US homeowners face foreclosures
Al Jazeera English
Transcript
the seeds of that credit crunch that has set off the US market sell-off lie in a huge wave of lowest mortgage loans that have gone bad Tom acrian has the story of one homeowner facing foreclosure after learning that her mortgage contained a financial Time Bomb it's the first home that Anna aretta has ever owned the Immigrant from El Salvador shares it with her daughter son-in-law and grandchild a house that embodies the American dream but a dream that likely will soon evaporate getting a mortgage she says was easy though her income from cleaning offices is modest I didn't have to pay a single scent of down payment and the monthly payments were affordable until suddenly she learned that the adjustable rate mortgage will cost an extra $3,500 a year someone explained mortgage but they didn't let me know about that point they told me I qualified but if I had known that I would have never taken out the loan Anna who speaks little English blames the mortgage broker for making her think the monthly payments for the 30-year mortgage would never go up what they did to me was very bad they tried to make it look like they were helping me but now I could be out on the street they deserve to be punished but Anna says that agent has now disappeared in the month to come hundreds of thousands more American families will see their mortgage rat soore leaving many with no choice but to give up the most valuable asset they've ever owned Tom aurman Al jazer Hyattsville Maryland
Dow Drops 265 Points at Opening Bell
Associated Press
Transcript
The Dow Jones Industrial Average just keeps falling. Stocks on Wall Street opened lower again on Wednesday. This time dropping nearly 265 points soon after the opening bell. The Dow was able to recover some of the losses by midm morning, but it was still down by a little less than 1%. The drop is being propelled by investors fear over the health of the economy. And disappointing results from Apple and Motorola are fueling concerns that the emergency 3/4 point rate cut by the Fed on Tuesday will do little to fix what's wrong. That cut helped the Dow rebound from a 465 point drop Tuesday morning to end the day down 128 points. Markets in Europe continue to drop in tandem with US markets as companies worldwide downgrade their forecasts for the foreseeable future. However, Asian stocks were able to rebound from their lows and actually closed higher on Tuesday. Diane Keley, the Associated Press.
Business advice from Davos
CNN
Transcript
When we see what took place yesterday, with the market turmoil and then the Fed reacts, how do companies react themselves to what is taking place? Well, obviously, all the companies, I think, have to look at 2008 as going to be a challenging year. No matter what happens, there's a lot of uncertainty. They've got to be thinking about where they go from here. But the fact is, the fundamental laws of business haven't changed. They might be using a little bit different playbook, different plays out of the playbook this year. But are they going to start using plays out of the playbook that they don't know yet or that they haven't worked out? Or are they going to have to rewrite the rules while they're doing it? One of the things that's really critical is that they understand where they are today, relative to their competition, where they stand with their customers, and think about how they build on that. We've done a lot of research over the years, both good times and bad, about what companies should be doing. What should they be doing? Well, what they've got to do is they've got to go back to the fundamentals. They've got to understand that there are some basic laws of business. Well, what are they? Come on! Okay. The basic laws of business, which actually will be found in a book that we've got coming out that highlights our research called The Breakthrough Imperative. But we've really found that you can boil it all down to four fundamental laws of business, which capture most of what... what goes on. Keep in mind that most chief executives have very little time to prove themselves. So they've got to know these things. The first law is cost and price is always decline. Right. This is going to be particularly true as the economy slows down. When you say... I know you've got another three to get to, but we might not have time for that. But let's talk about... You say chief executives have little time. What do you believe is the window of chief executives to prove themselves? They have at most two to three years. Now, isn't that in itself an individual? It's an indictment of the markets that a chief executive of a large company has two to three years to turn around an oil tanker. Well, there's a huge amount of pressure on them. And so you've got to do it. You've got to figure out how to do it. And 40% of them are gone within the first two years. There are so many... There are so many chief executives that are new or relatively young. I believe you call them the rookie CEOs. What's the number one rule for a rookie CEO? The number one rule is you've got to figure out what your point of departure is. If you don't know where you stand, you'll never get to where you want to go. Your point of departure? The point of departure. It's time for you to depart from our airways. We thank you very much indeed. But before you do depart, I do need to ask you, where do you want to go on our board and our chart this morning? Are you in the slowdown category or the recession category? I've certainly been in the hoping for the best. I've been hoping for a slowdown, but over the last week or so, I think the psychology has shifted enough that I'm in the recession category. So you're happy to go into the recession? Well, not happy to, but you know what I mean. The number one guest this morning goes down as a recession.
