Then Center of Philanthropy at Indiana University released a study Tuesday in which they have analyzed the factors which motivate people to be charitable.The study covered 8,000 households. The families were visited every two years in 2000, 2002 and 2004, in order to map their behavior pattern regarding charity.The study found that about 67 to 69% of the households contributed to charity. The latest figures available, which are for 2004, indicate that about 68% of the donors gave $ 25 or more. The average total amount given was $2,o45. But all people are not charitable consistently with nearly 29% donating in some years and not donating in others. However 56% of the households studied were regular donors and donated in each of the three years studied. Only about 15% did not donate in any of the three years, data for which was gathered. It was also seen that that the average donor did not give to only one charity but to two or three different charities. 45% of the donors gave to religious organizations and 60% to secular ones and 37% gave to both types.
The study also covered some of the richest households, having a net worth of over a million dollars and discovered distinct behavior patterns among donors divided into 12 categories.
They found that those who inherited wealth gave the most to arts and cultural organizations. These people wish to set an example for others to follow. Since they tend to build long term associations with the institution to which they donate, they often include their children or other family members in their decisions.
The wealthiest people donate the most and to every type of charity.They desire to leave behind a legacy, and they also also keep track of whether their largess is having the desired results or not.
Entrepreneurs donate the most to educational and international organizations.They follow the use of their gifts closely. They donate because it makes good business sense and is also expected in their social circle.
Many donors do not fall into any category. They donate because of some event, usually tragic, which has a decisive influence on their lives. Losing a loved one is the usual reason. They often develop a missionary zeal in promoting the objects of the charity to which they have donated. The less wealthy are more likely to donate because of their religious beliefs as compared to the richer households. As people become richer they are finding more innovative ways to donate instead of following the beaten path.
The study aimed at finding out the reasons for changes in the desire to donate.This will allow the recipients of charity to shape their policies so as to attract the maximum number of donations. It would also enable philanthropists to take informed decisions regarding the charities they wished to support.
Credit Card Industry Threatened With Regulation.
Americans collectively owe almost $850 billion in credit card debt. This is what is driving the thriving credit card industry in the US. An average American family owns about five credit cards. The credit card business is dominated by five companies who between them control 80% of the US market. They are Discover, JP Morgan Chase &Co., Capital One, Citigroup and Bank of America. This business is extremely profitable for these companies not just because of the size of the market but also because of the practices followed by them.
It is not uncommon for even those customers who have paid their credit card bills on time to be hit by arbitrary increases in interest rates charged. The reason usually given, if at all one is given, is that their credit rating has fallen simply because of opening another credit card account. The fine print in the contract which you sign when applying for a credit card usually contains clauses for charging penalty interest rates and various kinds of fees. The language used is complicated and difficult to understand even if you take the trouble of reading the entire contract. With complaints about unfair card practices on the rise a Senate committee was asked to look into the matter.
Sen. Carl Levin, Chairman of the Senate Homeland Security and Governmental Affairs Permanent Sub committee on investigations had this to say, 'The bottomline for me is this: when a Credit card issuer promises to provide a card holder with a specific interest rate if they meet their credit card obligations, and the card holder holds up their end of the bargain, the credit card issuers should have to do the same.' The committee has already proposed legislation which would prevent card companies from raising interest rates charged from persons who have paid their debt on time. The maximum rate increase permitted is also sought to be fixed.
The common forms of extra charges a card holder may have to pay include over the credit-limit fees from those customers who have been in an over-limit position for a particular period of time, usually 90 days. Another practice followed is called 'universal default.' This simply means that when a person defaults on even one of the cards that he owns then the interest rates go up on all the cards even though he may be making timely payments on them. The committee also noticed a practice that customers who had charged close to the limit on their cards for a length of time, but were making at least the minimum payment regularly, were also likely to be penalized by a hike in interest rates. The committee found that the card companies were justifying their actions by claiming that the credit score of the customer had fallen.
