year ago.

Despite the third monthly sales jump this year, the number of unsold single-family homes and condominiums rose to 4.67 million, the highest number since 1968, when the Realtors group started tracking the data.

That represented a 11.2 month supply at the July sales pace, matching the all-time high set in April.

Sales were up in all regions of the country except the South, which posted a 0.5 percent decline.

Sales rose by 5.9 percent in the Northeast, 0.9 percent in the Midwest and 9.7 percent in the West.

Analysts say that until the inventory level is reduced to more normal levels, the housing slump is likely to persist.

The inventory level is being driven higher by a massive wave of mortgage foreclosures.

Despite the rise in sales, Lawrence Yun, the Realtors' chief economist, was reluctant to conclude that the U.S. housing market has hit bottom.

While buyers are pouncing on lower prices -- especially in places like California, Florida and Nevada -- sales are sluggish in formerly stable states like Texas.

"People are responding to lower prices," Yun said, but there is "too much uncertainty" about the housing market's future to mark a definite bottom.

One key unknown is the ability of mortgage finance companies Fannie Mae and Freddie Mac to supply money for loans.

The two government-sponsored companies have cut back the availability of mortgages significantly as they cope with mounting losses from foreclosures and officials ponder whether to shore up the two struggling companies.

President Bush last month signed sweeping housing legislation that aims to prevent foreclosures by allowing an estimated 400,000 homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan.

Even with government help, nearly 2.8 million U.S. households will either face foreclosure, turn over their homes to their lender or sell the properties for less than their mortgage's value by the end of next year, predicts Moody's Economy.com.

SO ....

FRIDAYS ARE NOW BANK-CLOSING DAYS IN AMERICA ....

A SIGN OF THE TIMES WE ARE HEADING INTO ....

OR SHOULD THAT BE "DOWN INTO" ....

And so ...

BLOOMBERG.COM

"Columbian Bank and Trust of Kansas Shut by Regulators (Update1)"

By Alison Vekshin and Ari Levy

Aug. 22 (Bloomberg) -- Columbian Bank and Trust Co. of Topeka, Kansas, was closed by U.S. regulators today, the ninth U.S. bank to collapse this year amid bad real-estate loans and writedowns stemming from a drop in home prices.

The bank, with $752 million in assets and $622 million in total deposits, was shuttered by the Kansas state bank commissioner's office and the Federal Deposit Insurance Corp., the FDIC said today in a statement.

Citizens Bank and Trust will assume the failed bank's insured deposits.

Columbian Bank's nine branches will open Aug. 25 as Citizens Bank and Trust offices, the FDIC said.

Customers can access their accounts over the weekend by writing checks or using ATM or debit cards.

"There is no need for customers to change their banking relationship to retain their deposit insurance coverage,'' the FDIC's statement said.

The pace of bank closings is accelerating after financial companies reported more than $500 billion in writedowns and credit losses since the start of 2007.

The FDIC's "problem'' bank list grew by 18 percent in the first quarter from the preceding three-month period, to 90 banks with combined assets of $26.3 billion.

Historically Low Levels

FDIC Chairman Sheila Bair said last month she expected more lenders to fail this year as the pace of shutdowns rises from historically low levels.

Before today, the FDIC had closed 36 banks since October 2000, according to a list at fdic.gov.

The U.S. shut 12 banks in 2002, the most in the period, and there were no closures in 2005 and 2006.

A call to the Kansas Office of the State Bank Commissioner after regular business hours wasn't immediately returned.

U.S. bank regulators closed Florida's First Priority Bank on Aug. 1; Reno-based First National Bank of Nevada, Newport Beach, California-based First Heritage Bank, and Pasadena-based IndyMac Bancorp Inc. in July; Staples, Minnesota-based First Integrity Bank and ANB Financial in Bentonville, Arkansas, in May; Hume Bank in Hume, Missouri, in March; and Douglass National Bank in Kansas City, Missouri, in January.

To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net.

Last Updated: August 22, 2008 21:54 EDT

http://www.bloomberg.com/apps/news?pid=206...id=aJqU2qEw3_2c

THE KANSAS CITY STAR

"Columbian Bank and Trust closed by regulators; to become part of Chillicothe bank"

By MARK DAVIS

The Kansas City Star

Regulators closed Topeka-based Columbian Bank and Trust Co. late this evening and said its nine offices, including four in the Kansas City area, would reopen Monday as part of Citizens Bank and Trust based in Chillicothe, Mo.

A statement from Kansas State Bank Commissioner Tom Thull said he seized the bank’s nine branches, including four in the Kansas City area, because the bank “would be unable to meet depositors’ demands in the normal course of business.”

