Morgan Stanley analysts outline plan for housing

America’s real estate market could be on an “unsustainable path,” faced with an oversupply of homes inaccessible to either renters or buyers. That’s what three Morgan Stanley analysts argue in a recent paper that outlines steps that can be taken to fix the sputtering housing market.

Mortgage credit remains tight, making home buying difficult. At the same time rents are rising quickly, pricing folks out of the market just as tens of thousands of borrowers are losing their homes to foreclosure every month.

The result of these twin occurrences could be “an oversupply of homes with nobody to purchase them,” a situation that is already starting to emerge, according to the research paper by the Morgan Stanley analysts, Oliver Chang, Vishwanath Tirupattur and James Egan. The three experts argue that tackling the backlog of so-called distressed properties is crucial.

A cornerstone of their plan is helping investors who would rent out those properties. They argue that in exchange for various incentives and access to the huge glut of foreclosed homes on the balance sheets of major financial institutions, investors must agree to upgrade those homes and offer flexible terms to renters, including lease-to-own programs. They also argue that tax incentives could be used to subsidize rents for lower-income renters.

On Wednesday, the Obama administration announced that it was seeking such ideas from investors for possible ways of managing the large number of foreclosed properties that are on the books of mortgage titans Fannie Mae and Freddie Mac. Selling foreclosed homes in bulk to investors who would then rent them out was one idea that the administration floated –- which is also part of the proposal by Morgan Stanley analysts.

The main hurdle confronting all of these ideas: the acceptance that American homeownership will probably decline.

RELATED:

Treasury sells 10-year notes at record low yield as buyers pour in

Report: Mortgage modifications decline with drop in delinquencies

Fed seeks ideas on renting foreclosed homes

-- Alejandro Lazo

Twitter: @AlejandroLazo

Photo: A jogger and a dog run past a recent sign advertising a price cut in Seattle.

Credit: Elaine Thompson/Associated Press

Asian stocks dive in early trading

Asian stocks joined the global sell-off in early trading Thursday, mirroring the renewed panic on Wall Street a day earlier.

Within about 20 minutes of opening, Japan's Nikkei 225 stock average sank 1.6%, South Korea's Kospi index fell 2% and New Zealand's NZX-50 was down 0.7%.

Asian shares saw major gains Tuesday but appear just as concerned about Europe's debt crisis that rattled U.S. markets hours earlier.  

Photo: Foreign currency dealers talk at the Korea Exchange Bank in Seoul on Monday. Credit: Truth Leem / Reuters

Feds seek ideas on renting foreclosed homes owned by government

This post has been corrected. See note at the bottom for details.

With the depressed real estate market continuing to drag down the economy, federal officials are seeking ideas from investors and others about how to rent some of the nearly 250,000 foreclosed homes owned by government-backed entities such as Fannie Mae.

Officials from the Obama administration and the Federal Housing Finance Agency, which oversees seized housing finance giants Fannie Mae and Freddie Mac, said they hoped for innovative solutions to addressing part of the severe oversupply of single-family homes.

There are about 248,000 foreclosed homes now owned by Fannie, Freddie and the Federal Housing Administration, with thousands more in the pipeline. Selling those homes is a key to stabilizing housing prices.

"Millions of families nationwide have seen their home values impacted as their neighbors' homes fall into foreclosure or become abandoned," said Housing and Urban Development Secretary Shaun Donovan. "At the same time, with half of all renters spending more than a third of their income on housing and a quarter spending more than half, we have to find and promote new ways to alleviate the strain on the affordable rental market."

One idea could be to create pools of foreclosed properties that would be sold in bulk to private investors, who would then rent them out, helping reduce taxpayer losses on the bailouts of Fannie and Freddie. Another idea could be for investors to buy homes and then rent them on a rent-to-own basis.

Strategies would be tailored to the needs of different areas of the country, with a goal of helping increase affordable housing, government officials said.

Action on the issue might take a while. HUD and the FHFA announced a "request for information" that is open to all interested parties. Those comments are due by Sept. 15. The FHFA and HUD are to review the ideas and then could issue a more formal request for specific proposals.

Government officials said they are seeking longer-term proposals that would supplement existing programs designed to stabilize the housing market. Among them is the Obama administration's "Hardest Hit Fund" which tries to help homeowners avoid foreclosures in California and other states where the housing market is the worst.

