Blaming China will not solve America’s problem

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By Stephen Roach

America’s fixation on the “China problem” is now boiling over. From Google to the renminbi, China is being blamed for all that ails the US. Unfortunately, this reflects a potentially lethal combination of political scapegoating and bad economics.

The political pressures are grounded in the angst of American workers. After more than a decade of stagnant real compensation and, more recently, a sharp upsurge in unemployment, US labour is being squeezed as never before. Understandably, voters want answers. It is all because of the trade deficit, they are told – a visible manifestation of a major loss of production to foreign competition. With China and its so-called manipulated currency having accounted for fully 39 per cent of the US trade deficit in 2008-09, Washington maintains that American workers can only benefit if it gets tough with Beijing.

However appealing this argument may seem, it is premised on bad economics. In 2008-09, the US had trade deficits with more than 90 countries. That means it has a multilateral trade deficit. Yet aided and abetted by some of America’s most renowned economists, Washington now advocates a bilateral fix – either a sharp revaluation of the renminbi or broad-based tariffs on Chinese imports.

A bilateral remedy for a multilateral problem is like rearranging the deckchairs on the Titanic. Unless the problems that have given rise to the multilateral trade deficit are addressed, bilateral intervention would simply shift the Chinese portion of America’s international imbalance to someone else. That “someone” would most likely be a higher-cost producer – in effect, squeezing the purchasing power of hard-pressed US consumers.

Blaming China will not solve America’s problem

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South Africa's ANC defends "Kill the Boer" song

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By Peroshni Govender

South Africa's ruling party on Tuesday defended the singing of an apartheid-era song with the words "Kill the Boer" in a row that has raised fears of increasing racial polarisation.

The African National Congress dismissed a ruling by a regional high court last week that uttering or publishing the words would amount to hate speech and violate the constitution put in place after the end of white minority rule.

"These songs cannot be regarded as hate speech or unconstitutional," ANC Secretary General Gwede Mantashe told a news conference. "Any judgment that describes them as such is impractical and unimplementable."

The recent singing of the song by firebrand ANC youth wing leader Julius Malema, who argues that black South Africans have not benefited enough from 16 years of democracy, drew anger from whites and other minority groups.

The lyrics of the song, sung in Zulu, translate as "kill the farmer, kill the Boer", referring to the former ruling white minority.

South Africa's ANC defends "Kill the Boer" song

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Fannie & Freddie: The biggest bailout

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By MATTHEW RICHARDSON

Fannie Mae and Freddie Mac recently announced fresh losses, bringing their total since the fall of 2008 to $126 billion.

It barely registered as news -- although taxpayers are completely on the line for the bad debt of these government-sponsored enterprises.

There's a chance that the support thrown at the rest of the financial sector -- $465 billion of direct capital, $285 billion of loan guarantees and insurance of $418 billion of assets -- isn't all money down the drain. $175 billion has been returned, the loan guarantees look much safer, and the insurance program, mainly for Citigroup, has been terminated.

Even the poster child for financial excess, AIG, may be able to fully pay off the government if the housing market doesn't deteriorate further or the economy substantially improves.

But the chances are slim to none that Fannie or Freddie will be able to pay back the funds. It is highly likely that taxpayers will lose well over $200 billion -- and it may well pass $300 billion. When the history of the crisis is all written, these two institutions will turn out to be the most costly of the financial sector -- worse than AIG, Citigroup or Bank of America/Merrill Lynch.

So where is the outrage?

Fannie & Freddie: The biggest bailout

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Half of U.S. Home Loan Modifications Default Again

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By John Gittelsohn

More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 24 percent of properties with a mortgage were underwater in the fourth quarter, First American CoreLogic said last month. The median price of a U.S. home was $165,100 in February, down 28 percent from its peak in July 2006, according to the National Association of Realtors.

Modifications are “clearly not working well and it’s not a surprise,” said Sam Khater, a senior economist at First American CoreLogic in Tysons Corner, Virginia. “It’s pointless to rewrite these loans because they’re underwater.”