Thull said some large deposit accounts had left the bank leading to its in ability to meet customers’ normal withdrawals.

There was no visible run on the bank.

Depositors of the failed Columbian Bank will have access to the federally insured balances in their accounts this weekend through ATM machines, debit cards and by writing checks, said a statement from the Federal Deposit Insurance Corp.

They will automatically become customers of Citizens Bank of Chillicothe.

The FDIC said as many as 610 accounts in the failed bank may have held uninsured balances totaling $46 million.

Those customers will share in the FDIC’s estimated $60 million loss from the failure.

The $752 million bank’s failure was the ninth in the nation this year, including Kansas City-based Douglass National Bank that failed in January and was the first nationwide.

Douglass’s branches had reopened as part of Liberty Bank and Trust Co. in New Orleans, which assumed all of the deposits including some that exceeded the FDIC’s insurance limits.

Citizens Bank of Chillicothe, a $1 billion bank, has four branches in Kansas City’s northland.

Customers with questions about their Columbian accounts should contact the FDIC at 800-523-8209 through 9 p.m. this evening and between 9 a.m. and 6 p.m. Saturday, or between 11 a.m. and 5 p.m. Sunday.

Columbian was the 17th largest Kansas-based bank at the end of March.

The bank had two branches in Overland Park, one each in Leawood and Lee’s Summit and five in Topeka where its headquarters is located.

At one point last year, the Kansas City area branches held more than $47 million in deposits.

Its failure comes two months after the head of the Kansas banking department had said he expected no state-chartered banks in Kansas to fail this year.

Since then, Columbian reported a sharp increase in problem loans and a second-quarter loss that reduced its capital below levels expected of a well capitalized bank.

Early this month, Columbian’s sole owner, Carl McCaffree, had discussed the bank’s problems and said he was ready and able to write a check, if needed, to supply the bank with enough capital.

He could not be reached for comment today.

McCaffree had said the bank’s problems led to a workout agreement with regulators in mid-July.

CEO Jim Helvey, who held the post for 12 years, also agreed to retire and a search for a successor from outside the bank began.

McCaffree could not be reached for comment.

To reach Mark Davis, call 816-234-4372 or send e-mail to mdavis@kcstar.com.

http://www.kansascity.com/382/story/762148.html

WAS SOMEBODY JUST SAYING SOMETHING ABOUT THE FUTURE BEING NOW?

"FDIC: 117 troubled banks, highest level since 2003"

By MARCY GORDON, AP Business Writer

26 AUGUST 2008

WASHINGTON - The number of troubled U.S. banks leaped to the highest level in about five years and bank profits plunged by 86 percent in the second quarter, as slumps in the housing and credit markets continued.

Federal Deposit Insurance Corp. data released Tuesday show 117 banks and thrifts were considered to be in trouble in the second quarter, up from 90 in the prior quarter and the biggest tally since mid-2003.

The FDIC also said that federally-insured banks and savings institutions earned $5 billion in the April-June period, down from $36.8 billion a year earlier.

The roughly 8,500 banks and thrifts also set aside a record $50.2 billion to cover losses from soured mortgages and other loans in the second quarter.

"Quite frankly, the results were pretty dismal," FDIC Chairman Sheila Bair said at a news conference, but they were not surprising given the housing slump, a worsening economy, and disruptions in financial and credit markets.

The majority of U.S. banks "will be able to weather" the economic and housing storms, with 98 percent of them still holding adequate capital by the regulators' standards, Bair said.

Total assets of troubled banks jumped from $26 billion to $78 billion in the second quarter, the FDIC said, with $32 billion of the increase coming from IndyMac Bank, which failed in July — the biggest regulated thrift to fail in the United States.

"More banks will come on the (troubled) list as credit problems worsen," Bair said.

"Assets of problem institutions also will continue to rise."

Nine FDIC-insured banks have failed so far this year, compared with three in all of 2007.

More banks are in danger of collapsing this year, Bair and other FDIC officials said, and they expect turbulence in the banking industry to continue well into next year.

IndyMac's failure and others in the quarter reduced the federal deposit insurance fund from $53 billion to $45 billion.

Bair said the agency will raise insurance premiums paid by banks and thrifts to replenish its reserve fund and bolster depositors' confidence.

The $50.2 billion set aside to cover loan losses in the April-June period was four times the $11.4 billion the banking industry salted away a year earlier.

Nearly a third of the industry's net operating revenue went into building up reserves against losses in the latest quarter, according to the FDIC.

