The Debtorship Society
More Americans became "homeowners" while owning less and less of their homes.
Tim CavanaughReal estate used to be a pretty lowbrow business. When my grandmother opened her agency in the 1950s, it was mildly groundbreaking for a lady to be involved in the grimy, pushy, mold-concealing business of hawking houses. When I accompanied my father on his own real estate agent rounds on a South Jersey barrier island during the Carter/Reagan years, the job seemed to alternate between long hours of cleaning up every form of human waste, heavy volumes of legal documentation, and brief, tense altercations with deadbeats, squatters, and shady contractors. The preferred weapon for this last exchange was a baseball bat.
If anything can be said for that less genteel age, it’s that people had an incentive to reduce their vulnerabilities. To be deeply in debt was considered unwise, possibly shameful, and definitely (given what now seem like usurious interest rates) hazardous to your health. A homeowner was somebody who owned a nontrivial equity stake in his or her residence, and a down payment was 20 percent if you had good credit. Meeting those standards was viewed as admirable. Liberals and conservatives joined in lauding the energy, thrift, and good sense of the American homeowner.
Where liberals and conservatives agree, social engineering must follow. A national homeownership rate above 60 percent—a figure that made the United States the envy of the planet—was deemed too low. Why not use the government to nudge that number up?
Uncle Sam has many options for boosting homeownership rates. The simplest and most important is the tax code, which allows you to write off interest payments on your real estate holdings. But there are other tools. The real interest rate on mortgages has been shaved down by 50 basis points or more thanks to the secondary mortgage market patrolled by the ostensibly competing government-sponsored entities Fannie Mae and Freddie Mac.
Fannie and Freddie also appeared to be useful in pursuing two contradictory goals: motivating banks to lend money in formerly redlined communities while allowing the relatively rich to increase the size of their own government-subsidized loans. Since 1980 the limit on a conforming loan (i.e., one that Fannie and Freddie are willing to buy from a bank) has more than quadrupled, from $93,750 to $417,000. (This growth has been well above annual inflation, which would put the current cost of a conforming loan at less than $245,000.) And if you live in a part of America where $417,000 still seems like a lot to pay for a house, be advised that the limit in “high-cost areas” is even higher: $625,500, up from $140,625.
These homeownership engineering policies create a direct incentive for Americans to take on more real estate debt. Clinton and Bush administration officials argued that they also pushed up the homeownership rate, which having hovered between 60 and 65 percent from 1960 to 1997 rose in the last decade, peaking at 69.2 percent in 2005.
The problem with subsidizing debt is that, whatever its secondary benefits, the primary signal it sends is to take on more debt. As the percentage of people called “homeowners” has increased, the percentage of their homes that they actually own has been plummeting.
According to the Federal Reserve’s flow of funds data, owners’ equity as a percentage of household real estate dropped from 58.4 percent in 2002 to 41.4 percent in the first quarter of this year. Some portion of this decline can be attributed to the steep drop in house prices (though in many parts of the country prices have not yet returned to 2002 levels), but that portion is actually pretty small. And the trend has headed more or less steadily downward since 1985, the last time the equity portion reached 70 percent. Americans own a lot less of their homes than they used to.
Like many Frankenstein creations of the liberal-conservative consensus, homeownership engineering finally conked out during the Mad Monster Party that was the George W. Bush administration. Bush began his second term committed to creating an “ownership society.” But throughout both his terms the rate of real homeownership was declining.
So what does it look like when a fantasy like that ends? Jim Klinge, a north San Diego County real estate agent, has drawn tens of thousands of fans to his “Jim the Real estate agent” YouTube videos and bubbleinfo.com blog. Klinge’s handheld, self-narrated video tours of dilapidated homes set up an exquisite contrast: The gang-tagged walls and stripped-out fixtures create a real sense of tragedy and decline, of somebody’s evaporated dream. But Klinge’s sardonic wit (“I got the ice cream truck in every video,” he drawls during one of many looky-loos through declining barrios) reminds you why pity and contempt can’t be separated. These people weren’t just deadbeats, he demonstrates over and over, but the kind of deadbeats who would (for example) spend a home equity line of credit pimping out a bathroom while not repairing a dangerously rotted load-bearing beam.
The world of actual real estate, it turns out, remains hard and unsentimental. Earlier this year, Klinge launched a one-man, pre-dawn raid on one of his bank-owned listings, subduing and handcuffing a pair of squatters while wielding, of course, a baseball bat. More recently, while Klinge was trying to persuade a mother of five to leave her foreclosed residence, the mother asked him for money to buy her kids hot dogs.
The continuing fall of real estate values, Klinge says, is providing “a test of character in a way Americans haven’t been tested in generations. Ever since the military went voluntary, we’ve had it pretty easy. My fear is that we’ve become too much of a namby-pamby society.”
Klinge is not opposed to government action, and he recommends subsidizing interest rates at 4.5 percent for purchases of foreclosed properties as a means to encourage both banks and delinquent borrowers to wrap up the foreclosure process quickly. The Bush and Obama interventions have aimed to do precisely the opposite. “I believe the government has succeeded in making a less hard landing,” Klinge says, “and they’re just kicking the can down the road another year.”
But the effects of homeownership engineering are more than just financial. Social engineering may aim to create stronger citizens, but it usually ends up producing weaker people.
Contributing Editor Tim Cavanaugh (bigtimcavanaugh@gmail.com) is a writer in Los Angeles.
A Shake to the System
New research into "shaken baby syndrome" could put hundreds of convictions in peril.
Radley BalkoIn January 2008, a Wisconsin appeals court granted a new trial to Audrey Edmunds, a 45-year-old woman who had been sentenced in 1995 to 18 years in prison for murdering Natalie Beard, an infant in her care. The ruling was significant, because medical experts said Beard died as a result of Shaken Baby Syndrome (SBS), a diagnosis that grew increasingly common in the late 1980s and early 1990s. The Wisconsin appellate court was the first in the country to recognize increasing doubts about the reliability of SBS diagnoses.
The phrase shaken baby syndrome entered the pop culture lexicon in 1997, when British au pair Louise Woodward was convicted of involuntary manslaughter in the death of Massachusetts infant Matthew Eappen. At the time, the medical community almost universally agreed on the symptoms of SBS. But starting around 1999, a fringe group of SBS skeptics began growing into a powerful reform movement. The Woodward case brought additional attention to the issue, inviting new research into the legitimacy of SBS. Today, as reflected in the Edmunds case, there are significant doubts about both the diagnosis of SBS and how it's being used in court.
In a compelling article published this month in the Washington University Law Review, DePaul University law professor Deborah Teurkheimer argues that the medical research has now shifted to the point where U.S. courts must conduct a major review of most SBS cases from the last 20 years. The problem, Teurkheimer explains, is that the presence of three symptoms in an infant victim—bleeding at the back of the eye, bleeding in the protective area of the brain, and brain swelling—have led doctors and child protective workers to immediately reach a conclusion of SBS. These symptoms have long been considered pathognomic, or exclusive, to SBS. As this line of thinking goes, if those three symptoms are present in the autopsy, then the child could only have been shaken to death.
