Articles from 03/23/08 to 03/29/08

In many ways, the Administration’s “Hope Now Alliance” is a good idea. It basically encourages lenders to streamline the process they use to work out troubled loans. Avoiding foreclosures is in lenders’ economic best interest, so government shouldn’t need a heavy hand. Foreclosures are costly for lenders. And with home prices dropping steadily, they are becoming even more costly. But the pace of modifications has been slow. And the foreclosure rate continues to climb.

Mortgage industry consultant Howard Glaser says that 75% of the Hope Now loan modifications are simply repayment plans that don’t restructure the terms of the loan that made them unaffordable in the first place. Why wouldn’t lenders truly work out these loans so that they are sustainable? Lenders will tell you it’s complicated by the securitization process. The company that services the loan now is not likely to be the same as the company that sold the loan to the borrower. And the loan itself has been sliced, diced, and sold as a mortgage backed security.

Today’s numbers on personal spending and consumer sentiment make it clear that the American consumer, who has been supporting the economy through thick and thin for 7 years, has given up for the time being. Davis Wyss, Chief Economist at Standard and Poor’s, told me today that “people are scared.” Faced with skyrocketing prices for food and energy, falling home values, and the general sense of gloom every day in the news headlines, spending as adjusted for inflation is flat for the last three months. And consumer sentiment has turned down sharply. As reported by the Reuters/University of Michigan survey, it is now at a 16 year low.

When does it end? Many economists look to the second half, after the Fed’s latest interest rate cuts trickle down and those tax rebate checks arrive in the mail.

Homeownership rates for Hispanics and African Americans are about 25% lower than for whites. When real estate was booming, some lenders touted subprime loans as the way to close that gap. For a short time it did. But many of these loans were unsustainable. Subprime loans were based on an appreciating asset and not on the borrowers’ ability to repay. Too many borrowers didn’t understand this.

Today's Bill of Health looks at the nation's latest shortage -- of pharmacists. Our nation's bulge bracket of aging baby-boomers and changes in the role pharmacists play in the healthcare system are driving this shortage.

I find it something of an irony that physicians spend less and less time with individual patients because of the demands and pressures of operating a practice and getting paid by HMOs, while, at the same time, pharmacists are spending more and more time helping to advise those same clients on the drugs they take. If you visit new chain-store pharmacies, you're likely to see small booths or "private areas" near the pharmacy counter. That's a location increasingly set aside as a place where pharmacists and patients can consult in private about their prescription, possible ways to lower drug costs, and the interactions of multiple drugs on their bodies.

The Bear Stearns meltdown story has been such a rapidly moving target that much of what gets written about it has a shelf life of hours at best. Wall Street insiders had barely finished their high-fives at the self-immolation of their nemesis, New York Governor Elliot Spitzer, when rumors began to circulate that a major investment firm was facing a capital crisis. Bear was quickly identified, and the crisis turned into a good old fashioned run on the bank.

J. P. Morgan Chase stepped up in a move reminiscent of that of John Pierpont Morgan, who led a group of fellow bankers to quell the panic of 1907. In the 2008 remake, J. P. Morgan Chase, backed by a guarantee from the Federal Reserve, loaned Bear the money it needed to honor its commitments.

Demand is down so gasoline prices are up. Go figure.

Seems the decrease in demand, and the continuing increases in the price of crude oil, are cutting into the oil refiners' profit margins. Valero Energy Co., the biggest U-S refiner, said earlier this week it had cut production because of poor margins.

No matter that margins improved this week, they are still 30 percent below last year at this time. So, no profit, no gas.

Attorney Michael Missal is well-schooled in the ways corporations collapse. Missal plowed through the Worldcom debacle, producing a lengthy bankruptcy report on the company's corporate governance, or lack thereof.

Now he has spent the last few months digging through thousands of emails and documents in order to produce a detailed examination for the bankruptcy court of what went wrong at New Century.

Yes, that New Century -- the big subprime lender that imploded in February 2007. At its height, New Century churned out $60 billion in mortgages. Many of them were high-risk loans that New Century management knew were risky, Missal concludes. (You can find the report here.)

