Doom and Gloom: Recession likely in 2008

Recession in U.S. More Likely in 2008, Survey Finds (Update1)
By Steve Matthews

 

 

Feb. 25 (Bloomberg) — The proportion of economists who forecast a U.S. recession this year more than doubled in three months, to 45 percent, according to a survey by the National Association for Business Economics.

Of those, a majority expect the downturn to be “relatively muted,” according to the poll of 49 professional forecasters taken Jan. 25 to Feb. 13. Less than 20 percent predicted a downturn in the previous poll completed Nov. 6.

The spillover from the biggest housing slump in a quarter century, turmoil in financial markets and higher energy prices will cause growth to slow to an annual pace of 0.4 percent this quarter and 1 percent in the second quarter, the survey found.

“U.S. economic growth is expected to slow to a crawl in the first half,” Ellen Hughes-Cromwick, the group’s president and chief economist at Ford Motor Co., said in a statement.

The economy will expand 1.8 percent in the year ending in 2008’s fourth quarter, according to the survey. That compares with predictions of 2.6 percent in November.

The survey’s median forecast for fourth-quarter growth compares with 2008 forecasts of 1.7 percent in a Bloomberg News survey taken this month.

“Rising concerns around credit-market turmoil and the pain associated with that turmoil is what marked down the forecasts,” said Hughes-Cromwick in an interview with Bloomberg Radio.

Lower Rates

The Fed will lower its benchmark overnight lending rate between banks to 2.5 percent through the end of the year, from the current 3 percent, according to the NABE survey median.

Futures markets show traders expect a half-point reduction, to 2.5 percent, by the end of the next meeting on March 18.

Fed officials lowered their projections for economic growth by half a percentage point this year, according to quarterly figures published last week. Policy makers have cut the benchmark interest rate by 2.25 percentage points since September.

Fed Chairman Ben S. Bernanke, appearing before the Senate Banking Committee Feb. 14, indicated that policy makers are prepared to lower interest rates further to revive the economy as banks make it tougher to borrow.

The economists polled by NABE projected growth “accelerating in the second half in response to fiscal and monetary stimulus,” Hughes-Cromwick said.

Congress has approved a $168 billion fiscal package to lift growth.

Effect of Stimulus

About 40 percent of the economists in the survey viewed the package as helpful in preventing a recession and an additional 30 percent said it would keep any recession short and mild.

“A lot of economists do think the fundamentals for the economy will serve us well and we’ll get through this weakness,” said Hughes-Cromwick in the interview.

The slowing growth this year isn’t expected to reduce inflation. The panel raised its forecast for price gains. The Consumer Price Index will rise 2.5 percent from the fourth quarter of 2007 to the same quarter in 2008, compared with 2.3 percent predicted in November.

The housing slump and credit availability were cited by forecasters as hurting growth this year. More than 60 percent of the economists said the housing recession will have a major negative effect on consumer spending.

To contact the report on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

Last Updated: February 25, 2008 11:53 EST

FT: Stem the foreclosures

 

America needs a way to stem foreclosures

By Lawrence Summers

Published: February 24 2008 19:16 | Last updated: February 24 2008 19:16

The American economic outlook remains highly uncertain. But macro­economic policy is now properly aligned, as the economy will benefit over the next several quarters from fiscal and monetary stimulus. To the extent conditions warrant and inflation risks permit, monetary and fiscal policy are appropriately poised to provide further stimulus.

Policy towards America’s failing housing sector is in a far less satisfactory state. All honest analysts accept that policies adopted so far, such as the “teaser freezer” limits on resetting mortgage interest rates and increased federal support for mortgage lending, have had only a marginal impact on what may be the most serious crisis in housing finance since the Depression.

It appears house prices are down by 5-10 per cent from their peak, with derivatives markets predicting further declines of about 20 per cent. Price falls of this magnitude are likely to mean more than 10m would have negative equity in their homes and more than 2m foreclosures would take place over the next two years.

Foreclosures are extremely costly. Between transaction costs that typically run at one-third or more of a home’s value and the adverse impact on neighbouring properties, foreclosures can easily dissipate more than the total value of the home being repossessed. They also inflict collateral economic damage, as reduced wealth and diminished borrowing capacity in homes reduces consumer spending, increases credit market fragility and depresses local tax bases.

