| To: orkrious who wrote (70609) | 1/23/2007 8:31:08 PM | | From: Elroy Jetson | | | | Its a home building industry rumor, not a Wall Street rumor, and likely to have some basis in fact such as talks between the two companies.
Its an industry where they call in the lawyers and Wall Street after a preliminary deal is reached.
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| From: bentway | 1/23/2007 8:43:03 PM | | | | | | State of the nation? Broke
When President Bush gives his State of the Union address tonight, don't expect accurate numbers on the budget. What you can count on is that the deficit is disastrous and the debt is piling up.
1/23/2007 12:00 AM ET
By Jim Jubak
articles.moneycentral.msn.com
If you or I managed our money the way that U.S. government manages our money, we'd be headed for bankruptcy.
Imagine if someone you knew:
Took on a mountain of debt -- to buy a house, say -- at a floating interest rate and never bothered to ask if the future payments would be affordable. That's exactly what the U.S. government does.
Used his annual bonus to make the down payment on a Porsche Cayenne and never worried that his current spending had created a huge future obligation for years of high payouts. That's exactly what the U.S. government does.
Ran up big credit card debt because the money he was saving for his kids' college education easily balanced out that debt. That's exactly what the U.S. government does.
Just kept on spending not only every bit of the monthly paycheck but every dollar that credit card companies and banks would lend, despite knowing that he would have to pay for college and retirement one day. That's exactly what the U.S. government does.
And then, of course, just like most deadbeats, what does the government do after mismanaging our money? It lies about how bad the problem is and clings to the hope that money will fall from the trees to bail it out.
Truth and the budget numbers
Just remember this when you listen to tonight's State of the Union address from President Bush and the rejoinder from the leading lights of the Democratic Party. I'd be willing to bet that we won't hear an honest budget number out of anyone's mouth. And it's not as if the White House and members of Congress don't know better.
David Walker, comptroller general, delivered a primer on how to tell the truth on the U.S. budget in testimony delivered to the Senate on Jan. 11.
But then again, since Walker believes we're headed for fiscal disaster if we keep on the current budgetary course, maybe our politicians just find the truth too painful.
The U.S. government produces two different budget measures, Walker begins, and each presents only a partial truth about our total financial picture.
First and most commonly reported -- this is the number that you'll hear bandied about by the president and commentators tonight -- is the unified budget deficit. This is a cash-based number that measures the difference between revenues and outlays for the government as a whole. Although it gives investors a useful read on how much money the government will be looking to borrow in the financial markets right now, it severely understates the size of the deficit since it includes the current surplus in Social Security tax receipts over Social Security payouts. In the fiscal year that ended in October of 2006, the reported unified budget deficit was only $248 billion, instead of the $318 billion originally projected. It's this unified budget deficit number that will get most of the ink when the president talks about "cutting the deficit."
By the way, Iraq expenses are 'off budget'
If you want to correct for the $185 billion collected by Social Security as surplus cash flow in 2006 -- that is, the taxes came in today to pay for benefits promised in future years -- then you have to look at the on-budget deficit, which Walker calls the "operating deficit." The on-budget deficit came to $434 billion in 2006. The on-budget deficit shrank from 2005 to 2006, just as the unified budget deficit did, but the drop was much smaller: to $434 billion in fiscal 2006 from $494 in fiscal 2005.
Both of these still understate the size of the deficit. The Bush administration has been adamant about keeping certain costs out of the budget figures. Spending on the war in Iraq, for example, has been included not in budget resolutions but in special emergency spending bills. They are "off budget" in the language of Washington. That spending, estimated by the Congressional Budget Office at $360 billion overall and $95 billion in the fiscal year that ended in October 2006, aren't in either of these two budget figures. And Iraq funding for fiscal 2007 won't be included in the budget the president will introduce next month, either.
It's a hazy horizon
All budgets get hazier the further out you look, of course, because things are just less and less certain as you look into the future -- although official Washington budgets aren't allowed by law to look too far ahead, just five years, in fact. But only in Washington's budget process is that "haziness" invoked in a systematic way to make the books look better. What are the odds that the Bush tax cuts, set to expire in 2010 will be made permanent or at least extended beyond 2010? Pretty good, I'd say, given the desire of politicians to hold onto their jobs. That would cost about $1.5 trillion in lower revenues through 2016, the Congressional Budget Office estimates. Because making the cuts permanent isn't certain, that figure isn't included in any official estimate of the budget deficit.
