While Congress bickers over how to fix the financial meltdown, there's a decent chance you haven't even felt it. Why, you may be asking yourself, does everyone think there's such a big a problem when you're still being offered credit cards in the mail and zero-percent financing at the car dealership? Maybe you used to bank with Washington Mutual or Wachovia and overnight you've become a Chase or Citi customer, but if your money's still there, why does the rest matter?
The tumult at the top of financial markets has not filtered down evenly, but that doesn't mean it's not seeping. There are cracks on Main Street, but whether or not you see them largely depends on where you stand. Just ask anyone who wants to buy a house with a subprime mortgage — they're not all evil, but these days they are exceedingly rare — or with a jumbo loan, which now carries an average rate 1.2 percentage points above a regular mortgage. (In normal times, the spread is closer to a quarter of a percentage point.) "Some people are saying, 'Credit crunch, what credit crunch?' and others are ready to cry uncle," says Greg McBride, senior financial analyst at Bankrate.com. "It shows it really matters where you fall on the risk spectrum."
Now about those credit card offers. You may not feel it, but there are fewer of them going out — 1.1 million during the second quarter, down 17% from the same time last year, according to the Synovate, a research firm that tracks direct mail. Who's being ignored? Well, subprime borrowers (no surprise there), but also anyone who doesn't make a lot of money: 52% of households with annual income under $50,000 received at least one offer in the second quarter, compared with 66% of such households during the same period last year.
Already got all the credit cards you need? You're still not immune from higher delinquency fees or lower limits. American Express typically cuts the credit limit on about 4% of its members in any given year. That figure now stands closer to 10%, as the card company takes a hard look at customers' credit profiles — including data on who lives in the areas with the most house-price deterioration.
For car loans, the division between those who feel the crunch and those who don't often comes down to credit score. The average 60-month new car loan is priced at 7.10%, not much different than in the spring, according to HSH Associates, Financial Publishers — and the average rate on a 60-month used car loan, 7.54%, has actually been drifting downward. (Those zero-percent financing deals still exist, too, from struggling car companies desperate to move inventory.) The difference is, you're probably not going to get that rate (or any at all) unless your FICO score is north of 700, whereas six months or a year ago, a score as low as 620 would have gotten you behind the wheel. "Some of this just represents moving back to standards that were in place five or six years ago," says Paul Taylor, chief economist at the National Automobile Dealers Association. "But if you're a customer, not getting credit you could've gotten a year before looks like a credit crunch to you."
The situation in student loans doesn't break down quite as neatly. Since the summer of 2007, 137 lenders have stopped funding federal loans, and 33 have suspended private programs, according to Mark Kantrowitz, publisher of FinAid.org and other financial aid web sites. Part of that had to do with a cut in federal subsidies, but part was directly related to the credit crunch — issuers that pulled out tended to be those that packaged and resold loans, a market that has evaporated.
Students at community and technical colleges, especially institutions that are for-profit, are having the toughest time of it. The reason: those students are more likely to use private loans (where credit standards have tightened), and lenders under profit pressure are less willing to write loans for shorter, one- and two-year programs — especially at schools with historically high default rates.
Federal loans aren't completely unaffected. While Stafford loans, which are made directly to students and don't take into account credit history, were up in the second quarter compared to a year ago, loans made to parents through the Parent PLUS program have plummeted — down 29% in dollar volume year-over-year, according to Department of Education data analyzed by Kantorwitz.
The mood at banks more generally is cautious. The most recent Federal Reserve survey of loan officers showed a plurality of banks tightening credit standards across the board. Add in anecdotal evidence — like Bank of America declining to increase lending to McDonald's franchisees even though the two companies have a long-standing partnership — and things do seem to be cascading down to Main Street, or whatever road is home to your local fast food joint. In August, 67% of small-business owners said they'd been affected by the credit crunch, compared with 55% in February, according to surveys by the National Small Business Association.
It's not hard to find anecdotes of business booming at credit unions and community banks, which rely on deposits rather than financing in the capital markets. But even there's nuance even there. The amount you can expect from a top-yielding certificate of deposit has fallen from about 5.5% to 4.25% over the past year, according to Bankrate.com. On the surface that seems to indicate banks aren't that worried — if they really needed cash, wouldn't they up their rates to attract more money? Well, over the same period of time, the federal funds rate has been cut from 5.25% to 2% — a much wider margin. "Banks are hungry for deposits, and that's why yields haven't fallen all that much," says Bankrate's McBride. And CD yields are now on the rise.
Does that mean you're feeling the credit crunch? Maybe not. But it might be an indication that the cracks on Main Street are spreading.
By Barbara Kiviat
Tuesday, September 30, 2008
America Can't go Cold Turkey
(CNN) -- My family doesn't use credit much. We pay off our charge cards every month. We drive used cars. We paid off our house mortgage early and have not refinanced. We carefully live well within our means. In fact, until very recently, my "apartment" in Washington has been my office.I'm pretty well-known as a cheapskate.
So when I said recently that I would be willing to give up my seat in Congress in order to pass the financial rescue package, it turned some heads.
It's because I understand what's at stake and because I hope to be a part of reforming our financial system so that we don't have these problems again.
I have spent my career as a business, finance and bankruptcy law professor and lawyer. I have helped individuals and institutions get out of financial trouble. More important, I have studied ways to make sure they don't get into trouble in the first place -- and drag all of us down with them.
Some politicians -- and a few economists -- would say that America is drunk on credit and just needs to go cold turkey. But it's more accurate to say we're addicted to credit. Too much credit. Good credit, bad credit, anything that lets us live the high life. We have mistaken growth in the value of financial paper for real economic growth.
Getting clean will not be so easy. When credit is quickly withdrawn, everyone in the business of lending panics. Credit becomes scarce and is not available at a reasonable interest rate. Institutions that need to use credit daily start to fall like dominoes. The financial fallout -- bank failures, risking a stock market crash, worthless retirement and pension funds -- could kill us. We need to reduce our dependence on credit gradually but steadily and with no excuses.
Deep down, we all know that a financial rescue is necessary. I voted for the plan that was defeated today because, to paraphrase Rep. Spencer Bachus, I'm unwilling to play Russian roulette with the financial lives of my children and grandchildren. Although the bill was imperfect and wildly unpopular, I believed that those of us in Congress needed to suck it up, vote for it and let the chips fall where they may.
But the plan has failed. I hope the economists who have warned of an imminent collapse are wrong. To paraphrase Franklin Roosevelt, what we have to fear is fear itself. If people can take a deep breath and avoid an immediate panic, it is my hope that we can improve this plan and still act in time to save our financial future.
My own strong preference is that it focus less on acquiring mortgage-backed securities and be more of a tightly focused effort to minimize foreclosures and home vacancies that drive down property values for all of us. For these non-prime mortgage notes, I would give bankruptcy courts the power to modify mortgage payments to make them more realistic. I would limit the pay of not only top Wall Street executives but the traders who made millions by making this problem worse.
I hope we can get a plan that includes at least some of those elements. But most important, we need a bill that can attract enough support to pass.
Then the hard work begins, and that is the work I want to be a part of in the months ahead: Making sure this doesn't happen again. That's why you run for office, or at least why I did. If I have not, in fact, given up my seat because of my vote, I'll be back to work on that myself.
U.S. Rep. Jim Marshall, a Democrat serving his third term in Congress, represents Georgia's 8th Congressional District. He serves on the House Armed Services and Agriculture Committees.
So when I said recently that I would be willing to give up my seat in Congress in order to pass the financial rescue package, it turned some heads.
It's because I understand what's at stake and because I hope to be a part of reforming our financial system so that we don't have these problems again.
I have spent my career as a business, finance and bankruptcy law professor and lawyer. I have helped individuals and institutions get out of financial trouble. More important, I have studied ways to make sure they don't get into trouble in the first place -- and drag all of us down with them.
Some politicians -- and a few economists -- would say that America is drunk on credit and just needs to go cold turkey. But it's more accurate to say we're addicted to credit. Too much credit. Good credit, bad credit, anything that lets us live the high life. We have mistaken growth in the value of financial paper for real economic growth.
Getting clean will not be so easy. When credit is quickly withdrawn, everyone in the business of lending panics. Credit becomes scarce and is not available at a reasonable interest rate. Institutions that need to use credit daily start to fall like dominoes. The financial fallout -- bank failures, risking a stock market crash, worthless retirement and pension funds -- could kill us. We need to reduce our dependence on credit gradually but steadily and with no excuses.
Deep down, we all know that a financial rescue is necessary. I voted for the plan that was defeated today because, to paraphrase Rep. Spencer Bachus, I'm unwilling to play Russian roulette with the financial lives of my children and grandchildren. Although the bill was imperfect and wildly unpopular, I believed that those of us in Congress needed to suck it up, vote for it and let the chips fall where they may.
But the plan has failed. I hope the economists who have warned of an imminent collapse are wrong. To paraphrase Franklin Roosevelt, what we have to fear is fear itself. If people can take a deep breath and avoid an immediate panic, it is my hope that we can improve this plan and still act in time to save our financial future.
My own strong preference is that it focus less on acquiring mortgage-backed securities and be more of a tightly focused effort to minimize foreclosures and home vacancies that drive down property values for all of us. For these non-prime mortgage notes, I would give bankruptcy courts the power to modify mortgage payments to make them more realistic. I would limit the pay of not only top Wall Street executives but the traders who made millions by making this problem worse.
I hope we can get a plan that includes at least some of those elements. But most important, we need a bill that can attract enough support to pass.
Then the hard work begins, and that is the work I want to be a part of in the months ahead: Making sure this doesn't happen again. That's why you run for office, or at least why I did. If I have not, in fact, given up my seat because of my vote, I'll be back to work on that myself.
U.S. Rep. Jim Marshall, a Democrat serving his third term in Congress, represents Georgia's 8th Congressional District. He serves on the House Armed Services and Agriculture Committees.
Let Risk-Taking Financial Institutions Fail
Let Risk-Taking Financial Institutions Fail
By Ari J. Officer and Lawrence H. Officer Monday, Sep. 29, 2008
The Administration and Congress have felt compelled to do something about the "financial meltdown," so an inefficient and inequitable "bailout plan" has been rushed through the legislature despite harsh criticism from the right and left. That's unfortunate. Both presidential candidates were stalling by qualifying the plan. Whichever candidate had had the courage to reject outright this proposal would have had the better claim to be President.
Do not be fooled. The $700 billion (ultimately $1 trillion or more) bailout is not predominantly for mortgages and homeowners. Instead, the bailout is for mortgage-backed securities. In fact, some versions of these instruments are imaginary derivatives. These claims overlap on the same types of mortgages. Many financial institutions wrote claims over the same mortgages, and these are the majority of claims that have "gone bad."
At this point, such claims have no bearing on the mortgage or housing crisis; they have bearing only on the holders of these securities themselves. These are ridiculously risky claims with little value for society. It is as if many financial institutions sold "earthquake insurance" on the same house: when the quake hits, all these claims become close to worthless — but the claims are simply bets disconnected from reality.
Follow the money. Average Joes and Janes are not the holders of the other side of complicated, over-the-counter derivatives contracts. Rather, hedge funds are the main holders. The bailout will involve a transfer of wealth — from the American people to financial institutions engaging in reckless speculation — that will be the greatest in history.
Rescuing financial institutions is not the best solution. Yes, banks are needed to provide capital to businesses. But it is not necessary to spend $1 trillion to maintain liquidity. If the government is to intervene, it should pick and choose which claims to purchase; claims that are directly tied to mortgages would be a good start.
Let financial institutions fail, merge or be bought out. The faltering institutions will see their shares devalued and will be likely to be taken over by stronger institutions — as has already started happening. This consolidation of the financial sector is both efficient and inevitable; government action can only delay the adjustment.
The government should not intervene. It should leave overleveraged financial institutions to default on their derivatives obligations and, if necessary, file for bankruptcy. Much of the crisis has arisen from miscalculating the risks involved in a large book of positions in these derivatives. It is only logical that these institutions pay for their poor management.
Rather than bailing out Wall Street, we propose that the government should buy up the actual mortgages in question and do nothing else. The government should not touch any derivatives; that is, claims that do not directly tie into the actual mortgages. If money becomes too tight, then the Fed can certainly increase its loans to financial institutions.
Let the poorly managed, overly risk-taking financial institutions fail! Always remember that Wall Street and the real economy are not the same thing.
— Ari J. Officer has completed his master of science degree in financial mathematics at Stanford University. Lawrence H. Officer is a professor of economics at the University of Illinois at Chicago.
By Ari J. Officer and Lawrence H. Officer Monday, Sep. 29, 2008
The Administration and Congress have felt compelled to do something about the "financial meltdown," so an inefficient and inequitable "bailout plan" has been rushed through the legislature despite harsh criticism from the right and left. That's unfortunate. Both presidential candidates were stalling by qualifying the plan. Whichever candidate had had the courage to reject outright this proposal would have had the better claim to be President.
Do not be fooled. The $700 billion (ultimately $1 trillion or more) bailout is not predominantly for mortgages and homeowners. Instead, the bailout is for mortgage-backed securities. In fact, some versions of these instruments are imaginary derivatives. These claims overlap on the same types of mortgages. Many financial institutions wrote claims over the same mortgages, and these are the majority of claims that have "gone bad."
At this point, such claims have no bearing on the mortgage or housing crisis; they have bearing only on the holders of these securities themselves. These are ridiculously risky claims with little value for society. It is as if many financial institutions sold "earthquake insurance" on the same house: when the quake hits, all these claims become close to worthless — but the claims are simply bets disconnected from reality.
Follow the money. Average Joes and Janes are not the holders of the other side of complicated, over-the-counter derivatives contracts. Rather, hedge funds are the main holders. The bailout will involve a transfer of wealth — from the American people to financial institutions engaging in reckless speculation — that will be the greatest in history.
Rescuing financial institutions is not the best solution. Yes, banks are needed to provide capital to businesses. But it is not necessary to spend $1 trillion to maintain liquidity. If the government is to intervene, it should pick and choose which claims to purchase; claims that are directly tied to mortgages would be a good start.
Let financial institutions fail, merge or be bought out. The faltering institutions will see their shares devalued and will be likely to be taken over by stronger institutions — as has already started happening. This consolidation of the financial sector is both efficient and inevitable; government action can only delay the adjustment.
The government should not intervene. It should leave overleveraged financial institutions to default on their derivatives obligations and, if necessary, file for bankruptcy. Much of the crisis has arisen from miscalculating the risks involved in a large book of positions in these derivatives. It is only logical that these institutions pay for their poor management.
Rather than bailing out Wall Street, we propose that the government should buy up the actual mortgages in question and do nothing else. The government should not touch any derivatives; that is, claims that do not directly tie into the actual mortgages. If money becomes too tight, then the Fed can certainly increase its loans to financial institutions.
Let the poorly managed, overly risk-taking financial institutions fail! Always remember that Wall Street and the real economy are not the same thing.
— Ari J. Officer has completed his master of science degree in financial mathematics at Stanford University. Lawrence H. Officer is a professor of economics at the University of Illinois at Chicago.
Friday, September 26, 2008
Home Loans Harder to get
NEW YORK (CNNMoney.com) -- Wall Street's meltdown has put the squeeze on all sorts of lending, and home loans are no exception. Now, even some very well-qualified home buyers are getting turned down for mortgages.
"A lot of good, well-qualified people are being turned away for no good reason," said Mark Savitt, president of the National Association of Mortgage Brokers and a mortgage broker in West Virginia. "The wheels are coming to a grinding halt."
Sometimes the rejections seem completely inexplicable. Long Island, N.Y.-based mortgage broker Bob Moulton had one client with substantial income and assets who planned to put down $1.2 million on a house selling for $2.2 million. For this borrower, a mortgage should have been a snap. But it wasn't.
The hitch: The buyer was a few days late with a single mortgage payment last year when he was away on vacation. That lowered his credit score to 679, which is the reason the lender cited when it denied his loan.
"Just a little ding on his credit report, one late payment a year-and-a-half ago," said Moulton. "Everything else was fine."
Higher rates
Another example comes from Savitt. One of his clients was buying a home for $205,000, putting down 20%. The buyer had an excellent credit score in the mid-700s, and the house was appraised at a little higher than the sale price.
The problem here: The borrower's debt to income ratio would be at about 45 - slightly higher than what most banks like to see, but by no means excessive. And his other risk factors were great.
"The bank turned it down over excessive debt ratio," said Savitt. "That's crazy."
And higher interest rates are making it even harder for borrowers to get a loan. The 30-year fixed rate has shot up in the wake of the financial crisis - to 6.09%, compared with 5.78% last week - making monthly mortgage payments higher as well. That's raising the debt to income ratio for most borrowers, which means more will have their loan applications rejected.
"
It used to be that if most of a borrower's qualifications were quite strong - income, assets, credit score and the value of the home itself - lenders would use their judgment to make exceptions if one factor was a bit weak.
A lender might accept a less than stellar credit score, for example, if the borrower was making a big down payment, or forgive a modest income if the borrower's bank account was fat enough.
Not any more, says Alan Rosenbaum, president of New York City mortgage broker GuardHill Finance.
"There are no exceptions today," said Rosenbaum. "If an application does not meet each of the guidelines - and those guidelines themselves have gotten more strict - it's denied."
That means many more people simply no longer qualify for a mortgage.
A numbers game
"I get as many phone calls as I got two years ago," said broker George Hanzimanolis, of Bankers First Mortgage in Pennsylvania, "but I bet you 40% of the people calling in, we can't do anything for, versus 5% a year ago."
And Hanzimanolis say it's gotten worse in the last few weeks. One recent client who had excellent assets and income wanted to refinance his first and second mortgages. The house was valued at $1.6 million, and he was looking for a $1.2 million loan. That's an excellent loan-to-value ratio of 75%; the banks like it to be no more than 80%.
