Financial Reform: Mortgage Fraud Continues to Boom

Who paid $300,000 for this "structure".

Special report: Flipping, flopping and booming mortgage fraud

(Reuters) – The house on the 53rd block of South Wood Street in Chicago’s Back of the Yards doesn’t look like a $355,000 home. There is no front door and most of the windows are boarded up.

Public records show it sold in foreclosure for $25,500 in January 2009, then resold for $355,000 in October. In between, a $110,000 mortgage was taken out on the home, supposedly for renovations. This June, the property went back into foreclosure.

To Emilio Carrasquillo, head of the local office of non-profit lender Neighborhood Housing Services of Chicago (NHS), the numbers don’t add up. He believes this is a case of mortgage fraud.

It may not make the blood boil like murder or rape, but mortgage fraud is a crime that cost an estimated $14 billion in 2009 and could be hampering an already fragile recovery in the housing market. The FBI has been fighting back, assembling its largest ever team to fight it. They have their work cut out for them, though, as a tsunami of foreclosures is making classic scams easier and spawning new ones to boot.

“There’s no way any property in this neighborhood should sell for that kind of money,” said Carrasquillo, standing outside the house on Wood Street in this poor, predominantly black area of Chicago’s South Side. “Even if it was in great condition.”

Carrasquillo has identified a number of properties in Back of the Yards that sold for between $5,000 and $30,000 last year and then came back on the market for up to $385,000. He said property prices are being artificially inflated, allowing fraudsters to walk away with vast profits and making it harder for honest local people to buy a home.

Mortgage fraud takes many forms, but a well-organized scam frequently involves a limited liability company (LLC) or a “straw buyer.” In

Who paid $355,000 for this structure?

 this scheme, fraudsters use a fake identity or that of someone else who allows them to use their credit status in return for a fee. The seller pockets the money the buyer borrows from a lender to pay for the home. The buyer never makes a mortgage payment and the property goes into foreclosure.

In other words, the money simply disappears, leaving the lender with a large loss. Since the U.S. government is now backing much of the mortgage market in the absence of private investors, that means “taxpayers are ultimately on the hook for fraud,” said Ann Fulmer, vice president of business relations at fraud-prevention company Interthinx.

Back of the Yards was hit by fraud during the housing boom and Carrasquillo says the glut of foreclosures is now making it easier for scammers to pick up properties for a song and flip them for phenomenal profits.

Drug dealers and gang members have taken over abandoned houses, many adorned with spray-painted gang signs. Prior to touring the area, Carrasquillo attached two magnetic signs touting the NHS logos on his minivan’s doors to show he is not a police officer. He said he also prefers touring in the morning, as drug dealers and “gangbangers” tend not to be early risers.

“These properties are just going to sit there, boarded up, broken into and a magnet for crime,” he said. “And that makes our job of trying to stabilize this neighborhood so much harder.”

CRACKDOWN NETS MORE REPORTS OF FRAUD

The U.S. Federal Bureau of Investigation said in a report released on June 17 that suspicious activity reports (SARs) related to mortgage fraud rose 5 percent in 2009 to around 67,200, up from 63,700 the year before. The number had tripled from 22,000 in 2005 and the number of SARs for the first three months of 2010 hit nearly 38,000.

“We don’t see the number declining while foreclosures remain so high,” said Sharon Ormsby, section chief of the FBI’s financial crimes section.

Robb Adkins, executive director of the Financial Fraud Enforcement Task Force, is known as U.S. President Barack Obama’s financial fraud czar. He describes mortgage fraud as “pervasive” and fears it is exacerbating the nation’s real estate woes. “That, in turn, could act as an anchor on the economic recovery,” he said.

For the housing market to recover, potential homeowners need confidence in home prices and investors need confidence to get back into the secondary mortgage market, Adkins explained.

Since the subprime meltdown, a wide variety of scams have come to the fore. They include big cases like that of Lee Farkas, the former head of now bankrupt mortgage lender Taylor, Bean & Whitaker Mortgage Corp, charged in June with fraud that led to billions of dollars of losses. The scheme involved the misappropriation of funds from multiple sources, including a lending facility that had received funding from Deutsche Bank and BNP Paribas.

That appears to be the scam of choice. On July 22, for instance, seven defendants were indicted in Chicago in a $35 million mortgage fraud scheme involving 120 properties from 2004 to 2008 using straw buyers. Of the half dozen properties listed in the indictment, two were in Back of the Yards.

In the mid-2000s, the availability of easy money, poor due diligence by lenders and low- or no-documentation loans, acted as a magnet for fraudsters, who used identity theft and other scams to bag large sums of cash.

“During the boom it was almost like people in the real estate market could do no wrong,” said Ohio Attorney General Richard Cordray. “As ever more money rushed in, it attracted a lot of people who engaged in shady behavior.”

Instead of leaving them without a market, the crash has instead provided fraudsters with a glut of foreclosures, stricken borrowers and desperate lenders to take advantage of.

“There were plenty of opportunities for fraud on the way up and there are plenty on the way down,” said Clifford Rossi, a former chief credit officer at Citigroup and now a teaching fellow at the University of Maryland in College Park.

Alongside familiar scams like property flipping, the crash has added new terms to the lexicon: short sale fraud, builder bailouts and flopping. Rescue scams targeting struggling homeowners with false promises of help are also on the rise.

If some of the mechanisms are new, a lot of the fraudsters are not: in many cases, they turn out to be mortgage brokers, appraisers, real estate agents or loan officers. “Because they’re insiders, they see exactly what’s happening and they’re able to stay one step ahead of the game,” said Todd Lackner, a fraud investigator in San Diego. “They’re the same people who were committing fraud during the boom and they were never caught or prosecuted.”

BACK TO THE YARDS

Just a stone’s throw from downtown Chicago, Back of the Yards is the setting for Upton Sinclair’s classic 1906 novel “The Jungle,” a tale of grueling hardship and worker exploitation at the city’s stockyards. The book includes an act of mortgage fraud against an unsuspecting Lithuanian family.

“Mortgage fraud is nothing new,” said Christopher Wagner, co-managing attorney of the Ohio Attorney General’s Cincinnati office. “It’s been around for a long time.”

Saul Alinsky, considered the founder of modern community organizing, started out in Back of the Yards in the 1930s. Decades later, a young community organizer named Obama got his start near here.

The neighborhood has always been poor, but south of the old railway tracks at W 49th St, the housing crisis’ legacy of empty lots and boarded-up homes is evident on every block. There are few stores and services available — in four separate visits for this story, no police vehicles were sighted.

“This is what we refer to as a ‘resource desert,'” Carrasquillo said. “When no one pays attention to an area like this, it makes it easier to get away with fraud.”

Marni Scott, executive vice president for credit at Troy, Michigan-based lender Flagstar Bancorp, says there are virtually no untainted sales in the area. “There are no cases of Mr and Mr Jones selling to Mr and Mrs Smith.”

“We see cases of mortgage fraud around the country,” she added. “But there’s nothing out there that could match the mass-production, assembly-line fraud that’s going on here.”

