Hyper Inflation is on it's way

JACKSON, Wyo. (AP) -- Federal Reserve Chairman Ben Bernanke said Friday that the Fed will consider making another large-scale purchase of securities if the slowing economy were to deteriorate significantly and signs of deflation were to flare.

The Fed chief offered his most extensive thoughts yet on how to pull the U.S. economy out of a deepening slump. His remarks came 90 minutes after the government said the economy slowed sharply in the second quarter to a 1.6 percent pace.

Fears are growing that the country could lapse back into a recession. Bernanke described the economic outlook as "inherently uncertain" and said the economy "remains vulnerable to unexpected developments."

Bernanke stopped short of committing to any specific action. But he raised the prospect of another Fed purchase of securities, most likely government debt or mortgage securities, to drive down rates on mortgages and other debt to spur more spending by Americans.

The other two options he laid out are:

--Providing more information in the Fed's post-meeting policy statements about how long Fed policymakers would continue to keep rates at record lows. For more than a year, the Fed has been pledging to hold rates at ultra-low levels for an "extended period."

-- Cutting to zero the interest the Fed pays for banks to keep money parked at the Fed. That rate is now 0.25 percent.

"The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do," Bernanke said. "The issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using each tool."

The Fed's strategy carries no guarantees. Short-term interest rates near zero have yet to rejuvenate the economy. The benefits of federal stimulus programs are fading, and Congress has declined to pass any major new economic aid. That is putting immense pressure on Bernanke to provide relief, and he has no easy options for fixing the economy.

The economy, which has been losing momentum all year, slowed to a near crawl in the second quarter.

At such a weak pace, the nation's 9.5 percent unemployment rate could climb and pass 10 percent later this year or early next year, some analysts say. With economic conditions worsening, there's the danger that consumers and businesses will turn even more cautious in their spending, causing the economy to stall, or worse, slip into reverse.

Debts Rise, and Go Unpaid, as Bust Erodes Home Equity

By DAVID STREITFELD

PHOENIX — During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.

The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

“When houses were doubling in value, mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats,” said Christopher A. Combs, a real estate lawyer here, where the problem is especially pronounced. “Their chances are pretty good of walking away and not having the bank collect.”

Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”

Utah Loan Servicing is a debt collector that buys home equity loans from lenders. Clark Terry, the chief executive, says he does not pay more than $500 for a loan, regardless of how big it is.

“Anything over $15,000 to $20,000 is not collectible,” Mr. Terry said. “Americans seem to believe that anything they can get away with is O.K.”

But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government. Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.

“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. His lender obtained a court order garnishing his wages, but that was 18 months ago. Mr. Schlegel, 38, has not heard from the lender since. “The case is sitting stagnant,” he said. “Maybe it will just go away.”

Mr. Schlegel’s tale is similar to many others who got caught up in the boom: He came to Arizona in 2003 and quickly accumulated three houses and some land. Each deal financed the next. “I was taught in real estate that you use your leverage to grow. I never dreamed the properties would go from $265,000 to $65,000.”

Apparently neither did one of his lenders, the Desert Schools Federal Credit Union, which gave him a home equity loan secured by, the contract states, the “security interest in your dwelling or other real property.”

Desert Schools, the largest credit union in Arizona, increased its allowance for loan losses of all types by 926 percent in the last two years. It declined to comment.

The amount of bad home equity loan business during the boom is incalculable and in retrospect inexplicable, housing experts say. Most of the debt is still on the books of the lenders, which include Bank of America, Citigroup and JPMorgan Chase.

“No one had ever seen a national real estate bubble,” said Keith Leggett, a senior economist with the American Bankers Association. “We would love to change history so more conservative underwriting practices were put in place.”

The delinquency rate on home equity loans was 4.12 percent in the first quarter, down slightly from the fourth quarter of 2009, when it was the highest in 26 years of such record keeping. Borrowers who default can expect damage to their creditworthiness and in some cases tax consequences.

Nevertheless, Mr. Leggett said, “more than a sliver” of the debt will never be repaid.

