Real estate Property, Land and Homes

NBR Transcripts-October 30, 2008
Thursday, October 30, 2008
SUSIE GHARIB: Pressure is mounting tonight for Uncle Sam to
help the nation's struggling auto makers. The governors of six states asked
the Federal government today to throw the "big three" a lifeline, saying
problems at General Motors, Ford and Chrysler threaten to become an
unmanageable disaster. The leaders of Michigan, Delaware, Kentucky, New
York, Ohio and South Dakota sent a letter to Treasury Secretary Paulson and
Federal Reserve Chairman Bernanke urging immediate action for the troubled
auto makers. The governors say letting the companies fail could put at risk
the financial wellbeing of other major industries and millions of
Americans.

GM and Chrysler are contemplating a merger, but there's a long way to
go before it's a done deal. Analysts tell NIGHTLY BUSINESS REPORT that
financing is the biggest hurdle, which is why GM is lobbying for Federal
money to help buy Chrysler. We're also told GM needs Chrysler's mini-van
and Jeep brands. Consulting firm Grant Thornton said if a merger happens,
Chrysler owner Cerberus Capital Management would likely get half of GM's
financing unit. It also predicts that only seven of Chrysler's 26 models
will survive. Half of Chrysler's plants will be forced to shut down and
24,000 Chrysler workers would lose their jobs.
PAUL KANGAS: Pressure is also mounting for the government to help
resuscitate the economy. Gross domestic product, the broadest measure of
the economy, shrank by 0.3 of a percentage point in the third quarter.
That's the worst showing in seven years. That's a sharp reversal from the
second quarter's 2.8 percent increase. Erika Miller takes a look at the
report and the outlook for the economy from here.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The economy's
performance in the third quarter was downright dismal. But economist Drew
Matus warns things are likely to get a lot worse before they get better.
DREW MATUS, ECONOMIST, MERRILL LYNCH: We're not anticipating positive
growth in the economy until 2010. The duration is really going to be the
story in this particular recession. At its deepest we could see a minus 4
percent reading for GDP growth.
MILLER: The reason economic growth turned negative in the third
quarter is that consumer spending plunged by the biggest amount in nearly
three decades. Economist Joe Lavorgna sees more belt-tightening ahead.
JOSEPH LAVORGNA, CHIEF US ECONOMIST, DEUTSCHE BANK: What worries me is
where we're going this quarter. With the credit crunch and perhaps the
inability of people to get credit to spend, and that means we could have
consumer spending fundamentally weaker for a much longer period of time.
MILLER: Lack of credit is not the only reason consumers are slashing
spending. They're also worried about their jobs, falling home prices and
the falling value of their investments. Against that backdrop, economists
say this recession will be hard to reverse.
MATUS: This one is going to be a little longer lived, in part because
the U.S. consumer is leading it but also, in part because we still have a
housing recession that's underway and capital equipment spending is also
going into recession, as corporations cut back. So we have multiple levels
of things going wrong in the U.S. economy right now.
MILLER: To make things go right, economists generally want Congress to
pass another fiscal stimulus plan. Many also applaud the Federal Reserve's
decision to lower interest rates yesterday to encourage lending to
businesses and consumers.
LAVORGNA: The Fed's going to be on hold at either 1 percent or
possibly a bit lower for a very long period of time until it becomes
obvious that one, either the financial markets are noticeably improving or
two, the economy is in a self feeding cyclical recovery. And one could make
a compelling case that won't happen until 2010 at the earliest.
MILLER: Economists say they'll know things are poised for recovery
when home prices stabilize. But they warn that's not likely until the
credit crunch eases and the job market improves. Erika Miller, NIGHTLY
BUSINESS REPORT, New York.
SUSIE GHARIB: Key to stabilizing home prices is slowing the tide of
foreclosures. So far, despite several optimistic mortgage rescue programs
with names like Hope Now, FHA Secure and Hope for Homeowners, foreclosures
continue to rise. By the end of the year, over a third of all homes for
sale will likely be bank owned. As Stephanie Dhue reports, the government
is now considering a comprehensive plan to help struggling homeowners.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Four million
Americans are behind on their monthly mortgage payments. With banks getting
government bailouts, pressure is building for more help for homeowners.
White House spokesperson Dana Perino says more may be coming, but the
details still have to be worked out.
DANA PERINO, WHITE HOUSE SPOKESPERSON: We're doing a lot of analysis
right now on several different ideas, thinking about the efficiency issues,
how effective it could be, the fairness issues, how would you protect
taxpayers and by fairness, I also include in that who would qualify and how
would you design it.
