viernes, 23 de diciembre de 2011
Held prisoner by mortgage insurance
Scott Burns, Commentary
The father of three eased into a chair. He is in his late 30s. He works hard at both of his jobs. He and his wife, he said, are very careful about spending. They live without a sign of grandiosity. Both of their cars have more than 100,000 miles on them. The cars are good for more miles, but repairs are becoming more expensive. So are the kids.
The problem, he said, is there just doesn't appear to be any relief. Not now. Maybe never. Like millions of other workers, the income from his main job is not increasing. It is stable, which he thinks is wonderful, but it isn't increasing. The career with regularly increasing salary income that he had hoped for no longer exists.
And what about his other job — the one he works on weekends? It provides some of the money he had hoped would be coming from his main job. It's good work, but it can never grow to replace his main job. It's piecemeal, nothing to count on.
The only way he can see to create some breathing space, some margin for error, is to refinance their house. He handed me some worksheets detailing the estimated costs for mortgage refinance proposals. They would, he said, cut his expenses nearly $400 a month. That's the equivalent of a very healthy raise.
"These would eliminate PMI," he said, referring to primary mortgage insurance. "They would also reduce the interest rate by about 1.5 percentage points. There's just one problem. I'd have to write a big check at the closing — about $25,000. It might as well be a million. I don't have that kind of money."
Very few people do, particularly those with young children.
We've become accustomed to real estate disaster stories — stories of homes in foreclosure, of families forestalling foreclosure, of couples making payments while surrounded by a sea of foreclosures, etc. — but millions more people are like this father of three. They trudge on with less drama. They hope something will change their circumstances. Mortgage refinancing is one of those somethings.
But they are prisoners of PMI and prisoners of their mortgage.
This particular example is in Dallas, an area largely spared from the debacle that has made Arizona, California, Florida and Nevada into disaster areas. Five years ago, he and his wife bought a new home in a Dallas suburb populated by other couples with young children. Their motivation was simple and selfless: They were looking for good schools.
They got in with a 10 percent down payment. Because of the low down payment, the mortgage also required them to pay premiums on a primary mortgage insurance policy.
The idea, then, was that home appreciation would bring their equity to 20 percent in five years or less. Then they would be able to refinance, perhaps to a lower interest rate. They would eliminate the PMI payment at the same time.
It didn't happen.
Now they are prisoners of both. They pay PMI and a bit over 5.5 percent in interest, when new mortgages are available at 4 percent. For them, it seems like a deadweight loss.
And for them, it is. But the dilemma is really about who has income and who doesn't. One household's lunch, it turns out, is another household's dinner.
The mortgage we're talking about is part of a package of securitized mortgages. The mortgage securities, in turn, are owned by a mutual fund that specializes in pools of home mortgages. Someone who depends on interest income, probably a retiree, owns shares of that fund. The retiree has seen the interest he collects drop year after year as those who can refinance do so. At this point, the retiree is wondering how long his savings will last. He is spending principal as well as interest to pay his bills.
If the mortgage were refinanced, it would disappear from the mortgage package. The interest income would decline, as it has been for years. One household would enjoy an increase in spendable income. Another would suffer a decrease in spendable income. Who gets to spend money would change, but the amount of money available to spend would scarcely change.
It's a big zero-sum game — except it doesn't feel like a game.
Scott Burns is a nationally syndicated columnist who has been writing about personal finance since 1977. He also is the author or co-author of four books and the principal of a Plano-based investment advisory firm. Send questions to business@statesman.com.
Just Another Goldman Sachs Take Over
On November 25, two days after a failed German government bond auction in which Germany was unable to sell 35 per cent of its offerings of 10-year bonds, the German finance minister, Wolfgang Schaeuble said that Germany might retreat from its demands that the private banks that hold the troubled sovereign debt from Greece, Italy, and Spain must accept part of the cost of their bailout by writing off some of the debt. The private banks want to avoid any losses, either by forcing the Greek, Italian, and Spanish governments to make good on the bonds by imposing extreme austerity on their citizens, or by having the European Central Bank print euros with which to buy the sovereign debt from the private banks. Printing money to make good on debt is contrary to the ECB’s charter and especially frightens Germans, because of the Weimar experience with hyperinflation.
Obviously, the German government got the message from the orchestrated failed bond auction. As I wrote at the time, there is no reason for Germany, with its relatively low debt to GDP ratio compared to the troubled countries, not to be able to sell its bonds. If Germany’s creditworthiness is in doubt, how can Germany be expected to bail out other countries? Evidence that Germany’s failed bond auction was orchestrated is provided by troubled Italy’s successful bond auction two days later.