In 2008 Flagstar instituted a rule whereby any loan applications here and in parts of Atlanta — another fraud hot spot — must be approved by Scott and the lender’s chief appraiser. In a Webex presentation, Scott rattles through a number of properties snapped up for pennies on the dollar in 2009 and then sold for around $360,000.

She provides an underwriter’s-eye-view of one property, on the 51st block of South Marshfield Avenue, sold in foreclosure in July 2009 for $33,000. In January of this year Flagstar received a loan application to buy the house for $355,000.

The property appraisal — compiled by an appraiser who Scott believes never visited the area — showed four nearby comparable properties of around the same age (100 plus years) sold recently for around $360,000. The trick to this kind of scheme is engineering the sale of the first few fraudulently overvalued properties to get “comps” — comparable values — to fool appraisers and underwriters alike.

“Miraculously, all of these properties were all within a very narrow price range,” Scott said with weary sarcasm. “This is a perfect appraisal for an underwriter. If you are an underwriter sitting in Kansas or California it all looks fairly straightforward so you can just hit the button and approve it.”

Using a $5 product called LoanIQ from U.S. title insurer First American Financial Corp called LoanIQ, Flagstar determined the application itself was fraudulent and there was a foreclosure rate in the area of nearly 60 percent. What is more, property prices here spiked 84 percent last year after 44 percent and 26 percent declines in 2008 and 2007.  [How mant times have you heard the MSM report that “Housing prices recovered 1% last month”]

“No neighborhood should look like this,” said Scott, who declined the application.

Last April, however, another lender approved a loan application for $335,000 on the same property from the same people.

FORECLOSURE MAGNET

Reports this year from Interthinx, CoreLogic Inc and the Mortgage Asset Research Institute (MARI) — which all provide fraud prevention tools for lenders — show foreclosure hotspots Florida, California, Arizona and Nevada are also big mortgage fraud markets.

MARI said in its April report that reported mortgage fraud and misrepresentation rose 7 percent in 2009, adding fraud “continues to be a pervasive issue, growing and escalating in complexity.”

Denise James, director of real estate solutions at LexisNexis Risk Solutions and one of the author’s reports, said reported fraud will continue to rise throughout 2010.

In its first-quarter report, Interthinx said its Mortgage Fraud Risk Index rose 4 percent to 151, the first time it had passed 150 since 2004. A figure of 100 on the index would indicate virtually no risk of fraud.

Congressman Barney Frank

According to various estimates, the 30310 ZIP code in Atlanta is one of the worst in the country. An analysis of that ZIP prepared for Reuters by Interthinx showed a fraud index of 414, making it the eighth worst ZIP code in the country. Back of the Yards — ZIP code 60609 — had an index of 309.

“In some neighborhoods in Atlanta there hasn’t been a clean transaction in 10 years,” Interthinx’s Fulmer said.

In 2005 local residents here formed the 30310 Fraud Task Force. Members sniff out potential signs of fraud — such as repeated property flipped — and report them directly to the FBI and local authorities. Information from the task force led to the arrest of a 12-member mortgage fraud ring on September 15, 2008 — better known in the annals of the financial crisis as the day Lehman Brothers filed for Chapter 11 bankruptcy protection.

Brent Brewer, a civil engineer and task force member, said the arrests had a noticeable impact on fraud in the area. “It made a statement that if you come here to commit fraud there’s a good chance you’ll get caught,” he said.

But Brewer harbors no illusions the fraudsters are gone. “There’s no way they can catch everyone who’s involved in fraud. But if you’re dumb, greedy or desperate, you’re going to get caught.”

FBI GETTING INTERESTED

Law enforcement has come a long way in combating mortgage fraud, though officials freely admit that’s not saying much.

Senator Chris Dodd

Ben Wagner, U.S. attorney for the eastern district of California, said as mortgages are regulated at the state and local level, for years there was little federal interference. Prior to the recent boom, he said, fraud simply “was not identified as a huge problem.”

“There has been a little bit of a learning curve,” Wagner said. “This was not something federal prosecutors had much familiarity with. Now we’re getting pretty good at it.”

Half of Wagner’s 50 or so criminal prosecutors focus on white-collar crime including fraud. Two new prosecutors will be dedicated solely to mortgage fraud.

Now mortgage fraud is a known quantity, Wagner said all U.S. prosecutors tackling it are linked by Internet groups. The May edition of the bi-monthly “United States Attorneys’ Bulletin” (published by the Executive Office for United States Attorneys) was devoted entirely to mortgage fraud.

The FBI has more than 350 out of its 13,000 agents devoted to mortgage fraud. There are also now 67 regular mortgage fraud working groups and 23 task forces at the federal, state and local level. “This is the broadest coalition of law enforcement ever brought together to fight fraud,” Adkins said. He admitted, however that limited resources to fight fraud still pose a challenge.

Attorney General Eric Holder

In June U.S. authorities said 1,215 people had been charged in a joint crackdown on mortgage fraud. Many of the charges were for crimes committed years ago.

Latour “LT” Lafferty, the head of the white-collar crimes practice at law firm Fowler White Boggs in Tampa, Florida, said fraud in the boom was so pervasive that many crimes will go undetected and unprosecuted. “Everyone had their hands in the cookie jar during the boom,” he said. “Lenders, brokers, Realtors, homeowners … everyone.”

OLD DOG, NEW TRICKS

A new mortgage scam born out of the housing crisis is short sale fraud. Short sales are a way for stricken homeowners to get out of their homes, whereby in agreement with their lender they sell their home for less than they paid for it and are forgiven the remainder.

But they have also proven a tempting target for fraudsters, usually involving the Realtor in the deal. Lackner, the fraud investigator in San Diego, described a typical scheme: “Let’s say you have a property up for short sale that you know as a Realtor you can get $350,000 for,” he said. “But you arrange a low-ball appraisal of $200,000 and have someone make an offer of that amount.”

Tont Rezko - Convicted Felon - Real Estate "Development"

“The Realtor says to the bank this is the best offer you’re going to get, take it or leave it,” he added. “Then they turn around and flip it immediately for $350,000. In cases like this, the lender is probably already stuck with a lot of foreclosed properties and doesn’t want more. So they go for it.”

Where the process of fraudulent appraisals overvaluing a property for sale is “flipping,” deliberately undervaluing them has become known as “flopping.”

Bob Hertzog, a designated real estate broker at Summit Home Consultants in Scottsdale, Arizona, says he gets emails from unknown firms offering to act as a “third-party negotiator” between the seller and the bank with what turns out to be a grossly undervalued bid.

Hertzog has tried tracing some of the LLCs, but describes a chain of front companies leading nowhere.

“The problem is it is so cheap and easy to set up an LLC online that sometimes they are set up for just one transaction,” Flagstar’s Scott said. “And if they’re set up using fake information or a stolen identity, it’s very hard to trace who’s behind them.”

Many web sites boast they can help you form an LLC online for under $50.

Another common target for fraud is the reverse mortgage. Designed for seniors to release equity from a property, according to financial fraud czar Adkins, they have been used to commit a “particularly egregious type of fraud.”

Fraudsters commonly forge their victims’ signatures and, without their knowledge or consent, divert funds to themselves. The scam is worst in Florida, a magnet for American retirees.

