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News Briefs 01-09-2006

One of my infamous ‘everything but the kitchen sink’ editions…

Thanks Greg.

Quote of the Day:

What I am going to tell you is going to seem preposterous. It may be very hard for you to believe that our government and the largest defense contractor in the world [are] capable of such alarming incompetence, and can make ethical compromises as glaring as what I am going to describe.

Former Lockheed Martin engineer, Michael De Kort, in his YouTube whistleblower video.

  1. Lockheed Martin Whistleblower
    Did anyone notice that it says “Adding comments have been disabled for this video” where you should be able to post comments. Wonder if there is something ligitimate about this video and someone is not wanting the public to discuss it?

  2. Housing Market
    Poor Foresight Equals Poor Return

    Below are excerpts from that article. Here are my questions: Why lend to people who have no intention whatsoever in paying it back, want something for nothing and (with malice and forethought) manipulate the very lending system? Knowing that they will “File Bankruptcy” to avoid the staggering debt they alone have caused and (in turn it’s punishing the ones who do pay their debts in a timely manner) why overlook these evident facts from their credit history or the fact they have no history on which to base a loan in the first place?

    >Lenders like Accredited Home Lenders and Countrywide Financial have been hammered, as has H&R Block, which announced one of what I suspect will be many charges for bad loans. Oh hey, and put First Horizon into the group that’s hurting for lack of lending.< >That’s right, the last leg of Greenspan’s bubble may be collapsing under the weight of farcical accounting — trickery that would get you tossed in jail if you tried it at an American corporation. < -----------------------------Truth is stranger than fiction.

    1. housing smackdown
      I initially thought the Motley Fool’s ‘Housing bust could get ugly’ was a reasonably grim portrayal of what’s headed our way — but that was before I took a look at his source – Nouriel Roubini’s blog – and realized Motley Fool was actually soft-peddling the situation:

      Roubini recently blogged about ‘Eight Market Spins About Housing by Perma-Bull Spin-Doctors…And the Reality of the Coming Ugliest Housing Bust Ever‘.

      If you do a search for “Nouriel Roubini”, you’ll find many articles along the lines of Warnings of a US recession and global slowdown.

      More worrisome still, I’ve yet to find a ‘housing bust’ article that also takes into consideration the economic effects of the world-wide droughts.

      Kat

      1. TY for the links
        Thanks Kat! All good, I read them with much interest. I am sending them on to another friend.

        An Adjunct From The Housing Boom

        Stripping the land of forests. No replanting. Loss of topsoil. Manufacturing of timber products usage of chemicals and dumping into rivers and streams or simply onto land where run off occurs.

        A close relative is doing research on Lysteria contamination in water sources. This from poor timber cutting practices, excessive run off into farming and breeding areas. Where over use of chemicals/medicinals in the usage and practice of farming and husbandry. Affecting end product of ingested food stuffs, the sewage then dumped or settles into water tables. Which are now dangerously low. Leading to massive killoffs in wetlands and off shore. Thus far the shocking increase in marine food source infections is rising to proportions hitherto unseen in marine biology studies. Proliferation of hostile species and aberrant forms of infections mutated from toxic run off.

        Funny/Odd (or not) how it all is connected and it’s subsequent effects affect us all. Pam

        Lysteria Infection

        Infection caused by the bacterium Lysteria monocytogenes which can be found in refrigerated and frozen dairy products. Infection in pregnant women can lead to infection of the foetus causing learning disabilities. (extensive studies on the effects on learning disabilities)

        Animal food-stuffs are known to be potential vehicles of Listeria monocytogenes. The contamination can be caused from processing or enviromental sources and from infected animals. This hypothesis has been checked in the present work. The authors found that 13.2% of 189 swines were carriers of Listeria monocytogenes, the microrganism was isolated from salivary glands, mesenterial gangles and tonsils. The authors suggest some preventive intervention to reduce both the environmental circulation of Listeria monocytogenes and the human risk of infection.

        LINDENMAYER: Another of the pathogens is something called Lysteria monocytogenes. Lysteria historically was thought of as something that threatened on the very young, the very old and pregnant women, particularly foetuses of pregnant women. Now in fact in the last year there have been quite a large number of deaths in the United States of healthy adults as a result of a form of lysteria.

        From a 2002 report from Australia
        http://sunday.ninemsn.com.au/sunday/cover_stories/transcript_360.asp

        Thanks again Kat for the links. Love, pam —————————–Truth is stranger than fiction.