Strange, isn’t it. Italy, the largest EU country that requires a bailout of its debt, can still sell its bonds, but Germany, which requires no bailout and which is expected to bear a disproportionate cost of Italy’s, Greece’s and Spain’s bailout, could not sell its bonds.
In my opinion, the failed German bond auction was orchestrated by the US Treasury, by the European Central Bank and EU authorities, and by the private banks that own the troubled sovereign debt.
My opinion is based on the following facts. Goldman Sachs and US banks have guaranteed perhaps one trillion dollars or more of European sovereign debt by selling swaps or insurance against which they have not reserved. The fees the US banks received for guaranteeing the values of European sovereign debt instruments simply went into profits and executive bonuses. This, of course, is what ruined the American insurance giant, AIG, leading to the TARP bailout at US taxpayers’ expense and Goldman Sachs’ enormous profits.
If any of the European sovereign debt fails, US financial institutions that issued swaps or unfunded guarantees against the debt are on the hook for large sums that they do not have. The reputation of the US financial system probably could not survive its default on the swaps it has issued. Therefore, the failure of European sovereign debt would renew the financial crisis in the US, requiring a new round of bailouts and/or a new round of Federal Reserve “quantitative easing,” that is, the printing of money in order to make good on irresponsible financial instruments, the issue of which enriched a tiny number of executives.
Certainly, President Obama does not want to go into an election year facing this prospect of high profile US financial failure. So, without any doubt, the US Treasury wants Germany out of the way of a European bailout.
The private French, German, and Dutch banks, which appear to hold most of the troubled sovereign debt, don’t want any losses. Either their balance sheets, already ruined by Wall Street’s fraudulent derivatives, cannot stand further losses or they fear the drop in their share prices from lowered earnings due to write-downs of bad sovereign debts. In other words, for these banks big money is involved, which provides an enormous incentive to get the German government out of the way of their profit statements.
The European Central Bank does not like being a lesser entity than the US Federal Reserve and the UK’s Bank of England. The ECB wants the power to be able to undertake “quantitative easing” on its own. The ECB is frustrated by the restrictions put on its powers by the conditions that Germany required in order to give up its own currency and the German central bank’s control over the country’s money supply. The EU authorities want more “unity,” by which is meant less sovereignty of the member countries of the EU. Germany, being the most powerful member of the EU, is in the way of the power that the EU authorities desire to wield.
Thus, the Germans bond auction failure, an orchestrated event to punish Germany and to warn the German government not to obstruct “unity” or loss of individual country sovereignty.
Germany, which has been browbeat since its defeat in World War II, has been made constitutionally incapable of strong leadership. Any sign of German leadership is quickly quelled by dredging up remembrances of the Third Reich. As a consequence, Germany has been pushed into an European Union that intends to destroy the political sovereignty of the member governments, just as Abe Lincoln destroyed the sovereignty of the American states.
Who will rule the New Europe? Obviously, the private European banks and Goldman Sachs.
The new president of the European Central Bank is Mario Draghi. This person was Vice Chairman and Managing Director of Goldman Sachs International and a member of Goldman Sachs’ Management Committee. Draghi was also Italian Executive Director of the World Bank, Governor of the Bank of Italy, a member of the governing council of the European Central Bank, a member of the board of directors of the Bank for International Settlements, and a member of the boards of governors of the International Bank for Reconstruction and Development and the Asian Development Bank, and Chairman of the Financial Stability Board.
Obviously, Draghi is going to protect the power of bankers.
Italy’s new prime minister, who was appointed not elected, was a member of Goldman Sachs Board of International Advisers. Mario Monti was appointed to the European Commission, one of the governing organizations of the EU. Monti is European Chairman of the Trilateral Commission, a US organization that advances American hegemony over the world. Monti is a member of the Bilderberg group and a founding member of the Spinelli group, an organization created in September 2010 to facilitate integration within the EU.
Just as an unelected banker was installed as prime minister of Italy, an unelected banker was installed as prime minister of Greece. Obviously, they are intended to produce the bankers’ solution to the sovereign debt crisis.
Greece’s new appointed prime minister, Lucas Papademos, was Governor of the Bank of Greece. From 2002-2010. He was Vice President of the European Central Bank. He, also, is a member of America’s Trilateral Commission.
Jacques Delors, a founder of the European Union, promised the British Trade Union Congress in 1988 that the European Commission would require governments to introduce pro-labor legislation. Instead, we find the banker-controlled European Commission demanding that European labor bail out the private banks by accepting lower pay, fewer social services, and a later retirement.
