₦airaland Forum

some of us just come to Nairaland and type like kids

Amen!

There is nothing bad in having a sensible discussion with bunch of kids, but when they start typing like kids makes me want to vomit.

You are a poor "Googlist"   I know a very good  source supporting your initial view point ,but I won't bother citing it.

@4 Play:
Hey, what do you expect from an ordinary Nigerian that attended Ajegunle Boys High School?

Now that you've decided not to post a very good source that supports my initial view point, I must be in severe pain! 

Yeah right she misspoke. Did you see the enthusiasm with with she told the story. She didn't mention it just once, but about three times or so over the last few months. She harps on about being credible. A good leader should admit outright when he/she makes a mistake like that, it's so misleading. She's getting more and more irritating by the day. Her tactics are typical and desperate. She is losing a lot of dignity.

@subice:
I truly admire Obama's strategy "allow the crazy woman to bury herself alive" There is absolutely no reason to be aggressive or involve in dirty political games.

It is mighty obvious that she is desperate, dishonest, shady, full of tricks, doesn't care about America, but her power hungry desires; and I'm confident that the truth will continue to come out at the right time.

Trust me, America doesn't need a shady president at this time.

@doyin and 4 play:

I guess, I have to change my stance on this issue:

The inability of the homeowners to meet mortgage payments are:

1. Recently increase in cost of living (high gas prices, high heating oil prices, high food prices etc)
2. High Unemployment rate
3. Unstable economy

Indirectly all 3 factors are also linked to Iraq war.
United States will be back on the map as soon as the Iraq war is ended.

Subprime mortgage crisis

Cover of the Oct 20th 2007 issue of The Economist showing an image related to a Credit crunch caused by the subprime mortgage crisis. [1]
A simple diagram of the elements of the subprime crisisThe subprime mortgage crisis is an ongoing economic problem manifesting itself through liquidity issues in the banking system owing to foreclosures which accelerated in the United States in late 2006 and triggered a global financial crisis during 2007 and 2008. The crisis began with the bursting of the US housing bubble[2][3] and high default rates on "subprime" and other adjustable rate mortgages (ARM) made to higher-risk borrowers with lower income or lesser credit history than "prime" borrowers. Loan incentives and a long-term trend of rising housing prices encouraged borrowers to assume mortgages, believing they would be able to refinance at more favorable terms later. However, once housing prices started to drop moderately in 2006-2007 in many parts of the US., refinancing became more difficult. Defaults and foreclosure activity increased dramatically as ARM interest rates reset higher. During 2007, nearly 1.3 million US. housing properties were subject to foreclosure activity, up 79% versus 2006.[4] As of December 22, 2007, The Economist estimated subprime defaults would reach a level between US. $200-300 billion.[5]

The mortgage lenders that retained credit risk (the risk of payment default) were the first to be affected, as borrowers became unable or unwilling to make payments. Major banks and other financial institutions around the world have reported losses of approximately US. $170 billion as of February 2008, as cited below. Owing to a form of financial engineering called securitization, many mortgage lenders had passed the rights to the mortgage payments and related credit/default risk to third-party investors via mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Corporate, individual and institutional investors holding MBS or CDO faced significant losses, as the value of the underlying mortgage assets declined. Stock markets in many countries declined significantly.

The widespread dispersion of credit risk and the unclear effect on financial institutions caused lenders to reduce lending activity or to make loans at higher interest rates. Similarly, the ability of corporations to obtain funds through the issuance of commercial paper was affected. This aspect of the crisis is consistent with a credit crunch. The liquidity concerns drove central banks around the world to take action to provide funds to member banks to encourage the lending of funds to worthy borrowers and to re-invigorate the commercial paper markets.

The subprime crisis also places downward pressure on economic growth, because fewer or more expensive loans decrease investment by businesses and consumer spending, which drive the economy. A separate but related dynamic is the downturn in the housing market, where a surplus inventory of homes has resulted in a significant decline in new home construction and housing prices in many areas. This also places downward pressure on growth.[6] With interest rates on a large number of subprime and other ARM due to adjust upward during the 2008 period, US. legislators and the US. Treasury Department are taking action. A systematic program to limit or defer interest rate adjustments was implemented to reduce the effect. In addition, lenders and borrowers facing defaults have been encouraged to cooperate to enable borrowers to stay in their homes. The risks to the broader economy created by the financial market crisis and housing market downturn were primary factors in the January 22, 2008 decision by the US. Federal reserve to cut interest rates and the economic stimulus package signed by President Bush on February 13, 2008.[7][8][9] Both actions are designed to stimulate economic growth and inspire confidence in the financial markets.

Contents [hide]
1 Background information
1.1 Understanding the causes and risks of the subprime crisis
1.2 Understanding the effect on corporations and investors
2 Causes of the crisis
2.1 The housing downturn
2.2 Role of borrowers
2.3 Role of financial institutions
2.4 Role of securitization
2.5 Role of mortgage brokers
2.6 Role of mortgage underwriters
2.7 Role of government and regulators
2.8 Role of credit rating agencies
2.9 Role of central banks
3 Effects
3.1 Effect on stock markets
3.2 Effect on financial institutions
3.3 Effect on insurance companies
3.3.1 Effect on municipal bond "monoline" insurers
3.4 Effect on home owners
3.5 Effect on minorities
4 Actions to manage the crisis
4.1 The Federal Reserve
4.2 Loan modification / Hope Now Alliance
4.3 Credit rating agencies
4.4 Regulation
4.5 Bank financial health
4.6 Litigation
4.7 Media
4.8 Economic Stimulus Act of 2008
5 Expectations and forecasts
6 See also
7 References
8 External links and further reading



[edit] Background information
Main article: Subprime lending
Originally the term "subprime" referred to non-government backed (FHA/VA) mortgage loans made with less than 20% down payment. Reasonable credit history was a requirement for ALL mortgage loans. Now the term subprime lending is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of less than 20% down payment OR major problems with their credit history OR the inability to prove, with tax returns or W-2s, that they have enough income to support the monthly payment on the loan for which they are applying. Strangely, one of the categories of subprime mortgages called stated-income-verified-assets, required the borrower to have a credit median score of 700+ and enough verifiable cash and other assets which were used to extrapolate the probable income of the borrower. These "subprime" loans were offered at interest rates competitive with prime rates. These loans were created to market to small business people and other self employed workers. There were and still are hundreds of subprime loan products from dozens of lenders, just has there are hundreds of prime loan products for borrowers with 20% or more for down payment. Some say subprime mortgage loans are risky for both creditors and debtors because of the combination of high interest rates, bad credit history, and unstable employment situations often associated with subprime applicants with the main risk being loss of gainful employment. A subprime loan is one that is offered at an interest rate higher than A-paper loans due to the increased risks perceived by the lender in question. Subprime, therefore, is not the same as "Alt-A", because Alt-A loans qualify for the "A-rating" by Moody's or other rating firms, albeit by "alternative" means. Likewise, Alt-A loans carry higher interest rates than A-paper loans (20%+ down payment, proof of income from tax documents, proof of down payment from institution documents, proof of long and stable employment).

The value of US. subprime mortgages was estimated at $1.3 trillion as of March 2007,[10] with over 7.5 million first-lien subprime mortgages outstanding.[11]Approximately 16% of subprime loans with adjustable rate mortgages (ARM) were 90-days delinquent or in foreclosure proceedings as of October 2007, roughly triple the rate of 2005.[12] By January of 2008, the delinquency rate had risen to 21%.[13]


Number of US. Household Properties Subject to Foreclosure Actions During 2007, By QuarterSubprime ARMs only represent 6.8% of the loans outstanding in the US, yet they represent 43.0% of the foreclosures started during the third quarter of 2007.[14]A total of nearly 446,726 US. household properties were subject to some sort of foreclosure action from July to September 2007, including those with prime, alt-A and subprime loans. This is double the 223,000 properties in the year-ago period and 34% higher than the 333,627 in the prior quarter.[15] This increased to 527,740 during the fourth quarter of 2007, an 18% increase versus the prior quarter. For all of 2007, nearly 1.3 million properties were subject to 2.2 million foreclosure filings, up 79% and 75% respectively versus 2006. Foreclosure filings including default notices, auction sale notices and bank repossessions can include multiple notices on the same property.[16]

The estimated value of subprime adjustable-rate mortgages (ARM) resetting at higher interest rates is US. $400 billion for 2007 and $500 billion for 2008. Reset activity is expected to increase to a monthly peak in March 2008 of nearly $100 billion, before declining.[17] An average of 450,000 subprime ARM are scheduled to undergo their first rate increase each quarter in 2008.[18]


[edit] Understanding the causes and risks of the subprime crisis
The reasons for this crisis are varied and complex.[19] Understanding and managing the ripple effect through the world-wide economy poses a critical challenge for governments, businesses, and investors. The crisis can be attributed to a number of factors, such as the inability of homeowners to make their mortgage payments primarily due to loss of employment or health related issues; poor judgment by either the borrower or the lender; inappropriate mortgage incentives such as buydowns and short fixed term adjustable rate mortgages, coupled with rapidly rising adjustable mortgage rates. Further, declining home prices have made re-financing more difficult. Due to innovations in securitization, it was thought the risks related to the inability of homeowners to meet mortgage payments had been distributed broadly, with a series of consequential impacts. There are four primary categories of risk involved:

Credit risk: Traditionally, the risk of default (called credit risk) would be assumed by the bank originating the loan. However, due to innovations in securitization, credit risk is frequently transferred to third-party investors. The rights to mortgage payments have been repackaged into a variety of complex investment vehicles, generally categorized as mortgage-backed securities (MBS) or collateralized debt obligations (CDO). A CDO, essentially, is a repacking of existing debt, and in recent years MBS collateral has made up a large proportion of issuance. In exchange for purchasing MBS or CDO and assuming credit risk, third-party investors receive a claim on the mortgage assets and related cash flows, which become collateral in the event of default.
Asset price risk: MBS and CDO asset valuation is complex and related "fair value" accounting is subject to wide interpretation. The valuation is derived from both the collectibility of subprime mortgage payments and the existence of a viable market into which these assets can be sold, which are interrelated. Rising mortgage delinquency rates have reduced demand for such assets. Banks and institutional investors have recognized substantial losses as they revalue their MBS downward. Several companies that borrowed money using MBS or CDO assets as collateral have faced margin calls, as lenders executed their contractual rights to get their money bank.
Liquidity risk: Many companies rely on access to short-term funding markets for cash to operate (i.e., liquidity), such as the commercial paper and repurchase markets. Companies and structured investment vehicles (SIV) often obtain short-term loans by issuing commercial paper, pledging mortgage assets or CDO as collateral. Investors provide cash in exchange for the commercial paper, receiving money-market interest rates. However, because of concerns regarding the value of the mortgage asset collateral linked to subprime and Alt-A loans, the ability of many companies to issue such paper has been significantly affected.[20] The amount of commercial paper issued as of October 18, 2007 dropped by 25%, to $888 billion, from the August 8 level. In addition, the interest rate charged by investors to provide loans for commercial paper has increased substantially above historical levels.[21]
Counterparty risk: Major investment banks and other financial institutions have taken significant positions in credit derivative transactions, some of which serve as a form of credit default insurance. Due to the effects of the risks above, the financial health of investment banks has declined, potentially increasing the risk to their counterparties and creating further uncertainty in financial markets. The recent demise and bailout of Bear-Stearns was due in-part to its role in these derivatives.[22]

[edit] Understanding the effect on corporations and investors
Average investors and corporations face a variety of risks owing to the inability of mortgage holders to pay. These vary by legal entity. Some general exposures by entity type include:

Bank corporations: The earnings reported by major banks are adversely affected by defaults on mortgages they issue and retain. Companies value their mortgage assets (receivables) based on estimates of collections from homeowners. Companies record expenses in the current period to adjust this valuation, increasing their bad debt reserves and reducing earnings. Rapid or unexpected changes in mortgage asset valuation can lead to volatility in earnings and stock prices. The ability of lenders to predict future collections is a complex task subject to a multitude of variables.[23]
Mortgage lenders and Real Estate Investment Trusts: These entities face similar risks to banks. In addition, they have business models with significant reliance on the ability to regularly secure new financing through CDO or commercial paper issuance secured by mortgages. Investors have become reluctant to fund such investments and are demanding higher interest rates. Such lenders are at increased risk of significant reductions in book value owing to asset sales at unfavorable prices and several have filed bankruptcy.[24]
Special purpose entities (SPE): Like corporations, SPE are required to revalue their mortgage assets based on estimates of collection of mortgage payments. If this valuation falls below a certain level, or if cash flow falls below contractual levels, investors may have immediate rights to the mortgage asset collateral. This can also cause the rapid sale of assets at unfavorable prices. Other SPE called structured investment vehicles (SIV) issue commercial paper and use the proceeds to purchase securitized assets such as CDO. These entities have been affected by mortgage asset devaluation. Several major SIV are associated with large banks.[25]
Investors: Stocks or bonds of the entities above are affected by the lower earnings and uncertainty regarding the valuation of mortgage assets and related payment collection. Many investors and corporations purchased MBS or CDO as investments and incurred related losses.

[edit] Causes of the crisis

[edit] The housing downturn
Further information: United States housing market correction
Subprime borrowing was a major contributor to an increase in home ownership rates and the demand for housing. The overall US. homeownership rate increased from 64 percent in 1994 (about where it was since 1980) to a peak in 2004 with an all time high of 69.2 percent.[26]

This demand helped fuel housing price increases and consumer spending. Between 1997 and 2006, American home prices increased by 124%.[27] Some homeowners used the increased property value experienced in the housing bubble to refinance their homes with lower interest rates and take out second mortgages against the added value to use the funds for consumer spending. US. household debt as a percentage of income rose to 130% during 2007, versus 100% earlier in the decade.[28]

A culture of consumerism is a factor. In the early 2000s recession that began in early 2001 and which was exacerbated by the September 11, 2001 terrorist attacks, Americans were asked to spend their way out of economic decline with "consumerism,  cast as the new patriotism". This call linking patriotism to shopping echoed the urging of former President Bill Clinton to "get out and shop"[29], and corporations like General Motors produced commercials with the same theme.


Existing Homes Sales, Inventory, and Months Supply, By QuarterOverbuilding during the boom period, increasing foreclosure rates and unwillingness of many homeowners to sell their homes at reduced market prices have significantly increased the supply of housing inventory available. Sales volume (units) of new homes dropped by 26.4% in 2007 versus the prior year. By January 2008, the inventory of unsold new homes stood at 9.8 months based on December 2007 sales volume, the highest level since 1981.[30] Further, a record of nearly four million unsold existing homes were available.[31]

This excess supply of home inventory places significant downward pressure on prices. As prices decline, more homeowners are at risk of default and foreclosure. According to the S&P/Case-Shiller housing price index, by November 2007, average US. housing prices had fallen approximately 8% from their 2006 peak.[32]However, there was significant variation in price changes across US. markets, with many appreciating and others depreciating.[33] The price decline in December 2007 versus the year-ago period was 10.4%. As of February 2008, housing prices are expected to continue declining until this inventory of surplus homes (excess supply) is reduced to more typical levels.


[edit] Role of borrowers
A variety of factors have contributed to an increase in the payment delinquency rate for subprime ARM borrowers, which recently reached 21%, roughly four times its historical level.[13]

Easy credit, combined with the assumption that housing prices would continue to appreciate, also encouraged many subprime borrowers to obtain ARMs they could not afford after the initial incentive period. Once housing prices started depreciating moderately in many parts of the US. (see United States housing market correction and United States housing bubble), refinancing became more difficult. Some homeowners were unable to re-finance and began to default on loans as their loans reset to higher interest rates and payment amounts. Other homeowners, facing declines in home market value or with limited accumulated equity, are choosing to stop paying their mortgage. They are essentially "walking away" from the property and allowing foreclosure, despite the impact to their credit rating.[34]


Mortgage fraud by borrowers from US Department of the Treasury [35]Misrepresentation of loan application data is another contributing factor. In a January 13, 2008 column in the New York Times, George Mason University economics professor Tyler Cowen wrote, "There has been plenty of talk about 'predatory lending,' but 'predatory borrowing' may have been the bigger problem. As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default. Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers."[36]

US Department of the Treasury suspicious activity report of mortgage fraud increased by 1,411 percent between 1997 and 2005. [35]


[edit] Role of financial institutions
A variety of factors have caused lenders to offer an increasing array of higher-risk loans to higher-risk borrowers. The share of subprime mortgages to total originations was 5% ($35 billion) in 1994 [37] , 9% in 1996 [38], 13% ($160 billion) in 1999 [37] , and 20% ($600 billion) in 2006.[38][39] A study by the Federal Reserve indicated that the average difference in mortgage interest rates between subprime and prime mortgages (the "subprime markup" or "risk premium" declined from 2.8 percentage points (280 basis points) in 2001, to 1.3 percentage points in 2007. In other words, the risk premium required by lenders to offer a subprime loan declined. This occurred even though subprime borrower and loan characteristics declined overall during the 2001-2006 period, which should have had the opposite effect. The combination is common to classic boom and bust credit cycles.[40]

In addition to considering higher-risk borrowers, lenders have offered increasingly high-risk loan options and incentives. One example is the interest-only adjustable-rate mortgage (ARM), which allows the homeowner to pay just the interest (not principal) during an initial period. Another example is a "payment option" loan, in which the homeowner can pay a variable amount, but any interest not paid is added to the principal. Further, an estimated one-third of ARM originated between 2004-2006 had "teaser" rates below 4%, which then increased significantly after some initial period, as much as doubling the monthly payment.[41]

Some believe that mortgage standards became lax because of a moral hazard, where each link in the mortgage chain collected profits while believing it was passing on risk.[42]


[edit] Role of securitization

Borrowing Under a Securitization StructureSecuritization is a structured finance process in which assets, receivables or financial instruments are acquired, classified into pools, and offered as collateral for third-party investment.[43] There are many parties involved. Due to securitization, investor appetite for mortgage-backed securities (MBS), and the tendency of rating agencies to assign investment-grade ratings to MBS, loans with a high risk of default could be originated, packaged and the risk readily transferred to others. Asset securitization began with the structured financing of mortgage pools in the 1970s.[44] The securitized share of subprime mortgages (i.e., those passed to third-party investors) increased from 54% in 2001, to 75% in 2006.[40] Alan Greenspan stated that the securitization of home loans for people with poor credit — not the loans themselves — were to blame for the current global credit crisis. [45]

[edit] Role of mortgage brokers
Mortgage brokers don't lend their own money. There is not a direct correlation between loan performance and compensation. They have big financial incentives for selling complex, adjustable rate mortgages (ARM's), since they earn higher commissions. [46]

According to a study by Wholesale Access Mortgage Research & Consulting Inc., in 2004 Mortgage brokers originated 68% of all residential loans in the US., with subprime and Alt-A loans accounting for 42.7% of brokerages' total production volume. [47]

The chairman of the Mortgage Bankers Association claimed brokers profited from a home loan boom but didn't do enough to examine whether borrowers could repay. [48]


[edit] Role of mortgage underwriters
Underwriters determine if the risk of lending to a particular borrower under certain parameters is acceptable. Most of the risks and terms that underwriters consider fall under the three C’s of underwriting: credit, capacity and collateral. See mortgage underwriting.

