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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (359909)	11/23/2007 7:27:46 AM
From: Road Walker	Read Replies (1) \| Respond to of 1573980

Banks Gone Wild By PAUL KRUGMAN “What were they smoking?” asks the cover of the current issue of Fortune magazine. Underneath the headline are photos of recently deposed Wall Street titans, captioned with the staggering sums they managed to lose. The answer, of course, is that they were high on the usual drug — greed. And they were encouraged to make socially destructive decisions by a system of executive compensation that should have been reformed after the Enron and WorldCom scandals, but wasn’t. In a direct sense, the carnage on Wall Street is all about the great housing slump. This slump was both predictable and predicted. “These days,” I wrote in August 2005, “Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn’t seem like a sustainable lifestyle.” It wasn’t. But even as the danger signs multiplied, Wall Street piled into bonds backed by dubious home mortgages. Most of the bad investments now shaking the financial world seem to have been made in the final frenzy of the housing bubble, or even after the bubble began to deflate. In fact, according to Fortune, Merrill Lynch made its biggest purchases of bad debt in the first half of this year — after the subprime crisis had already become public knowledge. Now the bill is coming due, and almost everyone — that is, almost everyone except the people responsible — is having to pay. The losses suffered by shareholders in Merrill, Citigroup, Bear Stearns and so on are the least of it. Far more important in human terms are the hundreds of thousands if not millions of American families lured into mortgage deals they didn’t understand, who now face sharp increases in their payments — and, in many cases, the loss of their houses — as their interest rates reset. And then there’s the collateral damage to the economy. You still hear occasional claims that the subprime fiasco is no big deal. Even though the numbers keep getting bigger — some observers are now talking about $400 billion in losses — these losses are small compared with the total value of financial assets. But bad housing investments are crippling financial institutions that play a crucial role in providing credit, by wiping out much of their capital. In a recent report, Goldman Sachs suggested that housing-related losses could force banks and other players to cut lending by as much as $2 trillion — enough to trigger a nasty recession, if it happens quickly. Beyond that, there’s a pervasive loss of trust, which is like sand thrown in the gears of the financial system. The crisis of confidence is plainly visible in the market data: there’s an almost unprecedented spread between the very low interest rates investors are willing to accept on U.S. government debt — which is still considered safe — and the much higher interest rates at which banks are willing to lend to each other. How did things go so wrong? Part of the answer is that people who should have been alert to the dangers, and taken precautionary measures, instead blithely assured Americans that everything was fine, and even encouraged them to take out risky mortgages. Yes, Alan Greenspan, that means you. But another part of the answer lies in what hasn’t happened to the men on that Fortune cover — namely, they haven’t been forced to give back any of the huge paychecks they received before the folly of their decisions became apparent. Around 25 years ago, American business — and the American political system — bought into the idea that greed is good. Executives are lavishly rewarded if the companies they run seem successful: last year the chief executives of Merrill and Citigroup were paid $48 million and $25.6 million, respectively. But if the success turns out to have been an illusion — well, they still get to keep the money. Heads they win, tails we lose. Not only is this grossly unfair, it encourages bad risk-taking, and sometimes fraud. If an executive can create the appearance of success, even for a couple of years, he will walk away immensely wealthy. Meanwhile, the subsequent revelation that appearances were deceiving is someone else’s problem. If all this sounds familiar, it should. The huge rewards executives receive if they can fake success are what led to the great corporate scandals of a few years back. There’s no indication that any laws were broken this time — but the public’s trust was nonetheless betrayed, once again. The point is that the subprime crisis and the credit crunch are, in an important sense, the result of our failure to effectively reform corporate governance after the last set of scandals. John Edwards recently came out with a corporate reform plan, but it didn’t receive a lot of attention. Corporate governance still isn’t regarded as a major political issue. But it should be.

To: TimF who wrote (359909)	11/23/2007 9:39:25 PM
From: tejek	Read Replies (2) \| Respond to of 1573980

Now true that is sunk cost, and shouldn't be important when considering future actions, but unless you actually build new lines (and probably even if you do) rail travel will still be very small compared to other forms of passenger transport. That's not true.....rail passenger traffic makes up a huge volume of European travel. So much so, they believe that airline service between cities of Europe will be reduced significantly over the next 10-20 years. As for maglev, the Germans and Japanese are starting to build lines.....the more lines they build, the more economical it will become......esp. if there are significant breakthroughs in superconductors and a reduction in train weight which is very possible now with the new composite materials developed by Boeing. Maglev is not so far off in the future as once believed.

