It's Not Inflation That is the Danger - It is Interest Rates

As reported on Bloomberg.com by Daniel Kruger and Bryan Keogh the government now has to pay a higher interest rate than the top U.S. companies. Obama Pays More Than Buffett as U.S. Risks AAA Rating.

Last year the money center banks could borrow from the Fed at rates below ½% and use that money to buy Treasuries and keep the 1% for nothing. Since the Fed has raised their discount window rate to 1 % some of the fun is out of the game but what-the-hell, where else can you get paid to take money. That’s why the money center banks have been cleaning up in a bad economy.
From the article:

“The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating. The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves.”

 “Last year’s $2.1 trillion in borrowing by the government exceeded the $1.08 trillion issued by investment-grade companies, the biggest gap ever, Bloomberg data show.

Moody's states that interest payments this year will be 7% of the governments revenues and will increase to 11% in three years.  That is a 63% increase in three years.  And that's assuming interest rates don't go crazy.

Social Security Goes The Way of China and Japan

At present the Social Security Administration holds 20% or $2.4 trillion of the $12 trillion that the U.S. now owes. That means that the government will soon lose its single biggest customer of U.S. debt. No one is saying exactly when this will occur but I’ll guess that the party is winding down and will end in the next two years. At the same time the next two largest purchasers of U.S. debt, China and Japan, are trimming their purchases of U.S. debt by 15% a year.


As I wrote last May in, The Honeymoon Is Over And I Want A Divorce - Obama’s Interest Rate Quagmire, there are pressures coming from all directions that will push interest rates up. The dollar has been losing value against all currencies except the Euro and the Pound, which are having their own fiscal problems. As soon as the problems in the EU start to subside the demand for the safe-haven dollar will also decrease.

When the above circumstances are combined with the need to fund an extra trillion a year in spending, interest rates have to move and move big. The first casualty will be a housing market that, because of government intervention, has not been able to work through its current downturn. Higher mortgage rates mean less affordability putting pressure on both home sales and home values that have little room for bad news.

The major money center banks like Goldman and Chase-Morgan have been thriving because the fed has kept the money flow to these guys at full blast and at little or no cost. They have been using that flood of short term money for everything but small business lending. For them it has been the perfect storm. When their interest rates raise the major money center banks will be in the exact place that stated this mess; an immediate cash squeeze.

As the government issues massive amounts of debt, corporate debt will also be entering the peak of their debt cycle. As stated in the Times article below, corporations will be bringing $700 billion of debt to the market. Competition for money is another factor for an increase in rates.

Currently the only positives for the future of interest rates would be if a if the U.S. has a phenomenal economic turnaround or if a war breaks out somewhere leading to another flight-to-safety.
 Posted on HOT AIR by ED MORRISSEY: Social Security starts cashing in US debt

An AP article by STEPHEN OHLEMACHER: Social Security to start cashing Uncle Sam's IOUs

An AP article by MARTIN CRUTSINGER: China trims holdings of Treasury securities

A New York Times article by NELSON D. SCHWARTZ: Corporate Debt Coming Due May Squeeze Credit

The Honeymoon Is Over And I Want A Divorce - Obama’s Interest Rate Quagmire

He lives in Fairy Land and The White House has become His Magic Kingdom.

My last article talked about the quagmire that our economy will be in if Obama's uncontrolled deficit spending, in His attempt to reshape America, is not brought under control. Two days ago He made a speech where He stated the same thing. Bloomberg published this article: Obama Says U.S. Long-Term Debt Load ‘Unsustainable’.

Yes, higher interest rates would devastate the budget causing astronomical deficits – beyond the enormous ones already in the pipeline. But the problem is NOT HIGHER INTEREST RATES, it’s that He will not stop spending money He does not have. It’s the spending that is causing us to borrow in the first place. He will not give up his dreams to reshape the American economy. Here is another campaign speech (oops, Presidential Address) He made a couple of days ago. He recognizes the danger of increased borrowing but places His vision for health care, energy and the environment at a higher level of importance than mere monetary concerns.

The implication is that we will have to raise our level of commitment to society, lowering the level of our bank accounts.

If He will not stop deficit spending then the only way to reduce the governments’ need to float Treasury Notes is to find different ways of raising taxes. He loves hidden taxes; a dime on a coke or candy bar, a quarter on a gallon of gas, a buck a six-pack, 10% on anything plastic. He’ll nickel-dime-quarter us to death but will not raise our taxes.

