U.S. Economic/Financial News
Feds Have Mortgage Giant's Fannie in a Sling
Mortgage giant Fannie Mae was nailed by Federal regulators for accounting crimes related to derivatives trading; the SEC is investigating. The Office of Federal Housing Enterprise Oversight (OFHEO), in an ongoing eight-month probe of Fannie Maethe second-largest U.S. financial institution, behind Citigrouphas found "serious" and "pervasive" accounting problems, especially in Fannie's accounting for transactions involving derivativeswidespread violations calling into question its financial soundness.
OFHEO, in a 210-page report made public Sept. 22, said its findings "are serious and raise concerns regarding the validity of previously reported financial results, the adequacy of regulatory capital, the quality of management supervision, and the overall safety and soundness" of Fannie Mae.
OFHEO documents in detail what it calls a pervasive pattern of earnings manipulation, "weak or nonexistent" internal controls, and a corporate culture "that emphasized stable earnings at the expense of accurate financial disclosures."
As an example of the accounting fraud, in 1998, Fannie manipulated its financial results to meet earnings targets, in order to trigger several $1 million-plus bonuses for top managers.
In response, the U.S. Securities and Exchange Commission has launched a preliminary inquiry "that includes issues raised in the OFHEO report," Fannie's presiding director said.
Meanwhile, the Federal Reserve Bank of Atlanta released a study on "resolving the possible failure" of Fannie or Freddie, an insolvency it warned could lead to "significant" disruption of the financial markets. The paper was to be presented at a Sept. 23-24 conference on "regulation and financial stability."
Fannie and Freddie support $4 trillion in home mortgages, representing more than three-quarters of the single-family mortgage marketand, as key players in the mortgage-backed securities market, intersect the bankrupt U.S. banking system.
Bush Cuts Federal Housing Aid to Poor Families
The Bush-Cheney Administration has cut the nation's key Federal housing aid program, which will throw an estimated 250,000 households out on the street beginning Octoberfar more than Hurricane Ivan. An estimated 6 million households in the United States are living on the edge of homelessness, because of low-income and lack of affordable housing. Of these, about 2 million currently receive some Federal rent assistance through the "Housing Choice" programcalled "Section 8" of the 30-year-old law passed during the post-industrial downshift period, when Federal policy ceased fostering localities to build sufficient housing projects (public or private), and instead proferred Federal vouchers to poor households, with which to defray their rent to private landlords.
Now the Bush/Cheney 2005 budget changes are drastically cutting even that, and 250,000 households are threatened with homelessness after Oct. 1. Many more could follow. The Housing and Urban Development agency has requested a Section 8 budget cut of some $1.6 billion for 2005. HUD rationalizes this with the standard neo-con "transformation" mumbo-jumbo, about how localities can make do with less, by getting money in a block-grant.
Of the 6 million households currently in precarious housing situations, over 90% are seniors, disabled persons, or families with children, who can't cope. The majority of Section 8 renters live below the poverty line of $18,000 or less for a family of four, and pay over 30% of their income for rent.
Overall, 14 million households are facing critical housing problems, because they are paying more than 50% of their income for housing, according to the National Housing Conference. In no city can a minimum-wage earner afford a two-bedroom apartment. Two metropolitan areas typify the crisis across the country:
* Philadelphia. At minimum, 33,000 more housing units are needed for rental accommodation for the poorest households, with incomes below $20,000 a year; they have nowhere to turn. Of the city's total of 589,280 households, 35% of them206,250earned incomes less than $20,000 a year. A sub-group of that number, some 90,400 households, are paying more than 50% of their income for housing, which means one out of six households is in this impossible bind. What housing is to be had, is often decrepit and dangerous. Half of all dwellings date back to before 1934.
The City's Housing Authority, fourth biggest in the nation, dropped the number of apartments in their public housing projects, from a peak of 23,000 down to 11,800, from 1993 to 2004. Section 8 rent subsidies to defray rentals in private housing, have not made up the difference; and now are being cut by the Cheney-Bush Administration.
* Cleveland/Akron. In the eight-county greater Cleveland-Akron region, 2,728 households are to lose their housing assistance in 2005; and 6,521 more by the year 2009. On July 1, the Catholic Diocese of Cleveland denounced this as an "alarming shift," and provided the following county-by-county table, in the area served by their charities, which are being overwhelmed.
Bush-Cheney Housing Cuts: Cleveland-Akron Region
|
County |
Number of Vouchers July, 2003 |
Families Cut Off, as of 2005 |
Families Cut Off, as of 2009 |
Cuyahoga (Cleveland) |
12,859
|
1,559
|
3,741
|
Summit County (Akron) |
3,983
|
483
|
1,159
|
Lorain |
2,695
|
327
|
784
|
Lake |
1,358
|
165
|
395
|
Wayne |
842
|
102
|
245
|
Medina |
506
|
61
|
147
|
Geauga |
171
|
21
|
50
|
Total: |
22,414
|
2,718
|
6,521
|
Eastern Michigan Bankruptcies Soaring
Bankruptcy filings are skyrocketing in industrial Eastern Michigan, hit by the decimation of the automotive and machine tool sectors, the U.S. Bankruptcy Court for the Eastern District of Michigan reported. Already through August, a staggering total of 31,608 bankruptciesmost of them as companies liquidatedhave been filed this year, up 2.6% from the same period in 2003and 22% more than the 25,015 bankruptcies filed in all of 2000. This current eight-month total, moreover, is more than double the 15,521 bankruptcies filed during the entire year in 1994.
Mass Layoffs Hit 60,000 in August
Mass layoffs hit 60,033 additional workers in August; Michigan, Ohio, and Pennsylvania account for 18% of job cuts nationwide, since January. According to figures released by the Bureau of Labor Statistics Sept. 23, employers took 809 mass-layoff actions in August, affecting 60,033 workers, as measured by new filings for unemployment benefits. So far this year, more than 1.118 million workers have lost jobs in mass-layoffs (involving at least 50 employees at a single firm).
Manufacturing suffered 24% of all mass-layoff events and 26% of all initial unemployment claims filed in August.
By state, California had the highest number of job cuts (18,768), followed by New York (8,063), Pennsylvania (4,847), and Florida (4,842).
From January through August, California reported 271,098 initial unemployment claims filed in mass-layoffs, followed by New York (74,552), Michigan (73,486), Ohio (67,776), and Pennsylvania (61,030).
Cincinnati Starts Rotating 'Brown-Outs' at Fire Stations
Cincinnati officials began Sept. 22 targetting certain neighborhoods (including downtown) with fire-station "brown-outs," for the rest of the yeartemporarily eliminating one entire four-person crew during certain days, leaving only one fire company available for emergencies.
Firefighters Union president Joe Diebold denounced the brown-outs as "risky business," warning officials that the resulting increased response times would amount to "gambling with the lives of residents."
Halliburton May Dump KBR, Amid Criminal Probes
Halliburton said it may sell its KBR subsidiary, which is under investigation for overcharges on a U.S. Army logistics contract in Iraq and bribery at a Nigerian LNG venture, in order to boost the price of its stock, Bloomberg reported Sept. 23. The unit would be sold or spun off to shareholders if Halliburton's stock remains undervalued relative to those of rivals in the oilfield-services business, CEO David Lesar told analysts and investors at a meeting in Houston.
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