"Brutal" Vote Ahead On Whether To Raise The National Debt Ceiling

There is nothing like the sight of fiscal responsibility in our nation's capital. And this? This is nothing like fiscal responsibility.

"Brutal" Vote Ahead On Whether To Raise The National Debt Ceiling
From The Christian Science Monitor (http://www.csmonitor.com/USA/Politics/monitor_breakfast/2010/1119/Brutal-vote-ahead-on-whether-to-raise-the-national-debt-ceiling)

By Dave Cook, Staff writer / November 19, 2010

Washington
Saying he "can't wait for the bloodbath in April," the co-chairman of President Obama's debt commission says that the "brutal" politics surrounding an upcoming vote on raising the national debt ceiling could force Congress to act on the commission's controversial recommendations.

"This is going to be beautiful politics - the brutal kind," said Alan Simpson, co-chair of the National Commission on Fiscal Responsibility and Reform. He spoke at a Monitor-sponsored breakfast for reporters on Friday along with Erskine Bowles, the other co-chair.

The panel is slated to release its recommendations Dec. 1. Last week the co-chairmen released a preliminary report that provoked widespread opposition. It called for gradually raising the Social Security retirement age, making cuts in Medicare and defense spending, and raising tax revenue by closing loopholes and boosting the gasoline tax.

The key political problem surrounding deficit reduction is that voters favor the concept in general but oppose specific cuts that would affect their pocketbooks.

The latest NBC News/Wall Street Journal poll found that nearly half the Republicans called the co-chair's plan a "bad idea" while about one third of Democrats saw it that way.

"The debt limit, when it comes in April or May, will prove who is a hero and who is a jerk and who is a charlatan and who is a faker," former Senator Simpson said. Roughly half of the new Republican members of the House of Representatives ran on a tea party-supported platform of cutting or curbing government spending.

"We've got guys who will not approve the debt limit extension unless we give them a piece of meat, real meat off this package" of deficit cutting plans, Simpson said. "They will say, 'I will not vote for the debt limit extension until you cut this.' "

The federal debt ceiling is now $14.2 trillion, and the debt now stands at $13.7 trillion. Sometime this spring the government will run out of borrowing authority and will have to shut down, unless it votes to raise the ceiling.

The panel is struggling to reach a consensus on final recommendations. Fourteen of the panel's 18 members must vote to support the recommendations for them to move forward.

Mr. Bowles, currently president of the University of North Carolina, expressed optimism that commission members could find some common ground. "You are going to be surprised when you talk to members of the commission ... to find out there is probably more middle ground than you think, still here in what is a very partisan town," Bowles said. "There is common ground there. If this town decides it really wants to come together and solve this problem today, it is doable."

As for the congressional battle over raising the debt ceiling, "I can't wait," Simpson said. "It will be something and I will be watching from our witness protection program."

A Superpower in Decline: Is the American Dream Over?

Der Spiegel says it's pretty much over for us now.

SPIEGEL ONLINE, 11/01/2010
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A Superpower in Decline: Is the American Dream Over?
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America has long been a country of limitless possibility. But the dream has now become a nightmare for many. The US is now realizing just how fragile its success has become -- and how bitter its reality. Should the superpower not find a way out of crisis, it could spell trouble ahead for the global economy. By SPIEGEL Staff

You can download the complete article over the Internet at the following URL: http://www.spiegel.de/international/world/0,1518,726447,00.html

What's Happening Today? And Why Does Big Ben Hate China?

In terms of market-moving metrics, nothing. Of course, that doesn't mean that nothing's happening. If nothing else it's Expiration Friday, with everything that entails for the market.

Apparently the financial world is flipping out over China's decision to increase the reserve requirements for it's banks by 50 bps (that'll be 18% for their largest banks), effective 11/29. Why are they doing it? To suck excess cash out of the economy and try to reduce inflation. Bloomberg's got more details at http://www.bloomberg.com/news/2010-11-19/china-tells-banks-to-set-aside-larger-reserves-to-drain-cash-from-economy.html, if you want to see what's going on.

Also, Ben Bernanke spoke at the Sixth European Central Bank Central Banking Conference (redundant alliteration!) last night. The text of the speech can be found on the Fed's web page at http://www.federalreserve.gov/newsevents/speech/bernanke20101119b.htm, and the topic was "Emerging from the Crisis: Where Do We Stand?". In summary, he reviews what the European Central Banks and the Federal Reserve did over the past few years to try and prevent the end of Western Civilization as we know it, and then discusses what he sees as the lessons of the last two years:
* "Central banks and other financial regulators must be vigilant in monitoring financial markets and institutions for threats to systemic stability and diligent in taking steps to address such threats."
* "As the global financial system and national economies become increasingly complex and interdependent, novel policy challenges will continue to require innovative policy responses."
* "...in addressing financial crises, international cooperation can be very helpful; indeed, given the global integration of financial markets, such cooperation is essential."

That was one of his speeches. The other, "Rebalancing the Global Recovery" (http://www.federalreserve.gov/newsevents/speech/bernanke20101119a.htm), is the one that's been making the news for being an implicit slap against Chinese monetary policy. In it, he laments the apparent loss of common purpose (avoiding a global economic catastrophe) now that the worst of it is past, and he calls on policymakers around the world to "work together to achieve a mutually beneficial outcome - namely, a robust global economic expansion that is balanced, sustainable, and less prone to crises."

The implicit punch at China comes from several statements he makes about how "currency undervaluation by surplus countries ...inhibiting needed international adjustment and creating spillover effects that would not exist if exchange rates better reflected market fundamentals." His solution? "In the longer term, significantly greater flexibility in exchange rates to reflect market forces would be desirable and achievable. That flexibility would help facilitate global rebalancing and reduce the problems of policy spillovers that emerging market economies are confronting today."

In other words, if I understand his point correctly, "China needs to stop controlling its currency. It's not fair, and I'm going to sulk now."

He also advocates for the creation of an "international monetary system that more consistently aligns the interests of individual countries with the interests of the global economy as a whole." Because, yeah. The euro consistently aligned the interests of Greece with the interests of the European Union as a whole.

Obama Administration Releases November Housing Scorecard

Obama Administration Releases November Housing Scorecard

November 18, 2010
TG-963

Obama Administration Releases November Housing Scorecard

WASHINGTON - The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury today released the November edition of the Obama Administration's Housing Scorecard (www.hud.gov/scorecard). The latest housing figures show continued signs of stabilization in house prices and high home affordability due in part to record low mortgage interest rates. The housing scorecard is a comprehensive report on the nation's housing market.

"The Obama Administration has made significant strides in promoting stability for the housing market and the nation's homeowners. Through a range of swift actions since we took office, we've seen millions more families able to stay in their homes and a steady rise in responsible borrowers refinancing their loans or becoming homeowners," said HUD Assistant Secretary Raphael Bostic. "But, while we cannot stop every foreclosure, we know that more has to be done to reach homeowners in distress and to help unemployed borrowers. That's why we're continuing to focus on successfully implementing the programs we've put in place – such as neighborhood stabilization funding, additional assistance on refinancing and emergency loans to help unemployed homeowners – and ensuring that help is available to homeowners as early as possible."

"The recent reports of problems in the foreclosure process underscore the importance of helping responsible homeowners avoid the pain of foreclosure," said acting Assistant Secretary for Financial Stability Timothy Massad. "As we implement additional program enhancements to reach more homeowners, we continue to stress to mortgage servicers the importance of making every effort to enroll eligible homeowners in HAMP and provide meaningful alternatives to avoidable foreclosures."