His carbon tax could devastate the lower income portion of our society, severely curb the spending habits of the middle class and we already know what He plans for the upper class. His health plan would eventually dictate everything that impacts our health. People that are considered over-weight will have restrictions put on them because they are now a burden to the health care system. We will be told what foods we’re allowed to eat, what doctors we will see and our health care will be monitored for our own welfare. The majority of a person’s medical expenses come in the last few years of life, euthanasia would be the single biggest money saver.

He said today that people should pursue fulfilling careers such as volunteering their time or working for a non-profit. That the American People should aspire to higher level of commitment to the society. That leaves government work out, their all about the money. If He thinks He can dictate salaries in the private sector then the next logical step is to dictate salaries of Physicians, Nurses, procedures, medicines and hospital costs. All would benefit society. Doctors should aspire to a higher level and donate their time.

He lives in Fairy Land and The White House has become the Magic Kingdom.

The Recession Of 2011 Caused By A Credit Bubble?

Two years ago I showed a small article in the WSJ to a friend, the article was about two unknown hedge funds that were failing. My point was that this was just the tip-of-the-iceberg, the first signs of a much bigger problem; the unraveling of the credit market.

Since then, the government has tried to fix the collapse of the credit market by re-inflating it with government debt. Every week the Treasury sells $10’s of billions of “Treasury Notes” to fund that debt. Insurance Companies, Pension Funds, and Municipalities that are required to invest in ultra safe bonds buy about 45% of these and the remainder is purchased by foreigners that need to find a safe place to park their money that they get from selling their goods to the U.S..

Increasing the money supply, cash in circulation, stimulates the economy. The more money out there the more it flows around.

The Obama budget spends more than $25,000 per every single person in the U.S. than they are going to take in. That works out to a deficit of $42,500 for every working American. That is $42,500 above what we already pay in taxes.

In the short term this is working, but there are several things that are also working against this vast expansion of the U.S. debt and money supply. As the government prints money the value of that money decreases, that is why Obama went to Europe urging them to step up their stimulus. If they also print money then our dollar wouldn’t shrink as far or as fast. The dollar versus the Euro hit a 6 year high in March but has shrunk 7% since then. It is still strong but as you keep expanding the money supply its value only has one way to go.

A weaker dollar also means higher prices. The big disadvantage here is that foreign investors are not going to buy Treasuries if they get paid 2% on the bond and lose 7% to 10% on the dollar conversion when they trade it in. Why not just invest somewhere else where you don’t have the threat of losing money caused by a dropping value in the dollar.

As the government pushes more Treasuries out on the market, the market will push back by demanding higher interest rates. This phenomenon started yesterday with a 30-year sale pushing the rates up to 4.25%. Still very low but it was the first sign that the Obama administration is going to have to pay a premium for their borrowing needs in the future. Interest on government debt was four times what they paid for education last year, that represented 15% of the entire budget and that was at a historically low interest rate. It’s not unconceivable that as borrowing and interest rates increase, that the cost to the budget will take a much larger piece of the pie.

As the interest rates for Treasuries move up so do the rates for other debt such as home mortgages, business loans, auto loans, credit card and school loans are all going to have to raise their rates to compete. Money will become expensive and as this happens business slows down. Even as the economy starts to pull itself out of the doldrums the system is working to take it back down.

The indiscriminant printing of money is inflationary, so far the dollar has been barely hurt because other countries have also fired up their printing presses but have since put on the brakes. This allows other countries to enjoy a stronger currency while the dollar will keep falling. Economists say that you can’t have inflation without strong demand, but if you look around the world, many countries have had extreme inflation in a terrible economy because their currency was debased.

Again this will take a couple of years to play out but I am seriously concerned for my grand kids and yours.

Obama's Plan On Autos - Take Over The Pension Funds

The unions AND the auto companies want Obama to land the big one; the retiree’s pension responsibilities. Neither one wants that on their plate.

I believe that Obama has a deal with the unions that trade major concessions by the auto unions in return for Card Check and government guarantees on the pension funds.

The one issue that is never discussed are the workers that have put in their forty years and are demonized for having a retirement plan that is inferior to the average politician. The unions knew that this would happen when they made the deal, and the autos were more than happy to squeeze their way out of negotiations with just a promise of future payment.

