Finance Blog number 1

The government on Friday sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.

Among those targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. Large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued.

The lawsuits were filed by the Federal Housing Finance Agency. It oversees Fannie and Freddie, the two agencies that buy mortgages loans and mortgage securities issued by the lenders.

The total price tag for the mortgage-backed securities sold to Fannie and Freddie by the firms named in the lawsuits: $196 billion.

The government didn’t say how much it is seeking in damages. It said it wants to have the securities sales canceled and wants to be compensated for lost principal, interest payments as well as for attorney fees.

The government action is a big blow to the banks, many of which have seen their stock prices fall to levels not seen since the financial crisis in 2008 and 2009. Until now, the stocks have been undermined mostly by unrelated worries about the U.S. and European economies.

It is particularly damaging to Bank of America, which bought Countrywide Financial Corp. in 2008 and Merrill Lynch in 2009. All three are being separately sued by the government for mortgage-backed security sales totaling $57.5 billion.

After Bank of America, JPMorgan Chase was listed in the lawsuits with the second-highest total at $33 billion. Royal Bank of Scotland followed at $30.4 billion.

Bank of America has already paid $12.7 billion this year to settle similar claims. Last month insurer American International Group Inc. sued the bank for more than $10 billion for allegedly selling it faulty mortgage investments.

In a statement Friday, Bank of America rejected the claims in the government’s lawsuits.

Fannie and Freddie invested heavily in the mortgage-backed securities even after their regulator said they didn’t have the needed risk-management capabilities, the bank said. “Despite this, (Fannie and Freddie) are now seeking to hold other market participants responsible for their losses,” it said.

Bank stocks fell sharply on Friday as news of the government’s lawsuits emerged. Bank of America tumbled 8.3 percent, JP Morgan Chase fell 4.6 percent, Citigroup lost 5.3 percent, Goldman shed off 4.5 percent and Morgan Stanley’s ended down 5.7 percent.

Residential mortgage-backed securities bundled pools of mortgages into complex investments. They collapsed after the real-estate bust and helped fuel the financial crisis in late 2008.

The FHFA said the mortgage-backed securities were sold to Fannie and Freddie based on documents that “contained misstatements and omissions of material facts concerning the quality of the underlying mortgage loans, the creditworthiness of the borrowers, and the practices used to originate such loans.”

The FHFA filed a similar lawsuit in July against Swiss bank UBS AG, seeking to recoup more than $900 million in losses from mortgage-backed securities.

Also sued Friday were are Ally Financial Inc., formerly known GMAC LLC, Deutsche Bank AG, First Horizon National Corp., General Electric Co., HSBC North America Holdings Inc., Morgan Stanley, Nomura Holding America Inc., and Societe Generale.

JPMorgan, Goldman, Citigroup and Morgan Stanley declined to comment on the lawsuits. Ally Financial said in a statement said the government’s “claims are meritless, and the company intends to defend its position aggressively.” A spokeswoman for First Horizon said the bank intends to “vigorously defend” itself.

Ken Thomas, a Miami-based banking consultant and economist, said he expects the banks to settle soon with the government.

“This will be nothing but a distraction to them and the quicker you settle something like this the better,” he said.

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Counties across the United States are discovering that illegal or questionable mortgage paperwork is far more widespread than first thought, tainting the deeds of tens of thousands of homes dating to the late 1990s.

The suspect documents could create legal trouble for homeowners for years.

Already, mortgage papers are being invalidated by courts, insurers are hesitant to write policies and judges are blocking banks from foreclosing on houses. The findings by various county registers of deeds have also hindered a settlement between the 50 state’s attorneys general investigating big banks and other lenders over controversial mortgage practices.

The problem of shoddy mortgage paperwork, which comprises several shortcuts known collectively as “robo-signing,” led the nation’s largest banks, including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and others to temporarily halt foreclosures nationwide in the fall of 2010.

Widespread robo-signing that stretches back a decade or more could create problems for homeowners. Regulators have so far not asked lenders to clean up the potentially millions of suspect documents filed in the past decade or earlier. That troubles some banking experts, including Sheila Bair, who until early July was chairwoman of the Federal Deposit Insurance Corp.

“We do not yet really know the full extent of the problem,” Bair said in written remarks to the Senate Banking Committee. She and others have called for a comprehensive study.

If documents with robo-signed signatures are challenged in court, judges could question the ownership of the properties, says Katherine Porter, a professor at the University of California-Irvine School of Law. The consequences extend to homeowners in good standing when they try to sell.

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What to do?

The stock market has proved again that it’s capable of making vicious attacks on your money. But just when you think all is lost, the market also can transform into its gentler self.

The past few weeks have been enough to make you crazy, especially if you are among the great majority of people who don’t follow the stock market day in and day out and imagine, incorrectly, that someone actually knows what’s going to happen.