Can capitalism and speculators' greed help solve the problem of greenhouse-gas emissions? That's the debate that's occurring right now as virtual marketplaces like the Chicago Climate Exchange (CCX) offer companies and trading firms a place to trade and profit from the output of carbon dioxide gas.

There are no US laws on the books that require corporations to control carbon emissions into the atmosphere. Membership on the exchange is completely voluntary. But carbon-producing members, such as Ford Motor, Honeywell, Dow Chemical and others, are required to cut their greenhouse gas emissions of the year 2000 by at least six percent by the year 2010. Cut them by more, and you can trade those extra percentage points, or "carbon credits," to other less-efficient members for money. By 'monetizing' greenhouse-gas emissions, the theory goes, companies will have incentive to cut their carbon emissions even further.

I finally took the plunge and starting investing in the stock market a few months ago. I thought I could take advantage of the deteriorating market and do some bottom fishing, since I am a small time investor and don’t have a lot of capital to spare. I also thought the only way I would really learn about the stock market is if I got involved in it.

So the first stock I purchased was Apple (APPL) because I am a die-hard Apple fan. I paid a pretty penny for it, and at one point I lost nearly $100. But as I look today, its gone back up and I have only lost $45. I remember the first day I saw its stock drop; I was so upset and angry. I was kicking myself (not literally) and thought I was a complete idiot and should have never wasted my money in the market especially in a company that has so much hype and lures in people of my age. But as time passed and I kind of forgot about all of that and regained some faith in the market, I began buying more stocks.

“Are we there yet?”

My kids were singing this refrain driving back from Philadelphia this weekend.

I imagine most investors are asking the same whining question about the stock market these days. Are we at the market bottom yet?

A few things surprised me in the course of doing today's story.

1) How certain Mark Arbeter is the worst is over. There’s no hemming and hawing. No caveats. Just strong conviction. I mentioned that his bullish call is based on sentiment indicators. He actually watches 15 of them! He says all are extremely bearish (which, as a contrarian indicator, is actually a bullish sign).

Each financial “crisis” is its own unique story. While the characters in the story may learn from the experience, the broader lesson doesn’t seem to be learned.

When times are good, momentum carries the day. Mistakes are made, but they are easily disguised or disregarded. Once the problems are clear, at first they are ignored or denied. Next comes the overreaction, by the market, regulators and lawmakers.

It’s easy now to look back at the Savings and Loan crisis of the 1980's and 90's to see what went wrong, but it took time to gain that perspective. I suspect we’re somewhere in the midst of the current financial crisis; but I think after the final chapter is written, we’ll feel like we’ve read this story before.

Did someone proofread Senator Hillary Clinton's Speech today? I thought there might be a typo in it.

Clinton proposed forming an "Emergency Working Group on Foreclosures," a sort of "Wise Man Workout" committee. Who did Clinton suggest might headline this effort? Alan Greenspan, among others.

Alan Greenspan? Isn't he under fire for turning aside calls for the Fed to take a tougher line on subprime lenders back before this mess began? Haven't I seen articles complaining that he helped spark the housing bubble by keeping rates too low for too long? Wasn't he the one writing articles saying there isn't much that can be done until house prices hit bottom?

Given the emerging Greenspan re-think in financial circles, I'm surprised his name made it into Clinton's speech.

Wall Street is keeping up last week's momentum.. up more than 200 points today. That's due in part to a new agreement that will give Bear Stearns shareholders five times the payout than was outlined in a JPMorgan Chase buyout deal a week ago. So far today, Bear Stearns shares have nearly doubled in value. New York Bureau Chief Scott Gurvey will have analysis on today's announcement.

A stronger-than-expected housing report is adding to the upswing. The National Association of Realtors reported sales of previously-owned homes rose in February after falling six months in a row. At the same time, the trade group says median home prices fell by the largest amount on record. Tonight, Susie Gharib interviews Tobias Levkovich, chief U.S. strategist at Citigroup about what's going on in the commodities markets. Stephanie Dhue looks at parallels between the current credit crisis and and the Savings & Loan Crisis of the 1980's and early 90's. And, in tonight's Tax Tips, advice for homeowners facing foreclosure from Kevin McCormally, Executive Editor at Kiplinger's Personal Finance.