DHUE: Sources say the plan could cover as many as three million
homeowners at risk of foreclosure, at a cost of $40-$50 billion. It would
work like this: lenders would reduce the mortgage amount owed or cut the
interest rate so a borrower could afford the monthly payment for five
years. In return the government would guarantee half of the lender's losses
in the event the modified loan later goes bad. Scott Talbott of the
Financial Services Roundtable says the challenge is to protect struggling
homeowners without breaking the bank.
SCOTT TALBOTT, SR. VP GOVERNMENT AFFAIRS, FINANCIAL SERVICES
ROUNDTABLE: The financial services industry may not be able to continue to
lend as well to other sectors of the economy. Remember we're only talking
about a small sector of the economy here, a small sector of the homeowners
that we're working to save. The rest of Americans are paying their mortgage
on time.
DHUE: So far, voluntary plans, like Hope Now and Hope for Homeowners
have had limited success. In the last year, foreclosures have outpaced loan
modifications four to one. Eric Halperin of the Center for Responsible
Lending says the new plan may not go far enough.
ERIC HALPERIN, DIRECTOR, CENTER FOR RESPONSIBLE LENDING: So with this
new modification system hopefully that gap will close, but until you can
compel lenders to come to the table and provide modifications to the
homeowners who qualify and deserve them, we're not going to see numbers of
foreclosures reduced significantly.
DHUE: The Neighborhood Assistance Corporation of America is also
concerned. NACA's Bruce Marks wants the government to first work out the
troubled loans held by Fannie Mae and Freddie Mac.
BRUCE MARKS, FOUNDER & CEO, NEIGHBORHOOD ASSISTANCE CORP. OF AMERICA: That will set the standard for every servicer and lender in this country
without one dollar of taxpayer money.
DHUE: Lawmakers may consider more housing proposals as part of a
second stimulus package but whatever aid may come will have to wait until
after Tuesday's election. Stephanie Dhue, NIGHTLY BUSINESS REPORT,
Washington.
SUSIE GHARIB: This week we looked at the roles of Washington and Wall Street
in the financial meltdown. Tonight as we conclude our series, "Anatomy of a
Financial Crisis," we look in the mirror, at ourselves. How did the greed
of American consumers contribute to the mess? As Suzanne Pratt explains,
our bad behavior is now forcing us to face the music.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Since the 1980s
Americans have been on a serious shopping spree. Our homes, our cars, our
wardrobes and our gadget collections have gotten larger and more expensive.
At first we paid for things with cash or few major credit cards. Pretty
soon, however, our wallets were bulging with plastic. To make matters
worse, by the middle of this decade, interest rates were at historic lows,
allowing banks to offer loans we couldn't refuse. And as home prices
surged, many Americans extracted the value by refinancing mortgages or
taking out home equity lines of credit. We used the extra cash to bankroll
lifestyles we couldn't afford and some of us got greedy and irresponsible.
Financial historian and NYU Professor Richard Sylla says consumers deserve
at least some of the blame for the current mess.
RICHARD SYLLA, ECONOMICS PROFESSOR, NYU STERN SCHOOL OF BUSINESS: The
American public is responsible, the consuming public because the American
public has been saving less and less over the years and went on this
borrowing binge. You know there have to be two parties to a loan
transaction. Somebody says yes I agree to borrow it and the other person
says I agree to lend.
PRATT: Our need for things has gravely injured our household finances.
Just look at the stats. Between 1990 and 2007, credit card debt more than
quadrupled from $214 billion to $937 billion. At less than 1 percent, our
nation's savings rate is the lowest in the developed world. Much of Europe
is saving in double digits while China is at a whopping 24 percent. Nobel
Prize winning economist and Princeton Professor Paul Krugman says we're bad
savers partly because of easy credit.
PAUL KRUGMAN, ECONOMICS PROFESSOR, PRINCETON UNIVERSITY: You have to
come up with a lot of cash if you want to buy a house in Japan and in a lot
of Europe. In the United States, the money has flowed freely so saving
doesn't seem quite as important.
PRATT: Still, others say our urge to splurge is also cultural.
Psychotherapist April Benson is an expert on compulsive shopping and has
written two books on the topic. While only a fraction of us suffer from the
actual disorder, she says we're a society of excessive spenders.
APRIL BENSON, PH.D., PSYCHOTHERAPIST: We think that happiness is only
as far away as the next purchase. But really nothing could be farther than
the truth. And, in the pursuit of all of these goods, we really miss out on
what's good: community, time with family, there's such a race.