Except for the fourth quarter of 2007, the earnings reported Tuesday were the lowest for the banking industry since the final quarter of 1991, the agency said.

Concern has been growing over the solvency of some banks amid the housing slump and the steep slide in the mortgage market.

The pressures of tighter credit, tumbling home prices and rising foreclosures have been battering banks of all sizes nationwide.

The FDIC has been keeping an especially close eye on banks and thrifts with high levels of exposure to the riskiest borrowers and markets, agency officials say, including subprime mortgages and construction loans in overbuilt areas.

Another area of potential concern: banks' holdings of preferred stock of troubled mortgage giants Fannie Mae and Freddie Mac.

A government rescue of the companies, whose share prices have rebounded a bit this week after plummeting recently as they struggle with billions of dollars in losses from bad mortgages, could be costly for scores of banks that hold billions in their preferred shares.

"We're closely monitoring that situation," Bair said.

The FDIC said troubled assets — loans that are 90 or more days past due — continued to rise in the second quarter, jumping by $26.7 billion, or 19.6 percent, over the first quarter.

It was the first time since 1993 that the percentage of total loans that were troubled broke 2 percent, at 2.04 percent.

The agency doesn't disclose the names of institutions on its internal list of troubled banks.

On average, 13 percent of banks that make the list fail.

Pasadena, Calif.-based IndyMac was taken over by the FDIC on July 11 with about $32 billion in assets and deposits of $19 billion.

It was the second-largest financial institution to close in U.S. history, after Continental Illinois National Bank in 1984.

"S&P: Home prices drop by record amount in 2Q - Private housing index shows home prices tumbling by record amount nationwide in June"

Associated Press

Last updated: 10:32 a.m., Tuesday, August 26, 2008

NEW YORK -- A widely watched index released Tuesday showed home prices dropping by the sharpest rate ever in the second quarter, but the data for June suggest the severity of the housing slump may be waning.

The Standard & Poor's/Case-Shiller U.S. National Home Price Index tumbled a record 15.4 percent during the quarter from the same period a year ago.

The monthly indices also clocked in record declines.

The 20-city index fell by 15.9 percent in June compared with a year ago, the largest drop since its inception in 2000.

The 10-city index plunged 17 percent, its biggest decline in its 21-year history.

However, the rate of single-family home price declines slowed from May to June, a possible silver lining, the index creators said.

"While there is no national turnaround in residential real estate prices, it is possible that we are seeing some regions struggling to come back, which has resulted in some moderation in price declines at the national level" said David M. Blitzer, chairman of the index committee at S&P.

Fourteen cities in the monthly index showed improvement from May to June, but nine recorded positive returns.

The index's glimmer of hope follows another surprisingly positive housing headline on Monday.

Existing home sales rose in July, surpassing expectations, as buyers snatched up cheap distressed properties in the hardest hit housing markets.

Still, on a year-over-year basis, no city in the Case-Shiller 20-city index saw price gains in June, the third straight month that's happened.

Las Vegas led the largest annual declines, falling 28.6 percent followed by Miami at 28.3 percent and Phoenix at 27.9 percent.

Charlotte, N.C., the last city in the index to report depreciation during the current housing downturn, posted its largest drop since 1991 at 1 percent.

"Gov't home price index posts largest-ever drop - US home prices fall 4.8 percent in second quarter in largest drop in 17 history of gov't index"

By ALAN ZIBEL, Associated Press

Last updated: 10:32 a.m., Tuesday, August 26, 2008

WASHINGTON -- U.S. home prices fell 4.8 percent in the second quarter compared with a year ago, a new record low, according to a government report.

The government index for the April-June period, released Tuesday by the Office of Federal Housing Enterprise Oversight focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year.

The previous record annual drop in the index's 17-year history was 3 percent and was set from January through march of this year.

The government index also fell 1.4 percent from the first quarter to the second quarter.

That was a smaller drop than the record quarterly decline of 1.7 percent set in the first quarter.

As the housing market has turned into a bust over the past year, the most severe price declines have been seen in Western states.

California's prices fell by nearly 16 percent, while Nevada's prices fell by 14 percent.

Also showing big price declines were Florida, where prices fell 12 percent, Arizona, where they fell 9 percent, and Rhode Island, where they fell by 5 percent.

"The most overbuilt areas of the country -- including California, Nevada, Arizona, and Florida -- contrast greatly with most other states, where prices are declining more moderately or even increasing," OFHEO Chief Economist Patrick Lawler said in a statement.

Prices in the weakest markets, he said, have receded to late-2005 levels.

