the visible hand

it is the theory which decides what can be observed – einstein

Archive for December, 2007

cc: moral hazard

Posted by ecoshift on December 28, 2007

I don’t normally tell personal stories here, but this bit of anecdotal evidence may be relevant beyond my personal experience.

I just got off the phone with a representative of Discover, the credit card provider. Discover has been pretty good to me. They offered a low introductory rate and a reasonable ongoing rate after that — and they have stuck to their agreement until now. In a previous post on this blog (linked below) I noted some scary language in recent credit card agreements: “We reserve the right to change the account terms (including APRs) at any time for any reason.”  According to the phone call today Discover is giving some similar reserved right a bit of exercise.

I called because they raised my variable rate by 5%. I’d been away from my desk for a weekend and came in two days late on a payment back in November. I thought I might be able to talk them into bringing my rate back down based on my decent credit rating (FICO 700+) and a long history of timely payments. Instead I was told that the increase has nothing to do with my account history: Discover raised interest rates 5% for over 900,000 of their customers due to the business conditions that they, Discover Financial Services (DFS), currently face.

Imagine that. Wow. Moral hazard anyone?

Here’s a link to my previous credit card post and below that an update on the business conditions that DFS faces:

Caveat emptor: deceptive credit card terms and conditions « the visible hand

As far as the credit card companies go, they can change the terms that apply to an existing balance at whim. Read the fine print. Here’s the line from the most recent offer to cross my desk: Rates, fees and terms may change: We reserve the right to change the account terms (including APRs) at any time for any reason, in addition to APR increases that may occur for failure to comply with the terms of your account.

Discover to take charge for UK card business | Reuters

NEW YORK (Reuters) – Discover Financial Services (DFS.N: Quote, Profile, Research), the credit card company spun off by Morgan Stanley (MS.N: Quote, Profile, Research) five months ago, said on Monday that it would take a charge to write off part of its Goldfish credit card business in Britain, where consumer credit has deteriorated.

The noncash write-off covers substantially all of Goldfish’s goodwill and other intangible assets, which totaled $422 million as of August 31, Discover said. It will take the charge in its fourth quarter, which ended on November 30…

“Continued disruption in the UK financial markets, higher interest rates and our decision to reduce our loan exposure to the UK market have negatively affected the book value of our Goldfish business,” Chief Executive David Nelms said in a statement…

Separately, Discover said its board had authorized the repurchase of up to $1 billion in common stock through November 30, 2010. The buyback covers about 12 percent of Discover’s reported shares outstanding, Reuters data show.

I once had a goldfish that died. I had to write off all of his goodwill. I feel their pain.


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Subprime Renegotiation

Posted by ecoshift on December 23, 2007

It always comes down to emotion….

A legal negotiation between a mortgage bank and a lawyer representing a client who cannot meet his adjustable rate mortgage payments and is facing foreclosure on his home. The victorious lawyer wins by noting that cases are won by appealing to a jury’s emotion, but civil cases like this, in contrast to criminal cases, are decided by a judge, not a jury, who is expected be much less swayed by emotional appeals.

And with falling asset prices, the mortgage debtor would probably be better off to walk away from his debt obligations and purchase a home in the future after his credit has been restored and home prices have fallen.

–  FrothySnowman

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Weyerhaeuser Still Awaiting Timber Tax Relief

Posted by ecoshift on December 20, 2007

Weyerhaeuser Still Awaiting Timber Tax Relief
December 19, 2007: 07:55 PM EST
By Paula L. Stepankowsky, Dow Jones Newswires

LONGVIEW, Wash. -(Dow Jones)- Forest products giant Weyerhaeuser Co. (WY) will have to wait until early 2008 to find out if it will get a key tax break it has sought for several years.

The company and its investors are watching the so-called Tree Act closely because the Federal Way, Wash., company has said it believes getting tax relief for timberlands holders is a better way to maximize value than restructuring into a real estate investment trust, as some investors have urged.

The Tree Act was most recently attached to the Energy Bill, said Bruce Amundson, Weyerhaeuser spokesman. But it was dropped from that bill on Dec. 13 as part of the negotiations that later led Congress to pass it and President Bush to sign it Wednesday.