      2. Worldwide Drought

        Hi Kat,
        This is not an attack on you so please don’t take offence. I merely want to make a point.

        I read your article. I take issue with the phrase used. This is not your error – you are using the same term that everyone else uses. I just don’t like what it implies. The phrase “Worldwide droughts” implies that the world is short of water. We still have the same amount of water or more that we always did, it just moved.

        Droughts are local events; there is no worldwide drought. Yes, you can find many news articles that say that there are “worldwide droughts” or even “worldwide drought”, but if you read the articles they are referencing local conditions. At present we are having a drought in northwest Texas. However, out in El Paso in extreme west Texas, they are having unprecedented flooding from rare heavy rainfall. While there’s a drought in the mid-western US, the US east coast in suffering a hurricane that is dumping 8 to 12 inches per hour in the area. My point is that one can find articles that Texas or the US is having a drought but the articles are not completely accurate.

        I can’t find worldwide statistical rainfall data that I’m sure that I believe. Rainfall is measured at particular location but who measures the rainfall over the wet part – the two-thirds of the planet that’s covered in water. How about NASA?

        This article from PhysOrg.com, NASA finds stronger storms change heat and rainfall worldwide states that an analysis indicates that a warming climate has been accompanied by fewer rain- and snow-producing storms in mid-latitudes around the world, but the storms that are happening are a little stronger with more precipitation. I do read here that the storms in mid-latitudes worldwide have become fewer but also stronger with more rain. My understanding here is that there is actually more precipitation, not less. Thus, since this is happening all over the world, might state that we are having worldwide floods.

        I refer you to Ansit Biswas, winner of the 2006 Stockholm Water Prize. This expert states that there is not a water shortage but rather, a water management problem. I believe he is correct.

        My point here is that I don’t believe there are “worldwide droughts” that are changing the amount of overall available water. I do believe that we have climate changes. There may be more precipitation than before. but not less. But, “It rains more/less here than it did.” doesn’t have the same sensationalism as “Worldwide Droughts”.

        Bill

        1. movement and consentration
          your right Bill to point this out. I am not an advocate of global warming. I believe we are witnessing slight change. This means that the heavy rainfall is still happening but a hundred miles or so away from where it did. We here are in a draught, a bad draught but still come within the annual rainfall for the area. But the rain is in dribs and drabs so does not help. Yet there are places within hundred miles that have had twice their annual rainfall. They talk about Greenland melting and also the permafrost in Russia. If the cloud cover and snow fall in those areas are way less then this would happen. But then we see places having snow and blizards that have never had them. The tempeture will rise in areas that have less rain or snow and cloud cover then they normally do.
          So water management is the key……….

  3. Housing smackdown – the ‘option ARM’ scam
    Why is it that articles like this are never published as the scam is gathering momentum, but only after the article is too late to do most people any good???

    The bold emphasis, below, is mine, and I edited so heavily for length, this might best be called an excerpt. Anyone who owns banking stocks or ‘mortgage-backed securities’ definitely needs to read this article.

    Nightmare Mortgages

    For cash-strapped homeowners, it was a pitch they couldn’t refuse: Refinance your mortgage at a bargain rate and cut your payments in half. New home buyers, stretching to afford something in a super-heated market, didn’t even need to produce documentation, much less a downpayment.

    Those who took the bait are in for a nasty surprise. While many Americans have started to worry about falling home prices, borrowers who jumped into so-called option ARM loans have a more urgent problem: [their] payments are about to skyrocket.

    …Many of the option ARMs taken out in 2004 and 2005 are resetting at much higher payment schedules – often to the astonishment of people who thought the low installments were fixed for at least five years. And because home prices have leveled off, borrowers can’t count on rising equity to bail them out. What’s more, steep penalties prevent them from refinancing. …

    There was plenty more going on behind the scenes they didn’t know about, either:
    — that their broker was paid more to sell option ARMs than other mortgages,
    — that their lender is allowed to claim the full monthly payment as revenue on its books even when borrowers choose to pay much less,
    — that the loan’s interest rates and up-front fees might not have been set by their bank but rather by a hedge fund, and
    — that they’ll soon be confronted with the choice of coughing up higher payments or coughing up their home.