For the record, 1:05 p.m. Aug. 10: An earlier version of this post said the government-backed entities owned nearly 100,000 foreclosed homes. That is the figure for foreclosed homes listed for sale or that have offers but have not closed. The total number of foreclosed homes owned by government-backed entities is about 248,000.

RELATED:

Wariness, anxiety on Main Street threaten economic recovery

June home prices rise 0.7% from May but fall 6.8% from June 2010

Homeowners who want to trade up are stuck waiting

-- Jim Puzzanghera in Washington

Photo: Homes for sale in Palmdale in May. Credit: Michael Robinson Chavez /Los Angeles Times

 

California insurance commissioner: Downgraded insurers strong

A decision by credit ratings agency Standard & Poor's to downgrade the credit ratings of five U.S.-based insurance companies should not be interpreted as a sign that their financial strength has weakened, said California Insurance Commissioner Dave Jones.

S&P reduced the ratings from AAA to AA+ because the insurers have substantial holdings in U.S.
Treasury notes, which were downgraded  Friday from AAA to AA+, Jones said in a statement released by his office Wednesday.

"The reason for S&P's downgrade of some insurers is its policy that no insurer with significant investments in U.S. securities may have a rating higher than the rating of those securities," he said.

According to Standard & Poor's, the five insurance groups are Knights of Columbus, New York Life, Northwestern Mutual, Teachers Insurance & Annuity Assn. of America (TIAA) and United Services Automobile Assn. (USAA).

Both Jones and insurance regulators in other states stressed that the downgrades do not reflect the insurers' financial health or their ability to pay claims. "S&P's downgrade to AA+ has no impact on insurers' claims paying abilities," Jones said. He said his department "will continue to exercise strong financial oversight and carefully monitor the financial condition of the insurers."

S&P noted that the companies have "very strong financial profiles and favorable business profiles" and "maintain very strong capital and liquidity."

-- Marc Lifsher

Photo: California Insurance Commissioner Dave Jones. Credit: Katie Falkenberg/ For the Los Angeles Times

Related:

Wall Street reacts to economic storm clouds

U.S. debt downgrade leaves China in a bind

Wariness, anxiety on Main Street threaten economic recovery

 

 

 

 

Consumer Confidential: Pay TV, check cashing, federal rentals

Here's your wink-wink Wednesday roundup of consumer news from around the Web:

--One way that people are adjusting to these tough economic times is by cutting the pay-TV cord. Viewers are canceling or forgoing cable and satellite TV subscriptions in record numbers, according to an analysis of the companies' quarterly earnings reports. The U.S. subscription-TV industry first showed a small net loss of subscribers a year ago. This year that trickle has turned into a stream. The chief cause appears to be persistently high unemployment and a housing market that has many people living with their parents, reducing the need for a separate cable bill. But it's also possible that people are canceling cable, or never signing up in the first place, because they're watching cheap Internet video. If so, viewers can expect more restrictions on online video as TV companies and Hollywood studios try to make sure that they get paid for what they produce.

--Wal-Mart is getting deeper into the check-cashing business. Like it does on most products and services, Wal-Mart's check-cashing fees largely undercut those charged by a typical check-cashing outlet, where consumers pay an average of 2% to 4% of the face value of the check to cash it. "This expanded program now enables Wal-Mart to bring everyday low price cashing services to more customers who have a need for immediate access to their cash," says Daniel Eckert, head of Wal-Mart Financial Services. That's nice. But it also highlights the fact that many people don't have access to the banking system and thus have to pay additional fees just to get their cash.

--Uncle Sam may be expanding as a landlord. The Obama administration is considering turning thousands of government-owned foreclosures into rental properties to help boost falling home prices. The Federal Housing Finance Agency says it is seeking input from investors on how to rent roughly 300,000 homes owned by government-controlled mortgage companies Fannie Mae and Freddie Mac and the Federal Housing Administration. All of the homes are in foreclosure. The government rescued the two mortgage giants in September 2008 and has funded them since the financial crisis. Fannie and Freddie own or guarantee about half of the nation's mortgages and nearly all new mortgages. The homes include single-family homes and condos.

-- David Lazarus

Photo: More TV viewers are saying "no thanks" to cable and satellite subscriptions.

Stocks plummet again on European fears

U.S. stocks plummeted anew on Wednesday as fresh concerns about the European debt crisis and the dimming prospects for the global economy overwhelmed the brief euphoria that had carried stocks higher a day earlier.