In 2007, 40 percent of all subprime loans were generated by automated underwriting. [49] An Executive vice president of Countrywide Home Loans Inc. stated in 2004 "Prior to automating the process, getting an answer from an underwriter took up to a week. We are able to produce a decision inside of 30 seconds today. ,  And previously, every mortgage required a standard set of full documentation."[50] Some think that users whose lax controls and willingness to rely on shortcuts led them to approve borrowers that under a less-automated system would never have made the cut are at fault for the subprime meltdown. [51]


[edit] Role of government and regulators
Some economists claim that government policy actually encouraged the development of the subprime debacle through legislation like the Community Reinvestment Act, which they say forces banks to lend to otherwise uncreditworthy consumers.[52] [53] Economist Robert Kuttner has criticized the repeal of the Glass-Steagall Act as contributing to the subprime meltdown. [54] A taxpayer-funded government bailout related to mortgages during the Savings and Loan crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher risk loans.[55]

Some have argued that, despite attempts by various US. states to prevent the growth of a secondary market in repackaged predatory loans, the Treasury Department's Office of the Comptroller of the Currency, at the insistence of national banks, struck down such attempts as violations of Federal banking laws.[56]

Changes in the reserve requirements of US. banks, and the creation in 1994 of special "sweep" accounts, which link commercial checking and investment accounts, allowed banks greater liquidity, which meant that they could offer more credit. Then from 2001 to 2002, in the wake of the dot-com crash, the Federal Reserve Funds Rate was reduced from 6 percent to 1.24 percent, leading to similar cuts in the London Interbank Offered Rate that banks use to set some adjustable-rate mortgage (ARM) rates. These drastically lowered ARM rates meant that in the United States the monthly cost of a mortgage on a $500,000 home fell to roughly the monthly cost of a mortgage on a $250,000 home purchased two years earlier. Demand skyrockted, though home builders would need years to gear up their production.

In response to a concern that lending was not properly regulated, the House and Senate are both considering bills to regulate lending practices.[57]


[edit] Role of credit rating agencies
Credit rating agencies are now under scrutiny for giving investment-grade ratings to securitization transactions holding subprime mortgages. Higher ratings were theoretically due to the multiple, independent mortgages held in the MBS per the agencies. Critics claim that conflicts of interest were involved, as rating agencies are paid by those companies selling the MBS to investors, such as investment banks.[58]

As of November 2007, credit rating agencies had downgraded over US. $50 billion in highly-rated CDO and more such downgrades are possible. Since certain types of institutional investors are allowed to only carry higher-quality (e.g., "AAA" assets, there is an increased risk of forced asset sales, which could cause further devaluation.[59]


[edit] Role of central banks
Central banks are primarily concerned with managing the rate of inflation and avoiding recessions. They are also the “lenders of last resort” to ensure liquidity. They are less concerned with avoiding asset bubbles, such as the housing bubble and dot-com bubble. Central banks have generally chosen to react after such bubbles burst to minimize collateral impact on the economy, rather than trying to avoid the bubble itself. This is because identifying an asset bubble and determining the proper monetary policy to properly deflate it are not proven concepts.[60] There is significant debate among economists regarding whether this is the optimal strategy.[61]

Federal Reserve actions raised concerns among some market observers that it could create a moral hazard. Some industry officials said that Federal Reserve Bank of New York involvement in the rescue of Long-Term Capital Management in 1998 would encourage large financial institutions to assume more risk, in the belief that the Federal Reserve would intervene on their behalf.[62]

A contributing factor to the rise in home prices was the lowering of interest rates earlier in the decade by the Federal Reserve, to diminish the blow of the collapse of the dot-com bubble and combat the risk of deflation.[60]. From 2000 to 2003, the Federal Reserve lowered the federal funds rate target from 6.5% to 1.0%.[63] The central bank was concerned with promoting continued economic expansion after the dot-com bubble, and believed that interest rates could be lowered safely because the rate of inflation was low. The Federal Reserve's inflation figures, however, were flawed. Richard W. Fisher, President and CEO of the Federal Reserve Bank of Dallas, stated that the Federal Reserve's interest rate policy during this time period was misguided by this erroneously low inflation data, thus contributing to the housing bubble:

“ A good central banker knows how costly imperfect data can be for the economy. This is especially true of inflation data. In late 2002 and early 2003, for example, core PCE measurements were indicating inflation rates that were crossing below the 1 percent "lower boundary." At the time, the economy was expanding in fits and starts. Given the incidence of negative shocks during the prior two years, the Fed was worried about the economy's ability to withstand another one. Determined to get growth going in this potentially deflationary environment, the FOMC adopted an easy policy and promised to keep rates low. A couple of years later, however, after the inflation numbers had undergone a few revisions, we learned that inflation had actually been a half point higher than first thought.
In retrospect, the real fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer that it should have been. In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets. Today, as anybody not from the former planet of Pluto knows, the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the task of achieving our monetary objective of creating the conditions for sustainable non-inflationary growth.[64]
”


[edit] Effects
Write-downs on the value of loans, MBS and CDOs Company   Business Type   Loss (Billion $)   
Citigroup bank $24.1 bln [65] [66] [67]
Merrill Lynch investment bank $22.5 bln [68] [69]
UBS AG bank $18.7 bln [70] [71]
Morgan Stanley investment bank $10.3 bln [72] [73]
Crédit Agricole bank $4.8 bln [74]
HSBC bank $17.2 bln [75][76]
Bank of America bank $9.4 bln [77]
CIBC bank $3.2 bln [78]
Deutsche Bank bank $3.1 bln [79] [80]
Barclays Capital investment bank $3.1 bln [81]
Bear Stearns investment bank $2.6 bln [82] [83]
RBS bank $3.5 bln [84][85][86]
Washington Mutual savings and loan $2.4 bln [87] [88]
Swiss Re re-insurance $1.07 bln [89]
Lehman Brothers investment bank $2.1 bln [90] [91]
LBBW bank $1.1 bln [92]
JP Morgan Chase bank $2.9 bln [93] [73]
Goldman Sachs investment bank $1.5 bln [94] [72]
Freddie Mac mortgage GSE $3.6 bln [95] [96]
Credit Suisse bank $3.7 bln [97]
Wells Fargo bank $1.4 bln [98]
Wachovia bank $3.0 bln [99] [100]
RBC bank $0.360 bln [101] [102]
Fannie Mae mortgage GSE $0.896 bln [103]
MBIA bond insurance $3.3 bln [104]
Hypo Real Estate bank $0.580 bln [105]
Ambac Financial Group bond insurance $3.5 bln [106] [107] [108]
Commerzbank bank $1.1 bln [109]
Société Générale bank $3.0 bln [110] [111]
BNP Paribas bank $0.870 bln [112] [113]
WestLB bank $1.37 bln [114] [115]
American International Group insurance $11.1 bln [116][117]
BayernLB bank $2.8 bln [118]
Natixis bank $1.75 bln [119]
Countrywide mortgage bank $1.0 bln [120]
DZ Bank bank $2.1 bln [121]
Fortis bank $2.3 bln [122]
ICICI Bank bank $0.264 bln [123]
Businesses filing for bankruptcy Business   Type   Date   
New Century Financial subprime lender April 2, 2007
American Home Mortgage mortgage lender August 6, 2007
Sentinel Management Group investment fund August 17, 2007 [124]
Ameriquest subprime lender August 31, 2007
NetBank on-line bank September 30, 2007[125]
Terra Securities securities November 28, 2007 [126]
American Freedom Mortgage, Inc. subprime lender January 30, 2007 [127]


[edit] Effect on stock markets
On July 19, 2007, the Dow Jones Industrial Average hit a record high, closing above 14,000 for the first time.[128] By August 15, the Dow had dropped below 13,000 and the S&P 500 had crossed into negative territory year-to-date. Similar drops occurred in virtually every market in the world, with Brazil and Korea being hard-hit. Large daily drops became common, with, for example, the KOSPI dropping about 7% in one day, [129] although 2007's largest daily drop by the S&P 500 in the US. was in February, a result of the subprime crisis.

Mortgage lenders [130] [131] and home builders [132] [133] fared terribly, but losses cut across sectors, with some of the worst-hit industries, such as metals & mining companies, having only the vaguest connection with lending or mortgages.[134]


[edit] Effect on financial institutions
See also: Subprime crisis impact timeline
Many banks, mortgage lenders, real estate investment trusts (REIT), and hedge funds suffered significant losses as a result of mortgage payment defaults or mortgage asset devaluation. As of March 16, 2008 financial institutions had recognized subprime-related losses or write-downs exceeding US. $175 billion.

Profits at the 8,533 US. banks insured by the FDIC declined from $35.2 billion to $5.8 billion (83.5 percent) during the fourth quarter of 2007 versus the prior year, due to soaring loan defaults and provisions for loan losses. It was the worst bank and thrift performance since the fourth quarter of 1991. For all of 2007, these banks earned $105.5 billion, down 27.4 percent from a record profit of $145.2 billion in 2006.[135]

Other companies from around the world, such as IKB Deutsche Industriebank [136], have also suffered significant losses [137] and scores of mortgage lenders have filed for bankruptcy.[138] Top management has not escaped unscathed, as the CEOs of Merrill Lynch and Citigroup were forced to resign within a week of each other.[139] Various institutions follow-up with merger deals.[140]

In addition, Northern Rock and Bear Stearns[141] have required emergency government bailouts.

