Thursday, December 30, 2010

Today's links

1--Home price plunge is widespread, CNN Money

Excerpt: Home prices took a shockingly steep plunge on a monthly basis, an indication that the housing market could be on the verge of -- if it's not already in -- a double-dip slump.

Prices in 20 key cities fell 1.3% in October from a month earlier, an annualized decline of 15%, according to the S&P/Case-Shiller index released Tuesday. Prices were down 0.8% from 12 months earlier.

Month-over-month prices dropped in all 20 metro areas covered by the index. Six markets reached their lowest levels since the housing bust first began in 2006 and 2007. They were Atlanta, Charlotte, N.C., Miami, Portland, Ore., Seattle and Tampa, Fla.

"The double-dip is almost here," said David Blitzer, chairman of the Index Committee at Standard & Poor's. "There is no good news in October's report. Home prices across the country continue to fall."

The report was far more dire than anticipated by industry experts, who had forecast an almost flat market in October. It followed weak September numbers. The inventory of homes on the market is up about 50% compared with last year at this time, and there are millions of potential homes for sale waiting on the sideline for markets to improve.

Much of that "shadow inventory" is held as repossessed properties by banks, who will eventually have to release them back on the market.

2--Roubini: 'Housing Prices Can Only Move Down', CNBC

Excerpt: According to economist Nouriel Roubini, the housing market is in a double dip.

"It's pretty clear the housing market has already double dipped," says Roubini. "And the rate of decline is stronger than in previous months," he said of the new housing data....

"If you look at the data, Case Shiller has been falling every month since the tax credit expired in May. Everyone who wanted to buy a home did so by April," Roubini said.

"That tax credit stole demand from the future and its expiration led to another 30% fall in home sales, pushing Case & Shiller lower for the last few months," Roubini wrote in a text message earlier this morning.

The second factor putting downward pressure on home prices is the ongoing chaos with mortgage documentation, and the consequent suspension by banks of mortgage foreclosure proceedings—which has actually worsened the underlying problems in the housing market.

"There has been an effective moratorium on foreclosure," said Roubini.

3--For-Profit Colleges and the road to debt peonage, Bloomberg

Excerpt: Students seeking to move up in life by getting a degree from a for-profit college are being trapped in a growing underclass of education debtors. Under U.S. law, their loan obligations can rarely be discharged in bankruptcy, making them more onerous than credit-card debt or subprime mortgages taken out before the housing bubble burst. Along with blocking students from further education and access to housing, defaults can subject them to government confiscation of tax refunds and Social Security payments, as well as paychecks.

“I’m cornered, and I don’t know what to do,” DiGiacomo, a 30-year-old former U.S. Army supply and logistics specialist, said in an interview. “I would love to forget I ever went to those two schools and start from scratch.”

Taxpayer Money

Students at for-profit colleges, which rely on federal financial-aid programs for as much as 90 percent of revenue, carry the biggest loans in U.S. higher education. Bachelor’s degree recipients at for-profits have median debt of $31,190 compared with $17,040 at private, nonprofit institutions and $7,960 at public colleges, according to Education Trust, a Washington-based nonprofit research and student-advocacy organization....

“These students have debt loads that leave them out of the running for a productive life in America,” Jose Cruz, a vice president of Education Trust, said in a telephone interview. “It’s a dead end.”...

With the U.S. unemployment rate at 9.8 percent, many college graduates, from traditional universities as well as for- profit colleges, aren’t finding jobs and are piling up debt. Thirty-four million borrowers owe $713 billion, not including interest, in federal student loans, 11 times the amount of two decades ago, according to the Education Department. A total of $50 billion in these loans was in default in the year ended Sept. 30, twice the sum five years earlier.

President Barack Obama’s administration wants to curb rising default rates and the threat of student destitution by cutting off federal funds to for-profit college programs whose students have the worst loan-repayment rates and lowest incomes relative to debt. Representative John Kline, the Minnesota Republican who will lead the House education committee beginning in January, pledged this month to block the plan, known as “gainful employment,” saying the measures don’t reflect an accurate picture of the quality of for-profit education....

