www.clucerf.org1/10/12

As early as the 1950s, Mundell proposed an economic policy program of tight monetary policy to stabilize the value of the currency and low tax rates to stimulate economic activity. During the late … The Reagan Scenario included a sharp drop in inflation, a recession in 1982 due to tight monetary policy, passage of the Kemp Roth tax cuts and an economic boom starting in 1983. … Inflation and interest rates are much lower and tax rates are lower as well. While a high …

The hidden dangers of low interest rates | David Cay Johnston

blogs.reuters.com1/10/12

Low rates also come at a cost, cutting income to older Americans and to pension funds. This forces retirees to eat into principal, may put more pressure on welfare programs for the elderly, and … If rates return to, say, 6.64 percent, the level they were in 2000, one year's interest costs would equal the individual income taxes for all of 2011 plus the first few weeks of 2012. Last week , rates took a step in that direction. The yield on the 10-year bond, a benchmark for other …

President Obama’s recent claim to homeowners, that refinancing their mortgage loans at a lower rate, equates to a tax cut, doesn’t ring true for many tax experts.

Obama said at a recent press conference that the housing plan his administration had launched, had “already contributed to a spike in the number of homeowners who are refinancing their mortgages, which is the equivalent of another tax cut. The main message we want to send today is that there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates and that is money in their pocket”.

What Obama failed to mention however is that unlike the housing boom that led to the current financial crisis, this time, only borrowers with strong credit ratings and stable jobs will be able to save money if they refinance.

Obama’s announcement caused many tax analysts, including Gil Charney, who is an analyst for The Tax Institute at H&R Block to shout “foul”;

“While there could be overall savings by refinancing and lower monthly payments, there also could be reduced tax benefits as less interest is paid. Also refinancing could extend the period before the mortgage is fully paid off, so this might not be desirable for someone who wants to be mortgage-free. Therefore, someone about to make a financial decision should take their complete financial picture into account, not just their tax situation”.

In fairness to Obama, some analysts like Mark Steber, who is vice president of tax resources at Jackson Hewitt Tax Service did express a more supportive viewpoint, “While generally there is no tax advantage to refinancing at a lower rate, an individual can save on the total out of pocket costs each year over the life of the loan. Though a tax bill will actually increase after refinancing, the increase in taxes may be less than half of the total difference in interest paid, so the taxpayer may save more money than their taxes increase, therefore resulting in net savings”.

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1. U.S. Fixed Mortgage Rates Continue To Drop
2. Two New Plans Announced To Help Homebuyers
3. The ‘Loan Modification Program’ Finally Gets Underway.

The Three Biggest Lies the Government Is Telling You by Charles …

lewrockwell.com1/27/12

So I have chosen to focus on lies about each: the Federal Reserve, the orchestrator of monetary policy; the U.S. budget, the accounting of government fiscal policy; and a few of the Empire's war lies. I am sharing just a … The World Bank gets almost all of its money by way of the International Bank for Reconstruction and Development (IBRD),( also not a bank), which gets its money from taxes, the largest share coming from the American people. The IBRD also sells …

In defense of capitalism | RedState

www.redstate.com1/12/12

So all you people defending Mitt Romney's corporate activity as unassailable because by God the business of America is business and what not, remember he once made clear he didn't much care for you guys. …. (Actually it sounds quite a bit like what happened to the banks. …. I have said for months that Rush, Beck, Hannity even Palin keep telling us what our candidate should look like and then we have one and they won't put their money where their mouths are. …

The just released government’s “stress-test” results suggest that ten of the nation’s nineteen biggest banks will need a total of around $75 billion in new capital in order to withstand losses if the recession worsens.

According to the tests, some of the largest banks are stable, whilst others will need billions more in capital.

Meanwhile, government officials are stressing that the banking industry is still viable in spite of its vulnerability, but concur that it will need massive injections of capital if there’s to be an economic rebound.

The official line is, that none of the banks will be allowed to fail, and that it’s hoped that the tests will restore investors’ confidence, that not all the nation’s banks are seriously weak, and that those that are can be strengthened.

Kevin Logan, who is chief U.S. economist at Dresdner Kleinwort said, “Looking at the big picture, you can say that things aren’t so bad for the financial industry as a whole. The banking industry is not going to make a lot of money going forward, and that’s a dilemma for keeping banks solvent and getting them lending”.

The ten banks that need more capital, have until June 8th to develop a plan and to have it approved by their regulators, and analysts say that the test results sketched an encouraging but cautious picture of the banks.

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The Federal Reserve noted in a survey of loan officers that was released on Monday, May 6, that demand for prime mortgages rose in the first quarter for the first time since early 2007, and this was in spite of the fact that many banks tightened their requirements for home loans.

The increase in demand comes as 30-year mortgage rates fell to an average 4.78% last week.

Other details of the survey state that, about one half of U.S. banks tightened their lending standards on prime mortgages, which is up from about 45% from that given in a survey that was released in early February.