    The option ARM is ‘like the neutron bomb’, says George McCarthy, a housing economist at New York’s Ford Foundation. ‘It’s going to kill all the people but leave the houses standing.

    Because banks don’t have to report how many option ARMs they underwrite, few choose to do so. But the best available estimates show that option ARMs have soared in popularity. They accounted for as little as 0.5% of all mortgages written in 2003, but that shot up to at least 12.3% through the first five months of this year… And while they made up at least 40% of mortgages in Salinas, CA, and 26% in Naples, FL, they’re not just found in overheated coastal markets: Through Mar. 31 of this year, at least 51% of mortgages in West Virginia and 26% in Wyoming were option ARMs. Stock and bond analysts estimate that as many as 1.3 million borrowers took out as much as $389 billion in option ARMs in 2004 and 2005. And it’s not letting up. Despite the housing slump, option ARMs totaling $77.2 billion were written in the second quarter of this year…

    After prolonging the boom, these exotic mortgages could worsen the bust. They also betray such a lack of due diligence on the part of lenders and borrowers that it raises questions of what other problems may be lurking. And most of the pain will be borne by ordinary people, not the lenders, brokers, or financiers who created the problem.

    Gordon Burger is among the first wave of option ARM casualties. The 42-year-old police officer from a suburb of Sacramento, CA is stuck in a new mortgage that’s making him poorer by the month. Burger, a solid earner with clean credit, has bought and sold several houses in the past. In February he got a flyer from a broker advertising an interest rate of 2.2%. It was an unbeatable opportunity, he thought. If he refinanced the mortgage on his $500,000 home into an option ARM, he could save $14,000 in interest payments over three years. Burger quickly pulled the trigger, switching out of his 5.1% fixed-rate loan. ‘The payment schedule looked like what we talked about, so I just started signing away,’ says Burger. He didn’t read the fine print.

    After two months Burger noticed that the minimum payment of $1,697 was actually adding $1,000 to his balance every month. ‘I’m not making any ground on this house; it’s a loss every month,’ he says. He says he was told by his lender… that he’d have to pay more than $10,000 in prepayment penalties to refinance out of the loan. If he’s unhappy, he should take it up with his broker, the bank said. ‘They know they’re selling crap, and they’re doing it in a way that’s very deceiving,’ he says. ‘Unfortunately, I got sucked into it.’

    The loans certainly meet the needs of banks. Option ARMs offer several payment choices each month. Among Burger’s alternatives were one for $2,524, about what a standard fixed-rate mortgage would be on the new amount, and the $1,697 he pays. Why would his bank make the minimum so low? Thanks to a perfectly legal accounting practice, no matter how little Burger pays each month, the bank gets to record the full amount.

    So how did these unusual loans get into the hands of so many ordinary folks? The sequence of events was orderly and even rational, at least within a flawed system. In the early years of the housing boom, falling interest rates made safe fixed-rate loans attractive to borrowers. As home prices soared, banks pushed adjustable-rate loans with lower initial payments. When those got too pricey, banks hawked loans that required only interest payments for the first few years. And then they flogged ‘option ARMs’ — not as financial-planning tools for the wealthy but as affordability tools for the masses. Banks tapped an army of unregulated mortgage brokers to do what needed to be done to keep the money flowing, even if it meant putting dangerous loans in the hands of people who couldn’t handle or didn’t understand the risk. And Wall Street greased the skids by taking on much of the new risk banks were creating.

    Now the signs of excess are crystal clear. Up to 80% of all option ARM borrowers make only the minimum payment each month… The rest of the money gets added to the balance of the mortgage, a situation known as negative amortization. And once [the balance on the mortgage grows] to a certain amount, the loan automatically resets at far higher payments. Most of these borrowers aren’t paying down their [mortgages — they’re paying the ‘optional minimum’, which means unpaid interest is being added to the balance of their mortgage – every month].

    Yet the banking system has insulated itself reasonably well from the thousands of personal catastrophes to come. For one thing, banks can sell some of their option ARMs off to Wall Street, where they’re packaged with other, better loans and re-sold in chunks to investors. Some $182 billion of the option ARMs written in 2004 and 2005 and an additional $83 billion this year have been sold, repackaged, rated by debt-rating agencies, and marketed to investors as mortgage-backed securities… Banks also sell an unknown amount of them directly to hedge funds and other big investors with appetites for risk.