PRATT: OK, so maybe we over borrowed and we did so to feel better
about ourselves. But some experts say don't be so quick to blame our
fondness for debt on emotions. Blame instead our desire to keep up with the
Joneses, while our income was stumbling.
SYLLA: How is an American going to maintain his increasing standard
of living, which he's gotten used to throughout American history, at a time
when real wages aren't going up? The way to do was to go into debt.
PRATT: Still, others say blame stretches well beyond U.S. households
or busy suburban shopping malls. Krugman questions why we expect the public
to have seen the folly when our leaders did not.
KRUGMAN: It's not up to John Smith in the street or Joe the plumber
or whatever to say, hey, this is a housing bubble, look at the price-rent
ratio. You expect, you expect responsible people in Washington and New York
to be saying that and they didn't.
PRATT: Historians will debate for many years who or what should bear
the blame for the 2008 financial crisis. But, most experts already agree
the experience will limit our irresponsible spending. Whether that change
is permanent is another matter. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New
York.
SUSIE GHARIB: While many voters are eagerly watching the polls to see
who the next president might be, savvy lobbyists are watching the Senate.
That's where the balance of the power may tip on critical issues like
energy, health care and taxes. Right now, Democrats are expected to pick up
six to eight Senate seats. But as Darren Gersh explains, that number that
will determine our economic choices in the coming year is 60.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: First some
civics 101. The biggest legislative check in our system of checks and
balances is the United States Senate. Any one senator can stop anything,
unless 60 of his or her colleagues vote to keep going. That's why
Republican consultant Phil Musser will be watching the Senate election
returns closely on Tuesday.
PHIL MUSSER, PRESIDENT, NEW FRONTIER STRATEGY: A 60 vote super-
majority allows the majority in that chamber to advance legislation over
the dissenting voice of the minority.
GERSH: If the polls are right and Senator Barack Obama wins on
Tuesday, the only place Republicans can effectively fight tax increases or
other government mandates on business will be in the Senate, provided there
are still enough Republicans seats. Musser says investors don't fully
appreciate what's at stake for key sectors like health care and banking.
MUSSER: The likelihood that we have an overreach with respect to
regulation of the financial industry is one of the great threats that I
think Wall Street should be cognizant of and be looking forward to. It will
be a major fight.
GERSH: Of course, if Senator John McCain pulls out a win, the White
House will check Democratic ambitions. And, in any case, the most likely
scenario now is for Democrats to finish Election Day with 56 to 58 Senate
seats. But even if Democrats get to 60, they won't act in lockstep on
taxes, health care or anything else, says former Senate Democratic staffer
Nick Allard.
NICK ALLARD, PARTNER, PATTON BOGGS: There are conservative Democrats
and extremely liberal Democrats. And almost on any major issue, the
Democrats are going to have to reach across the aisle to the Republicans to
get to 60.
GERSH: The other check and balance on congressional power will be the
huge Federal budget deficit. The next president will likely inherit a
budget deficit that will top $1 trillion, making this an expensive time to
pass historic reforms. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
SUSIE GHARIB: In tonight's commentary, consolidating fragmented regulation. Here's
Myron Kandel, founding financial editor at CNN.
MYRON KANDEL, FOUNDING FINANCIAL EDITOR, CNN: The current financial
crisis has reawakened calls to merger the Securities and Exchange
Commission and the Commodity Futures Trading Commission. The massive
destruction of values due to the explosive growth and downfall of credit
default swaps and other esoteric derivatives that fell between the cracks
of existing regulation makes it imperative that a comprehensive regulatory
system be developed.
The first serious attempt to merge the SEC and the CFTC occurred 20
years ago when the Brady report suggested that split regulatory
responsibilities abetted the 1987 stock market crash. But that effort went
nowhere, even as incredibly complex new products made that split even more
dangerous, as we have now sadly learned. There are serious obstacles to a
merger, including the different cultures of the two agencies, the varying
interests of their constituents and likely turf battles among congressional
oversight committees.
And what about the Federal Reserve? I think fragmented regulation
must be consolidated into a unified system. But the way to do it is not to
rush into a quick fix. Let's take a step back and decide what needs to be
regulated. What are the threats to the capital markets, how risk can be
evaluated and made transparent and how investors can be protected. We need
a non-partisan group to develop a plan that can be implemented in the
public interest. The next president should move quickly on this issue. I'm
Myron Kandel.
