JC Penney's Cuts Earnings Projections By 33%

A further sign of the weakening economy---budget retailer JC Penney's is struggling. Click here for the NY Times article (click) Here is an excerpt:

But consumers are not biting — and, on Friday, J. C. Penney sharply cut its earnings forecast for the first three months of the year, by 33 percent, blaming the tough economy.

That fresh sign of distress in American retailing was reinforced by a report from the Commerce Department that consumer spending remained stagnant in February, growing at the slowest pace in more than a year because of the housing slump and a weak job market.

The dour economic data helped push all three major stock indexes down on Friday. The Dow Jones industrial average slipped 86.06 points, to 12,216.40. The Standard & Poor’s 500-stock index fell 10.54 points, to 1,315.22, while the Nasdaq composite index dropped 19.65 points, to 2,261.18

The slowdown at J. C. Penney bodes poorly for a wide range of retailers — and its profit warning appeared to drag down shares of Nordstrom (off 6 percent), Macy’s (6 percent) and Kohl’s (5 percent).

Friday Funnies: The War Against Sick Days

Perhaps this is why I feel like the way I do...

KPMG is to Foreclosure Crisis as Arthur Anderson was to Enron

A 581 page report by a court examiner in the New Century bankruptcy matter details the role that KPMG, New Century's accounting firm, had in facilitating the mortgage bubble and delaying its bust. The report is certain to provide a new target for investor lawsuits with far deeper pockets than the defunct mortgage company.

Here is a link to the New York Times story (click). Here is an excerpt:

KPMG contributed to some of these accounting and financial errors "by enabling them to persist and, in some instances, precipitating the company's departures from applicable accounting standards," Missal concluded.

....

More than 450 companies and individuals who have filed claims against the Irvine, California-based New Century may be able to sue KPMG for professional negligence based on KPMG's breach of its professional standard of care, Missal wrote.

"In the post-Enron era, one of the lessons should have been that accountants need to be skeptical, strong, and independent," Missal told Reuters in a phone interview. "You didn't have any of those attributes here."

Obama Proposes Homeowner Aid

The New York Times has the story (click here). This is an excerpt:

“Under Republican and Democratic administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices,” Mr. Obama said. “The result has been a distorted market that creates bubbles instead of steady sustainable growth, a market that favors Wall Street over Main Street but ends up hurting both.”

Mr. Obama, an Illinois Democrat, proposed to rebuild a regulatory structure without clamping too tight a hand on economic innovation. But he was unsparing in his view that industry lobbyists and weak legislators had failed to deal with the risks of a more complex financial system.

“Instead of establishing a 21st-century regulatory framework, we simply dismantled the old one,” he said, “aided by a legal but corrupt bargain in which campaign money all too often shaped policy and watered down oversight.”

$460 Billion In Losses For Wall St

From Bloomberg:

Wall Street banks, brokerages and hedge funds may report $460 billion in credit losses from the collapse of the subprime mortgage market, or almost four times the amount already disclosed, according to Goldman Sachs Group Inc. Profits will continue to wane, other analysts said.

Click for full story.

Haggling At Best Buy

The New York Times reports that people are getting some leverage at mega-stores and haggling the price of televisions and other stuff below the ticket-price. (click here for the story) Here is an excerpt:

Savvy consumers, empowered by the Internet and encouraged by a slowing economy, are finding that they can dicker on prices, not just on clearance items or big-ticket products like televisions but also on lower-cost goods like cameras, audio speakers, couches, rugs and even clothing.

The change is not particularly overt, and most store policies on bargaining are informal. Some major retailers, however, are quietly telling their salespeople that negotiating is acceptable.

“We want to work with the customer, and if that happens to mean negotiating a price, then we’re willing to look at that,” said Kathryn Gallagher, a spokeswoman for Home Depot.

Happy Easter: Too Tall Bunny Not Too Tall After All

Goldman Sachs and Lehman Downgraded

Standard & Poor's has downgraded Goldman and Lehman due to mortgage crisis. (click here for full story) Here is an excerpt:

Standard & Poor's, in a continuing sign of loss of confidence in investment banks' profitability, Friday put Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. on negative outlook, lowering them from stable.