Moreover, an SBS medical diagnosis has typically served as a legal diagnosis as well. Medical consensus previously held that these symptoms present immediately in the victim. Therefore, a diagnosis of SBS established cause of death (shaking), the identity of the killer (the person who was with the child when it died), and even the intent of the accused (the vigorous nature of the shaking established mens rea). Medical opinion was so uniform that the accused, like Edmunds, often didn't bother questioning the science. Instead, they'd often try to establish the possibility that someone else shook the child.
But now the consensus has shifted. Where the near-unanimous opinion once held that the SBS triad of symptoms could only result from a shaking with the force equivalent of a fall from a three-story to four-story window, or a car moving at 25 mph to 40 mph (depending on the source), research completed in 2003 using lifelike infant dolls suggested that vigorous human shaking produces bleeding similar to that of only a 2-foot to 3-foot fall. Furthermore, the shaking experiments failed to produce symptoms with the severity of those typically seen in SBS deaths.
The research implies that human beings simply cannot shake a baby to death without an accompanying impact to the head. SBS cases, however, frequently show no external injuries. This suggests that other causes are at work. Additional research has shown babies to be lucid up to 72 hours before classic SBS symptoms set in, casting doubt on the long-held theory that the child's caretaker at the time of death (or loss of consciousness) was the likely killer.
Last year, Discover magazine published a provocative article laying out much of this new research. Notably, the magazine found several specialists who have since changed their minds after testifying for the prosecution in multiple SBS cases. (At a post-conviction hearing for Edmunds, all of her defense experts said that when the case was tried in 1995, they would have testified for the prosecution.) One of those specialists is Ronald Uscinski, a student of Ayub Ommaya, the scientist whose research on monkeys in the late 1960s is thought to be the origin of the SBS diagnosis. When Uscinski went back and reexamined the study, he found no support for the way Ommaya’s research is currently being being used in the courtroom.
"When I put all of this together, I said, my God, this is a sham,” Uscinski told Discover. "Somebody made a mistake right at the very beginning, and look at what’s come out of it."
Teurkheimer estimates that "what's come out of it" is about 200 SBS prosecutions per year in America, mostly for murder. She believes there's legitimate reason to review nearly all of these cases, including even those where a suspect admitted to having shaken the baby. As she points out, suggestive or coercive questioning may have elicited such admissions. Moreover, in some cases, a defendant who admitted to shaking a child in order to revive it after it had already been unconscious was seen as having confessed to killing the child.
Whether someone can actually "free shake" an infant to death remains hotly disputed in the medical community. Where there is consensus, however, is that the triad of symptoms traditionally associated with SBS are not exclusive to it. A number of other things can produce these symptoms, including falls, head impacts, infections, birth defects, reaction to vaccinations, and surgical procedures. That's a significant departure from what prosecutors have been telling juries for the past 20 years.
In other words, there are almost certainly a significant number of innocent people in prison today who were wrongly convicted of shaking a baby to death. The problem is that there are also likely a number of guilty people who, nevertheless, shouldn't have been convicted on the basis of science-based testimony we now know to be false. The task will be convincing both the courts and the public to risk freeing actual child killers in order to free the innocent people convicted with flawed medical testimony.
Furthermore, unlike with DNA testing, which came about through rapid scientific breakthroughs, the issue of SBS is tied to a slow shift in the scientific consensus. We simply won’t have the slam-dunk evidence DNA provides when it points to the real culprit. With SBS, the question is usually whether a crime was even committed, or if a child's symptoms were caused by something other than shaking.
This whole controversy speaks to a fundamental tension between science and law. Science moves along a slow trajectory from inquiry toward certainty. While the courts have been eager to embrace new science—particularly forensic science—at the trial level, they're reluctant to revisit those cases when the science changes. One example is the now-discredited specialty of identifying bite mark evidence. But while science is mostly interested in testing, revising, and improving existing theories, once the jury has delivered its verdict, our criminal justice system puts a premium on finality. It takes a major upheaval in the scientific community (like DNA technology) to get courts to consider reopening old cases.
But at the very least the courts should stop prosecutors from making the same mistakes in the future. But even that isn't happening. Tuerkheimer, for example, found literature in current manuals for prosecutors that relies on discredited research from the 1980s and 1990s, still touting the pathognomic nature of SBS symptoms. And the same week Edmunds was given a new trial, an appeals court in Arkansas denied a new trial to a woman convicted under similar circumstances, based on the presence of the same symptoms.
Britain, Canada, and Australia have all initiated major reviews of shaken baby prosecutions in response to new research. Teurkheimer makes a convincing case that it’s time for the U.S. to do the same.
Radley Balko is a senior editor at Reason magazine.
Marching with Michael Moore
After a rally, union toughs get a sneak peak of Capitalism: A Love Story
Sean HigginsLife can take you on funny paths. Sometimes things just happen. For example, last week I marched with Michael Moore to end capitalism.
I was in Pittsburgh to cover the AFL-CIO's annual convention. The week before the event, organizers tacked a late addition onto the schedule: the first American showing of Moore's latest film, Capitalism: A Love Story.
Moore himself dropped in for the premiere. At a convention reception, the tubby populist spoke wistfully of his hope that the nation's governors would call out the National Guard to stop corporate leaders and union busters. And then Moore led a march through the streets of Pittsburgh to the Byham Theater, where the movie was being shown.
I followed along and found myself in the company of about 500 union members and left-wing activists. They were shouting chants like, "Hey-hey, ho-ho, insurance companies have got to go!" Without intending to, I even ended up sitting just behind Moore in the theater.
The film itself is about what you would expect: a two-hour polemic raging at the state of the economy and the malefactors that got us into it, identified as the titans of Wall Street (especially Goldman Sachs) and the regulators and lawmakers on Capitol Hill, especially the George W. Bush administration. Much of it features interviews with people being evicted from their homes or being laid off from their jobs. And Moore certainly isn't afraid to hit the sentimentality button. The interviewees are often weeping. The moment of hope arrives with—you guessed it—the election of Barack Obama, who is portrayed as a populist warrior who will reverse all of this.
For the members of the AFL-CIO, it was a huge hit. Many hope that it will take off the same way Moore's Fahrenheit 9/11 did.
But Capitalism: A Love Story goes in two unexpected directions, both of which may elicit a mixed reaction from Moore's core audience.
First, Moore is a radical ideologue before he is a partisan Democrat. His film hammers congressional Democrats pretty hard for leading the effort to pass the Wall Street bailouts last year. Moore fudges a little on this, portraying the opposition that sank the initial House vote on the bailout as comprised exclusively of progressive Democrats. In fact, it was mostly Republican opposition that killed it. (That opposition crumbled after the markets subsequently tanked.)
Still, DVD copies of Capitalism: A Love Story are not likely to be passed around at Christmastime by House Speaker Nancy Pelosi (D-Calif.), Senate Majority Leader Harry Reid (D-Nev.), Senate Budget Committee chairman Kent Conrad (D-N.D.), or even House Financial Services Committee chairman Barney Frank (D-Mass.). All of them are portrayed as either dupes or water carriers for Wall Street scoundrels.