“Unfortunately it is often not until the death of the victim that their heirs realize that all of the equity has been stripped out of the property by fraudsters,” Adkins said.

But Arthur Prieston, chairman of the Prieston Group, which sells mortgage fraud insurance and has launched a patented system to rate lenders on the quality of their loans, said most mortgage fraud he comes across consists of ordinary people fudging figures to get a loan. “The vast majority of the fraud we see is where people intend to occupy a property, but can’t qualify for a loan,” he said. “They’ll do anything to get that loan approved.”

He added this is achieved with the active collusion of Realtors, brokers and lenders looking to make a sale and keep the market moving. Before his firm issues fraud insurance it reviews a lender’s loans and between 20 percent and the 30 percent of the loans reviewed so far have had “red flags.”

The problem with assessing the extent of the damage caused by mortgage fraud is that it’s not just the dollar amount of the fraud itself. It also hits property values, property taxes and often causes crime to rise.

“Most people interpret white collar crime as a victimless crime, where the bank pays the price and no one else,” said Andrew Carswell, associate professor of housing and consumer economics, University of Georgia. “This is a mistaken perception … neighborhoods and homeowners pay the price.”

UNCOVERING THE SCAMS

Companies like Interthinx, CoreLogic and DataVerify all have data-driven fraud prevention tools for lenders. Interthinx’s program, for instance, identifies some 300 “red flags” including a buyer’s identity and recent sales in a neighborhood, while CoreLogic uses pattern recognition technology. CoreLogic also aims to bring a short sale fraud product to the market soon.

Interthinx’s Fulmer said regardless of the source, on average solid fraud prevention tools can be had for as little as $10 to $15 per loan. “The tools out there enable us to see what’s going on out there right now in real time,” she said.

Apart from fraud insurance, Prieston Group’s new credit rating system for lenders should have enough data within the next year to start providing valid ratings.

Prieston said the firm’s insurance product is growing at more than 100 percent per month, while CoreLogic’s Tim Grace said the firm’s fraud prevention tool business was booming.

Many lenders are also sharing more information about bad loans, though LexisNexis’ James said it is not nearly enough. “If lenders don’t start to share more information then fraudsters will continue to go from bank to bank to bank until they’re caught,” she said.

The University of Maryland’s Rossi said what the industry needs is a “central data warehouse” to combat fraud. “There has been a failure of collective data warehousing across the industry,” he said.

Mortgage Bankers Association (MBA) spokesman John Mechem said members have no plans for a central database, but added “we view our role as being to facilitate and encourage information sharing in the industry.”

The U.S. Patriot Act of 2001 allows lenders a safe harbor to share information, but does not mandate it. “We always encourage more information sharing,” said Steve Hudak, a press officer at the U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCen. “As of now, however, this is an entirely voluntary process.”

But Rossi said the government should step in. “The Federal government is probably going to have to take the initiative because I don’t see the industry doing this one on its own,” he said. “I am personally not a fan of big government, but we need more information sharing.”

Ultimately, the expectation is lenders will be forced either to improve due diligence, or face being pushed out of business as investors burned by sloppy underwriting during the boom urge them to adopt fraud prevention tools.

“Investor scrutiny is going to be higher than it ever has been,” Rossi said. “The days of a small amount of due diligence are gone.”

Many investors are also investigating their losses and forcing lenders to repurchase bad loans. This is resulting in “thousands of repurchases a month,” according to Prieston.

“When it comes to small lenders with only a few million dollars of loans, ten repurchases will absolutely put some of them out of business,” he said.

The government now guarantees more than 90 percent of the mortgage market and forms almost the entire secondary mortgage market, as private investors have not returned. The FHA, Fannie Mae and Freddie Mac are thus seen as playing an instrumental role in pushing improved due diligence to clean up the government’s multi-trillion dollar portfolio.

FHA commissioner David Stevens was appointed in July 2009. Since then the FHA has shut down 1,100 lenders, after decades in which the government closed an average of 30 lenders annually. He says most lenders he deals with are of a “very high quality,” but that “there are still lenders that either don’t have controls in place or are proactively engaging in practices that pose a risk to the FHA.”

Stevens does not expect to shut down lenders at the same rate as the past year, but added “the number will be much higher than the historical average.”

CoreLogic’s Grace said most large lenders have the tools in place to combat mortgage fraud, but admitted he was concerned about some smaller lenders. “The next shakeout of weak lenders will take place over the next 12 to 24 months,” he said.

The MBA’s Mechem said the U.S. mortgage market must be cleaned up if it is ever to return to normal. “The one thing private investors need to get back into the secondary market is confidence,” he said. “And investors won’t risk buying mortgages if they don’t have confidence in the quality of the loans. Restoring that confidence is going to play a pivotal role in restoring the markets.”

In the meantime, mortgage fraud is expected to cause more problems in areas like Back of the Yards in Chicago.

Three doors down from the boarded-up, foreclosed property that has aroused Carrasquillo’s suspicions, father-of-three Oti Cardoso says he and his neighbors try to cut the grass at the abandoned properties on his block and to keep thieves out. But he has heard most empty houses end up occupied by gang members.

“I want my children to be safe, I don’t want drug dealers here,” he said. “I have tried to find the owner of these houses so I can work with them to help keep their homes clean.”

“If they only knew what was happening here,” he added, “I’m sure they would want to do what was right.”

http://www.reuters.com/article/idUSTRE67G1S620100817

Investors Row - half million dollar houses in a row ...

Bailout Bucks In Hand – Citi Plans $10 Million Office Refurb For Executives

NEW YORK — Citigroup Inc. plans to spend about $10 million on new offices for senior executives, according to a Bloomberg report Thursday. The changes at the bank’s headquarters in New York City will include a new office for Chief Executive Vikram Pandit. The project is made up of 17 private offices, two conference rooms and open areas, reported Bloomberg. Citi told Bloomberg that the refurbishment, which it began planning in June, will save the bank money in the long run.

Obama’s Citi Group Move Crash & Burns! Obama pays premium for Citi stock that goes bust!

Government Makes 3rd Rescue Attempt For Citigroup

The U.S. government will exchange up to $25 billion in emergency bailout money it provided Citigroup Inc. for as much as a 36 percent equity stake in the struggling bank, greatly increasing the risks to taxpayers as voter unhappiness about the broader bailout program rises. http://cbs2.com/national/citigroup.government.deal.2.945596.html

The $25 Billion was originally secured by “Preferred Shares” of Citi Group Stock. These “Preferred Shares” paid the US Taxpayers 8% interest and were “first in line” to be repaid should Citi Group eventually end up in receivership. The “Preferred” shares provided the best security possible for American Taxpayers.