OFHEO regulates the government-sponsored mortgage finance companies, Fannie Mae and Freddie Mac.

Under the housing bill signed by President Bush last month, its functions will be folded into a new agency, the Federal Housing Finance Agency.

Also Tuesday, a widely watched index released Tuesday showed home prices dropping by the sharpest rate ever in the second quarter.

The Standard & Poor's/Case-Shiller national home price index tumbled a record 15.4 percent during the quarter from the same period a year ago.

"New-home sales rose slightly in July, prices fell - Commerce Department says new-home sales rose slightly in July; prices continued to sink"

By JEANNINE AVERSA, Associated Press

Last updated: 12:13 p.m., Tuesday, August 26, 2008

WASHINGTON -- Sales of new homes rose in July, but still fell short of economists' expectations, and home prices continued to sink.

The Commerce Department reported Tuesday that new-home sales rose by 2.4 percent last month to a seasonally adjusted annual rate of 515,000 units, the most since April.

But sales in June had plummeted to a pace of just 503,000 -- down from previous estimates of 530,000 -- to mark the worst showing since September 1991.

Economists forecasted sales to drop in July, but expected the pace to be around 525,000.

Given June's sharp downward revision, the level of home sales in July turned out to be less than analysts were anticipating.

Even with the over-the-month increase, new-home sales are down a whopping 35.3 percent from last July, underscoring just how much the housing market has eroded.

However, David Seiders, chief economist at the National Association of Home Builders, is looking for the pace of new-home sales to stabilize in the second half of this year.

Home prices also continued to sag.

The average price of a new-home sold in July was $294,600, down 4.1 percent from a year ago.

The median home price -- where half sell for more and half for less -- was $230,700, down 6.3 percent from last year.

"Buyers have the upper hand."

"Builders responded with price cuts," Seiders said.

A separate report, released Tuesday, showed that home prices dropped by the sharpest rate ever in the second quarter.

The Standard & Poor's/Case-Shiller U.S. National Home Price Index tumbled a record 15.4 percent during the April-June period.

The National Association of Realtors reported Monday that sales of previously-owned homes rose in July as discounts lured buyers.

However, the number of unsold properties hit an all-time high, an indication that the worst housing slump in decades is far from over.

Fallout from the housing crisis is one of the biggest problems facing the country.

It has figured prominently into the economy's sharp slowdown.

Foreclosures have climbed to record highs, financial companies have chalked up multibillion-dollar losses, and home builders have been clobbered.

Earlier this month, Horsham, Pa.-based homebuilder Toll Brothers Inc. reported dismal third-quarter results as its revenue fell 34 percent and its order backlog plunged 52 percent.

Atlanta-based Beazer Homes USA Inc. also reported a difficult third quarter, as revenue fell by 40 percent.

Consumers have watched their single-biggest asset slump in value, making them feel less wealthy and less inclined to spend.

"It's clear it will still take some time to work though the downturn in housing," said White House spokesman Tony Fratto.

"Once housing prices stabilize that will signal a return to a housing industry that can contribute to economic growth."

A growing number of analysts believe the economy will hit another deep pothole later this year as the bracing effects of the government's tax rebates fades.

The Federal Reserve, however, can't afford to slice interest rates further to bolster the fragile economy out of fears it will worsen inflation.

The Fed in June ended its most aggressive rate-cutting campaign in decades.

Economists believe the Fed will leave rates alone when it meets next on Sept. 16, as well as through the rest of this year.

Even with the government's housing-rescue package signed into law by President Bush last month, foreclosures are expected to keep rising into next year.

Meanwhile, there's questions about the future ability of mortgage finance giants Fannie Mae and Freddie Mac to supply money for home loans.

The two companies have cut back the availability of mortgages as they cope with growing losses from foreclosures.

The companies' stocks have been hammered recently as investors become increasingly convinced that a government bailout will be needed.

"Hog producer Smithfield Foods swings to 1Q loss - Smithfield Foods swings to 1st-quarter loss as it takes $20M write-down on commodity contracts"

By EMILY FREDRIX, Associated Press

Last updated: 3:12 p.m., Tuesday, August 26, 2008

MILWAUKEE -- Smithfield Foods Inc. swung to a loss in its fiscal first quarter as high commodity costs hurt the nation's largest pork producer and processor.

The commodities market is so volatile, its chief executive said, the company doesn't even want to try to predict its future earnings.

Costs for key ingredients like corn and soybean meal were up more than 33 percent in the quarter and the price it took to raise hogs soared 25 percent.

The hog production sector lost $38.8 million -- down from a profit of $93 million a year ago -- on the higher costs.