Although such practices cannot be called illegal, they are certainly unethical and it is likely that with the Democrats in control of Congress they may place this important consumer issue on the legislative agenda.Credit card companies claim that unless they continuously monitor every individual and take timely action to compel him to reduce his debt they may find themselves in a situation where it may become difficult for them to recover their loans. But the Senate committee does not seem to buy this argument. The message for now seems to be that if such practices are not ended voluntarily then legislation may become necessary to correct the situation.
It is not uncommon for even those customers who have paid their credit card bills on time to be hit by arbitrary increases in interest rates charged. The reason usually given, if at all one is given, is that their credit rating has fallen simply because of opening another credit card account. The fine print in the contract which you sign when applying for a credit card usually contains clauses for charging penalty interest rates and various kinds of fees. The language used is complicated and difficult to understand even if you take the trouble of reading the entire contract. With complaints about unfair card practices on the rise a Senate committee was asked to look into the matter.
Sen. Carl Levin, Chairman of the Senate Homeland Security and Governmental Affairs Permanent Sub committee on investigations had this to say, 'The bottomline for me is this: when a Credit card issuer promises to provide a card holder with a specific interest rate if they meet their credit card obligations, and the card holder holds up their end of the bargain, the credit card issuers should have to do the same.' The committee has already proposed legislation which would prevent card companies from raising interest rates charged from persons who have paid their debt on time. The maximum rate increase permitted is also sought to be fixed.
The common forms of extra charges a card holder may have to pay include over the credit-limit fees from those customers who have been in an over-limit position for a particular period of time, usually 90 days. Another practice followed is called 'universal default.' This simply means that when a person defaults on even one of the cards that he owns then the interest rates go up on all the cards even though he may be making timely payments on them. The committee also noticed a practice that customers who had charged close to the limit on their cards for a length of time, but were making at least the minimum payment regularly, were also likely to be penalized by a hike in interest rates. The committee found that the card companies were justifying their actions by claiming that the credit score of the customer had fallen.
Although such practices cannot be called illegal, they are certainly unethical and it is likely that with the Democrats in control of Congress they may place this important consumer issue on the legislative agenda.Credit card companies claim that unless they continuously monitor every individual and take timely action to compel him to reduce his debt they may find themselves in a situation where it may become difficult for them to recover their loans. But the Senate committee does not seem to buy this argument. The message for now seems to be that if such practices are not ended voluntarily then legislation may become necessary to correct the situation.
U.S. Gives Clean Chit To Iran On Nuclear Weapons Issue.
The most welcome news, Monday, was a major US Intelligence report that Iran was not currently trying to develop nuclear weapons. The National Intelligence Estimate reported that Tehran halted its nuclear weapons program in 2003, but continues to enrich uranium. Enriched uranium is used in nuclear bombs but Tehran maintains its nuclear activities are for peaceful purposes. The report which draws together information from 16 Intelligence agencies of the US, says with 'high confidence' that Iran stopped its nuclear weapons program in 2003 'in response to international pressure.' The assessment says with 'moderate confidence' that the program has not restarted. This marks a turnaround from previous assessments, where US Intelligence agencies believed Iran was trying to build a nuclear weapon. Sanctions have already been imposed on Iran by both the UN Security Council which is demanding that Iran stop uranium enrichment, and unilateral US sanctions.
