bank run blog

A year after the Interstate 35W bridge in Minneapolis collapsed at rush hour, sending cars, trucks, buses and debris hurtling 60 feet down an embankment into the Mississippi River, little has been done to comprehensively address the nation’s deteriorating civil infrastructure despite public support and various state and federal legislative initiatives. The Minneapolis tragedy, which killed 13 and injured 145, briefly focused public attention on the issue, but opposition from the Bush administration and private corporate interests has effectively halted action at the federal level, while fallout from the economic downturn has overwhelmed state and local efforts. Experts have warned that more than one in four US bridges is classified as either “structurally deficient” or “functionally obsolete”.

A study released last week by the American Association of State Highway and Transportation Officials concluded that more than 152,000 public road bridges in the country remain at risk, out of a total of about 600,000. The findings are in line with the most recent survey by the Federal Highway Administration, conducted in 2006. At that time the American Society for Civil Engineers estimated that repair costs would exceed $200 billion over 20 years. An independent investigation by the Associated Press found that in the year since the I35W collapse just 12 percent of the nation’s most heavily used bridges with known structural deficiencies received any repairs at all.

Pennsylvania Governor Edward Rendell told the Los Angeles Times, “The push to repair bridges and our country’s infrastructure has become a victim of the bad economy. If we don’t put money into our roads and bridges and infrastructure, our economy will get even worse. We won’t be able to transport anything across this country.” Rendell has joined with other prominent state and municipal officials, including California Governor Arnold Schwarzenegger and New York Mayor Michael Bloomberg, in a bipartisan coalition to promote a national infrastructure-rebuilding program and lobby for a massive increase in federal funding.

US bridges were built to last about 50 years, and the average bridge in the country is 43 years old in 2008, according to the AASHTO report released last week. Pennsylvania alone has more than 6000 deficient bridges, with an average age of 51.

cross posted at

redstateupdate.net

The Swiss banking company UBS has announced it will cease offshore banking services for its US customers and accept no new accounts from US citizens. The declaration came last week during Senate hearings regarding the use of offshore banking companies by wealthy US citizens to shield their wealth to avoid paying taxes.

Mark Branson, chief financial officer for UBS Global Wealth Management and Business Banking, told the committee that his bank would fully cooperate with US tax officials as it attempts to identify US depositors who committed tax fraud by hiding wealth in the banks offshore accounts.

A report released by the Senate found that wealthy Americans use the services of UBS and other banks in both Switzerland and Liechtenstein to shield trillions of dollars. The investigation found that 19,000 Americans hold $18 billion dollars in UBS accounts. Senator Norm Coleman (R-MN) said American depositors use offshore accounts to hide “an estimated $1.5 trillion in American assets, resulting in lost taxes of roughly $100 billion.”

The hearing and investigation came about after an employee of the LGT bank in Liechtenstein provided 12,000 pages of documents regarding secret bank accounts to tax authorities. US authorities have initiated investigations into 100 US depositors who are alleged to have hidden wealth to avoid paying taxes. The investigation is the first time that US authorities have ever probed the use of offshore tax havens by wealthy Americans.

cross posted at

redstateupdate.net

Economists have predicted that the current slump will be prolonged for American consumers, and some have even suggested that the nation may be facing an inevitable and permanent reduction in its standard of living. In this context, perhaps it is not too traumatic to discover that some of the accoutrements and accessories of the boom years have hidden health risks.

Today the New York Times is reporting on the heated debate over radiation in popular “designer” kitchens :

“Allegations that granite countertops may emit dangerous levels of radon and radiation have been raised periodically over the past decade, mostly by makers and distributors of competing countertop materials. The Marble Institute of America has said such claims are ‘ludicrous’ because although granite is known to contain uranium and other radioactive materials like thorium and potassium, the amounts in countertops are not enough to pose a health threat.