The November Housing Scorecard features key data on the health of the housing market including:

• An additional 1 million families refinanced their mortgages in the last quarter, taking advantage of the lowest rates in history on 30-year fixed mortgages. Since April 2009, record low interest rates have helped more than 8.3 million homeowners to refinance, resulting in more stable home prices and $15.2 billion in annual borrower savings.

• As expected with the expiration of the Homebuyer Tax Credit, new and existing home sales have remained below levels seen in the first half of 2010. At the same time, home prices remained level in the past year after 33 straight months of decline and homeowners added $95 billion in home equity in the second quarter.

• More than 3.73 million modification arrangements were started between April 2009 and the end of August 2010 --more than double the number of foreclosure completions during that time. These modification arrangements included nearly 1.4 million trial Home Affordable Modification Program (HAMP) modification starts, more than 600,000 Federal Housing Administration (FHA) loss mitigation and early delinquency interventions, and nearly 1.8 million proprietary modifications under HOPE Now. While some homeowners may have received help from more than one program, the number of agreements offered were more than double the number of foreclosure completions for the same period (1.6 million).

Data in the scorecard also show that the recovery in the housing market continues to remain fragile. While the recovery will take place over time, the Administration remains committed to its efforts to prevent avoidable foreclosures and stabilize the housing market.

Each month, the Housing Scorecard incorporates key housing market indicators and highlights the impact of the Administration's unprecedented housing recovery efforts, including assistance to homeowners through the FHA and HAMP. The Obama Administration's complete Housing Scorecard is available at: www.hud.gov/scorecard.

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About That GM IPO...

Bloomberg has an interesting analysis of the fallout of that IPO.

GM’s owners, including the U.S. Treasury, sold at least $15.8 billion of common shares at $33 each, making it the second-largest U.S. IPO on record after San Francisco-based Visa Inc.’s $19.7 billion sale in March 2008, a statement and data compiled by Bloomberg showed. An overallotment option and a sale of preferred shares may boost the total raised to $23.1 billion, more than the $22.1 billion sold by Agricultural Bank of China Ltd. in the largest IPO of common stock in history.

Sounds pretty good, right? I mean, I don't know about you, but I wouldn't turn my nose up at between $15.8 billion and $23.1 billion.

There's a catch, though. Over the last two years, GM has received around $50 billion in bailout loans (the Bloomberg article puts it at $49.5 billion, but what's a measly $500,000,000 between friends?). As a result... well, I'll let the Bloomberg article speak for itself:

The Treasury needs to sell all of its GM shares at an average price of $43.67 to break even on its investment, data compiled by Bloomberg show.

GM closed at $34.19 today, so we only have to hope it goes up at least 27% and then stays there while the Treasury unloads somewhere between 500,065,254 and 553,847,273 shares of common stock (which is roughly 37% of the outstanding shares of GM). All without crushing the price per share of GM.

Put another way, it's P/E ratio needs to drop to about 5.89. Now, looking at the following facts from the Bloomberg article:

GM, which lost $82 billion from 2005 to 2008, was valued at an average of 10.3 times profit from 2000 through 2004, monthly data compiled by Bloomberg show.

And:

At $33 a share, GM is valued at 7.8 times this year’s earnings, based on its net income in the first nine months of 2010. Dearborn, Michigan-based Ford Motor Co. trades at 8.1 times analysts’ estimates for 2010 profit, the data show. Ford has been the world’s most profitable automaker this year through September.

This leaves me with no real hope that we, the taxpayers, will see our investment pay off.

Daily Wrapup

Dow up 173.35 (1.57%). NASDAQ up 38.39 (1.55%). S&P 500 up 18.10 (1.54%). Not a bad day, particularly if you manage not to think about what happened the last few days. Of course, we need at least one more day like today just to make up for Tuesday's wretched performance, but let's not dwell on that right now.

Most of the credit seems to go to the GM IPO, and to the Philadelphia Fed Index. GM managed to trade something like 452 million shares today, and it managed a $0.89 premium for it's IPO buyers, even at it's low for the day. Good on you, you lucky few who managed to get the shares at the IPO. Good on you. And the Philly Fed Index was just too good to be believed. Also, if you're concerned about the PIIGS, there was good news there. Quoting from Reuters:

Ireland's central bank chief expected the country to receive tens of billions of euros in loans from European partners and the International Monetary Fund to help shore up its shattered banks and stabilize the economy.

"The fear was what would happen if Ireland were to go down, what reverberations and aftershocks we were going to see," said Paul Larson, equities strategist at Morningstar in Chicago.

"What this does is to steady that first domino."

Markets have fallen recently on concerns that unless Ireland received a bailout, problems in other heavily indebted euro zone members would spread, hindering a global recovery.

Shattered banks. Gotta love that turn of phrase.

GM's IPO and US data lead to stocks' strength

* GM IPO leads the charge for global stocks
* Government bond prices fall, Irish debt tensions ease
* Commodity prices rebound (Updates with U.S. markets, GM's public trading debut)

By Daniel Bases
NEW YORK, Nov 18 (Reuters) - A blockbuster General Motors Co stock offering dovetailed with upbeat U.S. economic data and easing Irish debt tensions to lift global stocks on Thursday, while the dollar gained on the yen and cut losses versus the euro.

GM's return to the market less than 18 months after it emerged from government-funded bankruptcy raised $20.1 billion, the largest initial public offering in U.S. history, and provided a positive backdrop for investor sentiment.

"The company has rid itself of a lot of liability costs, so there is good reason for this excitement and demand," said Paul Larson, equities strategist at Morningstar in Chicago. "And with all the pent-up demand for vehicles, the outlook for the whole industry is very bright."

Commodity prices rose while U.S. government debt prices fell as credit tensions eased.

Manufacturing activity in the U.S. Mid-Atlantic region grew much more than expected, according to a survey from the Philadelphia Federal Reserve Bank. An improvement in the latest weekly initial claims for jobless benefits also helped strengthen the U.S. dollar.

The U.S. data helped erode the euro's gains as uncertainty about the Irish crisis ebbed after Dublin agreed to work with a European Union-International Monetary Fund mission on steps to shore up its shattered banking sector.

But analysts remained skeptical that any rebound in risk appetite would be sustained, with fiscal problems still severe in Ireland and other peripheral euro-zone countries such as Portugal, and many investors inclined to cut risk exposure before year-end.

"It's absolutely vital for the authorities to take pro-active steps in order to try to resolve this crisis as soon as possible. The market should see some relief in relation to that," said Henk Potts, equity strategist at Barclays Wealth.

In late morning trade, the Dow Jones industrial average rose 177.83 points, or 1.56 percent, to 11,179.71. The Standard & Poor's 500 Index gained 19.55 points, or 1.66 percent, to 1,198.14. The Nasdaq Composite Index climbed 46.94 points, or 1.89 percent, to 2,522.95.

GM's common stock, priced at $33 in the initial public offering on Wednesday night, was up 6.8 percent at $35.25 around noon on the New York Stock Exchange.

The pan-European FTSEurofirst 300 index of top shares climbed 1.34 percent to close provisionally at 1,107.07 points after being as low as 1,091.06.

The MSCI world equity index was up 1.71 percent after touching a one-month low the previous day.

The gains came after Japan's Nikkei jumped 2.1percent to close above 10,000 for the first time since late June, while China shares also rose. Emerging stocks were up 1.6 percent.

EURO'S GAINS PARED
The enthusiasm for stocks led to some paring back of the euro's gains after Ireland's central bank chief said he expected Dublin to receive tens of billions of euros in loans from European partners and the IMF.

The euro was up 0.73 percent at $1.3618, but that represented a pullback from its earlier gain of 1.1 percent to a session high of about $1.3668 on trading platform EBS.

The dollar was down 0.48 percent against a basket of currencies.

The dollar rose 0.47 percent to 83.63 yen .

