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What's the most significant anti-poverty program for Latin America and the Caribbean? Western Union. Richard Lapper reports in the Financial Times:
Migrant workers sent back more than $62.3bn to their families in Latin America and the Caribbean last year, a rise of 14 per cent on 2005.The figures, which will be released this weekend at the annual conference of the Inter-American Development Bank, confirm that remittances have become one of the region's most important sources of foreign exchange, exceeding for the fourthyear in a row the combined total for foreign direct investment and overseas aid.
Mexico with a total of $23bn (£12bn, €17bn), Brazil ($7bn) and Colombia ($4bn) receive most remittances, but the flows are especially beneficial for the poorer and more marginal countries of Central America and the Caribbean, where they account for more than 10 per cent of gross domestic product in many cases
Posted by dan at 05:03 PM
in the lobbying industry. In real terms, spending on lobbying fell in 2006, the Center for Responsive Politics reports.
Posted by dan at 04:54 PM
As attacks on the New Deal continue to mount (I saw a copy of Amity Shlaes' forthcoming anti-New Deal volume in the office the other day), it's worth recalling just how important and durable the financial infrastructure laid down during the New Deal has proven to be. After all, the SEC, the FDIC, Fannie Mae, etc., were -- and are the platforms on which the vast financial services and real estate sectors were reconstructed and rebuilt. (For a fuller exposition of this argument, see Chapter Four of the forthcoming book by your humble scribe.)
Kemba J. Dunham reports in the Wall Street Journal on another New Deal-era agency still showing some utility:
Rising problems for lenders and borrowers in the subprime-mortgage market may bolster efforts to revitalize the Federal Housing Administration, the New Deal-era agency that helps low and middle-income homebuyers qualify for low-interest mortgages.But backers of an FHA overhaul may have to overcome a perception that the government is taking on too much financial risk -- and bailing out lenders -- by stepping in to help consumers hurt in the subprime market, which offers loans to borrowers with weak credit.
For decades, the FHA was a major backer of mortgage funding for borrowers with poor credit. But the FHA's share of the market has dropped sharply in the past decade as hordes of aggressive subprime lenders wooed away borrowers with an array of seemingly attractive options, including no-money-down mortgages and interest-only payments. The subprime players also offered faster approvals, instant home appraisals, less paperwork and fewer hassles, winning over consumers even though subprime mortgage rates were generally higher than rates for FHA-insured mortgages. . . .
For years, consumer activists and FHA officials have been pushing the government to revitalize and streamline the FHA program to make it an attractive alternative to subprime lenders. Now that foreclosures are surging and more consumers complain of being victimized by subprime lenders, it is likely that modernizing the FHA could move up on Congress' agenda.
Yesterday, a coalition of community groups called on the Bush Administration and Congress to permit the FHA to refinance the loans of defaulting subprime borrowers who are in danger of losing their homes. John Taylor, president of the National Community Reinvestment Coalition, said the federally backed agency wouldn't necessarily buy the defaulted loans, but would act as guarantor or servicer of the loan. The NCRC is an advocacy group that promotes fair-lending practices.
The majority of loans would remain in private hands, but lenders would be more confident they own "a loan that's being paid on instead of one they have to foreclose on," said Mr. Taylor. While some funds will need to be created to support the new role for FHA, he said, "that's more cost effective than allowing this disaster to occur, dragging down neighborhoods."
Posted by dan at 04:42 PM
Step 1: Get elected to Congress
Step 2: Seek position on House Financial Services Committee, the better to rope in campaign donations from deep-pocketed financial services firm.
Step 3: Sponsor significant far-reaching legislation (ideally bearing your name) affecting the financial services industry, thus ensuring you'll be remembered long after your Congressional tenure ends. (Years after Glass and Steagall were gone, people still knew about Glass-Steagall.)
Step 4: Retire from Congress.
Step 5: Get hired by a big financial services firm that is freaked out by the legislation you passed.
Alistair MacDonald reports in the Wall Street Journal on Rep. Mike Oxley, of Sarbanes-Oxley fame:
Nasdaq Stock Market Inc. has enlisted the help of Michael Oxley, the former U.S. congressman who as a co-author of the Sarbanes-Oxley Act is often blamed for hurting the international competitiveness of U.S. stock exchanges.Mr. Oxley will be nonexecutive vice chairman, working with Nasdaq's listed companies and acting as their and the exchange's Washington "presence" on public-policy issues. . .
Mr. Oxley said that while the principles of accountability and transparency behind Sarbanes-Oxley were correct, parts of its implementation are flawed, leading to extra costs for companies. He expects parts of the act to be amended by the Securities and Exchange Commission and the Public Company Accounting Oversight Board.
Part of his Nasdaq job will be about correcting misconceptions about Sarbanes-Oxley among companies at home and abroad, he said.