Taxpayers will also lose roughly $2 billion in dividends, because the preferred shares they are giving up paid 8% dividends. Citi suspended its common stock dividend as part of the agreement.” http://money.cnn.com/2009/02/27/news/companies/citigroup/index.htm?postversion=2009022709“Common shares absorb losses before preferred shares do, which means taxpayers would be on the hook if banks keep writing down billions of dollars’ worth of rotten assets, such as dodgy mortgages, as many analysts expect they will.”  http://cbs2.com/national/citigroup.government.deal.2.945596.html

The Obama Administration decided to employ an “accounting trick” on Friday in the hopes of improving the “look” of the Citi Bank balance sheet without making any meaningful change. Once again we get get style over substance.  No additional funds were provided, the $25 Billion was simply moved from the “Preferred” to the “Common Stock” column on the balance sheet.

“The swap of $25 billion of preferred shares into common stock will expose the government to the same risks facing other holders of the bank’s common stock. http://cbs2.com/national/citigroup.government.deal.2.945596.html

In exchange for the “security” Taxpayers enjoyed from owning “Preferred” shares, the Government obtained working control of Citi Group by obtaining a 40% stake in the company’s Common or voting stock. These Common Shares will be held in a “trust” in the Treasury Department where between 1 and 3 individuals will be politically appointed to, in essense, make secret decisions behind closed doors that will direct what activities the CEO and Board of Directors of Citi Group take. That is right, they will direct what types of loans are made and to whom. Isn’t that how we got in this mess in the first place?

In making this move the Government agreed to pay $3.25 per share for the Common Stock it obtained. That is right, the Government agreed to pay $3.25 a share for stock that sold for $2.46 a share the night before. The Government agreed to pay a 33% “mark-up” on the true value of the stock as of the start of business on Firday morning, 02/27/09. I’m outraged, the Government “threw away” 33% of the taxpayers $25 Billion (or $8.25 Billion) with the blink  or wink of an eye.

 Citi will offer to exchange up to $27.5 billion of preferred stock at a conversion price of $3.25 per share. That’s a 32 percent premium over Thursday’s closing price of $2.46.”  http://cbs2.com/national/citigroup.government.deal.2.945596.html

“The new deal Friday did not give the bank any additional taxpayer dollars. But the government is taking on a greater risk by assuming more volatile common shares. The market price is well below the $3.25 per-share conversion price the government is paying.” http://money.cnn.com/2009/02/27/news/companies/citigroup/index.htm?postversion=2009022709

What does this mean? The Government paid $25 Billion  for stock worth $16 Billion at the start of the day Friday. What is a $9 Billion Dollar loss anyway? Its only taxpayer money!

“The administration decided to restructure the bailout package for Citigroup again in the hopes that converting $25 billion of preferred shares into common stock would give investors more confidence that the bank has sufficient capital reserves to withstand mounting losses on its holdings of mortgages“. (Yes, that is right, the “Sub-prime mortgage crisis” caused the “banking crisis” which in turn brought down the US and World economy).   http://cbs2.com/national/citigroup.government.deal.2.945596.html

“Investors appeared disappointed in the deal and expected dilution of their stake, sending shares plummeting 81 cents, or 32.9 percent, to $1.65 in midday trading”. http://cbs2.com/national/citigroup.government.deal.2.945596.html

Was that it? Stockholders were disappointment that the value of their stock was diluted or were shareholders concerned that the Government had taken over “voting control” of Citi and that policticians, exercising  voting control through a “stock trust” will secretly direct all of the activities of the Citi Group from behind closed doors in Washington? Earlier this year (January 2009) Richard Parson’s, an Economic Advisor to Obama, was named Chairman of the Board of Citi Group. http://www.cbsnews.com/stories/2009/01/21/business/main4745963.shtml?source=RSSattr=Business_4745963 

Obama’s plan was for the “accounting trick” or “stock switch” to increase Citi’s “tanigible common equity” while the Politicians took over voting control of Citi. To many, when a Government takes over voting control of a Bank and suspends Common Stock dividends of that Bank, that Government has Nationalized that bank.  

“For Citigroup, the conversion is important because it increases the bank’s tangible common equity, making an improvement in the bank’s troubled balance sheet.” http://money.cnn.com/2009/02/27/news/companies/citigroup/index.htm?postversion=2009022709

By the close of the business day on Friday (02/27/09) Citi Common Stock was trading for $1.50 per share, a drop of nearly 40% off the stock price of $2.46 at the start of business on Friday. (A 40% drop from the actual trading price at the start of the day $2.46 share, not the “artificially” high price the Government paid of $3.25/share). http://data.cnbc.com/quotes/C/tab/8

Obama’s “trick” to improve Citi’s “tangible common equity” failed miserably – Citi’s net “tangible common equity” droppped 40% on Friday.  The US Taxpayers $25 Billion in “Preferred Stock” was worth $11.5 Billion in “Common Stock” at the end of the day. In addition the Taxpayers lost $2 Billion a year in Dividends that the “preferred stock” was paying.

A $13.5 Billion Dollar loss in one day …. What the heck, it is only taxpayer money anyway ….. and now the Government can run Citi behind closed doors. I’m sure the Administration thinks this move would have been cheap at twice the price – heck its the taxpayers who are on the hook and the Administration can just ignore them.

Am I really to believe that this group has even a remote chance to turn this economy around and cut these huge deficits? Why am I to believe that?

I’m anxiously awaiting the specifics of the “bank stress test” and the details of the “homeowner mortgage bailout” plan.

McAuley’s World Update (03/05/09) Citibank Common Stock closed today at 99 cents per share. Citi stock is now a penny stock. The 30% decline from yesterday’s closing price signals that the US Taxpayer has now lost almost 70% of the Government’s investment in Citi-bank. Commentators note that the Government’s “grab” of Common Stock has reduced the value of private stockholder’s investment in Citi – resulting in a major sell-off of Citi stock by the private sector. The drop in Common Stock Price has further lowered Citi’s Equity Value negating or wiping out the Government’s intended result when it completed the last Citi bailout earlier this week.

Stop The Auto Industry Bailout – Pay Offs To The “Detroit 3” At Expense of Taxpayers

They are calling this bailout the “Auto Industry Bailout” to mislead you. The “bailout” is targeting the “Detroit 3” and won’t help any of the other “American” Auto Companies. The Wall Street Journal refers to the “Detroit 3” as the “Old Auto Industry”.                                                                                                            http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box

The “Old Auto Industry”, GM, Ford & Chrysler currently have a “market value” of about $9.2 Billion Dollars. They have already been given 25 Billion Dollars in “bailouts” to “re-tool” to make more “Green Agenda Friendly” vehilces. The $25 Billion is currently tied up in the Energy Committee in Congress. That “bailout” alone is worth 2 1/2 times the current market value of the combined companies. The “New American Auto” industry is operating at a profit, pays its employees as much as or more than the “Detroit 3” and needs no “bailout” to produce autos that obtain top gas mileage and fit the “green agenda” without Government subsidy. By the year 2010, the “New American Auto Industry” will employee more individuals than the “Old Detroit 3” even if the “3” are given additional  bailouts ……. The “Detroit 3′ produces 1/2 of 1% of our Gross National Product, so does the “New Auto Industry” – combined they account for just over 1% of the GNP. Gone are the days of the 1950’s when the “Auto Industry” accounted for 15% of the US economy. ………….  