To: TimF who wrote (359909)	11/24/2007 7:12:16 AM
From: Road Walker	Respond to of 1573980

They took advantage of a poorly regulated landscape to exploit unsophisticated home buyers and homeowners with mortgages and refinancing schemes that were all but guaranteed to result in a tragic explosion of foreclosures. ... As Paul Leonard, director of the California office of the Center for Responsible Lending, told me this week: “You shouldn’t have a marketplace that’s a ‘buyer beware’ marketplace for the most important financial transaction of most people’s lives.” ------------------------------ Lost in a Flood of Debt By BOB HERBERT CHICAGO I’ve been visiting some of the people who have been most affected by the subprime mortgage debacle. It’s a largely bewildered, frightened group that includes people like Dorothy Levey, a 79-year-old widow who sits alone inside the small house she has lived in for 41 years, afraid to answer the telephone or the door. She has every reason to be worried. The monthly note on her house in the city of Markham, just outside Chicago, is approximately 100 percent of her meager monthly income. Broke and behind in her payments, Ms. Levey expects a foreclosure notice to show up any day, followed by a visit from “the sheriff, or whoever they send to tell you to get out of your own home.” While the media coverage has focused on the high rollers who created the subprime frenzy (“If you can breathe, we’ll give you a loan”), the hapless victims have remained in the shadows, condemned to economic ruin. After faithfully making mortgage payments for decades, Ms. Levey and her husband, Dan, were persuaded to take out a new loan, ostensibly for debt consolidation, in 2002. It was like plunging into quicksand. Dan was seriously ill at the time and he died two years later. To this day Ms. Levey does not understand what she and her husband of more than half a century had agreed to. The terms might as well have been written in Sanskrit. But she kept trying to meet her obligation. She exhausted her savings. She lost her car. She stopped buying clothes and cut back on food. But there was no way to keep up with the payments. “I had to go to the state and tell them I was hungry,” she said. I heard the same story again and again — decent people enticed, sometimes fraudulently, into loans they never understood and couldn’t afford. For years redlining and other discriminatory practices served as roadblocks to homeownership in neighborhoods with significant numbers of poor and working-class residents, many of them black and brown. Making affordable loans available to such residents was important. But we have since moved to the opposite extreme. Over the past several years mortgage lenders recognized that there were big bucks to be made in those neighborhoods, and they pounced. They weren’t satisfied to offer reasonable loans at reasonable rates to customers who could handle them. They went far beyond that. They took advantage of a poorly regulated landscape to exploit unsophisticated home buyers and homeowners with mortgages and refinancing schemes that were all but guaranteed to result in a tragic explosion of foreclosures. Thousands of poor people like Dorothy Levey, who worked for years to build modest amounts of equity in their homes, have been hammered — wiped out. The most unscrupulous of the mortgage lenders, and there were many of them, swooped in and sweet-talked their targets into signing contracts designed to squeeze them for everything they had in the world. The fact that this is often legal doesn’t make it right. As insane as it sounds, Ms. Levey is still getting offers to refinance her mortgage. There is some truth to the assertion that a lot of buyers signed up for deals they should have known they couldn’t afford. But it won’t do for the fat cats to fall back on empty phrases like “buyer beware.” The subprime mortgage frenzy was a shameful, highly-charged phenomenon, motivated by greed and played out on a field of rampant exploitation. The victims deserved more protection than they got. As Paul Leonard, director of the California office of the Center for Responsible Lending, told me this week: “You shouldn’t have a marketplace that’s a ‘buyer beware’ marketplace for the most important financial transaction of most people’s lives.” It’s not too much to ask that when Americans of modest means put their economic futures on the line, we have regulations in place to see that they are not ripped off. If you think this is a small matter, consider that the center reported a year ago that subprime loans represented roughly a quarter of all home loans in the U.S., and that an estimated 2.2 million households in the subprime market would ultimately face foreclosure. We ignored the subprime frenzy and its predictable consequences until it was too late. Now we are ignoring the plight of families caught in the tidal wave of foreclosures, and the long-term consequences that will flow from that. There is a desperate need for government and corporate leaders to step in with a broad plan to modify existing loans and stave off foreclosure wherever possible. It is both the humane and the economically responsible thing to do. Don’t hold your breath.