The timing of the release of this report is significant. It is almost impossible to accept that President Bush was unaware of the findings of NIE on October 17th when he said at a press conference ' If you're interested in avoiding World War III, it seems like you ought to be interested in preventing them (Iran) from having the knowledge necessary to make a nuclear weapon.' The obvious benefit to President Bush after the release of this report is that he now has an excuse for a graceful climb down from the extreme posture that he had adopted and any change in which would have meant a tremendous loss of face for the US. It also seeks to reassure the world that the various specialized agencies of the US government are independent and impartial bodies , free from political influence, an image the US is anxious to project after the fiasco over the alleged weapons of mass destruction in Iraq. Another possible reason for this abrupt about turn could be the growing realization that all this saber rattling was was only serving to strengthen the position of President Mahmoud Ahmadinejad in Iran. In fact Iran appears to be happy with a few sanctions as they serve to divert the attention of its people from the failures of their government.US actions have in fact only served to marginalize the moderate faction, led by Khatami, in Iranian politics. Added to this is the realization that presently the US is in no position to take on Iran in a conventional war as the conflicts in Iraq and Afghanistan are still to be concluded.The US is also anxious to hold on to the tenuous military gains it has made in Iraq over the past few months. It is also concerned at reports of the Taliban regrouping in Afghanistan. They now seem to be making their presence felt across the entire country, outside their strongholds of southern and south-eastern Afghanistan.Iran shares an extensive common border with both countries and Iranian assistance would be crucial in prolonging the duration and intensity of the insurgencies in both the countries.Iran has long been suspected of aiding anti US forces in both countries. With elections round the corner the US government is keen to bring some troops back home as evidence of the success of its current policies, especially in Iraq.The perceived failure of US policies in Iraq threatens to be a major issue in next year's US presidential election.
Whatever be the real reason,the report has certainly eased tensions significantly as it rules out any possibility of a military strike on Iran in the near future.In fact Russia and China may even oppose further sanctions against Iran. Most importantly it serves to reinforce confidence in diplomacy and international pressure as a means of solving international crises in future.
The timing of the release of this report is significant. It is almost impossible to accept that President Bush was unaware of the findings of NIE on October 17th when he said at a press conference ' If you're interested in avoiding World War III, it seems like you ought to be interested in preventing them (Iran) from having the knowledge necessary to make a nuclear weapon.' The obvious benefit to President Bush after the release of this report is that he now has an excuse for a graceful climb down from the extreme posture that he had adopted and any change in which would have meant a tremendous loss of face for the US. It also seeks to reassure the world that the various specialized agencies of the US government are independent and impartial bodies , free from political influence, an image the US is anxious to project after the fiasco over the alleged weapons of mass destruction in Iraq. Another possible reason for this abrupt about turn could be the growing realization that all this saber rattling was was only serving to strengthen the position of President Mahmoud Ahmadinejad in Iran. In fact Iran appears to be happy with a few sanctions as they serve to divert the attention of its people from the failures of their government.US actions have in fact only served to marginalize the moderate faction, led by Khatami, in Iranian politics. Added to this is the realization that presently the US is in no position to take on Iran in a conventional war as the conflicts in Iraq and Afghanistan are still to be concluded.The US is also anxious to hold on to the tenuous military gains it has made in Iraq over the past few months. It is also concerned at reports of the Taliban regrouping in Afghanistan. They now seem to be making their presence felt across the entire country, outside their strongholds of southern and south-eastern Afghanistan.Iran shares an extensive common border with both countries and Iranian assistance would be crucial in prolonging the duration and intensity of the insurgencies in both the countries.Iran has long been suspected of aiding anti US forces in both countries. With elections round the corner the US government is keen to bring some troops back home as evidence of the success of its current policies, especially in Iraq.The perceived failure of US policies in Iraq threatens to be a major issue in next year's US presidential election.
Whatever be the real reason,the report has certainly eased tensions significantly as it rules out any possibility of a military strike on Iran in the near future.In fact Russia and China may even oppose further sanctions against Iran. Most importantly it serves to reinforce confidence in diplomacy and international pressure as a means of solving international crises in future.
Climate Change Talks Begin In Bali.
Delegates from almost 190 countries have gathered in Bali, Indonesia, for talks on climate change. The talks started today and will last two weeks. The aim of the UN led talks is to work towards a new global pact by 2009, to fight climate change.There is an added urgency to these talks since on February 2nd The United Nations Scientific Panel studying climate change declared that the evidence of a warming trend is 'unequivocal,' and that human activity has 'very likely' been the driving force in that change over the last 50 years.