In another dramatically volatile session, the Dow Jones industrial average sank 519.83 points, or 4.6%, to 10,719.94.

Though the market was down all day, the selling intensified in the final two hours, and the Dow closed at its low of the day, an ominous sign that reflected traders' unwillingness to hold stocks overnight.

A day after stocks were buoyed by the Federal Reserve's vow to keep interest rates low for at least two more years, investors grew nervous about the financial wherewithal of European banks and the outlook for the sovereign debt of Italy and Spain.

The Dow, which had surged 429 points, or 4%, on Tuesday, sank at the outset on Wednesday and remained deeply in the red the entire session.

"You're seeing people taking profits quickly in this environment," said Ryan Larson, head trader at RBC Global Asset Management in Chicago. "You've got to take what you're going to get fast, because otherwise you'll miss it."

The Standard & Poor's 500 index slumped 51.77 points, or 4.4%, to 1,120.76. The Nasdaq composite index slid 101.47 points, or 4.1%, to 2,381.05.

Europe's worsening debt crisis hammered financial stocks in France, Germany and Italy, taking the heaviest toll on French banks on rumors that France might lose its AAA credit rating.

"Markets are testing different possibilities, and one of them now is France,"’ said Kai Carstensen, economics analyst at the Institute for Economic Research in Munich, Germany. "The French deficit is still too high. Their consolidation plans and austerity measures are not perceived as sufficient, and people don't believe France will adhere to its own rules."

Although all three major ratings firms affirmed France's AAA rating, the French stock market dived 5.4%. German shares slumped 5.1% and the Italian market plummeted 6.6%.

Analysts said investors also were spooked by the Federal Reserve's grim reassessment on Tuesday of the U.S. economy's growth prospects. The Fed said it was likely to keep short-term interest rates near zero through mid-2013, but that intensified some investors' doubts about the economy's prospects.

Investors continued to pour into U.S. Treasury bonds for safety, and to lock in yields. The five-year T-note yield slid to 0.91% from 1.00% on Tuesday.

Money also piled into gold again. Gold futures in New York jumped $41.30 to a record $1,781.30 an ounce.

-- Walter Hamilton, Tom Petruno and Edmund Sanders

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Treasury sells 10-year notes at record low yield as buyers pour in

European concerns drive stock market lower

Dow falls 400 points in early trading

Photo credit: Stan Honda /Getty Images

Treasury sells 10-year notes at record low yield as buyers pour in

The continuing global stock market panic is the gift that keeps on giving to the U.S. Treasury.

Despite the U.S. credit-rating downgrade by Standard & Poor's last week, the Treasury on Wednesday saw huge demand when it sold $24 billion in new 10-year notes.

The notes sold at a yield of 2.14%, a record low for any 10-year auction. The yield on the previously issued 10-year note (charted at left) fell to 2.16% from 2.26% on Tuesday.

With stocks worldwide in another free fall, and worries soaring again about Europe's debt crisis, money keeps pouring into Treasuries as a haven. Many investors clearly don't care, at this point, that S&P rates U.S. bonds AA+ instead of AAA.

Market yields slid again Wednesday on Treasuries across the board. The five-year T-note fell to 0.92% from 1.00% on Tuesday. The 30-year T-bond fell to 3.54% from 3.62%.

Demand for longer-term bonds was stoked in part by the Federal Reserve's grim assessment of the economy, issued Tuesday, and policymakers' indication that they expected to keep short-term interest rates near zero for at least two more years.

That's encouraging investors to lock in longer-term yields.

The Treasury will wrap up this week's debt sales with an auction of $16 billion in 30-year bonds on Thursday.

-- Tom Petruno

RELATED:

U.S. debt downgrade leaves China in a bind

Divided Fed to keep interest rates low for two years

Wariness, anxiety on Main Street threaten economic recovery

 

Westfield adds product search to its smartphone app

A smartphone app is hoping to take the inefficiency out of mall shopping.

Shopping center giant Westfield has launched a new feature on its mall app that allows shoppers to search more than 100,000 products from 215 retailers at Westfield's 55 centers nationwide.

The search function, powered by Google Commerce Search, works like this:

-- Download the free app to your iPhone, Droid or Blackberry.

-- Search for a specific product, such as "gold sandals."

-- The app will churn out applicable results, showing you which stores carry gold sandals as well as images and prices. Shoppers can then organize the results by relevance, retailer or price and call the store to check availability.

