The Mortgage and Credit Crisis Hits Day Laborers and Why You Care

Over the weekend half of Why You Care went to Home Depot to load up on dirt and other items for a few projects. Upon entering the parking lot off of Rhode Island Ave N.E. was a sight I've not seen before, at least fifty - 50 - day laborers standing around with no takers. Nothing but boredom and each other to keep themselves company. Home Depot has always been a favorite spot to hire and get hired for work. The difference between this past weekend and life before is that people were hiring. Good story, actually great story, good enough to write and pitch.

So, this morning when the New York Times did the piece I was both happy and a reader with high expectations.

Here's why you care: The Times' piece is very much about how economics is really a life or death struggle. The day laborers who stand around for the next month with no work will be dipping into their emergency funds, and soon those will be gone. What is left is a captive and vulnerable group of people. The story does a good job of showing how they get stiffed by contractors, afraid to follow up in some cases because of their immigration status. The other predator (at least for those up in Northeast Washington, D.C.) are drug gangs.

If you are a day laborer down on your luck and afraid to go to the police doesn't that make you: 1) an easy target for mugging, if someone thinks you just came from a job?; 2) possible target for drug sales if you turn to narcotics to mitigate a variety of issues?; and 3) maybe, even maybe in some cases, desperate enough to turn to selling narcotics as a last resort?

Loading up my trunk with dirt, landscaping, etc. I turned down not less than three guys wanting to work on the yard, or at the minimum load the goods into the vehicle. No one was pushy, all unfailingly polite, all hard working guys, all desperate to work hard.

The one interesting part of the news coverage over the mortgage meltdown has been the extraordinary way news has shown that the economy effects everyone. Lack of lending means lack of developing, which means lack of working, which feeds more foreclosures, which hurts the banks and property values further.

A great piece to be done here is to translate this story to TV. The other great piece to be done is to follow up with community/social services groups and ask them are they prepared to help. Why You Care would watch that piece.

Today's Times' piece might feel like a feature, but we assure that this objectively puts you ahead of the curve, because as the economy stagnates those most vulnerable will soon be very evident.

Understanding Why Banks May Not Immediately Lend, and What It Means for You

Big news in the New York Times today - the banks receiving taxpayer cash transfusions may not turn around and use it for lending for a while (the story says quarters - which is Wall Street speak for 3-6 months). You need to read this story and understand why the banks think this, and what it means to you.

Here's why you care: Remember on Tuesday when we pointed out that the shift in the government's plan from emphasizing buying and selling of the mortgage related bank assets to direct cash injection into U.S. banks would likely be "debated in the days, months, years to come depending on how successful it is"...?

Recall yesterday that we pointed to a story with Federal Deposit Insurance Corp. (FDIC) head, Sheila Bair, raising all sorts of warning flags by arguing that not enough was being done for the homeowner to stay in her house? Her argument essentially is that the economy won't right itself until housing prices stabilize.

If you put the three stories together you come out with this: Buried in today's story is an important quote from JPMorgan chairman and chief executive, Jamie Dimon, “It’s clear that the government would like us to use the capital. ...If you are a bank that is filling a hole, you obviously can’t do that.” Mr. Dimon is evidently not talking about JPMorgan but about other banks being in a hole.

Thus, if the banks are so bad off that they need to replenish before they can simply lend... AND if Ms. Bair is right about rescuing the homeowner, you end up realizing that the government will have a lot of pressure to fill the gap for the next 3-6 months before the wheels of lending actually start moving.

That leads us to the point we've also emphasized, keep an eye out for Capitol Hill stories about another stimulus bill - i.e. a cash transfusion into the taxpayer.

Now that you are sufficiently stressed out for both 2008 and 2009, we suggest reading Warren Buffet's op-ed piece in today's New York Times. It will provide some longterm perspective.

Next Week's News Today (Banks, Politics, Tech Stocks, and the FDIC Tosses Out a Penalty Flag).

If it's Thursday, then it's time for Next Week's News Today. BUT, before we get to our futures calendar of what you are likely to see in the news next week, and what we hope we'll see in the news next week, we need to spotlight a story for you today.

During this economic crisis names like Bernanke have suddenly become household names. But, there's another name: Sheila Bair, the person in charge of the Federal Deposit Insurance Corp. Ms. Bair is now a regular in the business pages, and some of you who only read the A Section may even recognize her name and you should. Ms. Bair, as we posted in what seems like a lifetime ago on August 27, 2008, raised the red flag that more regional bank failures were likely and the Treasury may need to step in and backstop up to $100,000 in your local bank account. Voila, here we are and the Emergency Economic Stabilization Act raised that number to $250,000.

So when Ms. Bair says, hey wait a second, please look at this, it is worth a time out. Today's Wall Street Journal reports that Ms. Bair says despite all the government cash infusions into the banks, etc. that we are collectively missing the point. She says we need to be doing more for homeowners facing foreclosure, noting that you can't stabilize the economy until you stabilize housing prices. The kicker? The New York Times reports today that housing prices may not hit the bottom until the end of 2009. (Why You Care notes whether or not this forecast becomes reality will be reflected differently in different markets).