There is now mounting scientific evidence that the release of carbon dioxide and other greenhouse gases from various sources has contributed significantly to raising the earth's temperature by more than 1 degree Fahrenheit since 1900. The debate now is not whether the earth is getting warmer or not, but what to do about it. Just how important the issue is right now can judged by the fact that former US Vice President Al Gore shared the Nobel Peace Prize for his work on climate change. He went on to win an Oscar for his documentary 'An Inconvenient Truth.' The significance attached to his contribution and his resultant popularity led to serious speculation that he may be the Democratic party's candidate in next year's US Presidential election.
The original treaty on climate change signed in 1992 set voluntary targets for curbing emissions of greenhouse gases, and was signed by almost all nations. Realizing that stricter action was needed, the Kyoto Protocol in 1997 set mandatory limits on emissions. It was ratified by 36 industrialized nations and is due to expire in 2012. It was not ratified by the US which is the largest producer of greenhouse gases.The US position is unlikely to change in Bali. President Bush remarked last week,'Our guiding principle is clear: we must lead the world to produce fewer greenhouse gas emissions, and we must do it in a way that does not undermine economic growth or prevent nations from delivering greater prosperity for the people.'
Developing nations, including China, which is set to become the biggest polluter, are also opposed to accepting any limits on greenhouse gas emissions, as they claim it will affect their growth plans which in turn will affect their fight against poverty.
The conference however got off to an auspicious start with Australia ratifying the Kyoto Protocol. This leaves the US as the only industrialized nation which has not ratified it.
The European Union, which is alarmed by the Arctic ice melt this year, and also recognizes the vast business opportunities thrown up by the trade in carbon credits under the so called cap and trade system, has pledged to cut emissions to 20% below 1990 levels by 2020.
Although different nations have so far taken different stands depending upon their perceived self interest, it is time they got together and viewed things from a global perspective before it is too late.
There is now mounting scientific evidence that the release of carbon dioxide and other greenhouse gases from various sources has contributed significantly to raising the earth's temperature by more than 1 degree Fahrenheit since 1900. The debate now is not whether the earth is getting warmer or not, but what to do about it. Just how important the issue is right now can judged by the fact that former US Vice President Al Gore shared the Nobel Peace Prize for his work on climate change. He went on to win an Oscar for his documentary 'An Inconvenient Truth.' The significance attached to his contribution and his resultant popularity led to serious speculation that he may be the Democratic party's candidate in next year's US Presidential election.
The original treaty on climate change signed in 1992 set voluntary targets for curbing emissions of greenhouse gases, and was signed by almost all nations. Realizing that stricter action was needed, the Kyoto Protocol in 1997 set mandatory limits on emissions. It was ratified by 36 industrialized nations and is due to expire in 2012. It was not ratified by the US which is the largest producer of greenhouse gases.The US position is unlikely to change in Bali. President Bush remarked last week,'Our guiding principle is clear: we must lead the world to produce fewer greenhouse gas emissions, and we must do it in a way that does not undermine economic growth or prevent nations from delivering greater prosperity for the people.'
Developing nations, including China, which is set to become the biggest polluter, are also opposed to accepting any limits on greenhouse gas emissions, as they claim it will affect their growth plans which in turn will affect their fight against poverty.
The conference however got off to an auspicious start with Australia ratifying the Kyoto Protocol. This leaves the US as the only industrialized nation which has not ratified it.
The European Union, which is alarmed by the Arctic ice melt this year, and also recognizes the vast business opportunities thrown up by the trade in carbon credits under the so called cap and trade system, has pledged to cut emissions to 20% below 1990 levels by 2020.
Although different nations have so far taken different stands depending upon their perceived self interest, it is time they got together and viewed things from a global perspective before it is too late.