But these days many lenders are anticipating that home prices will continue to fall, so they're automatically discounting every home's appraised value by 10%.
That dropped the value of the borrower's home to $1.44 million, which put him over the 80% loan-to-value ratio. So the loan was turned down.
Things like that make brokering mortgage loans today a struggle, according to Moulton.
"Nothing is making sense. Everything is torture right now," he said. "We're getting things done but it takes enormous effort. You think a deal is vanilla and it turns out to be rocky road."
By Les Christie, CNNMoney.com staff writer
"A lot of good, well-qualified people are being turned away for no good reason," said Mark Savitt, president of the National Association of Mortgage Brokers and a mortgage broker in West Virginia. "The wheels are coming to a grinding halt."
Sometimes the rejections seem completely inexplicable. Long Island, N.Y.-based mortgage broker Bob Moulton had one client with substantial income and assets who planned to put down $1.2 million on a house selling for $2.2 million. For this borrower, a mortgage should have been a snap. But it wasn't.
The hitch: The buyer was a few days late with a single mortgage payment last year when he was away on vacation. That lowered his credit score to 679, which is the reason the lender cited when it denied his loan.
"Just a little ding on his credit report, one late payment a year-and-a-half ago," said Moulton. "Everything else was fine."
Higher rates
Another example comes from Savitt. One of his clients was buying a home for $205,000, putting down 20%. The buyer had an excellent credit score in the mid-700s, and the house was appraised at a little higher than the sale price.
The problem here: The borrower's debt to income ratio would be at about 45 - slightly higher than what most banks like to see, but by no means excessive. And his other risk factors were great.
"The bank turned it down over excessive debt ratio," said Savitt. "That's crazy."
And higher interest rates are making it even harder for borrowers to get a loan. The 30-year fixed rate has shot up in the wake of the financial crisis - to 6.09%, compared with 5.78% last week - making monthly mortgage payments higher as well. That's raising the debt to income ratio for most borrowers, which means more will have their loan applications rejected.
"
It used to be that if most of a borrower's qualifications were quite strong - income, assets, credit score and the value of the home itself - lenders would use their judgment to make exceptions if one factor was a bit weak.
A lender might accept a less than stellar credit score, for example, if the borrower was making a big down payment, or forgive a modest income if the borrower's bank account was fat enough.
Not any more, says Alan Rosenbaum, president of New York City mortgage broker GuardHill Finance.
"There are no exceptions today," said Rosenbaum. "If an application does not meet each of the guidelines - and those guidelines themselves have gotten more strict - it's denied."
That means many more people simply no longer qualify for a mortgage.
A numbers game
"I get as many phone calls as I got two years ago," said broker George Hanzimanolis, of Bankers First Mortgage in Pennsylvania, "but I bet you 40% of the people calling in, we can't do anything for, versus 5% a year ago."
And Hanzimanolis say it's gotten worse in the last few weeks. One recent client who had excellent assets and income wanted to refinance his first and second mortgages. The house was valued at $1.6 million, and he was looking for a $1.2 million loan. That's an excellent loan-to-value ratio of 75%; the banks like it to be no more than 80%.
But these days many lenders are anticipating that home prices will continue to fall, so they're automatically discounting every home's appraised value by 10%.
That dropped the value of the borrower's home to $1.44 million, which put him over the 80% loan-to-value ratio. So the loan was turned down.
Things like that make brokering mortgage loans today a struggle, according to Moulton.
"Nothing is making sense. Everything is torture right now," he said. "We're getting things done but it takes enormous effort. You think a deal is vanilla and it turns out to be rocky road."
By Les Christie, CNNMoney.com staff writer
Largest Ever Bank Failure
NEW YORK - As the debate over a $700 billion bank bailout rages on in Washington, one of the nation's largest banks — Washington Mutual Inc. — has collapsed under the weight of its enormous bad bets on the mortgage market.
The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift's banking assets to JPMorgan Chase & Co. for $1.9 billion.
Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.
One positive is that the sale of WaMu's assets to JPMorgan Chase prevents the thrift's collapse from depleting the FDIC's insurance fund. But that detail is likely to give only marginal solace to Americans facing tighter lending and watching their stock portfolios plunge in the wake of the nation's most momentous financial crisis since the Great Depression.
Because of WaMu's souring mortgages and other risky debt, JPMorgan plans to write down WaMu's loan portfolio by about $31 billion — a figure that could change if the government goes through with its bailout plan and JPMorgan decides to take advantage of it.
"We're in favor of what the government is doing, but we're not relying on what the government is doing. We would've done it anyway," JPMorgan's Chief Executive Jamie Dimon said in a conference call Thursday night, referring to the acquisition. Dimon said he does not know if JPMorgan will take advantage of the bailout.
WaMu is JPMorgan Chase's second acquisition this year of a major financial institution hobbled by losing bets on mortgages. In March, JPMorgan bought the investment bank Bear Stearns Cos. for about $1.4 billion, plus another $900 million in stock ahead of the deal to secure it.
JPMorgan Chase is now the second-largest bank in the United States after Bank of America Corp., which recently bought Merrill Lynch in a flurry of events that included Lehman Brothers Holdings Inc. going bankrupt and American International Group Inc., the world's largest insurer, getting taken over by the government.
JPMorgan also said Thursday it plans to sell $8 billion in common stock to raise capital.
The downfall of WaMu has been widely anticipated for some time because of the company's heavy mortgage-related losses. As investors grew nervous about the bank's health, its stock price plummeted 95 percent from a 52-week high of $36.47 to its close of $1.69 Thursday. On Wednesday, it suffered a ratings downgrade by Standard & Poor's that put it in danger of collapse.
WaMu "was under severe liquidity pressure," FDIC Chairman Sheila Bair told reporters in a conference call.
"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," Bair said in a statement. "For bank customers, it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning."
Besides JPMorgan Chase, Wells Fargo & Co., Citigroup Inc., HSBC, Spain's Banco Santander and Toronto-Dominion Bank of Canada were also reportedly possible suitors. WaMu was believed to be talking to private equity firms as well.
The seizure by the government means shareholders' equity in WaMu was wiped out. The deal leaves private equity investors including the firm TPG Capital, which gave WaMu a cash infusion totaling $7 billion this spring, on the sidelines empty handed.
WaMu ran into trouble after it got caught up in the once-booming subprime mortgage business. Troubles then spread to other parts of WaMu's home loan portfolio, namely its "option" adjustable-rate mortgage loans. Option ARM loans offer very low introductory payments and let borrowers defer some interest payments until later years. The bank stopped originating those loans in June.
Problems in WaMu's home loan business began to surface in 2006, when the bank reported that the division lost $48 million, compared with net income of about $1 billion in 2005.
At the start of 2007, following the release of the company's annual financial report, then-CEO Kerry Killinger said the bank had prepared for a slowdown in its housing business by sharply reducing its subprime mortgage lending and servicing of loans. Alan H. Fishman, the former president and chief operating officer of Sovereign Bank and president and CEO of Independence Community Bank, replaced Killinger earlier this month.
As more borrowers became delinquent on their mortgages, WaMu worked to help troubled customers refinance their loans as a way to avoid default and foreclosure, committing $2 billion to the effort last April. But that proved to be too little, too late.
At the same time, fears of growing credit problems kept investors from purchasing debt backed by those loans, drying up a source of cash flow for banks that made subprime loans.
In December, WaMu said it would shutter its subprime lending business and reduce expenses with layoffs and a dividend cut.
The bank in July reported a $3 billion second-quarter loss — the biggest in its history — as it boosted its reserves to more than $8 billion to cover losses on bad loans. Over the last three quarters, it added $10.9 billion to its loan-loss provisions.
JPMorgan Chase said it was not acquiring any senior unsecured debt, subordinated debt, and preferred stock of WaMu's banks, or any assets or liabilities of the holding company, Washington Mutual Inc. JPMorgan also said it will not take on the lawsuits facing the holding company.
JPMorgan Chase said the acquisition will give it 5,400 branches in 23 states, and that it plans to close less than 10 percent of the two companies' branches.
The WaMu acquisition would add 50 cents per share to JPMorgan's earnings in 2009, the bank said, adding that it expects to have pretax merger costs of approximately $1.5 billion while achieving pretax savings of approximately $1.5 billion by 2010.
"This is a definite win for JPMorgan," said Sebastian Hindman, an analyst at SNL Financial, who said JPMorgan should be able to shoulder the $31 billion writedown to WaMu's portfolio.
By MADLEN READ, AP Business Writer
The Federal Deposit Insurance Corp. seized WaMu on Thursday, and then sold the thrift's banking assets to JPMorgan Chase & Co. for $1.9 billion.
Seattle-based WaMu, which was founded in 1889, is the largest bank to fail by far in the country's history. Its $307 billion in assets eclipse the $40 billion of Continental Illinois National Bank, which failed in 1984, and the $32 billion of IndyMac, which the government seized in July.
One positive is that the sale of WaMu's assets to JPMorgan Chase prevents the thrift's collapse from depleting the FDIC's insurance fund. But that detail is likely to give only marginal solace to Americans facing tighter lending and watching their stock portfolios plunge in the wake of the nation's most momentous financial crisis since the Great Depression.
Because of WaMu's souring mortgages and other risky debt, JPMorgan plans to write down WaMu's loan portfolio by about $31 billion — a figure that could change if the government goes through with its bailout plan and JPMorgan decides to take advantage of it.
"We're in favor of what the government is doing, but we're not relying on what the government is doing. We would've done it anyway," JPMorgan's Chief Executive Jamie Dimon said in a conference call Thursday night, referring to the acquisition. Dimon said he does not know if JPMorgan will take advantage of the bailout.
WaMu is JPMorgan Chase's second acquisition this year of a major financial institution hobbled by losing bets on mortgages. In March, JPMorgan bought the investment bank Bear Stearns Cos. for about $1.4 billion, plus another $900 million in stock ahead of the deal to secure it.
JPMorgan Chase is now the second-largest bank in the United States after Bank of America Corp., which recently bought Merrill Lynch in a flurry of events that included Lehman Brothers Holdings Inc. going bankrupt and American International Group Inc., the world's largest insurer, getting taken over by the government.
JPMorgan also said Thursday it plans to sell $8 billion in common stock to raise capital.
The downfall of WaMu has been widely anticipated for some time because of the company's heavy mortgage-related losses. As investors grew nervous about the bank's health, its stock price plummeted 95 percent from a 52-week high of $36.47 to its close of $1.69 Thursday. On Wednesday, it suffered a ratings downgrade by Standard & Poor's that put it in danger of collapse.
WaMu "was under severe liquidity pressure," FDIC Chairman Sheila Bair told reporters in a conference call.
"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," Bair said in a statement. "For bank customers, it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning."
Besides JPMorgan Chase, Wells Fargo & Co., Citigroup Inc., HSBC, Spain's Banco Santander and Toronto-Dominion Bank of Canada were also reportedly possible suitors. WaMu was believed to be talking to private equity firms as well.
The seizure by the government means shareholders' equity in WaMu was wiped out. The deal leaves private equity investors including the firm TPG Capital, which gave WaMu a cash infusion totaling $7 billion this spring, on the sidelines empty handed.
WaMu ran into trouble after it got caught up in the once-booming subprime mortgage business. Troubles then spread to other parts of WaMu's home loan portfolio, namely its "option" adjustable-rate mortgage loans. Option ARM loans offer very low introductory payments and let borrowers defer some interest payments until later years. The bank stopped originating those loans in June.
Problems in WaMu's home loan business began to surface in 2006, when the bank reported that the division lost $48 million, compared with net income of about $1 billion in 2005.
At the start of 2007, following the release of the company's annual financial report, then-CEO Kerry Killinger said the bank had prepared for a slowdown in its housing business by sharply reducing its subprime mortgage lending and servicing of loans. Alan H. Fishman, the former president and chief operating officer of Sovereign Bank and president and CEO of Independence Community Bank, replaced Killinger earlier this month.
As more borrowers became delinquent on their mortgages, WaMu worked to help troubled customers refinance their loans as a way to avoid default and foreclosure, committing $2 billion to the effort last April. But that proved to be too little, too late.
At the same time, fears of growing credit problems kept investors from purchasing debt backed by those loans, drying up a source of cash flow for banks that made subprime loans.
In December, WaMu said it would shutter its subprime lending business and reduce expenses with layoffs and a dividend cut.
The bank in July reported a $3 billion second-quarter loss — the biggest in its history — as it boosted its reserves to more than $8 billion to cover losses on bad loans. Over the last three quarters, it added $10.9 billion to its loan-loss provisions.
JPMorgan Chase said it was not acquiring any senior unsecured debt, subordinated debt, and preferred stock of WaMu's banks, or any assets or liabilities of the holding company, Washington Mutual Inc. JPMorgan also said it will not take on the lawsuits facing the holding company.
JPMorgan Chase said the acquisition will give it 5,400 branches in 23 states, and that it plans to close less than 10 percent of the two companies' branches.
The WaMu acquisition would add 50 cents per share to JPMorgan's earnings in 2009, the bank said, adding that it expects to have pretax merger costs of approximately $1.5 billion while achieving pretax savings of approximately $1.5 billion by 2010.
"This is a definite win for JPMorgan," said Sebastian Hindman, an analyst at SNL Financial, who said JPMorgan should be able to shoulder the $31 billion writedown to WaMu's portfolio.
By MADLEN READ, AP Business Writer
Wednesday, September 24, 2008
7 Steps to Happily Ever After
The 7 Steps to Happily Ever After
What makes love last a lifetime? Affection? Yep. Respect? Sure. But a great marriage is not just about what you have. It's about what you do to make a relationship stronger, safer, more caring and committed. Here's how to make your "forever" fantastic. Marriage is a home, a refuge against the outside storms. And like any house, it requires a strong, lasting foundation. To build one, every couple needs to take certain steps — seven, to be precise — that turn the two of you into not just you and me but we. You may not move through all the steps in order, and you may circle back to complete certain steps again (and again and again). But if you make it through them all, you'll be well on your way toward creating a marriage that will be your shelter as long as you both shall live.
Step 1: Find a shared dream for your life together. It's easy to get caught up in the small stuff of married life: What's for dinner tonight? Whose turn is it to clean the litter box? Did you pay the electric bill? But the best partners never lose sight of the fact that they're working together to achieve the same big dreams. "Successful couples quickly develop a mindfulness of 'us,' of being coupled," says REDBOOK Love Network expert Jane Greer, Ph.D., a marriage and family therapist in New York City. "They have a shared vision, saying things like, 'We want to plan to buy a house, we want to take a vacation to such-and-such a place, we like to do X, we think we want to start a family at Y time.'" This kind of dream-sharing starts early. "Couples love to tell the story of how they met," points out Julie Holland, M.D., a psychiatrist in private practice in New York City and a clinical assistant professor of psychiatry at the New York University School of Medicine. "It's like telling a fairy tale. But happy couples will go on creating folklore and history, with the meet-cute forming the bedrock of the narrative." As you write and rewrite your love story ("our hardest challenge was X, our dream for retirement is Y"), you continually remind yourselves and each other that you're a team with shared values and goals. And P.S.: When you share a dream, you're a heck of a lot more likely to make that dream come true.
Step 2: Ignite (and reignite) a sexual connection. In any good relationship, sex is way more than just a physical act. It's crucial for the health of your emotional connection, too: It's something only the two of you share; it makes you both feel warm and loved; it draws you back together when you're drifting apart. And did I mention that it's a whole lot of fun? Striking up those sparks when you first meet is easy. Nurturing a strong, steady flame? That's the hard part. When you've got a mortgage, a potbelly, and a decade or two of togetherness under your belts, it can be hard to muster up the fire you felt when you first got together. That's when it's even more important to protect your sex life and make it a priority. "You have to keep working to create allure and seduction for each other or your sex life will become lackluster," Greer points out. "Who wants the same turkey sandwich over and over? You want it on whole wheat! On toast! As turkey salad! On a roll!" (And now I will imagine my husband covered with Russian dressing. Thanks, Dr. Greer.) As the years go by, you'll keep revisiting and realigning and reimagining the passion you have for each other. And if you keep at it, you'll have a sex life that transcends your marriage's lack of newness, the stresses of family and work, the physical changes that come with aging. Now that's something worth holding on to.
Step 3: Choose each other as your first family. For years, you were primarily a member of one family: the one in which you grew up. Then you got married, and suddenly you became the foundation of a new family, one in which husband and wife are the A-team. It can be tough to shift your identity like this, but it's also an important part of building your self-image as a duo (and maybe, eventually, as three or four or...). For me, making this transition meant stopping the incessant bitching to my mom when I was mad at my husband — my behavior was disloyal, and I had to learn to talk to Jonathan, not about him. My friend Lynn tells the story of her mother's reaction to a trip to the Middle East she and her then-boyfriend (now husband) had planned. Her mother hit the roof, calling incessantly to urge Lynn not to go. Eventually, Lynn's boyfriend got on the phone with Mom and explained why they were excited to share this experience. "It was clear then that we were the team," Lynn says now. "Not teaming up against my mother, but teaming up together to deal with her issues." Whatever your challenges — an overprotective mom? an overly critical father-in-law? — you have to outline together the boundaries between you and all of the families connected to you. Not only will you feel stronger as a united front but when you stick to your shared rules, all that family baggage will weigh on you a lot less.
