Sale of IndyMac Bank Appears Imminent

IndyMac Bank, the California mortgage lender seized by U.S. regulators five months ago, will be sold by the Federal Deposit Insurance Corp. before the end of this year, said a person familiar with the matter.

The bank may be sold intact or split among multiple buyers, according to the person, who declined to be named because discussions aren’t public. Bids were due by Dec. 15. FDIC spokesman David Barr said today an announcement about IndyMac will be made by year-end. He declined to comment on a sale.

Regulators seized IndyMac in July after overdue mortgages left the lender short on cash and triggered a run on deposits. The FDIC said at the time it intended to sell the Pasadena-based bank within 90 days, preferably in one piece. Potential bidders may include U.S. Bancorp and PNC Financial Services Group Inc.

IndyMac, which had $32 billion in assets and $18 billion in deposits when it was seized, at the time ranked as the second-largest failure in FDIC history. The bank crumbled under the weight of huge losses on mortgages gone bad.

Habitat International honors Sue Croom

BY MICHELLE GENZ ASSOCIATE EDITOR

Take it from a woman who’s dealt with more than her share of construction workers: There is one big advantage working on Habitat for Humanity’s job sites. “They don’t whistle,” says Sue Croom. “That’s kind of refreshing.”

But fans of Sue Croom will be standing, cheering and maybe even whistling in January when the 61-year-old Orchid resident, who puts in 20 hours or more each week on construction sites, is honored in Atlanta as 2008 National Volunteer of the Year by Habitat for Humanity International.

Croom, whose association with construction was for many years through a now-ended marriage, is being recognized by the global organization for her own work with Habitat’s Women Build program. Her all-woman work force has built nine homes locally, with more on the drawing boards.

“She represents the true Habitat spirit,” says Carrie Rossman, assistant operations managers in charge of volunteers, who nominated Croom for the award. “Her energy and enthusiasm is almost contagious. She makes volunteers – especially women volunteers – feel really comfortable in stepping up to the plate and saying ‘Yes, I’ll volunteer.’ ”

While Croom was the first nominee from the local Habitat chapter, Rossman says she wasn’t surprised that Croom won — though Croom herself was. “She was shocked. She’s very humble about the work that she does. She should be proud.”

Standing at a job site near Olso Road, what Croom seems most proud of is her ability to gather good intentions around her to turn a vacant lot into somebody’s home. She’s also proud of having found a passion in her life.

“Framing is the thing I love most,” says Croom, who had no hands-on construction experience before she started with Habitat. She also loves roofing, can put up fascia and soffit, and can set windows, and operate a table saw and a circular saw.

While she still gets regular manicures and wears pale peach lipstick on the job, the Harley-riding Croom is entirely comfortable with terms like jacks, cripples and studs – and knows how to wield them in pun-strewn descriptions of the male crews.

“I can never figure out why men come out here and want to be bossy. But we’ve got them pretty well trained,” she says. “We don’t put men with our group unless they are of like mind and like heart. You don’t want to be treated poorly.”

“It used to be you drew the short straw if you had to supervise the Women Build,” she says. “But over the years, we’ve developed into a fairly skilled group of people. The Women Build gives a new person opportunities to come into a group and not feel intimidated by the men. It makes them comfortable about learning new skills.”


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Croom credits her community service with Habitat with restoring her sanity. Raised in Sarasota, Croom had married local builder David Croom at 21. Moving to Vero in 1976, she raised two children, and worked in the office of her husband’s construction firm. Thirty-one years later, her husband suddenly left her. He remarried the next year. They have not spoken since, she says.

Devastated, Sue Croom fell into a deep depression. “For five years, I didn’t know whether I was coming or going.”

It was a friendship with a neighbor in Orchid Island that eventually drew her out of her sense of worthlessness. That friend, Jo Tripp, was recently widowed, and had not known Croom’s ex. That gave Croom a sense of making a fresh start, having found a kindred spirit in figuring out how to have fun as a woman alone.

One day, Tripp invited her to the groundbreaking of Grace Pines, Habitat’s community of 26 homes in Gifford. Orchid Island was sponsoring one of the houses about to be built.

Through that first visit, Croom began her association with Habitat. “Through helping others, I finally got out of my box,” she says. “There’s a whole lot worse stuff out there than me and my problems.”

“A verse comes to mind when I think of Sue,” says Cyndy Hazelton, a Women Build crew leader who lost her husband to cancer a year ago. She has known Sue Croom since their children were small, and they both served on the parent association. After a few years without contact, they reconnected by chance at church the morning after Sue’s husband moved out.

“ ‘Man’s heart plans his way, but the Lord directs his step.’ I think that’s exactly what happens in Sue’s life,” Hazelton said. “The opportunities have come her way and she’s participated in them, and that’s how she got where she is today.”


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Croom’s first role at Habitat was as a family support partner for a prospective homeowner. Habitat’s homeownership process is rigorous, involving a dozen classes in budgeting, legal matters, and home maintenance. “It’s a huge amount of preparation. These are the working poor. To participate in this program is a lot of extra stress on them.”

Habitat tailors mortgage payments to a family’s income; a typical payment ends up at around $450 a month, which includes property taxes and insurance.

“It’s eye-opening when you look at the amount of money these people make,” Croom says. “It’s nothing, yet they manage to live off of it. It’s humbling to work with these people, after working with a firm that built multi-million dollar homes.”