What can public policy do? It cannot and should not try to fix the fact that at current prices the supply of homes significantly exceeds demand or the reality that many own homes, often for speculation, that are no longer viable and should be back on the market.

But it can and should address a crucial issue: when the current owner is able and willing to pay more than the lender can get by foreclosing on a house, it makes no sense to go through with a foreclosure. Yet because of conflicts among lenders, legal uncertainties and concerns about encouraging defaults, there are grounds for fearing that wasteful and unnecessary foreclosures will take place on a large scale, hurting families, communities, the economy and the financial system.

How can this problem be addressed? The string has pretty much been played out on hortatory policy, to limited effect. Without finding ways of writing down mortgage liabilities, new finance will do nothing for the problem group that has negative equity. Direct government intervention in mortgage markets risks creating delays, burdening taxpayers and inhibiting necessary adjustments in house prices.

The right focus is on measures that will prevent unnecessary foreclosures by facilitating more efficient settlements between homeowners and their creditors. Legal changes currently being debated, to bring practice with respect to family homes into conformity with general bankruptcy practice in two areas, could make an important contribution.

First, remarkably, bankruptcy laws currently provide that almost every form of property (including business property, vacation homes and those owned for rental) except an individual’s principal residence cannot be repossessed if an individual has a suitable court-approved bankruptcy plan. The rationale is the prevention of costly and inefficient liquidations. It is hard to see why similar protections should not be prudently extended to family homes.

Critics worry that such measures will dry up the supply of mortgage credit. This is a legitimate concern and the reason why legislation should be carefully and narrowly drafted, to be applicable only to past mortgages where there has been no fraud and where foreclosure is otherwise imminent. But it is worth noting that: some inhibition on lending to those who seem likely to go bankrupt might be a good thing; also, there has been an adequate supply of capital and ability to securitise in the market for vacation and rental housing, where debtors are protected; and moreover, chapter 12 of the bankruptcy code enacted in the mid-1980s, which applied these principles to family farms, helped to resolve great financial distress without long-term costs in terms of reduced farm lending – despite protestations much like those that are heard today.

Second, methods need to be found to enable creditors who accept a writedown in the value of their claims to retain an interest in the future appreciation of the homes on which they have mortgages. This is standard practice in situations of corporate distress, where debt claims are partially replaced by equity claims.

Obstacles to such mortgages include uncertainties about tax and accounting rules. But at a time when there are great advantages to inducing lenders to let families to remain in their homes – and when families facing foreclosure are prepared to do things they might not do in ordinary times – it would be desirable to pursue suggestions by the Office of Thrift Supervision for so-called negative equity certificates to support shared appreciation work-outs.

Bankruptcy reform alone could, on some estimates, avert 500,000 foreclosures and, by establishing templates for renegotiation, aid a wider restructuring of mortgage debts. Proper support for voluntary restructurings involving interests in future appreciation should realise still greater benefits. As with fiscal stimulus, rapid bipartisan co-operation between Congress and the administration would benefit the financial system, the real economy and millions of Americans.

The writer is Charles W. Eliot university professor at Harvard

Top economists debate Martin Wolf’s and Lawrence Summers’ columns in the FT’s Economists’ Forum

Copyright The Financial Times Limited 2008

Farrakhan’s award from Obama’s Church

Sen. Barack Obama belongs to the Trinity United Church of Christ in Chicago. Trinity United Church is “Unashamedly Black and Unapologetically Christian.” You can read more about it here, but keep in mind this doesn’t make Obama’s Church racist.

Obama was asked about his Church early on in this Presidential race. He said this:

“Commitment to God, black community, commitment to the black family, the black work ethic, self-discipline and self-respect,” he said. “Those are values that the conservative movement in particular has suggested are necessary for black advancement. So I would be puzzled that they would object or quibble with the bulk of a document that basically espouses profoundly conservative values of self-reliance and self-help.”

However, The Trinty United Church of Christ awarded Louis Farrakhan an award through their Trumpet Magazine. Not only an award, but the Rev. Jeremiah A. Wright Jr. award to Farrakhan because he “”truly epitomized greatness.” The same man who said whites are the devil and Jews are the real anti-Semites epitomizes greatness.