Step 4: Learn how to fight right. I'm embarrassed to think of how I coped with conflict early in my relationship with Jonathan. I stormed out — a lot. I once threw an apple at his head. Hard. (Don't worry, I missed — on purpose.) I had a terrible habit of threatening divorce at the slightest provocation. But eventually I figured that this was pretty moronic. I didn't want out, and I knew that pelting someone with fruit was not a long-term marital strategy. "Fighting is the big problem every couple has to deal with," says Daniel B. Wile, Ph.D., a psychologist and couples therapist in Oakland, CA, and author of After the Fight. That's because fights will always come up, so every couple needs to learn how to fight without tearing each other apart. Fighting right doesn't just mean not throwing produce; it means staying focused on the issue at hand and respecting each other's perspective. Couples that fight right also find ways to defuse the tension, says Wile — often with humor. "Whenever one of us wants the other to listen up, we mime hitting the TV remote, a thumb pressing down on an invisible mute button," says Nancy, 52, an event producer in San Francisco. "It cracks us up, in part because it must look insane to others." Even if you fight a lot, when you can find a way to turn fights toward the positive — with a smile, a quick apology, an expression of appreciation for the other person — the storm blows away fast, and that's what matters.
Step 5: Find a balance between time for two and time for you.Jonathan and I both work at home. This frequently leads to murderous impulses. Though I'm typing away in the bedroom and he's talking to his consulting clients in our small home office, most days it really feels like too much intimacy for me. But that's my bias. When it comes to togetherness, every couple has its own unique sweet spot. "There are couples that are never apart and there are couples that see each other only on weekends," Greer says. With the right balance, neither partner feels slighted or smothered. You have enough non-shared experiences to fire you up and help you maintain a sense of yourself outside the relationship — not to mention give you something to talk about at the dinner table. But you also have enough time together to feel your connection as a strong tie rather than as a loose thread.Your togetherness needs will also change over time, so you'll have to shift your balance accordingly. "My husband and I spend a lot of time together, but it's almost all family time," says Katie, 40, a mom of two in San Leandro, CA. "We realized a few months ago that we hadn't had a conversation that didn't involve the kids or our to-do lists in ages, so we committed to a weekly date. We were so happy just to go to the movies and hold hands, something we hadn't done in ages. It felt like we were dating again!"
Step 6: Build a best friendship.Think about the things that make your closest friendships irreplaceable: the trust that comes with true intimacy, the willingness to be vulnerable, the confidence that the friendship can withstand some conflict. Don't those sound like good things to have in your marriage, too? "Happy couples are each other's haven," says Holland. "They can count on the other person to listen and try to meet their needs." Greer adds, "When you're true friends, you acknowledge and respect what the other person is; you don't try to control or change them. This creates a sense of safety and security when you're together — you know you're valued for who you are and you see the value in your partner." Then there's the way, when you've been with someone a while, that you become almost a mind reader. You have a shared history and inside jokes. Your guy knows what you'll find funny, you forward him links to articles you know he'll enjoy, and best of all, you two can make eye contact at a given moment and say volumes without opening your mouths. And is there anything more pleasurable than sharing the newspaper with someone? Sitting in companionable silence, absorbed in your respective reading, sipping coffee, occasionally reading something out loud, but mostly just lazing happily together, communing without needing to speak? Ahh....
Step 7: Face down a major challenge together.You're sailing along through life, and suddenly you hit a huge bump. A serious illness. Unemployment. The loss of a home. A death in the family. How do you cope? The truth is, you never know how strong your relationship is until it's tested. All too often, the stress of a crisis can pull a couple apart. But the good news is, when you do make it through in one piece, you might just find yourselves tighter than ever. "What didn't happen to us?" says Daryl, 28, a preschool teacher in Harrisburg, PA. "My husband lost his job and took a minimum-wage job he was way overqualified for just to make ends meet. He was offered a better job in a mountain town outside San Diego, so we moved. Then during the California wildfires several years ago, our house burned down and we lost everything. We were living in a one-room converted garage with no running water and a newborn. But we found that this chaos somehow brought us even closer together. We took turns losing it. We really kept each other sane." Hey, marriage is no roll in the hay. It's tough, real work. But the reward, the edifice you build together that will shelter you through years of tough times, is more than worth the effort. The small, friendly cottage you build — decorated with your shared history and stories, filled with color and laughter — will be the warmest and safest retreat you can imagine.
by Redbook
What makes love last a lifetime? Affection? Yep. Respect? Sure. But a great marriage is not just about what you have. It's about what you do to make a relationship stronger, safer, more caring and committed. Here's how to make your "forever" fantastic. Marriage is a home, a refuge against the outside storms. And like any house, it requires a strong, lasting foundation. To build one, every couple needs to take certain steps — seven, to be precise — that turn the two of you into not just you and me but we. You may not move through all the steps in order, and you may circle back to complete certain steps again (and again and again). But if you make it through them all, you'll be well on your way toward creating a marriage that will be your shelter as long as you both shall live.
Step 1: Find a shared dream for your life together. It's easy to get caught up in the small stuff of married life: What's for dinner tonight? Whose turn is it to clean the litter box? Did you pay the electric bill? But the best partners never lose sight of the fact that they're working together to achieve the same big dreams. "Successful couples quickly develop a mindfulness of 'us,' of being coupled," says REDBOOK Love Network expert Jane Greer, Ph.D., a marriage and family therapist in New York City. "They have a shared vision, saying things like, 'We want to plan to buy a house, we want to take a vacation to such-and-such a place, we like to do X, we think we want to start a family at Y time.'" This kind of dream-sharing starts early. "Couples love to tell the story of how they met," points out Julie Holland, M.D., a psychiatrist in private practice in New York City and a clinical assistant professor of psychiatry at the New York University School of Medicine. "It's like telling a fairy tale. But happy couples will go on creating folklore and history, with the meet-cute forming the bedrock of the narrative." As you write and rewrite your love story ("our hardest challenge was X, our dream for retirement is Y"), you continually remind yourselves and each other that you're a team with shared values and goals. And P.S.: When you share a dream, you're a heck of a lot more likely to make that dream come true.
Step 2: Ignite (and reignite) a sexual connection. In any good relationship, sex is way more than just a physical act. It's crucial for the health of your emotional connection, too: It's something only the two of you share; it makes you both feel warm and loved; it draws you back together when you're drifting apart. And did I mention that it's a whole lot of fun? Striking up those sparks when you first meet is easy. Nurturing a strong, steady flame? That's the hard part. When you've got a mortgage, a potbelly, and a decade or two of togetherness under your belts, it can be hard to muster up the fire you felt when you first got together. That's when it's even more important to protect your sex life and make it a priority. "You have to keep working to create allure and seduction for each other or your sex life will become lackluster," Greer points out. "Who wants the same turkey sandwich over and over? You want it on whole wheat! On toast! As turkey salad! On a roll!" (And now I will imagine my husband covered with Russian dressing. Thanks, Dr. Greer.) As the years go by, you'll keep revisiting and realigning and reimagining the passion you have for each other. And if you keep at it, you'll have a sex life that transcends your marriage's lack of newness, the stresses of family and work, the physical changes that come with aging. Now that's something worth holding on to.
Step 3: Choose each other as your first family. For years, you were primarily a member of one family: the one in which you grew up. Then you got married, and suddenly you became the foundation of a new family, one in which husband and wife are the A-team. It can be tough to shift your identity like this, but it's also an important part of building your self-image as a duo (and maybe, eventually, as three or four or...). For me, making this transition meant stopping the incessant bitching to my mom when I was mad at my husband — my behavior was disloyal, and I had to learn to talk to Jonathan, not about him. My friend Lynn tells the story of her mother's reaction to a trip to the Middle East she and her then-boyfriend (now husband) had planned. Her mother hit the roof, calling incessantly to urge Lynn not to go. Eventually, Lynn's boyfriend got on the phone with Mom and explained why they were excited to share this experience. "It was clear then that we were the team," Lynn says now. "Not teaming up against my mother, but teaming up together to deal with her issues." Whatever your challenges — an overprotective mom? an overly critical father-in-law? — you have to outline together the boundaries between you and all of the families connected to you. Not only will you feel stronger as a united front but when you stick to your shared rules, all that family baggage will weigh on you a lot less.
Step 4: Learn how to fight right. I'm embarrassed to think of how I coped with conflict early in my relationship with Jonathan. I stormed out — a lot. I once threw an apple at his head. Hard. (Don't worry, I missed — on purpose.) I had a terrible habit of threatening divorce at the slightest provocation. But eventually I figured that this was pretty moronic. I didn't want out, and I knew that pelting someone with fruit was not a long-term marital strategy. "Fighting is the big problem every couple has to deal with," says Daniel B. Wile, Ph.D., a psychologist and couples therapist in Oakland, CA, and author of After the Fight. That's because fights will always come up, so every couple needs to learn how to fight without tearing each other apart. Fighting right doesn't just mean not throwing produce; it means staying focused on the issue at hand and respecting each other's perspective. Couples that fight right also find ways to defuse the tension, says Wile — often with humor. "Whenever one of us wants the other to listen up, we mime hitting the TV remote, a thumb pressing down on an invisible mute button," says Nancy, 52, an event producer in San Francisco. "It cracks us up, in part because it must look insane to others." Even if you fight a lot, when you can find a way to turn fights toward the positive — with a smile, a quick apology, an expression of appreciation for the other person — the storm blows away fast, and that's what matters.
Step 5: Find a balance between time for two and time for you.Jonathan and I both work at home. This frequently leads to murderous impulses. Though I'm typing away in the bedroom and he's talking to his consulting clients in our small home office, most days it really feels like too much intimacy for me. But that's my bias. When it comes to togetherness, every couple has its own unique sweet spot. "There are couples that are never apart and there are couples that see each other only on weekends," Greer says. With the right balance, neither partner feels slighted or smothered. You have enough non-shared experiences to fire you up and help you maintain a sense of yourself outside the relationship — not to mention give you something to talk about at the dinner table. But you also have enough time together to feel your connection as a strong tie rather than as a loose thread.Your togetherness needs will also change over time, so you'll have to shift your balance accordingly. "My husband and I spend a lot of time together, but it's almost all family time," says Katie, 40, a mom of two in San Leandro, CA. "We realized a few months ago that we hadn't had a conversation that didn't involve the kids or our to-do lists in ages, so we committed to a weekly date. We were so happy just to go to the movies and hold hands, something we hadn't done in ages. It felt like we were dating again!"
Step 6: Build a best friendship.Think about the things that make your closest friendships irreplaceable: the trust that comes with true intimacy, the willingness to be vulnerable, the confidence that the friendship can withstand some conflict. Don't those sound like good things to have in your marriage, too? "Happy couples are each other's haven," says Holland. "They can count on the other person to listen and try to meet their needs." Greer adds, "When you're true friends, you acknowledge and respect what the other person is; you don't try to control or change them. This creates a sense of safety and security when you're together — you know you're valued for who you are and you see the value in your partner." Then there's the way, when you've been with someone a while, that you become almost a mind reader. You have a shared history and inside jokes. Your guy knows what you'll find funny, you forward him links to articles you know he'll enjoy, and best of all, you two can make eye contact at a given moment and say volumes without opening your mouths. And is there anything more pleasurable than sharing the newspaper with someone? Sitting in companionable silence, absorbed in your respective reading, sipping coffee, occasionally reading something out loud, but mostly just lazing happily together, communing without needing to speak? Ahh....
Step 7: Face down a major challenge together.You're sailing along through life, and suddenly you hit a huge bump. A serious illness. Unemployment. The loss of a home. A death in the family. How do you cope? The truth is, you never know how strong your relationship is until it's tested. All too often, the stress of a crisis can pull a couple apart. But the good news is, when you do make it through in one piece, you might just find yourselves tighter than ever. "What didn't happen to us?" says Daryl, 28, a preschool teacher in Harrisburg, PA. "My husband lost his job and took a minimum-wage job he was way overqualified for just to make ends meet. He was offered a better job in a mountain town outside San Diego, so we moved. Then during the California wildfires several years ago, our house burned down and we lost everything. We were living in a one-room converted garage with no running water and a newborn. But we found that this chaos somehow brought us even closer together. We took turns losing it. We really kept each other sane." Hey, marriage is no roll in the hay. It's tough, real work. But the reward, the edifice you build together that will shelter you through years of tough times, is more than worth the effort. The small, friendly cottage you build — decorated with your shared history and stories, filled with color and laughter — will be the warmest and safest retreat you can imagine.
by Redbook
Save for Tomorrow be happy today
Money Magazine) -- In a sense, retirement planning is all about deferred gratification. You live below your means while you work so you can save for a time when you can live however you want. In short, you give up something today so you can live better tomorrow.
But what if preparing for retirement had a more immediate payoff? Wouldn't it be neat if you could enjoy the fruits of your effort now?
Well, maybe you already do. That, at least, is the implication of a recent survey by insurer Northwestern Mutual and health education company LLuminari. The study didn't address retirement per se.
But as the charts to the right show, people who do the sorts of things that constitute good planning tend to feel happier than those who don't. It appears that the very act of preparing for retirement may deliver a reward now as well as later.
No one is suggesting that getting ready for your post-career days guarantees lifelong bliss or that there's a formula for achieving nirvana. (Save an extra $100 a month and be 50% more fulfilled!)
But the notion that taking steps toward a secure retirement can make you more content is hardly a stretch. Economists, psychologists and others who study happiness find that people who have a sense of control over their lives cope better with stress and live more happily, while those who feel powerless are more likely to be depressed.
Or as the playwright George Bernard Shaw put it: "To be in hell is to drift; to be in heaven is to steer."
So what can you do to make yourself feel better about feathering your nest? Apply these three happiness-linked actions to your retirement planning:
Set goals
If you fail to set goals early on, you'll be drifting instead of steering. So think about the percentage of pre-retirement income you'll want to replace once you retire - say, 80% to 90%. Then use a calculator like our Retirement Planner to see how much you must save each year to have a shot at reaching that goal. Keep refining your savings target as you near retirement.
Take steps to achieve your goals
If the amount you're putting into your 401(k) falls short of your savings target, boost your contribution. If maxing out your 401(k) still leaves a gap, you can funnel additional savings into an IRA or tax-efficient options like index funds or tax-managed funds.
Control debt
It's unrealistic to avoid borrowing altogether. But you can prevent debt from undermining your retirement security by not carrying a credit-card balance. Not only will you avoid onerous interest charges, but the Northwestern study shows that people who are most committed to paying off their cards are almost 20% more likely to describe themselves as cheerful.
So the next time you're trying to decide between a higher 401(k) contribution and a big-screen TV, you might want to go with the option that may make you feel good now and in the years ahead.
By Walter Updegrave, Money Magazine senior editor
But what if preparing for retirement had a more immediate payoff? Wouldn't it be neat if you could enjoy the fruits of your effort now?
Well, maybe you already do. That, at least, is the implication of a recent survey by insurer Northwestern Mutual and health education company LLuminari. The study didn't address retirement per se.
But as the charts to the right show, people who do the sorts of things that constitute good planning tend to feel happier than those who don't. It appears that the very act of preparing for retirement may deliver a reward now as well as later.
No one is suggesting that getting ready for your post-career days guarantees lifelong bliss or that there's a formula for achieving nirvana. (Save an extra $100 a month and be 50% more fulfilled!)
But the notion that taking steps toward a secure retirement can make you more content is hardly a stretch. Economists, psychologists and others who study happiness find that people who have a sense of control over their lives cope better with stress and live more happily, while those who feel powerless are more likely to be depressed.
Or as the playwright George Bernard Shaw put it: "To be in hell is to drift; to be in heaven is to steer."
So what can you do to make yourself feel better about feathering your nest? Apply these three happiness-linked actions to your retirement planning:
Set goals
If you fail to set goals early on, you'll be drifting instead of steering. So think about the percentage of pre-retirement income you'll want to replace once you retire - say, 80% to 90%. Then use a calculator like our Retirement Planner to see how much you must save each year to have a shot at reaching that goal. Keep refining your savings target as you near retirement.
Take steps to achieve your goals
If the amount you're putting into your 401(k) falls short of your savings target, boost your contribution. If maxing out your 401(k) still leaves a gap, you can funnel additional savings into an IRA or tax-efficient options like index funds or tax-managed funds.
Control debt
It's unrealistic to avoid borrowing altogether. But you can prevent debt from undermining your retirement security by not carrying a credit-card balance. Not only will you avoid onerous interest charges, but the Northwestern study shows that people who are most committed to paying off their cards are almost 20% more likely to describe themselves as cheerful.
So the next time you're trying to decide between a higher 401(k) contribution and a big-screen TV, you might want to go with the option that may make you feel good now and in the years ahead.
By Walter Updegrave, Money Magazine senior editor
Tuesday, September 23, 2008
What about People's mortgages
NEW YORK (CNNMoney.com) -- The Bush administration wants to help beleaguered financial institutions - and prevent the financial crisis from getting worse - by spending $700 billion to buy up troubled mortgage securities.
But many struggling homeowners are asking: "Where's my bailout?"
Democratic lawmakers have taken up their battle and say they will include more help for homeowners as part of the proposal, according to Rep. Barney Frank, D-Mass, who heads the House Financial Services Committee. Final details are still being hammered out, but it appears that the idea is gaining traction.
Here's how the bailout could work: Once the Treasury Department takes hold of the securities, it can review the terms of the underlying loans and the financial shape of each homeowner. The department then could opt to modify the loans - by reducing the interest rate or principal balance - to affordable terms for borrowers.
The problem, experts said, is that the mortgages will be bundled into investments and sold. Therefore, the ownership of each loan is divided among all the investors who purchased the security.
And that complicates the process of helping individual homeowners.
"The No. 1 barrier to keeping people in their homes has been the challenge of these loans being in mortgage-backed securities," said Ken Wade, chief executive of NeighborWorks America, a national community revitalization group chartered by Congress whose board is made up of bank regulators. "Counselors across the board say that is the major hurdle they are facing."
Unless the government scoops up all the securities associated with a specific mortgage, they'll run into the same problems in trying to modify the loans as the banks did, experts said. Often it depends on the terms in the securities contracts.
"Mortgages of questionable value have been sold into highly-complex securities, which have been carved up and sold to thousands of investors around the world," said Kathleen Day, spokeswoman for the Center for Responsible Lending. "The government can't put these Humpty Dumpty slices back together again because it won't own or even control them all."