The European Union, just like everything else, is merely another scheme to concentrate wealth in a few hands at the expense of European citizens, who are destined, like Americans, to be the serfs of the 21st century.
Canada could pay into IMF Europe fund, Flaherty says
Finance Minister Jim Flaherty says Ottawa would be open to paying into a bailout fund for Europe administered by the International Monetary Fund — as long as it was supported by the other G20 countries.
"There's some sense around the world that if at the end of the day we have to provide some help somehow, that we would not turn a blind eye to it because of the world consequences of the collapse of the eurozone," Flaherty said Thursday on CBC-TV's Power & Politics with Evan Solomon.
"If at the end of the day all of the other G20 countries were going to provide more resources to the IMF, and let the IMF deal with part of the situation in Europe, then I think there would be support for that overall, because of the fear, quite frankly, around the world of a global economic crisis."
Prime Minister Stephen Harper had previously said the federal government was unwilling to use Canadian funds to bail out European countries troubled by the ongoing debt crisis, saying that Europe had sufficient resources to cope while the IMF should be focused on developing countries.
Flaherty also stipulated Thursday that EU countries must "commit most of the resources" to a shore up the eurozone's financial system.
"And they haven't done that yet," he said, despite the fact that the eurozone is "on the brink of a very serious crisis."
G20 leaders met in France last month, where they pledged to rebalance the global economy and boost resources available to the IMF. But they delivered few details on how the group of countries might help resolve the debt crisis.
Italy and Spain have been at the centre of concerns in recent months as their borrowing costs have risen. Those two are considered too big to bail out with the current eurozone bailout funds, in contrast to Greece, Ireland and Portugal, which have all sought outside financial help. Italy, for example, has some 1.9 trillion euros in outstanding debt.
To help steady the eurozone's financial system, the European Central Bank has loaned 489 billion euros to 523 banks over the past three years — the largest infusion of credit to European banks in the 13-year history of the shared euro currency.
The ECB is trying to make sure that banks have enough ready cash so they can keep on lending to businesses. Otherwise, a credit crunch could choke off growth and spread the debt crisis to the wider economy through the banks.
To deal with the crisis, Flaherty said that EU countries "need to build a firewall around the contagious banks."
In addition, he said the IMF should "go in and make sure that those countries that need to balance their budgets [and] get over their huge debt problems are properly supervised, so that the world can be assured that they're actually doing it.
Told to end 3G pacts today, operators move TDSA
NEW DELHI, DEC. 23:
The Department of Telecom has asked Bharti Airtel, Vodafone and Idea Cellular to terminate roaming arrangements by 3 p.m. on Saturday.
Notices have also been sent to Tata Teleservices and Aircel but the two have already scrapped their agreement. This comes after the department took a decision that the roaming pacts were illegal.
“It has been concluded that provision of the services by you, which are presently available by virtue of 3G spectrum in 2.1 Ghz band only, to your customers through intra service area roaming arrangement is not permissible,” the DoT notice to the operators stated.
Bharti Airtel said that the order was arbitrary and violates principles of natural justice. The operator also questioned DoT's motive in issuing the 24-hour deadline on Friday evening after the courts closed for the weekend.
“It is painful to note how the action by DoT has been delayed till Friday evening fully knowing that any legal recourse needs court working days. To add to our and customers' dismay compliance is being forced within 24 hours without stating why this haste!,” Airtel said in a statement. The three operators have moved the Telecom Dispute Settlement Appellate Tribunal seeking a stay order. Industry sources said that the tribunal may hold a special session on Saturday to hear the appeal.
The operators said that even if they agree to terminate the pact it will take time because to pull back a strategic deployment like intra-circle roaming, expert intervention is required as multiple aspects of CRM, network and IT are at play. More importantly customers have to be informed and their financial commitment towards the service has to be protected, as per the regulation.
“We are shocked at the arbitrary decision taken by the Department of Telecom (DoT) to issue instructions to stop intra circle roaming for 3G services. This is despite DoT having clarified on the matter prior to the 3G spectrum auction in 2010,” Airtel said.
The operators said the DoT decision sends a wrong signal to the entire business community looking for a stable and transparent policy regime.
US boosted by jobless
figures fall
Fewer Americans than expected sought unemployment benefits and consumer confidence climbed last week, boosting the world's largest economy heading into 2012.
Unemployment claims fell by 4,000 to 364,000 last week, the lowest level since April 2008, Labor Department figures showed yesterday.
The Bloomberg Consumer Comfort Index improved to minus 45 last week from a reading of minus 49.9 the prior week, marking the biggest seven-day gain since January.
A decline in job losses and the cheapest petrol prices since February are helping revive retail sales during the busiest shopping season of the year.
