FedUpUSA

Archive for July, 2010

The median duration of unemployment is higher today than any time in the last 50 years. That’s an understatement. It is more than twice as high today than any time in the last 50 years.

OK, you’re saying, but what does this mean? Does it mean we must increase the duration of unemployment benefits to protect this new class of unemployed, or does it mean we need to stop subsidizing joblessness? Does it mean we need to expand federal retraining programs, or does it mean federal retraining programs aren’t working? Does it mean we need more stimulus, more state aid, more infrastructure projects, more public works … or does it mean it’s time to stop everything, stand back and let business be business?

You’re going to find smart people make a case for all six of the above public policy directions. (I tend to side with the first of each coupling.) It’s hard to know for sure how to design public policy for historically unique crises precisely because they are historical orphans, without precedent to show us the right way from the wrong.

One of my first reactions to this graph was: Surely this is why we don’t have to worry about inflation for a very, very long time. However, here’s evidence that despite the historically inverse relationship between inflation and joblessness, “the long-term unemployed put less downward pressure on inflation.” Ultimately, this is a graph that should humble policy makers more than it should scare them into confidently arguing they know exactly how to fix it.

The Atlantic

Countrywide Financial made 153 “VIP” loans to Fannie Mae executives, in an effort to win goodwill from the giant mortgage finance company, according to a letter released on Tuesday by a US congressman.

An additional 20 VIP loans were made to Freddie Mac employees, the other large government-sponsored buyer of home loans, according to the details released by Darrell Issa, a California Republican.

Although it was known that some government officials received preferential mortgage loans from Countrywide, the findings show the involvement of Fannie and Freddie staff was greater than had been thought.

“Countrywide thought these sweetheart deals would buy them goodwill,” said Frederick Hill, a spokesman for Mr Issa, who sent his letter to the Federal Housing Finance Agency, which regulates Fannie and Freddie.

The findings, obtained from subpoenaed records studied by Mr Issa, are the latest in a two-year investigation into Countrywide and come as the housing finance reform debate heats up. The US Treasury has asked for comments about how housing finance should be restructured.

Barney Frank, a Massachusetts Democrat, has said that he plans to start work on new legislation when Congress returns from its August recess. The White House is expected to submit plans for fixing the system by early next year.

“The administration has made it clear that this is the next big issue,” said David Min, a financial markets expert at the Center for American Progress, a think-tank.

There does not yet appear to be consensus on how to revamp Fannie and Freddie, although criticism of their current public-private structure has been widespread.

Although they are private entities, their debt carried the implicit backing of the Federal government, potentially leading them to take unnecessary risks. Fannie and Freddie have received $145bn in taxpayer aid, which is likely to rise.

Fannie Mae decline to comment on Mr Issa’s letter. A Freddie Mac spokesman said its code of conduct that prevented employees from soliciting favourable loan treatment. And the FHFA said it had received Mr Issa’s “inquiry and will respond to him promptly”.

Last week, Mr Issa revealed that 30 “VIP” loans had been made to US senators or Senate employees.

The Financial Times

Good thing we taxpayers have nothing else to spend our money on but propping up insolvent financial institutions and paying for homes people can’t afford.

US financial system support up $700 bln in past year-watchdog

  * Total US govt financial system support seen at $3.7 trln

* US support swells by $700 bln in past year-watchdog

* Mortgage, housing commitments account for most of rise

* TARP watchdog criticizes Obama housing rescue efforts

By David Lawder

WASHINGTON, July 21 (Reuters) – Increased housing commitments swelled U.S. taxpayers’ total support for the financial system by $700 billion in the past year to around $3.7 trillion, a government watchdog said on Wednesday.

The Special Inspector General for the Troubled Asset Relief Program said the increase was due largely to the government’s pledges to supply capital to Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) and to guarantee more mortgages to the support the housing market.

Increased guarantees for loans backed by the Federal Housing Administration, the Government National Mortgage Association and the Veterans administration increased the government’s commitments by $512.4 billion alone in the year to June 30, according to the report.

“Indeed, the current outstanding balance of overall Federal support for the nation’s financial system…has actually increased more than 23% over the past year, from approximately $3.0 trillion to $3.7 trillion — the equivalent of a fully deployed TARP program — largely without congressional action, even as the banking crisis has, by most measures, abated from its most acute phases,” the TARP inspector general, Neil Barofsky, wrote in the report.

The total includes Federal Reserve programs and a myriad of asset guarantees, including Federal Deposit Insurance Corp. protection for bank deposits.

The increased government commitments more than offset about a $300 billion decline in the U.S. Treasury’s TARP commitments in the past year as programs have closed and banks have repaid taxpayer funds.