Overall, Smithfield said Tuesday, it lost $12.6 million, or 9 cents per share, in the period, down from a profit of $54.6 million, or 41 cents per share, a year earlier.

The company said the loss was due in part to a $20.1 million write-down in the value of commodity contracts, which hurt earnings by 15 cents a share.

The commodity markets seem to be improving a bit, said C. Larry Pope, Smithfield's president and chief executive.

But he told investors in a conference call that the changing market is "staggering to us on a daily basis" and the company declined to predict the rest of its fiscal 2009 year because of it.

Smithfield, like other meat producers and food makers, is hurting from high costs for top ingredients like grain and fuel.

Chicken producer Sanderson Farms Inc. said Tuesday it posted a third-quarter loss of $3.6 million, or 18 cents a share, on the higher feed prices.

A year earlier, the Laurel, Miss.-based company earned $30.7 million, or $1.51 per share.

Companies are also hurting because an oversupply of meat on the market is keeping prices down.

So Smithfield and others are cutting production to boost that back up.

They're also raising prices too.

Pope said there will be fewer hogs on the markets in 2009 compared to this year.

The company also said Tuesday that Butterball LLC, its joint-venture turkey operation, will look at cutbacks as well.

Pope declined to give a number other than saying the company was "reacting to the supply issue significantly."

So with the cuts, it will be the grain market that plays a big factor in the new year.

"They continue to be so volatile and it is so difficult to predict the future because we can't get a handle on where grain costs are going to be on any kind of a long-term basis at all," Pope said.

The quarter was also hurt by a $5.5 million, or 4 cent per share, charge related to asset sales by Campofrio Alimentacion SA, a Spanish processed-meats company.

During the quarter, the company said it will sell its European subsidiary business, Groupe Smithfield, to Campofrio.

After the deal closes, Smithfield will own 36 percent of Campofrio.

Sales at the Smithfield, Va.-based company rose 20 percent to $3.14 billion from $2.62 billion in the quarter ending July 27.

Wall Street analysts, who typically exclude one-time costs, expected a loss of 4 cents per share on $2.87 billion in sales, according to Thomson Reuters.

But there was good news in the quarter.

Pork segment profits more than doubled to $61.7 million, as the business was driven by strong export demand.

Generally the first quarter is the weakest for the year for fresh pork but this quarter, export volume also more than doubled on large jumps in shipments in China, Russia, Japan, Mexico and the European Union.

Smithfield said exports jumped because of the weak U.S. dollar, which makes American products like Smithfield relatively inexpensive, and the fact that pork prices were rising significantly in many other countries.

Fresh pork volume rose 33 percent in the quarter on the increased exports.

Christopher Shanahan, a research analyst with Frost & Sullivan, said food companies need to diversify into new and growing markets in order to counteract sluggishness in the U.S.

"They're definitely going in the right direction in terms of becoming more global in order to survive in the North American market," he said of Smithfield.

The slumping U.S. economy may have boosted the company's packaged meat sector.

Though volume was flat, convenience products grew in the quarter.

Spiral hams and precooked ribs saw continued double-digit volume growth.

While food companies are seeing their profits hurt by rising costs, they're also benefiting from the trend of cost-conscious consumers increasingly choosing to eat more at home, and not in restaurants, to save money.

Smithfield said it will continue to move to more higher margin and consumer-ready products in its packaged meat sector.

Ultimately, Fannie and Freddie will go BK; the reason the government is holding off on this (mostly by bloviating and by the "too big to fail" BS line) is that there is a lot of European money in F and F stocks. If those become worthless, the Eurs will shun the US stock market, and that will add to the downward pressure.

my 2 cents.

With all the modern laundry machines out these days, people don't know what wringers are anymore ....

But this thing with Freddie and Fannie, jeffmoskin, seems to be a classic case of having your teats caught in a wringer all the way up to your armpits ....

I always think back to my school teachers who told us kids that nothing like this could ever happen in our lifetimes here in America because of all the lessons we supposedly learned back in the GREAT DEPRESSION ...

YEAH, RIGHT ....

And so ...

should have listened to your teachers, Liv.

The cure to a great depression is liquidity, and since Nixon went off the gold standard, they can be as liquid as they need to be.

PRINT MONEY.

And vee haff herr Kissinger to thank for making the dollar the SOLE payment form for oil. So Cheney can jack up the price of oil to make a market for those newly printed dollars.

Here in BushWorld... a parallel reality.

A parallel reality, alright .....

A warped parallel reality, at best .....

By endlessly printing money, the bearded BUSHIAN "BENNY BOUNCE" Bernanke is making the **** totally worthless ....