The crisis also affected Indian banks which have ventured into USA. ICICI, India's second largest bank, has reported mark-to-market loss of $263 million in its loans and investment exposures. Other state owned banks such as State Bank of India, Bank of India and Bank of Baroda have refused to release their figures.[142]


[edit] Effect on insurance companies
There is concern that some homeowners are turning to arson as a way to escape from mortgages they can't or refuse to pay. The FBI reports that arson grew 4% in suburbs and 2.2% in cities from 2005 to 2006. As of Jan 2008, the 2007 numbers were not yet available.[143] [144]


[edit] Effect on municipal bond "monoline" insurers
A secondary cause and effect of the crisis relates to the role of municipal bond "monoline" insurance corporations. By insuring municipal bond issues, those bonds achieve higher debt ratings. However, these insurers used premiums to purchase CDO investments and have suffered significant losses, which brings their ability to insure bonds into question. Unless these insurers obtain additional capital, rating agencies may downgrade the bonds they insured or guaranteed. In turn, this may require financial institutions holding the bonds to lower their valuation or to sell them, as some entities (such as pension funds) are only allowed to hold the highest-grade bonds. The effect of such a devaluation on institutional investors and corporations holding the bonds (including major banks) has been estimated as high as $200 billion. Regulators are taking action to encourage banks to lend the required capital to certain monoline insurers, to avoid such an impact.[145]


[edit] Effect on home owners
Further information: United States housing market correction
According to the S&P/Case-Shiller housing price index, by November 2007, average US. housing prices had fallen approximately 8% from their 2006 peak.[32]However, there was significant variation in price changes across US. markets, with many appreciating and others depreciating.[33] The price decline in December 2007 versus the year-ago period was 10.4%. Sales volume (units) of new homes dropped by 26.4% in 2007 versus the prior year. By January 2008, the inventory of unsold new homes stood at 9.8 months based on December 2007 sales volume, the highest level since 1981.[30]

Housing prices are expected to continue declining until this inventory of surplus homes (excess supply) is reduced to more typical levels. As MBS and CDO valuation is related to the value of the underlying housing collateral, MBS and CDO losses will continue until housing prices stabilize.[146]

As home prices have declined following the rise of home prices caused by speculation and as re-financing standards have tightened, a number of homes have been foreclosed and sit vacant. These vacant homes are often poorly-maintained and sometimes attract squatters and/or criminal activity with the result that increasing foreclosures in a neighborhood often serve to further accelerate home price declines in the area. Rents have not fallen as much as home prices with the result that in some affluent neighborhoods homes that were formerly owner occupied are now occupied by renters. In select areas falling home prices along with a decline in the US. dollar have encouraged foreigners to buy homes for either occasional use and/or long term investments. Additional problems are anticipated in the future from the impending retirement of the baby boomer generation. It is believed that a significant proportion of baby boomers are not saving adequately for retirement and were planning on using their increased property value as a "piggy bank" or replacement for a retirement-savings account. This is a departure from the traditional American approach to homes where "people worked toward paying off the family house so they could hand it down to their children" [147].


[edit] Effect on minorities
There is a disproportionate level of foreclosures in some minority neighborhoods. [148] [149]

About 46% of Hispanics and 55% of blacks who obtained mortgages in 2005 got higher-cost loans compared with about 17% of whites and Asians, according to Federal Reserve data. Other studies indicate they would have qualified for lower-rate loans. [149]


[edit] Actions to manage the crisis

[edit] The Federal Reserve
The US. central banking system, the Federal Reserve, in partnership with central banks around the world, has taken several steps to address the crisis. Federal Reserve Chairman Ben Bernanke stated in early 2008: "Broadly, the Federal Reserve’s response has followed two tracks: efforts to support market liquidity and functioning and the pursuit of our macroeconomic objectives through monetary policy."[13]

In August 2007, the Federal Open Market Committee announced that "downside risks to growth have increased appreciably," a signal that interest rate cuts might be forthcoming.[150] Between September 18, 2007 and March 18, 2008, the target for the Federal funds rate was lowered from 5.25% to 2.25% and the discount rate was lowered from 5.75% to 2.5%, through five separate actions.[151][152] The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility via the Discount window.

The Fed and other central banks have conducted open market operations to ensure member banks have access to funds (i.e., liquidity). These are effectively short-term loans to member banks collateralized by government securities. Central banks have also lowered the interest rates charged to member banks (called the discount rate in the US.) for short-term loans. [153] Both measures effectively lubricate the financial system, in two key ways. First, they help provide access to funds for those entities with illiquid mortgage-backed securities. This helps these entities avoid selling the MBS at a steep loss. Second, the available funds stimulate the commercial paper market and general economic activity. Specific responses by central banks are included in the subprime crisis impact timeline.

The Fed is utilizing the Term auction facility (TAF) to provide short-term loans (liquidity) to banks. The Fed increased the monthly amount of these auctions to $100 billion during March 2008, up from $60 billion in prior months. In addition, term repurchase agreements expected to cumulate to $100 billion were announced, which enhance the ability of financial institutions to sell mortgage-backed and other debt. The Fed indicated that both the TAF and repurchase agreement amounts will continue and be increased as necessary.[154] During March 2008, the Fed also expanded the types of institutions to which it lends money and the types of collateral it accepts for loans.[155]

Fed Chairman Bernanke also delivered a speech March 4, 2008 titled "Reducing Preventable Mortgage Foreclosures." He advocated several solutions, including the reduction of loan principal amounts.[156] This solution was highlighted to address a growing concern that an estimated 8.8 million US. homeowners (10%) with negative equity (homes worth less than the mortgage principal) will have a financial incentive to "walk away" from the property, further exacerbating the crisis.[157]

In March 2008, the Fed also provided funds and guarantees to enable bank J.P. Morgan Chase to purchase Bear Stearns, a large financial institution with substantial mortgage-backed securities (MBS) investments that had recently plunged in value. This action was taken in part to avoid a potential fire sale of nearly US. $210 billion of Bear Stearns' MBS and other assets, which could have caused further devaluation in similar securities across the banking system.[158][159]In addition, Bear had taken on a significant role in the financial system via credit derivatives, essentially insuring against (or speculating regarding) mortgage and other debt defaults. The risk to its ability to perform its role as a counterparty in these derivative arrangements was another major threat to the banking system.[160]


[edit] Loan modification / Hope Now Alliance
Lenders and homeowners both may benefit from avoiding foreclosure, which is a costly and lengthy process. Some lenders have taken action to reach out to homeowners to provide more favorable mortgage terms (i.e., loan modification or refinancing). Homeowners have also been encouraged to contact their lenders to discuss alternatives.[161]

President George W. Bush announced a plan voluntarily and temporarily to freeze the mortgages of a limited number of mortgage debtors holding ARMs, declaring "I have a message for every homeowner worried about rising mortgage payments: The best you can do for your family is to call 1-800-995-HOPE (sic)" [162]. The correct number is 1-888-995-HOPE.[163]. A refinancing facility called FHA-Secure was also created. [164] This is part of an ongoing collaborative effort between the US Government and private industry to help some sub-prime borrowers called the Hope Now Alliance.[165]

The Hope Now Alliance released a report in February, 2008 indicating it helped 545,000 subprime borrowers with shaky credit in the second half of 2007, or 7.7 percent of 7.1 million subprime loans outstanding in September 2007. A spokesperson acknowledged that much more must be done.[166] During February 2008, a program called "Project Lifeline" was announced. Six of the largest US. lenders, in partnership with the Hope Now Alliance, agreed to defer foreclosure actions for 30 days for homeowners 90 or more days delinquent on payments. The intent of the program was to encourage more loan adjustments, to avoid foreclosures.[167]

Corporations, trade groups, and consumer advocates have begun to cite statistics on the numbers and types of homeowners assisted by loan modification programs. There is some dispute regarding the appropriate measures, sources of data, and adequacy of progress. A report issued in January 2008 showed that mortgage lenders modified 54,000 loans and established 183,000 repayment plans in the third quarter of 2007, a period in which there were 384,000 new foreclosures. Consumer groups claimed the modifications affected less than 1 percent of the 3 million subprime loans with adjustable rates that were outstanding in the third quarter. [168]


[edit] Credit rating agencies
Credit rating agencies help evaluate and report on the risk involved with various investment alternatives. The rating processes can be re-examined and improved to encourage greater transparency to the risks involved with complex mortgage-backed securities and the entities that provide them. Rating agencies have recently begun to aggressively downgrade large amounts of mortgage-backed debt.[169]


[edit] Regulation
Regulators and legislators are considering action regarding lending practices, bankruptcy protection, tax policies, affordable housing, credit counseling, education, and the licensing and qualifications of lenders.[170] Regulations or guidelines can also influence the nature, transparency and regulatory reporting required for the complex legal entities and securities involved in these transactions. Congress also is conducting hearings help identify solutions and apply pressure to the various parties involved.[171]


[edit] Bank financial health
Banks have sought and received additional capital (i.e., cash investments) from sovereign wealth funds, which are entities that control the surplus savings of developing countries. An estimated US. $69 billion has been invested by these entities in large financial institutions over the past year. On January 15, 2008, sovereign wealth funds provided a total of $21 billion to two major US. financial institutions. Such capital is used to help banks maintain required capital ratios (an important measure of financial health), which have declined significantly due to subprime loan or CDO losses. Sovereign wealth funds are estimated to control nearly $2.9 trillion. Much of this wealth is oil and gas related. As they represent the surplus funds of governments, these entities carry at least the perception that their investments have underlying political motives.[172]


[edit] Litigation
Litigation related to the subprime crisis is underway. A study released in February 2008 indicated that 278 civil lawsuits were filed in federal courts during 2007 related to the subprime crisis. The number of filings in state courts were not quantified but are also believed to be significant. The study found that 43 percent of the cases were class actions brought by borrowers, such as those that contended they were victims of discriminatory lending practices. Other cases include securities lawsuits filed by investors, commercial contract disputes, employment class actions, and bankruptcy-related cases. Defendants included mortgage bankers, brokers, lenders, appraisers, title companies, home builders, servicers, issuers, underwriters, bond insurers, money managers, public accounting firms, and company boards and officers.[173]


[edit] Media
The media can help educate the public and parties involved.[19] It can also ensure the top subject material experts are engaged and have a voice to ensure a reasoned debate about the pros and cons of various solutions.[174]


[edit] Economic Stimulus Act of 2008
President Bush also signed into law on February 13, 2008 an economic stimulus package of $168 billion, mainly in the form of income tax rebates, to help stimulate economic growth.[9]


[edit] Expectations and forecasts
As early as the 2003 Annual Report issued by Fairfax Financial Holdings Limited, Prem Watsa was raising concerns about securitized products:

“ We have been concerned for some time about the risks in asset-backed bonds, particularly bonds that are backed by home equity loans, automobile loans or credit card debt (we own no asset-backed bonds). It seems to us that securitization (or the creation of these asset-backed bonds) eliminates the incentive for the originator of the loan to be credit sensitive. Take the case of an automobile dealer. Prior to securitization, the dealer would be very concerned about who was given credit to buy an automobile. With securitization, the dealer (almost) does not care as these loans can be laid off through securitization. Thus, the loss experienced on these loans after securitization will no longer be comparable to that experienced prior to securitization (called a ‘‘moral’’ hazard),  This is not a small problem. There is $1.0 trillion in asset-backed bonds outstanding as of December 31, 2003 in the US. … Who is buying these bonds? Insurance companies, money managers and banks – in the main – all reaching for yield given the excellent ratings for these bonds. What happens if we hit an air pocket? Unlike…[175] ”

The legacy of Alan Greenspan has been cast into doubt with Senator Chris Dodd claiming he created the "perfect storm" [176]. Alan Greenspan has remarked that there is a one-in-three chance of recession from the fallout. Nouriel Roubini, a professor at New York University and head of Roubini Global Economics, has said that if the economy slips into recession "then you have a systemic banking crisis like we haven't had since the 1930s" [177].