The Tree Act has now been attached to the Farm Bill, which was passed last week in the Senate by a vote of 79 to 14, Amundson said. The Tree Act, however, was not in the version of the Farm Bill passed by the House of Representatives, Amundson said.

House and Senate Agriculture Committee leaders will now negotiate a compromise between the bills passed by the House and Senate, leaving Weyerhaeuser hopeful that the Tree Act will still be included.

“We have very strong support from the leaders in both houses and on both sides of the aisle, so we’re hopefully and confident it will remain in the fill,” Amundson said Wednesday…

Weyerhaeuser has resisted converting into a REIT so far, in part because it could potentially trigger a large tax liability, depending on how the Internal Revenue Service viewed the transaction. If the IRS deemed the conversion primarily a strategy to avoid taxes, it could trigger an estimated $3 billion to $4 billion tax liability.

This liability would be based on the estimated value of the company’s timber today compared with what it cost when Weyerhaeuser bought much of the 6.4 million acres it manages in the U.S. more than 100 years ago, the company has said.

Instead, Weyerhaeuser continues to support the Tree Act, which would give tax relief for it and other timber companies that must pay taxes first before distributing profits to shareholders.

Under current law, Weyerhaeuser is taxed 35% at the corporate level and then shareholders are taxed an additional 15% when they sell their stock. REIT shareholders are taxed once at a 15% rate, Amundson said.

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Fed Approves Plan to Curb Risky Lending

Posted by ecoshift on December 19, 2007

In Reversal, Fed Approves Plan to Curb Risky Lending – New York Times
Published: December 19, 2007

WASHINGTON — The Federal Reserve, acknowledging that home mortgage lenders aggressively sold deceptive loans to borrowers who had little chance of repaying them, proposed a broad set of restrictions Tuesday on exotic mortgages and high-cost loans for people with weak credit.

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Oceans’ Growing Acidity Alarms Scientists

Posted by ecoshift on December 19, 2007

Here’s an interesting link from Jane Doe…

Oceans’ Growing Acidity Alarms Scientists –
By Les Blumenthal
McClatchy Newspapers
Sunday 16 December 2007

Washington – Seven hundred miles west of Seattle in the Pacific at Ocean Station Papa, a first-of-its-kind buoy is anchored to monitor a looming environmental catastrophe.

Forget about sea levels rising as glaciers and polar ice melt, and increasing water temperatures affecting global weather patterns. As the oceans absorb more and more carbon dioxide and other greenhouse gases, they’re gradually becoming more acidic.

And some scientists fear that the change may be irreversible.

At risk are sea creatures up and down the food chain, from the tiniest phytoplankton and zooplankton to whales, from squid to salmon to crabs, coral, oysters and clams.

The oceans are already 30 percent more acidic than they were at the beginning of the Industrial Revolution, as they absorb 22 tons of carbon dioxide a day. By the end of the century, they could be 150 percent more acidic.

“Everything points to dramatic effects,” said Richard Feely, an oceanographer with the National Oceanic and Atmospheric Administration in Seattle. “There are suggestions the entire ecosystem could change over time.”

Originally, scientists thought the oceans could be one of the solutions to the buildup of greenhouse gases, as they absorb about one-third of the carbon dioxide that’s emitted worldwide. But they now know that the fundamental chemistry of the oceans has changed, and the possible impacts seem to grow more nightmarish as research accelerates.

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A Carbon [Consumption] Cap That Starts in Washington

Posted by ecoshift on December 16, 2007

Here’s a bit of good news. Not that it’s been adopted, but in the current climate it’s a relief just to be able to link to a proposal that makes sense. This article below is a bit of rational thinking that deserves support.

Hopefully there is still a place for rational proposals in national politics…

Now if we could just address the labor standards issue — “A global minimum wage that starts in Washington” — maybe US businesses could be truly competitive again. I won’t hold my breath.