Although S&P didn't change the senior-debt ratings from AA-minus for Goldman and A-plus for Lehman Brothers, it brought its view of the likelihood of a precipitous decline in profits at the Wall Street firms during the next two years to the same negative levels it previously assigned to Merrill Lynch & Co

Banks Plot Big Billion Dollar Bailout

The Financial Times is reporting that banks in the United States and Europe are plotting how to get the government to buy billions of dollars of mortgage backed securities. (Click here for the story). Here is an excerpt:

The conversations, part of a broader exchange as to possible future steps in battling financial turmoil, are at an early stage. However, the fact that such a move is being discussed at all indicates the depth of concern that exists over the health of the banking system.

It shows how far the policy debate has shifted in recent weeks as the crisis has spread to prime mortgage assets in the US and engulfed Bear Stearns, the investment bank.

The Bank of England appears most enthusiastic to explore the idea. The Federal Reserve is open in principle to the possibility that intervention in the MBS market might be justified in certain scenarios, but only as a last resort. The European Central Bank appears least enthusiastic.

Any move to buy mortgage-backed securities would require government involvement because taxpayers would be assuming credit risk. There is no indication as yet that the US administration would favour such moves. In the eurozone it would require agreement from 15 separate governments.

Friday Funnies: The Consumer Decision Making Zone

The consumer decision making zone....

Starbucks in tailspin?

What would happen to the American landscape if all of a sudden the ubiquitous Starbucks is suddenly gone...

Here is the latest on Starbucks' financial situation (click here for the full report):

Warning of an economic "tailspin," Starbucks Corp (SBUX.O: Quote, Profile, Research) outlined long-awaited plans to turn around its U.S. business on Wednesday, but details from new coffee machines to a rewards program for frequent customers failed to excite investors, who sent shares down 4 percent.

Chief Executive Howard Schultz told the company's annual meeting there was no "silver bullet" for fixing Starbucks, whose stock has dropped 40 percent over the last 12 months.

Inflation Up, Tempering Interest Rate Cuts

Despite the cryptic rhetoric and often nuanced policy positions, the Federal Reserve typically wields only one tool: interest rates. But, this economic downturn is not just about housing, it is also about the cost of energy and the already enormous personal and commercial debt loads that are being carried.

The New York Times has a good article about how inflation is adding a complicated element into the Federal Reserve Bank's attempt at slowing the downward economic spiral (click here for the article) Here is an excerpt:

Businesses paid more for gasoline, automobiles, and most products last month, reinforcing fears that inflation is rising as the Federal Reserve considers how deep to cut interest rates at its meeting Tuesday afternoon.

While prices for wheat, grain and gasoline have skyrocketed in recent months, the pressures had not appeared to seep into the broader economy. But the core measure of the producer price index, which excludes volatile energy and food products, jumped 0.5 percent in February, the Labor Department said Tuesday. It was the biggest gain since November 2006.

Over all, prices paid by producers rose 0.3 percent, slowing slightly from a 1 percent gain in January. Food prices fell 0.5 percent. But with stark rises in costs for prescription drugs, motor vehicles and capital equipment, inflation clearly remains a threat, even as the economy slows.

Playing Cards While The Company Falls...

Here's an interesting article about the Chairman of Bear Stearns playing cards while his company is falling to $2 a share. (click here) Here is an excerpt:

As the bank hammered out an emergency funding deal on Thursday with the Federal Reserve and JPMorgan Chase (JPM.N: Quote, Profile, Research), which resulted in Bear's shares falling by as much as half, Cayne was playing in the North American Bridge Championship in Detroit, The Wall Street Journal reported on its Web site on Friday.

Cayne, who in January stepped down as Bear Stearns' long-time chief executive, is no stranger to controversy about his hobbies. Last year he was criticized for spending too much time playing bridge and golf while Bear stumbled on wrong-way bets on subprime mortgages.

A Recession Felt Around The World

Click here for an excellent winners-losers article by Nouriel Roubini (one of my favorite economists) related to the first global recession. Here is an excerpt related to the "losers":

Mexico and Canada: Living next door to world’s biggest economy has its advantages, but it has big drawbacks, too. Exports to the United States represent about a quarter of each country’s GDP, so direct trade links will bear the brunt of a slowdown. Expect the manufacturing sectors of both countries to feel the pinch.