    The rest of the option ARMs remain on lenders’ books, where (for now) they’re generating huge phantom profits for some lenders. That’s because, according to generally accepted accounting principles, or GAAP, banks can count as revenue the highest amount of an option ARM payment — the so-called fully amortized amount — even when borrowers make only the minimum payment. In other words, banks can claim future revenue now, inflating earnings per share.

    For many industries, so-called accrual accounting, which lets companies book sales when they contract for them rather than when they receive the cash, makes sense. The revenues will eventually come. But accrual accounting doesn’t apply well to option ARMs, since it’s more difficult to know if unpaid interest will ever cross a banker’s desk. ‘This is basically an IOU that may never get paid,’ says Robert Lacoursiere, an analyst at Banc of America Securities. …

    Risks or not, the accounting treatment is boosting reported profits sharply. At Santa Monica-based FirstFed Financial Corp., ‘deferred interest’ — what an outsider might call phantom income — made up 67% of second-quarter pretax profits… At Oakland-based Golden West Financial Corp., which has been selling option ARMs for two decades, deferred interest made up about 59.6% of the bank’s earnings in the first half of 2006. …

    In the middle of one of the hottest U.S. markets, Coral Gables-based BankUnited Financial Corp. posted a $14.8 million loss for the quarter ended June, 2005. Yet it reported record profits of $23.8 million for the quarter ended in June of this year — $20.9 million of which was earned in deferred interest. Some 92% of its new loans were option ARMs. …

    Even the loans that blow up can be hidden with fancy bookkeeping. David Hendler of New York-based CreditSights, a bond research shop, predicts that banks in coming quarters will increasingly move weak loans into so-called held-for-sale accounts. There the loans will sit, sequestered from the rest of the portfolio, until they’re sold to collection agencies or to investors. In the latter case, a transaction on an ‘ailing loan’ registers on the books as a trading loss, gets mixed up with other trading activities and – presto! – it vanishes from shareholders’ sight. ‘There are a lot of ways to camouflage the actual experience,’ says Hendler.

    There’s no way to camouflage what Harold, a former computer technician who asked BusinessWeek not to publish his last name, is about to face. He’s disabled and has one source of income: the $1,600 per month he receives in Social Security disability payments. In September, 2005, Harold refinanced out of a fixed-rate mortgage and into an option ARM for his $150,000 home in Chicago. The minimum monthly payment for the first year is $899, which he can afford. The interest-only payment is $1,329, which he can’t. The fully amortized payment is $1,454, which his lender, Washington Mutual, gets to count on its books. WaMu, no fly-by-night operation, said it couldn’t comment on Harold’s case, citing confidentiality issues. A spokesman says the bank ‘accounts for its option ARM product in accordance with generally accepted accounting principles.’ WaMu has about $12 billion in loans negatively amortizing right now, up from $2.5 billion in 2005…

    To get the deals done, banks have turned increasingly to unregulated mortgage brokers, who now account for 80% of all mortgage originations, double what it was 10 years ago, according to the National Association of Mortgage Brokers. In 2004 banks began offering fatter sales commissions on option ARMs to encourage brokers to push them, says Gail McKenzie, assistant U.S. attorney in Atlanta, who is investigating mortgage brokers for improper practices.

    The problem, of course, is that many brokers care more about commissions than customers. They use aggressive sales tactics, harping on the minimum payment on an option ARM and neglecting to mention the future implications. Some even imply verbally that temporary teaser rates of 1% to 2% are permanent, even though the fine print says otherwise. It’s easy to confuse borrowers with option ARM numbers. A recent Federal Reserve study showed that one in four homeowners is mystified by basic adjustable-rate loans. Add multiple payment options into the mix, and the mortgage game can be utterly baffling.

    Billy and Carolyn Shaw are among the growing ranks of borrowers who have taken out loans they say they didn’t understand. The retired couple from the Salinas (Calif.) area needed to tap about $50,000 in equity from their $385,000 home to cover mounting expenses. Billy, 66, a retired mechanic, has diabetes. Carolyn, 61, has been caring for her grandchildren, 10-year-old twins, since her daughter’s death in 2000. The Shaws have a fixed income of $3,000 a month that will fall by about $1,000 in November after Billy’s disability benefits run out. Their new loan’s minimum payment of about $1,413 is manageable so far, but the fully amortized amount of about $3,329 is out of the question. In a little over a year, they’ve added some $8,500 to their loan balance and now face a big reset if they continue to pay only the minimum. ‘We didn’t totally understand what was taking place,’ says Carolyn. ‘You have to pay attention. We didn’t, and we’re really stuck here.’ The Shaws’ lender, Golden West, says it routinely calls customers to ask them if they are happy and understand their mortgage loan.