Once Croom had moved her new homeowner into the Habitat-built home, Croom looked for another way to participate. Habitat had just started work on Grace Grove, another community in Gifford. Croom’s church was involved in what Habitat calls a “Circle of Faith build,” and one cool clear day in May 2004, Croom drove over to see how she could help.

Plenty of workers had already shown up there, so they directed her to another project down the road.

That house needed someone to work on the roof. Croom didn’t hesitate. She clambered up a ladder, where longtime volunteer Dave Dearing was working with a group of girls from the juvenile detention center who were performing community service. The girls were sheathing the roof with plywood.

“I had never hammered a nail in my life,” says Croom. “One of the girls showed me how to angle the nail to catch the truss and go through the plywood.”

The sight of tiny Sue Croom on the roof caught Habitat executive director Andy Bowler’s eye.

“He said, ‘Susan what are you doing up on there?’ I said, ‘Well, I don’t know but I’m having a blast.’ ”

By the end of the work session, she had blisters covering her hands. Exhilarated from the effort, she had forgotten to wear gloves.

Today she knows better: she always wears gloves, and they are pink suede. She bought them for all her crew, as well as pink tool belts: they fully embrace their feminine side. On the open tailgate of a grey pickup truck, there is a welcoming display of goodie baskets filled with hand lotion, peppermints, bottled water, sunscreen, nail files, and this week, a bottle of Tabu cologne.

It also includes toilet paper and seat covers; the Portolet is not the favorite room on the site.


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The team is gathered on a chilly Saturday morning – they start at 7:30 am. Sally Slate-Hyatt is on the roof in a brightwhite sweatshirt, with “Las Vegas” written in rhinestones on the back. She is nailing shingles on plywood.

Sue Croom, whose nametag reads “Queen of Women Build,” has vaulted over the side of a dumpster to retrieve pieces of cardboard big enough to wrap around window screens, a trick they developed to keep the screens from getting damaged until the new owners set up housekeeping. Inside the house, concrete floors are swept of debris; exposed block is spray painted with one-word instructions.

It was Andy Bowler who convinced Sue Croom to start a Women Build group; they exist all over the country. In ten years, 1,400 homes have been built by all women crews.

It was not without its challenges. Soon after the rooftop rendezvous with Bowler, Croom started putting together to-do lists and working on publicity to recruit volunteers, looking forward to a January start date for her Women Build group’s first house.

But in August 2004, Croom discovered a tumor in her kidney the size of a tennis ball. Two weeks later, she underwent surgery to have the entire kidney removed. The tumor was benign, and the recovery period was relatively brief, a matter of weeks.

Croom is convinced that the tumor was her body’s reaction to the years of stress due to the divorce. “Habitat saved my life,” she says, by giving her a new focus and an optimistic outlook.

But another calamity was happening at the same time – the double hurricanes that struck Vero Beach in 2004 — and that recovery took much longer.

Croom hesitated, but in the end persevered amidst the chaos. She credits two grant writers at Habitat for showing her the bigger picture: the future. “Carrie Rossman and Kelly Brown became my best friends,” she says. “They opened up doors for me and encouraged me to go on.”

On this chilly Saturday, two women are driving screws into a window frame, inserting a black plastic shim under a twoby- four to block the screw from going too far into the frame. Janet and Kristy Zabrosky are mother and daughter, from Pointe West. They showed up after reading an article on Women Build and thinking it sounded like fun.

They smirk after explaining what they’re doing to a newcomer: it’s their first day. “We had no idea how to do this until about an hour ago.”

Youth is not a requisite to be part of Women Build: Croom has a 76-year-old working on a Fellsmere project. Another woman, Barbara Mandell, is 84; she sorts nails by the paint-bucketful, part of Habitat’s Green team that recycles materials thus saving dump fees and generating revenues.

The Green team was born of a thrifty homemaker’s ‘Ah-Ha!’ moment when Marcia Zimmer of the Moorings, working on a Women Build crew, asked, “Do we recycle these nails?”


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One nail will not go into any bucket. Croom, who is deeply religious, believes it was bent into a “J” as a sign from God. Fired from a nail gun, it ricocheted off something on the worksite and up into the eye of a crew supervisor the Tuesday before Thanksgiving. “It was a cold day, and you’re supposed to wear safety glasses, but his were steaming up. So he slid them up on his head.”

That’s when the errant nail struck him. As the eye began to bleed and swell, the Habitat crew surrounded him and prayed, though he himself was not “a believer,” says Croom. He was rushed to the emergency room where he was told he would lose his eye.

“An ambulance took him to Leesburg to a specialist. The doctor took the patch off and said, ‘You’re going to be fine. Your sight’s going to come back.’ We feel that that was a miracle. The fact that they had prayed with him and anointed him brought his sight back.”

One of Croom’s crew put the bent nail into a frame with the inscription: “I was blind and now I see.”

“We waiting for the second part of the miracle,” says Croom, who hopes the incident will make a convert out of the man.

The Habitat crews pray before every workday; when the ribbon is cut on the new house, the group gives a Bible to the new homeowner, along with a hammer with a cross on one side, though the group helps people of all religions, and invites all to participate in its work.

Habitat was founded in 1976 by a millionaire couple, Linda and Millar Fuller, who divested of their fortune to begin a life of what they regarded as Christian service. In 1984, former president Jimmy Carter and his wife Rosalynn joined the effort, greatly increasing public awareness of the organization.

The Carters’ efforts took Habitat international; homes have been built in more than a hundred countries.