Risks of FOREX Trading
Despite the claims you may see on some FOREX web sites, FOREX is not risk-free. You are trading with substantial sums of money and there is always a possibility that trades will go against you. There are several trading tools, however, that can minimize your risk, and with caution, and above all education, the FOREX trader can learn how to trade profitably and while minimizing losses.
Scams
Forex scams were fairly common a few years ago. The industry has cleaned up considerably since then, but you still need to exercise caution when signing up with a FOREX broker. Do some background checking – reputable FOREX brokers will be associated with large financial institutions like banks or insurance companies and they will be registered with the proper government agencies. In the United States brokers should be registered with the Commodities Futures Trading Commission (CFTC) or a member of the National Futures Association (NFA). You can also check with your local Consumer Protection Bureau and the Better Business Bureau.
Risks
Assuming you are dealing with a reputable broker, there are still risks to FOREX trading. Transactions are subject to unexpected rate changes, volatile markets and political events.
Exchange Rate Risk – refers to the fluctuations in currency prices over a trading period. Prices can fall rapidly resulting in substantial losses unless stop loss orders are used when trading FOREX. Stop loss orders specify that the open position should be closed if currency prices pass a predetermined level. Stop loss orders can be used in conjunction with limit orders to automate FOREX trading – limit orders specify an open position should be closed at a specified profit target.
Interest Rate Risk – can result from discrepancies between the interest rates in the two countries represented by the currency pair in a FOREX quote. This discrepancy can result in variations from the expected profit or loss of a particular FOREX transaction.
Credit Risk – is the possibility that one party in a FOREX transaction may not honor their debt when the deal is closed. This may happen when a bank or financial institution declares insolvency. Credit risk is minimized by dealing on regulated exchanges which require members to be monitored for credit worthiness.
Country Risk – is associated with governments that may become involved in foreign exchange markets by limiting the flow of currency. There is more country risk associated with 'exotic' currencies than with major currencies that allow the free trading of their currency.
Limiting Risk
FOREX trading can be risky, but there are ways to limit risk and financial exposure. Every FOREX trader should have a trading strategy – knowing when to enter and exit the market and what kind of movements to expect. Developing strategies requires education - the key to limiting FOREX risk. At all times follow the basic rule: Do not place money in the FOREX that you cannot afford to lose.
Every FOREX trader needs to know at least the basics about technical analysis and how to read financial charts. He should study chart movements and indicators and understand how charts are interpreted. There is a vast amount of information on FOREX trading available both on the Internet and in print. If you want to be successful at FOREX, know what you are doing.
Even the most knowledgeable traders, however, can't predict with absolute certainty how the market will behave. For this reason, every FOREX transaction should take advantage of available tools designed to minimize loss. Stop-loss orders are the most common ways of minimizing risk when placing an entry order. A stop-loss order contains instructions to exit your position if the currency price reaches a certain point. If you take a long position (expecting the price to rise) you would place a stop loss order below current market price. If you take a short position (expecting the price to fall) you would place a stop loss order above current market price.
40% Hike In Auto Fuel Efficiency Likely By 2020.
After months of wrangling Democrat lawmakers wrapped up a deal on fuel efficiency standards Friday.Significantly the deal has been approved by John D. Dingell the auto industry's Congressional ally.As per the final version of the Bill the new auto fleet has to achieve average fuel efficiency of 35 miles per gallon by 2020, about 40% higher than current averages.At Dingell's insistence it has tougher standards for cars than light trucks. Fuel efficiency standards, known as corporate average fuel economy standards or CAFE were adopted in 1975 following the Arab oil embargo of 1974 and had set an efficiency standard of 27.5 mpg which has remained unchanged so far.
Democrats plan to make these proposals a part of the wider energy bill that the House of Representatives is expected to take up next week.The Bill is expected to contain a provision that would require the country's major utilities to generate at least 15% of their electricity from renewable sources like wind and solar power. This measure looks set to be opposed by the utilities who say this will cause a sharp increase in power prices in some parts of the country. The Bill also seeks to provide subsidies for biofuel production, a move opposed by the oil industry.