For years, there was "the online shopping experience and the mall shopping experience, and the two haven't mixed," said David Towers, vice president of digital business for Westfield U.S. The app, which the mall operator says is the first to use such a comprehensive search function, "brings the best components of online shopping to the mall."

Results for the product are not in real time, so they won't reflect out-of-stock merchandise, although Westfield is hoping to add that function in the future, Towers said.

Nitin Mangtani, group product manager at Google Commerce, said the search function caters to the way shoppers today research and buy items. Although 90% of retail sales still happen in a physical bricks-and-mortar store, half the research that shoppers do before purchasing a product occurs online, he said.

-- Andrea Chang

Photo: Westfield Culver City. Credit: Ricardo DeAratanha / Los Angeles Times

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Amazon gathering anti-tax-law signatures outside retail stores

Retail chains are embracing their online stores

 

U.S. doctors face high costs dealing with multiple insurers

U.S. doctors spend huge amounts of time haggling with insurance companies about billings, claims and other administrative matters, driving up costs and interfering with patient care, a new study has found.

The time spent by doctors and their staffs on paperwork winds up costing each physician nearly $83,000 a year, about four times as much as doctors spend in Canada, according to U.S. and Canadian researchers who released their findings in the online journal Health Affairs.

Canada runs a single-payer healthcare system in which the government pays the bills. In the United States, doctors must negotiate with multiple insurers who offer numerous types of insurance policies and levels of coverage.

If U.S. doctors had slimmed-down administrative costs similar to those in Ontario, Canada’s most populous province,  they would trim more than $27 billion a year in healthcare spending, the researchers found.

“When these inefficiencies result in frequent interruptions in the work of physicians and their staff, they are likely to interfere with patient care,” the authors wrote. “Everyone — health plans, physicians and their staffs and patients — will be better off if inefficiencies in transactions between physicians and health plans can be reduced.”

ALSO:

Consumer Confidential: Walgreens insurance, Match.com 'phantoms'

Hospitals not immune to rising insurance costs for their staffs

Good news for Californians with preexisting medical conditions

-- Duke Helfand

Photo credit: Myung J. Chun / Los Angeles Times

Report: Mortgage modifications decline with drop in delinquencies

The number of mortgage modifications made by banks took a dive during the first half of the year, falling 42% when compared with the prior year, an industry group reported Wednesday.

There were approximately 558,000 loan modifications during the first six months of the year, a 42% drop from 968,000 during the first six months of 2010, according to Hope Now, a private-sector group of mortgage servicers, investors, insurers and nonprofit counselors.

The group also said that delinquencies are down: The number of loans not paid for 60 days or more was 2.7 million for the first six months of 2011, a 27% decline from 3.7 million for the first half of 2010.

"We have 1 million [fewer] borrowers past due on their mortgages," Faith Schwartz, Hope Now's executive director, told The Times. "So the trend on delinquencies is much better."

She said borrowers are also probably turning to options other than foreclosure, such as short sales, in which banks permit borrowers to sell their homes for less than they owe.

The vast majority of modifications made to mortgages were done outside the Obama administration's main foreclosure-relief program, the Home Affordable Modification Program, the group said. Loan modifications completed under that program were down 45% from the prior year, to 183,421. So-called proprietary modifications, those not made through the administration's program, dropped 41%, to 375,000.

RELATED:

Fed seeks ideas on renting foreclosed homes

Wariness, anxiety on Main Street threaten economic recovery

June home prices rise 0.7% from May but fall 6.8% from June 2010

Homeowners who want to trade up are stuck waiting

-- Alejandro Lazo
Twitter.com/@AlejandroLazo

Photo: Borrowers hoping to get a loan modification gather outside the Los Angeles Convention Center last year at an event put on by the Neighborhood Assistance Corporation of America. Credit: Irfan Khan / Los Angeles Times

Bank of England turns a blind eye to euro crisis

What is it about the Bank of England’s growth and inflation forecasts? For nearly two years now, the Bank of England’s quarterly inflation reports have pretty much consistently both underestimated inflation and overestimated growth. The inflation forecasts we can perhaps forgive; the Bank of England cannot target a rate of inflation constantly buffeted by unpredictable external pressures and sudden jumps in sales taxes. But it’s long been hard to see why it is so optimistic about growth.