On September 7, 2007, the Wall Street Journal reported that Alan Greenspan has said that the current turmoil in the financial markets is in many ways "identical" to the problems in 1987 and 1998.[178]

The Associated Press described the current climate of the market on August 13, 2007, as one where investors were waiting for "the next shoe to drop" as problems from "an overheated housing market and an overextended consumer" are "just beginning to emerge."[not in citation given] MarketWatch has cited several economic analysts with Stifel Nicolaus claiming that the problem mortgages are not limited to the subprime niche saying "the rapidly increasing scope and depth of the problems in the mortgage market suggest that the entire sector has plunged into a downward spiral similar to the subprime woes whereby each negative development feeds further deterioration", calling it a "vicious cycle" and adding that they "continue to believe conditions will get worse" [179].

Citigroup economists stated in mid-March 2008 regarding the likelihood of a recession that “The self-feeding downturn now in place shows signs of becoming deeply entrenched.”[180]

As of November 22, 2007, analysts at a leading investment bank estimated losses on subprime CDO would be approximately US. $148 billion.[181] As of December 22, 2007, a leading business periodical estimated subprime defaults between US. $200-300 billion.[182] As of March 1, 2008 analysts from three large financial institutions estimated the impact would be between US. $350-600 billion.[183]

Historically, the price of American homes has risen at a rate similar to the annual rate of inflation. Yale economist Robert Shiller pointed out, since 1890, discounting the housing boom after World War II, that rate has been about 3.3 percent. Because all asset hyperinflations revert to the mean, housing prices can be expected to decline roughly 38 percent from their peak as they return to something closer to the historical rate of monetary inflation. If the rate of decline stabilizes at between 6 and 7 percent each year, the correction has about six years to go from 2008 before stabilize, leaving the economy in need of $12 trillion. [184]

Alan Greenspan, the former Chairman of the Federal Reserve, stated: "The current credit crisis will come to an end when the overhang of inventories of newly built homes is largely liquidated, and home price deflation comes to an end. That will stabilize the now-uncertain value of the home equity that acts as a buffer for all home mortgages, but most importantly for those held as collateral for residential mortgage-backed securities. Very large losses will, no doubt, be taken as a consequence of the crisis. But after a period of protracted adjustment, the US. economy, and the world economy more generally, will be able to get back to business


http://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Understanding_the_causes_and_risks_of_the_subprime_crisis

@doyin and 4 play:

Nice chatting with you guys, I will return shortly!

Daycare center must be closed for the day; the kids (Kobojunkie) are out playing!

And besides most of these loans were made by less than stellar organisations, the Countrywide's and Household's(subprime companies) of this world
hardly vessels through which the Fed would influence economic activity

.

These type of loans were made or allowed to be made with the assumption that it would revive the awful economy.

And I think, (Al Grenspan) was involved in making this decision; I'm currently working on finding a reliable information to support my statement.

The Federal Reserve chairman's weird affection for adjustable-rate mortgages.

Democrats frothed and Republicans shuddered this week when Alan Greenspan suggested that Congress slash Social Security benefits. The frenzy was a shame, because it overshadowed an even more controversial statement the Fed chairman made earlier in the week. On Monday, the 78-year-old banker seemed momentarily to morph into peppy-personal finance maven Jean Chtatzky. As the headliner at the Credit Union National Association's meeting—although I'm sure the bankers were also eager to see "David Landis performing as the U.S. Sen. George Norris, original signer of the 1934 Federal Credit Union Act"—Greenspan explained why consumers might be better off considering adjustable-rate mortgages, or ARMs, instead of standard fixed-rate mortgages. While fixed-rate mortgages have their benefits, he noted that:

Calculations by market analysts of the "option-adjusted spread" on mortgages suggest that the cost of these benefits conferred by fixed-rate mortgages can range from 0.5 percent to 1.2 percent, raising homeowners' annual after-tax mortgage payments by several thousand dollars. Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.


http://www.slate.com/id/2096313/

Don't take mortgage advice from Alan Greenspan

The Fed boss says homeowners should switch to adjustable-rate loans and save the difference. His record is full of dangerous moments like this when hes been way, way off.

Last week, Alan Greenspan was a study in contradiction. On Monday, he extolled the virtues of the levered-up homeowner to a credit union conference. The next day, in a speech to the Senate Banking Committee, he was singing a different tune altogether. Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs), the giant providers of mortgage capital, he warned, "are expanding at a pace beyond that consistent with systemic safety," and that "preventative actions are required sooner, rather than later."

For a Federal Reserve chairman who has demonstrated that he couldn't identify reckless behavior if it ran him over, it was rather surprising to hear him chide Fannie and Freddie for their recklessness. (I should state, however, its an opinion I tend to share.)

His scolding might better be directed inward. What he advocated last Monday should send cold shivers down the spine of anyone so engaged. I already thought that what was going on in real estate was dangerous, but what he now cites as a good thing is not only dangerous, it will be disastrous -- guaranteed.Start investing with $100.
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All hail, Al's paper trail
Before quoting from the above, I would just note that Greenspan's latest comments reminded me of a speech he gave on March 6, 2000, which I have dubbed "An Ode to Technology." In the speech, he waxed on about the wonders of technology and how it had brought us a new era and all that other stuff. Folks may not remember that date, but it was four days before the Nasdaq Composite (COMPX) hit its all-time high of 5,048.62. Despite the recovery over the past year ago, the composite is still down nearly 60% from the March 2000 peak.

This is not the first time Easy Al has been way off. On March 7, 2000, I wrote a column called Alan Greenspan: Friend or Foe that chronicled some of his prior quotes, speeches and the like. It includes his Jan. 7, 1973, utterance (right before the recession that ranks as our worst, at least until we get through the one we're in but haven't completed): "It is very rare that you can be as unqualifiedly bullish as you can be now."

That, coupled with his ode to technology and cluelessness about bubbles (which folks have seen real-time), is a pretty fair indictment.

And, there are other examples prior to his latest "Ode to Real Estate." For instance, in 1984, he wrote a letter to Edwin Gray, then-chairman of the Federal Home Loan Bank Board, advising the regulator to exempt Charles Keating's Lincoln Savings & Loan, a Greenspan client, from harsh federal regulations about its investments. He told Gray he should "stop worrying so much" about such things as junk bonds, and that "deregulation (of the savings & loan industry) was working just as planned."

Lincoln Savings failed rather spectacularly a few years later. And its worth noting that within four years, 15 of the 17 thrifts he mentioned in this letter were broke, costing the old Federal Savings & Loan Insurance Corp. some $3 billion.

What if adjustable-rates ratchet up?
Now onto his latest comments. The first was set up in a rather glowing Wall Street Journal article by Greg Ip on Feb. 24. Called "Fed chief questions loan choices," it begins: "In a rare evaluation of interest-rate options that households face, Federal Reserve Chairman Alan Greenspan questioned whether American homeowners are well served by popular fixed-rate long-term mortgages."

I realize that fixed-interest-rate mortgages tend to have slightly higher rates than adjustable-rate mortgages (ARMs). Unless one either believes rates will collapse or plans to move fairly soon, however, fixed-rate mortgages are always the right way to go. You know what you're getting into, so you're not gambling with your house payment. And of course, if rates drop, you can do as everyone has done: You can refinance.

The notion of the whole country piling into ARMs when rates are at multi-decade lows is a truly destabilizing concept to contemplate. What happens if rates go up (because my view is incorrect) and the economy roars ahead?

Twisted logician makes short shrift of bankruptcy
Turning to a more objective analysis in The New York Times of Feb. 24, titled "Greenspan says personal debt Is mitigated by housing value," I note some even more outrageous comments. (I would call them guffaws, were it not so serious.)

"Bankruptcy rates are not a reliable measure of the overall health of the household sector, Greenspan said, because they do not tend to forecast general economic conditions." (The emphasis is mine.) So, the fact that we have had record and near-record bankruptcies in the last couple years is immaterial, since bankruptcies don't forecast the future!

Similarly, he reached into his linguistic bag of tricks to say why homeowners' increased leverage doesn't count: "An extended period of low interest rates and extra cash from mortgage refinancing has given borrowers flexibility (again, my emphasis) to better manage their debt. So you see, this cash-out-mortgage-facilitated debt assumption is termed "flexibility" on his part, not an increase in leverage. Rather than fun with numbers, he has fun with definitions.

The Times article then paraphrases him thusly: ]"Mortgage refinancing and the rise in home values have helped to bolster economic spending in economic hard times, as well as better periods." That is, of course, what has happened, as folks have groped around to get through the aftermath of the 1990s stock market bubble. We have postponed the inevitable via this leveraging of home values and aggressive lending tactics to keep the housing market alive and percolating. But we are running out of steam
'Assets are contingent; debt is forever'
Now think back to what Easy Al had to say about Keating's Lincoln Savings and other S&Ls. The chairman has forgotten something that everyone who went through the period should have learned: Assets are contingent; debt is forever. Granted, folks get around that pretty easily these days with the bankruptcy laws but -- oops -- we don't have to talk about that because it doesn't mean anything, because it's not a forecasting tool.