Neither is the cost of fixing the Alternative Minimum Tax. The tax, intended to make sure that rich Americans didn't wind up paying no taxes just because they could afford to hire great accountants, has become a trap for more and more middle-class Americans because the level at which the tax takes effect was not indexed for inflation.
With inflation making more and more Americans subject to the tax, the idea of revising the brackets, or at least indexing them to inflation, has strong political support in Washington. But because those changes haven't been legislated, the official budget continues to show higher revenues from Alternative Minimum Tax bracket creep. The Congressional Budget Office estimates that indexing the brackets for inflation would lower federal tax revenue by $513 billion in the next 10 years.
The upcoming crisis is absolutely predictable
This ban on including costs that are probable but not legislatively certain and the prohibition on looking further than five years out -- even though politicians routinely push the costs of their most expensive programs "off budget" by delaying the worst for more than five years -- has led to a veritable industry of alternative budgeting in Washington. Many of these have been created by groups with agendas to push -- higher social spending, lower taxes, more tax cuts, fewer tax cuts for the "rich." But what's most interesting to me about them is that any that look out more than five years see an absolutely predictable budget deficit crisis looming somewhere between 2015 and 2040.
It's caused, surprise, surprise, by the aging of the baby boomers.
The first official baby boomer will become eligible for early retirement under Social Security on Jan. 1, 2008, and for Medicare benefits in 2011. Social Security surpluses -- the surplus of tax receipts versus benefit payouts -- will begin its decline in 2009 and by 2017, unless benefits are cut or taxes increased, Social Security cash flow will have moved into deficit and begun to add to the unified budget deficit rather than diminishing it, as at present.
Don't forget Medicare and Medicaid
But the budgetary problems caused by the growth in Social Security outlays are dwarfed by the increase in spending on Medicare and Medicaid. By itself, the extra demands of Social Security are manageable: According to the Congressional Budget Office, spending for Social Security will reach 4.7% of U.S. gross domestic product (GDP), up from 4.2% in fiscal 2007. But pile the growth in Medicare and Medicaid spending on that relatively modest increase and you've got a backbreaker for the federal budget. According to the Congressional Budget Office, combined Medicare and Medicaid spending will add up to 6.3% of GDP in 2016, up from 4.6% in 2007. By 2030, federal spending for these three entitlement programs will add up to 15.5% of GDP, up from 8.8% in 2007.
This same demographic trend makes growing our way out of this problem very unlikely. Economies of countries with aging populations grow more slowly. It's likely that the real (i.e. after subtracting inflation) rate of economic growth will drop to 2.6% for 2012 through 2016 from a projected 3.1% in 2008, according to the Congressional Budget Office.
The government is digging a huge hole
The result isn't the kind of crisis that the talking heads on TV "discuss" at the top of their lungs. The issue isn't whether the U.S. unified budget deficit is about 3.6% of current economic output -- or 6% of GDP, according to the on-budget deficit -- and therefore worrisome in the present.
The problem is that the United States has dug itself a huge future hole, one big enough to swallow the entire U.S. government budget by 2030 or so, by piling on future obligations for retirement and health care while hiding from the true costs. By 2030, if you assume that discretionary spending (on things like student loans and aircraft carriers) grows at the same rate as the economy and the Bush tax cuts are made permanent, Walker testified, government spending on interest on the national debt, Social Security, Medicare and Medicaid would eat up all -- yes, 100% -- government revenue.
With the passage of the Medicare drug benefit, Congress and the president violated the first rule of holes: When you're in one, stop digging. The present value of all the major reported liabilities, according to the U.S. Government Accountability Office, now comes to $50 trillion. That's about four times the size of the U.S. economy in 2006 and amounts to $440,000 per U.S. household. That's up a mind-boggling $30 trillion from fiscal 2000. In that year, the government's liabilities were just $20 trillion or two times the size of the economy. In absolute and relative terms, the financial picture has gotten much, much worse very, very quickly.
More of the same lies
Think about that when you hear the president promising his budget cuts or the Democrats promising a return to pay as you go. You can't trust their numbers to begin with; they're just more of the lies that got us into this bind. If moves like these are the initial steps in a move toward financial sanity, three cheers, but if they're just bones thrown to those of us who pay the bills now and the children who will pay even bigger bills in the future, then a pox on them all.