The benchmark 10-year U.S. Treasury note fell 17/32 of a point in price, pushing the yield up to 2.95 percent.

The 10-year Irish/German government bond yield spread was last at 567 basis points, around 15 basis points tighter for the day but off the session's tightest levels.

U.S. crude oil futures rose $1.78 to $82.22 per barrel and retraced part of a four-session drop, while spot gold gained $19.40 to $1,356.20 an ounce. (Reporting and writing by Daniel Bases; Additional reporting by Jessica Mortimer, Wanfeng Zhou, Ryan Vlastelica, Atul Prakash and Neal Armstrong; Editing by Jan Paschal)

FW: Well. I Didn't See That Coming.

The Philadelphia Fed's Business Outlook Survey is out now, and it's... well... see for yourself.

We were looking for a 5.6 result for November; good, but only marginally so. Instead we got a 22.5, which administered a savage beating to the expectations. Some of the driving factors are:
* 27% of surveyed firms reported increases in employment, while only 14% reported decreases
* 29% of surveyed firms expect to increase employment over the next 6 months, whole only 7% expect to decrease employment.
* The future prices paid index increased by 7 points, while the future prices received index increased 18 points, indicating a probable increase in revenue..

You can read the release yourself at http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2010/bos1110.cfm.

Written Testimony of Chief of Homeownership Preservation Office Phyllis Caldwell

Written Testimony of Chief of Homeownership Preservation Office Phyllis Caldwell

November 18, 2010
TG-960

Written Testimony of Chief of Homeownership Preservation Office Phyllis Caldwell Before the House Financial Services Subcommittee on Housing and Community Opportunity

"Robo-Signing, Chain of Title, Loss Mitigation and Other Issues in Mortgage Servicing"

Chairwoman Waters, Ranking Member Capito, and Members of the Subcommittee, thank you for the opportunity to testify today regarding loss mitigation and issues surrounding mortgage servicing. The testimony will cover two key areas: first, the steps we are taking to ensure that servicers participating in the Making Home Affordable (MHA) program are adhering to program guidelines in light of the recent foreclosure issues, and second, the accomplishments of MHA to date and its impact on mortgage servicing.

The reports of "robo-signing", faulty documentation and other improper foreclosure practices by mortgage servicers are unacceptable. If servicers have failed to comply with the law, they should be held accountable. The Administration is leading a coordinated interagency effort to investigate misconduct, protect homeowners and mitigate any long-term effects on the housing market. While Treasury does not have the authority to regulate the foreclosure practices of financial institutions, nor to ensure that those practices conform to the law, it is working closely with agencies that do have such authority.

The Financial Fraud Enforcement Task Force, a broad coalition of law enforcement, investigatory, and regulatory agencies that brings together more than 20 federal agencies, 94 U.S. Attorneys Offices, and dozens of state and local partners, is working to ensure that foreclosure practices are thoroughly investigated and any criminal behavior is prosecuted. The Federal Housing Administration (FHA) has been reviewing servicers for compliance with loss mitigation requirements. Additionally, the Office of the Comptroller of the Currency has directed all large national bank servicers to review their foreclosure management processes – including file reviews, affidavit processing, and signatures – to ensure that the processes are fully compliant with all applicable state laws. The other independent banking regulatory agencies are doing similar reviews of institutions under their jurisdiction. Attached to my testimony is a fact sheet providing more detail concerning the activities of the coordinated interagency effort.

Because MHA and its first lien program, the Home Affordable Modification Program (HAMP), are pre-foreclosure programs, the recent reports of robo-signing of affidavits and improper foreclosure documentation do not directly affect the implementation of HAMP. But these documentation failures reflect the fact that servicers did not have the proper resources in place, nor did they have procedures and controls in place to prevent this crisis. As we have learned in implementing HAMP, servicers were historically structured and staffed to perform a limited role--primarily collecting payments. They did not have the systems, staffing, operational capacity or incentives to engage with homeowners on a large scale and offer meaningful relief from unaffordable mortgages.

The foreclosure problems underscore the continued critical importance of the Making Home Affordable Program launched by the Obama Administration. Preventing avoidable foreclosures through modifications and other alternatives to foreclosure continues to be a critical national priority. Foreclosure is painful for homeowners; it is also costly to servicers and investors. Foreclosures dislocate families, disrupt the communities, and destabilize local housing markets. For this reason, the Obama Administration launched the Making Home Affordable program in the spring of 2009, of which HAMP is a key component. HAMP is intended to prevent avoidable foreclosures by providing financial incentives to servicers, investors and borrowers to voluntarily undertake modifications of mortgages for responsible homeowners in a way that is affordable and sustainable over time. In cases where a modification is not possible, the participating servicers must consider other alternatives to foreclosure.

As a result, throughout the last 20 months, we have worked to develop systems and procedures to ensure that responsible homeowners are offered meaningful modifications and other foreclosure alternatives. To remedy servicer shortcomings, we have urged servicers to rapidly increase staffing and improve customer service. We have developed specific guidelines and certifications on how and when borrowers must be evaluated for HAMP and other loss mitigation options prior to foreclosure initiation. We have also continued our compliance efforts to ensure borrowers are fairly evaluated and that servicer operations reflect Treasury guidance. MHA has strong compliance mechanisms in place to ensure that servicers follow our program's guidelines.

HAMP Procedural Safeguards and Compliance Efforts

Treasury has built numerous procedural safeguards in HAMP to avoid foreclosure sales. Specifically, program guidelines require participating mortgage servicers to:

• Evaluate homeowners for HAMP modifications before referring them for foreclosure. The focus here is on early intervention. Servicers must reach out to all potentially eligible borrowers when they are only two months delinquent and there is a still a viable opportunity to save the loan;
• Suspend any foreclosure proceedings against homeowners who have applied for HAMP modifications, while their applications are pending;
• Evaluate whether homeowners who do not qualify for HAMP (or who have fallen out of HAMP) qualify for alternative loss mitigation programs or private modification programs;
• Evaluate whether homeowners who cannot obtain alternative modifications may qualify for a short sale or deed-in-lieu of foreclosure; and
• Provide a written explanation to any borrower who is not eligible for modification and delay foreclosure for at least 30 days to give the homeowner time to appeal.

Servicers may not proceed to foreclosure sale unless and until they have tried these alternatives. They must also first issue a written certification to their foreclosure attorney or trustee stating that "all available loss mitigation alternatives have been exhausted and a non-foreclosure option could not be reached." On October 6, Treasury clearly reminded servicers of this existing requirement that they are prohibited from conducting foreclosure sales until these pre-foreclosure certifications are executed.

The MHA compliance program is designed to ensure that servicers are meeting their obligations under the MHA servicer contracts for loans where Fannie Mae or Freddie Mac is not the investor, and uses a variety of compliance activities to assess servicers from different perspectives. Treasury has engaged a separate division of Freddie Mac, Making Home Affordable-Compliance (MHA-C), to perform these compliance activities. Employing a risk-based approach, compliance activities are performed ranging generally monthly for servicers with the largest percentages of potentially eligible borrowers, to at least twice annually for the smaller-sized servicers.

Our compliance activities focus on ensuring that homeowners are appropriately treated in accordance with MHA guidelines. As the program has evolved, servicers have adapted their processes to incorporate MHA programs. Treasury has implemented non-financial remedies that have shaped servicer behavior in order to address the most vital issue: the ultimate impact on the homeowner.