This pattern has persisted into the latest Inflation Report, published on Wednesday. The immediate growth forecast for this year has been trimmed a little in the wake of recent, weak data, and it takes longer for growth to pick up speed and return to trend than it did in previous forecasts. Yet the Bank is still forecasting pretty robust growth of something like 3pc annualised by early 2014. What is more, the Bank’s famous fan charts point to hardly any probability of outright recession. And the Bank makes these forecasts despite the fact that one of its deputy governors, Charlie Bean, conceded on Wednesday that the Bank had cut its estimate of the economy’s potential output. There is probably less spare capacity in the economy than the Bank had previously thought, he conceded.

Does the Bank honestly think these growth forecasts the way to bet? Somehow I doubt it. One possible explanation is that the Bank, in drawing up its forecasts, has ignored the possibility of calamity in the eurozone, prospects for which appear to have risen significantly over the past week. According to Mervyn King, the Governor, these risks are “unimaginable and unmentionable”, and in any case cannot be quantified in any meaningful way. They have therefore been excluded from the fan charts. (see page 38 of the Inflation Report for a full explanation of this omission)

Yet as the Inflation Report points out, the greatest risks to global growth right now come from the eurozone. This is the greatest uncertainty, and it has just got a whole lot bigger. OK, so no-one knows how to model for meltdown in the eurozone, but if you were only to forecast for things that were certain, then it would be as pointless as forecasting that you will be taking the bus to work as usual tomorrow morning.

Given that this is the biggest threat to the world economy right now, it’s hard to understand why it should be completely ignored. At the very least, the uncertainty it’s causing will act as a further, significant drag on the economy.

While I was out in Japan recently, an economist pointed out that the West used to like lecturing Japan on how its two decades of post bubble lost growth were all the fault of policy error. “Now you see it isn’t so simple, eh?”, he said. It’s looking ever more possible that despite our supposed superiority in policy making, we are heading the same way. Still, if we do, I guess it will all be blamed on poor policy making in euroland. Hey ho.

Live Blog: Latest on the Markets

The whipsaw on Wall Street continues today, with stocks off sharply on new concerns about the economy and particularly about the health of European banks. Times correspondents are keeping readers abreast of the latest developments in a live blog on The Lede. Read more >>

European concerns drive stock market lower

Stock markets were trading lower at midday Wednesday as the optimism over Tuesday's announcement from the Federal Reserve faded and the concern over the European debt crisis grew.

The Dow Jones industrial average fell as much as 474 points. After a slight recovery it was recently trading down 359.57 points, or 3.2%, at 10,880.20. The broader Standard & Poor's 500 index was down less sharply. 

The slide comes hard on the heels of one of the market's best recent days. The Dow soared nearly 500 points before the close Tuesday after the Fed announced its intention to keep interest rates low and to consider using additional policy tools to prop up the economy.

Overnight, stock markets in Asia followed Tuesday's rally in the United States.

Much of the pessimism on Wednesday morning came as investors turned their attention to Europe, and particularly France, which has generally escaped scrutiny as investors focused on Spain, Italy and Greece.

The cost of insuring French debt, an indicator of pessimism about a country's finances, rose to a record high on Wednesday. France is the most indebted of all Europe's AAA rated countries, and unlike the United States, which recently lost its AAA rating from Standard & Poor's, France cannot choose to expand its monetary supply in order to pay creditors.

French President Nicholas Sarkozy called top officials for emergency talks on Wednesday to discuss new ways to cut the country's deficit.

The three major ratings agencies all reiterated on Wednesday that they have no plans to downgrade France.

France's leading stock index ended the day down 5.5%.

French banks have helped lead the market down. Societe Generale, the nation's second-largest bank, fell as much as 23% on Wednesday, but was recently trading down 15%.

The continued whipsawing of stock markets underscores the uncertainty of investors as a growing body of evidence points to a global economic slowdown. A number of market experts, though, have warned that stocks prices have been driven down by panic rather than a change in the economic fundamentals.

"The markets have moved lower based on fear," analysts at First Trust wrote on a note to clients. "As a result, the market is once again presenting a buying opportunity."

RELATED:

China's trade surplus surges

Divided Fed to keep interest rates low for two years

Wariness, anxiety on Main Street threaten economic recovery

-- Nathaniel Popper

Photo: A broker works in a trading room in Paris. Credit: Associated Press

Capital One to buy HSBC’s U.S. credit card unit

Capital One Financial Corp. said Wednesday that it would buy the U.S. credit card division of London-based HSBC Holdings for $32.7 billion as it attempts to expand its own credit card franchise.