So the most irresponsible central banker in the history of the world created the biggest bubble in the history of the world, which had disastrous consequences for the stock market and the economy. In order to ameliorate that, he has created bubble-like conditions and absurd financing schemes in real estate. Meanwhile, we've seen an enormous concentration of risk develop inside the financial system: We are down to just a handful of big banks and government-sponsored entities that are using his other favorite toy, derivatives, to theoretically manage away all their risks.

Fed prudence takes a powder
The summation of these variables has only increased the risk of something bad happening. And, of course, that risk has been heightened by the tanking of the dollar. The dollars decline has been promoted by Greenspan's irresponsible policies and attempts to continually bail out his most recent mistake. He has been doing this serially since junk bonds and bad lending nearly took down the financial system at the end of the 1980s and wiped out the savings and loan industry in 1990-1991.

I believe we are at the end of the string, and things are in the process of slowly deteriorating once again. The pace of that deterioration may pick up speed over the course of the year.

Perhaps we will look back on the speech Greenspan made last week and say that the Fed chairman in essence nailed the top of the housing market -- just as he did with technology in 2000 and the economy in 1973. And hes probably just as wrong about what happens next.

Bill Fleckenstein is president of Fleckenstein Capital, which manages a hedge fund based in Seattle. He also writes a daily Market Rap column on his Fleckensteincapital.com site. His investment positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy, sell or hold any security. The views and opinions expressed in Bill Fleckenstein's columns are his own and not necessarily those of MSN Money.

http://moneycentral.msn.com/content/P73977.asp

@Doyin:
I do not expect you guys (from UK) to see the connections, but Iraq war has been a major distraction and the mighty reason for awful economy in America.
I could see it and feel it over here in Ajegunle, but I will allow folks from United States to confirm my statement.

The Iraq war on the other hand was parts of the factor that created bad economy in the first place.
The bad mortages were designed to create market boom to resolve the problem.

The initiation of the bad mortgages was implemented to intercept the awful economy, The economists thought this implementation would revive the bad economy, but guess what, they were wrong.

My man, please do your homework before attacking Big B1

FYI: War in Iraq is the main problem United States is facing today. Every negative or awful situation in America is directly linked to Iraq War (from president not following the constitution to corruption, to high gas prices, to high rate of unemployment, to bad mortgages, and many many more).
Osama predicted this nightmare, and it is sad to say that the bastard is right.

The only solution to Iraq is Obama; he has the wisdom to unite people without relying on a defective foreign policy.
Furthermore, the middle Easterners are determined to make things difficult for white Americans and will absolutely not  comply or cooperate with McCain or Clinton (these folks are directly seen by Middle Easterners as another version of Mr. BUSH)

Again, everything the Clintons do is absolutely strategic (full of tricks).
They've used different types of tricks in the past to indirectly take Americans for a ride, but I'm glade that the current awful economy is waking up many people in America. These folks are tired of tax cuts for the rich, an increasing awful economy, high oil prices, environmental protect progress not being made, high nation debt, Iraq war failures, a bad health care system.
This is the main reason why Hillary Clinton continues to run into a solid brick wall with her deviousness. The bad economy makes it extremely difficult to get away with obvious deception; I guess Americans are not stupid anymore.
The last thing United States needs at the moment is electing a crafty president.

Hillary Clinton calls Bosnia sniper story a mistake Lie

GREENSBURG, Pennsylvania (Reuters) - Democratic presidential candidate Hillary Clinton said on Tuesday she made a mistake when she claimed she had come under sniper fire during a trip to Bosnia in 1996 while she was first lady.


In a speech in Washington and in several interviews last week Clinton described how she and her daughter, Chelsea, ran for cover under hostile fire shortly after her plane landed in Tuzla, Bosnia.

Several news outlets disputed the claim and a video of the trip, showed Clinton walking from the plane, accompanied by her daughter. They were greeted by a young girl in a small ceremony on the tarmac and there was no sign of tension or any danger.

"I did make a mistake in talking about it, you know, the last time and recently," Clinton told reporters in Pennsylvania where she was campaigning before the state's April 22 primary. She said she had a "different memory" about the landing.

"So I made a mistake. That happens. It proves I'm human, which, you know, for some people, is a revelation."

"This is really about what policy experience we have and who's ready to be commander in chief. And I'm happy to put my experience up against Senator Obama's any day."

Democratic rival Barack Obama's campaign accused Clinton, a New York senator, of mischaracterizing the Bosnia trip and overstating her foreign policy experience, particularly during the eight years when her husband, Bill Clinton, was president.

In a speech in Washington on March 17 Clinton said of the Bosnia trip: "I remember landing under sniper fire. There was supposed to be some kind of greeting ceremony at the airport, but instead we just ran with our heads down to get into the vehicles to get to our base."

She also told CNN last week: "There was no greeting ceremony and we were basically told to run to our cars. Now that is what happened."

Turning to a subject that has dogged Obama, Clinton said she would not have remained a member of his Chicago church where the pastor, Rev. Jeremiah Wright, made inflammatory comments about racism and the September 11, 2001 attacks.

"We don't have a choice when it comes to our relatives. We have a choice when it comes to our pastors and the churches we attend," she said. "Given all we have heard and seen, he would not have been my pastor."

Clinton had previously deflected questions about the topic, saying they should be posed to Obama, who gave an emotional speech last week rejecting Wright's remarks and urging Americans to move past their "racial stalemate."

A spokesman for Obama, a senator from Illinois, said Clinton was simply trying to change the subject from the Bosnia story.

"After originally refusing to play politics with this issue, it's disappointing to see Hillary Clinton's campaign sink to this low in a transparent effort to distract attention away from the story she made up about dodging sniper fire in Bosnia," spokesman Bill Burton said in a statement.

"The truth is, Barack Obama has already spoken out against his pastor's offensive comments and addressed the issue of race in America with a deeply personal and uncommonly honest speech."

Wright, who retired recently, has railed that the September 11 attacks were retribution for aggressive U.S. foreign policy, called the government the source of the AIDS virus and expressed anger over what he called racist America.

http://news.yahoo.com/s/nm/20080326/pl_nm/usa_politics_clinton_dc_3

It is apparent to all that the Iraq war is scary, sad, confusing, unnecessary and an everlasting nightmare. But if the opportunity belongs to you, as the United States president, how would you successfully end Iraq war?

I just feel that allowing Olympics in this country would only further encourage them and wrong message would also be sent to the world.
We need world peace to spread all over, anything else should be immediately discouraged and disabled.

you may have a point there; I will get more info to further understand what exactly is going on.

Before there was China, there was BAE systems notorious for supplying arms to rebels in Africa. Nobody called Britain to it, UK and US have simply disorganized the Middle East and they have been at every world sporting event they qualified for till date. Think of Guantanamo Bay

So why should there be one rule for China and another for the West? This is pure politics.

Olympics should be devoid of politics, there are other platforms to call China for its human rights records like UN. It must not be through boycotting Olympics.

I do not know much about this new development, but I see and understand mostly all your points except for when you stated that "Olympics should be devoid of politics, there are other platforms to call China for its human rights records like UN. It must not be through boycotting Olympics."
I disagree!

I do not see anything wrong with using Olympics as a tool to get their message across to the world (Olympic represents a very good portion of the world).
We must keep in mind that this area (china, north Korea etc) are very stubborn and aggressive. They tend to withstand any pressure thrown to them so far, but boycotting Olympics will definitely be an effective strategy to further expose them to the world; and I'm sure that it would work to some point.
Chinese's history of human rights abuse has been around for many years, hence I welcome any tool that will encourage the voices of the victims or potential victims to be heard.

Boycotting Olympics represents the beginning of the freedom to these people.
I am confident that a successful boycot will absolutely lead to other positive movement toward gaining their freedom.

Why is this useless toothless general kissing ass now?

You can call IBB anything, but an ass kisser is absolutely inaccurate.

(One on one with IBB) IBB HITS OBJ

Former military president, General Ibrahim Badamasi Babangida, has broken his silence over recent goings on in the polity, expressing great discomfort over the sleaze emerging from the National Assembly over what transpired during the administration of President Olusegun Obasanjo.

Babangida, in an exclusive interview with Saturday Sun at his Hilltop mansion in Minna said nothing would have stopped him from giving Nigeria her first nuclear power station if he had a quarter of the billions of dollars squandered on NEPA and the IPP project by the last administration.

The Minna-born General who was also linked with the push of the G-2I group within the PDP to force some reform in the party also spoke extensively on the state of the PDP, how Ogbulafor can succeed, and his resolve to rest his own presidential ambition to ensure that President Umaru Yar’Adua succeeds in office. It is vintage IBB. Excerpts:

Sir, looking at the post-convention PDP, especially, giving that G-21 moved to stop the convention but suddenly withdrew the suit, now we hear you have a stake in G-21, how do you view the out come of the convention? Is PDP still the problem of Nigeria?
It’s not really a matter of having a stake. Far from it! But, quite frankly, I like what G21 is doing because their actions seem to support the whole concept of internal democracy within the PDP. They are members of the PDP. I think, the world over, this is how it should be. I believe in what they are doing and I think it is in the interest of the larger party to come and sit down and talk to them as members of the same family, to see how best they could proceed.

The idea of someone saying that all G-21 members would be jailed or expelled is not the issue. What they are doing is what obtains even in the rest of the civilized world. Let’s give the example of India: there is a Congress Party, at one time or the other they disagree. But they bring them together again. Congress party is forever running into one internal crisis or the other. But they continue to bounce back from it because there is tolerance and internal democracy. You see, these are overseas. Such internal pressure groups will always spring up. You look at the issues and see how best to address them for the eventual benefit of the whole party. You see, we have a way of settling internal crisis within the party and this the way I look at G 21. I think they are patriots. They are good politicians and we should listen to them.