As information regarding irregularities in servicer foreclosure practices arose, Treasury acted swiftly and instructed MHA-C to review the ten largest servicers' internal policies and procedures for completing these pre-foreclosure certifications before initiating the foreclosure proceedings, and to assess a limited sample of foreclosure sales that have occurred since the effective date of the guidance. The results of the review are not yet available. However, if MHA-C identifies any incidents of non-compliance with HAMP guidelines, Treasury will direct servicers to take appropriate corrective action, which may include suspending foreclosure proceedings and re-evaluating the affected homeowners for HAMP, as well as undertaking changes to servicing processes to help ensure that HAMP guidelines are followed prior to initiating the foreclosure process.

HAMP's Accomplishments and Its Impact on the Mortgage Industry

To date, HAMP has achieved three critical goals: it has provided immediate relief to many struggling homeowners; it has used taxpayer resources efficiently; and it has helped transform the way the entire mortgage servicing industry operates.

Twenty months into the program, close to 1.4 million homeowners have entered into HAMP trials and experienced temporary reductions in their mortgage payments. Of these, almost 520,000 homeowners converted to permanent modifications. These homeowners are experiencing a 36 percent median reduction in their mortgage payments--averaging more than $500 per month--amounting to a total, program-wide savings of nearly $3.7 billion annually for homeowners.

Early indications suggest that the re-default rate for permanent HAMP modifications is significantly lower than for historical private-sector modifications--a result of the program's focus on properly aligning incentives and achieving greater affordability. For HAMP modifications made in the fourth quarter of 2009, at six months, fewer than 10 percent of permanent modifications are 60+ days delinquent. According to the OCC's Mortgage Metrics Report, the comparable delinquency rates for non-HAMP modifications made in the same quarter were 22.4 percent. Regarding HAMP re-defaults, the OCC states, "These lower early post-modification delinquency rates may reflect HAMP's emphasis on the affordability of monthly payments and the requirements to verify income and complete a successful trial period."

Borrowers who do not ultimately qualify for HAMP modifications often receive alternative forms of assistance. Based on survey data from the eight largest servicers, approximately one-half of homeowners who apply for HAMP modifications but do not qualify have received some form of private-sector modification. Less than ten percent have lost their homes through foreclosure sales.

HAMP uses taxpayer resources efficiently. HAMP's "pay-for-success" design utilizes a trial period to ensure that taxpayer-funded incentives are used only to support borrowers who are committed to staying in their homes and making monthly payments, and the investor retains the risk of the borrower re-defaulting into foreclosure. No taxpayer funds are paid to a servicer or an investor until a borrower has made three modified mortgage payments on time and in full. The majority of payments are made over a three to five-year period only if the borrower continues to fulfill this responsibility. These safeguards ensure that spending is limited to high-quality modifications.

MHA Has Been a Catalyst--Setting the Benchmark for Sustainable Modifications

MHA has transformed the way the mortgage servicing industry deals with alternatives to foreclosure. Because of MHA, servicers have developed constructive private-sector options. Where there was once no consensus plan among loan servicers about how to respond to borrowers in need of assistance, HAMP established a universal affordability standard: a 31 percent debt-to-income ratio, which dramatically enhanced servicers' ability to reduce mortgage payments to sustainable levels while simultaneously providing the necessary justification to investors for the size and type of modification.

In the year following initiation of HAMP, home retention strategies changed dramatically. According to the OCC/ OTS Mortgage Metrics Report, in the first quarter of 2009, nearly half of mortgage modifications increased borrowers' monthly payments or left their payments unchanged. By the second quarter of 2010, 90 percent of mortgage modifications lowered payments for the borrower. This change means borrowers are receiving better solutions. Modifications with payment reductions perform materially better than modifications that increase payments or leave them unchanged.

Moreover, even holding the percentage payment reduction constant, the quality of modifications made by servicers appears to have improved since 2008. For modifications made in 2008, 15.8 percent of modifications that received a 20 percent payment reduction were 60 days or more delinquent three months into the modification. For modifications made in 2010, that delinquency rate has fallen almost in half, to 8.2 percent. The OCC's Mortgage Metrics Report from 2010:Q2 attributes the improvement in mortgage performance to "servicer emphasis on repayment sustainability and the borrower's ability to repay the debt."

Spurred by the catalyst of the HAMP program, the number of modification arrangements was nearly three times greater than the number of foreclosure completions between April 2009 and August 2010. More than 3.7 million modification arrangements were started, including the close to 1.4 million trial HAMP modification starts, more than 568,000 FHA loss mitigation and early delinquency interventions, and more than 1.6 million proprietary modifications by servicing members of the HOPE NOW Alliance.

Further, it is important to keep in mind that MHA is only one of many Administration housing efforts targeting these challenges: the Administration has also provided substantial support for the housing markets through support for Fannie Mae and Freddie Mac to help keep mortgage rates affordable; purchase of agency mortgage-backed securities; and an initiative to provide support and financing to state and local Housing Finance Agencies (HFAs). These HFAs provide, in turn, tens of thousands of affordable mortgages to first time homebuyers and help develop tens of thousands of affordable rental units for working families.

Responding to a Changing Housing Crisis

MHA was designed to be a versatile program. MHA includes a second lien modification program, a foreclosure alternatives program that promotes short sales and deeds-in-lieu of foreclosures, and an unemployment forbearance program. Treasury expanded HAMP to include FHA and Rural Development mortgage loans through the FHA-HAMP and RD-HAMP program, and also introduced a principal reduction option. Finally, Treasury introduced a program to allow the hardest-hit states to tailor housing assistance to their areas, and worked with FHA to introduce an option for homeowners with high negative equity to refinance into a new FHA loan if their lender agrees to reduce principal on the original loan by at least ten percent.

Second Lien Modification Program

The Second Lien Modification Program (referred to as 2MP) requires that when a borrower's first lien is modified under HAMP and the servicer of the second lien is a 2MP participant, that servicer must offer to modify the borrower's second lien according to a defined protocol. 2MP provides for a lump sum payment from Treasury in exchange for full extinguishment of the second lien, or a reduced lump sum payment from Treasury in exchange for a partial extinguishment and modification of the borrower's remaining second lien. Although 2MP was initially met with reluctance from servicers and investors who did not want to recognize losses on their second lien portfolios, as of October 3, 2010, Treasury has signed up seventeen 2MP servicers, which includes the four largest mortgage servicers, who in aggregate service approximately 60 percent of outstanding second liens. The program uses a third-party database to match second lien loans with first lien loans permanently modified under HAMP. Servicers are required to modify second lien loans within 120 days from the date the servicer receives the first lien and second lien matching information. The implementation of this database began over the summer. Five 2MP Servicers have already begun matching modified first liens with their corresponding second liens, while the other twelve are in some phase of developing systems capacity to do so. Information on the second lien program will be included in upcoming Monthly Servicer Performance Reports as data becomes available.

Home Affordable Foreclosure Alternatives Program

Any modification program seeking to avoid preventable foreclosures has limits, HAMP included. HAMP does not, nor was it ever intended to, address every delinquent loan. Borrowers who do not qualify for HAMP may benefit from an alternative program that helps the borrower transition to more affordable housing and avoid the substantial costs of a foreclosure. Under HAFA, Treasury provides incentives for short sales and deeds-in-lieu of foreclosure for circumstances in which borrowers are unable to complete the HAMP modification process or decline a HAMP modification. Borrowers are eligible for a relocation assistance payment, and servicers receive an incentive for completing a short sale or deed-in-lieu of foreclosure. In addition, investors are paid additional incentives for allowing some short sale proceeds to be distributed to subordinate lien holders. The Home Affordable Foreclosure Alternatives (HAFA) Program became effective on April 5, 2010.