Indian River County’s chapter is paired with Romania. In 2006, Sue Croom and Carrie Rossman were part of a team of 10 who traveled abroad and stayed with a local family while building a house in a small village.

“It was June but it was cold, and the host would come into our rooms to build us a fire since there was no heat in the house. It was quite an experience,” says Rossman.

It was on the job site when someone was painting a soffit red that Croom’s passion for Dracula came to the fore. She and Rossman conspired to make the most of a Romanian moment. “We turned the scene into a Dracula impalement.”

Another beloved hard-working and enthusiastic friend, Madeleine Kerns, is now the Saturday crew leader on Women Build. But she is working more and more at the Home Center, helping redesign the aisles for better merchandising, and enjoying the spectacular success of sales there – it is Habitat’s second highest grossing center in the country.

Sue Croom laments that the retail store may eventually steal Kerns from her crew, but some things are beyond her control.

“The word is, Madeleine is growing very attached to the flush toilets there,” says Croom, frowning. “We can’t compete with indoor plumbing.”

Deep recession could force more foreclosures: BoC

CTV.ca News Staff

If the global recession deepens, a growing number of Canadian households could be driven into foreclosure by crushing consumer and mortgage debt, the Bank of Canada warned Thursday.

A faltering economy - coupled with rigid credit markets and lower incomes - could create a perfect storm that would swamp vulnerable households right across the country, the central bank said.

"With household balance sheets under pressure from weak equity markets, softening house prices, slowing income growth, and record-high debt-to-income ratios, a severe economic downturn could result in a substantial increase in default rates on household debt," writes the bank in its December financial review.

But Tom Velk, an economics expert at McGill University, downplayed the report and said it casts far too much doom and gloom.

"It's too easy to get rolled (in) with the enthusiasm for pessimism," he told CTV Newsnet Thursday. "Less than 1 per cent of Canadians are in real trouble with their mortgages."

Even if the recession deepens, Velk estimated that the number of Canadians who could experience a foreclosure would top out at about three per cent.

In short, Velk said the economy is simply going through a cyclical recession, and that too much worry among the public could makes things worse.

"It's not right, and it's not good and it just gets everybody ... in the mood where they don't want to make sensible investments," he said.


According to Velk, Canadians should think about investing in the stock market now, given the rock-bottom prices.


"The Warren Buffetts of the world are buying now," he said, referring to the investment guru and multi-billionaire.

Patti Croft, an economist with RBC Global Asset Management, said that while Canada likely won't have a rash of home foreclosures like in the U.S., Canadians are currently carrying record-high debt loads.

Croft told CTV Newsnet Thursday that if the recession gets worse, it could get harder to manage that debt.

"There's potentially less assets to service those debts ... and that could cause people to default, or could cause home foreclosures as well," she said.

However, Croft stressed that debt levels in Canada are much lower than those in the U.S. and United Kingdom.

Things will get better: report

The Bank of Canada report suggests the "most likely" outcome is that global financial markets, and Canadian credit conditions, will gradually improve "as the various extraordinary measures aimed at resolving the crisis take hold."

There were few hard-and-fast predictions in the statement about how Canada will be affected and how long it will take for consumer confidence to rebound. But the statement was clear that Canada has been affected by the global slowdown and will continue to feel pressure.

"The Canadian financial system has proved relatively resilient throughout the crisis, owing to lower leverage and more conservative lending practices, but it has not been immune to spillover effects," the statement said.

"In particular, strains in Canadian wholesale funding markets have been significant in recent months, and this has impeded the normal functioning of the financial system."

The report warns it's still possible that the situation here could take a turn for the worse, driven by panic linked to household debt.

"Household indebtedness could act as a channel of contagion spreading losses through the Canadian financial system and causing a further tightening of credit conditions," it said.

"The impact on the balance sheets of financial institutions would, however, be substantially mitigated by mortgage insurance."





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Comments are now closed for this story

Future kinda scary in Ontario
So we spend miliions, billions to continuously bail out the auto industry, but hard working Canadians who pay taxes and are starting to feel the pinch could end up lossing their homes putting themselves and their children on the streets is okay?
How about we funnel some of the tax money we pay to helping out normal people. Or if the case of we are all going to be losing our homes threat is there are we going to be building more homeless shelters. I can only hope that the stories I heard from my grandfather about the depression is not history reapeating itself. I don't think raising my kids on the streets is a future I am looking forward to!!!
Guess I should start saving my recyclables for making my makeshift home on younge street!!

Business in Wonderland

The new, topsy-turvy world of finance has turned the business world upside down – and the old, established rules no longer apply

FOR 37 years Val Padden worked at the brickworks in Accrington, Lancashire. He is proud of the plant’s history — the works has made bricks for 120 years, including the “Nori” high-strength blocks built into the foundations of the Empire State Building and Blackpool Tower. Local legend has it that the Nori brand originated when its intended name – Iron – was painted upside down on the factory chimney.

Last month the credit crunch broke Accrington’s brickmaking tradition. Hanson, the building-materials company that owns the plant, said the housing downturn meant it would be mothballed and 50 staff made redundant.

“Nobody thought it would shut,” said Padden. “We thought there would be some lay-offs and fewer hours, but we didn’t predict it would close down altogether. I still haven’t emptied my locker – it just doesn’t feel real.”

Several other brickworks, including those at Steerforth near Barnsley in Yorkshire and Caernarvon, North Wales, have shut in recent weeks. Just over a year ago such closures would have been unthinkable. The government had set a target of 3m new houses to be built by 2020, and the housing boom was in full swing. Now, due to the banking crisis and recession, housing is in retreat. Last year the UK made 2.4 billion bricks. This year it will be 1.9 billion, the lowest for 60 years.