The number of homes with mortgage payments at least 60 days late climbed 2.39 million in the fourth quarter, up 13.1 percent from the prior three months and 49.6 percent from the year earlier period, the quarterly Mortgage Metrics report said.

Half of U.S. Home Loan Modifications Default Again

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China set to target Europe's car market (US Next?)

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By Graham Ruddick

Nick Reilly, 59, who headed GM's Asian businesses until he took control of Opel and Vauxhall in January, said European and American automotive companies faced a fierce battle to remain competitive and were at risk of being overtaken by Chinese and Korean manufacturers.

"Their rate of progress in terms of technology, innovation and quality improvements is really remarkable and we are totally underestimating the technological advances they are making. The gap has completely shrunk. It is a tenth of what it was and a quarter of what we expected it to be. I think everybody thought we had 10 or 15 years before China became competitive, and that is just not true.

"But the general political climate is that these guys must be cheating and we need to get more protectionist, rather than actually admitting what is happening. Generally I think there is a complacency or a refusal to accept the huge economic shift there has been."

The GM Europe boss, a former chairman of Vauxhall and plant manager at its Ellesmere Port and Luton sites, was speaking in an interview just days after the UK Government confirmed it would provide a £270m loan guarantee to help safeguard the future of Vauxhall.

China set to target Europe's car market

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America and China, the Next Major War

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By: Clif_Droke

Last Wednesday the lead headline in the Wall Street Journal stated, “Business Sours on China.” It seems, according to WSJ, that Beijing is “reassessing China’s long-standing emphasis on opening its economy to foreign business….and tilting toward promoting dominant state companies.” Then there is Internet search giant Google’s threat to pull out of China over concerns of censorship of its Internet search results in that country.

The trouble started a few weeks ago Google announced that it no longer supports China’s censoring of searches that take place on the Google platform. China has defended its extensive censorship after Google threatened to withdraw from the country.

Additionally, the Obama Administration announced that it backs Google’s decision to protest China’s censorship efforts. In a Reuters report, Obama responded to a question as to whether the issue would cloud U.S.-China relations by saying that the human rights would not be “carved out” for certain countries. This marks at least the second time this year that the White House has taken a stand against China (the first conflict occurring over tire imports).

Adding yet further fuel to the controversy, the U.S. Treasury Department is expected to issue a report in April that may formally label China as a “currency manipulator,” according to the latest issue of Barron’s. This would do nothing to ease tensions between the two nations and would probably lead one step closer to a trade war between China and the U.S.

Then there was last week’s Wall Street Journal report concerning authorities in a wealthy province near Shanghai criticizing the quality of luxury clothing brands from the West, including Hermes, Tommy Hilfiger and Versace. This represents quite a change from years past when the long-standing complaint from the U.S. over the inferior quality of Chinese made merchandise.

On Monday the WSJ ran an article under the headline, “American Firms Feel Shut Out In China.” The paper observed that so far there’s little evidence that American companies are pulling out of China but adds a growing number of multinational firms are “starting to rethink their strategy.” According to a poll conducted by the American Chamber of Commerce in China, 38% of U.S. companies reported feeling unwelcome in China compared to 26% in 2009 and 23% in 2008.

As if to add insult to injury, the high profile trial of four Rio Tinto executives in China is another example of the tables being turned on the West. The executives are by Chinese authorities of stealing trade secrets and taking bribes. There’s a touch of irony to this charge considering that much of China’s technology was stolen from Western manufacturing firms which set up shop in that country.

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South Africa: Provinces Overspend by Billions on Health

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Tamar Kahn

The Western Cape health department is projecting a budget overrun of just R60m for the fiscal year ending March 31, in stark contrast with other provincial health departments which have run up overdrafts into the billions, it emerged yesterday.

This suggests the Western Cape health department has better financial management skills than many of its counterparts, which are deep in the red because they had underestimated the cost of implementing the occupation-specific dispensation for healthcare workers. The government has been phasing in occupation-specific dispensations since 2007, in an attempt to retain public sector workers by linking higher pay to new categories of posts.