Eric Hairston plans to be among this group. During the boom, he bought as an investment a three-apartment property in Hoboken, N.J. At the peak, when the building was worth as much as $1.5 million, he took out a $190,000 home equity loan.

Mr. Hairston, who worked in the technology department of the investment bank Lehman Brothers, invested in a Northern California pizza catering company. When real estate cratered, Mr. Hairston went into default.

The building was sold this spring for $750,000. Only a small slice went to the home equity lender, which reserved the right to come after Mr. Hairston for the rest of what it was owed.

Mr. Hairston, who now works for the pizza company, has not heard again from his lender.

Since the lender made a bad loan, Mr. Hairston argues, a 10 percent settlement would be reasonable. “It’s not the homeowner’s fault that the value of the collateral drops,” he said.

Marc McCain, a Phoenix lawyer, has been retained by about 300 new clients in the last year, many of whom were planning to walk away from properties they could afford but wanted to be rid of — strategic defaulters. On top of their unpaid mortgage obligations, they had home equity loans of $50,000 to $150,000.

Fewer than 5 percent of these clients said they would continue paying their home equity loan no matter what. Ten percent intend to negotiate a short sale on their house, where the holders of the primary mortgage and the home equity loan agree to accept less than what they are owed. In such deals primary mortgage holders get paid first.

The other 85 percent said they would default and worry about the debt only if and when they were forced to, Mr. McCain said.

“People want to have some green pastures in front of them,” said Mr. McCain, who recently negotiated a couple’s $75,000 home equity debt into a $3,500 settlement. “It’s come to the point where morality is no longer an issue.”

Darin Bolton, a software engineer, defaulted on the loans for his house in a Chicago suburb last year because “we felt we were just tossing our money into a hole.” This spring, he moved into a rental a few blocks away.

“I’m kind of banking on there being too many of us for the lenders to pursue,” he said. “There is strength in numbers.”

John Collins Rudolf contributed reporting.

401(k) hardship withdrawals, loans up

In the wake of news about a spike in new applications for unemployment benefits comes another potentially troubling sign: A record number of workers made hardship withdrawals from their retirement accounts in the second quarter.

What's more, the number of workers borrowing from their accounts reached a 10-year high, according to a report issued Friday by Fidelity Investments.

The trends reflect the financial stress many workers find themselves in as the economy struggles to find sure footing, said Beth McHugh, Fidelity's vice president of marketing insight.

High unemployment and companies cutting back on overtime or overall hours have reduced the take-home pay of many workers.

"People tend to be taking home less," she said. "As a result the percentage of individuals initiating hardship distributions is one of the things we're concerned about."

Fidelity administers 17,000 plans, which represents 11 million participants. In the second quarter, some 62,000 workers initiated a hardship withdrawal. That's compared with 45,000 in the same period a year ago.

What's also eye-opening is that 45 percent of participants who took a hardship withdrawal a year ago, took another one this year, McHugh said.

To be eligible for a 401(k) hardship withdrawal, individuals must demonstrate an immediate and heavy financial need, according to IRS regulations. Certain medical expenses; costs relating to the purchase of a primary home; tuition and education expenses; payments to prevent eviction or foreclosure on a primary home; burial or funeral expenses; and repair of damage to a primary home meet the IRS definition and are permitted by most 401(k) plans.

A key concern is that these withdrawals are just that, they are not loans. As a result there can be a significant impact on someone's overall retirement savings. If the worker is younger than 59 1/2, they'll pay a 10 percent penalty for early withdrawal in addition to taxes.

The average age of the workers taking hardship withdrawals is between 35 and 55, their peak earning years. It's also often a time when competing financial challenges emerge, McHugh said.

Society Falling Apart

S. DeKalb home is one of 19 Ga. properties usurped by 'sovereign citizen' group

By Megan Matteucci

The Atlanta Journal-Constitution

8:48 a.m. Thursday, August 19, 2010

When a new family moved into the mansion on South Goddard Road in south DeKalb County, residents just assumed they were “city folks” too busy to meet neighbors.