Nonetheless, Obama distanced himself from Trumpet Magazine, his Church and Louis Farrakhan. He said, “”I decry racism and anti-Semitism in every form and strongly condemn the anti-Semitic statements made by Minister Farrakhan, I assume that Trumpet Magazine made its own decision to honor Farrakhan based on his efforts to rehabilitate ex-offenders, but it is not a decision with which I agree.”

So, in all honesty, does an endorsement from Louis Farrakhan really matter?

Farrakhan loves Obama

Louis Farrakhan spoke highly of Sen. Barack Obama in his first address since battling cancer. Could this be a problem for Obama?

Farrakhan is the same man who said:

“These false Jews promote the filth of Hollywood that is seeding the American people and the people of the world and bringing you down in moral strength…It’s the wicked Jews the false Jews that are promoting Lesbianism, homosexuality. It’s wicked Jews, false Jews that make it a crime for you to preach the word of God, then they call you homophobic!” Feb. 26, 2006

“I’m not an anti-Semite, I never have been one. I do not hate the Jewish people; put that down! What I hate is the degree of control that they exercise over Black intellectual, cultural expression. I do not think that no human being should determine how high we can go, that can only be determined by God and by us; not by no white man, no black man, no human being [crowd cheers].” Aug. 31, 2005

Oh, there is more about the Jews too.

He also said this too:

Hillary Mocks Obama. Ouch.

McCain tries to get the best of the New York Times

McCain has tried to get the best of the New York Times. Yesterday, his campaign manager sent out an e-mail appealing to conservatives. In it he writes,

Well, here we go. We could expect attacks were coming; as soon as John McCain appeared to be locking up the Republican nomination, the liberal establishment and their allies at the New York Times have gone on the attack. Today’s front-page New York Times story is particularly disgusting - an un-sourced hit-and-run smear campaign designed to distract from the issues at stake in this election. With John McCain leading a number of general-election polls against Barack Obama and Hillary Clinton, the New York Times knew the time to attack was now, and they did. We will not allow their scurrilous attack against a great American hero to stand.

Hello conservatives! “The liberal establishment and their allies at the New York Times have gone on the attack.” The email goes on to say, “The New York Times — the newspaper that gave MoveOn.org a sweetheart deal to run advertisements attacking General Petraeus…”

What a brilliant move to grab some conservative support. Hey look those liberals at the Times are attacking me. We can’t let them win. Help John McCain become the next president of the United States. Anyone care to donate?

Renzi indicted

Arizona Rep. Renzi Indicted

by Kevin Tripp/KTAR and Associated Press Arizona congressman Rick Renzi has been indicted on 35 counts including wire fraud and embezzelment.

So what does it mean to all of us?

IRS Special Agent Andrea Whelan hopes it doesn’t destroy public trust.

“It can be disheartening when the outcome of our investigative work causes citizens to doubt the integrity of their elected representatives,” Whelan said.

Congressman Renzi has not yet issued a statement.

Republican Rep. Renzi was indicted Friday on charges of extortion, wire fraud, money laundering and other matters in an Arizona land swap scam that allegedly helped him collect hundreds of thousands of dollars in payoffs.

A 26-page federal indictment unsealed in Arizona accuses Renzi and two former business partners of conspiring to promote the sale of land that buyers could swap for property owned by the federal government. The sale netted one of Renzi’s former partners $4.5 million.

Renzi is a three-term member of the House. He announced in August that he would not seek re-election.

Attempts to reach Renzi by phone through his congressional office in Flagstaff and his lawyer were unsuccessful Friday.

As part of the alleged scam, Renzi and his former business partner, James W. Sandlin, concealed at least $733,000 that the congressman took for helping seal the land deals, the indictment says.

“Renzi was having financial difficulty throughout 2005 and needed a substantial infusion of funds to keep his insurance business solvent and to maintain his personal lifestyle,” the indictment says.

The indictment accuses Renzi of using his position as a member of the House Natural Resources Committee to push the land swaps for Sandlin, who was also charged. It comes after a lengthy federal investigation into the land development and insurance businesses owned by Renzi’s family.

GOP presidential front-runner Sen. John McCain, an Arizona colleague of Renzi’s, seemed surprised when asked in Indianapolis for his reaction to the indictment, choosing his words carefully, shaking his head and speaking slowly.

“I’m sorry. I feel for the family; as you know, he has 12 children,” McCain told reporters on the presidential campaign trail. “But I don’t know enough of the details to make a judgment. These kinds of things are always very unfortunate…. I rely on our Department of Justice and system of justice to make the right outcome.”