The more he prints, the more worthless he makes the **** ....

So we are going to get into rampant inflation the more worthless the money becomes ....

And if I recall my teachers, that is the way it was back in the GREAT DEPRESSION, when you needed a wheelbarrow full of the worthless money back then just to buy a loaf of bread ....

And so ....

"Fannie Mae shakes up management team - Mortgage finance firm Fannie Mae shakes up executive ranks as shares rise for 3rd straight day"

By ALAN ZIBEL, Associated Press

Last updated: 5:43 p.m., Wednesday, August 27, 2008

WASHINGTON -- Mortgage finance giant Fannie Mae shook up its executive ranks Wednesday, after shares in it and sibling company Freddie Mac rose for a third straight day as investors appeared less certain a government bailout of the two troubled companies is imminent.

Fannie Mae, the largest buyer and backer of U.S. home mortgages, said its chief financial officer and two other top executives are leaving the company.

Three current executives were promoted to replace them.

Fannie Chairman Stephen B. Ashley said in a statement that board members remain "firmly committed" to Chief Executive Daniel Mudd.

Mudd was elevated to the top post in December 2004 when former CEO Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal.

Fannie and Freddie saw their stock prices plummet last week as fears mounted they would soon need government support and that any bailout would leave stockholders in the lurch.

The government-sponsored companies hold or guarantee half the U.S. mortgage debt and are considered crucial to the mortgage market's continued operation.

But shares of both have climbed back in recent days, as analysts have cast doubt on whether any government rescue is truly inevitable.

Fannie shares rose 86 cents, or 15.3 percent, to $6.48 Wednesday, while Freddie advanced 78 cents, or 19.7 percent, to $4.75.

Fannie Mae said CFO Stephen Swad, who joined the company last year from Internet company AOL LLC, is leaving to "pursue other opportunities" in the private equity business.

He is being replaced by David C. Hisey, formerly Fannie's senior vice president and controller.

Peter Niculescu, formerly head of the company's capital markets business, was named chief business officer, replacing the retiring Robert J. Levin.

Michael Shaw, formerly a senior vice president for credit risk oversight, is taking over as chief risk officer for Enrico Dallavecchia, who is also leaving the company "to pursue other opportunities in finance and risk management."

But banking industry consultant Bert Ely, a longtime Fannie and Freddie critic, was unimpressed by the changes, noting that the company promoted current executives, rather than hiring from outside.

"I don't see these changes making a dramatic difference in how the whole Fannie and Freddie fiasco plays out," Ely said.

The Bush administration last month unveiled a plan to provide unlimited government loans to the two mortgage giants and to purchase stock in the two companies if needed for a period covering the next 18 months.

But Merrill Lynch analyst Kenneth Bruce wrote in a research note Wednesday that speculation about an infusion of capital by the U.S. government is "somewhat premature" as Fannie and Freddie's financial cushion against losses won't be depleted for several quarters.

Investors "are overly discounting a possible catastrophic event," he wrote.

Similarly, Citigroup analyst Bradley Ball said in a research note Monday that Fannie and Freddie still have options despite their steep stock declines in recent weeks, adding that "we are not convinced that (the government) needs to take any action over the near term."

Washington-based Fannie Mae completed a $2 billion sale of short-term debt on Wednesday, two days after McLean, Va.-based Freddie Mac sold the same amount of debt.

Large money market funds, which are major buyers of Fannie and Freddie's short-term debt, are still comfortable holding it, said Peter Crane, president of Crane Data LLC, which tracks money market mutual funds.

"Most managers are taking the position that it would unthinkable to imagine a scenario where (the government) wouldn't back the debt," he said.

Other analysts, however, continue to express a gloomier outlook.

Peter Schiff, president of Euro Pacific Capital in Darien, Conn., a longtime bearish investor, predicts that the companies' losses could eventually hit $1 trillion or more as housing prices fall far further than most analysts expect.

"The end result is probably going to be that they go bankrupt and the government nationalizes the function," Schiff said.

"There's no way they can survive."

Concern also has been growing that a government rescue of Fannie and Freddie could be costly for scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares.

The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.

Banks that could suffer the most include Gateway Financial Holdings Inc., Midwest Banc Holdings Inc., Financial Institutions Inc., Westamerica Bancorp. and Sovereign Bancorp Inc., analysts at Friedman, Billings Ramsey & Co. said in a research note Wednesday.

Fannie Mae held $47 billion in "core capital" -- the main measurement of the company's ability to withstand losses -- as of June 30, $9.4 billion above government requirements.