China: The world’s fastest-growing economy can’t help but be affected when the world’s largest economy slows down, since China relies on exports to the United States as one of its main sources of growth. In recent years, China has boasted double-digit growth. Officially, Chinese economists expect growth to slow down to 9 percent in the wake of a U.S. recession, but only if such a recession is mild, lasting two quarters. If the U.S. recession is severe—four quarters or more—and is centered on a faltering U.S. consumer who buys fewer Chinese goods, then China’s growth is likely to slow to 6 or 7 percent, a hard landing, indeed.

Indonesia, Malaysia, Taiwan, and South Korea: China gets raw materials such as timber and rubber from Southeast Asian countries like Indonesia and Malaysia. Other East Asian countries, like Taiwan and South Korea, send component parts to the mainland, which are then assembled into finished products that are shipped to the United States. Both groups of exporters are likely to fall—and fall hard—if a drop in Chinese exports to the United States leads to less Chinese demand for these goods and raw materials throughout Asia. Keep an eye on metals, coal, and food products in particular.

No Economic Populists on the US Supreme Court

There is an excellent article in the New York Times Magazine, which takes a look at the past 30 decisions by the United States Supreme Court related to big business. 22 were unanimous (or close to it) in favor of corporate interests. Click here for the article. Here is an excerpt:

In opinions last term, Ruth Bader Ginsburg, Stephen Breyer and David Souter each went out of his or her way to question the use of lawsuits to challenge corporate wrongdoing — a strategy championed by progressive groups like Public Citizen but routinely denounced by conservatives as “regulation by litigation.” Conrad reeled off some of her favorite moments: “Justice Ginsburg talked about how ‘private-securities fraud actions, if not adequately contained, can be employed abusively.’ Justice Breyer had a wonderful quote about how Congress was trying to ‘weed out unmeritorious securities lawsuits.’ Justice Souter talked about how the threat of litigation ‘will push cost-conscious defendants to settle.’ ”

Examples like these point to an ideological sea change on the Supreme Court. A generation ago, progressive and consumer groups petitioning the court could count on favorable majority opinions written by justices who viewed big business with skepticism — or even outright prejudice. An economic populist like William O. Douglas, the former New Deal crusader who served on the court from 1939 to 1975, once unapologetically announced that he was “ready to bend the law in favor of the environment and against the corporations.”

Foreclosure Deferment Bill Passes Through Major Committee

The Minnesota Subprime Foreclosure Deferment Act of 2008 (SF3396) passed through a major senate committee on Friday afternoon and is headed to the full senate for a vote. The Judiciary Committee amended and recommended it to pass.

This is a major accomplishment for Senator Ellen Anderson and Professor Prentiss Cox. Now, the focus turns to the house to follow the Senate's lead.

Click here for the current version of the Deferment Act.

Thoughts About FIRE: finance, insurance, and real estate

Courtesy of Eric, here's an interesting article in Harper's about the bubble-economy and finance, insurance, and real estate. Click here for the article. Here is an excerpt:

FIRE is a credit-financed, asset-price-inflation machine organized around one tenet: that the value of one’s assets, which used to fluctuate in response to the business cycle and the financial markets, now goes in only one direction, up, with no more than occasional short-term reversals. With FIRE leading the way, the United States, free of the international gold standard’s limitations, now had great flexibility to finance its deficits with its own currency. This was “exorbitant privilege” on steroids. Massive external debts built up as trade partners to the United States, especially the oil-producing nations and Japan, balanced their trade surpluses with the purchase of U.S. financial assets. The process of financing our deficit with private and public foreign funds became self-reinforcing, for if any of the largest holders of our debt reduced their holdings, the trade value of the dollar would fall—and with that, the value of their remaining holdings would be decreased. Worse, if not enough U.S. financial assets were purchased, the United States would be less able to finance its imports. It’s the old rule about bank debt, applied to international deficit finance: if you owe the banks $3 billion, the bank owns you. But if you owe the banks $10 trillion, you own the banks.