For-profit colleges have higher student-loan default rates because they serve lower-income students, minorities, immigrants and working adults, Harris Miller, president of the Association of Private Sector Colleges & Universities, a Washington-based trade group, said in a telephone interview....

Once in default on student loans, people often can’t pass the credit screenings needed to rent apartments, said Deanne Loonin, a lawyer with the National Consumer Law Center, a nonprofit advocacy organization in Boston....

To collect on federal loans, the Education Department can seize borrowers’ paychecks, tax refunds and Social Security payments without a court order -- as much as 15 percent of a borrower’s disposable income.

4--Plunge of For-Profit College Stock Makes Sperling Rail at Obama, Bloomberg

Excerpt: As a humanities professor at San Jose State University from 1961 to 1973, John Sperling pioneered remedial reading classes for Mexican Americans and courses in social problems for police officers.

Defying the education establishment, he expanded such programs into the for-profit University of Phoenix, now largely online and the biggest U.S. university, with almost 500,000 students. Sperling and his proteges transformed a backwater of mom-and-pop trade schools into a $30 billion industry attracting Washington Post Co. and Goldman Sachs Group Inc. as investors. For-profit colleges enroll 12 percent of U.S. undergraduates and consume 24 percent of U.S. Pell grants for low-income students....

The colleges use deceptive practices to lure homeless people, veterans and individuals who aren’t prepared for college into unsuitable courses in order to obtain tuition funded by grants and also by federal loans that students have trouble repaying, according to advocates for the homeless, veterans’ groups and current and former students. Almost 90 percent of Phoenix’s students use federal grants or loans to pay tuition....

In September, Sperling sent every member of Congress a 74- page PowerPoint presentation making the case that, while four- year public and private nonprofit colleges cost taxpayers $9,709 and $6,379 a student respectively, for-profit colleges pay taxes and save the government money.

He personally made almost $100,000 in campaign donations for the 2010 elections, while Apollo Group’s political-action committee gave $92,100 to federal candidates, including $15,000 to George Miller, the outgoing chair of the House education committee, and $14,000 to John Boehner, the incoming House speaker. Starting with the 2002 campaign, Apollo Group’s PAC has given Boehner $36,600, more than any other member of Congress....

“His pitch to me was that, by overregulating for-profit colleges, we are constricting the access of people of color to higher education,” Grijalva, who has received campaign donations from Sperling, said in a telephone interview.

“My response is, to have someone saddled with a debt they can’t pay back, and they don’t finish school, and put their financial lives in jeopardy, that’s a double-edged sword. The community colleges are there, that’s accessible and inexpensive.”...

While he coauthored a book calling for an end to corporate welfare, his for-profit university depends on federal aid for 88 percent of its revenue....

Sperling’s industry has grown through misleading sales pitches from recruiters who are paid on the basis of how many people they sign up, according to Senate education committee reports and testimony and an Aug. 4 Government Accountability Office report.

For-profit colleges in 2008 graduated just 22 percent of their first-time, fulltime students seeking bachelor’s degrees, compared with 55 percent at public institutions and 65 percent at nonprofit private universities, according to the Washington- based National Center for Education Statistics. Only 36 percent of their students repay the loans, compared with at least 54 percent at traditional colleges, according to an analysis of government data by the Institute for College Access & Success, a nonprofit group in Oakland, California...

Alarmed by such disparities, the Education Department wants to cut off aid to for-profit colleges if their graduates don’t earn enough to pay off student loans.

Sperling and his son, Apollo Vice Chairman Peter Sperling, have collected almost $840 million in stock sales since 2003. The company disclosed in October that the Securities and Exchange Commission is looking at the company’s insider-trading policies....