Walker finished his testimony by noting that if we do nothing until 2040, balancing the budget in that year would require cutting total federal spending by 60% or raising federal taxes to two times today's level.
Or I suppose the government could just run the printing presses. Printing new currency is one thing Washington is good at. |
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| To: Elroy Jetson who wrote (70610) | 1/23/2007 9:00:54 PM | | From: Think4Yourself | | | | I might be able to help here. Pulte WHQ is down the street from me, near a place we eat at often. Next time I'm there I can look for rental cars in the lot.
Only problem is, face to face contact isn't as important as it used to be. |
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| To: Perspective who wrote (70604) | 1/23/2007 11:08:59 PM | | From: ChanceIs | | | | >>>Options are a zero sum game. Somebody wins, somebody else loses, right?<<<
You are asking a philosophical question and a mathematical question.
I have taught the occasional informal investment course - for seniors at local colleges, etc. I talk about options. I ask them how many have ever bought an option. They all leave their hands down - nobody has bought an option. Then I say, who didn't drive here. No hands. They I say, who drove here without car insurance. No hands. Everybody drove, everybody had insurance, and nobody has bought an option. Than I say: you gave a insurance company someone money, they agreed to give you money if the option went into the money (you had a wreck and the wreck cost exceeded the strike price) and this arrangement lasted for a fixed period of time. So everybody has bought an option. Who didn't win there? The insured won because he drove risk free for a period of time for a known cost. The insurance company won because they charge each insured enough to cover all the expenses in the pool and then some.
Options represent damping - negative feedback. When there is lots of damping then the markets calm down. If more people sold options, then the option price would drop on supply, but so would volatility. The market would tend to "straight line" growth. Options are all about managing risk. Yes mathematically they are a zero sum game, but if you are clever about their use, then they can be very valuable - like anything else in life. Some people use hammers to drive screws. |
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| From: ChanceIs | 1/23/2007 11:13:54 PM | | | | | | Banks Move Earlier
To Curb Foreclosures
As Mortgage Delinquencies Mount, Lenders Offer
Free Refinancing, Debt Forgiveness for Selling Homes at a Loss
By RUTH SIMON
January 24, 2007
As the number of borrowers falling behind on their mortgage payments climbs to the highest level in five years, the mortgage industry is trying new strategies to help bail them out.
Much of the attention is on homeowners who in recent years took out adjustable-rate mortgages, a popular way to finance a home when interest rates were low. Now, with rates having moved up, many of these borrowers have recently seen, or soon will see, their mortgage rates adjust higher for the first time.
To head off problems, mortgage companies are reaching out to borrowers earlier. Bank of America Corp. is allowing some borrowers with ARMs to refinance into a different loan at no cost. Citigroup Inc.'s CitiMortgage unit is focusing extra attention on parts of California, Florida and New York where home prices have moved up sharply. It is also contacting delinquent borrowers within days after a missed payment, if it doesn't fit their normal bill-paying habits.
The rise in bad loans also is leading to a pick up in so-called short sales, in which a lender allows the property to be sold for less than the total amount due and often forgives the remaining debt. For the lender, the process can be shorter and less costly than foreclosing, especially in a declining market. For borrowers, it is a way to avoid having a foreclosure on their credit report.
Sheldon Klain, a manager in Dallas, wound up saddled with loans on two homes last year and now is trying to arrange a short sale of one of them. Mr. Klain got into trouble after he moved to Dallas from Las Vegas to take a new job. He bought a home in Dallas, thinking he had found a buyer willing to pay $475,000 for his Las Vegas home. The sale fell through at the last minute and Mr. Klain found himself stuck with two homes and behind on payments on the Las Vegas house.
Mr. Klain says his Las Vegas house, which is in a gated community and has a swimming pool, is valued at $419,000, according to a recent bank appraisal, well below the $440,000 he owes on the property. "The dump in the market put us behind the eight ball," he says.
For some borrowers, efforts to work out bad loans can be complicated by the fact that many mortgages no longer are held by the banks that made the loans. Instead, roughly two-thirds of mortgages are packaged into mortgage-backed securities and sold to investors. How much leeway a borrower is given can vary, depending in part on the rules spelled out at the time the securities are created. Some agreements, for instance, don't permit loan modifications or limit the circumstances under which a loan can be modified. Others put a cap on how many loans can be restructured.