Provinces that had not maintained accurate records of the staff on their payroll underestimated the number eligible for higher pay, with significant financial consequences, said the Western Cape's head of health, Craig Househam.

The Eastern Cape will overspend on its budget by R1,6bn, according to the Public Service Accountability Monitor, while KwaZulu-Natal and Gauteng are projecting over-runs of R2,3bn and R1,75bn, according to Western Cape health MEC Theuns Botha. Since provinces had to pay their staff, the lack of funds had hampered their ability to provide services and pay suppliers, he said.

South Africa: Provinces Overspend by Billions on Health

Mortgage delinquencies rise to nearly 14 percent

Julie Haviv

The percentage of current and performing mortgages fell to 86.4 percent at the end of the fourth quarter of 2009, down 0.9 percent from the previous three months, marking a decline for the seventh consecutive quarter, the report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision said.

It was also down 3.9 percent from a year earlier.

The decline was attributable to a 21.1 percent jump in mortgages 90 or more days past due, to 4.7 percent of all mortgages in the portfolio at the end of 2009.

The increase in seriously delinquent mortgages was most pronounced among prime borrowers, with an increase of 16.5 percent in seriously delinquent mortgages during the fourth quarter.

The jump in seriously delinquent mortgages is likely to lead to a rise in foreclosure actions, the report said.

So-called prime mortgages are granted to the most credit-worthy borrowers, a sector that initially raised few worries when the housing bubble burst.

The continued decline in performance of prime mortgages is a significant trend, given those mortgages accounted for 68 percent of all home loans within the portfolio.

The report by the U.S. Treasury Department units covers nearly 34 million loans totaling almost $6 trillion in principal balances and provides information on their performance through the end of the fourth quarter of 2009.

The report defines "serious delinquencies" as those loans 60 days or more past due and loans delinquent to bankrupt borrowers.

Mortgage delinquencies rise to nearly 14 percent

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Europe agrees IMF-EU rescue for Greece

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By Ambrose Evans-Pritchard

The accord was vague on figures and aid can be invoked only as a "last resort" if Greece is shut out of the capital markets. Since Greece is already paying an untenable debt premium, the wording once again leaves it unclear what exactly has been settled.

Angela Merkel, the German Chancellor, and Jan Peter Balkenende, the Dutch premier, leaders of the two key creditor states, imposed their demand that the IMF must be central to any rescue.

While the Eurogroup is to play a "co-ordinating" role, Germany and Holland will retain a veto over use of the facility. Greece said it was "satisfied" by the terms.

The accord masks a bitter struggle between Germany and a French-led bloc over the future shape of Europe. For all the rhetoric, Berlin has refused to cross the Rubicon towards an EU fiscal union, shattering long-held assumptions about the inevitable march of the EU project. By bringing in the IMF, it ensures that each sovereign state remains responsible for its own debts.

A host of questions remain unanswered, not least whether the IMF's board will disburse funds without retaining control over austerity plans, or whether it will accept EU conditions at all. The IMF usually imposes devaluations and steers monetary policy. When public debt is already too high – as it may be in Greece at 125pc of GDP this year – the Fund can engineer a controlled default.

Europe agrees IMF-EU rescue for Greece

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Behind Consumer Agency Idea, a Tireless Advocate

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Jodi Kantor 

Ask Elizabeth Warren, scourge of Wall Street bankers, how they treat consumers, and she will shake her head with indignation. She will talk about morality, about fairness, about what she calls their “let them eat cake” attitude toward taxpayers. If she is riled enough, she might even spit out the Warren version of an expletive.

“Dang gummit, somebody has got to stand up on behalf of middle-class families!” she exclaimed in a recent interview in her office here.

Among all the dramatis personae of post-financial crisisWashington, there is no one remotely like Ms. Warren, 60, who has divided the town between those who admire her and those who roll their eyes at her.