Unemployment Program

In March 2010, the Obama Administration announced enhancements to HAMP aimed at unemployment problems by requiring servicers to provide temporary mortgage assistance to many unemployed homeowners. The Unemployment Program (UP) requires servicers to grant qualified unemployed borrowers a forbearance period during which their mortgage payments are temporarily reduced for a minimum of three months, and up to six months for some borrowers, while they look for a new job. Servicers are prohibited from initiating a foreclosure action or conducting a foreclosure sale (a) while the borrower is being evaluated for UP, (b) after a foreclosure plan notice is mailed, (c) during the UP forbearance or extension, or (d) while the borrower is being evaluated for or participating in HAMP or HAFA following the UP forbearance period. UP went in to effect August 1, 2010. Because no incentives are paid under UP, data reports will be based on servicer surveys.

Principal Reduction Alternative

The Administration announced further enhancements to HAMP in March 2010 by encouraging servicers to write down mortgage debt as part of a HAMP modification (the Principal Reduction Alternative, or PRA). Under PRA, servicers are required to evaluate the benefit of principal reduction and are encouraged to offer principal reduction whenever the net present value (NPV) result of a HAMP modification using PRA is greater than the NPV result without considering principal reduction. The principal reduction and the incentives based on the dollar value of the principal reduced will be earned by the borrower and investor based on a pay-for-success structure. Under the contract with each servicer, Treasury cannot compel a servicer to select PRA over the standard HAMP modification even if the NPV of PRA is greater than the NPV of regular HAMP. However, Treasury has required servicers to have written policies for PRA to help ensure that similarly situated borrowers are treated consistently. The program became operational October 1, 2010 and the four largest servicers have indicated an intention to offer PRA to homeowners.

FHA Refinance

Also in March 2010, the Administration announced adjustments to existing FHA refinance programs that permit lenders to provide additional refinancing options to homeowners who owe more than their homes are worth because of large declines in home prices in their local markets. This program, known as the FHA Short Refinance option, will provide more opportunities for qualifying mortgage loans to be restructured and refinanced into FHA-insured loans.

In order to qualify for this program, a homeowner must be current on their existing first lien mortgage; the homeowner must occupy the home as a primary residence and have a qualifying credit score; the mortgage owner must reduce the amount owed on the original loan by at least 10 percent; the new FHA loan must have a balance of no more than 97.75% of the current value of the home; and total mortgage debt for the borrower after the refinancing, including both the first lien mortgage and any other junior liens, cannot be greater than 115% of the current value of the home – giving homeowners a path to regain equity in their homes and affordable monthly payments. Program guidance was issued to participating FHA servicers in September 2010.

HFA Hardest-Hit Fund

On February 19, 2010, the Administration announced the Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest-Hit Fund) for state HFAs in the nation's hardest-hit housing markets to design innovative, locally targeted foreclosure prevention programs. In total, $7.6 billion has been allocated to 18 states (Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, and Tennessee) and the District of Columbia in four rounds of funding under the HFA Hardest-Hit Fund. As of October 2010, three states were either accepting applications or providing assistance (Arizona, Michigan and Ohio). By the end of 2010 another three states are expected to begin providing assistance. The remaining states are expected to begin providing assistance in the first half of 2011.

Allocations under the HFA Hardest-Hit Fund were made using several different metrics. Some of the funds were allocated to states that have suffered average home price drops of more than 20 percent from their peak, while other funds were allocated to states with the highest concentration of their populations living in counties with unemployment rates greater than 12 percent or unemployment rates that were at or above the national average. In addition, some funds were allocated to all the states and jurisdictions already participating in the HFA Hardest-Hit Fund to expand the reach of their programs to help more struggling homeowners. The applicable HFAs designed the state programs themselves, tailoring the housing assistance to their local needs. A minimum of $2 billion of the funding is required to be used by states for targeted unemployment or under-employment programs that provide temporary assistance to eligible homeowners to help them pay their mortgages while they seek re-employment or additional employment or undertake job training. Treasury also required that all of the programs comply with the requirements of EESA, which include that they must be designed to prevent avoidable foreclosures. All of the funded program designs are posted online at http://www.FinancialStability.gov/roadtostability/hardesthitfund.html.

Transparency, Accountability, and Compliance

I would like to provide you with further detail regarding the compliance efforts regarding HAMP. To protect taxpayers and ensure that TARP dollars are directed toward promoting financial stability, Treasury established rigorous transparency and accountability measures for all of its programs, including all housing programs. In addition, every borrower is entitled to a clear explanation if he or she is determined to be ineligible for a HAMP modification. Treasury requires servicers to report the reason for modification denials in the HAMP system of record. MHA-C's compliance activities, through Second Look loan file reviews and other on-site assessments, evaluate the appropriateness of the denials as well as the timeliness and accuracy of the denial notification to the affected borrowers.

In order to improve transparency of the HAMP NPV model, which is a key component of the eligibility test for HAMP, Treasury increased public access to the NPV white paper, which explains the methodology used in the NPV model. To ensure accuracy and reliability, MHA-C conducts periodic audits of servicers' NPV practices. MHA-C conducts two types of reviews related to NPV. For those servicers that have re-coded the requirements of the NPV model in their processing systems, MHA-C conducts on-site and off-site reviews of model accuracy, model management, and data integrity and inputs. For those servicers using the MHA Servicer Portal, MHA-C conducts reviews of data integrity and inputs. Where non-compliance is found, Treasury requires servicers to take remedial actions, which can include re-evaluating borrowers with appropriate inputs, process changes, corrections to recoded NPV implementations, and, for servicers who have re-coded the NPV model, reverting back to the MHA Servicer Portal for loans with negative NPV results from the servicers' re-coded NPV model until necessary corrections have been re-evaluated by MHA-C. In addition, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Treasury is preparing to establish a web portal that borrowers can access to run a NPV analysis using input data regarding their own mortgages, and to provide to borrowers who are turned down for a HAMP modification the input data used in evaluating the application.

As stated above, servicers are subject to various other compliance activities, including periodic, on-site compliance reviews as well as on-site and off-site loan file reviews. These various compliance activities performed by MHA-C assess servicers' compliance with HAMP requirements. Treasury works closely with MHA-C to adapt and execute our risk based compliance activities quickly based on changes in the program as well as observed trends. The current assessment of the top ten servicers' adherence to our pre-foreclosure certifications and requirements is one example of how we adapt our compliance activities. MHA-C provides Treasury with the results from each of the various compliance activities conducted. Treasury performs quality reviews of these activities and evaluates the nature and scope of any instances of non-compliance, and assesses appropriate responses, including remedies, in a consistent manner. As stated earlier, during the beginning of the program, and as additional features (e.g., the Second Lien Program) are introduced, Treasury's compliance activities and associated remedies focus on shaping servicers' behavior and improving processes as servicers ramp up or modify their implementation of HAMP. As the program and servicers' processes mature, financial remedies may become more appropriate and effective in reinforcing Treasury's compliance and performance expectations.

Looking Ahead for Housing

Servicers need to increase efforts in helping borrowers avoid foreclosure through modification, as well as other alternatives to foreclosure, such as short sales. Furthermore, as we have learned through HAMP, servicers must be held accountable for ensuring that their foreclosure processes have integrity and are used after all loss mitigation options have been exhausted. Treasury's main priority is to ensure that first, participating servicers are doing everything that they can to reach, evaluate, and start borrowers into HAMP modifications, second, if a HAMP modification is not possible, every servicer is properly evaluating each homeowner for all other potential options to prevent a foreclosure, including HAFA or one of their own modification programs, and third, servicers are utilizing programs such as UP or the HFA Hardest-Hit Fund to their fullest ability in order to prevent avoidable foreclosures.

Over the past 20 months, we have been actively engaged with stakeholders from across the housing sector to find ways to increase the pace of new HAMP modifications, improve the characteristics of those modifications, and improve the borrower experience. We sincerely appreciate the assistance that we have gotten from Members of Congress and the advocacy community in strengthening borrower protections, incentivizing principal reduction, and assisting the unemployed. And most importantly, we value the efforts that Members of Congress, counselors and advocates have made in holding servicers accountable.