Flynn on market turmoil
CNN
Transcript
This is our chart, of course, where all our guests on today, we are finding out, are they in the slowdown section? Only the chief executive of VTB Bank seems to be wanting to say it's a slowdown. Everybody else seems to think it's a recession that's out there in the United States. Let's start our next interview with Tim Flynn, the chairman of KPMG. KPMG. Let's start with you, Tim. Which column are you in? The slowdown in the U.S. or recession? We're trying to probably be in the recession column. Right. Another one for recession. This is particularly interesting, Tim, because you are chairing a panel here in Davos that is all about managing a slowdown. Should we fear slowdowns? Should we? I think slowdowns over time have had benefits. If you look at companies trying to... to retrench, to rebuild, to improve the risk architecture, become more efficient. So slowdowns have been a natural part of the economy for a long time. Except there's an entire generation of people out there that believes that a slowdown or a recession is not part of the economic cycle, because they've never really experienced a bad one. Well, that's an interesting point. If you go back 20 years ago, there are 27 countries around the world, 27, that had GDP growth of 4% or more. Today, 2007, 120 countries. So you're right, many countries around the world are growing rapidly, expansion, and have not had or experienced a slowdown. When we look at the consulting group, people like KPMG, you have the really tricky task of auditing these really difficult instruments in the market that your clients have. How difficult is it proving to be? It's proving to be difficult. I mean, we're working with management, and we're working with the audit committee, and we're working with the management team, and we're working with the audit committee, and we're working with the audit committee, we're bringing specialists on valuations, complex financial instruments, looking at how to get the right marks for those instruments, looking at the risk and controls around those instruments. But there's no question, Richard, in today's environment, the volatility brought about by the liquidity crisis in the spring and how this rippled through portfolios, rippled through companies, rippled through investors, had a big impact, and we're looking diligently to make sure we get the valuations right and integrity in the financial statements. Are you basically having to say in many cases, and I'm simplifying what is a really complex issue, are you basically having to say, whoa, no, you've got to be rigorous, you've got to be harder, and we don't think those assets are going to be anything like what you think they will be or could be like? In today's world, we're not back in the late 90s, 2000s. Today, I believe companies, audit committees, and auditors have an aligned interest to get it right, you know, focused on that. And together, we're making the right decisions. Together, we're making sure we ask the tough questions and get the right answers. So it has been a difficult process for all the constituencies, audit committees, management, and the auditors, but we're getting to the right answers and working diligently to make that happen. Do you believe there's much more nasties out there or not? I mean, this is what everybody wants to know. Never mind the Fed cutting three-quarters of one percentage point. If there's really nasty things still waiting out there in balance sheets, that's not going to make much difference. I believe that there's still more to come. I mean, we're in a market-based world. We're in a market-based economy. We're looking at fair value accounting and marking instruments to the market. And that can be brutal. There can be swings in that process. And as we have to look to see what is the opportunity for these investments to be sold and at what price. We have a mismatch of liquidity that's driving certain sales of investments and at what price. And that price will be what they'll be put forth in the financial statements under fair value accounting. So the market's going to dictate what's going to happen. But you have to make sure that that price is going to be put forth. And you have to make sure that that price is the right price in the right balance sheet for investors. Absolutely.
Gearing up at Davos
CNN
Transcript
It's a quaint ski resort in the Alps. The snow is falling and skiers shuffle out of the train at Davos Platz station. But the panic on world markets and fears of a real economic meltdown are reverberating all the way to this small Swiss town. Because this is the site of the annual World Economic Forum, where central bank governors and CEOs gather to talk about world growth. An early arrival, this American CEO says it'll be hard to get away from talk of a recession here. I think there'll be a big challenge to keep the focus on what the themes were originally with all this global market turmoil. The Davos Forum doesn't officially start until tomorrow. Big names like Condoleezza Rice, World Bank head Robert Zoellick, Tony Blair and Matt and many others will fill these rooms. There are last minute preparations. Arranging glasses for the VIPs and laying flooring for the panel discussions. But already the buzz in the hallways is about how we got here. And whether the Federal Reserve's aggressive three quarter point rate cut will be enough to stop a meltdown. The fact that people were borrowing in order to spend and the savings ratio, the amount, the rate at which people were saving dropped to a record low, was basically at zero percent. It meant that people were living on borrowed time. And now, unfortunately, that's coming back to haunt them. The curtain is rising. In the next few days, the world will look to its most powerful decision makers for answers. Hala Ghorani, CNN, Davos, Switzerland.