Posted by dan at 04:35 PM
Floyd Norris gently suggests ($ required) that subprime mortgage companies aren't the only lenders who have been extending credit indiscriminately:
This may not be a good time to borrow money if you are a homeowner with a poor credit history, but it is a fine time if you are a company with such a problem.In that market, profit margins are thin and protection from loan covenants rare. Loans can be used to expand or purchase a business, but that is not necessary. Just as homeowners refinance to get cash for whatever they want, private equity firms refinance to pay themselves dividends. They cash out without selling the company.
One loan that caught my attention this week is going to a software company called Attachmate. Being privately held, it does not release financial information to the public, and when I asked for some I was politely turned down.
But S.& P. reports that the company is borrowing $775 million, or roughly twice its annual revenue. Most of the money will go to pay off old debt, and $280 million is being used to pay dividends.
“The company has a narrow product portfolio in mature markets, with numerous well-capitalized competitors,” wrote David Tsui, the S.& P. analyst. “Revenues continue to decline because of the mature nature of its markets and uncertainty with respect to product support” for some of its software.
The loan is divided into two parts, with the junior one — $275 million that will finance the dividend — getting a CCC+ rating, which is about as low as you can go. S.& P. says that in case of default, lenders can expect “negligible recovery” of principal.
Posted by dan at 04:27 PM
There's no polite way to suggest this, but it's getting hard not to escape the conclusion that former Federal Reserve Chairman Alan Greenspan may have passed the peak of his intellectual faculties.
Check out these comments from earlier this week about income inequality:
Inequality of incomes is the "critical area where capitalist systems are most vulnerable," Greenspan said yesterday in Washington at a conference on maintaining the competitiveness of US capital markets convened by Treasury Secretary Henry Paulson. "You cannot have a system that we have unless the people who participate in it believe it is just."Allowing more skilled workers into the country would bring down the salaries of top earners in the United States, easing tensions over the mounting wage gap, Greenspan said.
"Our skilled wages are higher than anywhere in the world," he said. "If we open up a significant window for skilled workers, that would suppress the skilled-wage level and end the concentration of income."
Now think about that for a second. What do we know about the rise in income inequality in recent years. Well, we have it from Emmanuel Saez by way of Brad DeLong, that:
The IRS has released yesterday the preliminary stats for year 2005 which I have used to extend my [and Thomas Piketty's] series [on the top income share by tax return unit] to 2005, posted at: http://elsa.berkeley.edu/~saez/TabFig2005prel.xls2005 shows a very large increase in income concentration: the top 1% gains 14% in real terms from 2004 while the bottom 99% gains less than 1% (when including capital gains). The [previous] record peak of 2000 is surpassed even though 2005 is less of a high capital gains, high stock option year than 2000. By 2005, it looks like top incomes are showing strongly along all components: wages, business income, dividends, and capital gains.
The striking thing about 2003-2005 is the huge increase at the top with quasi-stagnation below the top 1%.
In other words, the rise in income inequality seems to have very little to do with the incomes of the large numbers of skilled workers running away from the incomes of the large numbers of unskilled workers. Rather, it has to do with the incomes of a tiny, tiny, tiny fraction of skilled workers running away from the incomes of virtually all the other skilled workers and all the unskilled workers.
Given this, the notion of using a flood of imported skilled labor to depress the wages of skilled laborers, who are already losing ground rapidly to the ultra-elite earners, seems a little absurd, no?
Posted by dan at 11:16 AM
My latest in Slate, on zombie brands.
Posted by dan at 09:09 AM
Over at the Wall Street Journal op-ed page, Holman Jenkins takes a break from apologizing for options-backdating crooks and speaks some truth ($ required) about U.S. ethanol tariffs:
President Bush and Brazilian President Luiz Inácio Lula da Silva struck a blow last week against the forces of intolerance, obscurantism and parochialism. We refer to the U.S. farm lobby, not that amalgam of hostile states and Islamic crazies who presumably benefit from the U.S. oil "addiction."It would be feckless to tell ourselves that ethanol is a cure for terrorism or Islam's difficulties with modernity or the challenges of global interdependence. But as Churchill observed long ago, the best kind of energy security is a diversity of suppliers. Hence the significance of Mr. Bush's Brazilian holiday. Washington has come to an important crossroads: Will we double-down on the mistakes of the past, using subsidies and protectionism to foster the domestic ethanol industry and its confluence of interest groups that, ever afterward, will insist on maintenance of its subsidies and protection?
Or will we support a free global market in biofuels, which would genuinely improve U.S. energy security? Far more quickly than many imagine, it would also help to cut down to size a new generation of petrodollar dictators.