And unless all stakeholders agree to the change in terms, other investors could take the government to court over the modifications, said Chris Mayer, real estate professor at Columbia Business School.
Another complication is that some borrowers just can't afford to keep their homes. The government can't do much for them.
"They key question here is, we want to help homeowners that want to stay in their homes and have the financial capability to stay in their home," Treasury Secretary Henry Paulson said on Sunday. "And the vast majority of foreclosures in this country...are coming from people who either don't want to stay in their home, took out loans they couldn't afford as the result of irresponsible lending practices."
IndyMac example
Many community activists, however, point to IndyMac Bank as an example of how government-led modifications could work.
When the Federal Deposit Insurance Corp. took over IndyMac in July, it quickly suspended foreclosure proceedings on any delinquent loans within the $15 billion portfolio owned by the failed institution. The next month, regulators announced the implementation of a systematic loan modification program available to about 25,000 borrowers.
The loans owned by IndyMac can be changed without too much trouble, experts said. But the agency itself acknowledged that some mortgages serviced by IndyMac are subject to additional terms, forcing regulators to take extra steps to comply with the contracts. The loan servicing portfolio totals about $185 billion.
"IndyMac is really the model," said Kurt Eggert, law professor at the Chapman University School of Law. "I would hope the government only buys loans where they can institute that model."
Reviving economy depends on helping borrowers
Bailing out the banks will only have a limited impact on boosting the economy, experts said. The key is to stabilize the housing market, which can only be done by stemming the onslaught of foreclosures, which hit a record 1.2 million filings in the second quarter.
The Center for Responsible Lending, along with more than 30 other community groups, is pushing for changes to the bankruptcy law that would allow judges to modify mortgages. Congressional Democrats support this measure, as well as a systematic approach to modifying troubled loans.
Once foreclosures subside, home values will stabilize and banks will be more likely to resume lending. This will lift up the economy, experts said.
"The focus should be more on relieving the stress on households rather than bailing out banks," said Christian Menegatti, lead analyst at economic research firm RGE Monitor.
But many struggling homeowners are asking: "Where's my bailout?"
Democratic lawmakers have taken up their battle and say they will include more help for homeowners as part of the proposal, according to Rep. Barney Frank, D-Mass, who heads the House Financial Services Committee. Final details are still being hammered out, but it appears that the idea is gaining traction.
Here's how the bailout could work: Once the Treasury Department takes hold of the securities, it can review the terms of the underlying loans and the financial shape of each homeowner. The department then could opt to modify the loans - by reducing the interest rate or principal balance - to affordable terms for borrowers.
The problem, experts said, is that the mortgages will be bundled into investments and sold. Therefore, the ownership of each loan is divided among all the investors who purchased the security.
And that complicates the process of helping individual homeowners.
"The No. 1 barrier to keeping people in their homes has been the challenge of these loans being in mortgage-backed securities," said Ken Wade, chief executive of NeighborWorks America, a national community revitalization group chartered by Congress whose board is made up of bank regulators. "Counselors across the board say that is the major hurdle they are facing."
Unless the government scoops up all the securities associated with a specific mortgage, they'll run into the same problems in trying to modify the loans as the banks did, experts said. Often it depends on the terms in the securities contracts.
"Mortgages of questionable value have been sold into highly-complex securities, which have been carved up and sold to thousands of investors around the world," said Kathleen Day, spokeswoman for the Center for Responsible Lending. "The government can't put these Humpty Dumpty slices back together again because it won't own or even control them all."
And unless all stakeholders agree to the change in terms, other investors could take the government to court over the modifications, said Chris Mayer, real estate professor at Columbia Business School.
Another complication is that some borrowers just can't afford to keep their homes. The government can't do much for them.
"They key question here is, we want to help homeowners that want to stay in their homes and have the financial capability to stay in their home," Treasury Secretary Henry Paulson said on Sunday. "And the vast majority of foreclosures in this country...are coming from people who either don't want to stay in their home, took out loans they couldn't afford as the result of irresponsible lending practices."
IndyMac example
Many community activists, however, point to IndyMac Bank as an example of how government-led modifications could work.
When the Federal Deposit Insurance Corp. took over IndyMac in July, it quickly suspended foreclosure proceedings on any delinquent loans within the $15 billion portfolio owned by the failed institution. The next month, regulators announced the implementation of a systematic loan modification program available to about 25,000 borrowers.
The loans owned by IndyMac can be changed without too much trouble, experts said. But the agency itself acknowledged that some mortgages serviced by IndyMac are subject to additional terms, forcing regulators to take extra steps to comply with the contracts. The loan servicing portfolio totals about $185 billion.
"IndyMac is really the model," said Kurt Eggert, law professor at the Chapman University School of Law. "I would hope the government only buys loans where they can institute that model."
Reviving economy depends on helping borrowers
Bailing out the banks will only have a limited impact on boosting the economy, experts said. The key is to stabilize the housing market, which can only be done by stemming the onslaught of foreclosures, which hit a record 1.2 million filings in the second quarter.
The Center for Responsible Lending, along with more than 30 other community groups, is pushing for changes to the bankruptcy law that would allow judges to modify mortgages. Congressional Democrats support this measure, as well as a systematic approach to modifying troubled loans.
Once foreclosures subside, home values will stabilize and banks will be more likely to resume lending. This will lift up the economy, experts said.
"The focus should be more on relieving the stress on households rather than bailing out banks," said Christian Menegatti, lead analyst at economic research firm RGE Monitor.
Those Born 1930-1979
READ TO THE BOTTOM FOR QUOTE OF THE MONTH BY JAY LENO. IF YOU DON'T READ ANYTHING ELSE---VERY WELL STATED
TO ALL THE KIDS WHO SURVIVED the 1930's, 40's, 50's, 60's and 70's!!
First, we survived being born to mothers who smoked and/or drank while they
were pregnant.
They took aspirin, ate blue cheese dressing, tuna from a can, and didn't get
tested for diabetes.
Then after that trauma, we were put to sleep on our tummies in baby cribs
covered with bright colored lead-based paints.
We had no childproof lids on medicine bottles, doors or cabinets and when we rode our bikes, we had no helmets, not to mention, the risks we took hitchhiking.
As infants & children, we would ride in cars with no car seats, booster
seats, seat belts or air bags.
Riding in the back of a pick up on a warm day was always a special treat.
We drank water from the garden hose and NOT from a bottle.
We shared one soft drink with four friends, from one bottle and NO ONE actually died from
this.
We ate cupcakes, white bread and real butter and drank Kool-aid made with
sugar, but we weren't overweight because,
WE WERE ALWAYS OUTSIDE PLAYING!
We would leave home in the morning and play all day, as long as we were back
when the streetlights came on.
No one was able to reach us all day. And we were O.K.
We would spend hours building our go-carts out of scraps and then ride down the
hill, only to find out we forgot the brakes. After running into the bushes a
few times, we learned to solve the problem.
We did not have Playstations, Nitendo's, X-boxes, no video games at all, no 150
channels on cable, no video movies or DVD's, no surround-sound or CD's, no cell
phones, no personal computer! s, no Internet or chat rooms.......
WE HAD FRIENDS and we went outside and found them!
We fell out of trees, got cut, broke bones and teeth and there were no lawsuits
from these accidents.
We ate worms and mud pies made from dirt, and the worms did not live in us
forever.
We were given BB guns for our 10th birthdays, made up games with sticks and
tennis balls and, although we were told it would happen, we did not put out
very many eyes.
We rode bikes or walked to a friend's house and knocked on the door or rang the
bell, or just walked in and talked to them!
Little League had tryouts and not everyone made the team. Those who didn't had
to learn to deal with disappointment. Imagine that!!
The idea of a parent bailing us out if we broke the law was unheard of. They
actually sided with the law!
These generations have produced some of the best risk-takers, problem solvers
and inventors ever!
The past 50 years have been an explosion of inovation and new ideas.
We had freedom, failure, success and responsibility, and we learned HOW TO DEAL
WITH IT ALL!
The quote of the month is by Jay Leno:
'With hurricanes, tornados, fires out of control, mud slides, flooding,
severe thunderstorms tearing up the country from one end to another, and with
the threat of bird flu and terrorist attacks, are we sure this is a good time
to take God out of the Pledge of Allegiance?'
READ TO THE BOTTOM FOR QUOTE OF THE MONTH BY JAY LENO. IF YOU DON'T READ ANYTHING ELSE---VERY WELL STATED
TO ALL THE KIDS WHO SURVIVED the 1930's, 40's, 50's, 60's and 70's!!
First, we survived being born to mothers who smoked and/or drank while they
were pregnant.
They took aspirin, ate blue cheese dressing, tuna from a can, and didn't get
tested for diabetes.
Then after that trauma, we were put to sleep on our tummies in baby cribs
covered with bright colored lead-based paints.
We had no childproof lids on medicine bottles, doors or cabinets and when we rode our bikes, we had no helmets, not to mention, the risks we took hitchhiking.
As infants & children, we would ride in cars with no car seats, booster
seats, seat belts or air bags.
Riding in the back of a pick up on a warm day was always a special treat.
We drank water from the garden hose and NOT from a bottle.
We shared one soft drink with four friends, from one bottle and NO ONE actually died from
this.
We ate cupcakes, white bread and real butter and drank Kool-aid made with
sugar, but we weren't overweight because,
WE WERE ALWAYS OUTSIDE PLAYING!
We would leave home in the morning and play all day, as long as we were back
when the streetlights came on.
No one was able to reach us all day. And we were O.K.
We would spend hours building our go-carts out of scraps and then ride down the
hill, only to find out we forgot the brakes. After running into the bushes a
few times, we learned to solve the problem.
We did not have Playstations, Nitendo's, X-boxes, no video games at all, no 150
channels on cable, no video movies or DVD's, no surround-sound or CD's, no cell
phones, no personal computer! s, no Internet or chat rooms.......
WE HAD FRIENDS and we went outside and found them!
We fell out of trees, got cut, broke bones and teeth and there were no lawsuits
from these accidents.
We ate worms and mud pies made from dirt, and the worms did not live in us
forever.
We were given BB guns for our 10th birthdays, made up games with sticks and
tennis balls and, although we were told it would happen, we did not put out
very many eyes.
We rode bikes or walked to a friend's house and knocked on the door or rang the
bell, or just walked in and talked to them!
Little League had tryouts and not everyone made the team. Those who didn't had
to learn to deal with disappointment. Imagine that!!
The idea of a parent bailing us out if we broke the law was unheard of. They
actually sided with the law!
These generations have produced some of the best risk-takers, problem solvers
and inventors ever!
The past 50 years have been an explosion of inovation and new ideas.
We had freedom, failure, success and responsibility, and we learned HOW TO DEAL
WITH IT ALL!
The quote of the month is by Jay Leno:
'With hurricanes, tornados, fires out of control, mud slides, flooding,
severe thunderstorms tearing up the country from one end to another, and with
the threat of bird flu and terrorist attacks, are we sure this is a good time
to take God out of the Pledge of Allegiance?'
Top 15 Lou Holtz Quotes
15) "I can't believe that God put us on this earth to be ordinary."
14) "If what you did yesterday seems big, you haven't done anything today."
13) "Life is 10 percent what happens to you and 90 percent how you respond to it."
12) "No one has ever drowned in sweat."
11) "On this team, we're all united in a common goal: to keep my job."
10) "When all is said and done, more is said than done."
9) "Don't tell your problems to people: eighty percent don't care; and the other twenty percent are glad you have them."
8) "It's not the load that breaks you down - its the way you carry it."
7) "You'll never get ahead of anyone as long as you try to get even with him."
6) "The man who complains about the way the ball bounces is likely the one who dropped it."
5) "Motivation is simple. You eliminate those who are not motivated."
4) "I bet you went on one date and wanted to get married."
3) "I asked you to pack your headgear and shoulder pads, but more importantly your defense and your kicking game, because that's what wins game like this."
2) "He had shoulder surgery on his elbow."
1) "They say a tie is like kissing your sister. I guess that is better than kissing your brother."
14) "If what you did yesterday seems big, you haven't done anything today."
13) "Life is 10 percent what happens to you and 90 percent how you respond to it."
12) "No one has ever drowned in sweat."
11) "On this team, we're all united in a common goal: to keep my job."
10) "When all is said and done, more is said than done."
9) "Don't tell your problems to people: eighty percent don't care; and the other twenty percent are glad you have them."
8) "It's not the load that breaks you down - its the way you carry it."
7) "You'll never get ahead of anyone as long as you try to get even with him."
6) "The man who complains about the way the ball bounces is likely the one who dropped it."
5) "Motivation is simple. You eliminate those who are not motivated."
4) "I bet you went on one date and wanted to get married."
3) "I asked you to pack your headgear and shoulder pads, but more importantly your defense and your kicking game, because that's what wins game like this."
2) "He had shoulder surgery on his elbow."
1) "They say a tie is like kissing your sister. I guess that is better than kissing your brother."
Monday, September 22, 2008
Who is to blame
What I think is odd is that people are not blaming Moody's and S&P that rated these mortgage bonds AAA. You might rate a bond AAA and it is latter shown that is should have been lower but not over a trillion dollars worth. You can't tell me that Moody's and S&P both rated these bonds AAA did not know that maybe they are not as strong as advertised. The governmnet should regualate the ratings on bond so consumers know what they are buying and what risk they are taking.
Can't anyone afford my house
Money Magazine) -- Maybe you've started thinking that now you can finally find a buyer for your house. After all, this summer the National Association of Homebuilders asserted that houses were more affordable than at any time during the previous four years. Prices have slid so far that many homes are now within the reach of people who couldn't buy during the bubble.
Other faintly cheery facts have emerged too. Sales of existing homes were 3% brisker in July than June, and in several metropolitan areas - among them Boston and Denver - the market seems to be turning around.
When examined closely, however, those glimmers of better times ahead seem to fade. Sure, lower prices can help you sell, but you also have to know whether there are enough people who can afford to pay the price you want.
That, in turn, depends on a mix of factors including the financing that buyers can get, whether there are enough of them who want to live where you do, their other housing options and how they feel about investing so much in an asset whose future appreciation is iffy.
"Price is just one of many variables that go into a decision to buy a house," says real estate analyst Michael Larson of Weiss Research, a Jupiter, Fla. investment newsletter publisher. "Many other factors are overriding price right now. That's why the market remains challenged."
The long fall
Price, though, is still the primary measure of affordability for any buyer. And while the median price for an existing house has tumbled 8% from $230,100 to $212,400 since its peak in 2006, according to the National Association of Realtors, many potential buyers still see asking prices as expensive.
And they're not wrong. That $212,400 house, after all, costs 39% more than it did back in pre-boom 2001 when it sold for about $153,100. Prices in red-hot markets such as Miami became even more inflated during the boom and are still up about twice as high as they were in 2001.
So while homes are selling at a discount, they're not on clearance - not yet anyway. Peak to trough, the median-priced home nationwide is projected to fall as much as 20%, bottoming out around $185,000 by late 2009, according to a July report from Wachovia.
"Houses may be more affordable, but they will probably be even more affordable next year," says Nigel Gault, chief U.S. economist at Global Insight, an economic forecasting firm. "So why buy now?"
Crunched credit
The price may be right, but if buyers can't borrow enough, the house isn't affordable. Difficulty borrowing is keeping many Americans from buying. "The industry went from little or no credit standards to credit standards on steroids," says Marc Savitt, president of the National Association of Mortgage Brokers.
According to the Federal Reserve Board, about 85% of lenders, worried about falling prices and rising foreclosures, have stiffened requirements for borrowers in the past three months. Those with a credit score of 600 or lower cannot get loans at all, says Keith Gumbinger of HSH Associates, a mortgage information publisher.
The upshot: 21 million, or 13% of those who have credit records, many of whom would have qualified for mortgages during the bubble, can no longer do so.
Those whose credit scores are high enough to qualify for a mortgage will likely pay more. Fannie Mae and Freddie Mac, which set the lending criteria for most loans, in November will require a 740 score, up from 680 for buyers to escape a surcharge that ultimately increases their interest rate.
As a result, the 33 million Americans whose scores fall between 680 and 740 (roughly 20% of adults with credit histories) may have to pay half a percentage point more to borrow. On a $300,000, 30-year loan, that would add about $100 to a buyer's monthly payment.
Adios, easy money
Back in the go-go years, lenders fell all over themselves to make no-down-payment loans. Those are gone, and lenders want some skin in the game, at least 5%. But to avoid paying extra, most buyers need the full 20% demanded in days of yore. To buy a $400,000 house, a family would now have to amass $80,000 in cash, up from $20,000 or less a few years ago.
Buyers also face higher interest rates, which allow them to borrow less. In mid-2004 a borrower with good credit could have qualified for a rate of 5.87% on a 30-year fixed $300,000 loan. That translates to a monthly payment of $1,774. Now, with the rate for the same loan at 6.57%, the same monthly payment could support a loan of just $278,500.
Back in the day, option ARMs and other exotic mortgages with low teaser rates helped struggling purchasers stretch to buy houses that they could not otherwise afford. Those deals have largely disappeared.
And while banks once allowed a homeowner's monthly principal, interest, taxes and insurance (PITI) to make up as much as 45% of a family's before-tax income, now buyers are restricted to using only 32% for a house payment. If PITI rises beyond that limit, banks consider the loan unaffordable and the family cannot receive a mortgage.
That limit boosts the amount of income a homeowner needs to purchase. Say your house has dropped from $425,000 to about $395,000. A couple of years ago a family needed an income of only $80,000 to buy. Now, even though the house costs less, a prospective buyer must have an income of $92,000.
Less expensive options
Rental prices are looking good in many areas. Christopher Mayer, a Columbia University real estate professor, recently found that in 11 of 16 top cities, renting is a better deal compared to buying than it has been historically.