She is an Oklahoma native, a janitor’s daughter, a bankruptcy expert at Harvard Law School and a former Sunday School teacher who cites John Wesley — the co-founder of Methodism and a public health crusader — as an inspiration. She brims with cheer, yet she is she is such a fearsome interrogator that Bruce Mann, her husband, describes her as a grandmother who can make grown men cry. Back at Harvard, Ms. Warren’s teaching style is “Socratic with a machine gun,” as one former student put it. In Washington, she grills bankers and Treasury officials just as relentlessly.

Behind Consumer Agency Idea, a Tireless Advocate

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Existing U.S. Home Sales Fall for Third Month

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By Shobhana Chandra

Sales of existing U.S. homes fell in February for a third month, indicating a lack of jobs is hindering government efforts to revive demand.

The extension and expansion of a federal tax credit that helped stabilize housing in 2009 has yet to spark sales this year as hiring hasn’t materialized. Home Depot Inc. is among companies cutting prices to stimulate demand as the world’s largest economy recovers from the worst recession since the 1930s.

“It’s a fragile recovery, we are bouncing along the bottom,” said Scott Brown, chief economist at Raymond James & Associates, in St. Petersburg, Florida, who forecast a 5 million sales pace. “We ultimately need to see job growth to get a sustainable rebound.”

Stocks climbed after the report and Treasury securities dropped. The Standard & Poor’s 500 Index rose 0.2 percent to 1,168.47 at 10:31 a.m. in New York.

Existing U.S. Home Sales Fall for Third Month

States Sue Over Overhaul That Will Bust State Budgets

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By Pat Wechsler

PresidentBarack Obama faces a fight over the health-care overhaul from states that sued today because the legislation’s expansion of Medicaid imposes a fiscal strain on their cash-strapped budgets.

Florida, Texas and Pennsylvania are among 14 states that filed suit after the president signed the bill over the constitutionality of the burden imposed by the legislation. The health-care overhaul will make as many as 15 million more Americans eligible for Medicaid nationwide starting in 2014 and will cost the states billions to administer.

States faced with unprecedented declines in tax collections are cutting benefits and payments to hospitals and doctors in Medicaid, the health program for the poor paid jointly by state and U.S. governments. The costs to hire staff and plan for the average 25 percent increase in Medicaid rolls may swamp budgets, said Toby Douglas, who manages the Medicaid program for California, which hasn’t joined the lawsuits.

“The states are coming through the worst fiscal period in the history of record keeping,” said Vernon Smith, a former Medicaid director for Michigan and now a principal at the research and consulting firm Health Management Associates in Lansing, Michigan. “Medicaid is the most significant, most visible and most costly part of this expansion and states fully expect to see increases in their spending.”

States Sue Over Overhaul That Will Bust State Budgets

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New York Fed Warehousing Junk Loans On Its Books: Examiner's Report

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Ryan Grim

As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn't sell in the market, according to a report from court-appointed examiner Anton R. Valukas.

The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a "warehouse" for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds.

Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities. The provision passed the House but is under attack in the Senate, where Banking Committee Chairman Chris Dodd (D-Conn.) says he hopes to stop it.

Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books.

"The Fed legally is forbidden from taking such assets. There's a legal requirement that the Fed's assets be investment grade," Rep. Alan Grayson (D-Fla.) told HuffPost. Grayson, who is the cosponsor of the Grayson-Paul Audit the Fed measure that passed the House, said the Lehman scandal shows precisely why such an audit is needed.

New York Fed Warehousing Junk Loans On Its Books: Examiner's Report

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Why Fannie Mae, Freddie Mac Continue To Cost US Taxpayers Billions

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Ben Protess

Of all the companies bailed out by the federal government, mortgage finance giants Fannie Mae and Freddie Mac are shaping up as the deepest money pits. A close look at their past and recent financial filings shows why their losses continue to mount.

Fannie and Freddie effectively became wards of the government in 2008. The Obama administration had promised to reveal its plans for the agencies last month, but Washington's focus on reforming the banking system pushed them to the bottom of the to-do list. Fannie and Freddie aren't mentioned in either the Senate or House financial regulatory reform bills.