HSBC, as part of a strategic narrowing of its retail business, will pass off more than $30 billion of credit card loans and store-branded credit cards to Capital One for a $2.6 billion premium.

The deal is expected to close in the second quarter of 2012. At least in the near future, HSBC customers should be able to use their cards as usual without any service changes.

HSBC has been in a shedding phase, recently selling 195 of its U.S. bank branches and planning to cut 30,000 employees worldwide over the next few years.

Meanwhile, Capital One is on a buying tear, saying in June that it would spend $9 billion snapping up Dutch company ING Group’s American online banking operations.

RELATED:

Former bank rep gets the runaround from Capital One

The hidden costs of credit cards

-- Tiffany Hsu

Photo: Mark Lennihan / Associated Press

Wall Street Roundup: Latest casualties. Municipalities safe.

Gold: Trading now at $1,773 per ounce, up 1.7% from Tuesday. Dow Jones industrial average: Trading now at 10837.36, down 3.6% from Tuesday.

Back down. Stocks headed back down after Tuesday's rally, with attention shifting again to the European debt crisis.

Latest casualties. Bank of New York Mellon is the latest bank to cut staff with its announcement of 1,500 layoffs.

Municipalities safe. Standard & Poor's wrote in a report last night that cities and states could keep their AAA ratings even after the federal government lost its AAA.

Maximum sentence. Prosecutors are asking a judge to send convicted insider trader Raj Rajaratnam to jail for the maximum sentence of nearly 25 years.

Rallying the troops. The CEOs at Citibank and Bank of America have tried to reassure their troops after shares in both companies have plunged.

New Goldman probe. The Securities and Exchange Commission is looking into Goldman Sachs' dealings with the Libyan government, with particular attention to a $50-million fee Goldman agreed to pay.

-- Nathaniel Popper

Credit: National Geographic

Dow falls 400 points in early trading

Stocks resumed their downward slide in early trading Wednesday as investors retreated from the initial optimism that greeted the Federal Reserve's decision the day before to keep interest rates low.

The Dow Jones industrial average was down more than 400 points within half an hour of the opening bell and was recently trading down 407.52 points, or 3.6%, at 10,832.25. The broader Standard & Poor's 500 index was down less sharply. 

The slide comes hard on the heels of one of the market's best recent days. The Dow soared nearly 500 points before the close Tuesday after the Fed announced its intention to keep interest rates low and to consider using additional policy tools to prop up the economy.

The continued whipsawing of stock markets underscores the uncertainty of investors as a growing body of evidence points to a global economic slowdown.

Overnight, stock markets in Asia followed Tuesday's rally in the United States, but Wednesday morning, European markets have headed down, with the leading French index recently down 3%, and Germany's leading index down 2%.

Investors had little new economic data to fix on after the Fed's announcement, but attention appeared to be shifting again from the U.S. economy to the European debt crisis. In addition to the ongoing concerns about Spanish and Italian debt, investors grew more concerned on Wednesday about French government debt. The price of insuring against losses on French debt rose on Wednesday while share prices in French banks fell.

In addition, some investors said that Tuesday's brief surge gave investors who have wanted to get out of the markets an opportunity to sell.

RELATED:

China's trade surplus surges

Divided Fed to keep interest rates low for two years

Wariness, anxiety on Main Street threaten economic recovery

-- Nathaniel Popper

Photo: Justin Lane / European Pressphoto Agency

Complaints against airlines drop more than 20% in June

The number and rate of complaints against U.S. airlines dropped by more than 20% in June, according to new data from the U.S. Department of Transportation.

During that month, the Department of Transportation's Aviation Consumer Protection Division received 935 complaints against U.S. airlines, down from 1,238 complaints in the same month last year, a drop of 24%.

When the total number of complaints is compared with the number of passengers flying in June, the rate of complaints dropped to 1.30 complaints every 100,000 passenger trips in June 2011 from 1.67 complaints in June 2010. That is a drop of 22%.

A Department of Transportation report released Tuesday shows that the biggest drop in complaints were on problems involving airline cancellations, misconnections, baggage, reservations, ticketing and boarding.

Steve Lott, a spokesman for the Air Transport Assn., the trade group for the nation's largest airlines, attributes the drop in complaints on improved efforts by air carriers to keep planes on schedule and deliver luggage on time.