Freddie Mac's $37.1 billion in core capital was $2.7 billion more than government-required levels.

Still, many investors believe that cushion could wither away due to soaring losses from bad mortgages.

"US thrifts 2Q loss of $5.4B is second largest ever - US thrifts lost $5.4 billion in second quarter; set aside record $14 billion for problem loans"

By MARCY GORDON, Associated Press

Last updated: 1:42 p.m., Wednesday, August 27, 2008

WASHINGTON -- U.S. thrifts lost $5.4 billion in the second quarter and set aside a record amount to cover losses from bad mortgages and other loans.

Data from the U.S. Office of Thrift Supervision released Wednesday show federally-insured savings and loan institutions posted their second-largest quarterly loss ever in the April-June period, after the $8.8 billion loss in the fourth quarter of last year.

Heavily focused on mortgage lending, thrifts have been stung by mounting home-loan defaults.

The $5.4 billion quarterly loss compared with net profits of $3.8 billion in the year-ago period, and a loss of $627 million in the first quarter.

The 829 thrifts also set aside a record $14 billion to cover losses from bad mortgages and other loans.

John Reich, the thrift agency's director, said 98 percent of institutions still have adequate capital to weather the housing and economic turbulence.

"I look for glimmers of hope," Reich said at a news briefing.

"The glimmer of hope here is that the industry as a whole is structurally profitable."

The slump in the housing market and credit-market tumult will eventually turn around after the cycle -- which now appears to be at its midpoint -- is exhausted, Reich said.

Reich and other banking regulators have been pointing out differences between the current situation and the savings and loan crisis of the late 1980s and early 1990s, citing banks' stronger capital positions and a fatter federal deposit insurance fund.

The report from the agency, a division of the Treasury Department, came a day after the Federal Deposit Insurance Corp. said the number of troubled banks and thrifts jumped to 117 -- the highest level since mid-2003.

The FDIC also said profits earned by banks and savings and loans plunged by 86 percent in the second quarter, to $5 billion.

The thrift agency said its number of problem institutions grew to 17 at the end of the second quarter from 10 a year earlier.

The agency said the amount that savings associations set aside for problem loans soared in the second quarter to 3.68 percent of average assets from 0.38 percent a year earlier.

Thrifts differ from banks in that, by law, they must have at least 65 percent of their lending in mortgages and other consumer loans -- making them particularly vulnerable to the persistent housing downturn.

The institutions regulated by the Office of Thrift Supervision range in size from big lenders like Seattle-based Washington Mutual Inc. and Sovereign Bancorp Inc. of Philadelphia to small community banks.

Shares of Washington Mutual dipped 4 cents to $3.55 in afternoon trading, while Sovereign Bancorp added 18 cents to $8.79.

As a percentage of total assets, thrifts' troubled assets rose to the highest level since the early 1990s, the final years of the savings and loan crisis.

They came in at 2.68 percent of assets for the quarter, up from 0.95 percent in the year-ago period.

Like banks, thrifts are being closely examined by federal inspectors for signs of heavy exposure to declining markets or troubled areas such as construction and real estate loans.

The largest bank failure in years occurred in July and involved a thrift.

Pasadena, Calif.-based IndyMac Bank was the biggest regulated thrift to fail and the second-largest financial institution to close in U.S. history, after Continental Illinois National Bank in 1984.

It was taken over by the FDIC with about $32 billion in assets and deposits of $19 billion.

IndyMac succumbed to the pressures weighing on institutions of all sizes nationwide: tighter credit, tumbling home prices and rising foreclosures.

Eight other FDIC-insured banks have failed so far this year, compared with three in all of 2007, and more are expected to collapse this year.

That was in Germany, where the government was printing up a frenzy in order to make reparations payments. For a while, the Germans were playing the US stock market using 90% leverage and getting by okay. Then came 1929. That left the presses. The main point is that Germany had no other uses for those extra Deutschmarks. Unlike Dollars which are the GLOBAL RESERVE CURRENCY which all countries MUST USE to buy oil, you only needed Marks to buy German goods.

They didn't get away with it.

We might not either.

Bankers always think they can, though.

That, jeffmoskin, could well be a sub-title for this very thread ....

"Spring's economic rebound unlikely to last - Spring's economic strength unlikely to last given slowdowns overseas, struggling consumers"

By JEANNINE AVERSA, Associated Press

Last updated: 4:53 p.m., Thursday, August 28, 2008

WASHINGTON -- The economy pulled out of a dangerous rough patch in the spring, thanks largely to strong exports, but the rebound isn't expected to last.