Let’s start there. If you have been following the news, you know that there is talk again of a possible recession, and there are worries that debt problems in Europe could cause problems in banks pay day loans.

Notable economist Martin Feldstein said there is a 2-1 chance of a recession within the next 12 months. Goldman Sachs says there’s only a 1-in-3 chance. So don’t trust anyone who claims they know. Crystal balls are foggy. But here’s what you can do to insulate yourself from trouble and still build the future you want:

Protect the money you will need soon

Ontario

Asian stock markets fell Monday after U.S. political leaders failed to reach a deal to raise Washington’s debt limit that is crucial to avoiding an impending default.

Oil prices fell below $99 a barrel amid investor concern that the lack of a debt agreement could damage the world’s biggest economy and reduce demand for crude.

Japan’s Nikkei 225 was off 0.8 percent at 10,053.2 points and China’s Shanghai Composite Index slid 2.1 percent to 2,711.37. Hong Kong’s Hang Seng Index lost 0.8 percent to 22,268.28.

Elsewhere, South Korea’s Kospi lost 0.8 percent to 2,152.74 and Australia’s S&P/ASX 200 dropped 1.4 percent to 4,538.50.

“The only thing you can be assured of over the coming hours and days is volatility as the political posturing continues in the U.S.,” said Ben Potter, market strategist for IG Markets, in a report.

U.S. leaders had hoped to strike a deal Sunday to reassure investors. President Barack Obama has insisted on raising revenues, mainly through letting tax cuts for wealthier Americans expire, but Republicans want more spending cuts and have rejected higher taxes.

A default would mean the U.S. government could not pay all its bills starting next month, including interest and principal on Treasury bonds. That would cause shockwaves through the global economy and financial markets.

Many analysts expect U.S. leaders to reach a last-minute deal to raise the government’s $14.3 trillion borrowing limit before an Aug. 2 deadline. But markets are watching anxiously for what tax or spending changes might be part of the settlement.

In China, market heavyweight PetroChina Ltd., Asia’s biggest oil and gas producer, and the country’s biggest commercial lender, Industrial & Commercial Bank of China Ltd., both were off 0.8 percent.

Chinese railway shares fell after this weekend’s deadly bullet train crash in southeastern China. China South Locomotive and Rolling Stock Corp. declined 8.6 percent and China Railway Group was off 7 percent.

The dollar was little changed at 78.45 yen, up slightly from Friday’s 78.43. The euro also was largely unchanged at $1.4366.

Benchmark oil for September delivery was down $1 to $98.87 a barrel in electronic trading on the New York Mercantile Exchange. Crude rose 74 cents to settle at $99.87 on Friday.

In London, Brent crude slid 97 cents to $117.70 per barrel on the ICE Futures exchange.

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When disasters strike, scam artists and opportunists often come out in full force instant payday loan lenders.

It’s an unfortunate combination

A published report says that the telephone numbers of relatives of dead military personnel have been found in files amassed by a detective employed by a Sunday tabloid newspaper.

The Daily Telegraph’s report in Thursday’s edition could not be independently verified, and the newspaper did not identify the source of its information. There was no indication whether any of those telephones had been hacked.

The BBC reported that relatives of some soldiers say they have not been contacted by police, but that a newspaper had asked them about possible hacking absolutely free credit score.

The News of the World, the newspaper which is the focus of a criminal investigation, issued a statement saying it would be “absolutely appalled and horrified” if there was any truth in the allegation.

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Politicians in Spain’s northeastern Catalonia region used police helicopters to get to the regional parliament to avoid some 2,000 demonstrators protesters who tried to blockade the building Wednesday to protest planned budget cuts in education and health.

A police spokeswoman said the situation was tense as the deputies arrived at Ciutadella park in central Barcelona. Regional President Artur Mas was among at least 10 politicians who arrived by helicopter.

Scuffles broke out as police pushed protesters back so the deputies who arrived on foot could get in.

The politicians were heckled and at least two were sprayed with paint, the spokeswoman said, speaking on condition of anonymity in keeping with police rules.

The spokeswoman said there were no immediate reports of injuries but Spanish daily El Pais cited unnamed medical sources saying 23 people were treated for injuries.

Some 400 police packed the Ciutadella park to ensure protesters could not enter by climbing over the railings. Outside, a riot police vans stood guard at the main park entrance.

“I think it is important to be here protesting against the spending cuts, because to cut social spending with the excuse of the crisis is a big farce,” said protester Mariela Pita.

After the politicians entered the parliament, hundreds of protestor left the area but were expected to return later in the day for when the politicians leave the building credit reports free.

The demonstration was part of nationwide protests over the past month by young and unemployed people angry at the country’s handling of the economic crisis. The highlight of the movement was a near month-long, round-the-clock makeshift protest camp in Madrid’s Puerta del Sol plaza.

The vast majority of the protests have been peaceful.