Senate Banking Committee chairman Chris Dodd (D-Conn.) gets a particularly serious shellacking. The film dwells at length on his being a "friend of Angelo," i.e., Angelo Mozilo, the former Countywide Financial CEO who made below-market loans to the politically well-connected.
After the premiere one union activist asked Moore about the fact that two other people he criticizes in the film, National Economic Council chairman Larry Summers and Treasury Secretary Timothy Geithner, are in Obama's administration now. Moore responded by saying that he imagined Obama had—figuratively speaking—hired bank robbers to advise him on keeping the bank from getting robbed.
"That's my hope," Moore declared.
The line got a laugh but it points to the fact that conservative tea party activists aren't the only ones upset with Washington. With the Democrats in charge of Congress and the White House, elements of the left are now beginning to hold them responsible for the state of the economy and the promises they have made. While they all still hate George W. Bush, the days when that was enough to unify the left are fading.
The film's second unexpected direction is to go beyond just shaking a finger at Wall Street and Washington. Moore doesn't simply call for new regulations. Instead, he explicitly states that "Capitalism is evil and you cannot regulate evil." Something must replace it.
He doesn't exactly say what should come next, but he does lay some pretty heavy hints. Towards the end of film he interviews Sen. Bernie Sanders (I-Vt.), the Senate's only (avowed) socialist. As far as Moore is concerned, Sanders' ideas "sound like America."
While many liberals have mocked conservatives for claiming that the left's agenda is socialist, Moore's response is, "Yeah, so?"
"I hope this film really gets a dialogue going," one AFL-CIO member told me after the film. That it might.
One final note: Just before the film started, Moore asked the audience to turn off any recording devices because the studio did not want bootleg versions of the film getting around. Apparently this socialism stuff has its limits.
HAAKE: Afghanistan is worth U.S. commitment
OPINION/ANALYSIS:
Can you believe it? Not content with the drawdown in Iraq, some are seriously suggesting the same for Afghanistan.
To be frank, there are about 20 percent of our countrymen who, if the Cuban army were to come ashore in Key West, would want to take it to the United Nations or impose economic sanctions on Havana before resorting to an armed response.
Thankfully, the rest of us do not have to rely on these folks to protect the freedoms and standard of living we enjoy. And they have always been there - from the Loyalists in 1776 to the America Firsters in the 1940s.
To be sure, fixing the situation in Afghanistan will be long and costly in blood and treasure. But for many reasons, it's the right thing to do. So how do we do it?
Political leadership. President Obama should reaffirm his election commitment to staying the course in Afghanistan, making it a priority equal to health care and the economy. This would go a long way toward reassuring those who disdain bowing to Saudi Kings, yucking it up with Venezuelan President Hugo Chavez or ignoring the Iranian freedom movement. Mr. Obama should demonstrate the ability to go "all in" when the situation demands it, thereby distinguishing himself by pursuing the "good war." In addition, he should set a time for re-evaluating the situation in Afghanistan - say 18 months in spring 2011. Until then, give the commanders a chance to work the problem free of constant second-guessing.
Bolster the Afghan government. Afghan President Hamid Karzai has been a feckless leader. Rumors of familial narcotics trafficking abound. Should he survive the sham election, the country will be split along ethnic lines. If Richard C. Holbrooke, Mr. Obama's special envoy to Pakistan and Afghanistan, cannot figure out a way to get him out totally or shunted aside as a figurehead, then at least surround him with competent people whose aim is to improve the lot of their countrymen, not enrich themselves. Lawlessness is endemic in the government and is found at all levels. It starts at the top. There are many good and honest Afghans - they need encouragement from the top.
Send more troops. The counterinsurgency doctrine that Gen. David H. Petraeus and Gen. Stanley McChrystal are righteously pursuing holds that the people are the prize, not enemy body counts. This strategy is, by definition, soldier intensive. In the past, International Security Assistance Forces (ISAF) swept a village or district of the Taliban. Surviving Taliban fled, only to return when the ISAF were busy elsewhere. The soldiers are now staying, making friends, improving the lot of the villagers and gaining their trust. Other soldiers replicate this model in the next village.
Comparisons to the Russian occupation is not apt. The Russians were executing, raping and laying out booby traps disguised as toys for Afghan children. We don't do that. We are the good guys and the Afghans know or soon learn this.
About 45,000 to 50,000 more troops should do it. This number could be cut if we could get some more help from NATO allies. Other than the British, they have not wanted to fight or known how to. Ironic, since their European cities are flooded with Afghan heroin and thousands of migrants from the region seeking jobs or, in some cases, causing mayhem. Finally, someone should be putting the arm on countries who owe us or want to be our friend - such as Georgia.
Build Afghanistan. Security in the countryside will enable civil action by Provincial Reconstruction Teams, the U.S. Agency for International Development,nongovernmental organizations (NGOs) and the central government. Projects must be coordinated by an entity that is efficient, above reproach and empowered to deal with corruption.
Donor nations' feet must be held to the fire. About $25 billion has been pledged but only $15 billion actually received. Noncombatant countries such as Japan, South Korea, China and Saudi Arabia must give more - a good task for the State Department.
Attack the drug trade. The Taliban, like the Revolutionary Armed Forces of Colombia, was lured into the drug trade in the 1980s by the enormous profits, providing the funds to fight the Russians and autonomy from the American and Saudi paymasters. Twenty years later the networks are more sophisticated and the yields higher.
Former Defense Secretary Donald H. Rumsfeld claimed "we don't do drugs." But under Gen. Petraeus that has changed. Drug lords are now valid military targets - special mission units and Predators should be on them day and night. Drug labs give off quite a thermal signature so it shouldn't be too difficult. Cutting off the cash behind the enhanced equipment and tactics we are now seeing on the battlefield is essential.
Increase the Afghan national army. We must professionalize and greatly expand the Afghan national army and security services. Progress is occurring, though slowly. More U.S. Special Forces military training teams are required. Better pay and ongoing education as found in the U.S. Army are also key elements. Unit cohesion will enhance national identity and unity as well.
Keep the pressure on Pakistan. The Taliban was largely created by Pakistan's Directorate for Inter-Services Intelligence to secure its western flank. These ties, and the religious ones, remain. Gen. Petraeus and his team seem to have convinced the Pakistanis that they have more to fear from the Taliban within Pakistan than from India. Abuses in the Swat Valley finally provoked a lethargic Pakistan army into action and they have done well, gaining pride and respect. Removing the sanctuaries in the Pakistani tribal areas would markedly improve the situation in Afghanistan.
Afghanistan is worth it!
First, there is unfinished business from eight years ago. The people who launched the attack on our country are still drawing breath. Justice needs to be visited upon them. It is a question of national honor.
Second, Afghanistan is a place we need to be for the future. We came there to smoke out al Qaeda but there are now global strategic reasons for staying. To the west is Iran; to the east is the militarized border of two nuclear rivals, Pakistan and India, and to the north is Central Asia with oil and gas reserves sufficient to fuel the world for decades - the next Middle East - and almost as unstable. Sooner or later we will be required to project power in this central region.