In a statement Saturday, Alliance of Automobile Manufacturers chief Dave Mc Curdy said 'Upon adoption of this legislation, Congress will have established aggressive, nationwide fuel economy requirements, concluding a long standing debate.' The Alliance is the voice in Washington for the top automakers including Toyota.
Rick Wagoner CEO of General Motors said the new rules would ' Pose a significant technical and economic challenge to the industry.' He said GM would tackle the changes ' with an array of engineering, research and development resources.'
The bill is expected to boost plans by automakers to adopt more fuel efficient technologies for conventional engines and alternatives such as gas-electric hybrids and vehicles running on biofuels. Manufacturers are set to receive credits for vehicles running on biofuels for the first time.
Interestingly a bill containing similar standards approved in June by the Senate was opposed by automakers who said that it would restrict the choice of vehicles, threaten jobs and push up costs. The companies had suggested a standard of 32 mpg by 2022 instead. Chrysler had estimated that it could add $ 6,700 to the cost of each Chrysler vehicle.
But the new plan gives the industry more flexibility to plan new vehicles. It contains separate standards for cars and trucks, extends credits for producing vehicles running on biofuels, and allows automakers to receive separate credits for exceeding the standards which can be applied to other model years.
Dingell also secured extension of the 1.2 mpg credit for the production of each flexi-fuel vehicle which can run on ethanol blends of 15% gasoline and 85% ethanol till 2020. They were due to expire by 2010.
The deal is expected to keep the United Auto Workers union happy as well because it discourages the shifting of production of small cars overseas as the fuel economy credits could be applied to larger, less efficient models.
The flexibility provided in the Bill seeks to set at rest concerns about safety standards as it was feared that rigid efficiency standards would not only restrict the choice of vehicles but also compromise safety, as automakers shifted to lighter materials in an attempt to maintain fuel economy.
Environmental groups estimate the new standards would save 1.2 million barrels of oil per day by 2020 besides reducing pressure on gasoline prices. It seems to be a win-win situation for everybody if it goes through.
Democrats plan to make these proposals a part of the wider energy bill that the House of Representatives is expected to take up next week.The Bill is expected to contain a provision that would require the country's major utilities to generate at least 15% of their electricity from renewable sources like wind and solar power. This measure looks set to be opposed by the utilities who say this will cause a sharp increase in power prices in some parts of the country. The Bill also seeks to provide subsidies for biofuel production, a move opposed by the oil industry.
In a statement Saturday, Alliance of Automobile Manufacturers chief Dave Mc Curdy said 'Upon adoption of this legislation, Congress will have established aggressive, nationwide fuel economy requirements, concluding a long standing debate.' The Alliance is the voice in Washington for the top automakers including Toyota.
Rick Wagoner CEO of General Motors said the new rules would ' Pose a significant technical and economic challenge to the industry.' He said GM would tackle the changes ' with an array of engineering, research and development resources.'
The bill is expected to boost plans by automakers to adopt more fuel efficient technologies for conventional engines and alternatives such as gas-electric hybrids and vehicles running on biofuels. Manufacturers are set to receive credits for vehicles running on biofuels for the first time.
Interestingly a bill containing similar standards approved in June by the Senate was opposed by automakers who said that it would restrict the choice of vehicles, threaten jobs and push up costs. The companies had suggested a standard of 32 mpg by 2022 instead. Chrysler had estimated that it could add $ 6,700 to the cost of each Chrysler vehicle.
But the new plan gives the industry more flexibility to plan new vehicles. It contains separate standards for cars and trucks, extends credits for producing vehicles running on biofuels, and allows automakers to receive separate credits for exceeding the standards which can be applied to other model years.