The extra expense of owning was offset by rising house values - at least a few years ago. Now that new buyers can no longer count on steep appreciation, they have less incentive to buy.
And it's not as if rents are standing still while your house's price falls. "Competition from vacant houses or condos that people can't sell is driving down rental rates," says Hessam Nadji, managing director of research at Marcus & Millichap Real Estate Investment Services in Encino, Calif.
The big pinch
A house is only affordable if a homeowner can meet its monthly payment and have enough left over to live on. Incomes rose by about 5% in the first half of the year, but few people feel as though they're better off.
Americans spent an extra $165 billion, or 26% more, on gasoline and oil in the first six months than over the same period last year, and food bills rose by 7%. Without a doubt, most Americans feel pinched.
If you live in an area dominated by financial companies or car makers, two sectors shedding jobs in the current downturn, you may encounter even less appetite to buy.
If the economic turmoil continues, vacation destinations like Las Vegas or Orlando could suffer a drop-off in business that would leave prospective buyers with less in their pockets.
"Not only is the amount of money people have to spend on housing in decline but because a house is a risky asset, the amount they want to spend on it is falling too," says Michael Englund, chief economist at Action Economics, a forecasting firm.
Buyers being wary
That fear may be the biggest obstacle keeping buyers from knocking on your door. During the boom, people were willing to spend as much as they did on housing because they thought that they were putting away money for retirement or college. And they could draw on their equity for renovations or other goodies.
If homes rose in value faster than stocks, as they did for a few years, homeowners could console themselves that forgoing 401(k) contributions for high mortgage payments was a sensible strategy.
Few these days think of real estate as a safe place to invest, however. According to Gallup, only 27% of the population believe a home is their best long-term investment, down from 50% in 2002.
"Nearly a quarter of potential buyers are on the sidelines waiting for some form of encouragement," says Walter Molony, spokesman for the National Association of Realtors. Maybe they're looking for some sign that houses have truly become more affordable. The price declines haven't done that yet.
Other faintly cheery facts have emerged too. Sales of existing homes were 3% brisker in July than June, and in several metropolitan areas - among them Boston and Denver - the market seems to be turning around.
When examined closely, however, those glimmers of better times ahead seem to fade. Sure, lower prices can help you sell, but you also have to know whether there are enough people who can afford to pay the price you want.
That, in turn, depends on a mix of factors including the financing that buyers can get, whether there are enough of them who want to live where you do, their other housing options and how they feel about investing so much in an asset whose future appreciation is iffy.
"Price is just one of many variables that go into a decision to buy a house," says real estate analyst Michael Larson of Weiss Research, a Jupiter, Fla. investment newsletter publisher. "Many other factors are overriding price right now. That's why the market remains challenged."
The long fall
Price, though, is still the primary measure of affordability for any buyer. And while the median price for an existing house has tumbled 8% from $230,100 to $212,400 since its peak in 2006, according to the National Association of Realtors, many potential buyers still see asking prices as expensive.
And they're not wrong. That $212,400 house, after all, costs 39% more than it did back in pre-boom 2001 when it sold for about $153,100. Prices in red-hot markets such as Miami became even more inflated during the boom and are still up about twice as high as they were in 2001.
So while homes are selling at a discount, they're not on clearance - not yet anyway. Peak to trough, the median-priced home nationwide is projected to fall as much as 20%, bottoming out around $185,000 by late 2009, according to a July report from Wachovia.
"Houses may be more affordable, but they will probably be even more affordable next year," says Nigel Gault, chief U.S. economist at Global Insight, an economic forecasting firm. "So why buy now?"
Crunched credit
The price may be right, but if buyers can't borrow enough, the house isn't affordable. Difficulty borrowing is keeping many Americans from buying. "The industry went from little or no credit standards to credit standards on steroids," says Marc Savitt, president of the National Association of Mortgage Brokers.
According to the Federal Reserve Board, about 85% of lenders, worried about falling prices and rising foreclosures, have stiffened requirements for borrowers in the past three months. Those with a credit score of 600 or lower cannot get loans at all, says Keith Gumbinger of HSH Associates, a mortgage information publisher.
The upshot: 21 million, or 13% of those who have credit records, many of whom would have qualified for mortgages during the bubble, can no longer do so.
Those whose credit scores are high enough to qualify for a mortgage will likely pay more. Fannie Mae and Freddie Mac, which set the lending criteria for most loans, in November will require a 740 score, up from 680 for buyers to escape a surcharge that ultimately increases their interest rate.
As a result, the 33 million Americans whose scores fall between 680 and 740 (roughly 20% of adults with credit histories) may have to pay half a percentage point more to borrow. On a $300,000, 30-year loan, that would add about $100 to a buyer's monthly payment.
Adios, easy money
Back in the go-go years, lenders fell all over themselves to make no-down-payment loans. Those are gone, and lenders want some skin in the game, at least 5%. But to avoid paying extra, most buyers need the full 20% demanded in days of yore. To buy a $400,000 house, a family would now have to amass $80,000 in cash, up from $20,000 or less a few years ago.
Buyers also face higher interest rates, which allow them to borrow less. In mid-2004 a borrower with good credit could have qualified for a rate of 5.87% on a 30-year fixed $300,000 loan. That translates to a monthly payment of $1,774. Now, with the rate for the same loan at 6.57%, the same monthly payment could support a loan of just $278,500.
Back in the day, option ARMs and other exotic mortgages with low teaser rates helped struggling purchasers stretch to buy houses that they could not otherwise afford. Those deals have largely disappeared.
And while banks once allowed a homeowner's monthly principal, interest, taxes and insurance (PITI) to make up as much as 45% of a family's before-tax income, now buyers are restricted to using only 32% for a house payment. If PITI rises beyond that limit, banks consider the loan unaffordable and the family cannot receive a mortgage.
That limit boosts the amount of income a homeowner needs to purchase. Say your house has dropped from $425,000 to about $395,000. A couple of years ago a family needed an income of only $80,000 to buy. Now, even though the house costs less, a prospective buyer must have an income of $92,000.
Less expensive options
Rental prices are looking good in many areas. Christopher Mayer, a Columbia University real estate professor, recently found that in 11 of 16 top cities, renting is a better deal compared to buying than it has been historically.
The extra expense of owning was offset by rising house values - at least a few years ago. Now that new buyers can no longer count on steep appreciation, they have less incentive to buy.
And it's not as if rents are standing still while your house's price falls. "Competition from vacant houses or condos that people can't sell is driving down rental rates," says Hessam Nadji, managing director of research at Marcus & Millichap Real Estate Investment Services in Encino, Calif.
The big pinch
A house is only affordable if a homeowner can meet its monthly payment and have enough left over to live on. Incomes rose by about 5% in the first half of the year, but few people feel as though they're better off.
Americans spent an extra $165 billion, or 26% more, on gasoline and oil in the first six months than over the same period last year, and food bills rose by 7%. Without a doubt, most Americans feel pinched.
If you live in an area dominated by financial companies or car makers, two sectors shedding jobs in the current downturn, you may encounter even less appetite to buy.
If the economic turmoil continues, vacation destinations like Las Vegas or Orlando could suffer a drop-off in business that would leave prospective buyers with less in their pockets.
"Not only is the amount of money people have to spend on housing in decline but because a house is a risky asset, the amount they want to spend on it is falling too," says Michael Englund, chief economist at Action Economics, a forecasting firm.
Buyers being wary
That fear may be the biggest obstacle keeping buyers from knocking on your door. During the boom, people were willing to spend as much as they did on housing because they thought that they were putting away money for retirement or college. And they could draw on their equity for renovations or other goodies.
If homes rose in value faster than stocks, as they did for a few years, homeowners could console themselves that forgoing 401(k) contributions for high mortgage payments was a sensible strategy.
Few these days think of real estate as a safe place to invest, however. According to Gallup, only 27% of the population believe a home is their best long-term investment, down from 50% in 2002.
"Nearly a quarter of potential buyers are on the sidelines waiting for some form of encouragement," says Walter Molony, spokesman for the National Association of Realtors. Maybe they're looking for some sign that houses have truly become more affordable. The price declines haven't done that yet.
Is this fixing the problem?
Reports are showing that they government could spend around 1.5 trillion or about $15,000 per family on their bailout plan, but it is not fixing the problem only the effects of the problem. The problem is that we have a huge surplus of houses and no one is buying them . The reason people are not buying them is concern about the hosuing market and lack of credit or change in requirements for credit (i.e 20% down). Years ago you used to have 20% down to buy a house. Lenders felt that they could get more people into houses and in turn make more money if they let people put less money down. You used to have to save for years to be able to purchase a house and it was then an accomplishment to have a house. People were less willing to walk away from the house and giving up without a fight if they had worked so hard to get it in the first place. Fast forward to about 5 -10 years ago and you could buy a house with little or no money down. So everyone was buying houses, the prices rose dramatically because so many more people could purchase one, now that you didn't need as large of down payments. They didn't have as much invested and had very little equity so it was eaiser to walk away and harder to sell because of little to no wingle room on price. The housing crises we are currently and the change in lending requirements now requiring 10-20% down again in addition to great credit this limits the amount of people who can purchase a house. This also comes when the national savings is $0 if not negative (in some reports). When you currently save zero it sure takes a long time to save 20% on a down payment of a house. This limits the amount of people who can purchase a house at a time where there is too many houses on the market for the demand. We are in a time period were we have the most houses for sale with the smallest amount of people who can purchase them. This is will take years to adjust and correct it self. Some have questioned that if the government gave each family $15,000 they are spending on the bailout that people would have money to pay for down payments on houses (which would help with the hosuing surplus) and spend on other things to help stimulate the economy that this would have a greater impact on the economy than the bailout. Of course this will never happen but it makes you wonder if the money could have been spent in a better way to help the economy. The bailout might be more of a symbolic event showing we are going to do everything in our means to fix the problem. The stock market seemed to react to this idea and you might not be able to put a number of the piece of mind idea.
Are we going to become like the french?
This is the state of our great republic: We've nationalized the financial system, taking control from Wall Street bankers we no longer trust. We're about to quasi-nationalize the Detroit auto companies via massive loans because they're a source of American pride, and too many jobs — and votes — are at stake. Our Social Security system is going broke as we head for a future where too many retirees will be supported by too few workers. How long before we have national healthcare? Put it all together, and the America that emerges is a cartoonish version of the country most despised by red-meat red-state patriots: France. Only with worse food.
Admit it, mes amis, the rugged individualism and cutthroat capitalism that made America the land of unlimited opportunity has been shrink-wrapped by a half dozen short sellers in Greenwich, Conn. and FedExed to Washington D.C. to be spoon-fed back to life by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson. We're now no different from any of those Western European semi-socialist welfare states that we love to deride. Italy? Sure, it's had four governments since last Thursday, but none of them would have allowed this to go on; the Italians know how to rig an economy.
You just know the Frogs have only increased their disdain for us, if that is indeed possible. And why shouldn't they? The average American is working two and half jobs, gets two weeks off, and has all the employment security of a one-armed trapeze artist. The Bush Administration has preached the "ownership society" to America: own your house, own your retirement account; you don't need the government in your way. So Americans mortgaged themselves to the hilt to buy overpriced houses they can no longer afford and signed up for 401k programs that put money where, exactly? In the stock market! Where rich Republicans fleeced them.
Now our laissez-faire (hey, a French word) regulation-averse Administration has made France's only Socialist president, Francois Mitterand, look like Adam Smith by comparison. All Mitterand did was nationalize France's big banks and insurance companies in 1982; he didn't have to deal with bankers who didn't want to lend money, as Paulson does. When the state runs the banks, they are merely cows to be milked in the service of la patrie. France doesn't have the mortgage crisis that we do, either. In bailing out mortgage lenders Fannie Mae and Freddie Mac, our government has basically turned America into the largest subsidized housing project in the world. Sure, France has its banlieus, where it likes to warehouse people who aren't French enough (meaning, immigrants orAlgerians) in huge apartment blocks. But the bulk of French homeowners are curiously free of subprime mortgages foisted on them by fellow citizens, and they aren't over their heads in personal debt.
We've always dismissed the French as exquisitely fed wards of their welfare state. They work, what, 27 hours in a good week, have 19 holidays a month, go on strike for two days and enjoy a glass of wine every day with lunch — except for the 25% of the population that works for the government, who have an even sweeter deal. They retire before their kids finish high school, and they don't have to save for a $45,000-a-year college tuition because college is free. For this, they pay a tax rate of about 103%, and their labor laws are so restrictive that they haven't had a net gain in jobs since Napoleon. There is no way that the French government can pay for this lifestyle forever, except that it somehow does.
Mitterand tried to create both job-growth and wage-growth by nationalizing huge swaths of the economy, including some big industries, including automaker Renault, for instance. You haven't driven a Renault lately because Renault couldn't sell them here. Imagine that. An auto company that couldn't compete with a Dodge Colt. But the Renault takeover ultimately proved successful and Renault became a private company again in 1996, although the government retains about 15% of the shares.
Now the U.S. is faced with the same prospect in the auto industry. GM and Ford need money to develop greener cars that can compete with Toyota and Honda. And they're looking to Uncle Sam for investment — an investment that could have been avoided had Washington imposed more stringent mileage standards years earlier. But we don't want to interfere with market forces like the French do — until we do.
Mitterand's nationalization program and other economic reforms failed, as the development of the European Market made a centrally planned economy obsolete. The Rothschilds got their bank back, a little worse for wear. These days, France sashays around the issue of protectionism in a supposedly unfettered EU by proclaiming some industries to be national champions worthy of extra consideration — you know, special needs kids. And we're not talking about pastry chefs, but the likes of GDF Suez, a major utility. I never thought of the stocks and junk securities sold by Goldman Sachs and Morgan Stanley as unique, but clearly Washington does. Morgan's John Mack calls SEC boss Chris Cox to whine about short sellers and bingo, the government obliges. The elite serve the elite. How French is that?
Even in the strongest sectors in the U.S., there's no getting away from the French influence. Nothing is more sacred to France than its farmers. They get whatever they demand, and they demand a lot. And if there are any issues about price supports, or feed costs being too high, or actual competition from other countries, French farmers simply shut down the country by marching their livestock up the Champs Elysee and piling up wheat on the highways. U.S. farmers would never resort to such behavior. They don't have to: they're the most coddled special interest group in U.S. history, lavished with $180 billion in subsidies by both parties, even when their products are fetching record prices. One consequence: U.S. consumers pay twice what the French pay for sugar, because of price guarantees. We're more French than France.
So yes, while we're still willing to work ourselves to death for the privilege of paying off our usurious credit cards, we can no longer look contemptuously at the land of 246 cheeses. Kraft Foods has replaced American International Group in the Dow Jones Industrial Average, the insurance company having been added to Paulson's nationalized portfolio. Macaroni and cheese has supplanted credit default swaps at the fulcrum of capitalism. And one more thing: the food snob French love McDonalds, which does a fantastic business there. They know a good freedom fry when they taste one.
By Bill Saporito
Admit it, mes amis, the rugged individualism and cutthroat capitalism that made America the land of unlimited opportunity has been shrink-wrapped by a half dozen short sellers in Greenwich, Conn. and FedExed to Washington D.C. to be spoon-fed back to life by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson. We're now no different from any of those Western European semi-socialist welfare states that we love to deride. Italy? Sure, it's had four governments since last Thursday, but none of them would have allowed this to go on; the Italians know how to rig an economy.
You just know the Frogs have only increased their disdain for us, if that is indeed possible. And why shouldn't they? The average American is working two and half jobs, gets two weeks off, and has all the employment security of a one-armed trapeze artist. The Bush Administration has preached the "ownership society" to America: own your house, own your retirement account; you don't need the government in your way. So Americans mortgaged themselves to the hilt to buy overpriced houses they can no longer afford and signed up for 401k programs that put money where, exactly? In the stock market! Where rich Republicans fleeced them.
Now our laissez-faire (hey, a French word) regulation-averse Administration has made France's only Socialist president, Francois Mitterand, look like Adam Smith by comparison. All Mitterand did was nationalize France's big banks and insurance companies in 1982; he didn't have to deal with bankers who didn't want to lend money, as Paulson does. When the state runs the banks, they are merely cows to be milked in the service of la patrie. France doesn't have the mortgage crisis that we do, either. In bailing out mortgage lenders Fannie Mae and Freddie Mac, our government has basically turned America into the largest subsidized housing project in the world. Sure, France has its banlieus, where it likes to warehouse people who aren't French enough (meaning, immigrants orAlgerians) in huge apartment blocks. But the bulk of French homeowners are curiously free of subprime mortgages foisted on them by fellow citizens, and they aren't over their heads in personal debt.
We've always dismissed the French as exquisitely fed wards of their welfare state. They work, what, 27 hours in a good week, have 19 holidays a month, go on strike for two days and enjoy a glass of wine every day with lunch — except for the 25% of the population that works for the government, who have an even sweeter deal. They retire before their kids finish high school, and they don't have to save for a $45,000-a-year college tuition because college is free. For this, they pay a tax rate of about 103%, and their labor laws are so restrictive that they haven't had a net gain in jobs since Napoleon. There is no way that the French government can pay for this lifestyle forever, except that it somehow does.
Mitterand tried to create both job-growth and wage-growth by nationalizing huge swaths of the economy, including some big industries, including automaker Renault, for instance. You haven't driven a Renault lately because Renault couldn't sell them here. Imagine that. An auto company that couldn't compete with a Dodge Colt. But the Renault takeover ultimately proved successful and Renault became a private company again in 1996, although the government retains about 15% of the shares.
Now the U.S. is faced with the same prospect in the auto industry. GM and Ford need money to develop greener cars that can compete with Toyota and Honda. And they're looking to Uncle Sam for investment — an investment that could have been avoided had Washington imposed more stringent mileage standards years earlier. But we don't want to interfere with market forces like the French do — until we do.