The Gold Old Days....

From unbossed.com, a little taste of the good old days when the government understood that mortgages were not simply "financial products" and that lenders could easily abuse consumers with hidden costs and fees.

Here are some quotes from a government handbook (circa 1935):

"The major difficulty in achieving home ownership in the past was a mortgage system that had become archaic, far too expensive, and actually dangerous -- for it encouraged high prices, hidden charges, and overbuying."

"...the old mortgage system has often been a hindrance rather than a help in the achievement of home ownership."

"Today, and in the future, those desirous of owning a home will wisely demand [a mortgage] free from hidden charges, lump-sum maturities, and the whole package of old system trials and tribulations."

Subprime Market Explained

Friday Funnies: A Subprime Powerpoint

Click here for the full powerpoint, just press the areas to be guided through the insightful analysis.

Call Klobuchar and Coleman to Pass the Consumer Product Safety Reform Act of 2007 (S. 2663)

From Public Citizen:

Urge the Senate to Pass a Tough Consumer Law.

Right now, the Senate is considering a bill, the Consumer Product Safety Reform Act of 2007 (S. 2663), that would give the Consumer Product Safety Commission much-needed muscle. Please urge your senators to vote for the bill and any strengthening amendments ? and to oppose industry's proposals to weaken the bill.
Write Now | Learn More About Consumer Product Safety

Goodbye Netscape, may you rest in peace...

From the Consumers Union, a farewell to the beloved Netscape Navigator the first web interface to facilitate the wasting of hundreds of hours of my spare time. March 1, 2008 was its last day in operation. Click here for the full post, and history of Netscape v. Microsoft.

REP. JOE MULLERY ANNOUNCES MORTGAGE FORECLOSURE ACTION PLAN

Here's the press release from Rep. Mullery related to the latest foreclosure prevention bills at the legislature:

Even after passing the nation's leading policies on predatory lending and mortgage foreclosure, the housing crisis is still hitting Minnesota hard. With the housing market in serious trouble, and mortgage foreclosures on the rise, State Representative Joe Mullery (DFL – Minneapolis) is leading legislative efforts to help Minnesotans who are facing the possibility of losing their homes.

"We want to do everything possible to help people keep their homes through these challenging times," said Rep. Mullery, who represents the northside of Minneapolis. "A lot of Minnesotans are facing some tough situations right now, and they need help."

As chair of the House Public Safety and Civil Justice Committee, Rep. Mullery organized a "Foreclosures Working Group" that met throughout the interim to create legislative solutions to the ongoing housing crisis. Mullery put together an unprecedented collection of groups as divergent as ACORN, Legal Aid, neighborhood groups, local governments, professors, banks, realtors, landlords, and more. They all worked together over the course of the last several months to establish effective solutions for foreclosures in Minnesota.

"At this crucial time, when immediate action is so imperative, it was essential to get everyone around the table working together," said Mullery. "By working together we were able to hear from all sides of the issue, and establish creative solutions, and a comprehensive action plan to fight foreclosure in Minnesota."

After months of hard work, Mullery announced a mortgage foreclosure action plan today aimed at helping Minnesotans keep their homes through the housing crisis. Much of this legislation was created out of efforts led by Mullery's working groups throughout the interim. This action plan consists of the following bills carried by a bipartisan group of legislators committed to helping homeowners avoid foreclosure:

HF3428 (Gunther) Modifying right of tenant to pay utility bills;

HF3474 (Hilstrom) Relating to mortgages; redemption period; providing for notice of sale;

HF3475 (Mullery) Amending provisions relating to foreclosure;

HF3476 (Kohls) Providing for certain notices relating to foreclosure;

HF3477 (Gardner) Relating to manufactured housing; providing for regulation of lending practices and default; providing notices and remedies;

HF3478 (Peterson, N.) Modifying certain civil and criminal penalties;

HF3479 (Clark) Modifying certain district court fees;

HF3480 (Mullery) Relating to human rights; modifying filing of claim provision;

HF3516 (Davnie) Providing for certain data practices relating to foreclosure; requiring a report;

HF3517 (Davnie) Modifying expungement and withholding of rent under certain circumstances.