The Government may want to consider buying the ‘Detroit 3″ for $10 Billion and then giving the Companies (minus existing UAW, Executives or Suppliers contracts) to Toyota with an extra $10 Billion in cash and have Toyota take over the management of the “Detroit 3”. By doing so the Government would put in place a Management Team that has a demonstrable track record, a proven knoweldge of the 21st century Auto Industry, has increased its marketshare for 25 years and has increased its annual profit growth for an over a decade, and has the respect of consumers the world over. While doing all this the Government would also save $5 Billion off the original “Bailout” money (authorized just last month). I’m only half kidding with this suggestion ….. READ ON  

Millions In Auto Bonuses While Singin The Bailout Blues

Secondly, to imply that GM, Ford & Chrysler LLC, are the “American” Auto Industry is disingenous. With global investing GM, Ford & Chrysler are no more American than Honda, Toyota or Hundai. Any American can invest in the ”New American Auto” Industry as the Wall Street Journal calls it – but Americans cannot invest in Chrysler LLC – it is a privately owned company and no one knows who actually “owns” Chrysler LLC because Cerebus Capital Management’s ownership is a closely guarded secret. http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box

The largest investors in GM and Ford are Capital Management firms, hedge funds and Mutual Funds. There is no way to determine whether the individuals who have invested in those firms are “American” or from “Communist China”. Communist China controls a significant interests in many of the remaining “American” banks and investment firms.                                                             http://www.marketwatch.com/news/story/china-invests-3-bln-blackstone/story.aspx?guid={C8B110EC-2538-4461-97C8-0FD7F1CAEF15}&dist=hplatest            http://english.pravda.ru/business/103399-Citigroup-0                                            http://forbes.ccbn.com/conferencedetail.asp?client=forbes&event=1988907

Why do writers insist on calling these companies “American”. We don’t know who owns the stock or who the investors are. As for GM and Ford, either could be bought by a foreign corporation tomorrow the same way Chrysler was purchased, first by Daimler then by Cerebus. 

CHRYSLER LLC – CEREBUS Capital Management

Chrysler is owned by a private equity company – CEREBUS CAPITAL MANAGEMENT – Cerebus is named after the mythical three headed dog that guards the gates of hell  http://www.hoovers.com/cerberus-capital-management/–ID__112328–/free-co-factsheet.xhtml?cm_ven=PAID&cm_cat=INK&cm_pla=CO1&cm_ite=cerberus-capital-management )

Cerebus is a private capital investment firm that owns shares in companies all over the world. Cerebus was formed in 1992. It has its own bank, a Japanese Bank not an “American” bank, named Aozora.

Cerebus’ Chairman is none other than former Vice-President Dan Quayle. http://www.vicepresidentdanquayle.com/biography.html

But who owns Cerebus – no one knows – it is a “private” and “unregulated” company. “It has come to this. A firm that made its name, and its fortune, feeding off companies in their death throes is demanding a government bailout.” http://www.cbc.ca/money/story/2008/11/07/f-pittis-economy.html 

No one knows if Cerebus is anymore of an American Company than Daimler was or the China Investmant bank is.          http://www.associatedcontent.com/article/244378/cerberus_buys_chrysler.html                 http://en.wikipedia.org/wiki/China_Investment_Bank                                             http://en.wikipedia.org/wiki/China_Construction_Bank                                             http://swfinstitute.org/fund/cic.php                                                      http://www.skadden.com/index.cfm?contentID=47&practiceID=33

The US government can’t own shares in Chrysler LLC and the Cerebus Investors have extremely limited liability for any bailout money we put in their pockets, “Chrysler is 81% owned by Cerebus Capital Management and 19% by Daimler AG. It is not a public company and you cannot buy or sell its stock. (It was a public company until last year when Daimler sold most of Chrysler to Cerebus.) An LLC is a corporate structure that limits the liability of its stockholders, similarly to a corporation.” http://smallbusiness.yahoo.com/r-answers-a-20080114050334AA9ZyJk-k-stock+trade

Cerberus is headquartered in New York City with affiliate and/or advisory offices in Atlanta, Chicago, Los Angeles, London, Baarn, Frankfurt, Hong Kong, Tokyo, Beijing, Osaka and Taipei. http://www.cerberuscapital.com/about_comp_prof.html

Cerebus was described this way, “Cerberus Capital Management is the very real private equity firm — one of the bidders in play for the Chrysler Group — that guards the privacy of its dealings almost as jealously. USA Today takes a look at the firm and reveals a company with a “fierce reputation” and “a combative, take-no-prisoners style.”The list of companies that are either owned by Cerebus or which the company has majority stakes include: Alamo and National rental car, Fila, Blue Bird yellow buses, Rafaella clothing, GMAC, Aegis Mortgage, auto suppliers CTA Acoustics and GDX Automotive, Remington Arms, Bell Canada, Tower Automotive, banks, mortgage companies, and property managers.” When it bought Chrylser, Cerberus instantly doubled its annual revenue, but revenue isn’t the prime concern for private equity firms — return on investment is. The issue is that no one knows how Cerberus would go about increasing return from Chrysler.” http://www.autoblog.com/2007/04/16/rare-info-on-chrylser-bidder-cerberus-reveals-a-fierce-reputati/                                                                                            http://www.washingtonpost.com/wp-dyn/content/article/2007/08/14/AR2007081401913.html     http://www.bcwf.bc.ca/documents/s=393/bcw1176303661611/  http://www.forbes.com/business/feeds/afx/2007/05/17/afx3731793.html           http://en.wikipedia.org/wiki/Cerberus_Capital_Management   http://iht.com/articles/ap/2007/03/29/business/NA-FIN-COM-US-Tower-Automotive-Bankruptcy.php                                                                                      http://www.cerberuscapital.com/