How Is Your 401/Retirement Plan Doing? Because It Is Still The Largest Pool of $$ Left to Raid

The American dream is under attack; better paying jobs are being shipped overseas, our larger companies and universities are contracting out jobs to companies that import H-1B Visa holders that receive lower wages and fewer benefits, the cost of sending our children to university often requires taking out a second mortgage, a major illness can wipe out 40 years of work and saving and now our retirement funds are disappearing.

Craig M. Douglas and Tim McLaughlin penned an article about Boston’s mutual fund companies with major stakes in Citi Group. The largest holder of Citi stock, which have fallen 68% just this year, is Fidelity Investments which purchased an additional 100 million shares in the last quarter of 2008. As I read this article I thought of my previous employer that had their 401k through Fidelity and my son who also has his 401k with Fidelity. At the end of 2008 his fund had lost more than 50%.

It’s more than plausible that a majority of Americans have lost as much as 75% of their retirement. Already we have seen our steel workers retirement being taken over by the government. The auto workers who have worked 40 years building for their retirement are watching as Congress and the media demonizes them for bringing down the auto industry. Wasn’t this accomplished by an auto industry that made promises to workers then failed to provide the funding needed to fulfill those commitments?

The private sector isn’t the only part of our economy that is reeling from the obligations made to future retirees. Many communities offered lavish retirement programs to their leadership only to find themselves under a burden that they are no longer able to fund. Communities have a severe need to raise capital for human services, infrastructure repairs, police and fire services only to find that any increase in revenues are being eaten up by retirement liabilities.

Every week we pay 14% of our gross income to Social Security and Medicare; our esteemed politicians and economists have told us that both will be bankrupt in twenty years. That is if the Federal Government pays back what it has borrowed from it. There has been numerous papers written stating that the retirement age has to be moved up while benefits have to be cut if the Social Security Administration is to survive.

Even the last bastion of retirement security is being taken away from us. With property values dropping in most areas of the country, the equity that many had planned on using for their retirement has disappeared. The family home is the single largest retirement saving investment that Americans have used, that investment has also taken a 25% haircut.

All of this is happening while the government is the only part of the economy that is growing. The future demands for our tax dollars also has to grow which means that we will have less to work with. Even as our weekly checks will grow by a massive $13, the government seems to be on a consumption tax spree. Proposed increases in our taxes are in the pipeline for everything from a 50% increase in the fuel tax, a 150% increase in cigarette taxes, a massive carbine emissions tax will cause our electricity costs to increase (again), water and sewer fees will have to increase as new mandates come on line and the continuing need for school and education funding will affect our property tax.

The only answer I have is counter to the advice of our government; not to consume, not to spend and become even more conservative than I already am.

News Is Out – Circuit City Is DOA

It was just reported on CNBC that a proposed buy-out by the Golden Gate Group, that would salvage Circuit City as a going concern, fell through. The handful of liquidation companies that were standing by are coordinating their efforts that will result in about 35,000 being laid off. So far there is no announcement from the company, but I doubt that any useful information would be in it anyway. Good luck to a very large group of people that have stuck by while Circuit City tried to make the best of a bad situation.

Does Low Wages Equal Strong Management
Circuit City Is Now Hiring – Cheap

The Insult Is Complete At LandAmerica

In August of 2007 I wrote an article, LandAmerica Leaves Much To Be Admired, little did I know that my LandAmerica article would have such a lasting quality. There may be only 11 comments but the consistency tells a condemning story of a company whose management can guide the ship during calm seas but are clueless as soon as the seas get rough.

It looks as if the final insult to the good people at LandAmerica will come from the $150 million in synergies Fidelity National will achieve(from their Press Release) by this merger. To me it doesn’t look like a merger, it looks as if Fidelity is buying their accounts & agents and will be laying off the majority of LandAmerica’s staff that still remains after a year of endless layoffs.

As much as I dislike giving attorneys money, it would seem prudent for the LandAmerica employees to secure legal consul to ensure that they receive any and all compensation promised. At this point of the merger any legal action would have to be dealt with expeditiously. If anyone has retained consul, please post their consuls contact information on the comment section below so others may join as a group.

Good Luck and Best Wishes to all of LandAmerica’s staff.