65% of banks reported having tightened their standards on non-traditional mortgages, such as adjustable-rate loans with multiple payment options, up from 50% in the last survey, and nearly 60% of banks said they tightened their requirement on credit card loans in the past three months.

The Fed’s survey was based on responses from fifty three domestic banks and twenty three foreign banks.

Additional good news was also reported by the National Association of Realtors which announced that its Pending Home Sales Index showed that pending sales of existing homes climbed upward in March, making two consecutive months of increases.

The NAR attributed a rise of 3.2% in signed contracts to “a flood of first-time home-buyers taking advantage of excellent mortgage interest rates”.

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3. As Stocks Advanced The Number Of Defaulting Homebuyers Rose By 50%

The U.S. House of Representatives passed by a vote of 357-70 today, a so-called ‘credit-card bill of rights’ bill, following the adding of a provision that will require banks to apply consumers’ payments to balances with the highest interest rates first.

Uncollected credit card debt rose to 8.82% in February, and that’s the highest amount registered by Moody’s Investors Service Inc. since it began keeping records twenty years ago.

The legislation will also require credit-card companies to give forty-five days notice before increasing rates, and require statements to be mailed at least twenty-one days before the payment due date, and the provision will take effect ninety days after the measure is signed into law.

The House bill imposes broader restrictions than those enacted by the Federal Reserve in December, leading House Speaker Nancy Pelosi to say, “Very soon this will be the law of the land, and consumers will benefit. The House action today will give the legislation momentum heading into the Senate, and with a Democratic president who will sign final legislation there is little doubt it will get support needed in both chambers”.

The senior Republican on the House Financial Services Committee, Spencer Bachus, voiced concern however saying, “Too many restrictions will lead lenders, such as Bank of America Corp. and Citigroup Inc., to pull back on credit in the midst of a severe economic decline. Credit cards play a crucial role in the life of ordinary Americans. Any legislation affecting credit-card practices is going to have a profound effect. There are a great number of people whose rates will go up”.

Edward Yinglingm, who is the President and Chief Executive Officer of the American Bankers Association said in a statement, “It is vitally important to maintain access to credit at this difficult economic time. This is especially true for credit cards, which serve as a driver of economic activity and are relied on by consumers and small businesses as way to bridge short-term financial gaps”.

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1. Bill To Limit Credit Card Increases To Be Advanced
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3. Are Low Interest Rates The Same As Tax Cuts?

Although banks can borrow at interest rates that are nearly as low as Treasury yields, they’ve been cutting credit lines and raising their fees, and the average annual percentage rate offered to new card customers in the U.S. is now 14.2 percent.

Just a few years ago, a booming economy kept loan losses in check and banks perfected marketing tricks and introduced the concept of teaser rates, and in just eight years Americans received around 44 billion pieces of mail jammed into their mail-boxes that promoted credit cards.

It’s perhaps understandable that banks need healthy credit card earnings to ensure their survival because they can no longer rely on the securities markets that caused the economy to collapse, but it now appears likely that many of them will lose their long-term customers after the economy stabilizes.

Credit cards have become a mainstay of U.S. banking in recent years because the offer a steady income without the volatility that goes with trading and investment banking, but loans on credit cards are unsecured, and the industry absorbed about $55 billion in credit card defaults last year, which is up from $43 billion in 2007.

Fed rules, which will curb sudden changes in interest rates are set to go into effect on July 1, 2010 – but many Democrats in Congress are now pushing to have the legislation advanced, and they also want greater built-in consumer protection.

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Median home-sale prices in March were around $7,000 higher than in February.
But they are still far lower than they were a year ago.

Some banks have started returning bailout money amid reports of better than expected profits in the first quarter of 2009, and the stock market has rebounded since early March.
But, the value of the Dow Jones Industrial Average is still at around 60% of what is was a year ago.

The administration claims that 2,000 new transportation projects have already been approved under the stimulus package.
But the construction sector lost 626,000 jobs between December 2008 and March 2009.

And whilst we’d truly love to believe that the economic crisis has bottomed out, the IMF (International Monetary Fund) estimates that the global economy will contract by 1.3% in 2009 and the U.S. economy by 2.8% which would be the most since 1946.

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1. Our Economy – When Even The Ugly Looks Pretty.
2. As Stocks Advanced The Number Of Defaulting Homebuyers Rose By 50%
3. Home Prices Higher In February Than In January

The first program, which should be up and running within a month is intended to help borrowers that have second mortgages stay out of foreclosure, and it will make cash amounts up to $12,000 available to servicers, investors and borrowers who modify loan terms, and a government spokesperson said that as many as a two million participants in the mortgage-modification program may be eligible for the second-lien assistance.

An example of how the plan would work, would be borrower who had a $250,000 interest only, first mortgage and was paying 6% interest. If the housing expenses were equal to 40% of the borrowers income, then the government would pay $2,625 per year, for five years in order to reduce the payments. Moreover, if that same borrower also had a $43,942 second mortgage and was paying 8.6% interest, then the government might, and I say “might”, pay one half of the $2,336 annual cost for five years.