The extensive legal document says Renzi refused in 2005 and 2006 to secure congressional approval for land swaps by two unnamed businesses if they did not agree to buy Sandlin’s property as a part of the deal.

Renzi had previously owned some of Sandlin’s property, the indictment says.

In early 2005, one of the businesses seeking surface rights for a copper mining project in Renzi’s district failed to buy Sandlin’s land. As a result, the indictment says, Renzi allegedly told the business, “No Sandlin property, no bill.”

At the time, Sandlin owed Renzi $700,000 out of the land’s selling price of $800,000. Renzi also allegedly concealed his business relationship with Sandlin, even though the company had expressly asked if there was one.

Meanwhile, Renzi allegedly pushed the land on a second firm, an unnamed investment group, that was trying to secure a federal land swap. If the firm accepted Sandlin’s property as part of the transaction, Renzi allegedly said investors would receive a “free pass” through the House Natural Resources Committee, according to the indictment.

In April 2005, the investors reluctantly agreed to the deal.

“Please be sensitive to the fact that we are going way out on a limb at the request of Congressman Renzi,” one of the investors wrote in an April 17, 2005 e-mail to a Renzi aide. “I am putting my complete faith in Congressman Renzi and you that this is the correct decision.”

The investment group agreed to pay $4.6 million for Sandlin’s land, the indictment says. Sandlin then paid Renzi $733,000 for his help in securing the land swap from the second business.

Renzi failed to report the income on financial disclosure reports to Congress, as is required.

Government watchdog group Citizens for Responsibility and Ethics in Washington applauded the Justice Department for holding Renzi “accountable given that his House colleagues refused to do so.” The group has had Renzi on its “Most Corrupt Members of Congress” list for the last three years.

“Bluster aside, this latest in a string of congressional indictments demonstrates that Congress simply will not police itself,” said CREW executive director Melanie Sloan.

LA Times: It’s getting hard out there for illegal immigrants

The Los Angeles Times writes this today:

It’s getting ugly out there for illegal immigrants. States and cities are cracking down with harsh new ordinances, and the courts are upholding them. Not only are deportations at record highs, but immigrants are being detained at places previously understood to be off-limits, such as schools. The debate about illegal immigration, labor, social justice and international trade has devolved into open season on illegal immigrants.

Let us remind ourselves that states and cities are cracking down on their own because the Federal Government and our Washington politicians will not lead on the issue. It’s clear people want something down about illegal immigration. State and city leaders know this. Even here in Phoenix, Mayor Phil Gordon recognized it. Our state lawmakers recognized it. And they did something about it. Other states are following. Oklahoma, New Jersey, Indiana, Missouri and several others are doing what they can to curb the problem.

The Times goes even further:

With the spirit of Dred Scott hovering over his pen, Judge James H. Payne wrote that illegal immigrants do not have the right to sue: “An illegal alien, in willful violation of federal immigration law, is without standing to challenge the constitutionality of a state law, when compliance with federal law would absolve the illegal alien’s constitutional dilemma.”

Wow. Did they really just do that? This is what has become of the illegal immigration debate. Scary. Should we mistreat people because they are here illegally. Of course not. Should we remind them that there are legal processes to come to the United States?

Indiana Fights over Illegal Immigration

Arizona isn’t the only state to be fighting over illegal immigration (remember that issue?). We have our Employer Sanction’s Law. Indiana “Republicans walked off the floor in protest of procedural moves” made by Democrats to prevent them from voting on anti-immigration measures.

From the Indy Star:

Republicans accused Democrats of using a sneaky maneuver to prevent them from offering changes to legislation that could penalize employers who hire illegal immigrants. Republicans left the floor around 6:30 p.m., and Democratic House Speaker Patrick Bauer declared around 8 p.m. that the chamber was in recess until Monday.

Still don’t think this is a nationwide problem?

Is McCain stuck with public financing?

When John McCain’s campaign was faltering and out of money he reached out to the Federal Election Commission for matching public funds. In a letter dated February 6, 2008, McCain wrote to the FEC to opt out of public funding. Read the letter here. The FEC responds in their own letter by saying, sorry McCain, you might be stuck. Here is the FEC letter, dated February 19, 2008.

Time Magazine has additional analysis here.

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