Mitterand's nationalization program and other economic reforms failed, as the development of the European Market made a centrally planned economy obsolete. The Rothschilds got their bank back, a little worse for wear. These days, France sashays around the issue of protectionism in a supposedly unfettered EU by proclaiming some industries to be national champions worthy of extra consideration — you know, special needs kids. And we're not talking about pastry chefs, but the likes of GDF Suez, a major utility. I never thought of the stocks and junk securities sold by Goldman Sachs and Morgan Stanley as unique, but clearly Washington does. Morgan's John Mack calls SEC boss Chris Cox to whine about short sellers and bingo, the government obliges. The elite serve the elite. How French is that?
Even in the strongest sectors in the U.S., there's no getting away from the French influence. Nothing is more sacred to France than its farmers. They get whatever they demand, and they demand a lot. And if there are any issues about price supports, or feed costs being too high, or actual competition from other countries, French farmers simply shut down the country by marching their livestock up the Champs Elysee and piling up wheat on the highways. U.S. farmers would never resort to such behavior. They don't have to: they're the most coddled special interest group in U.S. history, lavished with $180 billion in subsidies by both parties, even when their products are fetching record prices. One consequence: U.S. consumers pay twice what the French pay for sugar, because of price guarantees. We're more French than France.
So yes, while we're still willing to work ourselves to death for the privilege of paying off our usurious credit cards, we can no longer look contemptuously at the land of 246 cheeses. Kraft Foods has replaced American International Group in the Dow Jones Industrial Average, the insurance company having been added to Paulson's nationalized portfolio. Macaroni and cheese has supplanted credit default swaps at the fulcrum of capitalism. And one more thing: the food snob French love McDonalds, which does a fantastic business there. They know a good freedom fry when they taste one.
By Bill Saporito
Welcome to the world of Big Brother
NEW YORK (CNNMoney.com) -- And then there were none.
Federal regulators converted Wall Street's remaining stand-alone investment banks - Goldman Sachs and Morgan Stanley - into bank holding companies Sunday night.
The move allows Goldman and Morgan to scoop up retail banks and to streamline their borrowing from the Federal Reserve. The shift also is aimed at removing them as targets of nervous investors and customers, who brought down their former rivals Bear Stearns, Lehman Brothers and Merrill Lynch this year.
But it also puts Goldman and Morgan under the Fed's supervision, increasing the agency's regulatory oversight and possibly forcing them to raise additional capital. As banks, Morgan and Goldman will be forced to take less risk, which will mean fewer profits.
And it brings to a close the era of the Wall Street investment bank, a storied institution that traded stocks and bonds, advised mergers and showered lavish bonuses on its executives.
"The separation of investment banking and commercial banking has come to an end," said Bert Ely, an independent banking consultant.
The conversion is but the latest in a series of unprecedented events on Wall Street as it convulses through the global credit crisis. In the past eight days, the federal government announced a $700 billion plan to rescue the financial sector by buying up troubled mortgage assets and an $85 billion emergency loan to insurance titan American International Group. Also, Lehman filed for bankruptcy and Bank of America took over Merrill Lynch.
Morgan (MS, Fortune 500) and Goldman (GS, Fortune 500), whose shares plummeted last week before the $700 billion bailout was unveiled, will likely avoid those fates with the conversion, experts said.
"They were afraid they'd get killed if they didn't [convert]," said Christopher Whalen, managing director of Institutional Risk Analytics. "The Fed is scrambling to take the remaining targets off the radar."
Beefing up the retail banks
The duo is expected to quickly add to their tiny existing retail banking divisions, which will give them access to a cheaper and more stable source of funding - customer deposits - rather than the volatile short-term funding they rely on. The companies, which both requested the conversion, signaled as much in separate press releases Sunday.
They have plenty to pick from now that the credit crisis has devastated the banking sector.
Morgan, which has $36 billion in deposits, may already have a partner in mind. Rumors have flown on Wall Street in the past week that it would hook up with Wachovia (WB, Fortune 500), a large but troubled bank. Sunday's shift would make such a merger easier.
With $20 billion in deposits, Goldman said it plans to grow its deposit base through acquisitions and internally. It is also shifting assets from other divisions into its Goldman Sachs Bank USA, which will become one of the 10 largest banks in the United States with $150 billion in assets.
Access to the Fed funding
The action also solidifies their standing with the Fed. While the investment banks received emergency access to the Fed funding in the wake of Bear Stearns' demise in March, Goldman and Morgan will now have all the same privileges at the Fed lending window as their banking peers.
As part of Sunday's move, the Fed extended additional credit to Goldman and Morgan, as well as Merrill, allowing them to pledge a wider array of collateral.
The companies also hope the shift will end investors' fears that the investment banks are not solid enough to survive.
"This new bank holding structure will ensure that Morgan Stanley is in the strongest possible position," said John Mack, Morgan's chief executive. "It also offers the marketplace certainty about the strength of our financial position and our access to funding."
"We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources," said Lloyd C. Blankfein, Goldman's chief executive
Turmoil on Wall Street
The Fed's decision is just the latest in a dizzying series of events over the past week representing a dramatic reordering of the financial world.
All eyes now turn to the troubled traditional banks, such as Washington Mutual (WM, Fortune 500) and Wachovia, which are scrambling to shore up their books as lending has frozen up and investor confidence has sunk.
Federal regulators converted Wall Street's remaining stand-alone investment banks - Goldman Sachs and Morgan Stanley - into bank holding companies Sunday night.
The move allows Goldman and Morgan to scoop up retail banks and to streamline their borrowing from the Federal Reserve. The shift also is aimed at removing them as targets of nervous investors and customers, who brought down their former rivals Bear Stearns, Lehman Brothers and Merrill Lynch this year.
But it also puts Goldman and Morgan under the Fed's supervision, increasing the agency's regulatory oversight and possibly forcing them to raise additional capital. As banks, Morgan and Goldman will be forced to take less risk, which will mean fewer profits.
And it brings to a close the era of the Wall Street investment bank, a storied institution that traded stocks and bonds, advised mergers and showered lavish bonuses on its executives.
"The separation of investment banking and commercial banking has come to an end," said Bert Ely, an independent banking consultant.
The conversion is but the latest in a series of unprecedented events on Wall Street as it convulses through the global credit crisis. In the past eight days, the federal government announced a $700 billion plan to rescue the financial sector by buying up troubled mortgage assets and an $85 billion emergency loan to insurance titan American International Group. Also, Lehman filed for bankruptcy and Bank of America took over Merrill Lynch.
Morgan (MS, Fortune 500) and Goldman (GS, Fortune 500), whose shares plummeted last week before the $700 billion bailout was unveiled, will likely avoid those fates with the conversion, experts said.
"They were afraid they'd get killed if they didn't [convert]," said Christopher Whalen, managing director of Institutional Risk Analytics. "The Fed is scrambling to take the remaining targets off the radar."
Beefing up the retail banks
The duo is expected to quickly add to their tiny existing retail banking divisions, which will give them access to a cheaper and more stable source of funding - customer deposits - rather than the volatile short-term funding they rely on. The companies, which both requested the conversion, signaled as much in separate press releases Sunday.
They have plenty to pick from now that the credit crisis has devastated the banking sector.
Morgan, which has $36 billion in deposits, may already have a partner in mind. Rumors have flown on Wall Street in the past week that it would hook up with Wachovia (WB, Fortune 500), a large but troubled bank. Sunday's shift would make such a merger easier.
With $20 billion in deposits, Goldman said it plans to grow its deposit base through acquisitions and internally. It is also shifting assets from other divisions into its Goldman Sachs Bank USA, which will become one of the 10 largest banks in the United States with $150 billion in assets.
Access to the Fed funding
The action also solidifies their standing with the Fed. While the investment banks received emergency access to the Fed funding in the wake of Bear Stearns' demise in March, Goldman and Morgan will now have all the same privileges at the Fed lending window as their banking peers.
As part of Sunday's move, the Fed extended additional credit to Goldman and Morgan, as well as Merrill, allowing them to pledge a wider array of collateral.
The companies also hope the shift will end investors' fears that the investment banks are not solid enough to survive.
"This new bank holding structure will ensure that Morgan Stanley is in the strongest possible position," said John Mack, Morgan's chief executive. "It also offers the marketplace certainty about the strength of our financial position and our access to funding."
"We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources," said Lloyd C. Blankfein, Goldman's chief executive
Turmoil on Wall Street
The Fed's decision is just the latest in a dizzying series of events over the past week representing a dramatic reordering of the financial world.
All eyes now turn to the troubled traditional banks, such as Washington Mutual (WM, Fortune 500) and Wachovia, which are scrambling to shore up their books as lending has frozen up and investor confidence has sunk.
Friday, September 19, 2008
Top 15 College Football Quotes
15) "At Georgia Southern, we don't cheat. That costs money, and we don't have any." -Erik Russell.
14) "Motivation is simple, you eliminate those who aren't motivated." -Sweet Lou Holtz
13) "They whipped us like a tied up goat." -Spike Dykes
12) "We didn't tackle well today, but we made up for it by not blocking." -John McKay
11) "I could have been a Rhodes Scholar, except for my grades." -Duffy Daugherty
10) "If lessons were learned in defeat, our team is getting a great education." -Murray Warmath
9) "After you retire, there's only one big event left...and I ain't ready for that." -Bobby Bowden
8) "Football is not a contact sport. It is a collision sport. Dancing is a good example of a contact sport." -Duffy Daugherty
7) "I'm really happy for Coach Cooper and the guys who have been around here six or seven years, especially our seniors." -Bob Hoying
6) "To hell with Notre Dame!" -Bo Schembechler
5) "Gentlemen, it is better to die a small boy than to fumble this football." -John Heisman
4) "A school without football is in danger of deteriorating into a medieval study hall." -Frank Leahy
3) "I've found prayers work best when you have big players." -Knute Rockne
2) "Hawaii doesn't win many games in the United States." -Lee Corso
1) "He treats us like men. He lets us wear earrings." -Torrin Polk
14) "Motivation is simple, you eliminate those who aren't motivated." -Sweet Lou Holtz
13) "They whipped us like a tied up goat." -Spike Dykes
12) "We didn't tackle well today, but we made up for it by not blocking." -John McKay
11) "I could have been a Rhodes Scholar, except for my grades." -Duffy Daugherty
10) "If lessons were learned in defeat, our team is getting a great education." -Murray Warmath
9) "After you retire, there's only one big event left...and I ain't ready for that." -Bobby Bowden
8) "Football is not a contact sport. It is a collision sport. Dancing is a good example of a contact sport." -Duffy Daugherty
7) "I'm really happy for Coach Cooper and the guys who have been around here six or seven years, especially our seniors." -Bob Hoying
6) "To hell with Notre Dame!" -Bo Schembechler
5) "Gentlemen, it is better to die a small boy than to fumble this football." -John Heisman
4) "A school without football is in danger of deteriorating into a medieval study hall." -Frank Leahy
3) "I've found prayers work best when you have big players." -Knute Rockne
2) "Hawaii doesn't win many games in the United States." -Lee Corso
1) "He treats us like men. He lets us wear earrings." -Torrin Polk
Thursday, September 18, 2008
Are Banks Next?
When you read reports coming out about the economic crises that we are currenlty in one of the questions is who is next to fall. A lot of people are pointing to Washington Mutal and other banks. Most people think this is one in the same but they are different. Washington Mutal is a savings and loan. Which means they historically hold on to their loans for a longer period of time especailly mortgages. While most banks originate the mortgage and sell them off in a package to Freddie Mac, Fannie Mae or a mortgage servicing agent. So the bad mortgages that is causing alot of these companies to fail are off the books on most banks. Not so with Washington Mutal they kept most of the mortgages they originated. Since a lot of their branches are located in California and Florida, two of the hardest hit places, they currently have a very high number of bad mortgages. This is not to say that all banks are free from the mortgage fall out. Banks could have bought mortgage backed bonds to help manage liquidity or they could have also made loans to commercial contractors that build houses and with the surplus of new and forclosed houses this has led to a very high number of bankruptcies for this type of compnay if they didn't set aside a reserve to ride the slow times. For years housign contrators were making tons of money and didn't have houses sitting without being sold for an extended period of time but with the economy in the shape that it currently is in houses are setting for a much longer period of time. Also the value in the houses has dropped so this means a cut into profits for theses companies. This will effect banks that loaned heavily into these companies. So some banks could fail but not as many as most people think and only banks that were located in areas that were the hardest hit by the mortgage bubble bursting. Banks are so heavily regulated and audited by FDIC and Federal Reserve each year that they know which ones are in trouble and have programs to help them out. If you want an extra piece of mind that your money will be safe make sure you have less than $100,000 at each bank. If you want to piece of mind and ease of working with one bank, ask your bank if they offer CDARS. To make this short and sweet CDARS program allows you to have all your money FDIC insured. Let me give you an example, if you have $500,000 and you want it fully FDIC insured. You can put into the CDARS program which will send it to 6 banks (your bank plus 5 others) breaking the money up evenly all each under the FDIC $100,000 insurance limit. You money is sent out to other banks and in return your bank get the same amount of money back from someone else doing the same thing. So you will get a statement from your home banks saying you have $500,000 at their bank but in reality you have $500,000 FDIC insured at 6 different banks. Don't worry this is perfectly legal and could help you out if you are one of the fortuate people that have over $100,000 in you checking and saving accounts.
Top Selling Football Jerseys
Anyhow, here are the Top 25 NFL sellers, from April 1 - Aug. 26, 2008.
1. Brett Favre, New York Jets
2. Tony Romo, Dallas Cowboys
3. Eli Manning, New York Giants
4. Tom Brady, New England Patriots
5. Peyton Manning, Indianapolis Colts
6. Adrian Peterson, Minnesota Vikings
7. Marion Barber, Dallas Cowboys
8. LaDainian Tomlinson, S.D. Chargers
9. Ben Roethlisberger, Pittsburgh Steelers
10. Darren McFadden, Oakland Raiders
11. Brian Urlacher, Chicago Bears
12. Devin Hester, Chicago Bears
13. Terrell Owens, Dallas Cowboys
14. Jason Witten, Dallas Cowboys
15. Brian Westbrook, Philadelphia Eagles
16. Troy Polamalu, Pittsburgh Steelers
17. Randy Moss, New England Patriots
18. Osi Umenyiora, New York Giants
19. Chris Cooley, Washington Redskins
20. Reggie Bush, New Orleans Saints
21. Patrick Willis, San Francisco 49ers
22. Michael Strahan, New York Giants
23. Jay Cutler, Denver Broncos
24. DeMarcus Ware, Dallas Cowboys
25. Jason Taylor, Washington Redskins
1. Brett Favre, New York Jets
2. Tony Romo, Dallas Cowboys
3. Eli Manning, New York Giants
4. Tom Brady, New England Patriots
5. Peyton Manning, Indianapolis Colts
6. Adrian Peterson, Minnesota Vikings
7. Marion Barber, Dallas Cowboys
8. LaDainian Tomlinson, S.D. Chargers
9. Ben Roethlisberger, Pittsburgh Steelers
10. Darren McFadden, Oakland Raiders
11. Brian Urlacher, Chicago Bears
12. Devin Hester, Chicago Bears
13. Terrell Owens, Dallas Cowboys
14. Jason Witten, Dallas Cowboys
15. Brian Westbrook, Philadelphia Eagles
16. Troy Polamalu, Pittsburgh Steelers
17. Randy Moss, New England Patriots
18. Osi Umenyiora, New York Giants
19. Chris Cooley, Washington Redskins
20. Reggie Bush, New Orleans Saints
21. Patrick Willis, San Francisco 49ers
22. Michael Strahan, New York Giants
23. Jay Cutler, Denver Broncos
24. DeMarcus Ware, Dallas Cowboys
25. Jason Taylor, Washington Redskins
How we got into this mess
NEW YORK (CNNMoney.com) -- The nation's financial system is in the midst of a massive shakeup and many on Wall Street and in Washington are pointing fingers and looking for someone to blame.
But in the end, it all comes back to one issue - housing.
Earlier this decade, it was much easier to get a mortgage. Home prices soared about 85% from 1996 through 2006 in inflation-adjusted dollars, creating a bubble.
Then the bubble popped. And the fallout isn't over yet, experts say.
In the past two weeks, the government took over Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), Lehman Brothers (LEH, Fortune 500) filed for bankruptcy and Merrill Lynch (MER, Fortune 500) sold itself to Bank of America (BAC, Fortune 500).
If all that weren't enough, the Federal Reserve announced late Tuesday night that it was loaning $85 billion to insurer American International Group (AIG, Fortune 500).
None of this would have happened if the housing market had not imploded, leaving all these firms with staggering losses from their investments tied to mortgages.
"These institutions, which weathered all kinds of calamities before, including depressions, are being knocked out," said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. "It's a testament to the significance of the problem we have here."
Thus, experts agree that there are likely to be future shocks to the financial system until the housing market finally hits bottom.
Even Treasury Secretary Henry Paulson, the administration's point man in the many rescue discussions of the past month, admits this.
"The housing correction poses the biggest risk to our economy," Paulson said the day he announced the Fannie and Freddie seizure. "Our economy and our markets will not recover until the bulk of this housing correction is behind us."
The problem of falling home prices
But because of the depth of the housing problems, it may take a long time before real estate prices head higher again. Here's why.
Home prices, while sharply off from the 2006 peaks, are still high in comparison to long-term gains in income, rents or overall prices, suggesting that they still have a way to fall, according to experts.
The reason housing is wreaking havoc even on insurers like AIG and big investment banks, who do not make mortgage loans, is that during the boom, trillions of dollars of mortgages were packaged together into securities that promised to pay investors with the proceeds of those loan payments.
Those securities paid better rates than other types of assets during the boom years. So many investors from around the globe poured as much money as they could into those securities.