Georgia Power and the water company came out, but 87-year-old Helen Goddard never saw the residents.

“We know everyone around here. But they were quiet, no knocking on the door to introduce themselves,” said Goddard, whose husband’s family has lived in the area for centuries and are the namesake for the road.

The only time Goddard saw her next-door neighbors was when they were being led off in handcuffs.

Prosecutors say the $1 million brick home next to the Goddards’ farmhouse is one of at least 19 properties that have been taken over by a sect of anti-government extremists involved in criminal behavior.

They call themselves “sovereign citizens” and believe they are immune to state and federal laws. They assert, among other things, that banks can’t own land and that any home owned by a bank – including the thousands throughout Georgia – is free for the taking.

Police and prosecutors take a different view. The FBI has listed them on the domestic terrorist list, saying their crime of choice is paper terrorism and attempting to disrupt the U.S. economy.

“Let’s not paint these people to be Robin Hood because they’re not giving to the poor,” DeKalb County Deputy Chief Assistant District Attorney John Melvin told The Atlanta Journal-Constitution. “They are taking.”

Prosecutors said the local sovereign citizens are consistent with other anarchist movements, filing lawsuits and liens on police, government officials and anyone who questions them.

They are all born in the U.S., but create their own drivers’ licenses, complete with seals for fictitious nations. Many of the suspects have multiple names and a history of not paying taxes.

“They don’t believe in the U.S. and our laws until they are arrested. Then they want a lawyer,” said Lt. Joe Fagan, commander of DeKalb Police’s North Precinct.

The FBI says the national movement has been around for decades and has ties to the Nuwaubians, a black supremacist group that started near Augusta. Nationally, sovereign citizens, which originated as a white supremacist group, have been connected to multiple insurance fraud and tax evasion scams, along with some violent crimes.

Locally, investigators have tied the sovereign citizens to at least 19 property thefts in DeKalb, Fulton, Gwinnett, Henry, Spalding, Newton and Richmond counties. They include mansions – some still under construction – and a shopping center in Buckhead valued at $13 million.

Police have charged six suspects – including Goddard’s two neighbors Linda and Gregory Ross – with violating the Racketeer Influenced and Corruption Organizations Act. Warrants have been issued for another five suspects.

Most of the properties are in foreclosure, but there also were some vacant homes for sale.

“It’s a different animal than squatters,” Melvin said. “They show bogus quitclaim deeds, call the locksmith and move in. For them, it’s that easy.”

DeKalb, which broke the case, is leading the prosecution for all of the counties, Melvin said. The grand jury is now reviewing the cases.

The investigation started in May when a real estate agent called DeKalb police to report that the locks were being changed on a $1 million home he was selling on Windsor Parkway in Atlanta.

“The locksmith rolled up and the sovereign citizen reported he was the owner,” Fagan said.

Jermaine Eric Gibson, 36, and Joseph Dion Lawler, 45, had created a phony quitclaim deed and moved into a foreclosed house, police said. They posted phony deeds in the window and used them to persuade utility workers to turn on the electricity and water.

“We raided the house and through our investigation we found the central location for their operations was a Lithonia mansion,” Melvin told the AJC.

Investigators began pulling the bogus deeds, which had been filed with the Superior Court clerks in each county. They quickly saw that many of the deeds listed the same contract address.

Channel 2 Action News also launched an investigation and linked those suspects to several other house thefts.

Investigators said the suspects had used fraudulent deeds to turn the properties over to themselves and then filed them with court clerks throughout north Georgia. On the majority of the deeds, the price is listed as 21 silver dollars, which is consistent with other sovereign citizen schemes nationwide, prosecutors said. On others, the price is listed at “zero dollars.”

The banks that owned the homes were unaware of the deed changes.

“The banks have so many of them [foreclosures] and it’s hard to keep track of them,” said John H. Moore, a real estate attorney in Cobb County.