Dingell also secured extension of the 1.2 mpg credit for the production of each flexi-fuel vehicle which can run on ethanol blends of 15% gasoline and 85% ethanol till 2020. They were due to expire by 2010.
The deal is expected to keep the United Auto Workers union happy as well because it discourages the shifting of production of small cars overseas as the fuel economy credits could be applied to larger, less efficient models.
The flexibility provided in the Bill seeks to set at rest concerns about safety standards as it was feared that rigid efficiency standards would not only restrict the choice of vehicles but also compromise safety, as automakers shifted to lighter materials in an attempt to maintain fuel economy.
Environmental groups estimate the new standards would save 1.2 million barrels of oil per day by 2020 besides reducing pressure on gasoline prices. It seems to be a win-win situation for everybody if it goes through.
U.S. Government Set To Intervene In Sub Prime Crisis.
Before the 1992 Presidential campaign began President George H.W. Bush was considered almost unbeatable. Successful foreign policy developments such as the end of the Cold War and the Persian Gulf War had given him an approval rating of almost 80%. Then James Carville, Clinton's campaign manager, in a moment of inspiration came up with the slogan,'The economy, stupid.' Within a short span of time the attention of the voters was successfully turned towards the economic recession gripping the US at that time, and Bush lost the election.
This time round the outgoing President, the son of George H.W. Bush faces an uphill task to put another Republican in the White House when he leaves.Unfortunately for him the US seems to be stuck in two wars, in Afghanistan and in Iraq, which it is nowhere near winning, although things seem to be improving.Added to this he has an approval rating of 32%.The attention of the American people is once again focussed on one major headline grabbing issue, that is the sub prime crisis and its likely impact on the economy.The government has belatedly woken up to the hard realization that it has allowed matters to drift for too long and that the crisis is going to cast its shadow on the coming elections.
Lawmakers have been facing political pressure to take action.But in September this year the Fed Chairman Ben Bernanke and the Treasury secretary Henry Paulson warned that some solutions could end up perpetuating unhealthy lending practices that created the whole mess in the first place.However some initiatives were taken, such as making more money available in the system to ease the credit crunch,giving borrowers greater protection against predatory lenders and encouraging homeowners to call their banks in order to discuss their problems and find a solution so that they could retain their homes.It was also announced that while the government will try to ensure that people got to keep their homes it would do nothing to bail out speculators or those who were plain greedy.This stand of the government was probably prompted by the assumption that the crisis was nearing an end.But things have simply got worse and there is no immediate end to the crisis in sight. It is now expected that the meltdown will continue well into next year at the very least.
The government had also assumed that the crisis will remain remain confined to the housing sector which accounts for just 5% of GDP and any slowdown there would by itself not affect the economy as a whole.But economics has never been an exact science, although it is good at offering explanations in hindsight. Declining home values seems to be having a wealth effect and Americans seem to be cutting other expenses in order to both make up their losses and also in order to be able to make higher mortgage payments. This is reflected in declining auto sales and even in manufacturing. Consumer expenditure accounts for 72% of US GDP and a slowdown here could tip the economy into a recession.
The Bush administration and the mortgage industry are finally hammering out a proposal to temporarily freeze interest rates on certain stressed sub prime mortgages. If it goes through it will be the biggest action to handle the worsening crisis. The proposals could be in place as early as next week. Talks have involved all the federal banking regulators and major players in the mortgage industry such as Citigroup, Wells Fargo and others. The attempt is to extend for several years the introductory 'teaser' rates that were offered on sub prime mortgages. Such a scheme would however mean losses for investors who have purchased mortgage backed securities as it would reduce the rate of return on their investments. Companies apprehend shareholder lawsuits if they permit modifications in original agreements which are not in the best interest of the shareholders.