Because most of its students were low-income and qualified for federal grants and loans, Axia fostered Phoenix’s dependence on its biggest source of funds, the Education Department. Phoenix derived 88 percent of its revenue from federal student aid in the year ended Aug. 31, up from 48 percent in fiscal 2001.

Reliance on federal funds is “a bad business model,” Iowa Senator Tom Harkin, the chairman of the Senate education committee, said in a telephone interview. “You get the maximum return by recruiting the lowest-income students, and getting rid of them as soon as possible.”

Fanning Out

“I’ve been accused of being against private enterprise,” Harkin said. “This is not private enterprise. Ninety percent of their money is coming from the taxpayer.”...

Founded in 2004 by a former Phoenix vice president named Andrew S. Clark, Bridgepoint Education Inc. had 77,179 students on Sept. 30, up from 1,063 at the end of 2005. Almost all took classes exclusively online. Bridgepoint, based in San Diego, had $521 million in revenue in the first nine months of this year, up 62 percent from the comparable period a year earlier, according to the company’s filings. Its flagship Ashford University derived 86 percent of revenue from federal aid in 2009...

Goldman Stake

Todd Nelson, the former CEO for Apollo, now holds the same title at Pittsburgh-based Education Management Corp., the No. 2 higher-education company by enrollment, with 158,300 students in October. New York-based Goldman Sachs, Wall Street’s most profitable bank, owns a 39 percent stake in the company.

The sector also attracted Washington Post Co. Once known primarily for preparing high-school students for the SAT college-entrance examination, the company’s Kaplan unit derived 63 percent of its revenue in the quarter ended Oct. 3 from its higher-education division. Kaplan has 112,000 students, of whom about 70,000 attend online.

Jack Welch, former chairman and CEO of Fairfield, Connecticut-based General Electric Co., is an investor in Chancellor University in Cleveland, which named its online master’s degree program in business administration after him.

Sperling and his industry got a boost from the election in 2000 of George W. Bush, who in 2002 named the former Apollo lobbyist Stroup to oversee higher education....

Goldman Stake

Todd Nelson, the former CEO for Apollo, now holds the same title at Pittsburgh-based Education Management Corp., the No. 2 higher-education company by enrollment, with 158,300 students in October. New York-based Goldman Sachs, Wall Street’s most profitable bank, owns a 39 percent stake in the company.

The sector also attracted Washington Post Co. Once known primarily for preparing high-school students for the SAT college-entrance examination, the company’s Kaplan unit derived 63 percent of its revenue in the quarter ended Oct. 3 from its higher-education division. Kaplan has 112,000 students, of whom about 70,000 attend online.

Jack Welch, former chairman and CEO of Fairfield, Connecticut-based General Electric Co., is an investor in Chancellor University in Cleveland, which named its online master’s degree program in business administration after him.

Sperling and his industry got a boost from the election in 2000 of George W. Bush, who in 2002 named the former Apollo lobbyist Stroup to oversee higher education.

5--After 33 Consecutive Weeks Of Outflows, ICI Reports First Inflow Into US Equity Funds As Bond Outflows Persist, zero hedge

Excerpt: The inflection point has arrived. After pulling money for 33 consecutive weeks, and withdrawing over $98 billion in capital from domestic equity mutual funds, in the week ended December 21, the Fed has finally succeeded in getting the rotation out of bonds and into stocks as per ICI. After a total of $4.4 billion was redeemed from bond funds in the same week, mostly from municipals but also $837 million from taxable bonds (still a major decline from the almost $9 billion in bond outflows the prior week), domestic equity funds saw a token inflow of $335 million, compared to last week's $2.4 billion outflow. Just enough to halt the seemingly endless outflow. Still, since the bulk of the move seems predicated upon a move out of muni bonds, with $9.5 billion in outflows in December alone, should the muni crisis accelerate, and validate the investor concern, stocks as an asset class will certainly be impaired once the muni insolvency thesis start being played out... unless of course it is met with further action from Ben Bernanke in the form of QE3, as most Zero Hedge readers believe will inevitably happen. At that point, and as always when the Fed intervenes, all bets are off, suffice to say that gold will be well over $2,000 by then.

