U.S. Economic/Financial News

Infrastructure and Homeland Security: The 'Real Deal'

House Committee on Homeland Security chairman Rep. Bennie Thompson (D-Miss.) opened his speech to the George Washington University Homeland Security Policy Institute on Jan. 29 by quoting FDR: "During President Roosevelt's inaugural address to the nation on March 4, 1933, he quoted Proverbs 29:18 and said 'where there is no vision, the people perish.' Just as he sought to address a failing American economy through the New Deal, today I will provide you with an agenda that I hope will help us plan, prepare, and protect ... the Real Deal for Homeland Security." [ellipsis in original—ed.] Then, amid a long "to do" list that Thompson stated would require DHS to "get its house in order," he expanded on his idea of the Real Deal. "The Real Deal also requires us to listen to the needs of the people so that we never see our own citizens abandoned and betrayed by their government, as we did during [hurricanes] Katrina and Rita," he said, "An entire Gulf Coast is in need of rebuilding and it is going to take local talent to get it done. To this, the 'Real Deal' can take a page from the New Deal."

Thompson promised "aggressive and meaningful oversight" of DHS and indicated that he intends to concentrate on ports and rail transport, with less emphasis on air traffic.

New Orleans Mayor Tells Senate: No Will To Fix City

New Orleans Mayor Ray Nagin told the Senate's Homeland Security and Governmental Affairs Committee Jan. 29 that the rebuilding of New Orleans is getting shortchanged in light of the billions poured into the war in Iraq, and suggested that "racial issues" may be part of the explanation. He said he doesn't see evidence of "the will to really fix New Orleans. I think it's more class than anything, but there's racial issues associated with it also. And then I look at what we're doing in Iraq and how we spend money at an unprecedented level there, how we can set up temporary hospitals and designate money to rebuild their economy, and we have this dance going on in New Orleans."

Hedge Funds Buy Protection Against Sub-Prime Mortgage Defaults

At the end of 2006, home buyers were two months or more behind in payments on nearly 6% of the sub-prime home loans packaged into mortgage-backed securities that year, about three times the rate of 2003 and 2004, according to the Swiss bank UBS, as reported in the Wall Street Journal Jan. 27. As a result, hedge funds have been big buyers of credit derivatives protection against sub-prime defaults, in effect betting that the defaults will increase.

According to UBS mortgage analyst David Liu, slowing demand led many sub-prime lenders to make riskier loans in late 2005 and 2006, as people with low credit scores borrowed as much as 95-100% of the home's estimated value without having to prove they had the income to support their payments. In weak housing markets, it can be much harder for such buyers to sell their homes and avoid foreclosure.

JPMorgan Cuts Exposure to Sub-Prime Mortgages

JPMorgan Chase is cutting it exposure to sub-prime mortgages, warning that it "looks like a recession." CEO James Dimon said in a presentation to investors Jan. 30 that the zombie bank has sold off most of the mortgage loans it made in 2006 to borrowers with weak credit histories. In addition, JPMorgan has classified $4.5 billion—or one-third of its sub-prime mortgage portfolio—as up for sale. "Loss severities" have been increasing, Dimon said, and delinquencies of sub-prime loans originated last year are higher than the 2005 and 2004 vintages were at a comparable age.

ABC-Detroit Town Meeting: Auto Crisis a National Issue

Sen. Debbie Stabenow (D-Mich.), joined by Ford and UAW leaders called the auto crisis a national issue, one that goes beyond the bargaining table, in a "town hall meeting" entitled, "Agenda For Change" Jan. 29. The meeting, on the future of the auto industry was set up by ABC News anchor Charles Gibson, and broadcast live in Michigan. Stabenow reported that she had signed a letter with other Michigan lawmakers opposing a free-trade accord being negotiated with South Korea, on the grounds that you "do not do that agreement unless you fix auto."

"We've got a health-care system in crisis," she also said. UAW legislative director Alan Reuther called for national action on health care, because, he said, "the problem can't be solved just at the bargaining table by cutting and cutting and cutting.... One of the things we need to do is stop negotiating bad trade deals that are one-sided." So, too, in speaking about health costs/system, Ford Motor Co. spokesman Charles Holleran said "there's no longer any argument about whether or not this is a national crisis.... Even eight years ago, when this became a flashpoint, there were voices that said this can fix itself. No one is saying that this can fix itself now."

Reports of the meeting were carried in the Detroit Free Press and the Detroit News Jan. 30.