Now we know how they plan on increasing the return – a taxpayer subsidized bailout. “The UAW and the Canadian Auto Workers have publicly opposed the sale of Chrysler “to Cerebus or any other private equity group.” http://www.autoblog.com/2007/04/16/rare-info-on-chrylser-bidder-cerberus-reveals-a-fierce-reputati/
In 1984 Chrysler employed approximately 80,000 workers. (1984-09-01, Chrysler Corp. completed its 4-year employee stock ownership plan by distributing 1,661,691 shares of common stock to more than 80,000 employees, including 63,000 members of the United Auto Workers union.) http://resources.bnet.com/topic/chrysler+llc+and+stock.html
In October 2008 it was estimated that Chrysler/Dodge/Jeep combined employed 49,000.        http://search.yahoo.com/search;_ylt=Ak0_ss1oGMILRC6Sai7xc3KmN3wV?p=Chrysler+LLC+Employees+2008&fr=att-portal&toggle=1&cop=&ei=UTF-8
http://www.sullcrom.com/offices/detail.aspx?office=3                                     http://www.chinadaily.com.cn/bizchina/2008-07/17/content_6854442.htm                         http://www.ml.com/index.asp?id=7695_7696_8149_8688_8558_6274
Chrysler is only a very small piece of the Cerebus pie. Why should the American taxpayers “bailout” a huge, private, mulitnational firm with hundreds of Billions of dollars in assests and dozens of companies under its control?
Cerebus would like to sell Chrysler, but Chrysler is so dysfunctional Cerebus cannot find a buyer.  If Chrysler is a bad bet for Daimler and Cerebus, it is a bad bet for the US taxpayer.
General Motors Corporation
For those who argue GM is the victim of a sudden economic downturn, let me remind you that GM’s largest individual shareholder at the time. Kirk Kerkorian, was reported to have said this in January 2006. “General Motors Corp must cut its dividend, executive salaries and brand structure if it hopes to return to profitability”. Jerry York, an adviser to investor Kirk Kerkorian’s Tracinda Corp, said GM is currently burning through 24 mln usd per day, Agence France-Presse reported. He said the automaker must change its mindset to operate in ‘crisis mode’ and recognize the challenges it faces in the coming months. But unlike a number of analysts who have warned that GM is at risk of bankruptcy, York expressed confidence in the automaker’s ability to create shareholder value even after its shares fell more than 50 pct in the past year.
Lets see; near bankruptcy, lost 50% of stock value in the last year, “must act in crisis mode”, and this situation wasn’t new in January 2006, GM had been facing the same issues for at least 8 years running. In November 2006 Kerkorian sold his GM stock, see below.  
As to General Motors, which is in business with Cerebus as joint owners of GMAC – what are they doing to improve their economic performance – stripping out their valuable subsidiaries and setting them up as private companies, “GMAC, the money-losing finance company, sold a reinsurance business to Maiden Holdings Ltd and plans to sell two insurance units to the Bermuda-based company, to bolster capital and add liquidity. Private equity firm Cerberus Capital Management LP owns 51 percent of Detroit-based GMAC, while General Motors Corp owns 49 percent.” http://blog.pennlive.com/leftcoast/2008/11/chrysler_death_watch_week_thre.html
Who is running “Maiden Holdings” – former GMAC executives. The same Executives who led to these types of problems, “GMAC is shedding profitable assets after suffering $7.2 billion of losses in the seven quarters ended June 30. The lender has been hurt by soaring credit losses at its Residential Capital LLC mortgage unit and by write-down of leases on sport-utility vehicles that drivers no longer want. GMAC’s credit ratings have fallen deep into junk status.” http://blog.pennlive.com/leftcoast/2008/11/chrysler_death_watch_week_thre.html
Who owns GM? Just two years ago Renault & Nissan offerred to buy a “significant minority interest in the carmaker. http://www.msnbc.msn.com/id/13630565/ Kurt Kerkorian, the Billionare American Investor, who owned 9.9% of GM through his Tracinda Corporation publicly favored the partnership. GM would not consumate the deal. In November 2006 Kerkorian announced he would sell 14 Million shares in GM, in a “private transaction”, at $33 per share. Later that month, Kerkorian “dumped” his remaining GM shares at $28.75 per share.
It was reported that Bank of America purchased the stock. It was unknown if Bank of America retained the shares (9.9% of GM) or re-sold them. Morgan Stanley owned 5% of GM in 2006. Morgan Stanley and Bank of America were, in turn, partially owned by the China Investment bank.  http://www.thestreet.com/stocks/automakers/10268781.html 
Three months prior to Kerkorian dumping his GM stock in November 2006, two other “Investment Firms” dumped GM stock in August 2006. The news reports stated, ”Two Major Investors Sell Blocks of GM Shares”, “California-based investment firms that rank as the second-and third-largest institutional investors in General Motors Corp. have sold big blocks of the automaker’s stock, according to regulatory filings. Capital Research & Management Co. of Los Angeles, GM’s second-largest investor, sold 19.2 million shares, or 24% of its holdings in the company, according to second-quarter reports filed this week with the Securities and Exchange Commission. The company’s third-largest investor, Brandes Investment  Partners of San Diego, sold 2.4 million shares, or 4% of its holdings. Neither company would comment, saying they do not discuss their investments.” http://articles.latimes.com/2006/aug/17/business/fi-gmstake17
These firms also guard the identity of those who control the money they are investing. This article went on to note that, ”Credit Suisse bought 11.5 million shares to become the sixth-largest investor in GM” at that time.  Credit Suisse is a Swiss Bank/Holding Company.    http://articles.latimes.com/2006/aug/17/business/fi-gmstake17   
The point is, there is no way to tell who “owns” GM. Many of the shares are “held” by Banks, Investment Firms, Hedge Funds and Capital Management firms, but “who” owns the money invested by those firms is unknown. Investors from all over the globe are free to deposit their money with these firms.
If GM is a bad bet for Kirk Kerkorian and the International Investment Community, it is a bad bet for the American taxpayer. 
  
GM, the largest of the “Detroit 3″ may employ as many as 123,000 or as few as 74,000 at present.  Analyst state GM needs to downsize by half. (Retaining 40,000 to 60,000 workers). Optomistic analysts report GM has already reduced its headcount to 74,000 after announcing 4 more plant closing and the elimination of an additional 10,000 workers in June 2008.
These cuts follow 30,000 job cuts in 2005, http://money.cnn.com/2005/11/21/news/fortune500/gm_cuts/
34,000 jobs in 2006,
and 30,000 more in 2007. In February 2008, after posting a $38 Billion Loss, Business Net noted the 2007 job cuts and stated, “After cutting more than 30,000 employees in the last round of restructuring, GM is now offering buy-outs to all 74,000 staff.”
During this same time period, “foreign automakers have built or announced plans to build five U.S. assembly plants, he said. In 2007, foreign auto companies employed 113,000 people in the U.S., a number McAlinden projects will rise to 152,000 by 2011.”   http://www.msnbc.msn.com/id/24947044
International Financial analysts have stated that GM’s future, even given a “bailout” looks bleak,  ”An analyst forecast their price would fall to zero, saying that even if there is a government bailout of the auto giant, shareholders would not benefit. “We are lowering our target on GM equity to zero dollars,” the Deutsche Bank report said. “Even if GM succeeds in averting a bankruptcy, we believe that the company’s future path is likely to be bankruptcy-like,” it said.” http://news.yahoo.com/s/afp/20081110/bs_afp/stocksusautocompanygm
Ford Motor Company
“Financier Kirk Kerkorian is pulling out of the stake he took in Ford Motor Co. just six months ago, selling 7.3 million shares at a fraction of his purchase price.” “Kerkorian announced in April that he had bought 100 million shares for an average price of $6.91. He then announced a tender offer under which he paid $8.50 a share for an additional 20 million shares. In addition he bought another 22.3 million shares between late April and mid-June at an average price of $6.54 a share, giving his total investment an average price of just over $7 a share.” “I don’t know if Ford’s North American operations are even going to profitable by 2010,” said Kevin Tynan, auto analyst with Argus Research.

Kerkorian sold his shares for a little more than $2 a piece, losing almost $5 a share and taking a Billion Dollar plus loss. If Kerkorian was willing to take a Billion Dollar loss to get rid of his Ford shares, why is Ford a good bet for American taxpayers?