Market woes to go worldwide
CNN
Transcript
What have the credit markets been doing to help the economy? Maybe not all parts of the world, and the equity markets now have followed suit. But the big question is, isn't it, how far is it going to spread and in what measure, doesn't it? Would you bet, for example, on a recession in the UK? Would you bet against a recession in continental Europe? I think at the moment it's too early to say that we're going to have a recession in either the UK or continental Europe. Precisely, there's quite a lot of momentum in the economies yet, but there is a big risk. And the risk is that what we see in financial markets and in banks, so we see they're in trouble if they stop lending, and that then brings the economy into more trouble. That means that people start defaulting on their loans and you get a bit of a vicious circle. That's a real risk for all advanced economies at the moment. And if that transpires, and we won't know for about six months or so whether it is going to transpire, but if it does, it could be pretty ugly. Would it be your bet, Chris, that what the Fed has done today will head off that risk, will break that spiral? I don't think what the Fed's done today will necessarily break the spiral, because if it is that serious, if we're going to get a feedback from banks to the real economy and back to banks again, that's very hard to head off. And we'll see more action, I'm sure, both from the Fed and from central government in the US with more pumps of taxpayers' money, basically, into the economy. There seems to be a received wisdom, and some would describe it as a received complacency, that now that the Indias and the Chinas contribute so enormously to global growth, and given that those economies... are chugging ahead so well, they will, if you like, lift the rest of the world economy, they will be the engines that will replace the United States as the locomotive of growth in 2008. Is that true, or do you think that China and India will take such a hit, potentially, that they won't be able to do that? Well, it's certainly possible, because if China and India's domestic economy, if their domestic consumers start spending money, so exports isn't the big driver of those economies, they can pull the rest of the world forward. But that's not necessarily great news entirely for America, UK and Europe, because if they do push ahead very fast, then we can expect commodity prices, oil prices to remain very high. So we'll get a bit of sort of stagflation in the rich world. We might have slowing economies, but without the consequent slowing in inflation, and that will be very difficult to deal with.
U.S. markets in turmoil
CNN
Transcript
This was a bad day, not only in the U.S., but also in many foreign markets. Yesterday, of course, was worse than most foreign markets. Today, the U.S. sort of caught up with that deterioration. Let's pick over what Henry Poulsen, the Treasury Secretary, said as we heard him just there. He said our long-term economic fundamentals are healthy. He also went on today, Bob, to say that the Fed, with their three-quarter percentage point rate cut earlier on in the day, had been nimble and had reacted quickly to the state of play. Do you agree that the fundamentals are healthy? And do you agree that the Fed reacted as quickly as they should have done? Well, I think some of the fundamentals are healthy. Corporate balance sheets are in good shape. Exports are doing well. But don't forget, a lot of the growth that we've had over the last three to four years has been based on... on the accumulation of debt. Many people borrowing against the value of their homes, extracting equity from their homes. I don't think a particularly healthy recovery is one that is based so much on the accumulation of debt. And now we're paying the price. People who borrowed for their homes, in some cases, are suffering. And then a lot of debt was incurred in some of these large corporate buyouts. And that has still to be worked out. So I don't think... I don't think the fundamentals are quite that healthy because the debt incurred has been so enormous. And we're going to have to work a lot of these excesses out of the economy. That's going to take time. And the Fed, and so far as the Fed's concerned, I think they probably could have been... They were nimble, all right. But I do think that they were, for a period of time, not now, but a little while ago, a little bit behind. They did not anticipate this kind of spillover that we've seen. Bob, I want to talk... Bob, I want to talk to you about what you hope to hear from those who are gathered here for the next three or four days at the World Economic Forum. But first, 128-point drop on the Dow. We're only hours away from the opening of these Asian markets. Now, they've had a terrible time of it over the last couple of sessions. What's your guess about what will happen when these Asian markets open for trade on Wednesday? Well, guessing where the market's going in this environment, is hazardous duty. My guess is, however, that the lowering of the Fed rates, the Fed funds rate, and the discount rate so substantially will give them a boost. I think they would like to see what's going to happen on fiscal policy. And that is the White House and the Congress are trying to figure out what kind of fiscal stimulus will be injected in the economy. If that goes along with the Fed cuts, I think the markets will be encouraged. But this is not over. There are still a number of other problems that have to be worked out. And I think we're going to see a bumpy road. Progress has been made. More progress will be made. The Fed's probably going to cut more. There will be fiscal stimulus. But a lot of the overhang in the housing market and a lot of the excess debt that's running around our markets and around the world market still has to be worked out. So there are going to be still some bumps in the road, although government, I think, is moving in the right direction. In another economic space, you might have seen Henry Paulson up. He's at the top of this mountain at the World Economic Forum this week. There's a lot of other finance ministers here. But he is the chief negotiator, of course, for the White House in trying to push some sort of stimulus package through Congress. I know we're seeing a lot of help at this point, certainly not seeing the sort of partisan shit that we might normally see from the Democrats and the Republicans. We're looking at about $140 billion at this point. Is that enough, Bob? I don't know that it's enough. I think it's a pretty hefty... But there are a lot of questions. First of all, we know what happened after 9-11. There was a $38 billion rebate, in effect, with checks being printed to that degree. And about half of it was spent in the first two quarters after that. So this time, a lot of people are in debt. They may not use a large portion of this to buy things. They may use a lot of it to pay off their debts or save it because they're concerned about the weakness of the economy. And some of the things they buy won't be made. In the U.S., they'll be made in China or other parts of the world. So it remains to be seen how much of an impetus this is going to give growth. I think it will help, but I'm not sure that it is going to provide a decisive margin. But they certainly ought to do it because there are not many things that can be done. And this is certainly one that can be done. And it's helpful, but the magnitude of the help really remains to be seen.