The wave of brickwork closures is an example of how big business, like Alice when she followed the White Rabbit into Wonderland, finds itself in a topsy-turvy world. Recession has swept down like an avalanche. Its speed and depth, combined with the disruption of banking and other financial markets, has pushed firms and governments into actions that only a few months ago would have been thought impractical, or downright crazy.

Radical measures are now the norm. Take two examples from last week: the Bank of England cut interest rates to 2%, the lowest level since 1951, in a desperate attempt to stimulate the economy. The move made a mockery of the desire to drive out inflation that had obsessed the Bank’s rate-setters only six months ago. And the car-market slump forced Honda to quit Formula One motor racing, ending the Japanese car-maker’s 40-year association with the sport and a competition it recently vowed to spend any amount of money to win.

In some cases, such as the reshaping of the car-manufacturing and financial-services industries, the world is being turned upside down with the help – or at the behest – of governments. In other sectors, including commercial airlines and property, the scramble for survival has made businesses ditch long-held assumptions about their future.

“The unthinkable has become the inevitable,” said Tim Linacre, chief executive of stockbroker Panmure Gordon, which advises mid-sized public companies on their relations with investors. Robert Silver, senior partner at US law firm Boies, Schiller & Flexner and one of America’s top corporate lawyers, said there was no precedent for the shifts now taking place. “I’ve never seen anything like this. Every day is extraordinary,” he said.

The difficulty now is predicting what surreal twist the crisis has in store. Senior executives and City advisers fear the rupture in normal business activities – in particular companies’ refinancing of existing loans – will lead to a “bolt from the blue” – the collapse of a big UK group for no obvious reason.

“There is now a real risk that fundamentally viable and financially sound companies could fail because of a lack of liquidity,” said Peter Marshall, managing director at Houlihan Lokey, an investment bank that specialises in corporate restructuring.

This risk of large corporate defaults is prompting the government and officials to think about even more drastic actions. Gordon Brown and the Bank of England are contemplating whether interest-rate cuts go far enough, or should be augmented with direct economic intervention to reflate the economy.

Lord Mandelson, the business secretary, is drawing up a list of industries threatened by the crisis that could receive direct government support – a return to policies not seen since the 1970s. THE descent into Wonderland began with banks. The collapse in trust and drying-up of credit markets over the past year has threatened the survival of the international banking system. The result has been a spectacular shake-out of the big financial institutions, all done with the connivance of governments.

Five years ago Lloyds TSB was blocked from acquiring Abbey National on competition grounds. A merged Lloyds and Abbey would have had too large a market share, it was decreed.

Yet when Lloyds revealed plans to take over HBOS two months ago, the government had changed its tune. Together the banks will control almost one third of Britain’s mortgage market, but competition concerns were waived in the interests of securing HBOS’s future. On Wall Street, the crisis deepened so swiftly that the institutions seen as saviours had to be bailed out themselves. At the end of September Citigroup was asked to rescue struggling US retail banking giant Wachovia. A rival deal with Wells Fargo was stitched together soon after. Last month Citigroup itself received a $326 billion (£220 billion) government bail-out in a remarkable case of the hunter becoming the hunted.

Lehman Brothers had been thought to be one of those firms that was “too big to fail”.

It was a false assumption. While Washington had been willing to bail out the mortgage agencies Freddie Mac and Fannie Mae, had stood behind the rescue of Bear Stearns and took insurance giant AIG on to its books, Lehman was hung out to dry.

“Until the day they put me in the ground, I will wonder,” Lehman chief executive Dick Fuld told a congressional committee when asked why he thought the authorities had been unwilling to act. “I wake up every single night thinking what could I have done differently?”

Lehman’s collapse has in turn caused an unexpected crisis in the hedge-fund industry. The dozens of hedge funds that dealt with Lehman found their assets and trading books frozen, a gridlock that has still yet to be fully resolved. “The Lehman default has resulted in a state of chaos for fund managers – operationally, legally and from a risk perspective,” said Richard Saunders, chief executive of the Investment Management Association.

In other industries the scramble for survival is running ahead of government intervention. British Airways’ planned merger with Qantas, which stunned the City when it was first leaked, then officially confirmed last week, is a prime example.

Airlines have proved stubbornly resistant to the pan-national mergers that have swept through other global industries. They are largely protected from takeover by the 70-year-old system that governs international aviation and all but forbids foreign ownership and control of national flag carriers.

Reform has been glacial. Europe removed most of the constraints between its member states a decade ago, and last year agreed with America an “open skies” deal which dealt with some of the traffic-right restrictions but none of the ownership curbs.

The BA-Qantas deal could drag protectionist governments kicking and screaming into a liberalised brave new world. The pair plan to sidestep restrictions by creating a dual-listed company, a construct that allows the airlines to merge without losing their individual corporate identities. If a subsequent merger with Iberia and tie-up with American Airlines goes ahead, BA will have driven a coach and horses through what were until now regarded as inviolate rules that prevented such deals.

“This is the kind of transaction that does cause rules to change. It creates a positive need, and commercial imperative, to change rules rather than just a theoretical desire to change them,” Mike Whittaker, head of regulatory affairs at United Airlines, said.

It is the speed of the recession that has bowled over some industries, including Padden’s beloved brickworks. The UK housing market has gone from boom to bust in a little over a year, meaning that demand for bricks, cement blocks and other building materials has evaporated.