"Many airlines continue to invest significant time and resources in improved baggage-handling processes and systems," he said.

Among the nation's largest airlines, Alaska Airlines had the lowest rate of complaints in June, with .25 complaints for every 100,000 passenger trips, according to the Department of Transportation Report. American Eagle Airlines had the highest rate of complaints, 2.61 complaints for every 100,000 passenger trips.

Hugo Martin

(Photo: Passengers prepare to take off on a flight from Chicago to Cleveland. Credit: Chicago Tribune.)

 

 

 

 

 

The Fed is a Rogue Elephant (wonkish rant)

Ben Bernanke thinks the money data is a `Black Box’

Ben Bernanke has moved the goal posts yet again.

Headline CPI inflation in the US is 3.4pc. There is no deflationary threat at this stage that can justify holding rates near zero until the moon turns into blue cheese, let alone embarking on emergency money printing.

The Bernanke Fed has more or less ignored headline inflation until now, arguing that what matters is “core” inflation. This strips out energy, fuel and food, which none of us consume of course.

Unfortunately, core inflation has been catching up lately. The Dallas Fed’s “trimmed mean” measure known as core PCE has risen (on a six-month annualized basis) from 0.9pc in January to 2.1pc in June.

So what the does the Fed do? It switches tack and says that headline inflation is not such a bad gauge after all. They do this knowing that the oil and food shock has subsided and that the headline rate will fall back for a while. This will create the impression that inflation is abating. “Cheeky,” said ING’s global economist Rob Carnell.

Indeed.

As you can see from the two charts below, the broad M2 money supply is growing robustly at 8pc and narrow M1 is growing at over 15pc.

Yes, I know, Ben Bernanke thinks the money data is a “Black Box” that cannot be understood, and ultimately a form of medieval witchcraft. Well, perhaps he should rethink. This is not picture of an economy facing imminent deflation.

Note how weak M2 was fifteen months ago (and broader M3 – which Bernanke has abolished, but others track – was actually contracting at 1930s rates). That was a very good lead indicator of the economic relapse we saw in the first half of 2011.

I am wary of Bernanke’s sudden change of heart on headline inflation. It confirms my suspicion (shared by many readers) that the Fed is deliberately bringing about inflation and currency debasement to cushion the effects of debt-deleveraging. This amounts to a soft default on America’s debts.

QE1 was an entirely appropriate response to the threat of spiralling collapse and an implosion of the money supply. I backed it whole-heartedly, and make no apologies for doing so.

QE2 was a different animal. The threat of imminent deflation was bogus. The effect was to juice stock prices and increase the asset wealth of the rich, hoping for a trickle down. In reality it punished poor people through rising food and fuel costs long before any trickle came through.

Needless to say, it also punishes prudent savers in order to rescue improvident and promiscuous borrowers. This has immense social and moral consequences over time, and risks undermining the virtues that made America the world’s paramount power.

Dallas Fed chief Richard Fisher said in a speech last March, further QE would “only prolong the injustice that we have inflicted on savers.”

He warned of the risk that the Fed will be viewed as “a pliant accomplice to Congress’ and the executive branch’s fiscal misfeasance,” if it carries on down this road. “Barring some frightful development, I will vote against any program that might seek to extend or enlarge the substantial monetary accommodation we already have provided. The liquidity tanks are full, if not brimming over. The Fed has done its job. What is needed now is for business to be incentivized to commit that liquidity to creating American jobs. This is the task of the fiscal authorities, not the Federal Reserve.”

Mr Fisher stuck to his word. He voted against the Fed’s promise yesterday to keep rates near zero until mid-2013.

The Fed is engaged in dangerous forms of social engineering. Central banks should never enter this territory.

Yes, I have been critical of the ECB for other reasons. It allowed the Club Med bubble to build up from 2004-2007, misread both the oil spikes of 2008 and 2011, has allowed M3 to gyrate wildly, but the ECB is not — or not yet — a rogue elephant trampling social norms under foot.

An intellectual case can be made that inflation should be raised to 4pc to 6pc in the western world to lift us out of our debt trap. EX-IMF chief economist Ken Rogoff and others have made exactly that argument. Fine. Let debate be joined.

But if so, the Fed needs to state this openly and not carry out a social revolution by subterfuge. Any such decision should be subject to democratic endorsement by elected parliaments.

How can we bring these the central bankers to heel?