Third, a robust Afghan military would be an invaluable ally for us. Like Turkey in the Black Sea, it would bring stability to the region.
Fourth, Afghans are a pious, respectful and hardworking people. By and large they like Americans and appreciate what we are trying to do for their people. Since the Russian invasion in 1979, these hardy people have endured 30 years of conflict, suffering, deprivation and death. We turned our back on them when the Russians left in 1989. We now have a second chance to transport these hardy people out of feudalism and into the 21st century.
An ancient Hindu proverb says: "God deliver me from the tooth of the tiger, the venom of the cobra and the vengeance of the Afghan."
The reverse is also true. Afghans are extremely grateful for help. They could be invaluable allies in the conflicts to come.
• Retired Maj. Gen. Tim Haake is a Washington lawyer who served on active and reserve duty in Special Operations for 36 years.
Obama goes wobbly on Afghanistan
The White House leans toward cutting and running
It astonishes us how quickly Afghanistan is moving from being a "war of necessity" to "too tough to do." President Obama's comments over the weekend gave the clearest signal yet that his administration is seeking an exit strategy from a conflict he described in August as "not only a war worth fighting" but "fundamental to the defense of our people." Commitment to that fundamental defense is eroding.
The president is being foiled by complex terrain, by which we mean the Congress. The Democratic leadership has indicated it would not look favorably on requests for more troops, which most analysts believe are necessary to stabilize the situation.
An Aug. 30 initial review by Gen. Stanley A. McChrystal, U.S. commander in Afghanistan, concluded that more troops are necessary to provide a "bridge capability" until Afghan forces have been adequately trained to take on the task. This increase of force is vital. "Resources will not win this war," the report states, "but under-resourcing could lose it."
Rather than follow the conclusions of the most comprehensive review of the Afghan situation to date, the White House is trying to redefine the mission. "You don't make decisions about resources," Mr. Obama warned, "before you have the strategy right."
Yet his strategy is already being implemented. Bob Schieffer of CBS News reminded the president that he rolled out a new plan on March 27. At the time, Mr. Obama called it a "comprehensive new strategy for Afghanistan [and] Pakistan" that was "the conclusion of careful policy review" that the president said he ordered "as soon as [he] took office." Mr. Obama conceded to Mr. Schieffer that he had implemented his own strategy, but that "we were gonna review that every six months."
Theater-level counterinsurgency strategies cannot be fully implemented within six months. The president himself said the new troops he ordered sent in the spring "are just now getting into place." It is unreasonable to suggest a strategy can be reviewed before it has been executed. It also frustrates those tasked with implementing the strategy when long-term objectives are at the mercy of political winds.
The president seems to be leaning toward columnist George Will's suggestion to pare down the fight to merely taking out terrorist leaders with armed drones. The "stronger, smarter and comprehensive" March 27 strategy sought to use all the elements of national power to build governing capacity in Afghanistan and to seek regional solutions with Pakistan. "A campaign against extremism will not succeed with bullets or bombs alone," the president said then. But what Mr. Obama previously called a broad-based regional solution he now derides as "mission creep."
Most alarming were the president's comments on CNN that he was "not interested in just being in Afghanistan for the sake of being in Afghanistan or saving face or, in some way ... sending a message that America is here for the duration." It's strange that he thinks anyone would argue that the United States should continue to sacrifice blood and treasure in Afghanistan "just for the sake of it." When he says we are not in for the duration, Mr. Obama comes close to stating that the United States will leave before the mission is accomplished.
Taliban leader Mullah Omar said on Saturday that "the West does not have to wage this war." It is starting to sound like Mr. Obama agrees. At the Aug. 17 national convention of the Veterans of Foreign Wars, the president said that "the insurgency in Afghanistan didn't just happen overnight, and we won't defeat it overnight. This will not be quick, nor easy. But we must never forget: This is not a war of choice. This is a war of necessity." Never forget indeed. Perhaps someone should remind the commander in chief.
Subverting Honduran democracy
The shameful siege of Honduras continues. In the past few weeks, the United States has cut more than $30 million in non-humanitarian aid, suspended most visa services and sided with Venezuela, Cuba and other of Latin America's worst dictatorships in undermining democracy. Meanwhile, the people of Honduras are desperately trying to maintain their freedom and prevent the return of a regime that Washington is committed to forcing down their throats.
The United States rushed to the wrong side of this issue when former Honduran President Manuel Zelaya was ousted on June 28, and since then it has reinforced a bad policy. Rather than seek means of mitigating the crisis, the United States clings obdurately to demands that Mr. Zelaya be returned to power. The "San Jose process," a peace initiative brokered by Costa Rican President Oscar Arias that the United States supports, would place Mr. Zelaya in office to serve out the rest of his term, which ends in January. But the Honduran government - all of it, the president, Congress and the Supreme Court - has determined that Mr. Zelaya's ouster was a legal response to his illegal attempts to rig a referendum to establish himself as president for life. This scheme followed the model of Venezuelan strongman Hugo Chavez.
The United States has attacked Honduran autonomy with bullying tactics. Washington recently stood by as Honduras was hectored out of the United Nations Human Rights Council by Cuba and Nicaragua, and current Honduran President Roberto Micheletti said he would not attempt to travel to New York to attend the upcoming meeting of the U.N. General Assembly because his U.S. visa was revoked. All the while, Iranian President Mahmoud Ahmadinejad - who heads a government that is among the world's most odious human rights abusers - is being welcomed to the city to spread his message of hope and change.
The United States has a chance to make a diplomatic escape from this perverse policy. On Nov. 29, Honduras will hold its regularly scheduled presidential election, which is the one Mr. Zelaya was seeking to undermine. Term limits make him ineligible to run, so his current status should have nothing to do with the validity of the election. The central premise of the San Jose process - that Mr. Zelaya serve out the rest of his term - will be moot by January, when the new president is inaugurated. After the ballots are counted and a new president is elected, that would be a perfect opportunity to recognize the will of the Honduran people, declare the crisis over and move forward.
But offering no particular reason, the United States has decided not to recognize the outcome of the election. This not only is bad policy but is amateurish diplomacy. The November election and January inauguration are natural firebreaks that end any pretense Mr. Zelaya would have to continue his rule. Undermining the succession process will put relations with Honduras into free fall with no clear mechanism for resolution. The State Department said that "policy and strategy for engagement is not based on supporting any particular politician or individual," but this claim is hard to square with the facts.
Taking a stand against a constitutionally mandated, free and fair election is a statement from the Obama administration that Mr. Zelaya - the would-be autocrat - is the administration's man, right or wrong. The Honduran people be damned.
Commentary by Caroline Baum
(Corrects Gordon Brown’s title in 14th paragraph.)
Sept. 21 (Bloomberg) -- When leaders of the Group of 20 industrialized nations gather in Pittsburgh later this week for a summit, one item on the agenda will be compensation.
Yours, assuming you are a banker, not theirs.
Our elected and appointed representatives appear to be capitalizing on public anger toward bankers and bailouts as an excuse for mission creep.