Overall reaction to the plans seems favorable, with Laurie Goodman who is an analyst at the Amherst Securities Group LP saying, “The new measures may ease mortgage investors’ concerns that the biggest banks and servicers would be tempted to rework too many loans under the program, in order to bolster their home- equity portfolios. Certainly, it appears that the Treasury has listened to first-lien investors and the announcement goes a very long way toward addressing their objections”.

Treasury Secretary Timothy Geithner said in a statement, “Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system”.

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1. U.S. Fixed Mortgage Rates Continue To Drop
2. The ‘Loan Modification Program’ Finally Gets Underway.
3. Are Low Interest Rates The Same As Tax Cuts?

Treasury Secretary Timothy Geithner and his counterparts from the world’s top seven industrialized democracies, acknowledged on Friday April 25, in a joint statement that their economies will need to be jump started in order for the global economy to rebound.

A joint statement read, “We are committed to act together to restore jobs and growth and to prevent a crisis of this magnitude from occurring again, and we will take whatever actions are necessary to bring that about. Recent data suggest that the pace of decline in our economies has slowed, and some signs of stabilization are emerging. Economic activity should begin to recover later this year amid a continued weak outlook and downside risks persist”.

A goal of raising $500 billion for an emergency lending facility was set by G-20 leaders at their London summit on April 2 and Obama has asked Congress to put up $100 billion, and Europe and Japan have pledged equivalent amounts.

Earlier this week the IMF called on world governments to boost stimulus spending, especially on infrastructure projects such as roads and bridges, in order to create jobs, but European nations are loathe to run up huge budget deficits and have so far resisted U.S. pleas to increase their spending.

France’s Lagarde noted, “We are in a bind, if you will. On the one hand we have to inject public money into the economy because we believe this is the strongest and best multiplier. At the same time, in the medium and long term, we need to restore the sustainability of public finance”.

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1. Several Banks Are Preparing To Repay Taxpayer Money
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After Treasury Secretary Timothy Geithner said, “the vast majority of the nation’s banks have enough capital”, U.S. stocks advanced the most in almost two weeks, and Walter “Bucky” Hellwig, who helps oversee $30 billion at Morgan Asset said, “Geithner’s comments that most banks are OK got money coming back into stocks because that pretty much allays yesterday’s fears about stress tests and banks having to raise more capital”.

Even General Motors Corp. rose 2.4 percent to $1.70 after a government auditor said the Treasury will supply the automaker with $5 billion in additional aid.

Meanwhile, David Heupel, who helps manage $60 billion at Thrivent Financial for Lutherans said, “There are still signs of a tough economic environment, but companies that have really cut down their expenses are starting to see a little glimmer of life”.

Fannie Mae and Freddie Mac who are the biggest U.S. mortgage-finance companies, either owning or guaranteeing 56% of all U.S. home loans, just announced that mortgage delinquencies among their “most creditworthy homeowners”, rose by 50% in just one month, and they blamed the fall on both drops in income and too much debt, with 34% of borrowers telling Fannie and Freddie that they were earning less money, and around 20% citing too much debt as their reason for missing their mortgage payments, with a further 8.1% blaming unemployment.

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1. The ‘Loan Modification Program’ Finally Gets Underway.
2. U.S. Fixed Mortgage Rates Continue To Drop
3. Two New Plans Announced To Help Homebuyers

Emanuel’s remarks were reinforced by those of Lawrence Summers, who is National Economic Council director, who said on NBC’s “Meet the Press”, “we won’t have to get more money because there’s the capacity to turn to the private market first for firms needing more capital. The government can also deploy if necessary additional taxpayer cash, which is likely be buttressed over time by lenders that are in the strongest position of paying back U.S. money”.

Financial regulators and The U.S. Treasury are presently clashing with each other as to how to disclose the results of stress tests that are scheduled to be released May 4, because several officials are concerned about the potential damage that could be caused to the weaker institutions if it’s not done correctly.

The first of two major dangers that is envisaged, is that if all the banks pass the tests with clean bills of health, then the credibility of the tests themselves will suspect, especially since the economy has worsened since the Treasury announced the tests in February, causing questions to be raised about whether the checks that regulators are presently applying to bank portfolios are exacting enough. The second danger is that if some banks fail the tests, then investors can be expected to punish them, by refusing to invest in them, thereby causing them even greater problems.

The nineteen financial institutions are all expected to get the preliminary results of the tests as early as April 24, and any banks deemed to be weak, and in need of additional capital will be given six months to raise additional funds.

President Barack Obama said at a news conference in Trinidad and Tobago on April 19, that “the tests will show that different banks are in different situations”, and he pledged that no new injections of government money would, “go into a black hole where you aren’t going to see results or some exit strategy so the taxpayers ultimately are relieved of these burdens”.

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