Monday, October 27, 2008

News Behind The Headlines

U.S. Cities Preparing for the Obama Riots

Cities around the U.S. have begun taking precautions, including hiring extra law enforcement, to prepare for the inevitable riots after the presidential election on November 4. One official, who wished to remain anonymous, said that “those people” will riot and loot on a whim, and that it will happen regardless of the Election Day outcome.

“If Obama loses,” he said. “It’ll be the Rodney King verdict all over again, and they’ll be all ‘oh, voter fraud,’ and ‘whitey this’ and ‘cracker that.’ If Obama wins, then it’s like the Pistons won the title or a brother made parole. It’s gonna be brutal no matter what. There’s just no escaping it.”

White people living in major cities are being encouraged to spend Election Day in the nearest suburb and vote via absentee ballot.

“Take your most valuable mode of transportation,” another official said. ”Because it will be turned over.”

Uses for $700B Bailout Money Keep Changing

First, the $700 billion rescue for the economy was about buying devalued mortgage-backed securities from tottering banks to unclog frozen credit markets.

Then it was about using $250 billion of it to buy stakes in banks. The idea was that banks would use the money to start making loans again.

But reports surfaced that bankers might instead use the money to buy other banks, pay dividends, give employees a raise and executives a bonus, or just sit on it. Insurance companies now want a piece; maybe automakers, too, even though Congress has approved $25 billion in low-interest loans for them. Three weeks after becoming law, and with the first dollar of the $700 billion yet to go out, officials are just beginning to talk about helping a few strapped homeowners keep the foreclosure wolf from the door.

As the crisis worsens, the government's reaction keeps changing. Lawmakers in both parties are starting to gripe that the bailout is turning out to be far different from what the Bush administration sold to Congress. In buying equity stakes in banks, the Treasury has "deviated significantly from its original course," says Alabama Sen. Richard Shelby, the top Republican on the Senate Banking, Housing and Urban Affairs Committee. "We need to examine closely the reason for this change," said Shelby, who opposed the bailout.

The centerpiece of the Emergency Economic Stabilization Act is the "troubled asset relief program," or TARP for short. Critics note that tarps are used to cover things up. The money was to be devoted to buying "toxic" mortgage-backed securities whose value has fallen in lockstep with home prices.

But once European governments said they were going into the banking business, Treasury Secretary Henry Paulson followed suit and diverted $250 billion to buy stock in healthy banks to spur lending.

Bank executives hinted they might instead use it for acquisitions. Sen. Christopher Dodd, chairman of the Senate banking committee, said this development was "beyond troubling." Sure enough, a day after Dodd, D-Conn., made the comment, the government confirmed that PNC Financial Services Group Inc. was approved to receive $7.7 billion in return for company stock. At the same time, PNC said it was acquiring National City Corp. for $5.58 billion.

"Although there will be some consolidation, that's not the driver behind this program," Paulson recently told PBS talk show host Charlie Rose. "The driver is to have our healthy banks be well-capitalized so that they can play the role they need to play for our country right now."

Other planned uses of the bailout money have lawmakers protesting, although it is only fair to note there is nothing in the law that they just wrote to prevent those uses. Sen. Charles Schumer, D-N.Y. questioned allowing banks that accept bailout bucks to continue paying dividends on their common stock.

"There are far better uses of taxpayer dollars than continuing dividend payments to shareholders," he said.

Schumer, whose constituents include Wall Street bankers, said he also fears that they might stuff the money "under the proverbial mattress" rather than make loans.

Neel Kashkari, head of the Treasury's financial stability program, told Dodd's committee this past week that there are few strings attached to the capital-infusion program because too many rules would discourage financial institutions from participating. As the bank plan has become a priority, the effort to buy troubled assets has receded from the headlines. Potential conflicts of interest pose all kinds of problems in finding qualified companies to manage that program.

"Firms with the relevant financial expertise may also hold assets that become eligible for sale into the TARP or represent clients who hold troubled assets," Kashkari said.

The challenge was made plain when the Treasury hired the Bank of New York Mellon Corp. as "custodian" of the troubled assets purchase program. The bank will conduct "reverse auctions" to buy the toxic securities on behalf of the Treasury. The lower the price they set, the better chance sellers have of getting rid of the devalued securities.