In April last year the shares of Taylor Wimpey, the UK’s biggest housing group, stood at 517p, giving it a stock-market value of about £4.5 billion. Last week the shares closed at 9.9p, valuing the group at £104.5m. The shares of its rivals have also taken a pummelling.

The number of new houses built during the next 12 months is forecast to fall as low as between 50,000 and 60,000. The lower number would represent a quarter of the 209,606 homes built last year and a fraction of the 404,356 houses built in 1967 – the peak year for housebuilding. Not since 1920, when only 2 9 , 7 0 0 homes were built, has output been so low.

IT TAKES about nine hours to drive the 520 miles between Dearborn, Michigan, and Washington DC. The road trip offered the bosses of the big three car firms plenty of time to work on their begging strategies.

The decision by the bosses of Chrysler, Ford and GM to drive to Washington this week in lean, green hybrid cars was an act of penance. Not so long ago hybrid was a dirty word in Detroit as the trio concentrated on selling gas-guzzling behemoths. High petrol prices and scared, credit-deprived consumers have brought their industry to the edge of destruction, threatening millions of jobs.

Two weeks previously, the car bosses had been sent packing by politicians after flying down to Washington in private jets. Now they were back, begging for $34 billion.

“We’re here today because we made mistakes,” said GM’s chief, Richard Wagoner.

Few doubt that the collapse of one of the three will have a profound impact on the US economy, but polls last week showed that the US public, as well as politicians, are reluctant to simply hand over more money to the car firms.

So, once unthinkable solutions are now being considered – such as a forced merger of GM with Chrysler. Silver, of Boies, Schiller & Flexner, said the government’s primary concern was to prevent more shocks to the system.

“It’s always a question of what risks do you want to take. Do you want to take a risk that you are going to have too much consolidation? Or do you want to take the risk that you are going to have a business failure that you could have prevented? Given everything that is happening now, and all the fragility, I think governments that would normally go in the first direction will now go in the second.”

FOR corporate Britain, the scrabble for funding will dictate the itinerary on the next stage of its trip through Wonderland. The banking crisis means that some groups will struggle to refinance loans that are falling due, and certainly not at the interest rates they enjoyed when the loans were first taken out.

Bankers say the funding crisis has been exacerbated by the recent collapse in equity markets. Deficits in defined-benefit pension schemes have soared as a result. “If pension trustees then force firms to take aggressive steps to reduce the pension deficit at the same time as the credit crisis, the results could be disastrous,” said Houlihan Lokey’s Marshall.

If loans are unavailable, companies will have to turn to their shareholders for cash injections. Corporate advisers expect a rash of rights issues – where companies give their existing shareholders the option to subscribe for new shares, usually at a substantial discount to the existing price – early next year.

“You could see a number of companies look to launch rights issues rather than get into tricky negotiations with their banks further down the line. The best companies will be looking to do this sooner rather than later to make sure they don’t end up at the back of the queue,” said Panmure Gordon’s Linacre.

Not all rights issues will succeed, however. There has been a polar swing in investor sentiment. Two years ago, when debt was cheap and the bull market was in full swing, no corporate story was too good to be true. Now, no tale of potential disaster, forced merger or corporate collapse is too outlandish to be believed. “[Two years ago] the world was so different as to be almost beyond remembering. It was ruled by greed, optimism and credulity. In short, it was the opposite of the last few weeks . . . [now] no scenario is too negative to be credible, and any scenario incorporating an element of optimism is dismissed as Pollyannaish,” Howard Marks, chairman of American investment firm Oak-tree Capital Management, told his clients in a recent letter.

For those rejected by their shareholders, there is another potential source of funds. Emboldened by government’s willingness to bail out banks, several large industrial groups have made a plea for state subsidy, the most high-profile of which has been Jaguar Land Rover, which is asking for around £1 billion.

Mandelson is now drawing up his list, but this weekend told The Sunday Times that he would take a tough line, with no open cheque book for British business.

For the moment, it’s hard to see an obvious way out of Wonderland.

Cottage offers timeless appeal

THE Government’s pre budget report has done nothing to provide any help to the housing market, according to local agents.

The new measures, announced on Tuesday by Chancellor, Alistair Darling, covered tax changes — the personal tax allowance increase by ฃ600 announced in May, is to be permanent, with a further increase of ฃ130, a temporary reduction in VAT to 15 per cent, until the end of next year — and other measures, including an increase in child benefit brought forward to January and a ฃ60 payment to pensioners brought forward to January.

Along with the ‘benefits’ go changes to National Insurance contributions — to increase from April 2011 by 0.5 per cent and the restriction of income tax personal allowances for those earning over ฃ100,000 from April 2010, amongst other measures, none of which, says Richard Beville of Beville in Sonning Common, will help the housing market recovery. “The measures announced would not appear to provide any stimulus to the housing market: a revision of the stamp duty thresholds would reduce the cost of moving and help kick start the property market,” he said.

Rob Bruce, research manager for Hamptons International commented: “Hamptons International welcomes the ฃ1.8 billion package of housing measures to be implemented following the Chancellor’s pre-Budget report. However we question whether they will go far enough to reinvigorate consumer confidence during such challenging economic times.

“With repossessions up 41 per cent during the first half of this year when compared to the previous six months, consumers have also found their properties falling in value by 16 per cent during the year which has left them with substantially lower equity and therefore lower spending power.