Economic View: A Carbon Cap That Starts in Washington – New York Times
Published: December 16, 2007

THE United Nations conference on climate change wrapped up in Bali, Indonesia, last week without a firm commitment from the United States or China to reduce emissions of carbon dioxide and other greenhouse gases. While a binding global agreement would be the best way to cut back on those emissions, a more limited but still useful approach is available, and it is wending its way through Congress…

Indeed, a study by the Tyndall Center for Climate Change Research in Britain estimated that in 2004, net exports accounted for 23 percent of Chinese greenhouse gas emissions.We know where most of those Chinese exports are headed — to developed countries, like the United States, which accounts for about a quarter of them. A rough calculation suggests that almost 6 percent of Chinese carbon emissions are generated in the production of goods consumed here. That is the rough equivalent of the total emissions produced by Australia or France.

The Tyndall Center argues that carbon reduction policies should focus on carbon consumption, not emissions. That makes sense, especially in the absence of a binding global agreement…

If the United States adopted a tradable permit system that treated emissions from domestic producers identically to emissions associated with imported goods, then products that are more emissions-intensive, whether domestic or imported, would require more permits and thus be more expensive. Producers in the United States and abroad would have an incentive to reduce greenhouse gases to make their goods more competitive…

“FROM an environmental point of view,” Mr. Keohane said, “it would ensure that the pollution we cut here at home doesn’t simply end up coming out of a smokestack somewhere else. It levels the playing field for American companies in the global economy. And it also helps us move toward a truly international system, by providing an incentive for developing countries to take on binding caps of their own.”

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Bargain houses largely unsold

Posted by ecoshift on December 16, 2007

The Modesto Bee | Bargain houses largely unsold
Courthouse-step auctions offer 1,336 properties in foreclosure — 17 are sold

last updated: December 15, 2007 04:23:07 PM

Another foreclosure record was set in November as 1,336 properties were offered to the highest bidder on the courthouse steps in Modesto, Merced and Stockton.

Now here’s the real surprise: Only 17 of them sold, despite lenders offering deeply discounted prices.

Every weekday, starting about noon, auctioneers seek buyers for foreclosed properties of all shapes and sizes. But more times than not, no one bids.

That’s because foreclosed homes typically have unpaid mortgage debt far in excess of their current value. When no bidder is willing to pay off that debt, lenders usually get stuck owning the homes.

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Local experts debate the state of Humboldt’s housing market

Posted by ecoshift on December 9, 2007

Kudos to Eric Eschker for putting out the data that allows us to see the similarities between Humboldt’s real estate trends and the national housing market bubble/crash making recent headline news.

The Humboldt Economic Index provides much needed data and analysis that can help raise the level of debate on Humboldt County land-use and housing issues. Too much of what we read and hear is agenda driven hyperbole.

I don’t know who’s funding Eric, but his budget should be increased to allow for a more thorough analysis and the presentation of the underlying data. Median sales prices, as pointed out in the article below, are difficult to interpret without a better understanding of where sales came from across market price segments. If sales volumes for homes under 250k fall by 50% and sales volumes for homes over a 1,000k fall by 10% the median price could rise even if both high and low end prices have fallen by 10 to 15%. Breaking sales figures into quintiles would help us all to understand what is actually happening. It would also be helpful to have better information on sales of larger rural parcels, both developed and undeveloped.

The debate encouraged by Eric’s data and analysis provides an important first step to moving beyond sectoral and individual agendas and towards our ability to think strategically about shared goals for the future of Humboldt County. If changes in TPZ residential use do impact parcel values it will be critical to effective County planning that we distinguish clearly between the impacts of local zoning regulations and the impacts of national housing and economic trends on local real estate values.

Both sides of the argument below have some basis in fact. Humboldt is special beyond doubt. And, the gentrification and development moving up the coastal counties from Marin, to Sonoma to Mendocino decade by decade constitute a long term trend that increases the value of residential properties in Humboldt County. But, the recent double digit increases in home values on the north coast represent more than this long-term trend. It is likely a mistake to bet heavily on Humboldt real estate being immune to national housing market trends.

Thank you Eric for helping to move the conversation beyond emotion, self-interest and ad hominem comments.