Treasury Secretary Timothy Geithner may reveal some of the administration's ideas on Tuesday when he testifies before Congress about Fannie and Freddie. But in general, the companies' troubles have drawn less attention than the rest of the financial industry. For example, unlike bonus announcements made on Wall Street, Fannie and Freddie's recent disclosures of about $40 million in executive compensation and bonuses for 2009 caused little stir on Main Street.

Together the two firms have already tapped $125 billion from government lifelines and the Congressional Budget Office predicts they ultimately will drain $380 billion. That would far exceed the final tabs for rescuing the big banks, the automakers or even insurance behemoth American International Group (AIG).

"These calls on taxpayer funds are troubling to all of us," Edward J. DeMarco, acting director of the Federal Housing Finance Agency, said in a letter to congressional leaders last month.

Why Fannie Mae, Freddie Mac Continue To Cost US Taxpayers Billions

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Obama Pays More Than Buffett as U.S. Risks AAA Rating

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By Daniel Kruger and Bryan Keogh

The bond market is saying that it’s safer to lend to Warren Buffett than Barack Obama.

Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.

The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating. The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves.

“It’s a slap upside the head of the government,” said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion. “It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary.”

Obama Pays More Than Buffett as U.S. Risks AAA Rating

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The Perils Of Leaving Interest Rates Low

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Sy Harding

The recession held inflation in check, currently around the Fed’s comfort zone of 2% in the U.S. The Fed says it is confident that inflation will remain under control if it leaves interest rates low for “an extended period” even though the economy is recovering again.

It’s an important decision, since history shows that once inflation is out of the bottle it’s very difficult to get it back in. So after the devastating runaway inflation of the 1970s, central banks have made sure that if they err it is on the side of raising interest rates early, at the first whiff of inflation fumes, to make sure most of it remains in the bottle.

The current fragility of the global economic recovery makes it difficult this time for central banks to raise interest rates early to ward off inflation, since to do so could stall the economic recovery--but the threat of inflation may force their hands.

Already, central banks in Europe and Asia are more worried about inflation than is the U.S. Federal Reserve.

The Perils Of Leaving Interest Rates Low

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10 Steps to a Gmail Makeover

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by lthumann

It all started a couple of weeks ago at the Google Teacher Academy for Administrators. Hank Thiele and Cory Pavicich did a fifteen minute segment on how to effectively use your Gmail. I have to admit, that even though I’m a major Google Apps user, I was still pretty much relying on Microsoft Outlook to keep myself organized. I must have been crazy.

When Hank and Cory started speaking I had over 14,000 e-mails in my inbox. I am happy to report that as of today, just about 14 days later, I am at inbox zero. Here’s what I did:

10 Steps to a Gmail Makeover

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GMAC: The scariest zombie

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By Colin Barr

Now that Citigroup and AIG are rolling in the bucks, GMAC is looking like the most egregious zombie bank of them all.

A report released Thursday questions the wisdom of the government's decision to spend $17 billion propping up the money-losing maker of car and home loans.

The report, released by theCongressional Oversight Panel, noted that the White House thinks taxpayers will lose at least $6 billion on the GMAC bailout. Two members of the panel projected that losses could reach $10 billion, based on the expected cost of the bailouts of GM and Chrysler.

But that's not the worst of it. Thanks to Treasury's decision to avoid a comprehensive restructuring of the company, pre-bailout shareholders in GMAC -- including private equity firm Cerberus -- could still profit on their investments, the report said.

And while the costs are mounting, the panel, chaired by Harvard law professor Elizabeth Warren, said it remains unclear what Treasury accomplished by shielding GMAC from bankruptcy.

GMAC: The scariest zombie

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Dick Bove: Housing Market Will Fall 10%-15% When Fed Stops Subsidizing Home Prices

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by Henry Blodget

For the past year, the Fed has been buying mortgage-backed securities in an effort to keep mortgage rates low and provide some support to the housing market.  On March 31, the Fed says, it will stop buying mortgage-backed securities.

