Fundmastery Blog

Kurt Brouwer December 31st, 2007

The shocking aspect of this is how modest the donations were in many cases. A $1,000 here or there. Some tickets to a Rolling Stones concert. It does not seem to take much to buy influence. This piece from the Wall Street Journal is quite long and worth reading, although registration may be required [emphasis added]:

Lender Lobbying Blitz Abetted Mortgage Mess (Wall Street Journal, December 31, 2020, Glenn R. Simpson)

‘During the housing boom, the subprime industry succeeded at more than just writing mortgages. It also shot down efforts by some states to curtail risky lending to borrowers with spotty credit.

Ameriquest Mortgage Co., until recently one of the nation’s largest subprime lenders, was at the center of those battles. Working with a husband-and-wife team of Washington lobbyists, it handed out more than $20 million in political donations and played a big role in persuading legislators in New Jersey and Georgia to relax tough new laws. Those victories, in turn, helped blunt efforts by other states to crack down on reckless lending, critics of the industry contend.

Home loans made by Ameriquest and other subprime lenders are defaulting now in large numbers, roiling global credit markets and sparking debate about whether regulators and lawmakers should have anticipated the mess and taken action. A close look at Ameriquest’s lobbying and political donations shows how the subprime industry maneuvered to defeat legislation that might have contained some of the damage.

Executives at Ameriquest, based in Orange, Calif., acknowledge that the company lobbied heavily against state lending restrictions, but say that other subprime lenders did so as well. In fact, a host of subprime lenders and banking trade groups, including Citigroup Inc., Wells Fargo & Co., Countrywide Financial Corp. and the Mortgage Bankers Association, spent heavily on lobbying and political giving…

…Last year, ACC Capital, its parent company, agreed to pay $325 million to settle regulators’ claims that it charged excessively high mortgage rates and didn’t adequately disclose loan risks. Some of the state attorneys general who signed the settlement, including Greg Abbott of Texas, received campaign donations from the firm. Utah’s attorney general, Mark Shurtleff, received a $1,000 contribution and Rolling Stones tickets. A spokesman for Mr. Shurtleff says the attorney general was not directly involved in negotiating the settlement. A spokesman for Mr. Abbott notes that the settlement was also negotiated and approved by 48 other state attorneys general…’

I wonder what percentage of the politicians who received some of this cash or freebie tickets are now stridently calling for new legislation to change mortgage lending practices.

• Business , Economy , Geopolitics , Money
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Kurt Brouwer December 27th, 2007

Bad news struck stocks today. News of the terror bombing that took former Pakistani prime minister Benazir Bhutto’s life shook the stock market and turned what was a mild up day into a rout. The Wall Street Journal detailed the day [emphasis added below]:

Bad News Shakes Stocks (Wall Street Journal, December 27, 2020, Carolyn Cui)

‘Recently cheery holiday trading came to an end on Thursday, as stocks were knocked down by weak economic readings, predictions of more write-downs at financial firms and unsettling news of the death of Pakistani opposition leader Benazir Bhutto.

Major indexes opened lower, and selling intensified through the day on various pieces of bad news. The Dow Jones Industrial Average, which had been up four straight days, tumbled 192.08 to close at 13359.61, its lowest level of the day. The S&P 500 lost 21.39 to 1476.27, and the Nasdaq Composite Index declined 47.62, or 1.75%, to 2676.79, ending a six-session winning streak.

Before the opening bell, stock futures turned lower after reports that Ms. Bhutto had died from injuries sustained in an apparent suicide attack. “It certainly set a negative tone,” said Mickey Levy, chief economist at Bank of America.

“Regional destabilization will drive oil prices up, which will further weigh on the Federal Reserve’s ability to cut rates,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald, explaining the incident’s impact on the stock market.

The news caused some investors to flee to safe havens, pushing gold prices higher and Treasury-bond yields lower. Oil futures gained 65 cents to $96.62 a barrel, due in part to a report that U.S. crude-oil inventories fell more than expected last week.

Meanwhile, the latest U.S. economic indicators hinted at trouble. November orders for durable goods edged up 0.1%, well below Wall Street expectations; jobless claims rose by 1,000 in the week ended Dec. 22, the latest sign of slow deterioration in the labor market. The Conference Board said its consumer confidence index improvement modestly in December, but consumer attitudes about the job market deteriorated.

“We are seeing a very mixed set of signals” on the economy, said Walter Gerasimowicz, CEO of Meditron Asset Management, “Maybe we are positioning ourselves, with the Fed continuing providing liquidity and lowering interest rates, for a soft landing.”…’

For more on the assassination of Ms. Bhutto, see this NYT piece. The late Prime Minister Bhutto would likely have been a successor to Pakistan’s current leader Pervez Musharref. This is a stark reminder of the worldwide risks we face from terrorists.

• Economy , Geopolitics , Investing
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Kurt Brouwer December 27th, 2007

This final quarter of the year 2007, seems to be a pivot point. Is the economy going to maintain its momentum or succumb to the combined onslaught of soaring energy prices and slumping home prices? The recent news is mixed. Consumer confidence rose a bit, but orders for durable goods (cars, planes, washing machines…) fell a bit, while retail sales did okay. A key question is what is the Federal Reserve planning? Most still think a few interest rate cuts are in order [emphasis added below]:

U.S. Economy: Durable Goods Orders Increase Less Than Forecast (Bloomberg, December 27, 2020, Courtney Schlisserman and Robert Willis)

‘…The U.S. economic slowdown spread beyond housing as companies ordered fewer durable goods than forecast, even as consumer confidence improved.