“The changes in the pre-budget report also do not directly address concerns around the majority of household costs which is likely to put off many shoppers who will stay out of stores in favour of maintaining a roof over their head. Historically high costs of borrowing and the potential for the rate of unemployment to climb clear of three per cent also means that spending — both personal, and for business expansion, will remain capped.

“We look forward to clearer guidance on the ‘detailed scheme’ to improve the supply of mortgages before the Budget next spring. The immediate effect of today’s changes will also do little to ease the burden on mortgage borrowers and will not assuage first-time buyers’ fears that capital values will continue on the recent boom-and-bust rollercoaster.”





COTTAGES are timeless: they speak to us of the past, with their rooms designed for cosy living, simpler needs for furnishings and windows whose size is determined by window taxes or the cost of glass. In the present they represent one of the most popular, sought-after types of property, as they remain family homes, set in idyllic rural and semi rural locations, and provide versatile, character homes for the future.

Woodleys Cottage, in the heart of the village of Brightwell-cum-Sotwell, just three miles from Wallingford, is a pretty home in a quiet lane. The village itself has a local pub, a post office — held in the hall twice weekly — and a thriving village community. Wallingford offers a large Waitrose, a variety of shops and a cinema/theatre. Communications in the area are excellent, with access to the M4 at junction 12, and Didcot main line railway station just four miles away. There are good schools in the area, too, including Moulsford Preparatory, Radley College and The Oratory.

Woodleys Cottage has a thatched roof, which has recently been replaced: the cottage is believed to be the oldest in the village.

On the ground floor, the front door opens directly into the dining room, with a large fireplace to one side, windows to either side and an opening into the sitting room. Two small windows look to the front of the property, and there is an inglenook fireplace to one side. Looking to the rear garden, there are windows, and a single door opens onto the gardens.

A door from the sitting room leads to the kitchen/breakfast room, which has been newly fitted. There is a walk-in larder, with a window looking to the side of the house, and a shower room. Continued on back page

Stairs lead from the sitting room to the first floor; the master bedroom lies to one side, with a large window looking to the side of the house and built in cupboards to the other side. The second bedroom, across the hallway, has windows to two side, and the third bedroom/study/dressing room, which has been fitted with a range of built-in cupboards, is reached through the second bedroom.

The family bathroom has a power shower, wc and wash hand basin, and windows looking to the garden.

Outside, the garden has a circular lawn, edged with well-stocked flower beds. To the front, a cottage garden bounds the property, and, in the rear garden, there is a summer house and patio storage sheds. There is also off street parking.

For more information, call Savills in Henley on (01491) 843001. The guide price for Woodleys is ฃ560,000.

Record year for JN

Jamaica National Building Society recorded one of its best financial years for period ending March 2008, helped substantially by its cashing in on shares held in Lascelles de Mercado and Company.

Indeed, the group's $3.9 billion gain from the disposal of investments accounted for most of its $4.9 billion profit, which tripled that of the previous year.

But as the mutual declared itself sound to deal with the challenges thrown up by the global financial crisis, its bosses told members last week that it has also begun to fix concerns raised by regulators - including writing off $1.9 billion of debts by subsidiaries.

JN's general manager Earl Jarrett explained that formally, buildings societies are allowed to lend up to 40 per cent of capital to subsidiaries, or twice the level of commercial banks.

JN was close to the formal legal limit, but the regulator, the Bank of Jamaica, during a long-term trend analysis of the building society called for a roll-back of the intra-group exposure.

"What the BOJ has suggested is that we bring that down to 20 per cent," Jarrett told the Financial Gleaner.

Business activity

Jamaica National was now close to that benchmark at "a little over 20 per cent", he said.

At the organisation's annual general meeting last week, Jarrett said that among the other issues regulators had raised in their trend analysis was the sharp rise in the group's overhead costs, a slippage in gross revenues and a loss on the building society's core business activity.

While he did not give specifics, Jarrett said that JN had begun to address the issues by revising its governance structure, including re-establishing a risk-management unit, sharpening its internal auditing efforts and ramping up training on regulatory and compliance issues.

Internal projects

"We are engaged in several internal projects which are aimed at improving our internal processes and to meet external regulatory requirements as well as internal operating structures," he said.

But the demand for some re-engineering notwithstanding, JN broadly, remained a healthy operation, with its book value at the end of review period, jumping 26 per cent, to $17.7 billion.

During the review period, the building society approved 1,767 new loans, valued at $7.7 billion lifting its loan balance by 28 per cent, to $31.3 billion.

Last year's writing of new loanswas 10 per cent below JN's target. While it retained its position as the island's biggest mortgage lender with 45 per cent, the figure represented a slippage from the previous year.

Central bank figures indicate that a year ago, March 2007, the building society had a 47 per cent share of the mortgage loan market.

Net savings income or NSI also fell well below the JN's aggressive target of $15 billion, but the $5.7 billion booked was 71 per cent above the NSI flows at year end March 2007.

The group - whose holdings range across mortgage and real estate, insurance, small business financing, information technology, money transfer/remittances and fund management - reported revenues of $11.5 billion, a 19 per cent improvement on the $9.6 billion, on the previous year.

Loan portfolio

Within the 2007/08 year, the company grew assets by 22 per cent to $90 billion, ramped up its loan portfolio to $31.3 billion from $24.4 billion, and added $10 billion to its now $53 billion savings fund.

JN was successful at ramping up business, not by trying new strategies, but, as Jarrett told the society's annual general meeting on Thursday at JN's corporate offices in Kingston, just by being better at delivering good old-fashioned customer service. "JNBS continues to offer value for membership by providing benefits for members not given by other financial institutions," he said.