Some 2.51% of mortgages were delinquent in the fourth quarter, according to new data from Equifax Inc. and Moody's Economy.com Inc. That is up from 2.33% in the third quarter and the highest level since a recent peak of 2.53% in the first quarter of 2002.
The increase in bad loans is broad based, with delinquencies rising in the past year in roughly 80% of the 250 local areas analyzed by Moody's Economy.com. Some of the biggest increases have come in California, where high prices have made it hard to afford a home, and in other once-hot markets such as Las Vegas and Port St. Lucie, Fla. Among the handful of major metropolitan areas where delinquencies have fallen: Salt Lake City, San Antonio and Albuquerque, N.M.
The rise in delinquencies is unusual because it comes at a time when the economy is relatively strong. Even though job growth remains healthy, "the total mortgage delinquency rate is the highest that it's been since the depths of the [2001] recession," says Mark Zandi, chief economist at Moody's Economy.com. He attributes the increase in part to the weaker housing market and the widespread use of adjustable-rate mortgages, many of which now are resetting at higher rates.
What is more, as demand for loans softened, mortgage lenders loosened their standards and made riskier loans, Mr. Zandi says. He expects that nationwide delinquency rates could rise by as much as a full percentage point from current levels in the next year, but he doesn't expect the trend will have a significant impact on the overall economy.
Until recently, mortgage delinquencies were low by historical standards, which Mr. Zandi pegs at about 2%, based on the dollar value of loans that are at least 30 days past due. One reason: Rising home prices made it easy for borrowers who missed payments to refinance or sell their home. That changed as home prices flattened or fell in many areas.
Adding to the pain are higher short-term interest rates, which mean bigger monthly payments for borrowers with adjustable-rate mortgages or home-equity lines of credit. In addition, many mortgages were taken out in the past few years and now are approaching the point in their life when delinquencies typically pick up. An increase in mortgage fraud in parts of the country also has contributed to bad loans, lenders say.
"Keep in mind that 2004 and 2005 were aberrations," with low delinquencies and rapid home-price growth, says Michael Fratantoni, an economist with the Mortgage Bankers Association. He says the biggest increase in delinquencies has been among borrowers with scuffed credit records who took out adjustable-rate mortgages.
To head off potential problems, CitiMortgage contacts borrowers with adjustable-rate mortgages by phone and by mail monthly, beginning months before the rate on their loan resets, to alert them to the upcoming payment increase and explain their options, says CitiMortgage President Bill Beckmann.
Bank of America is using computer models to predict which borrowers may run into trouble -- even before they miss a payment. "We're calling earlier and more often" because it increases the chances that a borrower's problems can be worked out, says Bob Caruso, Bank of America's national servicing executive.
Among the bank's options: Borrowers who miss a payment because of illness or job loss may be allowed to add the unpaid debt to their loan balance, Mr. Caruso says. Other kinds of loan modifications also are becoming more common. These include arrangements that allow a troubled borrower to refinance into a less costly loan or that lower the interest rate on the mortgage for several years to make the payments more affordable.
Mortgage companies also are looking for additional ways to reach financially stretched borrowers. In some of the Midwestern markets where it has bank branch offices, National City Corp. is working with local clergy, United Way organizations, social workers and housing counseling agencies to help borrowers reluctant to talk with their lender. The bank's Web site explains workout options and allows borrowers to apply online for assistance. National City is one of a dozen major lenders behind a national advertising campaign that will, beginning this spring, promote a toll-free number (888-995-HOPE) borrowers can call for homeownership counseling and referrals.
Bank of America says it has seen short sales of homes increase 25% from last year, albeit coming off of relatively low levels. And in San Diego, the number of entries in the local multiple-listing service that include the words "short sale" has climbed to 98 from about 50 a year ago, according to Sandicor Inc., the local multiple-listing service. A short sale can be less of a black mark than a foreclosure on a borrower's credit record, because it indicates the borrower was working with the lender.
There can be downsides for borrowers to short sales. Under certain circumstances, the debt forgiven by the bank may be taxable to the borrower. What is more, convincing a lender to go along with a short sale can be difficult, and borrowers who have a mortgage and a home-equity loan may have to negotiate with two lenders or two departments of the same bank.
"There are all sorts of log jams," says John Izzo, the agent handling the sale of Mr. Klain's Las Vegas house. Mr. Izzo says he is currently working on 19 short sales, but figures just "one in five might be successful." |
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