Yet, as we deploy a comprehensive suite of loss mitigation options, we must remember, as the President noted, not every foreclosure can be prevented. Any broad-based solution must aim at achieving both an efficient and equitable allocation of resources. This means a balance must be struck between affording homeowners opportunities to avoid foreclosure while expeditiously easing the transition in those cases where homeownership is not an economically sustainable alternative. This is especially important in order to lay the foundation for future appreciation which will provide a meaningful path to sustainable homeownership.

In the coming months, we will begin to see the impacts of the newly launched MHA programs. These programs will reach more distressed homeowners and provide additional stability to the housing market going forward. In much the same way that HAMP's first lien modification program has provided a national blueprint for mortgage modifications, these new programs will continue to shape the mortgage servicing industry and act as a catalyst for industry standardization of short sale, refinance and principal reduction programs. The interplay of all these programs will provide a much more flexible response to changes in the housing market over the next two years.

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Jobless Claims, the Philadelphia Fed's Business Outlook Survey, And An Addendum To Yesterday

First, the addendum.

One of my readers, pointed out to me that I may have been a little... one-sided, or perhaps unfair, about core CPI. I'll let him speak for himself, because he put it very well: "As a long term statistical measure of inflation, including statistical outliers does not make sense. The core prices are not as heavily influenced by outside factors such as currency fluctuation, natural disasters, or political pressures as food and fuel. So from the standpoint of helping [the casual reader] understand the significance of changes in CPI, I understand why you'd reference the buying power of someone's paycheck. We can all understand how the price of a tank of gas changes wildly over a 6 month period, this is a given. But from a long term perspective, volatile food/energy prices can lead to a misleading measure of inflation."

I'll go on record as saying that I think the inclusion of the volatile food and energy prices gives a more accurate measure of inflation, but I will also go on record as saying that's one of those things that real economists have been arguing about for decades. So don't feel like you have to accept my opinion. And thanks to the reader for pointing all of this out.

Now. On to the metrics.

First out of the gate are first time jobless claims. These aren't a really huge market mover, not like the Employment Situation report, because all it shows is how many people filed for unemployment insurance for the first time. It doesn't really say anything about how many people left the unemployment rolls (due to finding employment or running out of benefits) or what the unemployment rate is. It's still interesting, because a rising trend is still bad, but it's not an earthshaker.

For the week ending 11/06, we saw 435,000 new jobless claims. Analysts are looking for 445,000 claims for the week ending 11/13 - an upward trend if accurate, but not terrible. The actual results will be near the bottom of the article.

The other metric is the Philadelphia Fed's Business Outlook Survey, also known as the Philadelphia Fed Index. It's a survey of manufacturers in the Philadelphia, New Jersey, and Delaware about general business conditions. The results use zero as a centerline, with anything greater than zero indicating growth and anything below zero indicating contraction. For October we saw a tepid result of 1.0, and for November the analysts are expecting a 5.6 - still weak, but improving. Investors like this because it's considered an indicator of manufacturing sector trends. And growth in the manufacturing sector helps drive growth across the economy.

Look for the Philly Fed Index at 10 AM.

How did we actually do with first time jobless claims? 439,000. That's up from the prior week, but it beat expectations by about 6000 claims. You can see the details in the Department of Labor's official report.

Treasury Announces Pricing of Public Offering of General Motors Common Stock

Treasury Announces Pricing of Public Offering of General Motors Common Stock

November 17, 2010
TG-959

Treasury Announces Pricing of Public Offering of General Motors Common Stock

WASHINGTON – The U.S. Department of the Treasury announced today that it has agreed to sell 358,546,795 shares of its General Motors (GM) common stock at $33.00 per share, as part of GM's initial public offering. The underwriters in the offering have a 30-day option to purchase up to 53,782,019 additional shares of common stock from Treasury on the same terms and conditions to cover over-allotments, if any. If the underwriters' over-allotment option is exercised in full, the aggregate gross proceeds to Treasury from the offering are expected to be approximately $13.6 billion, before giving effect to any fees associated with the offering.

After this offering, Treasury's ownership of GM's outstanding shares of common stock will decline by nearly half – from 60.8 percent to 36.9 percent (33.3 percent if the underwriters exercise their over-allotment option in full).

"GM's initial public offering is an important step in the turnaround of the company and for our work to recover taxpayer dollars and exit this investment as soon as practicable," said Treasury Secretary Tim Geithner. "It is now widely recognized that the taxpayers' investment not only helped save jobs during the worst economic crisis in a generation but also gave the auto industry a solid foundation on which to build."

After this offering, Treasury's remaining investment in GM will consist of 553,847,273 shares of common stock (500,065,254 shares if the underwriters exercise their over-allotment option in full).

A registration statement relating to these securities was declared effective by the Securities and Exchange Commission (SEC) on November 17, 2010. Any offer or sale of these securities will be made only by means of a written prospectus forming the effective registration statement. Copies of the prospectus relating to the offering may be obtained for free, by visiting the SEC website at http://www.sec.gov or by contacting:

· Morgan Stanley & Co. Incorporated, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, New York 10014, telephone 1-866-718-1649, or by sending an email to prospectus@morganstanley.com

· J.P. Morgan Securities LLC, Attention: Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, New York 11717, telephone 1-866-803-9204

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Stocks little changed as banks offset retail stocks

By Leah Schnurr
NEW YORK (Reuters) - Stocks ended little changed on Wednesday with indexes unable to recoup recent losses as banks wilted on worries about Federal Reserve regulation of the sector going forward.

Indexes also suffered from the continued uncertainty of Ireland's financial crisis, which contributed to Wall Street's drop of nearly 2 percent on Tuesday.

"I think the market is in a deterioration trend. It's worrisome at this point, considering that we had a selloff yesterday with pretty big volume and poor advance-decline numbers," said Frank Gretz, market analyst and technician at the Shields & Co brokerage in New York.

"The market is certainly vulnerable, and I think it is in fact headed for a correction."

Financials sagged after the Federal Reserve said it will allow some banks to increase dividends but would also evaluate the ability of 19 large institutions to withstand losses in "adverse" economic scenarios.

The KBW bank index gave up 1.4 percent. Regional bank KeyCorp (KEY:$7.6800,$-0.3000,-3.76%) slid 3.8 percent to $7.68 after Credit Suisse downgraded its shares.

Volume was light and some of the day's quietness was due to investors awaiting the pricing of General Motors' initial public offering after the market's close, said Nick Kalivas, senior equity index analyst at MF Global in Chicago.

The automaker set the terms for a landmark IPO that could be the largest in U.S. history, raising up to $22.7 billion.

"There's a feeling a lot of money has been sucked out of the market to go pay for that. Once that gets out of the way, that theory's going to be put to the test," said Kalivas.

The Dow Jones industrial average was off 15.62 points, or 0.14 percent, to 11,007.88. The Standard & Poor's 500 Index edged up 0.25 point, or 0.02 percent, at 1,178.59. The Nasdaq Composite Index added 6.17 points, or 0.25 percent, to 2,476.01.

Retailers kept a floor under the market as discount chain Target Corp (TGT:$55.6200,$2.0800,3.88%) rose 3.9 percent to $55.62 after it forecast its best same-store sales in three years during the upcoming holiday season. The S&P consumer discretionary group rose 0.7 percent.

Investors kept a close eye on the situation in Ireland. Dublin agreed to work with a European Union-International Monetary Fund mission on urgent steps to shore up its shattered banking sector, a process that could lead to a bailout despite Ireland's deep reluctance.