The company has a 97 per cent customer satisfaction rating, and was fourth of 12 corporations in customer satisfaction in a poll done in December 2007 by pollster Bill Johnson.

Surplus

JN's pretax earnings grew almost threefold, from $2 billion to $5.4 billion, while net surplus, after a near half a billion of taxes, was $4.9 billion, compared to $1.68 billion made in 2007.

Still, the group's bottom line looked that fat only because of the $3.9 billion gain from the liquidated investment in Lascelles. In 2007, it reported a similar gain from disposal of investments, but only $867 million.

Additionally, the society - which is the main subsidiary within the group representing 90 per cent of the business - had a $1.9 billion bill for restructuring.

The notes to the accounts, however, said briefly that the restructuring costs "relate to advances in subsidiaries written off to meet regulatory requirements."

The only operation within the group known to have ceased operation is JN Real Estate Company Limited.

Merging depositors

JN group also advises it is in the process of merging the depositors in its 100 per cent owned Jamaican subsidiary, First Metropolitan Building Society, into the operations of the society, but says the merger is subject to the approval of the Ministry of Finance.

JN's mid-line income in the period just ended gives a clearer indication of how well the group performed.

At $1.35 billion, operating surplus was up by 34.5 per cent on the $1 billion made a year ago.

The company's report to shareholders comes two months into the turbulence that has rocked Jamaica and the world market, but Jarrett has given his assurance that JN would "continue to offer its members security and stability."

business@gleanerjm.com

US expands record bailout of insurance giant AIG

WASHINGTON (AFP) — The US government announced Monday an expanded bailout for insurance giant AIG of more than 150 billion dollars, as the Treasury tapped into emergency funds originally set for banks.

The latest bailout plan, the largest in US history, came as AIG burned through billions of dollars of cash and reported a third-quarter loss of 24.47 billion dollars.

The original Federal Reserve rescue of 85 billion dollars in mid-September, at the time the largest in corporate history, was expanded by 37.8 billion dollars just a few weeks later, and involved the government acquisition of a 79.9 percent stake in the troubled insurer.

But AIG, the world's largest insurer before the global credit crisis, has continued to suffer from soured bets on credit default swaps (CDS) and other complex financial instruments amid a financial crisis that accelerated in October.

Under the revised program for AIG announced Monday, the Treasury will replace the entire previous package with a larger, longer-term 152.5 billion dollar program, including a 60 billion dollar five-year loan and 52.5 billion dollars to buy up distressed securities.

The Treasury will tap its Troubled Asset Relief Program (TARP) for 40 billion dollars to buy preferential shares in the company.

"This action was necessary to maintain the stability of our financial system," said Neel Kashkari, the head of the US Treasury's 700 billion dollar rescue operation for the financial industry established in October.

"We recognize that the financial system remains fragile and we continue to stand ready to prevent systemic failures," he said.

The White House emphasized the huge risk of an AIG failure and defended the Treasury's extension of the financial lifeline to the insurer.

Treasury Secretary Henry Paulson and Fed chairman Ben Bernanke "have determined that a failure by the firm would cause damage to our financial system, the US economy and the global economy," White House spokeswoman Dana Perino told reporters.

"Today's announcement is new proof that the TARP will be used more and more to bail out distressed companies -- and not only banks -- instead of its initial goal of buying toxic assets," Marie-Pierre Ripert, analyst at Natixis.

The rescue came as AIG reported its balance sheet deteriorated quickly over the third quarter.

The company said it took 15 billion dollars in provisions, reporting that in addition to losses in its credit default swaps portfolio and securities lending business, its general insurance division was in the red to the tune of 899 million dollars, compared with a profit of 2.51 billion dollars a year ago.

AIG chief executive Edward Liddy defended the expanded aid from Treasury, saying it puts AIG "in a much better position" to address its problems and set it toward recovery.

The extra money gives AIG "more flexibility and more time" to sell assets.

"It is a smart, disciplined process," he said in a conference call with reporters.

"AIG is, in fact, on the road of recovery."

The Treasury rescue, however, suggests that AIG's recovery period could be much longer than anticipated just a few months ago.

In the new program, the previous 85 billion dollar loan is cut to 60 billion, and a lower interest rate is set, but its duration is extended to five years from two.

Another 52.5 billion dollars is provided to purchase distressed assets from the company, including 30 billion for collateralized debt obligations and 22.5 billion for residential mortgage-backed securities.

Thirdly, the government will use 40 billion dollars in TARP funds to buy AIG preferential shares, which will carry a high interest rate of 10 percent.

Defending the deal, Kashkari said the government was setting "stringent" limitations on executive compensation for AIG's senior executives, corporate expenses, and lobbying.

AIG shares were up 8.53 percent at 2.29 dollars in afternoon trading.

The expanded bailout for AIG from a fund originally set aside for banks was likely to raise eyebrows in the US Congress. According to a Treasury official, President-elect Barack Obama, who is already crafting strategies for the economy ahead of his inauguration on January 20, was briefed Sunday on the Treasury's new AIG plan.

The Treasury insisted Monday its exposure to AIG would have a limited lifespan.

"The US government intends to exit its support of AIG over time in a disciplined manner consistent with maximizing the value of its investments and promoting financial stability," it said in a statement.