Administration officials have been generous with assurances to the farm lobby that last week's Brazil agreement is no prelude to repealing America's egregious 54-cent-per-gallon tariff on most imported ethanol. Washington simply wants to help Brazil export its technology so other nations can become low-cost producers of ethanol. But the U.S. isn't looking to welcome all this cheap motor fuel into its own market. Banish the thought!
Somebody didn't get the memo to President Silva, who directly drew attention to the U.S. tariff. "They talk a lot about free trade, but they like to protect their own products," he said, and couldn't have been more right.
Posted by dan at 02:46 PM
Matt Richtel has a good piece in the New York Times today about .com entrepreneurs who have become alternative energy entrepreneurs.
Out of the ashes of the Internet bust, many technology veterans have regrouped and found a new mission in alternative energy: developing wind power, solar panels, ethanol plants and hydrogen-powered cars.It is no secret that venture capitalists have begun pouring billions into energy-related start-ups with names like SunPower, Nanosolar and Lilliputian Systems.
But that interest is now spilling over to many others in Silicon Valley — lawyers, accountants, recruiters and publicists, all developing energy-oriented practices to cater to the cause.
The best and the brightest from leading business schools are pelting energy start-ups with résumés. And, of course, there are entrepreneurs from all backgrounds — but especially former dot-commers — who express a sense of wonder and purpose at the thought of transforming the $1 trillion domestic energy market while saving the planet.
“It’s like 1996,” said Andrew Beebe, one of the remade Internet entrepreneurs. In the boom, he ran Bigstep.com, which helped small businesses sell online. Today, he is president of Energy Innovations, which makes low-cost solar panels. “The Valley has found a new hot spot.”
Indeed. My new book on bubbles, now available for pre-order, contains a chapter on the emerging bubble in alternative energy, and highlights the important role bubble-surfers are playing.
A sneak peek at Chapter 7 of Pop! Why Bubbles Are Great for the Economy
Solar energy may have been growing rapidly in the deserts of California and the southwest, but its reliance on engineering and futuristic conducting materials made Silicon Valley its natural habitat. Throughout the San Francisco Bay Area, well-heeled engineers, many of whom got rich in the .com boom, were spending cash outfitting their homes with solar panels. In the fall of 2006, the most well-heeled engineers in the Valley—Google, Inc.--contracted with a company called Energy Innovations to install solar panels on the company’s Mountain View headquarters. With this deal, the a creature of the .com bust met a creature of the .com boom.Energy Innovations is controlled by Bill Gross, the founder of IdeaLab!, the incubator that spawned .com bubble-istas like eToys and Petsmart.com. But six years after the bust, Gross and IdeaLab were riding high again. The entrepreneur rummaged through his files and pulled out the unironic, revolutionary boosterism that was increasingly infiltrating the alternative energy industry. "Reinventing energy is a multitrillion-dollar opportunity. It's the next big disruption," Gross told Wired in July 2005. "It dwarfs any business opportunity in history." Uh-oh.
Indeed, by 2006 alternative energy started to look a lot like the internet in 1997. Wall Street studs who had blackballed engineering dorks from their fraternities were once again lining up to kiss their feet. . . .
Once again, the guys at Kleiner Perkins were at the forefront of a new revolution. . . .They had decided to plunge $200 million of their $600 million fund into what was now being called cleantech. “Now we are dealing not with a sector of billions, but we’re dealing with a sector of trillions,” Lane told the Wall Street Journal in the fall of 2006. “This is bigger than the Internet, I think by an order of magnitude. Maybe two. I’m talking the entire energy industry.”
Posted by dan at 11:32 AM
Whew! What a relief! So far, the contagion from the meltdown in subprime lending seems to be contained to the subprime lender New Century, which is essentially finished. And to the subprime lender Novastar, which seems to be teetering. Oh, and to the giant Wall Street investment banks that, variously, funded, owned, and profited, from these subprime lenders. And to the homebuilders who sell their products to subprime borrowers. Oh, and to the broader Asian and European stock markets.
Posted by dan at 08:02 AM
"Tight labor markets should continue to support consumption and growth. . ." Michael Darda on today's Wall Street Journal editorial page.
The reality-based portion of the Journal shows that consumption seems to have ground to a halt. Jeff Bater reports:
U.S. retail sales in February managed a slight gain that was below expectations and followed a flat reading the month before, indicating the economy's big driver, consumer spending, was weak in early 2007.Retail sales increased 0.1% last month, the Commerce Department said Tuesday. Sales in January were unchanged, as reported originally.
Posted by dan at 09:33 AM
Wall Street sages have been busy reassuring the public that the problems in subprime lending really will only affect the lenders in question and the brokers who peddle the loans. After all, by definition, subprime borrowers are marginal participants in the economy, a small minority people who don't really have the money and savings to spend anyway and probably shoudln't have been buying homes in the first place. As long as jobs and incomes continue to rise, the broader housing market, and, by implication, the economy at large will be just fine.
