StopTheSqueeze.org Newsletter - Americans For Debt Relief Now!

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-- 14 November 2007 --

IT’S YOUR TURN TO ACT.

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QUOTE OF
THE WEEK

President George W Bush:

 “My plan reduces the national debt, and fast. So fast, in fact, that economists worry that we’re going to run out of debt to retire.”

–radio address, Feb. 24, 2001

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"Sentiment readings are now out of the caution area and into the DANGER zone," wrote Robert Brusca, chief economist at Fact and Opinion Economics. "Things do seem to be unraveling a bit faster.”

STOP THE SQUEEZE WEEKLY NEWSLETTER
In Debt We Trust director Danny Schechter reports on the film and campaign.
Comments to Dissector@mediachannel.org

You have heard it here first. There is going to be a pushback and fight back against predatory lenders and the Wall Street firms that enabled them, funded them, profited from them, and are now taking big losses because of their greedy manipulation and securitization of the subprime mortgages.

The Reverend Jesse Jackson has announced a MARCH ON WALL STREET on December l0, International Human Rights Day. I happened to be on his national radio show on the day he announced it. It’s part of a nationwide campaign to help people facing foreclosure save their homes. When you listen to the callers from all over the country who are losing their homes, you realize how much personal pain there is. Jackson is hoping other politicians and organizations will take part.

Yes, Jackson does have a reputation for jumping on issues and even media showboating, but I think he is very sincere about this. He sees a vast problem with a total lack of national leadership. He is willing to step forward and put together a coalition. More power to him.

THE DOWNWARD SLIDE

Yes, it is going from bad to worse and no one who claims to know thinks there will be a turnaround soon. I am writing of course about the credit/debt/subprime/subcrime crisis that is bringing down stocks, markets and economic hopes faster than I can write about the issues.

Last week, I finished assembling much of my own writing into an online PDF book called SQUEEZED. It includes articles, blogs and essays and features a preface by Credit Card Nation’s Robert Manning who appears in my film IN DEBT WE TRUST. I would like to give copies away to interested readers of this newsletter in hopes they will tell their friends and associates about it.

If you would like an advance copy, write to me at dissector@mediachannel.org and tell me if you find this newsletter of value. Your suggestions and any items are welcome too.

WHAT WILL THEY DO?

I have been skeptical about how the big bankers are going to get out of the mess on Wall Street. It now appears, according to the NY Times, that a banking industry superfund can’t work. “It is quickly being realized that it doesn’t really solve the problems,” said Joshua Rosner, a managing director at the research firm Graham Fisher & Company who had been skeptical of the proposal. “The path they have taken of skimming off the cream from the top doesn’t resolve the fact there is poison at the bottom.”

Oh, well.

And good for deposed CEO Eric Prince. He didn’t leave Citibank with nothing. A quick stop at the ATM machine and, after losing Billions, he walked away with $12.5 million in cash… Who said Wall Street doesn’t have a heart?

“SYSTEMIC SHOCK” FEARED AS A FURTHER DOWNTURN IS LIKELY

“At the root of our near-term negativity is the alarmingly high potential for a systemic shock, as well as concerns on the financial system and economic environment due to the derailment of the securitization process.”

COSTS OF DEBT CRISIS SKYROCKETING

The costs of this crisis growing every day with new quarterly earnings reports and write downs. These figures don’t necessary cover the loss of value in stocks and people’s homes. For example if you live next door to one of the two million homes in foreclosure, your property values will fall. Bloomberg reported last week:

(Bloomberg) -- U.S. banks and brokers face as much as $100 billion of writedowns because of Level 3 accounting rules, in addition to the losses caused by the subprime credit slump, according to Royal Bank of Scotland Group Plc.

Morgan Stanley, the second-largest U.S. securities firm, fell for a fifth-straight day, dropping 6 percent to $51.19 in New York Stock Exchange composite trading. Lehman Brothers Holdings Inc. and Bear Stearns Cos., the No. 1 and No. 2 underwriters of U.S. mortgage bonds, each declined more than 5 percent. All three firms are based in New York.

The Financial Accounting Standards Board's rule 157 makes it more difficult for companies to avoid putting market prices on their hardest-to-value securities, known as Level 3 assets, Royal Bank chief credit strategist Bob Janjuah wrote in a note today. While the rule hasn't gone into effect yet, the biggest U.S. lenders and brokerages have already begun reporting their Level 3 holdings.

"This credit crisis, when all is out, will see $250 billion to $500 billion of losses,'' said Janjuah, who's based in London. "The heat is on and it is inevitable that more players will have to revalue at least a decent portion'' of assets they currently value using "mark-to-make believe."

INSURERS IN A PANIC

MILWAUKEE (AP) -- As the housing market crumbles, homeowners are worried about mortgage payments and sellers are worried about slumping prices -- but the companies that insure their loans are worrying about their very survival in the face of billions of dollars in claims.

BEWARE THE VULTURES

Meanwhile, even as this slow motion crash is underway, the scammers and vultures are still at it peddling false promises and bogus products.

NYT: SOME issuers of credit cards are “quietly collecting hundreds of millions of dollars in profits selling nearly worthless, predatory credit cards targeting vulnerable consumers, including those with bad credit,” according to a report published this week by the National Consumer Law Center (consumerlaw.com).

How “quietly” these companies are operating may be open to question. But the report states that some companies issue cards with the sole intent of collecting fees from gullible customers – not offering them credit.

A typical example the law center offered was this: a card issued with a credit limit of $250. After a $95 program fee, a $29 setup fee, a $6 monthly “participation” fee and a $48 annual fee, the consumer winds up with “an instant debt of $178 and buying power of only $72.”