E-Verify Must Be Renewed

E-mail your congressmen, find it here, now and tell them that you will never vote for them again if they do not authorize the E-Verify Bill for another five years. Not the temporary six month extension they are trying to slip through Congress that will effectively put the issue off till after the election.

E-Verify works and is one of the few programs our government does that actually protects American Jobs. Please act now. Numbers can change things, make yours count.

Democrats Preserve American Jobs With “President Obama’s” Coin

In keeping with their convention pledge to protect, promote and grow American jobs, the Democrats have contracted with Windsor, Elizabeth & Windsor, an UK company, to produce 300 limited edition commemorative silver coins for the Democratic Party to hand out to key members of the campaign to elect Obama.

By utilizing an English company to hand-craft these commemoratives, the Democrats are saving Americans the arduous task of producing these high quality keep-sakes. Since the average contribution to the Obama campaign is approximately $65, 2,300 hard working Americans have contributed to the Obama Campaign so that our Democratic Congressmen, Governors and party Dignitaries can have these valuable collectibles and admire there English craftsmanship.

After our Democratic Leadership has received these commemoratives, WEW plans to give the average American the opportunity to purchase the “Obama – The President” Commemoratives. These coins should gain considerably in value since this is the first time a Presidential Commemorative has been produced prior to the election.

This also gives the Republicans an opportunity to save the economy millions of barrels of oil by not having to drive to the polls to vote.


The picture of the commemorative being produced is from the Birmingham Post.net.

Dell Computer: Déjà vu 8,800 Last Year, 8,800 This Year

Last year I wrote an article: Dell Computers; Layoffs, Issues And More Layoffs. At that time I had no idea that I would be writing practically the same article this year. But Dell is like their service, consistently bad.

Dell has never given out straight forward information about their plans for staff reductions but rather they throw out a target number for the national business media and the small local layoffs get reported on in the smaller news markets around the country. The most accurate information has come from a NETWORKWORLD article by Dan Nystedt and reports that Dell has already completed 3,200 layoffs with another 5,200 happening soon.

Even though desktop computer sales improved by 10% last year, they will be closing their desk top facility in Austin, Texas and many that aren’t losing their jobs will be forced to take unpaid time off.

For more than a year Dell has been going through an audit that they claim was caused by certain departments fudging their numbers. As a result they will restate their earnings reports from 2002 through 2006 by a mere $150 million. That's a lot of fudge.

Dell is also being sued on two fronts, first for not performing on their extended warranties sold directly to customers and second for falsely advertising the terms being offered by their company owned financial arm. It has been reported that Dell’s financing division is now up for sale.

Dell, IBM, Intel, Cisco, HP and Microsoft have all gazed into the crystal ball and have seen their future in Asia and India. Doing business in the U.S. has just become too tenuous.

The Media Spotlight Catches Nielsen Outsourcing, Downgrading Full-Time Too Part-Time And Aggressively Abusing H-1B Visas

Theresa Blackwell penned a very good article in the St. Petersburg Times on the commitment by the powers at Nielsen to do everything possible to cut payroll. The controversy justifiably received national attention on the Lou Dobbs Show who emphasized the H-1B Visa abuse. Nielsen while putting Americans out of work is replacing the positions with H-1B Visa holders from India.

I’ve consistently written about H-1B Visa abuse and how companies, tech companies and our universities in particular, have shamelessly imported staff where there should have been more than a sufficient supply of qualified Americans to fill the positions. The only motive for the push to hire foreign staff would be to cap salary ranges.

From Ms. Blackwell’s article:

“Just four days ago, Nielsen gave up $3.1-million in future incentives for creating new jobs in Oldsmar, saying the controversy over the government money had become a distraction for employees and a source of conflict with the city.”

This would not be such a controversy or distraction if the Nielsen Company wasn’t absolutely committed to replacing U.S. workers with H-1B Visa holders.

One other point of contention that the article brings up but does not emphasize is the ratio of full time to part time employees at their Dunedin facility. With 4.4 part-time or temporary workers to every full-timer demonstrates that a desire to cut costs by cutting benefits.

Would this be the type of company you want to work for; maybe if you’re from India. You can browse the Nielsen Careers Page here.