Faced with this demand, lenders starting making more loans to riskier borrowers, including people who might not be able to afford their mortgage payments in the future and even many with no proof of income.
When prices were rising, this wasn't a problem. The risk of loan foreclosure or default was limited because many homeowners were able to sell their house for more than they owed and make a profit.
But once prices topped out and began falling, loan defaults and foreclosures started shooting higher as homeowners found it more difficult to sell their house. This created problems not just for subprime borrowers but even for those with good credit and income.
When foreclosures rose, the value of the various types of securities tied to mortgages started to fall, causing huge losses up and down Wall Street. It also made banks less eager to extend credit because of the risks involved.
A downward spiral
This credit crunch in of itself slowed the economy, leading to job losses and more defaults, feeding a downward spiral that has been difficult to stop.
"A really bad situation -- a home price bubble bursting -- was made significantly worse when the recession began," said Achuthan. "Now we have to let this thing play out."
Some experts even argue that the steps being taken to rescue firms like AIG could make a recovery in housing and the broader economy more difficult, as financial firms and investors become more reluctant to lend money.
"We are certainly taking credit and squeezing it tighter and tighter," said Kevin Giddis, managing director of investment bank Morgan Keegan. "Housing needs buyers. Buyers need credit."
Achuthan said that even though rates for mortgages and other types of loans have fallen in the last two weeks, those loans are becoming more difficult for many consumers and businesses to get because banks are severely tightening their lending standards.
And if housing prices do fall further, that will only cause more losses in the financial sector and perhaps more failures of banks, insurers and securities firms.
"I would hesitate to say the worst is behind us," Achuthan said.
So even with perhaps hundreds of billions of tax dollars going to AIG, Fannie and Freddie, one expert said the only real solution to the housing problem is for the correction in housing to finish running its course.
"We want home prices to return to normal," said Barry Ritholtz, CEO of Fusion IQ and author of the upcoming book "Bailout Nation."
"Until that happens, you can throw as much money at the market as you want at the situation....and it ain't going to make any difference," Ritholtz said.
But in the end, it all comes back to one issue - housing.
Earlier this decade, it was much easier to get a mortgage. Home prices soared about 85% from 1996 through 2006 in inflation-adjusted dollars, creating a bubble.
Then the bubble popped. And the fallout isn't over yet, experts say.
In the past two weeks, the government took over Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), Lehman Brothers (LEH, Fortune 500) filed for bankruptcy and Merrill Lynch (MER, Fortune 500) sold itself to Bank of America (BAC, Fortune 500).
If all that weren't enough, the Federal Reserve announced late Tuesday night that it was loaning $85 billion to insurer American International Group (AIG, Fortune 500).
None of this would have happened if the housing market had not imploded, leaving all these firms with staggering losses from their investments tied to mortgages.
"These institutions, which weathered all kinds of calamities before, including depressions, are being knocked out," said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. "It's a testament to the significance of the problem we have here."
Thus, experts agree that there are likely to be future shocks to the financial system until the housing market finally hits bottom.
Even Treasury Secretary Henry Paulson, the administration's point man in the many rescue discussions of the past month, admits this.
"The housing correction poses the biggest risk to our economy," Paulson said the day he announced the Fannie and Freddie seizure. "Our economy and our markets will not recover until the bulk of this housing correction is behind us."
The problem of falling home prices
But because of the depth of the housing problems, it may take a long time before real estate prices head higher again. Here's why.
Home prices, while sharply off from the 2006 peaks, are still high in comparison to long-term gains in income, rents or overall prices, suggesting that they still have a way to fall, according to experts.
The reason housing is wreaking havoc even on insurers like AIG and big investment banks, who do not make mortgage loans, is that during the boom, trillions of dollars of mortgages were packaged together into securities that promised to pay investors with the proceeds of those loan payments.
Those securities paid better rates than other types of assets during the boom years. So many investors from around the globe poured as much money as they could into those securities.
Faced with this demand, lenders starting making more loans to riskier borrowers, including people who might not be able to afford their mortgage payments in the future and even many with no proof of income.
When prices were rising, this wasn't a problem. The risk of loan foreclosure or default was limited because many homeowners were able to sell their house for more than they owed and make a profit.
But once prices topped out and began falling, loan defaults and foreclosures started shooting higher as homeowners found it more difficult to sell their house. This created problems not just for subprime borrowers but even for those with good credit and income.
When foreclosures rose, the value of the various types of securities tied to mortgages started to fall, causing huge losses up and down Wall Street. It also made banks less eager to extend credit because of the risks involved.
A downward spiral
This credit crunch in of itself slowed the economy, leading to job losses and more defaults, feeding a downward spiral that has been difficult to stop.
"A really bad situation -- a home price bubble bursting -- was made significantly worse when the recession began," said Achuthan. "Now we have to let this thing play out."
Some experts even argue that the steps being taken to rescue firms like AIG could make a recovery in housing and the broader economy more difficult, as financial firms and investors become more reluctant to lend money.
"We are certainly taking credit and squeezing it tighter and tighter," said Kevin Giddis, managing director of investment bank Morgan Keegan. "Housing needs buyers. Buyers need credit."
Achuthan said that even though rates for mortgages and other types of loans have fallen in the last two weeks, those loans are becoming more difficult for many consumers and businesses to get because banks are severely tightening their lending standards.
And if housing prices do fall further, that will only cause more losses in the financial sector and perhaps more failures of banks, insurers and securities firms.
"I would hesitate to say the worst is behind us," Achuthan said.
So even with perhaps hundreds of billions of tax dollars going to AIG, Fannie and Freddie, one expert said the only real solution to the housing problem is for the correction in housing to finish running its course.
"We want home prices to return to normal," said Barry Ritholtz, CEO of Fusion IQ and author of the upcoming book "Bailout Nation."
"Until that happens, you can throw as much money at the market as you want at the situation....and it ain't going to make any difference," Ritholtz said.
Wednesday, September 17, 2008
Nobel Prize winner's ideas on how to fix the economy
NEW YORK (CNN) -- Many seem taken aback by the depth and severity of the current financial turmoil. I was among several economists who saw it coming and warned about the risks.
There is ample blame to be shared; but the purpose of parsing out blame is to figure out how to make a recurrence less likely.
President Bush famously said, a little while ago, that the problem is simple: Too many houses were built. Yes, but the answer is too simplistic: Why did that happen?
One can say the Fed failed twice, both as a regulator and in the conduct of monetary policy. Its flood of liquidity (money made available to borrow at low interest rates) and lax regulations led to a housing bubble. When the bubble broke, the excessively leveraged loans made on the basis of overvalued assets went sour.
For all the new-fangled financial instruments, this was just another one of those financial crises based on excess leverage, or borrowing, and a pyramid scheme.
The new "innovations" simply hid the extent of systemic leverage and made the risks less transparent; it is these innovations that have made this collapse so much more dramatic than earlier financial crises. But one needs to push further: Why did the Fed fail?
First, key regulators like Alan Greenspan didn't really believe in regulation; when the excesses of the financial system were noted, they called for self-regulation -- an oxymoron.
Second, the macro-economy was in bad shape with the collapse of the tech bubble. The tax cut of 2001 was not designed to stimulate the economy but to give a largesse to the wealthy -- the group that had been doing so well over the last quarter-century.
The coup d'grace was the Iraq War, which contributed to soaring oil prices. Money that used to be spent on American goods now got diverted abroad. The Fed took seriously its responsibility to keep the economy going.
It did this by replacing the tech bubble with a new bubble, a housing bubble. Household savings plummeted to zero, to the lowest level since the Great Depression. It managed to sustain the economy, but the way it did it was shortsighted: America was living on borrowed money and borrowed time.
Finally, at the center of blame must be the financial institutions themselves. They -- and even more their executives -- had incentives that were not well aligned with the needs of our economy and our society.
They were amply rewarded, presumably for managing risk and allocating capital, which was supposed to improve the efficiency of the economy so much that it justified their generous compensation. But they misallocated capital; they mismanaged risk -- they created risk.
They did what their incentive structures were designed to do: focusing on short-term profits and encouraging excessive risk-taking.
This is not the first crisis in our financial system, not the first time that those who believe in free and unregulated markets have come running to the government for bail-outs. There is a pattern here, one that suggests deep systemic problems -- and a variety of solutions:
1. We need first to correct incentives for executives, reducing the scope for conflicts of interest and improving shareholder information about dilution in share value as a result of stock options. We should mitigate the incentives for excessive risk-taking and the short-term focus that has so long prevailed, for instance, by requiring bonuses to be paid on the basis of, say, five-year returns, rather than annual returns.
2. Secondly, we need to create a financial product safety commission, to make sure that products bought and sold by banks, pension funds, etc. are safe for "human consumption." Consenting adults should be given great freedom to do whatever they want, but that does not mean they should gamble with other people's money. Some may worry that this may stifle innovation. But that may be a good thing considering the kind of innovation we had -- attempting to subvert accounting and regulations. What we need is more innovation addressing the needs of ordinary Americans, so they can stay in their homes when economic conditions change.
3. We need to create a financial systems stability commission to take an overview of the entire financial system, recognizing the interrelations among the various parts, and to prevent the excessive systemic leveraging that we have just experienced.
4. We need to impose other regulations to improve the safety and soundness of our financial system, such as "speed bumps" to limit borrowing. Historically, rapid expansion of lending has been responsible for a large fraction of crises and this crisis is no exception.
5. We need better consumer protection laws, including laws that prevent predatory lending.
6. We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is "too big to fail." If it is that big, it should be broken up.
These reforms will not guarantee that we will not have another crisis. The ingenuity of those in the financial markets is impressive. Eventually, they will figure out how to circumvent whatever regulations are imposed. But these reforms will make another crisis of this kind less likely, and, should it occur, make it less severe than it otherwise would be.
The opinions expressed in this commentary are solely those of the writer.
Editor's note: Joseph E. Stiglitz, professor at Columbia University, was awarded the Nobel Prize in Economics in 2001 for his work on the economics of information and was on the climate change panel that shared the Nobel Peace Prize in 2008. Stiglitz, a supporter of Barack Obama, was a member and later chairman of the Council of Economic Advisers during the Clinton administration before joining the World Bank as chief economist and senior vice president. He is the co-author with Linda Bilmes of the "Three Trillion Dollar War: The True Costs of the Iraq Conflict."
There is ample blame to be shared; but the purpose of parsing out blame is to figure out how to make a recurrence less likely.
President Bush famously said, a little while ago, that the problem is simple: Too many houses were built. Yes, but the answer is too simplistic: Why did that happen?
One can say the Fed failed twice, both as a regulator and in the conduct of monetary policy. Its flood of liquidity (money made available to borrow at low interest rates) and lax regulations led to a housing bubble. When the bubble broke, the excessively leveraged loans made on the basis of overvalued assets went sour.
For all the new-fangled financial instruments, this was just another one of those financial crises based on excess leverage, or borrowing, and a pyramid scheme.
The new "innovations" simply hid the extent of systemic leverage and made the risks less transparent; it is these innovations that have made this collapse so much more dramatic than earlier financial crises. But one needs to push further: Why did the Fed fail?
First, key regulators like Alan Greenspan didn't really believe in regulation; when the excesses of the financial system were noted, they called for self-regulation -- an oxymoron.
Second, the macro-economy was in bad shape with the collapse of the tech bubble. The tax cut of 2001 was not designed to stimulate the economy but to give a largesse to the wealthy -- the group that had been doing so well over the last quarter-century.
The coup d'grace was the Iraq War, which contributed to soaring oil prices. Money that used to be spent on American goods now got diverted abroad. The Fed took seriously its responsibility to keep the economy going.
It did this by replacing the tech bubble with a new bubble, a housing bubble. Household savings plummeted to zero, to the lowest level since the Great Depression. It managed to sustain the economy, but the way it did it was shortsighted: America was living on borrowed money and borrowed time.
Finally, at the center of blame must be the financial institutions themselves. They -- and even more their executives -- had incentives that were not well aligned with the needs of our economy and our society.
They were amply rewarded, presumably for managing risk and allocating capital, which was supposed to improve the efficiency of the economy so much that it justified their generous compensation. But they misallocated capital; they mismanaged risk -- they created risk.
They did what their incentive structures were designed to do: focusing on short-term profits and encouraging excessive risk-taking.
This is not the first crisis in our financial system, not the first time that those who believe in free and unregulated markets have come running to the government for bail-outs. There is a pattern here, one that suggests deep systemic problems -- and a variety of solutions:
1. We need first to correct incentives for executives, reducing the scope for conflicts of interest and improving shareholder information about dilution in share value as a result of stock options. We should mitigate the incentives for excessive risk-taking and the short-term focus that has so long prevailed, for instance, by requiring bonuses to be paid on the basis of, say, five-year returns, rather than annual returns.
2. Secondly, we need to create a financial product safety commission, to make sure that products bought and sold by banks, pension funds, etc. are safe for "human consumption." Consenting adults should be given great freedom to do whatever they want, but that does not mean they should gamble with other people's money. Some may worry that this may stifle innovation. But that may be a good thing considering the kind of innovation we had -- attempting to subvert accounting and regulations. What we need is more innovation addressing the needs of ordinary Americans, so they can stay in their homes when economic conditions change.
3. We need to create a financial systems stability commission to take an overview of the entire financial system, recognizing the interrelations among the various parts, and to prevent the excessive systemic leveraging that we have just experienced.
4. We need to impose other regulations to improve the safety and soundness of our financial system, such as "speed bumps" to limit borrowing. Historically, rapid expansion of lending has been responsible for a large fraction of crises and this crisis is no exception.
5. We need better consumer protection laws, including laws that prevent predatory lending.
6. We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is "too big to fail." If it is that big, it should be broken up.
These reforms will not guarantee that we will not have another crisis. The ingenuity of those in the financial markets is impressive. Eventually, they will figure out how to circumvent whatever regulations are imposed. But these reforms will make another crisis of this kind less likely, and, should it occur, make it less severe than it otherwise would be.
The opinions expressed in this commentary are solely those of the writer.
Editor's note: Joseph E. Stiglitz, professor at Columbia University, was awarded the Nobel Prize in Economics in 2001 for his work on the economics of information and was on the climate change panel that shared the Nobel Peace Prize in 2008. Stiglitz, a supporter of Barack Obama, was a member and later chairman of the Council of Economic Advisers during the Clinton administration before joining the World Bank as chief economist and senior vice president. He is the co-author with Linda Bilmes of the "Three Trillion Dollar War: The True Costs of the Iraq Conflict."
Cotton Bowl Opinion
As a person who has gone to the past four cotton bowls this upgrade is at least 10 years latter than it should have been. The Cotton Bowl is definelty the worst stadium I have ever been to. They only had one set of bathrooms and two consessions stands for the entire upper deck. If you had to go to the bathroom or get some nachos you missed half the game because the line was so long. Last year a person a row in front of us found out his seat had been removed. So he paid $100 and had to stand because the Cotton Bowl had some missing seats but still sold tickets to for them anyways. And they wonder why the Cotton Bowl left to go and play in Jerry Jone's new stadium starting in 2010. The city of Dallas dropped the ball when it came to the Cotton Bowl and the Dallas Cowboys. Both created millions of dollars in tax revenue because of the people and money it brings to the towns. Dallas wouldn't help Jerry with his new stadium so he moved it to Arlington a suburb of Dallas. Jerry is a very smart business man. He has already gotton the Cotton Bowl to move, the super bowl in a few years , has the Texas A&M and Arkansas game for the next 9 years and is already in talks for the NCAA final four, a yearly game with Texas Tech and Oklahoma State, and a move to make the Cotton Bowl a BCS bowl. That is alot of money the city of Dallas is going to miss out on. The only Dallas teams that are actually located in Dallas are the Dallas Mavericks and the Dallas Stars
Cotton Bowl
The Cotton Bowl at Fair Park is thick with the past, a place of names such as Doak Walker and Bear Bryant, of championships that will be long remembered and games that are all but forgotten.
Still, in the morning sun Tuesday, with the light shining off the benches of its newly constructed upper decks, the Cotton Bowl's past didn't seem to hold all the sway for once.
Instead, its future as one of the nation's largest stadiums was having a say.
Today, city officials are set to reveal the biggest transformation in the Cotton Bowl's 78-year history, a $57 million upgrade that added more than 16,000 seats to its end zones, finishing out the ends of its oval bowl with upper-level decks and bringing its total capacity to 92,200.
It's a change Cotton Bowl backers hope will mean a brighter future for a facility that many have dismissed as having its best days behind it.
"I don't think there is a bad seat in the stadium anymore," said Fair Park's general manager Daniel Huerta as he looked out over the field from the top of the north end-zone seats.
Mr. Huerta and other top Dallas Park and Recreation officials showed off the revamped stadium in advance of its unveiling today.
The changes include two contiguous concourses around the stadium, refurbished entryways with four new stairwells, 25 new bathrooms and concession stands that promise shorter waits.
To those who have been going to the Cotton Bowl for years, the changes are dramatic in parts of the stadium.
Gone is the flip-down seating installed in the 1960s. In its place are long lines of aluminum benches, 26 miles' worth.
The dark ramps at the entrances have been replaced with wide stairwells. The narrow corridors around the first-level concourse have been expanded from 12 feet to 30 feet.
"The [University of Texas/University of Oklahoma] people came to an old stadium last year, and they are going to show up in a new one this year. When you think of that in one year, that's almost miraculous," said Jim Curry, project architect for Heery International, an Atlanta firm that oversaw design and construction.
The renovation comes at an important time.
The stadium will lose its namesake game, the AT&T Cotton Bowl Classic, after 2009.
And despite some traction in adding new games, signing major college teams to square off in Dallas has been difficult.
City officials and Cotton Bowl backers hope the renovations will change that and make it easier to recruit smaller games, something with which the city has had more success.
Efforts to add games often come down to one question – capacity, said Paul Dyer, director of Dallas' Park and Recreation department.