Art Hogan, chief investment strategist at Jefferies & Co., said that Kerkorian signalling that he wants out of the auto industry is yet another nail in the industry’s prospects in the eyes of investors.”Do you need a good excuse to pull out of Ford? What you need is an excuse for getting in in the first place,” said Hogan. “It’s been in demise for a decade.” http://money.cnn.com/2008/10/21/news/companies/ford_kerkorian/index.htm?eref=rss_topstories

“GM, Ford stock sell-off contributes to Dow’s drop”, GM lost half of its value — or $2.7 billion — and Ford has lost 60 percent, or $7 billion. [The combined value of the Detroit 3 is estimated at 9.2 Billion, $2.7 Billion for GM, $4.7 Billion for Ford, 1.8 Billion for Chrysler]              http://www.detnews.com/apps/pbcs.dll/article?AID=/20081010/AUTO01/810100386&imw=Y

“Ford to sell $500m in new stock”, In an effort to secure more capital and reduce debt, Ford plans to sell $500m in new stock. Ford will use the cash infusion to buy bonds from Ford Motor Credit, which has been strugling with the slow economy and nation-wide credit crunch. Goldman Sachs is handling the stock sale, and Ford has given no timetable for when the stocks will enter the market. Ford has already exchanged debt for equity to the tune of $927m in the past year. With shares of Ford stock at under $5 per share right now, anybody can own a share of the Blue Oval for the price of a value meal.” http://www.autoblog.com/2008/08/15/ford-to-sell-500m-in-new-stock/  

Unfortunately, there were no takers, the International Investment Community is just not interested.  

In September Ford announced plans to close nine plants by 2008 and another seven plants after that, more than half of its U.S. hourly employees recently agreed to take one of the various packages to leave the company in the coming months.

PLANT CLOSINGS & LAYOFFS –

The New York Times reported, “Highly Rated Auto Plants Set to Close”, Some of the most productive automobile factories, as rated by an influential study released Thursday, are closing down or losing large numbers of jobs in the motor industry’s upheaval. “Among the factories scheduled to close are a General Motors minivan plant in Doraville, Ga., and the Ford Motor Company’s midsize pickup truck plant in St. Paul, both of which ranked first in their segments in this year’s Harbour Report on automotive productivity. The top-rated full-size pickup plant, a Ford factory in Norfolk, Va., closed a year ago, showing that even the best-run plants are not immune to cuts. Two of the top three large S.U.V. plants are closing, as is the second-ranked midsize S.U.V. plant. The plant that ranked fourth over all, where Chrysler builds compact cars and crossovers in Belvidere, Ill., recently lost one of its three shifts. G.M.’s plant in Orion Township, Mich., ranked last in the midsize-car segment, taking 65 percent longer to build each vehicle than the top performer, while its plant in Moraine, Ohio, ranked second in midsize S.U.V.’s. But this week G.M. said it would add a third shift in Orion and close the Moraine factory.” http://www.nytimes.com/2008/06/06/business/06auto.html

Plant closings are negotiated with the UAW.

SINGING THE BAILOUT BLUES – BONUS CHECK IN HAND

Ford Motor Company Happy With Profit                                                                Australian News.Net
Friday 25th April, 2008                                                                                      
The Ford Motor Company in the US has posted a US$100 million profit for the period from January to April. Most companies reported losses for the first quarter of 2008 due to the economic slump and the subprime mortgage crisis, but Ford has attributed its success to its job reduction scheme in North America and triple earnings in Europe. http://www.australiannews.net/story/352149

 

Chrysler leaders get millions                                                                  Automaker defends payouts amid looming bailout talks                                      As Detroit’s crumbling auto industry asks Congress for a bailout, Chrysler is in the awkward position of paying about $30 million in retention bonuses to keep top executives while the company cuts thousands of jobs.

http://www.freep.com/article/20081113/BUSINESS01/311130002/1014

HEAD OF FORD DEFENDS BONUS

DEARBORN, Mich., May 4 – Philip Caldwell, the chairman of the Ford Motor Company, today defended the large bonuses paid to auto executives last year …..

AN IMAGE PROBLEM FOR DETROIT

To some people, the decision of General Motors and Ford, the two largest automobile makers, to pay record bonuses to their executives while enjoying protection

http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.html?s=oldest&&query=BONUSES&field=des&match=exact

More UAW workers bankrupt                                                                                                     Autoworkers who used to thrive on overtime now find it tough to keep up their lifestyles. Oscar Gray achieved the good life during 28 years of hard work at Delphi Corporation — a six-figure income, a nice home in Holly and two vehicles. But as Michigan’s auto industry tanked in recent years, the forklift operator lost huge amounts of overtime pay and gradually sank into financial ruin. Saddled with $469,000 in debt, he declared bankruptcy last month. Gray didn’t lose his job. His health isn’t failing, and he is not going through a divorce — the typical reasons many declare bankruptcy. Gray has been losing overtime. His gross pay was cut $16,000 one year, sliding to $87,000, and may dip again …. Despite the loss of time-and-a-half pay, some Michigan autoworkers continue to live large. Many bankrupt autoworkers own two homes — one is usually up north — which means multiple mortgages. Most have two or more cars and sometimes a boat or snowmobile payment, according to information culled from cases filed by autoworkers in U.S. Bankruptcy Court in the Eastern District of Michigan. http://www.detnews.com/2005/autosinsider/0509/18/A01-318432.htm

At the time this article was written, the median annual income (half above/half below) in Michigan was just under $40,000. The article doesn’t address the increases in Michigan’s personal and property tax rates that now make ownership of two homes extremely difficult ….. not only overtime been cut, but taxes on both income, sales and property taxes on homes have gone up. Michigan’s tax rates are not “consumer” or “business” friendly – rather than address those issues the proposed solution from the Michigan Politicans is for the rest of the Country to come up with a “Public Bailout” ………..   

Ford workers get $733M in profit-sharing checks. http://www.usatoday.com/money/autos/2001-03-07-ford-profit-sharing.htm

DETROIT, Jan 25 (Reuters) – Ford Motor Co., is considering paying bonuses to managers for 2006, despite record losses and massive job cuts. Ford reported a record loss of $12.7 billion for 2006, during which its U.S. sales fell 8 percent and it announced plans to close 16 plants and cut over 40,000 jobs in a bid to restore profitability to its North American operations by 2009. http://www.reuters.com/article/idUSN2528789420070125

Apparently, absenteeism at GM’s North American plants is such a huge issue that the automaker has to offer more than just a paycheck to get workers to show up. The new labor contract the General signed with the UAW includes an incentive for workers that go a full year without missing a day. Their reward is to be entered into a drawing that gives five lucky employees $15,000 to put towards a new GM car or truck. While the idea of offering an incentive for employees to do their job might be a surprise to the rest of us working stiffs, the auto industry’s hourly workforce has one of the highest annual absenteeism rates in the U.S. A 2004 study showed that about 10-percent of workers aren’t manning their positions during any one point in the year – three-times higher than other industries. Naturally, this has a massive effect on labor costs and quality control. http://www.autoblog.com/2007/11/12/do-your-job-at-gm-win-cash-for-a-car