The Barcelona protest was criticized by politicians across the country.

“Aggressions and insults against politicians are aggressions and insults against the people’s representatives,” said Ramon Jauregui, spokesman for the Spanish central government.

“I can accept the protest by 2,000 people but I would remind those 2,000 people that 3.2 million people voted those deputies that were hassled,” he said.

But Gaspar Llamazares of the United Left coalition said the protests represented a “social fracture” in Spain, where the economic crisis has left close to 5 million people unemployed.

Last week hundreds of protesters gathered outside the national parliament in Madrid to demonstrate against labor reforms.

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Associated Press Writer Ciaran Giles contributed to this report from Madrid

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As farmers in the Bootheel wait to hear if the Army Corps of Engineers will blow holes in the Birds Point levee, a move that would flood nearly 140,000 acres of farm land, farmers in the rest of the state are staring down water-related problems of their own.

A rainy April has meant that farmers haven’t been able to plant corn, and even if the weather remains dry and sunny, it could be at least a week before they can get into their fields.

“You can drive through the state and not see a tractor moving, which is unheard of,” said Blake Hurst, head of the Missouri Farm Bureau. “The whole state is shut down.”

Farmers were able to plant some corn in early April but will likely have to replant most of it. Some also applied chemicals, which could be washed away with all the rain. With seed and fertilizer prices high, that could mean farmers are watching profits wash away, too.

“We’ve got a few acres planted already. Not sure if we’ll have to replant,” said Craig Boschert, who farms 1,000 acres of corn and soybeans near Portage des Sioux, which is north of Florissant along the Mississippi River. “You sure don’t want to waste it. Corn’s pretty pricey right now. It’s not very often you spend three weeks without turning a wheel. That’s pretty rare.”

A late corn planting could eat into profits.

“If things get too late, that lowers the yield possibility,” said Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri-Columbia. “You just don’t have the same yield potential, and then you risk frost damage in the fall.”

With corn fetching near record high prices, some farmers are feeling especially frustrated.

“I got my anhydrous (ammonia) and fertilizer on April 12. I got three days in, but it’s been wet and rainy and cold since then,” said Brent Hoerr, who farms corn and soybeans north of Hannibal. “I’ll probably have to replant.”

Some farmers could forgo corn planting altogether and switch to soybeans, which are planted later in the season.

“Agronomists say that planting after, say, 10th or 12th of May, you start losing yield,” said Gene Danekas, of the Missouri Field Office of the National Agricultural Statistics Service.

“Normally, earlier planted corn seems to do better, but if they can get most of the corn in in the next three weeks, we’ll be in reasonable shape. Soybeans we’ve got until June. The corn is really the big push.”

Some of the corn has already been sold on the futures market, making some farmers jittery about delivering the goods.

“Especially with commodity prices, with $7 corn, they’ve marketed a lot of it already,” Danekas said.

While farmers around the state keep their fingers crossed that the sun continues to shine, they’re keeping an eye on their fellow farmers in Mississippi County, whose fields could be under water soon.

Some worry that the farmers may not be covered by crop insurance because policies only cover natural disasters, not man-made ones.

“Everyone’s urging the corps to take every alternative possible,” Hurst said. “If they blow that levee, it’s 147,000 acres under water. That’s some of the best land in the world.”

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New Zealand’s central bank kept its benchmark interest rate at a record low as the nation recovers from the most devastating earthquake in 80 years, sending the country’s currency lower.

“The outlook for the New Zealand economy remains very uncertain,” Governor Alan Bollard said in a statement today in Wellington after leaving the official cash rate at 2.5 percent. “Given the outlook for core inflation and continued economic disruption from the earthquakes, the current level of the cash rate is likely to remain appropriate for some time.”

Bollard has scope to leave borrowing costs unchanged until late this year because economic growth is forecast to be as slow as 0.8 percent and price increases have been slower than forecast. He cut the key rate by half a percentage point in March after earthquakes in the southern city of Christchurch hurt consumer confidence and spending.

“Growth is coming from an extremely weak starting point,” Dominick Stephens, chief economist at Westpac Banking Corp. in Auckland, said before the release easy payday loans. “The pace of recovery from the recession has been tepid so far. There is still a lot of slack in the economy relative to its potential.”

The New Zealand dollar declined after Bollard’s decision and his statement that the economic outlook “remains very uncertain.” The currency slid to 80.45 U.S. cents as of 9:03 a.m. in Wellington from 80.80 cents just before the announcement.

“Higher oil prices and the elevated level of the New Zealand dollar are both unwelcome,” Bollard said. “They will have some dampening effect on economic activity.”

The currency is being buoyed by demand from carry traders who borrow in countries with low interest costs to fund purchases in markets with higher yields. They are seeing returns rebound from two-year lows as the U.S. Federal Reserve and Bank of Japan show no urgency to tighten monetary policy.

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