Investigators talked to prosecutors and the county marshal’s office, who first reported the pattern of problem evictions: the so-called sovereign citizens refusing to leave, Melvin said.

In each case, the suspects had posted the fraudulent deeds in the window, hoping to deter the marshals.

Police said they have not noted any violence associated with these groups in the Atlanta area, but other self-proclaimed sovereign citizens have been charged with the shooting deaths of two police officers in Arkansas in May.

“We have definitely been concerned about officer safety. There is always that potential, but we’ve been prepared,” Fagan said.

Investigators recovered a gun from one of the stolen Atlanta area homes, Melvin said. They’ve also seized furniture, electronics and other personal belongings.

Remnants of those belongings remain scattered on the lawn outside the massive brick home on South Goddard, near Arabia Mountain State Park. Crime scene tape is still wrapped around a tree and tattered pieces of clothing litter the circular driveway in front of the four-car garage.

Other than those few items, an eviction notice from the DeKalb Marshal’s Office posted in the window is all that remains from the sovereign citizens.

Helen Goddard worries that the longer the house sits vacant, the more it will affect neighborhood property values and their safety.

The vacant house was initially valued at almost $1 million, but was listed at $339,000 after going into foreclosure, according to property records.

An attorney for Linda Ross, one of Goddard’s two neighbors, said she was a victim of a sovereign citizen scam and unaware of her husband’s activities.

“They convinced them they could move in by paying silver dollars instead of the full price,” attorney Tom Ford told the AJC. “Linda is a nurse with seven children. She has not signed a quitclaim deed. She was in the wrong place at the wrong time and gets wrapped up in this arrest.”

Linda Ross has since been released on a $50,000 bond while her husband remains in jail.

Court records show Gibson filed a petition in April with the DeKalb court clerk to change his name. “I am a sovereign Hebrew Israelite/Moor. I am changing my name to reclaim my freedom,” he wrote.

He also filed an “affidavit of truth” in Fulton, claiming he is a “natural, freeborn sovereign without subjects.”

Corey Bernard Freeman, 41, filed a similar affidavit last month in Gwinnett, saying he is a “common man of the sovereign people” and doesn’t have to follow any laws. Freeman is charged with deeding a house to himself in DeKalb and one in Henry County.

Police encourage residents to be “nosy neighbors” and monitor foreclosures in their neighborhoods.

Prosecutors said they plan to ask legislators to toughen laws for filing quitclaim deeds, an affidavit that transfers a piece of property from owner to another.

Anyone can type up a quitclaim deed, have it notarized and file it with the local clerk of court. All that is required to file the deed is a small fee and a valid driver’s license, said Minnie Rucker, of the DeKalb Superior Court clerk’s real estate division.

“What we look for are signatures for the grantor and grantee, a transfer note and notary,” she said. “We don’t really police the documents.”

That’s why prosecutors hope to crack down on the scheme before it becomes a bigger problem.

“It’s an economic threat,” Melvin said. “At the end of the day, these people are in these homes illegally. They cause damage to the properties and are raising the tax burden on everyone.”

Find this article at:

http://www.ajc.com/news/dekalb/da-paper-terrorists-stealing-595202.html

Oil Remains in Gulf of Mexico

WASHINGTON (AP) -- A 22-mile-long invisible mist of oil is meandering far below the surface of the Gulf of Mexico, where it will probably loiter for months or more, scientists reported Thursday in the first conclusive evidence of an underwater plume from the BP spill.

The most worrisome part is the slow pace at which the oil is breaking down in the cold, 40-degree water, making it a long-lasting but unseen threat to vulnerable marine life, experts said.

Earlier this month, top federal officials declared the oil in the spill was mostly "gone," and it is gone in the sense you can't see it. But the chemical ingredients of the oil persist more than a half-mile beneath the surface, researchers found.

And the oil is degrading at one-tenth the pace at which it breaks down at the surface. That means "the plumes could stick around for quite a while," said study co-author Ben Van Mooy of the Woods Hole Oceanographic Institution in Massachusetts, which led the research published online in the journal Science.