Economic slowdowns overseas could make exports tail off just as Americans are hunkering down after the bracing impact of rebate checks wanes, plunging the country into another rut later this year.

"There will be heavy sledding for the U.S. economy during the next couple of quarters," predicted Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.

Gross domestic product, or GDP, grew at a 3.3 percent annual rate in the April-June quarter, its fastest pace in nearly a year, the Commerce Department reported Thursday.

The revised reading was much better than the government's initial estimate of a 1.9 percent pace and exceeded economists' expectations for a 2.7 percent growth rate.

The rebound followed two dismal quarters.

The economy actually shrank in the final three months of 2007 and barely budged in the first quarter at a minuscule 0.9 percent pace.

The 3.3 percent growth in the spring was the best performance since the third quarter of last year, when the economy was chugging along at a brisk 4.8 percent pace.

White House press secretary Dana Perino said the numbers demonstrated the economy's resilience in the face of many challenges.

But she added:

"No one is doing a victory dance."

Others agreed that the growth pickup wasn't a sign of better days ahead.

Analysts predict the second quarter will represent the high point for economic activity this year.

It's "the last hurrah for this economic cycle," said Martin Regalia, chief economist for the U.S. Chamber of Commerce.

Federal Reserve Chairman Ben Bernanke has warned the economy will be weak through the rest of 2008.

Economists believe growth will slow in the July-September quarter to a pace of around 1.5 percent, and will turn even weaker in the fourth quarter.

Some, including Regalia, think the economy might jolt into reverse yet again.

GDP measures the value of all goods and services produced within the U.S. and is the best barometer of the country's economic health.

The economy is the top concern for Americans.

Democratic presidential contender Barack Obama favors a second government stimulus package, while Republican rival John McCain supports free trade and other business measures to buttress the economy.

On Wall Street, the GDP report lifted stocks.

The Dow Jones industrials jumped 212.67 points to close at 11,715.18.

For months, housing, credit and financial troubles have hammered the economy.

In turn, employers have clamped down on hiring, driving the nation's unemployment rate up to 5.7 percent in July, a four-year high.

The Labor Department said Thursday the number of people signing up for jobless benefits declined last week for the third straight period, but remained above 400,000 -- an indicator of a slowing economy.

Health care products maker Abbott Laboratories, telecommunications provider Embarq Corp., and aluminum maker Alcoa Inc. are among the companies recently announcing layoffs.

Employers have cut jobs every month this year and wage growth is trailing inflation.

That combination raises concerns about the future of consumer spending, one of the pillars underpinning the economy.

The biggest factor in the GDP's second-quarter rebound was robust sales of U.S. exports.

The weaker value of the U.S. dollar has bolstered those sales, which accounted for half of the gain in GDP.

Exports grew at a 13.2 percent pace in the spring, more than double the 5.1 percent growth rate logged in the first quarter.

Imports, meanwhile, fell at a 7.6 percent annualized pace in the spring, as economic troubles in the U.S. crimped demand for foreign-made goods.

The improved trade picture added 3.1 percentage points to second-quarter GDP, the most since 1980.

Against that backdrop, Japan's Toyota Motor Corp. on Thursday lowered its global sales target for next year, proof that even one of the world's most durable automakers is being hurt by a slowing U.S. market.

"With the rest of the world now slowing and the dollar off its lows, the U.S. will be more reliant on domestic demand in coming quarters," said Nigel Gault, an economist at Global Insight.

"Since consumer spending is slowing down and the credit crunch is tightening its grip, it is hard to foresee another quarter with such a robust GDP headline for some time."

U.S. consumers did boost their spending at a 1.7 percent pace in the second quarter, the best showing in nearly a year.

Government stimulus checks of up to $600 a person helped energize shoppers.

But many expect consumers to pull back in the months ahead as unemployment rises, paychecks shrink and their biggest asset -- their homes -- continue to sink in value.

The effects of the housing market's collapse were evident in the GDP report.

Builders cut back at an annual rate of 15.7 percent in the second quarter-- although that was a better showing than early this year and late last year.

Businesses trimmed spending on equipment and software in the spring.

And, they reduced investment in inventories, but not as much as initially estimated by the government.

That also contributed to the improved GDP reading.

One measure of corporate profits showed companies losing ground in the second quarter.

After-tax profits fell 3.8 percent in the spring, compared with a 1.1 percent increase in the first quarter.

With the economy still coping with fallout from housing and credit problems, the Fed is expected to hold interest rates steady at its next meeting on Sept. 16, and probably through the rest of this year.

------

AP Writers Christopher S. Rugaber and Ben Feller contributed to this report.