Included in the report is the tale of a sailor on leave who charged $85 to her new card. Because of all the fees, that put her over her $250 limit, which led to penalties and a balance of more than $300.

The report names various companies that have issued these cards, including Capital One. That bank “sometimes has used fee harvesting,” according to the report. A Capital One spokeswoman denied that, noting that while the company offers a “full spectrum” of credit products, the only fees assessed, including ones on low-end cards, are late fees and those imposed on borrowers who go over their limits. Unlike other issuers of subprime cards, she said, “we don’t impose application, processing or other such fees.” The report, she said, “completely mischaracterized our business model.”

The report singled out CompuCredit, based in Atlanta, saying it has been “frustrated in efforts to get its own bank charter.”

The law center said CompuCredit’s financial statements revealed that the issuer “collected $400 million in fees from a portfolio of fee harvester cards that by mid-2007 had saddled cardholders with nearly $1 billion in debt.” The company issued a statement, reported this week on National Public Radio (npr.org), calling the report “misleading.” It also sent a letter to the law center before the report was published insisting, among other things, that its cards “meet or exceed the federal regulatory requirements and industry best practices.”

The California Credit Law Blog (californiacreditlaw.com), run by a San Francisco law firm, said, the “fee harvester cards look like credit cards, but they have little or nothing to do with issuing credit.”

There are so many similar stories out there suggesting that many consumers are dummies just waiting to be taken.

What is often not appreciated are the forces BEHIND all of this…what Eric Janszen of itulip.com calls A “fire economy” which is burning up in front of our eyes.

It's the FIRE Economy, stupid

The US cannot maintain foreign demand for financial assets while depreciating the currency in which those assets are denominated. As destructive as FIRE Economy industrial policy is, ripping out its key support with an implicit Weak Dollar Policy is insanity.

This week US stock markets finally started to price in reality of a fundamental conundrum that is never discussed. Can a crashing FIRE Economy be rescued with Production/Consumption Economy policy tools?

The collapsing housing bubble continues to hammer the US economy, hitting auto makers and retailers and driving consumer confidence to two year lows. The bonds that built the housing bubble continue to sell off, while banks tighten lending standards and politicians pig-pile onto the banks, right on cue, to make a bad situation worse.

The credit crisis caused by failures in the ratings process of structured credit products, far from being over, is now beginning the critical stage. "We believe the liquidation process has begun," S&P said in its statement.

Eric ran a Reuters Video to explain some current issues

Eric’s must-read website also featured a reference to a study on the origins of the debt crisis which shows they knew or at least should have known what they were getting is into:

In 1975, Dr. Peter Warburton researched and wrote Debt and Delusion, a scholarly work on the evolving, dysfunctional, unregulated credit market that was growing increasingly long on financial engineering acumen and short on common sense. The book detailed serious flaws in the global financial system starting in the early 1990s. He concluded that the world’s largest central banks, due to negligent oversight, had permitted an explosion of corporate and household credit that fueled a succession of false markets in stocks, bonds, and property.

“Far from being the architects of economic stability and low inflation, the world’s central bankers have ushered in a new era of financial fragility and latent instability. Innovations in the use of derivatives, structured products, and other complex financial instruments have been applauded by the central banks on narrow technical criteria. But these supposed bastions of conservatism have failed to comprehend the wider implications for financial stability.
“From poorly documented home loans to sub-prime auto loans to subordinated corporate debt and junk bonds, permanently easy access to credit has compromised economic management in the U.S., U.K., and other English-speaking nations and has fostered an illusion of prosperity and well being.

“The failure of many of the finest economic minds to engage with the rapid evolution of our financial structures and institutions has led to a superficial assessment of this unprecedented credit experiment. Only now, as various credit markets face the inevitable tests of higher interest rates and the realistic pricing of credit risks, is the threat of a pandemic of debt-related distress beginning to be taken seriously. Government budgets, already strained by the weight of social support, have limited scope to respond.

“In short, tougher economic times lie ahead, when personal debts will hang more onerously than for 75 years. Debt and Delusion recommends a hasty reappraisal of the debt requirements of corporations and households alike.”

If that sounds prescient, that’s because just about everything that Dr. Warburton saw coming in 1999 is now plastered across the front page of the Wall Street Journal and Financial Times. Returning to Debt and Delusion is like re-opening a gold mine. Large deposits of previously overlooked insight show brightly in the context of the turmoil in global credit markets.

THE REAL FINANCIAL CARNAGE IS STILL TO COME

PAY IT OFF LATER: HOW AMERICANS ARE ADDICTED TO DEBT

"The U.S. addicted to debt -- and the country and millions of its citizens are at the brink of bankruptcy."

NOW AVAILABLE: A FAMILY FINANCIAL SECURITY VIDEO FROM THE MAKERS OF IN DEBT WE TRUST. IT FEATURES ADVICE ON THE IMPORTANCE OF FINANCIAL PLANNING.

It features prominent LA-based personal financial advisor, Gary Kornegay.

IN DEBT WE TRUST SCREENS THIS WEEK IN MINNEAPOLIS AND NEXT MONDAY IN LANCASTER PA.

Minneapolis: Two Screenings 7 PM November 15 and 16, 2007
$7 suggested donation Gallery 13 302 13th Avenue NE

Lancaster: (Franklin & Marshall College):
November 19 - 4:30 pm Roschel Center for the Performing Arts

Please consider holding a screening of IN DEBT WE TRUST in your community and town. Please forward this newsletter to friends and urge them to subscribe.

Comments to: Dissector@mediachannel.org

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Your comments and experiences are welcome. Write: Dissector@mediachannel.org. You can read more of my daily blogs and articles on Mediachannel.org

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