So what will happen to mortgage rates and house prices?

No one knows, says Dick Bove, the wise and fearless analyst at Rochdale Securities. 

No one knows what mortgage rates would be if the Fed weren't subsidizing them.  No one knows where house prices would be if the Treasury and other government agencies weren't modifying mortgages and trying to bail homeowners out.  No one knows what would happen if taxpayers weren't funding tens of billions of dollars of losses at bankrupt Fannie and Freddie to provide yet another housing subsidy.

Even if the Fed stops buying mortgage-backed securities at the end of March, Bove says, some of the impact of the subsidy will still be felt through June.  Also, for a while at least, Fannie and Freddie will continue to buy mortgages.  So there won't likely be a sudden change to the housing market or mortgage rates.

Over the longer term, though, we'll begin to find out where house prices would be if the housing market were less subsidized.  And Dick Bove expects that that level is 10%-15% below today's prices.

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Federal Reserve Must Disclose Bank Bailout Records

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By David Glovin and Bob Van Voris

The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said.

The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.

The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.

The U.S. Freedom of Information Act, or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court.

Federal Reserve Must Disclose Bank Bailout Records

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Ugly Beasts Loom Again

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Steve Forbes

In Hollywood a good box-office monster is never permanently killed; it re-emerges in a sequel to wreak havoc once more on the citizenry. American taxpayers will soon have the same feeling of horror: Fannie Mae and Freddie Mac are climbing out of the swamps. The economy and taxpayers' wallets will once again be hit up.

Fannie and Freddie, of course, crashed in 2008, after guaranteeing some $1.5 trillion in junk mortgages. They are still haemorrhaging red ink today, which is why the Obama Administration on Christmas Eve removed the ceiling on cash that these two so-called government-sponsored entities (GSEs) can receive from Uncle Sam. Taxpayers might have thought that given their spectacular collapse--and the accounting scandals preceding it--these entities would disappear into the night. Think again.

Fannie and Freddie now dominate the housing market as never before: There has been a dramatic shift to government dependence for mortgages. Unless lenders can have mortgages packaged together and sold to other investors the amount of money going into housing--even as the economy recovers--will be inadequate. Securitization has a bad reputation these days, but the innovation--sensibly used--does lower the cost of borrowing by spreading out risk. And it efficiently facilitates tapping pools of capital.

The Treasury Department and the White House have done enormous damage to the housing industry by muddying the distinction between various classes of creditors who lend money. Normally a first-mortgage holder takes a lower rate of interest, because it has first-call on the asset if the borrower defaults. Second mortgages and home equity loans are back in line but are compensated with higher rates of interest. In the name of helping homeowners the Administration has decreed that all creditors must take a haircut, regardless of what previous customs and laws provided. These unilateral actions combined with the White House's brazen political restructuring of Chrysler and GM have damaged the securitization markets for consumer loans--credit cards, autos and the like--as well. This, too, will harm future economic growth.

Ugly Beasts Loom Again

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Android Market Push Threatens BlackBerry and iPhone

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By David Coursey

Suddenly this week, Research In Motion began looking vulnerable. Still the top smartphone maker for U.S. customers, the BlackBerry company was stung when a new study revealed that 39 percent of its users would just as soon have an iPhone.

How much trouble is RIM in?

Well, RIM is to smartphones what Microsoft is to corporate computing--the safe, well-integrated choice. There was an old saying, perhaps still true in some companies, that nobody ever got fired for buying IBM. Well, in smartphones, RIM enjoys the same reputation.

That has the effect of slowing defections, giving RIM a chance to react.

Microsoft, of course, is third in U.S. smartphone sales, after Apple. And with Windows Phone 7 devices hitting stores soon, Redmond's smartphone customers will be facing a painful transition.

That means Microsoft, which has been losing smartphone share and now finds Android-based phones nipping at its heels, could be in even more trouble than RIM, at least in the short term.

RIM's troubles, I fear, are permanent.