"Our communities are hurting badly from this housing crisis, but the Legislature can help," Mullery said. "That's why I'm doing everything I can to make sure this legislation passes this year."

Foreclosures have been particularly destructive to the Minneapolis neighborhoods Mullery represents – driving down home values, leaving boarded houses with gangs and drugs and forcing many into homelessness. That's why Joe is taking action to help people at risk of foreclosure. Since taking on this issue, Mullery has become a national leader in the fight against foreclosure. His efforts, right here in Minnesota, have been heralded as some of the most innovative and forward thinking in the country.

"My friends, neighbors, and constituents are having their homes pulled out from under them," stated Mullery. "This isn't just something I see on the six o'clock news. It's happening right next door, and down the street, and three blocks away. That's why I take this issue so seriously."

Minnesota is currently tied for fourth in the nation when it comes to the percentage of sub-prime mortgages in foreclosure. In fact, in the last year, Minnesota has seen a troubling 152 percent increase in mortgage foreclosures. With no end in sight, Rep. Mullery and other legislators are committed to helping residents keep their homes through these troubling times.

"This is a serious problem, particularly in Minneapolis, the northern suburbs, and other communities throughout the state," said Mullery. "But in some cases there are things that can be done to avoid foreclosure, so that hard-working Minnesota families don't have to lose their homes. Not every homeowner will be able to avoid falling victim to foreclosure. But we must exhaust all possible avenues to help Minnesotans keep their homes."

Mullery also cites the Home Ownership Center as an excellent resource currently available for finding help in the face of foreclosure. The HOC website, detailing foreclosure resources by county, can be found at http://www.hocmn.org/map.cfm?pageID=7. The website lists credible and effective community resources for homeowners at risk of foreclosure.

Securitized Mortgages 20% More Likely To Fail

Here is a link to a new study that found that securitized mortgages are 20% more likely to fail than mortgages that were made and held by the original lender. It is a classic case of people having no stake in the outcome of their lending practices, having no incentive to make sure that they are creating sustainable loans with quality underwriting.

Click here for the study, via the new Less than the Least blog.

Cause-Related Marketing: Why Buy Red Doesn't Get it...

The Stanford Social Innovation Review has a very interesting post related to cause-related marketing, which dove-tails nicely with the other trend...instead of buying less stuff to save the environment, we are supposed to buy different stuff.

Click here for the full SSIR post, here is an excerpt:

The Product (RED) campaign tells us that by shopping, we can help Africa cope with HIV/AIDS. In reality, it’s just one more example of the corporate world aligning its operations with its central purpose of increasing shareholder profit, except this time it is being cloaked in the patina of philanthropy. Buy a (RED) product and a portion of the purchase price goes to charity. But there is a question about what charities will lose in the long term.

Consumer Product Safety Reform Act Needs Your Support

From Public Citizen:


We are so close!

Thanks to your help, the bill to reform the Consumer Product Safety Commission (CPSC) - and protect us from defective and dangerous products - will likely be voted on next week.

From the beginning, it has been an uphill battle to fight for basic protections for consumers and adequately penalize irresponsible companies.

To fight back, industry is currently making a last-ditch effort to weaken the bill drastically - if not derail it entirely. Industry lobbyists have been working very closely with Senate Republicans on a strategy to defeat the CPSC bill. Their strategy packet includes an absurd list of "Top Ten Reasons to Oppose the CPSC 'Reform' Act," which is riddled with misinformation about the bill. We can't let them win.

The CPSC should protect American consumers, not manufacturers!

Although the Consumer Product Safety Reform Act of 2007 (S. 2663) will give the CPSC much-needed muscle, it could be stronger than it is. For example, the maximum fine for violating the Act has been reduced from $100 million to $10 million, or $20 million in "aggravated" circumstances, a pittance for multibillion-dollar corporations. However, the current bill makes valuable improvements over current law that must be defended.

TAKE ACTION: Urge your senators to vote FOR the Consumer Product Safety bill and strong, consumer-friendly amendments and AGAINST amendments that put industry interests before consumers!

Thank you for taking action for consumer safety!

Daniel De Bonis
Online Organizer
Public Citizen's Congress Watch
action@citizen.org