“New” Auto Industry Plants Pay More Than “Detroit 3″ –

UAW Losing Pay Edge: Foreign Automakers’ Bonuses Boost Wages in U.S. Plants as Detroit Car Companies Struggle – February 1, 2007 – The UAW is losing its edge in pay compared with non-unionized U.S. assembly plant workers for foreign companies, even as Detroit automakers aim for deeper benefit cuts to trim their losses. Workers for a foreign automaker for the first time averaged more in base pay and bonuses than UAW members working for domestic automakers, according to an economist for the Center for Automotive Research and figures supplied to the Free Press by auto companies. Toyota Motor Corp. gave workers at its largest U.S. plant bonuses of $6,000 to $8,000. Honda Motor Co. and Nissan Motor Co. are not far behind Toyota and UAW pay levels. Comparable wages have long been one way foreign companies fight off UAW organizing efforts. http://www.aftermarketnews.com/Item/28594/uaw_losing_pay_edge_foreign_automakers_ bonuses_boost_wages_in_us_plants_as_detroit_car_companies_struggle.aspx

DETROIT 3 – CONDITIONS NO WORSE FOR THEM THAN ANY OTHER COMPANY

You may have read this headline, “Citigroup to cut another 53,000 jobs”, “The company said total headcount is being reduced by 20 percent from its peak of 375,000 at the end of 2007; the company had already announced in October that it was eliminating about 22,000 jobs from those levels. The total workforce reductions include thousands of jobs that will be lost when Citigroup completes the sale of Citi Global Services and its German retail banking business.” http://news.yahoo.com/s/ap/20081117/ap_on_bi_ge/citigroup_jobs;_ylt=AvI.vrNuJO1e5AeczxKJB2Ks0NUE

Even after making these horrendous cuts, Citi will still employ 1 1/2 times the number of employees currently under contract to all of the “Detroit 3″ combined. After the cuts Citi will employ approximately 325,000 to approximately 200,000 employees at the “Detroit 3″.

The Detroit 3 are not the only companies dealing with the economic slowdown, all business and all employers are forced to deal with this economy.

Throwing good money after bad at the Detroit 3 is no solution. The “Detroit 3″ only accounts for 1/2 of 1 percent of the Gross National Product, slightly less than that produced by the “New Auto Industry Plants”.  The current combined “value” of the entire “Detroit 3″ is something under $10 Billion Dolllars. Prior to the election Congress passed a $25 Billion bailout targeted at “retooling” at the ‘Detroit 3″ and the production of “green agenda autos”. That money is currently tied up in the Energy Committee in Congress. Detroit is now asking for an additional $50 Billion Dollars for a  total of a $75 Billion handout. $75 Billion is 7 1/2 times the current value of three companies combined and is equal to a payment of $375,000 for every employee under contract to the “Detroit 3″.

From a business point of view this proposal makes no sense. If the proposal is passed, it will be the biggest political payoff in the history of the Country

Citibank Announces Moratorium On Mortgage Foreclosures – Private Plan That Won’t Cost Taxpayers A Dime

NOT A GOVERNMENT BAILOUT – A PRIVATE ACTION THAT WON’T COST TAXPAYERS A DIME – WHY IS CITI DOING THIS? IT MAKES GOOD BUSINESS SENSE – THAT IS WHY !

Citigroup says it is imposing a moratorium on most foreclosures as part of a series of initiatives aimed at helping at-risk borrowers remain in their homes — making Citi the latest big bank to announce sweeping efforts to try to curtail losses from souring mortgages.

Citi said late Monday it won’t initiate a foreclosure or complete a foreclosure sale on any eligible borrower who seeks to stay in a home if it is the borrower’s principal residence, the homeowner is working in good faith with Citi and has sufficient income to make affordable mortgage payments.

Citi said it is also working to expand the program to include mortgages the bank services but does not own.

Additionally, over the next six months, Citi plans to reach out to 500,000 homeowners who are not currently behind on their mortgage payments, but who are deemed as potentially needing assistance to keep current with their payments. This represents about one-third of all the mortgages that Citigroup owns, the bank said.

Citi plans to devote a team of 600 salespeople to assist the targeted borrowers by adjusting their rates, reducing principal, or increasing the term of the loan, steps known in the mortgage industry as a workout.

Of the four biggest U.S. banks — Citigroup, JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. — Citi has been on the shakiest footing as a result of the mortgage crisis, reporting losses in the past four consecutive quarters while its rivals have managed to post profits. The steps announced Monday are designed to stem those losses.

“Typically the lender loses the most money when a house goes into foreclosure,” said Barry Zigas, director of housing policy at the Consumer Federation of America. “(The lender) takes some kind of loss that’s usually much greater than what they sacrificed through some kind of workout.”

Sanjiv Das, chief executive of CitiMortgage, said, “It is in our interest that borrowers stay in their homes and actually make the payments.”

Citi is targeting homeowners in geographic areas with higher-than-average unemployment and foreclosure rates, primarily in Arizona, California, Florida, Michigan, Ohio and Indiana, Das said. The program is expected to affect about $20 billion in mortgages.

“As the unemployment rate is starting to creep up on us, there is going to be increasing distress in the marketplace,” Das said in an interview with The Associated Press. “It’s not going to distinguish between what type of mortgage they have.”

“There is a huge amount of anxiety among borrowers,” he said. “We will reach out to them before they become delinquent.”

Since early last year, Citigroup has helped about 370,000 families avoid foreclosure, representing more than $35 billion in loans, the bank said.

Citi has avoided negative amortization loans, option adjustable-rate mortgages, and other types of risky mortgages, defaults on which have skyrocketed since the start of the housing bust in the middle of last year. Still, the bank has nonetheless been hurt by the relentless downturn in housing that fed the mortgage and credit crisis, and in turn, the near-breakdown of the financial system.

With defaults mounting, other lenders, including JPMorgan and Bank of America, have also become more aggressive about modifications to mortgage agreements.

But a moratorium only solves so much, according to Zigas. “A moratorium on foreclosure will be effective at stopping foreclosure, it won’t be effective at stopping the underlying reasons of why people are in trouble,” he said.

By taking a proactive approach, Citigroup isn’t waiting until it’s too late to deal with delinquent borrowers, said Steve Curnutte, president of InsBank Mortgage in Nashville, Tenn. However, the problem is growing faster than most banks can handle, he said.

“It’s nearly an insurmountable undertaking,” said Curnutte. “The number of bad loans that they can modify using their resources is being quickly outstripped by the number of new loans that need to be modified.”

More than 4 million American homeowners with a mortgage were at least one payment behind on their loans at the end of June, and 500,000 had started the foreclosure process, according to the most recent data from the Mortgage Bankers Association.

Late last month, JPMorgan expanded its workout program to an estimated $70 billion in loans, which could aid as many as 400,000 customers. The New York-based bank has already modified about $40 billion in mortgages, helping 250,000 customers since early 2007.

JPMorgan also said it will not put any loans into foreclosure as it implements the expanded program over the next 90 days.

Bank of America, meanwhile, has said that starting Dec. 1, it will modify an estimated 400,000 loans held by newly acquired Countrywide Financial Corp. as part of an $8.4 billion legal settlement reached with state officials in early October.

http://www.chicagotribune.com/business/chicago-big-banks-mortgages-nov11,0,5250204.story?track=rss

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