But they suddenly backed down and withdrew their case from the court. Do you think that was the right thing to do, especially as they withdrew and PDP still produced a consensus chairman instead of voting?
Well I think its not backing down. They made a point and maybe, felt the need to restrategise! I try to visualize why they had to do that and I tend to agree with them, in the sense that I believe very strongly that if you want to change a system you must belong to the system, otherwise you can’t change it. And I thought: if that is the way they are thinking, then I think its fair. They want to change the PDP, they must belong to PDP. They can’t change it from outside. So I think its fair they withdrew the case. But the point they are making still remains very strong, very relevant and I believe we should listen to them.

Sir, you’re talking of changing the PDP, in your last interview with Saturday Sun you said the problem of Nigeria is the PDP, with this convention they just held, do you think that the journey to restructuring the PDP has begun?
Now, what they have done is what you may call changing the executive members of the federal working committee, changing their executives. You know that’s what happened. It’s only the new man in charge who would now bring a change. I know Vincent Ogbulafor, I think he is a very careful person and I suspect he has a lot of work to do. If he intends to sit down and work on the structure as it is now, he is not going to find it easy. But, like I said, I have confidence in him and I think he is an experienced person in handling this. He has to do more. To change this system he has to be strong and he has to have a radical approach towards how to restructure PDP.

What I am saying is: the PDP has been in existence since 1998 till now. So everybody there now tends to be a product of what happened in the past. Those in the top, those at the bottom and those who are coming up. Unless we do something quickly to change those values that people inherited, we may never get high again, because we still have the same mentality like they had in the past. But we don’t need that. PDP is a very very good party, but it needs to refocus. In fact, without sounding immodest, I want to see the PDP or the politics in this country in the form of the SDP and NRC party system that we had. And with these two parties we had internal democracy and internal cohesion and people settled their problems and they don’t force candidates that are not popular on these two parties. You know they were credible and well organized parties and this is the type of political parties I want to see.

If I am to advise Vincent Ogbulafor, I would advise he should listen to people. Those who would tell him to discard the G-21 would be misleading him. What the G-21 and other such pressure groups within the party are doing is what well meaning Nigerians are saying. He should listen to them, call them and talk with them. They can work together towards achieving a common objective. I will support him if he does that. I will encourage him for the adoption of the G-21 or whatever, to come together and build a good political party, especially with the electoral reform. I think we have a very good opportunity that we can get it right in the political sector in this country now.

You were talking of a two-party system; several people believe that much as it was good, it was literally forced down people’s throats. Today, even in the PDP, we still have this collection of strange bedfellows. Now, if you force these 50 or so political parties into two political parties, don’t you think we would have more internal combustion?
No. Something went wrong with the current arrangement. I think what I believe went wrong, and that is why we had 50 parties or more, we did not follow to the strictest, minutest details about what needs to done in establishing political parties. There have not been enough checks to find out that whatever a political party tells the authority is the correct information. So there has not been proper crosschecking of facts. The authorities have not gone round to make sure that these parties are existing in quite a number of local governments and finding visible physical people who are minding the offices. They just go and organize their wives and children and call it one party name and get it registered. So I believe, if you remember, we had 23 and we were able to make two out of them. Fifty can still be pruned down. It’s no big deal. It’s just to get what we have now to a much more manageable system. I always try not to talk too much about two-party arrangement because everybody associates two-party to the military under Babangida. And the military under Babangida never did anything for them. So, the moment you talk about it, people will say no! no! no! But I don’t mind 2 or 3, or preferably, 4 or 5. But surely, for a country as diverse as we are, 51 political parties is absolutely bad for our development.

You mentioned that the military under Babangida never did anything right, the Babangida administration was virtually the architect of opening up the Nigerian economy, privatization, commercialization and all that. With the benefit of hindsight, would you say the privatization and commercialization that went on in the last eight years was in tandem with the vision?
I am happy that we saw things before a lot of you did. I think it was one of the political leaders from the South-west who once said that “you will eventually do the right thing after you have exhausted all the options that were made available to you”. And we are reaching that stage now. When we started in 1986 to 1989, nobody ever believed that privatization was doable when we started it. All we heard was: It would not work! It would not do this! The regulation of the economy, everybody thought we were crazy. Now everybody is coming back to it. So I feel satisfied that eventually, people are saying we in the military were right then. That if you take a second look, there is sense in what they have been trying to do. That gives me a lot of satisfaction. And it gives everybody who worked under my administration a lot of satisfaction – that we were not dormant at all.

Do you feel uncomfortable with the current revelations from the House of Reps public hearing on the power sector, the fraud, the mess, and the comatose state of power supply in the country?
To be honest I feel uncomfortable from what I read. I feel uncomfortable because I know that, during our time, even if he had a quarter of the amount of money and funds that are being bandied around today, maybe, I would have established a nuclear power station for this country.

You have been accused of institutionalizing corruption in the governance of Nigeria; now that the Obasanjo administration is turning out to be a lot more corrupt than the Babangida government was ever thought to be, are you relieved that someone has taken the corruption medal from you?
No am not relieved. You know the thing is everybody in the administration has some personal pride. They are proud of who they are. They are proud of where they come from. They are proud of what they stood for. They are proud of what the authorities stood for. I know they would not do something to undermine those values that they so much inherited - either from their profession or background and I think that they did not betray the confidence reposed on us by the Nigerian people at that time. If anything, I am happy that Nigerians are realizing that we did our honest best.

In Gen. T.Y Danjuma’s recent interview, he said something about you and the Dimka coup and how you were supposed to go flush out Dimka, but you…
(Cuts in) No, no you just said it. First of all I know Danjuma very well. He was my boss. I still respect him and he was one of the finest soldiers. I worked with him during the war. I know him as a front line combatant. I also know him as a peacetime commander of the army. So if I talk about Danjuma, what I am saying is true. He is one of finest officers we have in this country and he has got a lot guts and a lot of courage. He has convictions in what he says, so I don’t think he might have said this. But, as regards the Dimka episode, one day, I will open my library too and you will find every event minute-by-minute, what happened, what transpired, what did what, who did what. But the most important thing is that he was the commander at that time and the success will be attributed to him as a commander and not to a subordinate. That is how it must be.

Yes, you succeeded in carrying out the instruction that was given, but we learnt you were protecting the man instead of…
No. You know it all depends. As a military officer, I have been trained to minimise my own casualty at all time and to inflict maximum casualty on the enemy. If he, as the commander had given orders, and you know, we always respect the decision of what we call in the military, ‘the man on the ground’. So if I tell you: ‘boy to go capture Minna market’. As far as I am concerned, I sit down here and I want Minna market captured. I have given him all the resources he needs. Now my little commander will get to Minna market and discover some underestimation or he can vary the order that I gave him. But he will still achieve the same objective. So, even if I go back and say this is what I found, and this is what I did, then the commander will accept your judgment or what we call the person-on-ground. So that is why I said that the credit should go to Danjuma and not Babangida. I was a loyal officer. He told me to do a job and that job was done.

Talking about corruption, you spoke about your regime being the most investigated entity?
Yes.

Now with what we are saying, will it be right to say you would be having a last laugh?
No, no. First of all, I give credit to members of the National Assembly, especially the young men and women in the House of Representatives who, if you asked me, are only doing their job in the first place. They are not after anybody. They are carrying out their oversight functions and the rest of them. That’s their constitutional role, because they are there. We are getting to know more facts about these things. And the public is hearing people who are out to put this thing in true perspective. But I feel a bit happy. Am proud to say that such controversies did not happen during our own administration because we knew what we were doing.

We must be accountable to people at certain times in our lives – even after our term. You know something could always crop up. We were very very conscious of these things. In fact, I’ll tell a story: One of my boys allegedly messed up. I think there was a little investigation during the Abacha regime about a project and this minister got worried. He came to me, he said why should I allow this to happen. The media was awash with information on the supposed fraud and so on. So I sat him down. I said: Look, I read one report that said I gave you N10 billion. So I asked him; did I ever give you N100m? He said no.

Then I said: what’s your problem? Let them go and say N30 billion or N40 billion, at least somebody should have asked. And if nobody found any such money given or taken, the accuser may have to eat his words back. And he said he doesn’t have the patience that I have. And I said no, you would laugh last on this issue. So later the report was submitted and I remember very well. I felt very proud of him. Abacha praised the whole idea about the concept of the project and praised the professionalism with which people in that ministry carried out the job.
But everybody was made to believe that the minister, and by extension, Babangida stole N30b on that particular project. But, in the end, Abacha didn’t even cancel the project. He said the project should be done and so on.

Talking about project, what’s your take in the things we are hearing about the Ajaokuta steel project?
Again, I feel uncomfortable. But I will be unfair to the investigating agencies looking into the matter. I think whatever I say will very much depend on what the investigators find out when investigations are completed. I don’t want to develop some prejudice on what is happening.

There is this allegation that the South-west appropriated MKO Abiola soon after the June 12 1993 presidential election, even though you were closer to Abiola than most of them
The answer is true. Yes I was very close to Abiola than all of you except those of his immediate family. After his immediate family, I will claim that I am one of the closest three persons after his family.

So why couldn’t you change the fate that befell him?
Fate! Even you have called it fate

Why couldn’t you change the course of June 12, since you were not only in government, but also in power?
I think one day, the facts will emerge. But each time I think about it, I feel the political management at that time was the undoing. I think June 12 was mismanaged. We had people who handled the whole issue about June 12, they didn’t apply a lot of political common sense. Now I can sit down and tell you it ought to have been done this way. I will give you an example. Moshood Abiola came out to me during the crisis - in the heat of June 12 - and he said: ‘what can you do’. He asked me that. I said there are a lot of things I can do. Just as you said, he said he knew me.

That if there is a mountain here, I can go through if I wanted. We laughed. But I said ‘no’, as a soldier if there is a mountain here, I have been taught to go round it. We all laughed. So I pleaded for some time to think about it and then I also promised I was going to call him to tell him what we were going to do. Unfortunately his handlers, they tried to make interpretations of my discussion with him. Fortunately for him, it was only two of us in the meeting. We didn’t bring any other person in. This was at the instance of very prominent traditional rulers. I said I will inform my team. The moment he left, those forces around him took over the whole thing. And they went on and on, saying don’t trust him, he is not going to do this, he is going to do that and I think he got carried away by them.