At a meeting earlier this month in London -- a pre-summit summit, without the heads of state, to set the agenda for the summit -- the G-20 finance ministers and central bank governors laid out a set of principles to prevent “excessive short-term risk taking and mitigate system risk.”
In addition to the imposition of higher capital requirements and stronger prudential oversight, the officials want to introduce “global standards on pay structure” to better align compensation with performance and ensure financial stability.
Is there a connection? Or are governments using this as an opportunity to apply the Emanuel Doctrine, enunciated by White House chief of staff Rahm Emanuel?: Never let a serious crisis go to waste. It’s an opportunity to do things you couldn’t do before.
There is something unseemly about government setting private-sector pay. The fact that French President Nicolas Sarkozy and German Chancellor Angela Merkel are behind the initiative suggests an ulterior motive.
50 Years’ War
“It’s the culmination of a 50-year campaign to reverse the results of World War II, which saw the Anglo-Saxon system triumph over the European system,” says Bernard Connolly, founder of Connolly Global, a London research firm. “They are very close to reversing it,” increasing the power of bureaucrats over markets.
There are two related strands underlying the drive to realign (read: harmonize and reduce) banker pay, according to Philip Whyte, senior research fellow at the Centre for European Reform, a London think tank. The first is the belief that financial sector pay is too high. The second is that the compensation structure contributed to the crisis, with incentives encouraging excessive risk-taking in pursuit of short-term profits.
My guess is most people think multimillion-dollar pay packages in the financial sector are outrageous, especially relative to recent performance. I’d also guess that most Americans, aspiring to wealth themselves, don’t want bureaucrats involved.
Ownership Society
It’s one thing when the government is a stakeholder in a company, as it is with Citigroup Inc., Bank of America Corp. and American International Group Inc. We, the taxpayers, are involuntary owners of these companies and have no interest in rewarding failure.
It’s quite another when government has no ownership stake, where compensation is a matter for shareholders and boards of directors.
This level of government involvement may be business as usual for the European Union. In the U.S., where the Federal Reserve is cooking up a plan of its own to insert regulators into the compensation process, it reads like fake news from the Daily Show.
The good news is, the Obama administration isn’t wild about setting individual compensation. The bad news is, U.K. Prime Minister Gordon Brown is. He wants to set bonuses and sanction banks that don’t comply.
Can a one-world pay scale be far behind? That way, no financial institution would be tempted to depart the homogeneous European Union for what used to be the more capitalist-friendly, entrepreneur-oriented climes of the U.S. and U.K.
Scraping Up Crumbs
“The French believe the financial crisis has discredited New York and London,” Whyte says. At the same time, they see it as “an opportunity for Paris to assert itself as a financial center.”
In other words, we don’t like your system, but we’re happy to pick up any crumbs.
Once global governments start setting pay scales and penalizing banks for non-adherence, it’s only a matter of time before they dictate what type of loans financial institutions should make to what classes of individuals.
Wait. They did that already. One of the key drivers of the housing boom-bust that triggered the financial meltdown -- at least in the U.S. -- was government-directed lending for housing.
Misplaced Incentives
Homeownership-for-all became a national policy goal in the 1990s during the Clinton administration. (Laws to encourage homeownership in low-income neighborhoods date back to 1977.) Lending standards went down, homeownership rates went up, peaking at 69.2 percent in 2004. Many buyers turned out to be owners in name only, with mortgages they couldn’t afford to begin with soon exceeding the value of their house.
The Europeans are correct when they point to misplaced incentives as a cause of the crisis. Mortgage lenders had no incentive to perform due diligence on loans, which flew out the door as quickly as they could be processed. Securitizers weren’t motivated to parse pools of mortgages as long as rating companies slapped a AAA rating on it. And so on down the line.
OK, bankers screwed up. What should we do about it?
The answer isn’t putting government bureaucrats on the compensation committee.
“Public companies should pay bonuses out of pretax profits,” says Michael Aronstein, president of Marketfield Capital in New York.
No profits, no bonuses.
Another option is to “replicate the type of liability that existed with private partnerships,” he says.
The firm loses money, the officers, directors and top earners lose money.
Bankers v. Regulators
If history is any guide, regulation -- or, in this case, regulators -- will prove to be unworthy of the competition. Bankers will find a way to evade the rules and exploit the loopholes to their own advantage.
It seems like a lot of wasted energy when, with proper incentives, these clever rascals would put their considerable talents to better use: working on behalf of shareholders.
Commentary by Kevin Hassett
Sept. 21 (Bloomberg) -- The group known as Acorn found itself at the center of a media storm last week, when two young filmmakers exposed the willingness of workers at several of its offices to offer assistance to a nascent prostitution ring.
The video sent shockwaves through Washington.
The Association of Community Organizations for Reform Now is no fringe organization. It is woven into the political firmament at the highest levels. Over the past 15 years, Acorn has received more than $53 million from the U.S. government, according to a recent report by House Republicans. Democrats clearly appreciate the value they received for that funding. While specific budget lines seldom include the word Acorn, the group and similar nonprofits are eligible to receive as much as $8.5 billion in stimulus money alone.
Consider also a list of the luminaries who serve on its advisory council, which now has responsibility to reform the organization. They include Chicago native John Podesta, who was co-chair of President Barack Obama’s transition; Andrew Stern, president of the Service Employees International Union; and Kathleen Kennedy Townsend, former lieutenant governor of Maryland and daughter of Robert F. Kennedy. This is clearly the A team.
What exactly has Acorn done with its money? It’s hard to tell. Acorn purports to serve noble objectives, such as registering voters, but the organization is unbelievably complex and opaque. Acorn makes Enron seem like a simple organization.
Disturbing Allegations
The July 23 investigative report by the Republican staff of the House Committee on Oversight and Government Reform carried the provocative title, “Is Acorn Intentionally Structured as a Criminal Enterprise?” While the report undoubtedly has a political agenda, its allegations are as disturbing as the videos.
Acorn has, the report asserts, evaded taxes, obstructed justice, abetted a cover-up of embezzlement, committed investment fraud, engaged in racketeering and submitted false filings to the Internal Revenue Service.
Another allegation in the report might explain why Democrats looked the other way. The report says Acorn had close connections with numerous political campaigns, including Obama’s. “Each of these campaigns received financial and personnel-resource contributions from Acorn and its affiliates as part of a scheme to use taxpayer monies to support a partisan political agenda,” the report says. “These actions are a clear violation of numerous tax and election laws.”
Moreover, as I wrote last year, Acorn employees have been engaged in voter scams that have likely generated countless fraudulent ballots for the Democrats.
Fast Backtrack
At least until last week, Democrats at the highest levels aggressively defended their political ally. That quickly changed. Last Monday, the Senate voted to sever federal funding for the organization. The House followed three days later. The U.S. Census Bureau also severed ties with Acorn, after planning to work in conjunction with the group on the 2010 census.
These steps are too little, too late. Democratic leadership has been running interference for the organization for years.
Last March, Democratic Representative John Conyers, chairman of the House Judiciary Committee, initiated a probe into Acorn’s activities, only to back off. In May, he issued a statement saying, “Based on my review of the information regarding the complaints against Acorn, I have concluded that a hearing on this matter appears unwarranted at this time.” In June, he explained, “The powers that be decided against it.”