Monty Graham, a scientist at the Dauphin Island Sea Lab in Alabama who was not involved in the study, said: "We absolutely should be concerned that this material is drifting around for who knows how long. They say months in the (research) paper, but more likely we'll be able to track this stuff for years."

The underwater oil was measured close to BP's blown-out well, which is about 40 miles off the Louisiana coast. The plume started three miles from the well and extended more than 20 miles to the southwest. The oil droplets are odorless and too small to be seen by the human eye. If you swam through the plume, you wouldn't notice it.

"The water samples when we were right in the plume look like spring water," study chief author Richard Camilli said. "You certainly didn't see any oil droplets and you certainly didn't smell it."

The scientists used complex instruments -- including a special underwater mass spectrometer -- to detect the chemical signature of the oil that spewed from the BP well after it ruptured April 20. The equipment was carried into the deep by submersible devices.

With more than 57,000 of these measurements, the scientists mapped a huge plume in late June when the well was still leaking. The components of oil were detected in a flow that measured more than a mile wide and more than 650 feet from top to bottom.

Federal officials said there are signs that the plume has started to break into smaller ones since the Woods Hole research cruise ended. But scientists said that wouldn't lessen the overall harm from the oil.

The oil is at depths of 3,000 to 4,000 feet, far below the environment of the most popular Gulf fish like red snapper, tuna and mackerel. But it is not harmless. These depths are where small fish and crustaceans live. And one of the biggest migrations on Earth involves small fish that go from deep water to more shallow areas, taking nutrients from the ocean depths up to the large fish and mammals.

Those smaller creatures could be harmed by going through the oil, said Larry McKinney, director of Texas A&M University's Gulf of Mexico research center in Corpus Christi.

Some aspects of that region are so little known that "we might lose species that we don't know now exist," said Graham of the Dauphin Island lab.

"This is a highly sensitive ecosystem," agreed Steve Murawski, chief fisheries scientist for the National Oceanic and Atmospheric Administration. "The animals down at 3,300 to 3,400 feet grow slowly." The oil not only has toxic components but could cause genetic problems even at low concentrations, he said.

For much of the summer, the mere existence of underwater plumes of oil was the subject of a debate that at times pitted outside scientists against federal officials who downplayed the idea of plumes of trapped oil. Now federal officials say as much as 42 million gallons of oil may be lurking below the surface in amounts that are much smaller than the width of a human hair.

While federal officials prefer to describe the lurking oil as "an ephemeral cloud," the Woods Hole scientists use the word "plume" repeatedly.

The study conclusively shows that a plume exists, that it came from the BP well and that it probably never got close to the surface of the Gulf of Mexico, Camilli said. It is probably even larger than 22 miles long, but scientists had to stop measuring because of Hurricane Alex.

Earlier this week a University of South Florida team reported oil in amounts that were toxic to critical plant plankton deep underwater, but the crude was not necessarily in plumes. Those findings have not been reviewed by other scientists or published.

The plume is probably still around, but moving west-southwest of the BP well site at about 4 miles a day, Camilli said.

While praising the study that ended on June 28, Murawski said more recent observations show that the cloud of oil has "broken apart into a bunch of very small features, some them much farther away." Texas A&M's McKinney said marine life can suffer harm whether it is several smaller plumes or one giant one.

NOAA redirected much of its sampling for underwater oil after consulting with Woods Hole researchers. The federal agency is now using the techniques that the team pioneered with a robotic sub and an underwater mass spectrometer, Murawski said.

Previous attempts to define the plume were "like watching the Super Bowl on a 12-inch black-and-white TV and we try to bring to the table a 36-inch HD TV," said Woods Hole scientist Chris Reddy. The paper, fast-tracked for the world of peer-reviewed science, was written on a boat while still in the Gulf, he said.

Reddy said he could not yet explain why the underwater plume formed at that depth. But other experts point to three factors: cold water, the way the oil spewed from the broken well, and the use of massive amounts of dispersants to break up the oil before it gets to the surface.