Indeed, health physicists and radiation experts agree that most granite countertops emit radiation and radon at extremely low levels. They say these emissions are insignificant compared with so-called background radiation that is constantly raining down from outer space or seeping up from the earth’s crust, not to mention emanating from manmade sources like X-rays, luminous watches and smoke detectors.

But with increasing regularity in recent months, the Environmental Protection Agency has been receiving calls from radon inspectors as well as from concerned homeowners about granite countertops with radiation measurements several times above background levels. ‘We’ve been hearing from people all over the country concerned about high readings,’ said Lou Witt, a program analyst with the agency’s Indoor Environments Division.”

Yesterday the Associated Press ran an article on one doctor’s wake up call for cell phone users :

“The head of a prominent cancer research institute issued an unprecedented warning to his faculty and staff Wednesday: Limit cell phone use because of the possible risk of cancer.

The warning from Dr. Ronald B. Herberman, director of the University of Pittsburgh Cancer Institute, is contrary to numerous studies that don’t find a link between cancer and cell phone use, and a public lack of worry by the U.S. Food and Drug Administration.

Herberman is basing his alarm on early unpublished data. He says it takes too long to get answers from science and he believes people should take action now — especially when it comes to children.”

This report from Indianapolis NBC affiliate WTHR proves avoiding carcinogens is no picnic :

“For decades, wood used for outdoor purposes was infused with the preservative CCA. The preservative contains copper, chromium and arsenic, and it was pumped into billions of pounds of lumber used for playground equipment, backyard decks and picnic tables to help prevent decay and deterioration.

The lumber industry voluntarily agreed to stop using CCA by the end of 2003 due to pressure from the Environmental Protection Agency and health concerns that arsenic was leaching out of the wood, exposing consumers to an increased risk of cancer and other health problems.”

New York Times : What’s Lurking in Your Countertop?

Associated Press : Pittsburgh cancer center warns of cell phone risks

WTHR TV (Indianapolis) : Poison in the Parks

Evidence that the economic malaise has become widespread continues to accumulate. With consumer spending confined strictly to necessities, and energy and supply costs rising, more businesses are closing their doors. Yesterday McClatchy reported :

“Driven by a sour economy and skittish consumers, U.S. business bankruptcies saw their sharpest quarterly rise in two years, jumping 17 percent in the second quarter of 2008, according to an analysis by McClatchy.

Commercial filings for the first half of 2008 are up 45 percent from last year, as the national climate for commerce continues to deteriorate amid rising energy and food costs, mounting job losses, tighter credit and a reticence among consumers to part with discretionary income.”

The investigation identified 15,471 bankruptcies in the second quarter, a fraction, according to the report, of total commercial closures :

“Another 60,000 to 90,000 others probably have closed, because roughly two to three businesses fold for every one that files for bankruptcy, said Jack Williams, resident scholar at the American Bankruptcy Institute.

The vast majority of these failed companies are among the nation’s 23 million small businesses, with fewer than 100 employees. Their fortunes have tumbled as the national economic downturn has deepened.”

full story

An earlier article on the same subject from the International Herald Tribune featured anecdotal evidence of the causes of bankruptcy and the range of effected industries :

“Rising fuel prices and weaker demand were reasons for last month’s Chapter 11 filing in U.S. Bankruptcy Court in Delaware by JHT Holdings, the biggest U.S. transporter of large trucks from manufacturing plants to dealers. Retrenching consumers hurt Whitehall Jewelers, a 373-store jewelry retailer that will liquidate after seeking refuge last month, also in Delaware.

Soaring costs can affect companies even with wealthy owners like the Kenosha, Wisconsin-based JHT, which was acquired in January 2006 by institutional investors including affiliates of Goldman, Sachs, D.B. Zwirn Special Opportunities Fund, Spectrum Investment Partners, and Stonehouse Investment.”

full story

In a development that is bound to draw comparisons to the Bear Stearns emergency in March, top brass at Lehman Bros. Holdings have been summoned to a series of weekend meetings, with Monday’s earnings announcement looming. CNBC is reporting :

“Senior executives at Lehman Brothers, the embattled Wall Street securities firm, have been summoned this weekend for a series of meetings as the firm prepares to release second-quarter earnings on Monday and speculation swirls that the firm may be sold to a larger bank, CNBC has learned.”