Our Universities Have To Go Offshore To Find Talent
Companies Hiding Offshoring
LSI - More “Partnering” Lay Offs Coming To Kansas City?
Sun Micro's Jonathan Schwartz The Genius?
American Axle Moving More Jobs Out Of The U.S.
California Sending DMV Data To Mexico
Altria Optimizes Worldwide Cigarette Production
Dell Computers; Layoffs, Issues And More Layoffs
Freightliner The Long Haul From North Carolina To Mexico
IBM An Extreme View On Offshoring

Country of Origin COOL Will Finally Happen

According to the USDA website: “On May 13, 2002, the Farm Security and Rural Investment Act of 2002, more commonly known as the 2002 Farm Bill, became law.” This legislation was delayed twice and is now scheduled to be implemented September 8, this year.

The part that doesn’t make sense is that the fruit, meat and vegetables that we import are already identified, on the outside of there packaging, with the country of origin. It would be a small inconvenience to carry that information to the display. The only reasoning for not posting the Country of Origin with the product being sold would be that the retailer doesn’t want to handle the questions or comments that their customers might have.

But this is a huge step forward in the fight to keep jobs in America. Would Hershey be so aggressive in their closing of the Reading, Pa, plant if they knew that their Peppermint Patty Brand would have to be labeled “Hecho en Mexico”

Who Says Inflation Is Under Control

Consumer late payments at 16 year high. Could higher prices at the grocery check-out and at the fuel pump be putting the squeeze on our wallets?

Unemployment claims at there highest level in two years.

ATA Airlines shuts down stranding thousands and laying off 2,000. The cost of fuel was listed as one of the primary causes. Last week Aloha Airlines also shut-down operations.

Corn sets new record price of $6 per bushel. At least our all-knowing government officials tell us that inflation is under control.

Gasoline at new national record. Even with oil backing off there peaks, the cost of refined gasoline is starting its summer rise. Every spring refiners increase their crack spread (the mark-up on gasoline) to reflect the increase in demand. This process has just started.

Motorola disconnecting 2,600 more. Last year they had lay offs of 3,500 in January and 4,000 in May. During a cutting stretch in 2000 and 2001 their payroll shrank by more than 47,000 jobs.

Google planning to cut 25% in the Double-Click work force, in the U.S. that is.

Dell needs to find $3 billion more in cuts than the 8,800 they announced last year. From my article last July.

Merrill Lynch to lay off 4,000 to 7,000.

Schering-Plough will be cutting $1.5 billion a year in expenses, no estimate on how many jobs will be lost. Schering-Plough shares are down about 50 percent this year so heads have to roll.

Are you ready to pay for the poor Home Builders losses? Time to E-mail your congressmen.

NASA estimates as many as 7,300 will loose their jobs as the shuttle program ends in the next 2 ½ years.

La-Z-Boy is shipping jobs to Mexico, all of their cut and sew divisions will be relocated with no lay off estimates given.

Hamiliton Sundstrand will be completing its move to Singapore by lying off the last 65.

United Way officials in Dayton said record numbers of families are seeking emergency food assistance because of lay offs caused by the strike at Detroit-based American Axle & Manufacturing. My article: American Axle Moving More Jobs Out Of The U.S.

CBS Moves Ahead With Layoffs in News

1,500 Possible Layoffs at Freightliner Cleveland Plant. My previous article: Freightliner The Long Haul From North Carolina To Mexico

From the CoStar web site that monitors the Fed’s watch list:

The Federal Reserve Banks moved up the planned closing of several of its check processing facilities, most of the cuts will come from permanent result work reductions.

Newsweek announced that 111 staffers on its news and business sides in New York City accepted a buyout last week.

Chromcraft Revington Inc. is progressively shifting manufacturing of products from its Delphi, IN, plant at 1100 N. Washington St. to suppliers primarily in Asia. Manufacturing activities at the Delphi facility will conclude on May 30. The reduction in force is expected to impact approximately 150 Associates at the Delphi location. Within the past 18 months, the company has closed and sold its plants in Sumter, SC, and Warrenton, NC, as well as its warehouse and distribution center in Knoxville, TN. The company also relocated its upholstery operations into its existing facilities in Lincolnton, NC, and sold its upholstery plant.

EMI Christian Music Group confirms layoffs of between 1,500 to 2,000 staffers by this June.