HOUSING PROGRAMS CRITICIZED

Barofsky also in the report ramped up his criticism of the Treasury’s housing relief efforts, saying that its program to reduce monthly mortgage payments for struggling homeowners was showing “anemic” participation numbers and had failed to “put an appreciable dent in foreclosure filings.”

He said Treasury had refused his repeated recommendations to announce more effective goals and benchmarks for its mortgage modification program, which could reach up to $50 billion in TARP funds.

“Treasury’s refusal to provide meaningful goals for this important program is a fundamental failure of transparency and accountability that makes it far more difficult for the American people and their representatives in Congress to assess whether the program’s benefits are worth its very substantial cost,” Barofsky wrote.

Among other recommendations repeated in the report, Barofsky called for the Treasury to consider making its voluntary mortgage principal reduction program mandatory, saying this would make it less likely for “underwater” homeowners to abandon their properties.

The Treasury has declined to adopt the recommendation, citing the prospect that mandatory principal reduction would cause mortgage servicing firms to opt out of the program and fairness issues in reducing principal for both responsible homeowners hit by value declines and homeowners who overleveraged their properties in refinancings.

U.S. Treasury officials defended the Home Affordable Modification Program, saying that it was still on track to reach its goal to keep 3 million to 4 million homeowners in their homes by the end of 2012 and was adapting to changing conditions by offering forbearance to unemployed people and extra funding for the hardest-hit markets.

Herbert Allison, Treasury assistant secretary for financial stability, said the Treasury often agrees with Barofsky’s recommendations, “but once in a while, we differ on what type of policy will best carry out our mandate.”

The report provoked swift criticism of Obama administration housing policies from U.S. Rep. Darrell Issa, a California Republican who has taken every opportunity to blast the Treasury’s handling of financial bailout programs.

“The fact that the Obama administration is treating TARP like its own personal slush-fund is beyond egregious and a complete betrayal of what the American people were told would be then when their tax-dollars were used to bailout Wall Street,” Issa said in a statement, adding that the housing efforts were “dumping good money after bad”. (Reporting by David Lawder; Editing by Kazunori Takada)

Reuters

Bailout watchdogs say Obama’s $50B mortgage program is struggling and could hurt the recovery

WASHINGTON (AP) — Government watchdogs are telling a Senate panel that the Obama administration’s multibillion effort to help at-risk homeowners avoid foreclosure is not working and could put the economic recovery at risk.

Special inspector general for the financial bailouts Neil Barofsky said Wednesday that the program has not “put an appreciable dent in foreclosure filings,” during a hearing on the $700 billion bank bailout before the Senate Finance Committee. He also said the Treasury Department has ignored earlier demands that it set clearer goals for the program.

Elizabeth Warren, who chairs a separate Congressional Oversight Panel on the bailouts, said Treasury’s failure to act more quickly could be hurting the recovery.

More foreclosures could force down the price of homes and further hurt the already-ailing housing industry.

The homeownership program aims to reduce mortgage payments for millions of homeowners who can’t afford their monthly bills. Recent data suggest it has helped about 400,000 households avoid foreclosure. About 530,000 have fallen out of the program.

The bailout has provided up to $50 billion for the mortgage modification programs.

Barofsky said Treasury is giving mortgage companies too much leeway to decide which homeowners will qualify for a program to reduce the principal balance of their mortgages.

The program relies on voluntary cooperation from mortgage companies, Warren said. She said many of the mortgage debt collectors make more money when they foreclose than they do when helping homeowners.

“We have a crisis, and the consequences of not having cooperation from (mortgage) servicers is . . . felt by this entire economy,” Warren said. “We need a program with far more urgency and some real teeth in it.

Also appearing at the hearing is a leader of the Government Accountability Office.

Their three offices are designated to provide transparency and oversight for the bailout program that Congress passed in October 2008.

Associated Press

The U.S. Senate’s epic struggle just to reauthorize unemployment benefits for the long-term jobless suggests that policymakers in Washington fundamentally don’t understand the jobs hole we’re in, according to a team of trained economists.

The progressive Center for Economic and Policy Research reports that it could take an entire decade for the national unemployment rate to come down to pre-recession levels.

“Between December 2007 — the official first month of the recession — and December 2009, the U.S. economy lost more than eight million jobs,” write CEPR’s John Schmitt and Tessa Conroy. “Even if the economy creates jobs from now on at a pace equal to the fastest four years of the early 2000s expansion, we will not return to the December 2007 level of employment until March 2014.

“And, by the time we return to the number of jobs we had in December 2007, population growth will have increased the potential labor force by about 6.5 million jobs. If job growth matched the fastest four years in the most recent economic expansion, the economy would not catch up to the expanded labor force until April 2021.”

Here’s a dramatic chart from CEPR showing the total number of jobs lost since the recession began:

Click HERE to see even more horrifying charts.

Full Report

The Huffington Post