Keep your eye on Ms. Bair's advocacy. We suspect there'll be more reporting to be done.

Back to Next Week's News Today:

Yes, the presidential debates are done, but the dash to election day is now upon us. The economy is still the number one issue, so continue to look for a mix of economic and political news off the campaign trail as both candidates try to frame themselves as both a leader and a fixer.

And Congress? Look for more stories reading the tea leaves on a second stimulus bill.

Next week's economic reports are notable mostly for initial unemployment claims out Thursday and existing home sales (for September) out Friday. The real action, much like yesterday, will be in the earnings area.

There will be a number of financial and financially related institutions with earnings due next week, offering excellent news hooks to gauge the health of Wall Street and the economy. Please remember, however, that this round of earnings can't really be an indicator as to whether the economic rescue legislation worked or not. You have to give it time. None the less, American Express on Monday; E*Trade, Fifth Third Bancorp, M&T Bank, Regions Financial Corp. on Tuesday; AMBAC Financial Group, Wachovia and Washington Mutual on Wednesday; Legg Mason, MBIA Inc., SunTrust Banks and TD Ameritrade on Thursday; and T. Rowe Price on Friday -- are all going to drive news.

Of note, we wonder whether E*Trade and TD Ameritrade actually do more business during a very tough economy because of more trades than they do in a vanilla economy? We'd read that story.

Other interesting news hooks? Retailers got a lot of attention as we predicted, and perhaps a look at Amazon.com on Wednesday deserves some play.

As for the tech sector, Yahoo! on Wednesday and Interwoven and Microsoft on Friday make for a tidy look at that sector.

Could any of the earnings have potential crossover to become campaign issues? "You 'betcha" - Halliburton reports on Monday. We wouldn't be surprised to see political campaigns use that as fuel to get media attention.

As always, notable events are broken down by days below.

MONDAY 10/20
Earnings: American Express; Centex; Equifax; Equity Lifestyle Properties; Halliburton Co.; Hasbro Inc.; Mattel Inc.; Nabors Industries Ltd.; Netflix; Novartis AG; Texas Instruments; Unionbancal Corp.

Economic Reports: Leading Indicators


TUESDAY 10/21
Earnings: AK Steel; Brinker; Caterpillar; Coach; DuPont; E*Trade; Fifth Third Bancorp.; Forest Labs; KeyCorp; Lockheed Martin; M&T Bank; Manpower Inc.; McClatchy Co.; National City; Norfolk Southern; Pfizer; Regions Financial Corp.; Schering-Plough; Tupperware; UnitedHealth; US Bancorp; USG Corp..; Western Union; Yahoo!; 3M

Economic Reports: 0


WEDNESDAY 10/22
Earnings: AMBAC Financial Group; Allstate; Amazon.com; Amgen; Apple; AT&T; Boeing; Cirrus Logic; Citrix Systems; Chipotle Mexican Grill; ConocoPhillips; General Dynamics; GlaxoSmithKline; Kimberly-Clark; McDonald's; Merck; Noble Corp.; Nutrisystem; PepsiAmericas; Philip Morris International; Plantronics; Seagate Technology; Wachovia; WellPoint; Washington Mutual; Wyeth

Economic Reports: Crude Inventories


THURSDAY 10/23
Earnings: AFLAC; Air Tran Holdings; Alaska Air; Altria; Black & Decker; Bristol-Myers; Coca-Cola Enterprises; Daimler AG; Diamond Offshore; Dow Chemical; Echelon Corp; EnCana Corp.; Eli Lilly; Ethan Allen; Ford; Franklin Resources; Genworth Financial; Goodrich; Interwoven; Janus Capitol; Jetblue Airways; Legg Mason; MBIA Inc.; Microsoft; Midas; National Oilwell Varco; New York Times; Precision Drilling; Raymond James; Raytheon; SEI Investments; Starwood Hotels; SunTrust Banks; TD Ameritrade; Union Pacific; US Airways; Wendy's; Whirlpool; Xerox

Economic Reports: Initial (unemployment) Claims

FRIDAY 10/24
Earnings: Ericsson L M; Fortune Brands; Gannett; ITT Corp; T. Rowe Price

Economic Reports: Existing Homes Sales (for September)

$24 Billion in Mortgages to Reset Higher? Can We See the Bottom? And Other Questions.

Why You Care normally highlights just one article a day, but we've gotten many questions about what's next - for your job, your house, etc. So today we're going to address four questions:

1) What is likely to happen in the next month? You need to keep your eye on two important items... First: Are the banks that received government cash really going to turn around and use those funds to start lending again? That's important, and the Wall Street Journal points out today this could take weeks or months. Second, in the same article the Journal notes that Citigroup thinks $24 billion in mortgages will reset next month - AND RESET HIGHER. That's a big deal for homeowners trying to hang on. Why? It is your old friend Libor - which Why You Care has previously explained is the rate at which banks lend to each other, and is often used to help reset adjustable rate mortgages (i.e. mortgages with "ARMs").