Government intervention in times of crisis is not new.People would do well to remember that in 1998, in the aftermath of the Asian flu, when Long Term Capital Management was in danger of going under, it was Alan Greenspan who organized a bail out for it.The economy has grown at a surprisingly strong 3.9% in the 3rd quarter although it is expected to slow in future. Food and fuel prices are at record highs and inflationary pressures are clearly visible.Although interest rate cuts are probably round the corner there are clearly limits to how low Bernanke can go without raising inflation to unacceptably high levels.Moreover he cannot allow the dollar to fall much further else foreign investors may start bailing out of US stocks and treasuries, triggering off a deflationary spiral in the economy.A widespread collapse in asset prices would have a disastrous impact on the economy.These considerations will have to be borne in mind by the mortgage companies and their shareholders alike while considering the proposals put forward by the government.
This time round the outgoing President, the son of George H.W. Bush faces an uphill task to put another Republican in the White House when he leaves.Unfortunately for him the US seems to be stuck in two wars, in Afghanistan and in Iraq, which it is nowhere near winning, although things seem to be improving.Added to this he has an approval rating of 32%.The attention of the American people is once again focussed on one major headline grabbing issue, that is the sub prime crisis and its likely impact on the economy.The government has belatedly woken up to the hard realization that it has allowed matters to drift for too long and that the crisis is going to cast its shadow on the coming elections.
Lawmakers have been facing political pressure to take action.But in September this year the Fed Chairman Ben Bernanke and the Treasury secretary Henry Paulson warned that some solutions could end up perpetuating unhealthy lending practices that created the whole mess in the first place.However some initiatives were taken, such as making more money available in the system to ease the credit crunch,giving borrowers greater protection against predatory lenders and encouraging homeowners to call their banks in order to discuss their problems and find a solution so that they could retain their homes.It was also announced that while the government will try to ensure that people got to keep their homes it would do nothing to bail out speculators or those who were plain greedy.This stand of the government was probably prompted by the assumption that the crisis was nearing an end.But things have simply got worse and there is no immediate end to the crisis in sight. It is now expected that the meltdown will continue well into next year at the very least.
The government had also assumed that the crisis will remain remain confined to the housing sector which accounts for just 5% of GDP and any slowdown there would by itself not affect the economy as a whole.But economics has never been an exact science, although it is good at offering explanations in hindsight. Declining home values seems to be having a wealth effect and Americans seem to be cutting other expenses in order to both make up their losses and also in order to be able to make higher mortgage payments. This is reflected in declining auto sales and even in manufacturing. Consumer expenditure accounts for 72% of US GDP and a slowdown here could tip the economy into a recession.
The Bush administration and the mortgage industry are finally hammering out a proposal to temporarily freeze interest rates on certain stressed sub prime mortgages. If it goes through it will be the biggest action to handle the worsening crisis. The proposals could be in place as early as next week. Talks have involved all the federal banking regulators and major players in the mortgage industry such as Citigroup, Wells Fargo and others. The attempt is to extend for several years the introductory 'teaser' rates that were offered on sub prime mortgages. Such a scheme would however mean losses for investors who have purchased mortgage backed securities as it would reduce the rate of return on their investments. Companies apprehend shareholder lawsuits if they permit modifications in original agreements which are not in the best interest of the shareholders.
Government intervention in times of crisis is not new.People would do well to remember that in 1998, in the aftermath of the Asian flu, when Long Term Capital Management was in danger of going under, it was Alan Greenspan who organized a bail out for it.The economy has grown at a surprisingly strong 3.9% in the 3rd quarter although it is expected to slow in future. Food and fuel prices are at record highs and inflationary pressures are clearly visible.Although interest rate cuts are probably round the corner there are clearly limits to how low Bernanke can go without raising inflation to unacceptably high levels.Moreover he cannot allow the dollar to fall much further else foreign investors may start bailing out of US stocks and treasuries, triggering off a deflationary spiral in the economy.A widespread collapse in asset prices would have a disastrous impact on the economy.These considerations will have to be borne in mind by the mortgage companies and their shareholders alike while considering the proposals put forward by the government.
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