Times-Standard Online – Local experts debate the state of Humboldt’s housing market
Ryan Burns/The Times-Standard
Article Launched: 12/09/2007 01:42:25 AM PST

Home sales in California are down — way down. The number of homes sold in October decreased 40.2 percent, and the median price of existing homes fell 9.9 percent, compared to the same period a year ago, according to a recent California Association of Realtors report. But local experts disagree on how these numbers relate to Humboldt County’s housing market.

In October, HSU Economics Chairman Erick Eschker predicted that home values in the county could fall by as much as 40 percent, an assertion that was widely and vehemently challenged by local developers and real estate brokers.

Larry Doss, president of the Humboldt Association of Realtors, took out a full-page ad in this newspaper disputing Eschker’s claims. Included in the ad was a grid showing the average price of homes sold in the county from January 2000 through September of this year. Sure enough, according to these numbers, the average price has not dropped drastically since it peaked at $377,159 in March 2006. But it is declining.

The September figure was $358,354. October was down to roughly $347,000, said Doss last week. November’s numbers were still coming in, but “they’re low,” he said. “They’ll probably be in the $335,000 to $340,000 range.”

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China leads cuts protests at Bali

Posted by ecoshift on December 8, 2007

While China is the fastest growing polluter, much of the pollution is driven by production of goods for US consumers. It is, in effect, pollution generated by “off-shore” US manufacturing. Nationalist negotiating postures help to obscure causal relationships between consumption, economic growth and pollution in a globalized context. The irony of US demands to impose emission limits on emerging markets while limiting it’s own emissions through export of carbon heavy manufacturing capacity is worth noting.

China leads cuts protests at Bali –

BALI, Indonesia (AP) — Developing countries led by China squabbled with the West over mandatory emission cuts at the Bali climate change conference, as activists accused Canada on Saturday of undermining the negotiations by insisting on targets for poor nations.

China, which some believe has surpassed the U.S. as the world’s top emitter of carbon dioxide and other heat-trapping gases, questioned the fairness of binding cuts when its per capita emissions are about one-sixth of America’s.

It said, too, that it has only been pumping pollutants into the atmosphere for a few decades, whereas the West has done so for hundreds of years.

“China is in the process of industrialization and there is a need for economic growth to meet the basic needs of the people and fight against poverty,” said Su Wei, a top climate expert for the government and member of its delegation at the U.N. Climate Change Conference in Bali.

“I just wonder whether it’s fair to ask developing countries like China to take on binding targets,” Su said Friday. “I think there is much room for the United States to think whether it’s possible to change (its) lifestyle and consumption patterns in order to contribute to the protection of the global climate.”

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UN praises China at climate change talks

Posted by ecoshift on December 8, 2007 / In depth – UN praises China at climate change talks
By John Aglionby and Fiona Harvey in Nusa Dua, Bali
Published: December 7 2007 21:53 |

China’s increasingly progressive approach to climate change and a growing acceptance of the science behind the threat are key factors behind better-than-expected progress in negotiations to mould a global consensus on the issue, delegates and United Nations officials said on Friday.

Many people cautioned that Beijing’s refusal to budge on developing countries’ responsibilities in cutting greenhouse gas emissions still needed to be resolved if the goal of the two-week UN conference in Bali – a clearly defined, two-year negotiating roadmap to replace the Kyoto protocol – is to be agreed by Friday.

“China has been offering very concrete, very specific ideas on how you could construct a post-2012 climate change regime, on how you could make operational all the commitments developing countries already have,” said Yvo de Boer, the head of the UN’s climate change agency. “There’s now a real realisation [within the government] that this is a problem coming to China head on.”

Mr de Boer cited financing, particularly a fund to help developing countries adapt to climate change, tariff reform and technology transfer as areas where China was engaging most constructively. These are all areas where China stands to benefit.

In the last few years China has experienced increasingly frequent and severe droughts, water shortages and floods. Officials now accept climate change is a big contributing factor.

Su Wei, a senior Chinese delegate, said: “The science is clear. We have to act now. We cannot wait.”

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