On the same day it hired Mellon, the Treasury also picked the company to receive a $3 billion investment as part of the capital-infusion program. The same bank hired to help manage part of the economic rescue plan became a beneficiary of it. With the Nov. 4 election nearing, lawmakers decided it was important to remind the government officials running the bailout program about parts of the law aimed at helping distressed homeowners by offering federal guarantees to mortgages renegotiated down to lower monthly payments.

"The key to our nation's economic recovery is the recovery of the housing market," Dodd said. "And the key to recovery of the housing market is reducing foreclosures."

Sheila Bair, who heads the Federal Deposit Insurance Corp., responded that her agency is working "closely and creatively" with Treasury officials to "realize the potential benefits of this authority."

Hard Times Jolt Hot Economies, Even Poland’s

WARSAW - Poles were jolted last week by the sudden discovery that they were not immune to the financial crisis contagion rippling across the globe. The plunging stock market here and the drastic weakening of the Polish currency proved, as in so many corners of the fast-growing developing world, how wrong they were.

The go-go atmosphere in Poland has abruptly stilled to a cautious wait-and-see. Developers across the country have halted building projects for thousands of apartments as banks have grown stingy with lending. The boomtown energy here has been replaced by nervous eyeing of the once powerful zloty, as it retreats in value against the dollar and the euro.

The daily newspaper Dziennik summed up the mood on Friday with a front-page headline, "Welcome to the Tough Times." In a country that seemed to be on the fast track to full membership in the Western club, the question on everyone's lips is, "Why us?"

Emerging markets that seemed healthy, even thriving, barely a month ago are beginning to find themselves caught in the worldwide panic. This sharp turn has caught even the local financial guardians and experts by surprise, as they have clung to their indicators of fundamental economic soundness while forgetting that capital stampedes rarely tarry for fine distinctions.

From Europe's former Communist bloc to South America, fear and disbelief mingled with frustration that a breakdown in the United States mortgage market - one that most investors and institutions in emerging markets had avoided - was beginning to lead once again to their punishment at the indiscriminate hands of the capital markets.

Female Robber Hits 3 Ohio Banks In 1 Week

Police and the FBI said a female robber has hit three Ohio banks in one week -- a rare short-term streak of robberies and even rarer for a woman criminal. Authorities said the woman handed a note to a teller at a credit union in the Columbus area Thursday saying she had a gun and wanted a lot of cash.

Investigators said the same woman robbed two banks earlier in the week, both in the Columbus area. FBI Special Agent Harry Trombitas said three bank robberies by the same person in a week is rare for anyone, male or female. Trombitas said several investigators recall the same woman robbing a bank in Columbus in January 2006.

The FBI said only 6 percent of the more than 7,000 bank robberies reported nationally last year were committed by women.

Meltdown To Make Public Transit Costs Rise?

People who rely on public transportation could wind up paying more for it thanks to the financial meltdown.

The problems stem from the collapse of insurance giant American International Group, which had guaranteed financing deals between transit agencies and banks. In a once-common practice that the IRS has ended, many transit agencies sold equipment to banks, which then leased the equipment back to the agencies.

The transit agencies got big money up front while banks got the lease payments and tax write-offs. Officials said about 30 transit agencies across the country had entered into these types of deals, involving billions of dollars.

Rob Healy of the American Public Transportation Association said fare increases, service reductions and delays in capital improvements could result.

OKC Gas Prices Fall Below $2

Some drivers have seen gas prices higher than $5 a gallon this year, but now Oklahoma City residents are paying less than $2. Despite all of the bad economic news, drivers are getting a glimmer of good news at the gas pump. Prices are at their lowest levels in more than a year and have even dropped below $2 a gallon in some places in Oklahoma City.

AAA said gas prices on Friday dropped for the 37th consecutive day and the downward trend may not be over yet.

"Oklahoma City is the lowest in Oklahoma, so we're probably the cheapest of any major metro area in the nation," said Chuck Mai, of the Oklahoma AAA.

The national average for a gallon of regular unleaded gasoline fell Friday to $2.78 overnight for the first time in a year, but the average in Oklahoma is much less. The statewide average is $2.25 and it's even lower in some locations. Experts said several factors should keep driving the prices down, including the strength of the dollar, lower demand, strong inventories worldwide, economies taking a beating and no bad news on the horizon.

"I wouldn't be surprised if we saw prices continue to drop in the crude oil market, down to maybe $50 a barrel," said Mai.

That could bring pump prices down another 20 cents per gallon. Mai said Oklahomans could see prices as low as $1.75 soon.


Columbus Dispatch, Congressional Record, AP

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