According to the report, the meetings may signal that a buyer has emerged :

“The weekend meetings are unusual, say people close to the firm. The executives summoned to headquarters include everyone from Stephen Lessing, the head of Lehman private client group to Scott Freidheim, the firm’s co-chief administrative officer. It is unclear if the meetings are related to a possible deal, or just preparation for the Monday’s official earnings announcement, possibly the most important earnings release for Lehman in recent years.”

full story

The New York Times mentioned the weekend meetings in a broader article about the embattled financial sector, headlined Nearly Half of Wall St. Bank Profits Are Gone :

“Lehman Brothers sent shock waves across Wall Street last week, when the bank disclosed that it expected to post a quarterly loss of $2.8 billion. The bank, which has been struggling to win back investors’ confidence, is scheduled to provide more details of those results on Monday.

Lehman executives gathered at the bank’s Manhattan headquarters over the weekend, fueling speculation that the bank might try to raise capital from investors or even seek a buyer. A Lehman spokeswoman declined to comment.”

full story

As early as Friday, Britain’s Independent reported rumors of a capital infusion from a private equity group looking to take advantage of Lehman’s weakened position, in Bid talk swirls round Lehman as US banks face music :

“Speculation is mounting that Lehman is being circled by a range of interested bidders, with reports suggesting that private equity group Blackstone could make an offer for up to 30 per cent of the firm’s equity.

It has also been mooted that Lehman is speaking to banks in Korea as well as the private equity firm Flowers about possible cash injections.”

full story

The Commonwealth Fund has released a study that found that the number of under insured Americans increased by 60 percent between 2003 and 2006. The fund focused on Americans “who have health coverage that does not adequately protect them from high medical expenses.” There are over 25 million Americans who currently pay for insurance that does not fully protect them. The fund said that middle class Americans have seen the highest rates of increase, underinsured rates have tripled since 2003.

The San Francisco Chronicle quoted the president of the fund, Karen Davis, who said, “Even the insured have serious gaps in coverage…Insurance coverage is the ticket into the health care system, but for too many, that ticket does not provide genuine access to care.”

Underinsured Americans, as defined in the study, spend 10 percent or more of their yearly income on out-of-pocket medical expenses, even though they also pay for insurance coverage. The study’s authors said;

“An estimated 14 percent of all nonelderly adults were underinsured in 2007, and more than one of four were uninsured for all or part of the year. Adding these two groups together, 75 million adults—42 percent of the under-65 population—had either no insurance or inadequate insurance in 2007, up from 35 percent in 2003”.

In addition, the Commonwealth Fund reported;
- About 68 percent of the uninsured and 53 percent of the underinsured said they went without needed care because of cost, compared with 31 percent of those with adequate insurance.
- Nearly half - 45 percent - of the underinsured reported financial stress due to medical bills. About 51 percent of the uninsured and 21 percent of those with better coverage said they experienced similar financial difficulties.

full study-
Commonwealth Fund : How Many Are Underinsured? Trends Among U.S. Adults, 2003 and 2007

The rebate checks that have been sent out to US taxpayers in an effort to revive consumer spending are having little effect, with the weak dollar pushing prices higher on a wide range of goods and services. The Associated Press ran a feature today about the dissipation of the checks amid every day expenditures :

“But reality has interfered, in the form of ever-climbing food bills and $4-a-gallon gasoline. Day-to-day living costs have sopped up the checks for many other early recipients and spoiled their rebate fantasies. Government figures released Friday showed consumer spending inched up just 0.2 percent in April, despite widespread anticipation of the stimulus payments sent out starting late in the month.”