Although Conyers refrained from revealing which powers he had yielded to, John Fund reported in a recent Wall Street Journal column that a Republican representative’s six attempts to call a House vote to restrict Acorn’s federal funding were stopped by Speaker “Nancy Pelosi’s hand-picked Rules Committee members.”
Inquiry Stopped
The stonewalling of Conyers wasn’t the first time that “the powers that be” called off investigations of Acorn.
In 2008, Acorn’s national board assigned two members, Karen Inman and Marcel Reid, to conduct an internal investigation of allegations that the brother of an Acorn founder had embezzled almost $1 million. As part of the inquiry, Inman and Reid sought access to the group’s books. They were then dismissed from the board and stripped of their membership, shutting down the internal inquiry, according to a CNN report.
The willingness of Democrats to steer tens of millions of taxpayer dollars, at least, to an organization that dismissed its own board members when they sought an internal audit isn’t much different from the willingness of Acorn members, so evident in last week’s videos, to abet prostitution.
Now that the public is alerted, and stonewalling no longer is an option, the only question is, how far will the trail lead? Before it is done, the Acorn scandal could be as historically significant as Watergate.
By Gadi Dechter
Sept. 21 (Bloomberg) -- U.S. Representative Joe Wilson’s mother-in-law, Martha Dusenbury, retrieved from the tidy yellow house built by the congressman’s grandfather a photo she said was evidence the South Carolina Republican is no racist.
The framed photo depicts a blonde Wilson as a preschooler in a horse-drawn wagon with one arm draped over a black child that Dusenbury, 84, referred to as her son-in-law’s “playmate,” the child of a household employee.
“You see?” she said, three hours before Wilson was formally admonished Sept. 15 by his House colleagues for shouting “You lie” at President Barack Obama during a joint session to Congress on Sept. 9. “We said Joe started it.”
Started what? “Integrating,” Dusenbury said, as she displayed the photo of Wilson “with the little colored boy.”
Wilson’s two words set off a national debate over whether racism was at the root of some criticism of the first black U.S. president. The controversy also could cement voter cynicism about race and politics, and undermine progress symbolized by Obama’s election, said Todd Shaw, an expert on race and politics at the University of South Carolina in Columbia.
Former President Jimmy Carter stoked the controversy Sept. 15, when he told a town-hall audience he believed Wilson’s comments were “based on racism.”
‘Name-Calling’
At a news conference in his district Sept. 18, Wilson called himself the “number-one target of Washington Democrats” and dismissed Carter’s remarks as “name-calling.” He said that if he could do it over again, he would “absolutely not” shout “you lie” at the president.
Critics have seized on past controversies involving Wilson, including his defense of the Confederate flag and his criticism of a black woman who disclosed she was illegitimate daughter of former South Carolina Senator Strom Thurmond, a onetime segregationist. These incidents have been cited as evidence that the congressman’s outburst was an expression of whites’ lingering frustration with a black man’s ascent to the presidency.
Wilson’s supporters conjure the image of a Southern gentleman devoted to patriotism and his Eagle Scout children, a man who immediately apologized for a rare breach of decorum that had nothing to do with race.
At stake in the fight over these conflicting biographies is more than the outcome of the 2010 election for South Carolina’s 2nd congressional district.
‘Not an Accident’
“A Southern congressman making an off-the-cuff and regretted remark in the context of a speech by the first African-American president, that’s not an accident of history,” Shaw said. “As important as it is for us to talk about race, it can be a conversation-stopper and we can’t get beyond it at times if we deploy it too easily.”
Wilson’s relative anonymity in the House, even after eight years there, may be allowing allies and detractors alike to define his personality however they wish. “Before this outburst it would be difficult to find people outside the 2nd District who really knew who he was,” said Robert Oldendick, a political science professor at the University of South Carolina.
An advocate of small government, low taxes and a strong military, Wilson in 2005 co-founded the House Victory in Iraq Caucus and was rated by the National Journal in 2006 as voting with conservatives more than 90 percent of the time on economic and social issues.
‘Thurmond Mold’
“He is not a legislator in the lawmaking sense,” said Charles Bierbauer, dean of the College of Mass Communications and Information Studies at the University of South Carolina. “He’s an affable guy who loves being a congressman, cut out of the Strom Thurmond mold in the sense that he believes in taking care of the people back home, not writing bold, dramatic, groundbreaking legislation.”
Alan Stedman, a roommate of Wilson’s at Washington & Lee University in Lexington, Virginia, described his Sigma Nu fraternity brother as “a kind of bland character. There’s never anything wild about him.” Stedman called Wilson’s shouting at Obama “astonishing.”
Born in 1947, Addison Graves “Joe” Wilson was raised in Charleston, South Carolina, where his father worked for the Esso gas company, as had his father before him, according to Dusenbury. Wilson was educated in Charleston’s public schools and was a popular kid who recruited friends to join the Young Republicans club, said Jeanne Gerhardt, a high-school classmate.
In 1965, his senior year, Wilson was president of his high- school class, Gerhardt said. “He did not smoke. I don’t know that he drank,” she said. “We were not wild hippies. It was Charleston.”
Dogwood and Crepe Myrtle
After college, Wilson built a home next to his grandfather’s in the Springdale suburb of Columbia, and attended law school at the University of South Carolina. When his grandmother died, Wilson inherited a rambling dogwood and crepe- myrtle studded oasis -- complete with fishing pond -- in an unassuming neighborhood of low-slung homes on small lots.
A real-estate attorney, Wilson was founding partner in a West Columbia law firm. About one weekend a month, he also served as a Staff Judge Advocate for the South Carolina Army National Guard, helping soldiers prepare wills and advising them on legal matters, according to Alan Wilson, his eldest son.
Wilson was a member of the state legislature from 1984 to 2001, when he won the congressional seat vacated after the death of Floyd Spence, who had served 30 years.
Confederate Flag
In the mid-1990s, Wilson resisted efforts to remove the Confederate flag from the dome of the South Carolina Statehouse. As a U.S. congressman, he said in an interview with The State newspaper that the disclosure by Essie Mae Washington-Williams that she was the mixed-race daughter of Thurmond was “a smear” on one of his “heroes.” Wilson said the revelation was “unseemly” even if true. He later apologized, though he said Williams shouldn’t have come forward with the information.
Wilson declined requests for comment.
His son Alan, a former prosecutor and now candidate for the state attorney general’s office, declined to discuss the flag or Thurmond issues, but said any suggestion that his father is a racist is “absolutely ridiculous.”
“I’ve never heard him say a negative thing about another person,” Alan Wilson said.
On Sept. 15, the U.S. House voted 240-179 to admonish Wilson for his outburst, which was in response to the president’s assertion that undocumented immigrants wouldn’t be covered in his health-care overhaul proposal.
Wilson’s Apology
Though he apologized in a phone call to the White House, Wilson refused to do so on the House floor as Democratic leaders had demanded. Several black leaders, including Democratic Representative James Clyburn of South Carolina, said the incident wouldn’t have happened with a white president.