The CBOE Volatility index , Wall Street's so-called fear gauge, declined 3.6 percent but remained above 20. On Tuesday, it closed at its highest point in more than a month.

In the latest U.S. economic data, housing starts slumped to their lowest level in more than a year in October, while consumer prices rose, but the annual increase in core CPI was the smallest on record.

(Reporting by Leah Schnurr; Additional reporting by Angela Moon; Editing by Kenneth Barry)

Wrapup

Dow down 15.62 (0.14%). NASDAQ up 6.17 (0.25%). S&P 500 up 0.25 (0.02%).

The cause for these rather tepid final numbers? Good CPI (CNN Money describes it as "near historic lows"), combined with raging paranoia about inflation being too low and QE2 driving prices up as a result (lots of money chasing scarce goods means prices go up). In other words, people are concerned that low inflation (and a huge money supply) will drive hyperinflation.

Nobody's ever happy, right?

Oh, and let's not forget Ireland. In what may be denial, the Irish Prime Minister is saying that the country does not have a drinking problem, and it can stop any time. And by drinking problem, I mean terrible economic situation. But they have agreed to work with the EU and the IMF to get out of that situation they really aren't in anyway, don't you know, it's just an occasional drink before bed or with the guys after work.

SEC Seen Extending Circuit Breakers

View this article on our website: SEC Seen Extending Circuit Breakers

SEC Seen Extending Circuit Breakers

Article published on November 17, 2010

The Securities and Exchange Commission is likely to extend its circuit-breaker trading pilot beyond its Dec. 10 deadline, Dow Jones Newswires reports.

The trading curbs, instituted in response to the May 6 flash crash, halt trading for five minutes once a stock moves 10% in any direction over the course of five minutes. The SEC is working on a permanent replacement for the pilot but will not be finished by Dec. 10, according to unnamed Dow Jones sources said to be involved in the discussions.

Among the possible innovations is a "limit up/limit down" model, which would limit trading within a predetermined price range for securities that trip volatility alarms, rather than shutting down trading completely, as the circuit breakers do. SEC chairwoman Mary Schapiro said in a speech last week that this model was being considered.

Adopting that system, however, would entail surveying public opinion as well as votes by the commission to propose and then approve.

By Joe Morris

To read the Dow Jones Newswires article cited in this story, click here if you have a paid subscription.

(News summaries based on original reports in other publications are prepared by the FundFire staff and are not created, sponsored, approved or endorsed by the publications to which the original reports are attributed.)

Related Content

November 9, 2010 SEC Putting an End to 'Stub Quotes'

October 5, 2010 CFTC-SEC Panel to Tackle Flash Crash Reforms

September 13, 2010 Circuit Breakers Expanded to 344 ETFs

For more articles like this one, go to ignites.com. Ignites is an information service of Money-Media, a Financial Times company.

The Envelope, Please...

The numbers are now in, so let's see how things shape up.

First off, CPI. Remember how we were looking for a 0.4% increase (0.1% core increase)? Well, the official report shows only a 0.2% increase (and no change in the core). The good news here is that inflation didn't destroy as much of your wealth in October. The bad news is that fuel and electricity hurt your pocketbook. But we beat expectations, and the Street likes that sort of thing. If you want to drill into the details, you can find them on the Bureau of Labor Statistics Consumer Price Index page.

Housing starts got beat like a jobber, though. We were looking for 590,000 new starts for October, and we only saw 519,000. That's... well, that's not great. But we did see a 1% increase in building permits, so things are looking up for future months. More details can be found on the US Census Bureau's website.

Consumer Price Index News Release

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The latest Consumer Price Index news release
(http://www.bls.gov/news.release/pdf/cpi.pdf)
was issued today by the Bureau of Labor Statistics. Highlights are below.
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On a seasonally adjusted basis, the CPI-U increased 0.2
percent in October after increasing 0.1 percent in
September. The index for all items less food and energy was
unchanged in October, as it was in September.

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News releases archives:
http://www.bls.gov/schedule/archives/all_nr.htm
To subscribe or unsubscribe to BLS news releases
please visit http://www.bls.gov/bls/list.htm
For help, email news_service@bls.gov
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CPI and Housing Starts

What is on the agenda for the day? CPI and Housing Starts, that's what's on the agenda.

The CPI, also known as the Consumer Price Index, represents... well, not to put too fine a point on it, it represents inflation. The CPI looks at how much buying power your salary has lost the previous month. Ahem. I mean, it looks at how much the cost of a fixed basket of goods and services that consumers would purchase has increased. While the "core" CPI looks at exactly the same thing, except that it cuts out volatile components of the basket like food and energy. Because, after all, how important are food, electricity, and gas to consumers? Really?

Anyway, CPI increased by a meager 0.1% in September while core CPI did not change in the slightest. The analysts aren't so optimistic for October; they're calling for a 0.4% increase, with a 0.1% increase in the core.

Why should you care? Well, it all gets back to that "two-thirds of GDP is driven by consumer spending" concept. If prices go up, consumers are able to buy less, and overall consumption goes down. This has a negative effect on GDP, particularly from a Keynesian economic perspective: spending good; savings bad [1].

Housing Starts are, well, exactly what they sound like. They're the number of residential construction projects that have broken ground during the month. September saw 610,000 starts. The analysts are expecting only 590,000 starts for October; that makes a certain amount of sense to me, given that it's October we're talking about here. That doesn't strike me as prime building season in the temperate climate most of the United States calls home.

But why should you - indeed, anyone - care? Three words: trickle down economics, baby. It's called voodoo economics when a President proposes it through tax cuts, but it's solid economics when it comes to home construction. Building a new house needs lumber, and copper pipe, and drywall, and paint, and shingles, and insulated copper wire, and a thousand other things. Then there's carpet, hardwood flooring, tiles, and appliances. Then, when the house is sold there's new furniture, lawn care products, insurance, and all the various and sundry things that transform a house into a money pit... I mean into a rapidly devaluing investment. Damnit, I mean into a home.

[1] Grossly simplified, actually, but correct in broad strokes.

Wrapping Up A Miserable Day In The Market

As of right now, I'm sitting here looking at

• A Dow down 178.47 (1.59%)
• A NASDAQ down 43.98 (1.75%)
• A S&P 500 down 19.41 (1.62%)

That's pretty sad. What drove it? Funny as it would be to blame Apple's partnership with the Beatles, that's not really it. So what is? Well, here's some highlights from today's news:

• Ireland, one of the PIIGS, is unwilling to accept a bailout for it's financial system.
• In comedic counterpoint to the above, some EU members are unwilling to give a bailout.

(And does anyone else hear the dynamics of an elementary school in this? "I don't wanna bailout!" "Yeah, well we don't wanna give you a bailout!" "Yeah? Well I didn't want it first!" "Did not!" "Did too!")

• Austria is threatening to withhold the next tranche of bailout funds from Greece, unless Greece gets back to following it's deficit-cutting plan.

(Accountability. The horror!)

• China is requiring banks to increase their capital reserves, and is tightening up it's lending policies.

So yeah, the pain is all about the financial sector. Still. That seems an ill omen for tomorrow's CPI and housing starts figures (analysts are already looking for a 0.4% month-over-month increase in CPI, and a 20k drop in housing starts). Brace yourself.

Under Secretary Brainard Remarks to the Center for Strategic and International Studies

The Under Secretary has some interesting things to say about what happened to our economic growth, and what needs to happen.

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Under Secretary Brainard Remarks to the Center for Strategic and International Studies

November 16, 2010
TG-954

Under Secretary Lael Brainard Remarks to the Center for Strategic and International Studies

Co-hosted with the Korea Economic Institute and The Johns Hopkins' School for Advanced International Studies

As Prepared for Delivery

I'd like to thank CSIS, the Korea Economic Institute and SAIS for hosting today. Your efforts to advance the public policy debate here in Washington and around the world are vital to furthering American policy innovation and leadership.