"That was the No. 1 issue for Texas-OU, capacity, because that's revenue for them," he said of the historic game that is set to continue at the Cotton Bowl at least through 2015.
With the new upper decks, capacity is not a problem anymore. The Cotton Bowl is now the ninth largest stadium in the country, city officials said.
It's estimated to have about 2,200 more seats than its local rival – the new Dallas Cowboys stadium in Arlington – will have.
Unlike that stadium, the Cotton Bowl won't have luxury boxes or other high-dollar amenities.
"This is a premier college football venue. We're not trying to be a pro stadium," said Willis Winters, the park department's assistant director.
In addition to its enhanced capacity, the Cotton Bowl has some new features officials hope will attract more business.
Premium club seats, protected from the elements, are available in the north end zone. There are also comfortable flip-down seats on the 50-yard line in an area known as the Governors Section on the west side of the field.
If you're lucky enough to be a player, coach or insider, there is a new 16,000-square-foot media center at the north end zone that includes an expanded locker room for players, new locker rooms for coaches and a conference room that will be available for games and private functions.
The renovations are already having an impact, Mr. Huerta said.
The city recently signed Texas Southern University and the University of Arkansas-Pine Bluff to play at the Cotton Bowl.
Mr. Huerta said the city is also in talks with a newly formed professional football league to play seven games at the stadium.
A new day for the Cotton Bowl
Upper-deck seating: More than 16,000 seats were added to the end zones. The new seating brings the stadium's capacity to 92,200.
Contiguous concourse: Fans can now walk around the entire stadium along two concourses at the upper and lower levels.
Entrances: Four double stairwells were added at the corners of the end zones to speed entry and exit at the stadium.
New concession stands: At either end zone, a series of large new concession stands was designed to shorten waits and to place concession lines away from the main concourse leading to seats.
New restrooms: A frequent complaint has been about long lines at the bathrooms. Twenty-five bathrooms – including 1,100 new toilet fixtures – have been added, bringing the bathroom total to 39.
New media center and updated locker rooms: A 16,000-square- foot media center sits atop the north end zone. It includes a 2,600-square-foot conference room that can be used for news conferences or private events.
Seating: Covered premium club seating with 157 fold-down chairs is available at the south end zone. There are 396 fold-down seats in the Governors Section at the 50-yard line on the west side of the stadium. In each end zone on the upper-deck level, there are 550 individual seats with backs. On the west side, there are 15,000 bench seats with backs. The rest of the seating is backless aluminum benches.
On the schedule
Following are football games scheduled to be played in the refurbished Cotton Bowl.
•Oct. 4: Prairie View A&M University vs. Grambling State University
•Oct. 11: University of Texas vs. University of Oklahoma
•Oct. 18: Texas A&M University-Commerce vs. East Central University
•Nov. 29: Texas Southern vs. Arkansas-Pine Bluff
•Jan. 2: AT&T Cotton Bowl Classic
Still, in the morning sun Tuesday, with the light shining off the benches of its newly constructed upper decks, the Cotton Bowl's past didn't seem to hold all the sway for once.
Instead, its future as one of the nation's largest stadiums was having a say.
Today, city officials are set to reveal the biggest transformation in the Cotton Bowl's 78-year history, a $57 million upgrade that added more than 16,000 seats to its end zones, finishing out the ends of its oval bowl with upper-level decks and bringing its total capacity to 92,200.
It's a change Cotton Bowl backers hope will mean a brighter future for a facility that many have dismissed as having its best days behind it.
"I don't think there is a bad seat in the stadium anymore," said Fair Park's general manager Daniel Huerta as he looked out over the field from the top of the north end-zone seats.
Mr. Huerta and other top Dallas Park and Recreation officials showed off the revamped stadium in advance of its unveiling today.
The changes include two contiguous concourses around the stadium, refurbished entryways with four new stairwells, 25 new bathrooms and concession stands that promise shorter waits.
To those who have been going to the Cotton Bowl for years, the changes are dramatic in parts of the stadium.
Gone is the flip-down seating installed in the 1960s. In its place are long lines of aluminum benches, 26 miles' worth.
The dark ramps at the entrances have been replaced with wide stairwells. The narrow corridors around the first-level concourse have been expanded from 12 feet to 30 feet.
"The [University of Texas/University of Oklahoma] people came to an old stadium last year, and they are going to show up in a new one this year. When you think of that in one year, that's almost miraculous," said Jim Curry, project architect for Heery International, an Atlanta firm that oversaw design and construction.
The renovation comes at an important time.
The stadium will lose its namesake game, the AT&T Cotton Bowl Classic, after 2009.
And despite some traction in adding new games, signing major college teams to square off in Dallas has been difficult.
City officials and Cotton Bowl backers hope the renovations will change that and make it easier to recruit smaller games, something with which the city has had more success.
Efforts to add games often come down to one question – capacity, said Paul Dyer, director of Dallas' Park and Recreation department.
"That was the No. 1 issue for Texas-OU, capacity, because that's revenue for them," he said of the historic game that is set to continue at the Cotton Bowl at least through 2015.
With the new upper decks, capacity is not a problem anymore. The Cotton Bowl is now the ninth largest stadium in the country, city officials said.
It's estimated to have about 2,200 more seats than its local rival – the new Dallas Cowboys stadium in Arlington – will have.
Unlike that stadium, the Cotton Bowl won't have luxury boxes or other high-dollar amenities.
"This is a premier college football venue. We're not trying to be a pro stadium," said Willis Winters, the park department's assistant director.
In addition to its enhanced capacity, the Cotton Bowl has some new features officials hope will attract more business.
Premium club seats, protected from the elements, are available in the north end zone. There are also comfortable flip-down seats on the 50-yard line in an area known as the Governors Section on the west side of the field.
If you're lucky enough to be a player, coach or insider, there is a new 16,000-square-foot media center at the north end zone that includes an expanded locker room for players, new locker rooms for coaches and a conference room that will be available for games and private functions.
The renovations are already having an impact, Mr. Huerta said.
The city recently signed Texas Southern University and the University of Arkansas-Pine Bluff to play at the Cotton Bowl.
Mr. Huerta said the city is also in talks with a newly formed professional football league to play seven games at the stadium.
A new day for the Cotton Bowl
Upper-deck seating: More than 16,000 seats were added to the end zones. The new seating brings the stadium's capacity to 92,200.
Contiguous concourse: Fans can now walk around the entire stadium along two concourses at the upper and lower levels.
Entrances: Four double stairwells were added at the corners of the end zones to speed entry and exit at the stadium.
New concession stands: At either end zone, a series of large new concession stands was designed to shorten waits and to place concession lines away from the main concourse leading to seats.
New restrooms: A frequent complaint has been about long lines at the bathrooms. Twenty-five bathrooms – including 1,100 new toilet fixtures – have been added, bringing the bathroom total to 39.
New media center and updated locker rooms: A 16,000-square- foot media center sits atop the north end zone. It includes a 2,600-square-foot conference room that can be used for news conferences or private events.
Seating: Covered premium club seating with 157 fold-down chairs is available at the south end zone. There are 396 fold-down seats in the Governors Section at the 50-yard line on the west side of the stadium. In each end zone on the upper-deck level, there are 550 individual seats with backs. On the west side, there are 15,000 bench seats with backs. The rest of the seating is backless aluminum benches.
On the schedule
Following are football games scheduled to be played in the refurbished Cotton Bowl.
•Oct. 4: Prairie View A&M University vs. Grambling State University
•Oct. 11: University of Texas vs. University of Oklahoma
•Oct. 18: Texas A&M University-Commerce vs. East Central University
•Nov. 29: Texas Southern vs. Arkansas-Pine Bluff
•Jan. 2: AT&T Cotton Bowl Classic
China vs. United States
China is a socialist country but is embrassing capitalism and is become more and more of a capitalist country. United states is a capitalist country that is becoming more and more of a socialist country. Soon we could be like China in the balance of Socailism and cpaitalism. This statement was made by a friend and when he first said it I thought he was crazy but the more the United States takes over business (Freddie Mac, Fannie Mae, Bear Sterns, and AIG) and then our government pushes for more social programs (welfare, and universal health care) it might be a true statement.
AIG
NEW YORK (CNNMoney.com) -- In an unprecedented move, the Federal Reserve Board is lending as much as $85 billion to rescue crumbling insurer American International Group, officials announced Tuesday evening.
The Fed authorized the Federal Reserve Bank of New York to lend AIG (AIG, Fortune 500) the funds. In return, the federal government will receive a 79.9% stake in the company.
Officials decided they had to act lest the nation's largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.
An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won't have to go through a tumultuous fire sale.
"[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.
The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.
The line of credit to AIG, which is available for two years, is designed to help the company meet its obligations, the Fed said. Interest will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 11.31% at today's rates.
AIG will sell certain of its businesses with "the least possible disruption to the overall economy." The government will have veto power over the asset sales and the payment of dividends to shareholders.
The company's management will be replaced, though Fed staffers did not name the new executives. The board will remain. For customers, it will be business as usual, officials said.
Taxpayers will be protected, the Fed said, because the loan is backed by the assets of AIG and its subsidiaries. The loan is expected to be repaid from the proceeds of the asset sales.
The government had resisted throwing a lifeline to AIG, hoping to entice investment firms to set up a $75 billion rescue fund. Officials opted not to bail out Lehman Brothers, which filed for bankruptcy on Monday. But by Tuesday night, it became clearer that the private sector would not step in to help AIG, which has a greater reach into other financial companies and markets than Lehman does.
"We are working closely with the Federal Reserve, the SEC and other regulators to enhance the stability and orderliness of our financial markets and minimize the disruption to our economy," said Treasury Secretary Henry Paulson. "I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect the taxpayers."
Dramatic end, high stakes
The firm's options grew more limited as the day wore on. Its already-battered share price fell another 21% with more than 1 billion shares trading hands, and plummeted another 46% in after-hours trading.
At one point Tuesday morning, shares fell more than 70% - a day after losing 61% of their value.
In a statement late Tuesday night the company said, "AIG is a solid company with over $1 trillion in assets and substantial equity, but it has been recently experiencing serious liquidity issues. We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis."
The company also commended the Federal Reserve and the Treasury Department for "taking action to address AIG's liquidity needs and broader financial market concerns."
Furthermore, the firm expressed its gratitude to New York Governor Paterson, and other NY State as well as Federal officials.
New York State officials, who regulate the insurance titan, had urged the federal government to rescue AIG. The state attempted to help AIG on Monday by allowing it to tap into $20 billion in assets from its subsidiaries if the company could comes up with a comprehensive plan to get the much-needed capital, said a state Insurance Department spokesman.
Pleased with the federal government's response, New York Gov. David Paterson said Tuesday night: "Policy holders will be protected. Jobs will be saved. Business will continue."
The funding became ever more crucial as the insurer was hit Monday night by a series of credit rating downgrades. The cuts meant AIG (AIG, Fortune 500) could be forced to post more than $13 billion in additional collateral.
Late Monday night, Moody's Investors Service and Standard & Poor's Ratings Services each said they had lowered their ratings. A few hours earlier, Fitch Rating had also downgraded AIG, saying the company's ability to raise cash is "extremely limited" because of its plummeting stock price, widening yields on its debt, and difficult capital market conditions.
The downgrade could force AIG to post $13.3 billion of collateral, Fitch said in a statement. Also, the moves would make it more expensive for AIG to issue debt and harder for it to regain the confidence of investors.
All the while, analysts urged the company to unveil its restructuring plan.
"Management needs to address investor concerns now before the market sell-off becomes a self-fulfilling prophecy," Rob Haines, analyst at CreditSights, said Tuesday.
Global ripples
The failure of AIG could have caused unprecedented global ripple effects, said Robert Bolton, managing director at Mendon Capital Advisors Corp. AIG is a major player in the market for credit default swaps, which are insurance-like contracts that guarantee against a company defaulting on its debt. Also, it is a huge provider of life insurance, property and casualty insurance and annuities.
"If AIG fails and can't make good on its obligations, forget it," Bolton said. "It's as big a wave as you're going to see."
AIG has had a very tough year.
Rocked by the subprime crisis, the company has lost more than $18 billion in the past nine months and has seen its stock price fall more than 91% so far this year. It already raised $20 billion in fresh capital earlier this year.
Its troubles stem from its sales of credit default swaps and from its subprime mortgage-backed securities holdings.
AIG has written down the value of the credit default swaps by $14.7 billion, pretax, in the first two quarters of this year, and has had to write down the value of its mortgage-backed securities as the housing market soured.
The insurer could be forced to immediately come up with $18 billion to support its credit swap business if its ratings fall by as little as one notch, wrote John Hall, an analyst at Wachovia, on Monday.
This year's results have also included $12.2 billion in pretax writedowns, primarily because of "severe, rapid declines" in certain mortgage-backed securities and other investments.
The company brought in new management to try to turn the company around. In June, the company tossed out its chief executive, Martin Sullivan, and named AIG chairman Robert Willumstad, who joined AIG in 2006 after serving as president and chief operating officer of Citigroup (C, Fortune 500), in his place.
The Fed authorized the Federal Reserve Bank of New York to lend AIG (AIG, Fortune 500) the funds. In return, the federal government will receive a 79.9% stake in the company.
Officials decided they had to act lest the nation's largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.
An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won't have to go through a tumultuous fire sale.
"[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.
The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.
The line of credit to AIG, which is available for two years, is designed to help the company meet its obligations, the Fed said. Interest will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 11.31% at today's rates.
AIG will sell certain of its businesses with "the least possible disruption to the overall economy." The government will have veto power over the asset sales and the payment of dividends to shareholders.
The company's management will be replaced, though Fed staffers did not name the new executives. The board will remain. For customers, it will be business as usual, officials said.
Taxpayers will be protected, the Fed said, because the loan is backed by the assets of AIG and its subsidiaries. The loan is expected to be repaid from the proceeds of the asset sales.
The government had resisted throwing a lifeline to AIG, hoping to entice investment firms to set up a $75 billion rescue fund. Officials opted not to bail out Lehman Brothers, which filed for bankruptcy on Monday. But by Tuesday night, it became clearer that the private sector would not step in to help AIG, which has a greater reach into other financial companies and markets than Lehman does.
"We are working closely with the Federal Reserve, the SEC and other regulators to enhance the stability and orderliness of our financial markets and minimize the disruption to our economy," said Treasury Secretary Henry Paulson. "I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect the taxpayers."
Dramatic end, high stakes
The firm's options grew more limited as the day wore on. Its already-battered share price fell another 21% with more than 1 billion shares trading hands, and plummeted another 46% in after-hours trading.
At one point Tuesday morning, shares fell more than 70% - a day after losing 61% of their value.
In a statement late Tuesday night the company said, "AIG is a solid company with over $1 trillion in assets and substantial equity, but it has been recently experiencing serious liquidity issues. We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis."
The company also commended the Federal Reserve and the Treasury Department for "taking action to address AIG's liquidity needs and broader financial market concerns."
Furthermore, the firm expressed its gratitude to New York Governor Paterson, and other NY State as well as Federal officials.
New York State officials, who regulate the insurance titan, had urged the federal government to rescue AIG. The state attempted to help AIG on Monday by allowing it to tap into $20 billion in assets from its subsidiaries if the company could comes up with a comprehensive plan to get the much-needed capital, said a state Insurance Department spokesman.
Pleased with the federal government's response, New York Gov. David Paterson said Tuesday night: "Policy holders will be protected. Jobs will be saved. Business will continue."
The funding became ever more crucial as the insurer was hit Monday night by a series of credit rating downgrades. The cuts meant AIG (AIG, Fortune 500) could be forced to post more than $13 billion in additional collateral.
Late Monday night, Moody's Investors Service and Standard & Poor's Ratings Services each said they had lowered their ratings. A few hours earlier, Fitch Rating had also downgraded AIG, saying the company's ability to raise cash is "extremely limited" because of its plummeting stock price, widening yields on its debt, and difficult capital market conditions.
The downgrade could force AIG to post $13.3 billion of collateral, Fitch said in a statement. Also, the moves would make it more expensive for AIG to issue debt and harder for it to regain the confidence of investors.
All the while, analysts urged the company to unveil its restructuring plan.
"Management needs to address investor concerns now before the market sell-off becomes a self-fulfilling prophecy," Rob Haines, analyst at CreditSights, said Tuesday.
Global ripples
The failure of AIG could have caused unprecedented global ripple effects, said Robert Bolton, managing director at Mendon Capital Advisors Corp. AIG is a major player in the market for credit default swaps, which are insurance-like contracts that guarantee against a company defaulting on its debt. Also, it is a huge provider of life insurance, property and casualty insurance and annuities.
"If AIG fails and can't make good on its obligations, forget it," Bolton said. "It's as big a wave as you're going to see."
AIG has had a very tough year.
Rocked by the subprime crisis, the company has lost more than $18 billion in the past nine months and has seen its stock price fall more than 91% so far this year. It already raised $20 billion in fresh capital earlier this year.
Its troubles stem from its sales of credit default swaps and from its subprime mortgage-backed securities holdings.
AIG has written down the value of the credit default swaps by $14.7 billion, pretax, in the first two quarters of this year, and has had to write down the value of its mortgage-backed securities as the housing market soured.
The insurer could be forced to immediately come up with $18 billion to support its credit swap business if its ratings fall by as little as one notch, wrote John Hall, an analyst at Wachovia, on Monday.
This year's results have also included $12.2 billion in pretax writedowns, primarily because of "severe, rapid declines" in certain mortgage-backed securities and other investments.
The company brought in new management to try to turn the company around. In June, the company tossed out its chief executive, Martin Sullivan, and named AIG chairman Robert Willumstad, who joined AIG in 2006 after serving as president and chief operating officer of Citigroup (C, Fortune 500), in his place.
Subscribe to:
Posts (Atom)