Long-expected layoffs begin at W.Va. steel mill, from a peak of 13,000 to 1,000 after these latest cuts. Steel mills have been devastated throughout the northeast by Asian steel and like most of the problems facing America; all the politicians do is use this issue as political fodder.

Earlier this week, Wheeling-Pitt's parent, Esmark Inc., announced it would shut down a mill in Allenport, Pa., and idle parts of the operation in Martins Ferry, Ohio. Those cuts could cost as many as 360 jobs.

Analysts see 200,000 banking industry layoffs in the next 18 months.

Whirlpool, a great old Mexican brand. 350 Cleveland jobs go to Mexico. Behr Climate Systems plans layoffs, plant closure. From the Germany based Behr Groups web site: “Today we are active in all major markets in Asia and take advantage of the opportunities they offer.”

JCPenney’s American Living The Ultimate American Sham

JCPenny is flooding the airwaves and other marketing medium with their new line called “AmericanLiving”. The new brand is being manufactured by Polo Ralph Lauren Corp and will be Penny’s feature line for all clothing groups; men’s, woman’s, kid’s, young adult’s and home furnishings. The brand will carry a 15% higher price point than their other lines.

The label itself shows incredible contempt for the American worker by having the bald eagle toting an American Flag then proudly claiming “US Quality Brand”. JCPenny has even used this emblem on the front of shirts, sweaters and even on shoes. In doing so they are exploiting the nationalistic pride we have in America to sell foreign made products. If they would have used American manufacturers I would whole heartedly support the line.

We visited a JCPenny’s store yesterday and when checking the lables we found the following: “Made in Jordan”, “Made in China”, “Made in Vietnam”, “Made in Taiwan”, “Made in Philippines”, “Made in Honduras”, “Made in Macau”.

The closest we get to the US was “Made in Northern Mariana Islands (US)”

View their commercials. DO NOT BUY From JCPenny and be sure to tell them that you will boycott their stores until they start selling American Pride by selling American products.

The Great Exploitation Of The American Worker

JCPenny is using Americana to sell their new line called “AmericanLiving”. With pictures of kids on tractors, seniors enjoying the American way of life, families on vacation, marching bands and young ballerinas they are shamelessly trying to use the pride we have in America to sell foreign products.

Just view their commercials and then try to find a label that says “Made in America”. Boycott JCPenny and let them know what you think. E-Mail link.

Sharper Image Gift Cards - The New Collectors Item

My intent was to lambast the mean corporations that cheated their customers out of a few bucks by refusing to redeem the gift cards they had sold them and turning them into collector items. As it turns out a gift card is “loan” to the company to be repaid in merchandise at a future date. So if you have a gift card the company is not allowed to “repay” your loan until the court decides who gets what. But then I have never heard of a bankruptcy proceeding where the customers who were cheated were also represented.

We need a change in the bankruptcy law that puts employees and customers before other financial creditors.

As it turns out the Sharper Image story is interesting. Wikipedia takes a good look at the company along with some links to background stories. The building of this brand started in 1977 and their growth was based on adult gadgetry, soon after the Ionic Breeze hit the store shelves it dominated their product line. That same product turned out to contaminate the environment with the very agent that it was designed to remove; ozone. Law suits ensued and the Ionic Breeze was discontinued. With the loss of their numeral uno product to drive traffic to their stores a steady decline in customer counts and sales was initiated.

Journalists familiar with the company have estimated that they will shutter about halve of their stores. But at the time of the bankruptcy they only had $700,000 in cash, without significant additional funding they just don’t have the bucks to close only halve. They will be forced to do an over-night skedaddle leaving customers, employees and vendors on the hook.

Reservists And The Job Dilemma

Kathy Robertson, in a Sacramento Business Journal article, wrote about three reservists from the Sacramento area. An interesting story but it fails to present a real and ongoing dilemma that reservists face when searching for a job. Employers don’t want to be put into the position of hiring someone who may be called away at anytime and sometimes for years. Add to that the severe penalties that an employer may face if they try to do what is best for the business and the answer seems simple; an unspoken policy against the hiring of active reservists.

Instead of threatening and punishing employers who step up and take the added responsibility of hiring reservists, we should reward these companies with a tax credit that kicks in when the reservist is reinstated. Lets say a 1/3rd tax credit equivalent to the reservists salary and applied to twice his time of missed work should be sufficient to make a reservist a valued commodity.