Chief Gani Fawehinmi is one of those who hold you totally responsible for the bungling of June 12 and he has tried to bring you to justice ever since. How do you view his campaigns?
Well, there are two ways I look at it. Chief Gani Fawehinmi is a lawyer. A professional lawyer, one of the finest and there’s no problem with that. He is one of the vibrant activists that we have in the country. He is doing that because he has a belief, he has a conviction. You cannot fault him on that issue. But I know he is not a politician. So if he tries to get himself into politics, that is where he draws some fire across. But, I said it before, I respect him and I don’t have any problem with him. But to him, he thinks I am a devil, when I know I am not. So, my position usually is: Keep your own views, and I keep mine. I have no problem with that. But I still respect him because he has a conviction.

Have you heard that he is a little ill at the moment?
Yes. So I was told. And I will keep on praying for him for a speedy recovery. I have one thing in common with him and therefore by the virtue of what I have in common with him, I cannot wish him evil. He is a Muslim and I am a Muslim, and Muslims don’t wish their brothers evil. So I will pray for him.

What is the problem between you and Soyinka? Why all the furore over the LNG lecture? When did you fall out with him?
Really I don’t think there is any problem. It’s unfair, if he says he is bitter. I think the whole thing boils down to perception. I don’t even think he said many of the things you people in the media ascribe to him. Believe it or not, I spoke to Soyinka about a month or two ago – that is after the Lagos LNG thing. Yea, we spoke.

So what did you talk about?
We re-confirmed to ourselves that at least I wasn’t carried away. What I heard people say he said about me, I don’t believe that. And I still respect him. If he walks in here now, you will never feel there’s anything wrong between the two of us.

Have you dumped your presidential ambition? How are you going to be reconscripted into the presidency race?
You don’t need to reconscript me. Now, what you are going to do is to make sure you tap from some of the experiences we have had in order to build a future.

Does that mean you’re no longer interested in the presidency? Are you tired already?
I am old. And I am not looking at it from the point of view of somebody at 66 years. I want to say that there is a government in place and that government will be there for, let’s say, eight years. And if you add 66 years to it, then you will get 74 years.

But McCain is still strong and running in the US?
Yea, McCain is running strong. They have a system that works. While here, we are just trying to build a system. With that you can even have McCain still in charge at 80 years. He can still run at 80 because his system, the American System, is very strong. He can work. He can stay if he likes. All they need from him is just his brain. To direct people who would do the job. We haven’t reached that stage yet, and so it will be too tasking for me at the age of 74. In any case, McCain is 70. I will be 74 years.

People don’t seem to understand where you belong, people are still thinking that perhaps you are showing apathy in government because you are still angry since you were screened out
I think it is very unfair and I want to say it is also wrong. Wrong in the sense that before I checked out, when I checked out of the race, I wrote. I gave my reasons for it and still today, those reasons are still very valid and nothing has changed those arguments. Now because I said so, because of my conditions, my aim will be to assist Yar’Adua and not to succeed Yar’Adua. And that is how it will be.

Sir, how did you feel when Obasanjo, a retired president and BOT chairman of your party, pitched tent with one candidate and went round the country campaigning for him to be chairman of the party?
I wouldn’t do that as a former president.

What would you do as a former president?
Advice. Be father to all. Not take sides.

But since Obasanjo left office, he has not visited and you have also not visited him
We have conflicts in our schedules. But am glad to say that since he left we’ve talked - not necessarily about the matter.

If you actually want to restructure the system why won’t you drive it? You have been so removed that we now wonder if you are still in the PDP
You can inspire people to do the right thing. You see, they have the energy. They have the intellect, they have the time. All you need is to provide them a support base. Let them be launched into this thing. Instead of you struggling for power with them, there’s a time to take the back seat.

You are in PDP, why is it that your name pops up in some two, three, four or five political parties, including NDP?
I keep recurring in them because I have friends in virtually all parties and I don’t disown them because they don’t belong to the party I belong.
At my level, I will be doing a disservice to Nigeria if I restrict myself to PDP.

There is this talk about removing Obasanjo as BOT chairman and replacing him with you.
Me! BOT chairman? The Igbo man would say tufiakwa!


http://www.ngex.com/cgi-bin/frame/frameit2.plx?link=%22http://www.sunnewsonline.com/%22

Check out the speech and make your judgement


https://www.youtube.com/watch?v=pWe7wTVbLUU

Obama forced to confront race issue head-on

BARACK Obama has taken the biggest gamble of his presidential campaign by refusing to disown his controversial pastor and instead opening up the debate about race in America.

In his most important speech since launching his campaign in February last year, the Democratic candidate took dramatic steps on Tuesday to dampen the firestorm ignited by the release of a video showing Reverend Jeremiah Wright shouting, "God damn America," during a sermon on racism.

While repudiating the pastor's "profoundly distorted view of this country", Senator Obama tackled the experience of growing up a black man in America head-on as he explained his 20-year involvement with Reverend Wright's church.

Speaking in Philadelphia, the biggest city in the state of Pennsylvania, which holds its primary vote on April 22, he delved deeply into the problems of race in America.

In a country in which racial distrust runs deep and is often unspoken, historians and others described the speech's frankness about race as almost without precedent. Some said it could be likened only to speeches by Presidents Johnson, Kennedy and Lincoln.

Until now, Senator Obama has avoided talking directly about race, preferring instead to allude to it in his vaguer, more hopeful message of healing a divided community.

But after days of negative commentary from right-wing talkback hosts and television coverage of various inflammatory remarks by Reverend Wright, Senator Obama moved to confront the issue directly.

"Race is an issue that I believe this nation cannot afford to ignore right now," he said.

"We would be making the same mistake that Reverend Wright made in his offending sermons about America: to simplify and stereotype and amplify the negative to the point that it distorts reality.

"But the anger is real; it is powerful; and to simply wish it away, to condemn it without understanding its roots, only serves to widen the chasm of misunderstanding that exists between the races."

Commentators were divided over whether the speech — which attendees described as electrifying — would end the controversy that is threatening serious damage to Senator Obama's candidacy.

Republicans think he handed them a major weapon by refusing to disown the pastor.

"This is far and away the most damaging issue of the campaign for him, and his wonderful speech did nothing to make it go away," said veteran Republican pollster Whit Ayres.

In a sign that the furore is hurting Senator Obama, a Quinnipiac poll in Pennsylvania released on Tuesday showed Senator Clinton widening her lead, 53% to 41%, among likely primary voters — with a growing split between black and white voters.

https://www.nairaland.com/nigeria?action=post;topic=121865.0;num_replies=32

(A picture of a) supporter Marty Nesbitt sheds tears as he listens to Barack Obama's speech

4Play,
you have the rights to believe whatever makes you happy. And I think I do too.

@Kobojunkie:
You don't get it.
Again, you're not in any position to be asking me questions. Please, kindly direct all your infantile questions to someone else.
No disrespect, we both belong to different league!

The speech is brilliant and a pure sample of utmost originality.  WHY?

Obama clearly and cleverly denounced the statements of his pastor without martyrizing the man (the way most whites would have preferred). He did this in a systematical manner that left many speechless and wondering at the same time.
He also re-introduced the power of racism in America by rationally simplifying the negative effects and pointing out the products that have compiled by these unbearable backwash over the years. He made his points and gave several examples without choosing sides (not many people could accomplish this goal successfully).
He further mentioned that people shouldn't berate Pastor Wright without critically analyzing and clearly understanding the root of his disapprobation.
He also stated that America will move forward effectively and efficiently only if folks could accept one another and work together as one.

Sen Barack H. Obama Jr. methodically touched all the sensitive demons that are clearly frightenable to many (politicians) in America today. He did this with zero hesitation, without stepping on any toes, without choosing sides, with pure sincerity, with supreme genuineness and with a crystal clear frame of mind.

And he did it all his way!

Many (Bill Cosby, Louis Farrakhan, Bill Clinton, Al Shapton, Malcolm X, W.E.B. Du Bois, Jessie Jackson etc.) tried to do the same in the past, but failed abundantly.

Photo shows President Clinton, controversial Obama minister

(CNN) – Barack Obama’s former minister, Rev. Jeremiah Wright, attended a 1998 Clinton White House prayer breakfast, and met former President Bill Clinton – a moment which was documented by official photographers in a photo that surfaced Thursday.

Wright was one of roughly 100 religious leaders invited to the breakfast, which was held in the East Room on September 11, 1998, as part of a series of similar events scheduled that year in the wake of the Monica Lewinsky scandal.

The photograph appeared on "The truth about Trinity United Church of Christ," a blog operated by a church member.

During the breakfast, then-President Clinton told the group that "I don't think there is a fancy way to say that I have sinned."

An Obama spokesman declined to comment. Clinton spokesman Phil Singer told CNN, “In the course of his two terms in office, Bill Clinton met with, corresponded with and took pictures with literally tens of thousands of people.

According to White House documents released this week, Hillary Clinton was scheduled to attend the event as well.

The Obama campaign has struggled to re-gain its footing following the controversy over racially-charged comments by the Illinois senator’s former minister. Earlier this week, Obama gave a speech in Philadelphia that was meant to clarify his opposition to the substance of Wright’s remarks, as well as his views on racial division in America.

The Clinton campaign has largely steered clear of public criticism of Obama over the incident, though some current and former campaign surrogates have suggested the fact that the senator did not dissociate himself sooner might raise questions about his judgment.

–CNN's Steve Brusk and Rebeca Sinderbrand

http://politicalticker.blogs.cnn.com/

Great speech is just that, great speech. At the end of the day, that great speech is not going to make problems go away, action does and looking the details and asking the right questions help.

Wow, you're amusing indeed!

LOL!

It is what it is, a child will always be a child.