Bulls, meet Ivy Zelman, analyst at Credit Suisse First Boston. Michael Corkery reports in the Wall Street Journal:
A report released yesterday by Credit Suisse analyst Ivy Zelman forecast that credit tightening for financially stretched borrowers will lead to a 20% drop in new-home sales in 2007, to about 890,000, as buyers find it more difficult to borrow for homes.Coupled with a general waning in demand for housing and the exodus of speculators from the market, Ms. Zelman expects that credit tightening will cause housing starts to drop 35% to 45% through this year and into 2008 from their peak annual rate of 1.8 million units in January 2006.
While subprime loans -- or loans to people with weak credit -- are often concentrated among entry-level buyers, Ms. Zelman says credit tightening "will affect the entire housing food chain."
Posted by dan at 09:25 AM
My latest in Slate, on well-regarded hedge funds, private equity funds, and Wall Street investment banks that have lost big on subprime lending. This is likely the tip of the iceberg. The big Wall Street firms, either through their own accounts or on behalf of clients, are big holders of subprime lenders' stock. What's more, almost by definition, they are the largest creditors of these firms. Whether subprime lenders file for bankruptcy, shut down, or get restructured, it's like the big Wall Street firms will suffer--they'll have to write down loans and stock investments and will see a sharp fall-off in the highly profitable business of securitizing such loans.
Posted by dan at 09:20 AM
In the past few weeks, the stock of subprime lender New Century has fallen precipitously, from about 30 at the beginning of February to about 3 last Friday. For the last week, vulture have been circling the carcass of the company. And yet this morning, the investment bank UBS finally gets around to telling clients that they might be well advised to sell the stock.
Posted by dan at 09:30 AM
Former SEC Chairman Arthur Levitt, Jr., provides a rare moment of lucidity on the Wall Street Journal editorial page. From the March 9 edition.
Over the past several months, the low murmur of complaints about the post-Enron regulatory regime has turned into a loud roar. The head of the New York Stock Exchange, the Treasury secretary, a wide range of business leaders -- even the mayor of New York City and the state's senior senator -- have bemoaned the apparent lack of competitiveness of our nation's capital markets. Putting aside the dubious factual claims of many of their arguments, the fact remains that the way to keep our nation's capital markets competitive is to preserve the advantages that we have over other markets world-wide.For years, one of the chief differentiators our capital markets had was a clear and transparent system of financial reporting. Over the past decade, however, signs of erosion have come to light: from the ease by which executives were able to manipulate numbers in order to mask a company's true performance to the creative accounting undertaken by many cities and states to hide unfunded pension obligations. To preserve the privileged position of the U.S. capital markets, we need to reinvigorate and re-engineer the organizations responsible for setting the accounting standards upon which our market system rests. . .
Posted by dan at 03:36 PM
We hate to say we told you so, but we sort of did. In February 2004, we warned that then-Federal Reserve Chairman's advice that Americans would be better off with adjustable-rate mortgages was foolish, a classic sign of bubble-era thinking.
On Saturday, Ben White of the Financial Times reported that Susan Bies, a Federal Reserve Governor, has implicitly agreed with us.
At a risk management forum in Charlotte, North Carolina, Ms Bies said lenders were likely to see an increase in defaults involving borrowers who took out mortgages with low “teaser” interest rates, which jump to higher levels during the life of the loan.“What’s happening is the front end of this wave of teaser-rate loans that are coming into full pricing,” said Ms Bies, who is retiring from the Fed. “So what we’re seeing in this narrow segment is the beginning of the wave – this is not the end, this is the beginning.” She added that, thus far, problems remain contained in the subprime sector.
Bonus ironic comment: amid the continuing subprime meltdown, media consumers will have noticed a common trope. Executives, regulators, lenders, etc., to a man and woman, argue that the trouble in lending is confined to the subprime market, that it really only represents a narrow segment of the vast mortgage market, and that the woes aren't likely to spread to the broader market.
Right.
Just remember, these are the same people who, several months ago, told us (a) there was no problem with subprime mortgages; and (b) that financial innovation had served to lessen the risk associated with subprime lending; and (c) the summer of 2006 was a great time to get into the burgeoning subprime business. When bubbles unwind, or pop, or deflate, the people closest to the business are frequently the last to know.
Of course, this sort of thinking always takes hold during bubbles, as I argue in my new book. Back in 2000, when .com retailers started to melt-down, the financial-executive complex behind the vast internet infrastructure business warned that the troubles would be contained to the .com/e-tailing universe, and that the likes of Worldcom and Global Crossing wouldn't really be affected.
Posted by dan at 03:25 PM