Something I'd like to see correlated is whether the BlackBerry devices that users don't like were purchased by an employer or an individual. If the boss paid, some of this longing for an iPhone can be chalked up to routine workplace griping.

On the other hand, people who buy BlackBerry phones for themselves are ripe for the picking, but probably not by Apple. The BlackBerry users I know are closely tied to e-mail and love the hardware keyboard on their devices. The iPhone, of course, lacks a physical keyboard, but Android devices often have one. For this reason, given a little maturity in the Android world, it's not hard to imagine why conventional BlackBerry users would defect to Android rather than the iPhone.

This would be a good move for many business users, in that Google has proven to be far more enterprise-friendly than Apple is ever likely to manage. That will someday make Android devices the BlackBerry's toughest competitor.

Android Market Push Threatens BlackBerry and iPhone

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Time for Truth: Three Card Monte is for Suckers

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by Eliot Spitzer and William Black

In December, we argued the urgent need to make public A.I.G.’s emails and “key internal accounting documents and financial models.” A.I.G.’s schemes were at the center of the economic meltdown. Three months later, a year-long report by court-appointed bank examiner Anton Valukas makes it abundantly clear why such investigations are critical to the recovery of our financial system. Every time someone takes a serious look, a new scandal emerges.

The damning 2,200-page report, released last Friday, examines the reasons behind Lehman’s failure in September 2008. It reveals on and off balance-sheet accounting practices the firm’s managers used to deceive the public about Lehman’s true financial condition. Our investigations have shown for years that accounting is the “weapon of choice” for financial deception. Valukas’s findings reveal how Lehman used $50 billion in “repo” loans to fool investors into thinking that it was on sound financial footing. As our December co-author Frank Partnoy recently explained as part of a major report of the Roosevelt Institute, “Make Markets Be Markets“, such abusive off-balance accounting was and is endemic. It was a major cause of the financial crisis, and it will lead to future crises.

According to emails described in the report, CEO Richard Fuld and other senior Lehman executives were aware of the games being played and yet signed off on quarterly and annual reports. Lehman’s auditor Ernst & Young knew and kept quiet.

The Valukas report also exposes the dysfunctional relationship between the country’s main regulatory bodies and the systemically dangerous institutions (SDIs) they are supposed to be policing. The NY Fed, the regulatory agency led by then FRBNY President Geithner, has a clear statutory mission to promote the safety and soundness of the banking system and compliance with the law. Yet it stood by while Lehman deceived the public through a scheme that FRBNY officials likened to a “three card monte routine” (p. 1470). The report states:

“The FRBNY discounted the value of Lehman’s pool to account for these collateral transfers. However, the FRBNY did not request that Lehman exclude this collateral from its reported liquidity pool. In the words of one of the FRBNY’s on-site monitors: ‘how Lehman reports its liquidity is between Lehman, the SEC, and the world’” (p. 1472).

Translation: The FRBNY knew that Lehman was engaged in smoke and mirrors designed to overstate its liquidity and, therefore, was unwilling to lend as much money to Lehman. The FRBNY did not, however, inform the SEC, the public, or the OTS (which regulated an S&L that Lehman owned) of what should have been viewed by all as ongoing misrepresentations.

Time for Truth: Three Card Monte is for Suckers

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Apple’s Spat With Google Is Getting Personal

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By BRAD STONE and MIGUEL HELFT

IT looked like the beginning of a beautiful friendship.

Three years ago, Eric E. Schmidt, the chief executive of Google, jogged onto a San Francisco stage to shake hands with Steven P. Jobs, Apple’s co-founder, to help him unveil a transformational wonder gadget — theiPhone — before throngs of journalists and adoring fans at the annual MacWorld Expo.

Google and Apple had worked together to bring Google’s search and mapping services to the iPhone, the executives told the audience, and Mr. Schmidt joked that the collaboration was so close that the two men should simply merge their companies and call them “AppleGoo.”

“Steve, my congratulations to you,” Mr. Schmidt told his corporate ally. “This product is going to be hot.” Mr. Jobs acknowledged the compliment with an ear-to-ear smile.