A stronger consumer, whose spending accounts for 70% of the economy, raises the odds the US can ride out the debt crisis in Europe or failure by Congress to extend tax cuts.
"Spending has looked pretty good so far, and continued job and income growth will help maintain that," said Samuel Coffin, an economist at UBS Securities in New York.
Stocks rose on the improving jobs outlook, sending the Standard -amp; Poor's 500 Index higher for a third day.
Treasury securities (bonds) also advanced, sending the yield on the benchmark 10-year note down to 1.96% from 1.97% at the close to trade the previous day.
"This is great news," Ian Shepherdson, chief economist at hedge fund High Frequency Economics.
"One unexpectedly low number can easily be a fluke. Two are interesting. Three are telling us something real is happening in the labour market."
Read more: http://www.belfasttelegraph.co.uk/business/business-news/us-boosted-by-jobless-figures-fall-16094754.html#ixzz1hOQTPsIR
Miners, banks trim weekly loss for stocks
Australian shares recovered most of yesterday's loss but still ended down for a third consecutive week, the longest losing streak since late September.
At the close on Friday, the benchmark S&P/ASX200 index was up 49.6 points, or 1.2 per cent, at 4,140.4, while the broader All Ordinaries index had gained 49.9 points, also 1.2 per cent, to 4,192.1.
At the close on Friday, the benchmark S&P/ASX200 index was up 49.6 points, or 1.2 per cent, at 4,140.4, while the broader All Ordinaries index had gained 49.9 points, also 1.2 per cent, to 4,192.1.
For the week, the ASX200 share index was off 0.5 per cent while the All Ordinaries fell 0.6 per cent.
Among the major sectors, materials rose 1.6 per cent, while financials gained 1.3 per cent and energy stocks added 1.2 per cent.
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Wall Street and European markets rallied overnight after the number of jobless claims in the US fell to the lowest level since April 2008, in a further sign the world’s largest economy is returning to health.
Australian shares also gained on news that US consumer confidence beat expectations to reach a six-month high, as data indicated that the country’s economy should have grown by more than three per cent in the last quarter of the year.
Bell Potter senior adviser Stuart Smith said he expected more positive momentum in the market toward the end of the year as hopes for economic recovery grow.
‘‘I expect a new wave of confidence in the new year.’’
Friday’s trading day was shortened, ahead of the Christmas weekend and the market will next open on December 28.
Australian shares also gained on news that US consumer confidence beat expectations to reach a six-month high, as data indicated that the country’s economy should have grown by more than three per cent in the last quarter of the year.
Bell Potter senior adviser Stuart Smith said he expected more positive momentum in the market toward the end of the year as hopes for economic recovery grow.
‘‘I expect a new wave of confidence in the new year.’’
Friday’s trading day was shortened, ahead of the Christmas weekend and the market will next open on December 28.
Leading the market higher were shares in Gloucester Coal, which added 21.6 per cent to $8.55 after the company said it had entered into a merger proposal with China owned Yancoal Australia to create a newly listed company on the Australian market.
Miners and industrial stocks led the whole market higher, with both sectors adding 1.6 per cent as rising commodity prices helped push shares higher.
BHP Billiton rose 50 cents, or 1.4 per cent, to $35.15 while Rio Tinto added $1.19, or two per cent, to reach $61.84.
Financials were also strong performers, adding 1.3 per cent in the wake of a strong push higher by their global peers.
‘‘You won’t be able to find banking stocks this good anywhere else in the world, there’s no comparison,’’ Mr Smith said.
All of the big four banks were up, with Commonwealth Bank adding one per cent to $49.81, ANZ increasing 1.5 per cent to $20.85, National Australia Bank rising 1.3 per cent at $23.70 and Westpac climbing 0.9 per cent to $20.54.
‘‘You won’t be able to find banking stocks this good anywhere else in the world, there’s no comparison,’’ Mr Smith said.
All of the big four banks were up, with Commonwealth Bank adding one per cent to $49.81, ANZ increasing 1.5 per cent to $20.85, National Australia Bank rising 1.3 per cent at $23.70 and Westpac climbing 0.9 per cent to $20.54.
Even the embattled retail sector managed to post gains after a week of profit downgrades from several big names.
But analysts remained less optimistic on prospects for the sector, with several downgrading their assessments of major retailers.
David Jones was the only retailer that was lower on Friday, losing 0.8 per cent to $2.43, while Myer added 0.5 per cent to $1.99.
Market turnover was below the monthly average, at one billion shares with a value of $4.3 billion as 18 shares rose for every one that fell.
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