2) Is there another shoe to drop? Yes. The New York Times has a thoughtful piece on what is going to happen to salaries. The headline being don't expect raises to keep up with inflation. This, of course, will not help spending which has been the backbone of the economy. Read David Leonhardt's piece in the Times and you'll not necessarily feel better, but you'll feel smarter.

3) Have we reached the bottom? Who knows. But, the Washington Post's Steven Pearlstein makes a cogent argument that we have a ways to go, and he sketches out what the next few years could look like. The reason we are highlighting his piece is that he does an excellent job in his argument of illustrating the interconnectedness of the different parts of the economy (i.e. how it will impact everyone you know).

4) Is there any good news here at all? That depends on how you look at it. Can you look years down the road? If so, maybe. The New York Times' Alex Berenson shows a number of professional investors that think in the big picture this period will look like everything was on sale. That might be true if you have enough funds to afford the risk and not touch the money for years. Or, maybe not. Berenson's piece, however, is a terrific read.

Remember tomorrow is Thursday, and that means our futures calendar Next Week's News Today. Why You Care will be watching tonight's presidential debate in the meantime.

The New Lay of the Land from Wall Street to Capitol Hill

If you missed it on CNN, then you've probably seen President Bush's announcement in your email or online - you, we, all of us taxpayers are going to be stockholders in major U.S. banks to the tune of $250 billion (which will come out of the $700 billion economic rescue legislation passed by Congress and signed by the President). The Wall Street Journal has an excellent write, or if you prefer here is the Treasury press release.

What Why You Care thinks is interesting is that the Treasury press release says that the $250 billion is coming out of rescue legislation's TARP program (Troubled Assets Relief Program).

Here's why you care: Yesterday we attended a breakfast discussion with Interim Assistant Secretary for Financial Stability Neel Kashkari who is responsible for the TARP program. TARP is interesting because until this weekend it seemed like the $700 billion would be used to buy up the problem assets (bad loans, mortgage products, mortgages themselves) from the banks to hold and resell them. However, that takes infrastructure and bureaucracy, both of which take time to build. That's why Mr. Kashkari yesterday detailed all the things Treasury is doing at breakneck speed to put in place the necessary tools to buy and hold assets. Meanwhile, Friday night and over the weekend it became more apparent the U.S. government would start buying essentially shares in banks (thus allowing banks to have fresh cash). It would seem that TARP is not going to be as big as we thought in terms of buying loans/mortgages etc. (There may still be some purchase and reselling of the assets, just not as much as first signaled).

What's this mean for you? It means less taxpayer built infrastructure. That might be good, it might not. BUT, we can tell you this is a shift, and you will see this debated in the days, months, years to come depending on how successful it is - Was the direct purchase of the banks' shares a better call than the direct purchase, holding, and reselling of the banks' assets?

Why You Care just wants you to be ahead of the curve when it comes to policy debates that will play out on the business pages, and on Capitol Hill.

Breakfast Discussion with the $700 Billion Man - And - The Treasury's Next 24 Plus Hours

Why You Care attended a morning discussion with Interim Assistant Secretary for Financial Stability Neel Kashkari - the man in charge of Treasury's $700 billion troubled asset purchase program (known as TARP - the Troubled Assets Relief Program) - and can report that the Treasury will make key announcements in the coming days, including one in the next 24 hours.

During the discussion sponsored by the Institute of International Bankers, Mr. Kashkari announced:

The Treasury will reveal in the next 24 hours a “Master Custodian Firm” which will shepherd the assets purchased and held by the Treasury, including those through auctions.

In the next few days the Treasury will announce a “Securities Asset Manager” which will oversee and sell the mortgage backed securities bought by the Treasury.

The Treasury also expects to unveil the “Whole Loan Asset Manager” in the next few days, which will both manage and sell the loans purchased by the Treasury.

Here's why you care: Once these are in place, the Treasury will be much closer to actually doing the things each manager/custodian is meant to do, and thus the financial institutions who chose to play will be that much closer to moving assets off their books. You will see in news stories that this will "increase liquidity" - which is to say the banks will have more cash. Banks with more cash, are more likely to lend to each other, and to you.

Want to read all of Mr. Kashkari’s speech? Click here.

Why You Care also appreciates the Institute of International Bankers for accommodating the number of press present - which seemed to rival the number of bankers.

Tracking the $700 Billion Rescue Package - All the Way to a Breakfast Meeting

Why You Care is trying to go to Treasury Interim Assistant Secretary for Financial Stability Neel Kashkari's morning meeting and discussion about the financial rescue plan. Mr. Kashkari as you will recall is in charge of the $700 billion package at Treasury which Congress approved, and President Bush signed into law. What's that mean?

It means Mr. Kashkari is the man who will ultimate figure out how to buy, sell, hold all the problem assets that are creating the banking industry's acid reflux - which in turn made the economy ill.

Why You Care will report back after the breakfast meeting.