PAUL KANGAS: Wall Street viewed that decline in GDP as smaller than feared
and responded with a sharp opening rally with the Dow shooting up nearly
200 points and the NASDAQ adding 42 points. Most of that advance faded by
mid-day on word firms like American Express, Hartford Financial and Avon
Products reported disappointing results or earnings warnings. Afternoon
brought renewed strength though amid signs the credit markets are thawing
out and stocks went on to end near the day's best levels. The Dow
Industrial Average closed up 189.73 points at 9180.69. The NASDAQ Composite
was up 41.31 at 1698.52 while Standard & Poor's 500 rose exactly 24 points
at 954.09. Over in the bond market, the 10-year note lost 27/32 to par and
9/32, putting the yield at 3.97 percent.
Big board volume leader on 20.4 million shares, Wachovia (WB) moving down $0.06.
Followed by Pfizer (PFE) $0.67 gain.
General Electric (GE) up $0.15.
And then ExxonMobil (XOM) with a $0.04 closing gain, but it traded as
low as $71.46 today even though it reported record third quarter earnings
of $2.86 a share, up 58 percent from last year and that translates into a
record $14.8 billion, the biggest quarterly profit in history ever.
Citigroup (C) $0.36 advance there.
Moving along in the actives, National City (NCC) a $0.09 gain.
MGIC Investment (MTG) fell $0.56.
Co Vale do Rio (RIO) was an $0.84 gainer.
Bank of America (BAC) rose $0.46.
JPMorgan Chase (JPM) gaining $1.91.
Hartford Financial (HIG) tumbling $10.24, losing almost 52 percent of
its value after reporting a big third quarter loss of $1.40 a share versus
earnings of over $3 last year. Standard & Poor's today repeated a "sell"
recommendation on Hartford.
Avon Products (AVP) losing $4.10 despite third quarter earnings nicely
higher, $0.52 versus $0.32 a year ago, but the company sees sales and
earnings deteriorating in the fourth quarter and along with lower profit
margins, so that's what got the stock down.
Colgate Palmolive (CL) doing nicely, up $4.23. Third quarter earnings
higher, $0.99 versus $0.86 a year ago. Sales were up 13 percent during the
period.
CVS Caremark (CVS) up $3.01. Third quarter earnings rose to $0.60 from
$0.50 a year ago. Revenues gained 2 percent and today the company closed
its acquisition of Longs drug store. Standard & Poor's repeated a "strong
buy" on CVS stock.
Intercontinental Exchange (ICE) rising $25.21. Third quarter earnings
rose to $1.04 from last year's $0.93. Revenues jumped 33 percent. The
company agreed to buy the Clearing Corporation and form a new ventured
called ICE U.S. Trust.
Visa (V), the credit card company, up $3.56. Third quarter earnings of
$0.58 versus a loss of over $2 last year. Those earnings $0.02 above the
Street estimate.
Owens-Illinois (OI), which makes packaging materials and things like
that, up $4.11. Third quarter earnings rose to $0.90 from $0.78 a year ago.
Revenues up 4 percent in that period.
Diebold (DBD), makes ATMs and things like that, up $3.54. Third
quarter earnings up 65 percent to $0.70 a share. That was $0.06 better than
the Street was expecting.
And Assurant (AIZ) tumbling $8.42. The company's in the homeowners'
insurance business. It had a third quarter loss of $0.95 a share versus
earnings of $1.56. Revenues dropped 9 percent in the period.
A nice gain by Genco Shipping (GNK), up $3.04. Third quarter earnings
rose to $1.99 from $0.64 last year and the company says 93 percent of its
fleet is on contract for the rest of the year, 60 so far for the year 2009.
NASDAQ's most active, Apple (AAPL) up $6.49.
Followed by Google (GOOG) up $1.69.
Intel (INTC), $1.23 gain, nice move there.
Microsoft (MSFT) fell $0.37.
And Oracle (ORCL) up $1.03.
Cisco Systems (CSCO) down $0.08.
$0.43 drop in Research in Motion (RIMM).
First Solar (FSLR), look at that gain, up $28.32. Third quarter
earnings jumped to $1.20 versus only $0.58 last year, $0.19 better than the
Street was expecting.
Qualcomm (QCOM) up $1.80.
Amazon.com (AMZN) was down $0.18.
Symantec (SYMC), which is in IT security, down $2.62. Second quarter
earnings, $0.16, up from $0.06 a year ago, but it sees third quarter
earnings at $0.33, $0.04 below the Street estimate.
And those are the stocks in the news tonight.