Obama, meanwhile, has played down the race issue while others kept the discussion alive. Clyburn told New York Times columnist Maureen Dowd that he wondered about Wilson’s “feelings about his whole notion of white supremacy.”
Clyburn’s office didn’t respond to requests for comment.
In Wilson’s district, supporters expressed dismay at the tone of the debate.
“If you take a different position than the president and your skin color is lighter, they immediately call you a racist,” said Grace Rentier, 57, a Republican activist in Wilson’s district.
By Shobhana Chandra
Sept. 21 (Bloomberg) -- The index of U.S. leading economic indicators rose for the fifth straight month, capping the longest stretch of gains since 2004 and signaling a recovery is under way.
The Conference Board’s gauge of the economic outlook for the next three to six months rose 0.6 percent in August, in line with forecasts, after a 0.9 percent increase in July that was larger than previously estimated, according to data that the New York-based group released today.
The gains in stock prices, consumer confidence and homebuilding that are buoying the leading index bolster Federal Reserve Chairman Ben S. Bernanke’s view that the worst recession since the Great Depression has probably ended. At the same time, rising unemployment and tight credit are a reminder that a rebound will be slow and gradual.
The report “is another signal that economic growth is turning sharply positive this quarter,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “All of the elements for a robust recovery are falling into place. As we look ahead, job losses will end and the unemployment rate will stop rising, but we’re not there yet.”
The index was projected to rise 0.7 percent, according to the median forecast of 58 economists in a Bloomberg News survey, after an originally reported increase of 0.6 percent in July. Estimates ranged from unchanged to a gain of 1 percent.
Stocks Fell
U.S. stocks fell on speculation a six-month rally has outpaced prospects for profit growth. The Standard & Poor’s 500 Index closed down 0.3 percent to 1,064.66 today in New York. Treasuries were little changed, with the yield on the 10-year benchmark note at 3.48 percent compared with 3.47 percent on Sept. 18.
Seven of the 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.
The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.
The Conference Board’s index of coincident indicators, a gauge of current economic activity, was unchanged in August after increasing 0.1 percent the prior month. The index tracks payrolls, incomes, sales and production.
Lagging Indicators
The gauge of lagging indicators fell 0.1 percent following a 0.5 percent drop in the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.
Five of the 10 indicators in today’s report added to the leading indicators index, led by a gauge of supplier deliveries, interest-rate spreads and the stock market.
The S&P 500 Index has soared 57 percent since March 9, when it hit a 12-year low, as optimism grew that the U.S. was pulling out of the downturn. A jump during August in the S&P 500 average from July’s average added 0.3 point to the leading indicators gauge.
Building permits, a sign of future construction, and a gauge of consumer expectations also contributed.
Permits rose 2.7 percent to a 579,000 annual rate in August, the Commerce Department said on Sept. 17. The Reuters/University of Michigan index of consumer expectations six months from now, considered a proxy for future spending, rose to 65 in August and this month climbed to 69.2, according to a preliminary reading.
‘Improving Trends’
Officials at some companies are already seeing a pickup in demand. Best Buy Co., the world’s largest electronics retailer, raised its full- year earnings forecast last week even while reporting a drop in second-quarter profit, citing “improving trends” for sales.
“Customer traffic patterns have started to indicate signs of stability,” Jim Muehlbauer, chief financial officer for Richfield, Minnesota-based Best Buy, said in a Sept. 15 statement.
Money supply adjusted for inflation, which has the biggest weighting in the leading index and subtracted the most of any measure in the August report, took away 0.3 point.
The average number of weekly applications for unemployment benefits rose in August from the prior month, subtracting 0.09 point from the leading index and a reminder that consumer spending is unlikely to lead the recovery.
Jobless Rate
Economists predict claims will subside gradually. Claims dropped by 12,000 to 545,000 in the week ended Sept. 12, according to Labor Department data, while the total number of people collecting benefits rose.
The economic expansion projected to start this quarter won’t be enough to keep the unemployment rate from reaching 10 percent by the end of the year for the first time since 1983, according to a Bloomberg survey of economists this month. The rate rose to 9.7 percent in August, from 9.4 percent in July.
Unemployment rose in 27 U.S. states in August, with California, Nevada and Rhode Island reaching record levels of joblessness, the Labor Department reported Sept. 18 in Washington. California’s unemployment rate reached 12.2 percent and Nevada’s climbed to 13.2 percent.
“There’s still a fair amount of weakness in some of the larger states,” said Steven Cochrane, director of regional economics at Moody’s Economy.com in West Chester, Pennsylvania. “State finances are probably going to be among the last of all the various components of the broad economy to turn around.”
By Rita Nazareth
Sept. 21 (Bloomberg) -- U.S. stocks fell, pulling the Dow Jones Industrial Average down from an 11-month high, on speculation a six-month rally has outpaced prospects for profit growth. European and Asian shares dropped, while oil and gold retreated as the dollar rose. Treasuries were little changed.
Bank of America Corp. lost 2.2 percent on a report that it may drop a loss-sharing agreement with the government. Halliburton Co. helped lead declines in 33 of 40 shares in a gauge of energy companies as crude slid below $70 a barrel, while Newmont Mining Corp. declined as metals fell. Lennar Corp. dropped 3.1 percent after the homebuilder’s loss doubled.
“The stock market is vulnerable,” said Keith Wirtz, chief investment officer at Fifth Third Asset Management Inc., which oversees $20 billion in Cincinnati. “There’s a large crowd expecting a pullback after such a strong spike. We’ve gotten beyond the idea that the economy is less bad. People want to see evidence of whether companies can actually start to grow.”
The Standard & Poor’s 500 Index fell 0.3 percent to 1,064.66 at 4:08 p.m. in New York. The Dow dropped 41.34 points, or 0.4 percent, to 9,778.86. Five stocks retreated for every two that rose on the New York Stock Exchange. Eight of 10 industry groups in the S&P 500 dropped, with gains in health-care and technology companies limiting the market’s decline.
The S&P 500 rallied 2.5 percent last week as increases in retail sales and industrial production signaled the economy is improving. The 58 percent rebound in the benchmark index for U.S. equities from its 12-year low March 9 through last week pushed valuations to almost 20 times the reported earnings from continuing operations of its companies, the highest level since 2004, according to weekly data compiled by Bloomberg.
‘Overshot the Fundamentals’
U.S. stocks are overvalued following the S&P 500’s steepest rally since the Great Depression, economist David Rosenberg said.
“The market is being really fueled here by technicals and momentum,” Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto, said in an interview on Bloomberg Television. “It’s overshot the fundamentals. I’m a little nervous, at least over the near-term.”
Equities remained lower even after the Conference Board said its index of U.S. leading economic indicators rose in August for the fifth straight time, capping the longest stretch of gains since 2004 and signaling a recovery is under way. The gauge of the economic outlook for the next three to six months rose 0.6 percent, in line with forecasts, after a revised 0.9 percent rise in July.
Calling the End
The global economy has probably hit bottom and the U.S. may have emerged from recession at the end of July or in August, Paul Krugman, the Nobel Prize-winning economist, said at a seminar in Helsinki today.