Demand for cars, aircraft and other items made to last several years increased 0.1 percent in November, the Commerce Department said today in Washington. The previous month’s drop was revised to 0.4 percent, greater than estimated. Excluding transportation, orders fell 0.7 percent…

… The Conference Board’s confidence index rose to 88.6 in December from 87.8 the previous month, the New York-based group said today. The organization’s measure of present conditions fell to 108.3 from 115.7. The gauge of expectations for the next six months increased to 75.5 from 69.1…

Pimco’s McCulley Says Fed to Cut Rates at Most of 2008 Meetings (Bloomberg, December 27, 2020, Daniel Kruger)

‘…The Federal Reserve will reduce interest rates at every policy setting meeting “for the next two to three quarters,” Pacific Investment Management Co.’s Paul McCulley said in a note released today to clients…

Retail Rush Appears to Fall Short (Wall Street Journal, December 26, 2020, Kris Hudson, Ann Zimmerman, Mike Barry, Ray A. Smith & Vanessa O’Connell)

‘Spurred by heavy discounting, U.S. shoppers spent furiously in the days just before Christmas. But holiday retail sales appeared to still fall short of industry expectations, according to new data, setting the stage for bigger markdowns in the increasingly important post-Christmas period.

The 11th-hour rush helped strengthen a weak holiday season. From the day after Thanksgiving to midnight Monday, total retail sales, excluding automobiles, rose 3.6% over the previous year, according to MasterCard SpendingPulse, a unit of MasterCard Advisors…’

Headline writers frequently crack me up. Consider the WSJ headline which seems negative until you read the article and find that holiday sales rose 3.6% over last year. Note that the operative word is rose by 3.6%. From the headline, one would think they fell.

• Business , Economy , Money
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Kurt Brouwer December 27th, 2007

Very interesting juxtaposition of two stories [emphasis added below]:

US Braces For Baby Boom Retirement Wave (Breitbart, December 24, 2020)

‘The first of the vast US baby boom generation goes into retirement in January, setting off a demographic tidal wave with wide-ranging economic, political and social implications. Kathleen Casey-Kirschling, born on January 1, 2020, is acknowledged as the nation’s first baby boomer and the first to apply for social security benefits, for which she will be eligible in 2008.

The New Jersey grandmother is the first of an estimated 80 million Americans born between 1946 and 1964, a generation that led a social revolution in the 1960s and changed the fabric of most facets of society…’

US Fertility Rate Hits 35-Year-High, Stabilizing Population (Washington Post, December 21, 2020, Rob Stein)

‘For the first time in 35 years, the U.S. fertility rate has climbed high enough to sustain a stable population, solidifying the nation’s unique status among industrialized countries.

The overall fertility rate increased 2 percent between 2005 and 2006, nudging the average number of babies being born to each woman to 2.1, according to the latest federal statistics. That marks the first time since 1971 that the rate has reached a crucial benchmark of population growth: the ability of each generation to replace itself.

“It’s been quite a long time since we’ve had a rate this high,” said Stephanie J. Ventura of the National Center for Health Statistics. “It’s a milestone.”

While the rising fertility rate was unwelcome news to some environmentalists, the “replacement rate” is generally considered desirable by demographers and sociologists because it means a country is producing enough young people to replace and support aging workers without population growth being so high it taxes national resources.

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• Retirement , Uncategorized
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Kurt Brouwer December 27th, 2007

Interesting report on the continuing trend for southern and western states to see population growth. Though the movement has slowed a bit, the trend continues. My home state of Michigan is one of two states that is losing population:

States’ Population Growth Amid Housing Slump (Wall Street Journal — Real Time Economics Blog, December 27, 2020, Conor Dougherty)

‘Population growth in several of the fastest-growing states is slowing—in Arizona, Florida and Nevada, in particular—in a trend both reflecting and fueling the housing-market malaise in those areas.

“This is our first chance to see what has been the migration impact of the housing-market slowdown, and it’s showing up in these highflying states,” says William Frey, a demographer at the Brookings Institution, a Washington think tank.

The Census Bureau’s annual estimate of state population changes covers the 12 months that ended July 1. It shows that people continue to flee the Midwest—especially Michigan, one of two states to lose people—and that the Mountain states in the West continue to post large population gains as people arrive from California and elsewhere.

Arizona, Florida and Nevada are still among the fastest-growing states in the country, by percentage. Nevada saw an increase of 2.9%, or 72,955 people, tallying births, deaths and migration from inside and outside the U.S. That was less than the previous year’s 3.5% increase and lower than the 3%-plus growth rate for the six previous years. Arizona saw its population increase 2.8% in the most recent period, compared with a 3.6% rise in the previous year. Florida, which has suffered heavily in the housing bust, saw the sharpest falloff in population growth. Florida grew 1.07%, slightly faster than the U.S. growth rate of 0.96%. Read the full article and see a chart of states’ growth, based on the new Census data.’

Essentially, people are voting with their feet. Question is, what is the basis for their vote? Warmer climates? Better job prospects? Lower tax and regulatory burden?

• Economy , Geopolitics , Money
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