Previous articles about jobs and reservists:

Practical Career Training For Ex-Military
Patriot Express Ignored By MSM
Renewed Call For Reservists Legislation
Employers Snubbing Reservists

Sprint - The Computer Did It

As written about in Sprint – Boomers Under Attack Again, the $58 million settlement was finalized in Kansas City and the 1,706 plaintiffs will average $21,688 each. The 20 attorneys representing the plaintiffs will have to get by on only a mil each. Sprint also settled a $5.5 suit earlier this year in Atlanta.

From a Kansas City Business Journal article, Sprint/Nextel blames the mess on a computerized evaluation program that singled these people out. It must have been the “computer” that moved older workers to departments that the “computer” decided to disband. It was also the “computer” that programmed itself to make it difficult for a higher paid and more senior worker to be as productive and their lower paid counterparts.

If Sprint would have gone about this in an open and honest way by offering the senior workers a fair compensation package, the only losers would have been those 20 attorneys.

Countrywide Shifting Gears But Still Aggressive

Jonathan Stempel in his July 16th Reuters article, stated that Countrywide Financial Corp CFC, has added jobs in every month for the first half of this year. While other banks and mortgage companies where closing or severely scaling back, Countrywide viewed the drying up of the subprime funding market as an opportunity to grab market share.

Through July, the Calabasas, California-based company said it ended July with 61,586 staffers, up from 59,011 in May and 54,655 at the beginning of the year. As competitors where closing Countrywide’s revenues continued to grow.

Stuart Plesser, an analyst at Standard & Poor's, said their increase in loan volume may not be all that it seems:

“Much of Countrywide's volume gains in June came from correspondent lending -- where the company buys loans from other lenders -- rather than from more profitable retail lending,...”

“June correspondent lending grew 43 percent to $21.88 billion. Retail lending fell 5 percent to $14.04 billion. The loan servicing portfolio grew 18 percent to $1.42 trillion.”

Just four weeks later Countrywide experienced a run on its banks. From the LA Times:

“At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early '90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.”

Countrywide immediately drew down their credit lines of 11.5 billion they had with 40 banks. This bought the company some time, but the real shot-in-the-arm came a week later when Bank of America invested $2 billion in convertibles. That gave B of A a 16% ownership stake and $145 million in annual income from the 7.25% interest convertibles.

With funding for nonconventional loans disappearing, Countrywide has said that they will emphasize their mortgage activities on the mundane “plain vanilla” mortgages that Freddie and Fannie can purchase. The change in emphasis from the companies aggressive pursuit of subprime lending to “plain vanilla” mortgages has caused Countrywide to lay offs of 500, 900 and now as many as 12,000.

On September 7 Countrywide put out a Press Release and stated that they plan to fund their subprime loan activity internally. “Migration of the Company's residential lending business into its federally chartered thrift entity, Countrywide Bank, FSB, will continue.” With the portfolio of subprime loans showing abysmal results, the profits from these loans must be excessive.


From a Gretchen Morgenson article for the The New York Times:

“Countrywide's entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company's subprime unit excluded borrowers' cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.”

“Homeowners, meanwhile, drawn in by Countrywide sales scripts assuring ''the best loan possible,'' are behind on their mortgages in record numbers. As of June 30, almost one in four subprime loans that Countrywide services was delinquent, up from 15 percent in the same period last year, according to company filings. Almost 10 percent were delinquent by 90 days or more, compared with last year's rate of 5.35 percent.”

“Many of these loans had interest rates that recently reset from low teaser levels to double digits; others carry prohibitive prepayment penalties that have made refinancing impossibly expensive, even before this month's upheaval in the mortgage markets.”

'In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,'' said Ira Rheingold, executive director of the National Association of Consumer Advocates. ''And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.'

“Mr. Mozilo has ridden this remarkable wave to immense riches, thanks to generous annual stock option grants. Rarely a buyer of Countrywide shares — he has not bought a share since 1987, according to Securities and Exchange Commission filings — he has been a huge seller in recent years. Since the company listed its shares on the New York Stock Exchange in 1984, he has reaped $406 million selling Countrywide stock.”

One very unhappy customer of Countrywide has a website, Countrywidehomeloansucks.com where hundreds of unhappy customers and ex-employees have told their stories. It does not paint an admirable picture of the company.