The decision to use 1.8 million gallons of dispersants amounted to an environmental trade-off -- it meant less oil tainting the surface, where there is noticeable and productive life, but the risk of longer-term problems down below.

At a federal science conference, officials looked at the relative risks and decided "it was worth the effort" to use dispersants, Murawski said.

Given the slow rate at which the oil is degrading in the cold water, Samantha Joye of the University of Georgia, and others say it is too early to even think about closing the books on the spill: "The full environmental impacts of the spill will thus not be felt for some time."

USF says government tried to squelch their oil plume findings

A month after the Deepwater Horizon disaster began, scientists from the University of South Florida made a startling announcement. They had found signs that the oil spewing from the well had formed a 6-mile-wide plume snaking along in the deepest recesses of the gulf.

The reaction that USF announcement received from the Coast Guard and the National Oceanic and Atmospheric Administration, the federal agencies that sponsored their research:

Shut up.

"I got lambasted by the Coast Guard and NOAA when we said there was undersea oil," USF marine sciences dean William Hogarth said. Some officials even told him to retract USF's public announcement, he said, comparing it to being "beat up" by federal officials.

The USF scientists weren't alone. Vernon Asper, an oceanographer at the University of Southern Mississippi, was part of a similar effort that met with a similar reaction. "We expected that NOAA would be pleased because we found something very, very interesting," Asper said. "NOAA instead responded by trying to discredit us. It was just a shock to us."

NOAA Administrator Jane Lubchenco, in comments she made to reporters in May, expressed strong skepticism about the existence of undersea oil plumes — as did BP's then-CEO, Tony Hayward.

"She basically called us inept idiots," Asper said. "We took that very personally."

Lubchenco confirmed Monday that her agency told USF and other academic institutions involved in the study of undersea plumes that they should hold off talking so openly about it. "What we asked for, was for people to stop speculating before they had a chance to analyze what they were finding," Lubchenco said. "We think that's in everybody's interest. … We just wanted to try to make sure that we knew something before we speculated about it."

"We had solid evidence, rock solid," Asper said. "We weren't speculating." If he had to do it over again, he said, he'd do it all exactly the same way, despite Lubchenco's ire.

Coast Guard officials did not respond to a request for comment on Hogarth's accusation.

The discovery of multiple undersea plumes of oil droplets was eventually verified by one of NOAA's own research vessels. And last month USF scientists announced they at last could match the oil droplets in the undersea plumes to the millions of barrels of oil that gushed from the collapsed well until it was capped July 15.

"What we have learned completely changes the idea of what an oil spill is," USF scientist David Hollander said then. "It has gone from a two-dimensional disaster to a three-dimensional catastrophe."

Now Lubchenco is not only convinced the undersea plumes exist, but she is predicting that some of the spill's most significant impacts will be caused by their effect on juvenile sea creatures such as bluefin tuna. Lubchenco and her staff say they are now working smoothly with USF and other academic institutions in investigating the consequences of the largest marine oil spill in history.

However, Hogarth said, not all is hunky-dory.

USF's first NOAA-sponsored voyage to take samples after Deepwater Horizon, the one that turned up evidence of the undersea plumes, was designed to gather evidence for use in an eventual court case against BP and other oil companies involved in the disaster. At the end of the voyage, USF turned its samples over to NOAA, expecting to get either a shared analysis or the samples themselves back. So far, Hogarth said, they've received neither.

NOAA's top oil spill scientist, Steve Murawski, said Monday that he was "sure we will release the data" at some point. However, he said, because NOAA has collected so many samples over the past three months, when it comes to the samples from USF's trip in May, "I'm not sure where they are."

Lubchenco's agency came under fire last week for a new report that said "the vast majority" of the oil from Deepwater Horizon had been taken care of. Scientists who read the report closely said it actually said half the oil was still unaccounted for.

Lubchenco said anyone who read the report as saying the oil was gone read it wrong.

"Out of sight and diluted does not mean benign," she said.

Copyright 2010 St. Petersburg Times