    Most of the pain will be born by ordinary people. And it’s already happening. More than a fifth of option ARM loans in 2004 and 2005 are upside down — meaning borrowers’ homes are worth less than their debt. If home prices fall 10%, that number would double. ‘The number of houses for sale is tripling in some markets, so people are not going to get out of their debt,’ says the Ford Foundation’s McCarthy. ‘A lot are going to walk.’

    Jennifer and Eric Hinz of Somerset, Wis., are feeling the squeeze. They refinanced out of a 5.25% fixed-rate, 30-year loan in June, 2005, and into an option ARM with a 1% teaser rate from Indymac Bank. The $1,483 payment for their original mortgage dropped to as low as $747 with the new option ARM. They say they had no idea when they signed up, however, that the low payment adds $600 in deferred interest to their balance every month. Worse, they thought the 1% would last three years, but they’re already paying 7.68%. ‘What reasonable human being would ever knowingly give up a 5.25% fixed-rate for what we’re getting now?’ says Eric, 36, who works in commercial construction. Refinancing is out because they can’t afford the $15,000 or so in fees. ‘I’m paying more, and the interest is just going up and up and up,’ says Jennifer, 34, a stay-at-home mom. ‘I feel like we got totally screwed.’ They say their mortgage broker has stopped returning their phone calls.

    Analyst Frederick Cannon of Keefe Bruyette & Woods says most banks don’t apologize for their ‘option ARM’ business. ‘Almost without exception everyone says [the option ARM] is a great loan, it’s plenty regulated, and don’t bug us,’ he says. In an April letter to regulators, Cindy Manzettie, chief credit officer for Fifth Third Bank in Cincinnati, said it’s not the ‘lender’s responsibility to help the consumer determine the appropriate payment option each month…. Paternalistic regulations that underestimate the intelligence of the American public do not work.’

    1. housing rip off or something…………
      Badeye

      Excuse me , but what has all this got to do with the price of fish,
      I think that maybe your Government has found a way to continue it’s global assault on the rest of us , and maybe in the process give you, it’s good citizens, a kick up the jacksee………..
      I’m with Bill, there is no drought just bad management of water resources. We see it everywhere, on every continent, not only in the Good Ole U.S.of A. Just come to Australia, the driest continent on the Planet. It has hardly stopped raining on the Coast all winter, yet our dams are drying up and the Politicians can only offer De-salination as a solution.
      To paraphrase Mr. John Lennon : I don’t believe in Terrorism
      I don’t believe in Drought
      I don’t believe in Anything

  4. CNN rerun
    Hello,

    I find the whole rerun idea (mis)guided, what’s the use, to start the whole panic, shock and awe wave again ? Is it to desensetize, or to stir up anti islam feelings again ? These last 5 years i’ve seen the towers collapse a hundred times-if not more, and always within the islam terrorism context.

    Personally i didnt belief one iota of it right from the start, these buildings were demolished by professionals, and a good job it was, were it not for those that pushed the button had another agenda, one that we’ve seen rolled out these last years.

    Many have refused to even think about their own government being involved, nowadays that’s a lot easier. But you will hear nothing about that on CNN’s rerun, instead the people will split, those that do their own thinking will see wholesale murder and the real culprits having gotten away with it… anger, for those that believe an airplane can bring down 1300ft skyscraper … fear.

    For Bush and the Cheney gang there’s only one way out, total control and marshall law. In order to get there they’ll need another bigger attack and a reason to go after Iran. The consequence, a doubling of the oil prize, bad for the people the world over, but very good for the dollar, the oilbusiness, in short their buddies, the never have enoughs.

    To conclude i fear, that CNN’s 9/11 rerun may become the ouverture for an even bigger attack. With all the talk of nukes lately, i fear this will be the modus operandi, with New York too important to be contaminated, Washington (murdercapitol) and full of masonic symbolism as the WTC was, being the prime target, and as a bonus uproot whats left of the independant burocratic government agencies.

    PS I hope i’m wrong here but all signals are red (not that healing kind, floppy ) and the coming times will be highly dangerous.

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