Today, such warmth is in short supply. Mr. Jobs, Mr. Schmidt and their companies are now engaged in a gritty battle royale over the future and shape of mobile computing and cellphones, with implications that are reverberating across the digital landscape.

In the last six months, Apple and Google have jousted over acquisitions, patents, directors, advisers and iPhone applications. Mr. Jobs and Mr. Schmidt have taken shots at each other’s companies in the media and in private exchanges with employees.

This month, Apple sued HTC, the Taiwanese maker of mobile phones that run Google’s Android operating system, contending that HTC had violated iPhone patents. The move was widely seen as the beginning of a legal assault by Apple on Google itself, as well as an attempt to slow Google’s plans to extend its dominion to mobile devices.

Apple’s Spat With Google Is Getting Personal

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Senator Kaufman: Fraud Still At The Heart Of Wall Street

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By Simon Johnson

Last week, Senator Ted Kaufman (D., DE) gave a devastating speech in the Senate on “too big to fail” and all it entails.  A long public silence from our political class was broken – and to great effect.  Today’s Dodd reform proposals stand in pale comparison to the principles outlined by Senator Kaufman.  And yes, DE stands for Delaware – corporate America has finally decided that its largest financial offspring are way out of line and must be reined in.

Today, the Senator has gone one better, putting many private criticisms of the financial sector – the kind you hear whispered with conviction on the Upper East Side and in Midtown – firmly and articulately on the public record in a Senate floor speech to be delivered (this link is to the press release; the speech is in a pdf attached to that – update: direct link to speech, which will be given tomorrow).  He pulls no punches:

“fraud and potential criminal conduct were at the heart of the financial crisis”

He goes after Lehman – with its infamous Repo 105 – as well as the other entities potentially implicated in those transactions, including Ernst and Young (Lehman’s auditors).  This is the low hanging fruit – but have you heard even a squeak from the White House or anyone else in the country’s putative leadership on this issue?

And then he goes for the twin jugulars of Wall Street as it still stands: The idea that we saved something, at great expense in 2008-09, that was actually worth saving; and Goldman Sachs.

“[T]his is not about retribution.  This is about addressing the continuum of behavior that took place – some of it fraudulent and illegal – and in the process addressing what Wall Street and the legal and regulatory system underlying its behavior have become.”

Our system has long been imperfect, but it used to work much better:

“When crimes happened in the past (as in the case of Enron, when aided and abetted by, among others, Merrill Lynch, and not prevented by the supposed gatekeepers at Arthur Andersen), there were criminal convictions.”

Senator Kaufman: Fraud Still At The Heart Of Wall Street

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The $2 Trillion Public Pension Hole and What You Can Do About It

Mish

The cover story of Barron's is on public pensions, an issue I have been railing about for years, and heatedly so for several months. Please consider The $2 Trillion Hole.

LIKE A CALIFORNIA WILDFIRE, populist rage burns over bloated executive compensation and unrepentant avarice on Wall Street.

Deserving as these targets may or may not be, most Americans have ignored at their own peril a far bigger pocket of privilege -- the lush pensions that the 23 million active and retired state and local public employees, from cops and garbage collectors to city managers and teachers, have wangled from taxpayers.

Some 80% of these public employees are beneficiaries of defined-benefit plans under which monthly pension payments are guaranteed, no matter how stocks and other volatile assets backing the retirement plans perform. In contrast, most of the taxpayers footing the bill for these public-employee benefits (participants' contributions to these plans are typically modest) have been pushed by their employers into far less munificent defined-contribution plans and suffered the additional indignity of seeing their 401(k) accounts shrivel in the recent bear market in stocks.

Most public employees, if they hang around to retirement, can count on pensions equal to 75% to 90% of their pay in their highest-earning years. And many public employees earn even more in retirement than their best year's base compensation as a result of "spiking" their last year's income by working ferocious amounts of overtime and rolling in years of unused sick and vacation days into their final-year pay computation.

The $2 Trillion Public Pension Hole and What You Can Do About It