Leaders from the Group of 20 nations meet in Pittsburgh this week to balance reviving the global economy with increased financial regulation. President Barack Obama said in an interview with CNN yesterday that “the jobs picture is not going to improve considerably, and it could even get a little bit worse, over the next couple of months.”
The Dow Jones Stoxx 600 Index of European shares slid a second day, losing 0.8 percent. A 54 percent increase since March 9 drove valuations on the gauge to 47 times reported profit, the highest level since June 2003, weekly Bloomberg data show. The MSCI World measure is valued at almost 28 times profit, also the most expensive level since June 2003.
Asian Shares Slump
The MSCI Asia Pacific Index fell 0.8 percent, led by mining and financial companies. Markets in Japan, Singapore, Malaysia, Indonesia, the Philippines and India were shut for holidays.
The MSCI World has climbed 64 percent since March 9 as the G-20 committed about $12 trillion to revive growth and the Federal Reserve kept overnight borrowing costs near zero to unlock credit markets. The collapse of subprime mortgages spurred $1.6 trillion in writedowns and losses at the world’s biggest financial firms.
“When you start looking at valuations relative to other asset classes and relative to history, the equity market is not looking cheap any longer,” Barry Knapp, head of U.S. equity strategy at Barclays Plc, told Bloomberg Television. “The market looks somewhat extended and we will have to have strong macroeconomic growth to support that.”
Commodity Producers
Energy producers in the S&P 500 lost 0.9 percent. Crude oil for October delivery tumbled 3.3 percent to $69.70 a barrel on the New York Mercantile Exchange.
Halliburton, the world’s second-largest oilfield-services provider, fell 2.5 percent to $27.45. Exxon Mobil Corp. lost 0.6 percent to $69.57, while ConocoPhillips dropped 1.4 percent to $46.15.
Newmont Mining, the largest U.S. gold producer, fell 1.2 percent to $44.41 as gold fell for the third straight session as a rebound by the dollar reduced demand for the precious metal as an alternative investment. Silver also sank.
Alcoa Inc., the largest U.S. producer of aluminum, slipped 0.9 percent to $13.94 as the metal fell 1.7 percent. Aluminum production is likely to outpace demand for the next six to 12 months and will “become less bearish” rather than turn bullish, Max Layton, an analyst at Macquarie Bank Ltd. in London, said in a report. Potash Corp. of Saskatchewan dropped 4.2 percent to $93.09 after the company said profit this year will be $3.25 to $3.75 a share instead of the previous forecast of $4 to $5. The new forecast missed analysts’ estimates.
Mosaic Co., North America’s second-largest crop-nutrient producer, decreased 5.2 percent to $51.41. Intrepid Potash Inc. tumbled 6.4 percent to $24.11.
Banks Slump
Bank of America led financial shares more than 0.9 percent lower for the biggest decline in the S&P 500 among 10 industries. The largest U.S. bank is near an agreement with the U.S. Treasury Department and Federal Reserve to drop a tentative loss-sharing accord designed to complete the acquisition of Merrill Lynch & Co., the Wall Street Journal reported, citing an unidentified person familiar with the matter.
The Charlotte, North Carolina-based bank also failed to meet a deadline today to provide documents to a House panel about its purchase of Merrill Lynch, said Jenny Rosenberg, a spokesman for the House Oversight and Government Reform Committee, in an e-mail today. Anne Finucane, the bank’s chief marketing officer, will meet tomorrow with House Oversight and Government Reform Committee Chairman Edolphus Towns, the bank announced.
Bank of America fell 2.2 percent to $17.25. JPMorgan Chase & Co. declined 0.9 percent to $44.55. American Express Co. had the biggest decline in the Dow, dropping 2.9 percent to $33.76.
Lennar’s Loss
Lennar declined 3.1 percent to $16.02. The third-biggest U.S. homebuilder said its net loss for the three months through August widened to 97 cents a share from 56 cents as revenue tumbled 42 percent. The average estimate by 14 analysts in a Bloomberg survey was for a loss of about 51 cents a share.
“We’ve come a long way from the March lows,” said Tom Wirth, senior investment officer at Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “The rally has fairly priced in an improving economy. Investors are now waiting for revenue growth.” Perot Systems Corp. soared 65 percent to $29.56, while Dell Inc. slid 4.1 percent to $16.01. Dell offered to buy Perot for $3.9 billion in cash, or $30 per share, as the second-largest personal computer maker undertakes its biggest purchase ever to compete with International Business Machines Corp. and Hewlett- Packard Co. in computer services.
M&A Potential
Never before have U.S. companies piled up cash faster compared with interest costs than they are now, setting the stage for a surge in mergers and acquisitions. As the economy emerges from the recession, cash flow may rise from the $1.5 trillion reported by the Commerce Department for the year ended in June, according to data compiled by Credit Suisse Group AG and Bloomberg.
Celgene Corp. and Amgen Inc. led a gauge of health-care companies 0.7 percent higher for the biggest gain among 10 S&P 500 groups.
Celgene rallied 5 percent to $55.19 after the global biopharmaceutical company was raised to “outperform” from “neutral” at Robert W. Baird & Co. Inc. The 12-month share target price is $65.
Amgen, the world’s largest biotechnology company, rose 2.5 percent to $62.31. after saying its bone-strengthening drug denosumab delayed the development of fractures and the need for surgery in patients with cancer that has spread to the bone about as well as Novartis AG’s Zometa, a study found.
AIG, Wal-Mart Rally
American International Group Inc. jumped 21 percent to $48.40 for the biggest gain in the S&P 500. Terms of the insurer’s government rescue package, revised three times in the past year, would be eased again under a proposal being pushed by the leader of the House Oversight and Government Reform Committee.
Wal-Mart Stores Inc. had the steepest advance in the Dow, rising 1.6 percent to $50.91. The world’s largest retailer was initiated with an “overweight” recommendation and a price estimate of $61 at HSBC Holdings Plc, according to an e-mailed report.
Wal-Mart led a gauge of nine food and consumer staples retailers to an 0.8 percent advance, the biggest among 24 industries. Costco Wholesale Corp., the largest U.S. warehouse, rose 1.8 percent to $58.58.
General Electric Co. rose 1.6 percent to $16.76. Morgan Stanley lifted its share-target for GE by 12 percent to $19, citing an improvement in the company’s risk profile.
Dollar Strengthens
The dollar climbed 0.8 percent against the yen and strengthened 0.2 percent versus the euro. The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners, increased 0.3 percent.
The Fed will keep its target rate for overnight loans in a range of zero to 0.25 percent at its two-day policy meeting starting tomorrow, according to all 91 economists surveyed by Bloomberg News.
“The Fed is on hold for a very long time,” Pacific Investment Management Co. strategic adviser Richard Clarida said in an interview with Bloomberg Television in New York.
Treasury two-year notes were little changed as traders prepared for tomorrow’s $43 billion sale of the securities, the first of three auctions this week totaling $112 billion. The 10- year note yield rose two basis points to 3.49 percent. It earlier declined as much as five basis points.
No comments:
Post a Comment