Consumer Affairs reported last week that retailers knew what was in store :

“A survey conducted for the National Retail Federation finds that the biggest leap in rebate spending will come at the gas pump, as 17.2 million people plan to use at least some of their tax rebate check to pay for gas, up from 12.1 million people who planned to do so in February.

The rising cost of everyday items like milk, bread and rice — and even chicken — means that consumers will wind up spending a bigger chunk of the checks on groceries, with 21.2 million people saying they will use a portion of the check for food, up from 20.4 million people in February.”

Associated Press : Many consumers spend rebates on cost of living

Consumer Affairs : Tax Rebate Checks Going Towards Necessities

Nourial Roubini on the global financial crisis. Roubini foresees an 18 month recession for the US:

The International Herald Tribune reports on the emergence of a new moral paradigm in the US between homeowners (or more specifically, mortgagees) and their bank. As loans secured during the heady days early this decade begin to reset, the IHT reports that a new trend is emerging of American homeowners simply “walking away” from their homes and mortgages.

“Will everyone walk out? No. But there’s been a cultural shift”, the IHT quoted a lead analyst at RGE Monitor who went on to speculate, “When homeowners see houses identical to their own selling for much less than they owe, I wouldn’t be surprised to see five or six million homeowners walk away”.

“The same sorts of loans that drove the real estate boom are now changing the nature of foreclosure, giving borrowers incentives to walk away,” said an associate professor of real estate at the Wharton School of Business at the University of Pennsylvania interviewed by the newspaper. The IHT reported that in recent months executives from Bank of America, JPMorgan Chase and Wachovia have all acknowledged a new inclination of US borrowers to walk away from mortgages. “There certainly appears to be more willingness on the part of borrowers to walk away from mortgages,” a spoke person for the Mortgage Bankers Association told the IHT.

The article also describes the services of a quickly growing start-up company, You Walk Away, which offers a $995 program that teaches homeowners to cede their homes to their banks in foreclosure. Jon Maddux, a founder of You Walk Away, said that walking away from a house that has a value that is significantly less than the mortgage is “not a moral decision, the moral decision is, ‘I need to pay my kids’ health insurance or my car payment so I can get to work.’”
see article-
Internetional Herald Tribune:Faced with mortgage default, some U.S. homeowners walk out

The Times, UK has a chilling feature about a suburb of Cleveland that is quickly becoming a subprime ghost town, reporting not seen often in the American press. The Times reports that “Slavic Village is Ground Zero for a tragedy being repeated across America. The dramatic rise and fall of the sub-prime mortgage market has left borrowers across the country facing repossession. In 2002 there were 101 foreclosures in Cleveland. In 2005 the number was 2,000, last year it was almost 8,000. Across America the number of foreclosures rose 79% last year.” Some 1.6m mortgage holders defaulted on home loans last year.

The author describes the deserted neighborhood:

“Signs warn trespassers the structures are unsafe. People have spray-painted “No copper” or “No metal” on their doors to deter crooks who have stripped anything of value from these decaying shells. Even brick steps have been ripped off, leaving houses that look as if they are floating on a dark sea of garbage.”

The Times appended the following list to its piece:
Number of families with a sub-prime mortgage: 7.2m
Proportion of sub-prime mortgages in default: 14.4%
Sub-prime loans outstanding: $1,300 billion
Sub-prime loans outstanding in 2003: $332 billion
Percentage increase from 2003: 292%
Proportion of loans approved without fully documented income: 43%-50%
Number of sub-prime mortgages that will reset this year: 1.8m
Typical rise in monthly payment (third year): 30%-50%
Sub-prime share of all new mortgages in 2006: 28%
Sub-prime share of all new mortgages in 2003: 8%
Number of homes not in foreclosure whose value will decline in 2008-9 as sub-prime foreclosures lower the prices of surrounding homes: 45m
Value of that decline: $233 billion

see link for full article:
Cleveland: ghost town created by America’s loan scandal