6--Rising foreclosures presage troubles ahead, RTT News

Excerpt: A day after a closely-watched report showed home prices declined in October, regulators in Washington said that foreclosures rose sharply in the third quarter.

New foreclosure filings rose to 382,000 in the third quarter, up 31.2 percent over the previous quarter, according to the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

The economy plodded through much of 2010 after a solid first quarter, beset by lingering weakness the housing and jobs market.

What seems certain is that US unemployment will remain unacceptably high in 2011, compelling the Federal Reserve to support the economy with record low interest rates and its massive asset purchase program.

Barring a brief rally sparked by a popular home buyer tax credit that expired seven months ago, the housing market has been in the dumps for the better part of two years, and may get worse before things turn around in a meaningful way.

7--Home foreclosures continue to mount, presenting challenge to Obama and GOP, The Hill

Excerpt: Home foreclosures increased 31.2 percent in the third quarter of 2010, illustrating the severe housing problem that continues to plague the economy.

The number of new foreclosures increased to more than 382,000 between July and September, a figure 3.7 percent higher than the previous year.

Another 1.2 million homes are in the process of foreclosing, according to a report released Wednesday by government regulators.

The jump in foreclosures shows housing will remain a serious issue in 2010 for President Obama and a new divided Congress with Republicans controlling the House....

The government instituted the Home Affordable Modification Program to address the housing crisis by changing mortgage loans for home owners. It was hoped that the program would help millions of people stay in their homes by modifying loans, but so far the program has only permanently modified a little more than 500,000 mortgages.

8--2010 Racks Up Most Bank Failures Since 1992, Wall Street Journal

Excerpt: More banks failed in 2010 than any year since the savings-and-loan crisis ended in 1992, but regulators said Wednesday they believe failures have passed their peak.

So far this year, the 157 banks that failed had total assets of $92.1 billion compared to 140 bank failures with total assets of $169.7 billion in 2009....

As of Sept. 30, when the FDIC released its last quarterly report, there were 860 banks on the agency’s “problem list.”

Since 2008, 322 banks have failed with combined assets of $633.7 billion and total cost to the FDIC of $79.5 billion.

9--Obama's stimulus plan: Where did the money go?, Ezra Klein, Washington Post

Excerpt: So far, the overwhelming share of that stimulus has been devoted to three items: Tax cuts for households; direct benefits to people adversely affected by the severe recession, mostly the unemployed or poor; and fiscal relief to state and local governments. Vermont did not need any "Czar" to receive or administer funds under these programs. The money for them quickly left the U.S. Treasury without any effort on the part of the Czar who penned this highly misleading op-ed piece. People in Vermont *directly* received benefits from the stimulus as: (1) lower federal tax withholding from their paychecks; (2) extended unemployment benefits; (3) premium subsidies so they could maintain their health insurance after they were laid off from a job in which they received health protection; (4) miscellaneous benefits (e.g., for college costs) under one provision or another; and (5) aid from the Treasury that permitted Vermont and its localities to finance their Medicaid and K-12 education programs without hiking taxes or lowering other public spending. The kinds of infrastructure spending for which the WSJ's "Czar" had some responsibility constituted a small percentage of the stimulus the Congress authorized for 2009 and 2010.

In FY 2009 and 2010, the EXPECTED spending on infrastructure and other items for which the Vermont “Czar” may have had partial responsibility accounted for just 11% of anticipated spending under the stimulus legislation. The other 89% had nothing to do with the programs criticized by Vermont’s supposed Czar.

1 comment:

  1. If you’re thinking about buying your first home, it’s important to understand the process completely. One simple misunderstanding can cost you for the next 30 years of your life.Learn more visit :

    credit tips

    ReplyDelete