Shelter from the storm

No bailout, two modest Senate bills offer help to Georgia homeowners facing foreclosure

Published on: 03/14/08

The House ought to embrace these bills, which will assist homeowners in keeping their homes. And that's important, not only for the individual borrower, but to the state of Georgia's economic well-being, as well.

"Foreclosure is like a disease that undermines housing prices, consumer spending, construction jobs, the strength of the real economy, and the fiscal positions of state and local governments," says international economic law professor Timothy A. Canova of California's Chapman University School of Law. "Once this downward cycle takes hold, it is not an easy thing to revive the economy."

To forestall a housing collapse, the Federal Reserve announced this week that it's bailing out banks and investment houses with $200 billion in Treasury securities loans. It's only fair that the state Legislature do something for the other victims of the mortgage meltdown, the homeowners. These two Senate bills are modest in scope and involve no tax dollars.

Despite the government aid to banks, securities firms and hedge funds, there's resistance to assisting the borrowers, who instead are treated to tongue-clucking platitudes about "buyer beware" and "living above your means."

"A 'buyer beware' approach only serves to absolve those lenders that have engaged in such shady practices," says Canova. "The idea that the burden of this problem should fall exclusively on borrowers who entered into extremely risky loans — such as adjustable rate mortgages with balloon payments, interest only, negative amortizations — removes all responsibility from government for providing a fair and orderly marketplace. The subprime mortgage market became rife with deceptive and predatory lending practices."

The Federal Reserve has spent billions of dollars purchasing debt securities since August to bolster financial markets and improve the balance sheets of hedge funds and investment banks.
"These subsidies are never voted on by any state legislature or Congress, but it is bailout nonetheless," Canova says. "So apparently, it's ruthless competition for ordinary mortgage borrowers, but government subsidies and bailouts for large financial institutions." Surely, the Legislature can do a little something to help ordinary citizens.

To read this story in its entirety, please visit: http://www.paradigmshiftpr.com/senatebills.htm

Is All that Glitters Still Gold?

I thought you might be interested in the following thoughts from Kara Richter, CEO of frombagstoriches.com and contributing editor at http://www.justluxe.com/. Let me know if you’d like to talk with her:

Fashion aficionados may look at 2007 as the year of the luxury accessory—designer brands are raking in profits at an all-time high and the undoubted frontrunner of the must-have accessory is the handbag. While consumers’ desire for the most elite bag is never in question, today’s rapidly changing market begs the question if luxury really still is luxury.

Not even Louis Vuitton himself could have predicted the explosion of the luxury market. In the 19th century, the finest luxury goods were crafted for only the royal courts of Europe by dedicated companies like Louis Vuitton, Cartier, and Hermés that signified a history of tradition and quality. Today designer wares are located everywhere and desired by people from a much broader economic background. Women everywhere are turning to a designer bag to simultaneously lift their status and pocketbook weight.

The evil side of “massclusivity,” making luxury available to more than just the über rich, is that designers are forced to produce a high quality good at a middle market price. While many brands advertise the perception that their goods are crafted by Italian families, passing down skills generation by generation, in reality a growing number of companies are manufacturing in cheap labor countries to cut costs without informing the customers. It is not uncommon for a handbag to be nearly completed in China and finished in Italy to legitimately state “Made in Italy” on the product tag. In other cases, the “Made in China” tag is hidden discreetly within the product or simply ripped out before sending to stores and distributors. Using these tactics may be saving companies millions of dollars, but are customers being benefited or harmed from the savings?

The concept of maintaining luxury while cutting costs is not black and white by any means. Many people believe that goods produced in China are inherently bad quality. However, in agreement with Giorgio Armani, if a company can keep an eye on the quality of production in China and stay involved with the manufacturing process to the same detail as in Italy, why not produce in China? It is almost always the same materials and machines, so why is there the perception that only Italians know how to make luxury goods?

While we cannot say that Europeans produce “the” finest handbag, there are some companies that stick to their original formula of quality. Chanel maintains its integrity by staying with its core business foundation. They have not branched out into items like kids wear or cell phones and are still privately held by the original benefactors of Coco Chanel. Hermés is another brand that continually upholds the same level of quality and exclusivity by avoiding shortcuts with cheaper labor and supplies. Waiting lists of over a year ensure the exclusivity factor and keep women around the world coveting the Birkin for ages. This desire for top quality is justified by the level of craftsmanship; Hermés artisans train for two years before beginning work.

Luxury in itself can be quite the conundrum; companies market a dream product that no one else has, but for the company to survive, numerous people must buy into the notion and the item. “Real luxury is in the detail. It’s not in the mass market,” claims one of the top Gucci buyers in Europe. Not exactly the message consumers are used to seeing. With rising manufacturing costs and craftsmanship struggling to keep up with demand, the concept of luxury is changing and broadening. Among the things you can count on, however, is the never-ending hunger for your next “exclusive” handbag.

Proposals aim to stabilize how homes are financed

FROM THE NEWS TRIBUNE

Many of the recommendations endorse efforts that the Federal Reserve already has undertaken to address shortcomings in mortgage lending. Others call for obvious improvements in performance, such as calling on the financial sector to evaluate risks better and for government regulators to talk to each other more.

“The Paulson strategy seems to be ‘let the market work things out, with us as cheerleaders,’ by and large,” said Kurt Eggert, a law professor at Chapman University in Orange, Calif., and a former member of the Fed’s Consumer Advisory Board. “That’s what a significant portion of this plan is, scolding people and telling people they should do what they already should do."

To read this entire story, please visit: http://www.paradigmshiftpr.com/proposalsaim.htm

State's 'borrow today, pay tomorrow' ways put us in a jam

FROM THE ASBURY PARK PRESS

Reason for debt reduction

But Joseph M. Giglio, an executive professor of general management in Northeastern University's School of Business Administration, said it's prudent for states to reduce debt because eventually high amounts of outstanding debt will make it more expensive to borrow money.

Most of New Jersey's previous bond issues have been given an AA- rating by Standard & Poor's and an A1 rating by Moody's Investors Service. Those ratings characterize the bonds as favorable investment opportunities that may have greater risk than the highest-rated securities. It's the equivalent of a homeowner having to pay more a month for a mortgage loan because of poor credit.

"Seventy percent of states have a double A-minus (rating)," Assemblyman Wisniewski said, "and so does Goldman Sachs, by the way." He was referring to the investment banking firm Corzine used to head. Some larger states, such as Texas, Michigan and Ohio, have higher bond ratings.

Corzine points out that the state's credit rating has been downgraded by Moody's three times since 1992, meaning the state will pay more debt-related interest on any future bond issues.
Giglio also noted that increased debt payments make it difficult for the state to finance other projects.

"To the extent that your annual debt service increases, it crowds out your ability to spend on operating and maintenance," he said.

Treasury spokesman Vincz said the annual cost of state payments for health benefits, pensions and debt service has risen from about $2 billion in fiscal year 2002 to nearly $5 billion in fiscal year 2008. That's an increase of 145 percent.

To read this entire story, please visit: http://www.paradigmshiftpr.com/statesborrow.htm