Today, I'll discuss the outcomes and accomplishments of the past few weeks of international economic engagement, which included the President's trip to India, Indonesia, South Korea and Japan, the G-20's Seoul Summit, and the APEC Summit in Yokohama.

Let me start by recounting one of my own recent experiences. On a recent tour of a plant near Albany, a plant manager of more than 30 years described his company's efforts to look for new ways to make their processes and products better so they can gain share in the most highly competitive markets around the world. Every day he and his team come in motivated to work hard, innovate, and be the toughest and best competitor around the world. We want to be number one, he said, and we are constantly looking for new ideas that will help us stay there.

That captures in a nutshell why we are working so hard to put in place a policy framework that will move the U.S. economy from recovery to renewal, that will get Americans back to work and that will get businesses back to investing here at home. As President Obama put it on his way back from Asia, "We should feel confident about our ability to compete. But we need to step up our game."

Exports lie at the heart of this effort. The President's goal of doubling exports in five years gives us a clear prism to ensure that all of our policies remain relentlessly focused on expanding opportunities for American businesses and workers.

Our engagement in the G-20 and APEC and ASEAN, as well as bilaterally with countries such as Korea and China, are core components of our overall effort to revitalize America's innovative edge and renew the competiveness of our economy. Let me touch on the three key elements of this effort, which were an integral part of our G-20 discussions and the President's trip to Asia.

Strengthening Growth and Rebalancing Demand

Before the crisis, our growth was unhealthy and unbalanced--fueled by cheap credit and fueling massive export surpluses abroad. Looking forward, we have to find more sustainable sources of dynamism in our economy and around the world--sources of dynamism that will enable jobs to return, businesses to reinvest and America's competitiveness to be revitalized.

Helping to put growth on a sounder footing was the core focus of our discussions at APEC and the G-20. As advanced economies like the United States continue repairing balance sheets, deleveraging, and putting public finances on a sound footing, we must work with the other major economies to support new engines of growth for the global economy. Countries that previously relied on the U.S. consumer to fuel their economic expansion in the run up to the crisis will need to identify new sources of growth. The emerging markets are vital to this effort, and the consumers and vast infrastructure needs in the rapidly growing economies in Asia, as well as Latin America and Africa, can be new engines of growth for the world economy.

In Seoul, there was broad agreement among the G-20 that strengthening global growth is the primary goal, and there was broad recognition of the imperative to shift demand in order to lift overall growth. Accordingly, the G-20 committed to a new framework to curb excessive imbalances, and noted that all economies – surplus no less than deficit – have a shared responsibility to support rebalancing. The United States proposed this plan and it was widely supported by the G-20 leaders.

To take action, the G-20 will work in the coming months to develop a set of indicators that will serve as an early warning system to ensure preventive and corrective actions. The United States will now work closely with our partners in the G-20 and the International Monetary Fund to create these indicators and to assess country policy trajectories against them.

Exchange rate policies will be a central focus of those discussions, and the G-20 recognized the important role of market-determined exchange rates in helping to facilitate this critical rebalancing. We are working hard to ensure that China makes progress in allowing its exchange rate to appreciate in response to market forces--as Chinese officials have reaffirmed their commitment to do. And we have noted the accelerated pace of appreciation in recent months. If sustained, the pace of China's appreciation could make a material contribution to addressing the undervaluation of its currency.

Expanding Export Opportunities and Enforcing Trade Rules

As the President traveled through the fast-growing markets of Asia this past week, he emphasized the key role of opening new markets to support growth and jobs.

In 2009, exports made up 12 percent of U.S. GDP, which is the smallest percentage of the other leading economies. If we want to create broad-based and sustainable growth that benefits American businesses, workers, farmers and manufacturers, we must expand export opportunities by strengthening trade rules in key markets, by enforcing the rules we have, and by supporting our exporters from the largest multinationals to the newest start ups.

As part of the National Export Initiative, the Administration is providing support for small- and medium-sized businesses, including improved access to credit through Ex-Im, and helping to find and remove obstacles to exporting. I've heard from a number of small business exporters that these programs are among the most helpful and innovative they have encountered in recent years.

Commerce's advocacy on behalf of America's exporters is also yielding important gains. As President Obama traveled through Asia last week, the Administration announced new trade transactions exceeding $14.9 billion in total value were finalized, with $9.5 billion in U.S. export content, and that will support 50,000 U.S. jobs.

Trade agreements are likewise important. On the bilateral side, President Obama noted during his trip that he is committed to completing negotiations with South Korea on the Free Trade Agreement as quickly as possible. While progress has been made, USTR will keep working to improve the proposed FTA so it is beneficial to American industry and workers. This agreement, if done right, could increase the annual export of American goods by some $10 billion, and billions more in services. The President also reiterated his commitment to complete the pending agreements with Colombia and Panama.

At the APEC Summit, the President discussed progress on the regional Trans-Pacific Partnership Agreement, which can serve as a platform for economic integration across the Asia-Pacific region and serve as a model for a world class, 21^st century trade pact. Multilaterally, USTR also continues to seek a successful conclusion to the Doha Round, particularly expanded market access in dynamic emerging economies.

But even as we move forward to create even stronger trade rules with key partners, we must enforce the rules we already have to ensure a level playing field for our companies and our workers. That is why the administration is vigorously defending our rights--from negotiation to filing cases in the WTO, where appropriate. In fact, USTR has launched two WTO cases in recent months and is currently investigating a Section 301 petition.

Pursuing American Renewal

But the most important foundation of our export-oriented renewal strategy is the President's commitment to strengthen the foundations of our economy so we can compete and win globally.

The President's Innovation Strategy is one of the key efforts by the Administration to harness the inherent ingenuity of American workers and industry to promote growth. This strategy focuses on investing in the building blocks of American innovation, such as R&D, education, infrastructure, and advanced communications technologies.

As the President traveled in Asia, he observed that countries were investing in infrastructure while the United States is still living off our investments from decades ago. Noting that it is time to upgrade our roads, railways and airports, the President recently announced a $50 billion infrastructure effort to bolster our competitiveness and create jobs. We can and should learn from the efforts of other nations as we pursue infrastructure investments and strengthen the foundations of our competitiveness.

Tax initiatives are another area where we can provide incentives for businesses to invest today for the future. The President recently proposed an expanded R&D tax credit and 100-percent expensing of capital investments, and the Administration is considering other measures to spur investment.

As we saw in the financial crisis, the stability of our financial system is a vital component of our future competitiveness and growth. With the enactment of the historic Dodd-Frank law, the United States is now putting in place the most far-reaching reforms of our financial system since the Great Depression.

At the G-20, leaders embraced the new bank capital and liquidity standards that are part of Basel III. They also agreed that no firm is too big to fail, that all countries need robust resolution regimes, and that the world needs to implement higher loss absorbency for the largest, most interconnected firms. The G-20 also addressed derivatives, and noted that we need to move forward together to strengthen regulation of derivatives markets. Together, these reforms will help prevent another financial crisis, create a level playing field, and foster a race to the top.

Let me conclude by noting that the G-20 Summit and the full scope of the President's trip to Asia showcased an America that is committed to working hard to remain innovative, competitive, and strong. Through extensive engagements, we have forged common ground and agreement with our partners in the G-20 and other forums on the major challenges we face and the common solutions we must pursue.

The task before us now is to take the hard steps of action and implementation. By joining in partnership we can leverage the best of America. From training and educational institutions to business and labor, from state and local officials to federal policymakers, from small businesses and communities to international summits--we will create new engines of growth for American products and services and renew the very foundations of our economic competitiveness.

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