Washed-away home shows danger of living on edge in OBX

By Catherine Kozak
The Virginian-Pilot
© November 1, 2008
Jeff Akins and his wife picked up the key to their vacation rental in Rodanthe, looking forward to a glorious week in July relaxing at the beachfront home they had so enjoyed the summer before.

After the long trip from their Highland, N.Y., home, they were the first to arrive at the six-bedroom house they were to share with friends. They parked under the house, the view of the ocean obstructed by slats. But something didn't seem right this time.

"We pulled in and watched the surf explode through the boards," Akins said. "We said 'Wow! There must've been a lot of erosion.' "

That same house, he said, had 50 to 75 feet of beach in front of it the summer before.

When their friends arrived from Raleigh, they were nervous about the safety of the house. Akins, a civil engineer, made a cursory check of the house's structure and didn't see anything awry. He did note that the sand fence that had been back behind the dunes last year was now at the high-tide line.

The next day, with the surf crashing up the beach right under the deck, the four friends lined their beach chairs up on a little hill of sand at the tide line by the house. Then one of them happened to glance over at the piling under the deck and exclaimed, "Oh (expletive)! " Akins recounted.

"Tide was splashing against the post, " he said, "then it slid under the post. We said 'noooooo...' Then we realized that there's three of them hanging in the air."

Akins said they immediately called the rental company, which helped them pack up and move to another house. Before they left, Akins saw one of the pilings swinging in the air like a pendulum.

The 5-year-old house, named Caramore, collapsed into the ocean two weekends ago during a coastal storm.

According to Dare County records, the 3,958-square-foot house was valued at $488,800; the oceanfront parcel is valued at $453,600.

Caramore was demolished by an excavator this week. Contractor Carroll Midgett said there were probably 10 to 12 tractor-trailer loads of rubble to haul away, as well as a dozen small truck loads of other debris.

Owners Daniel and Lindora Sargent, from Whitehouse Station, N.J., can hardly believe that, within 24 hours, Caramore was gone.

"Shock is not the word," Daniel Sargent said in a telephone interview Friday. "We had a tremendous amount of sweat equity in that house. This is a disaster for us."

Nothing, he said, was able to be salvaged from the house.

Sargent, 61, said he had an insurance policy with a face-value of $600,000, and he was told he was insured adequately. But recently he has learned that he has only $250,000 of coverage from his federally subsidized flood insurance policy, and maybe minimal coverage from his private insurance for the contents.

"If you're a mortgage broker or a banker, you'd think they would know," he said. "Why the heck would they give me that mortgage? You ask all the questions, then you hire professionals to answer them."

Sargent, a retired police officer who does construction work part time, said he put a big kitchen upstairs, a small kitchen on the ground floor and did all the tile work. His wife, a teacher, delighted in buying upscale decor for the house. Every fall, they would come and reinforce the sand fence with Christmas trees and push the dune back up.

The property, which rented for $5,495 a week at the height of the season, was booked from April to November.

"It was a tremendous investment," Sargent said. "It paid for itself."

Caramore, Gaelic for "friend," was "a dream" to the couple, who have been regularly visiting the Outer Banks for 30 years, Sargent said.

"When we looked at this piece of property, it was absolutely beautiful," he said. "It was 200 feet from the dune to the water. Anybody would have bought it. It had a very spectacular view, both to the north and south."

Buddy Shelton, the chief building inspector for Dare County, said the Sargents met all the conditions that were required before building their house. When it was built, the house was 70 feet back from the first stable line of vegetation - 10 feet more than required by state Coastal Area Management Act regulation.

Since the deed was platted and recorded before the CAMA regulations were implemented in 1979, the setback requirements were grandfathered. Currently, CAMA rules mandate that oceanfront structures must be set back from the first line of vegetation to a distance equal to 30 times the annual erosion rate, or a minimum of 60 feet.

The annual erosion rate of the beach in front of Caramore is an average of 9.5 feet, said Jim Meads, county flood plain manager. The highest rate of erosion on Hatteras is about one mile north at Mirlo Beach, which has an average 14 feet a year. The lowest is 2 feet a year.

Before building, Meads said, oceanfront property owners are required by CAMA to sign a hazard notice that informs them of the erosion rate, the possible number of feet the shoreline could move in a storm and the predicted number of feet of floodwaters during a major storm.

Meads said Caramore is the first house on Hatteras Island to fall into the ocean since Hurricane Isabel in 2003. But oceanfront houses in Kitty Hawk and South Nags Head, also plagued by severe shoreline erosion during nor'easters and hurricanes, have been damaged or destroyed by the ocean over the years. And in every significant storm, houses must be condemned, usually temporarily, because of damage to steps, decks, roofs, septic systems, power supplies or water systems.

Parcels adjacent to Caramore had washed out, but Meads said even that is not necessarily predictive of future disaster. With the way the shoreline erodes and accretes with the seasons, he said, sometimes a parcel comes and goes.

"It sounds crazy, but down the road, that lot could come back," he said. "It's unlikely, but it has happened."

When people see the photographs of the practically brand-new Caramore collapsed pitifully in the ocean, Sargent said, he knows that "everybody thinks he's an idiot" for building a house there without checking into the risk.

"Well, we did check. We asked people," he said. "Perhaps I wouldn't have built if I knew I couldn't insure the structure for the cost it took to build it.

"We're not bitter with anybody we've dealt with professionally. It's just that we would like other people to be aware that your life savings could be out the window in a blink of an eye."

Catherine Kozak, (252) 441-1711, cate.kozak@pilotonline.com

Troubled home loans didn’t require insurance

by Jim Landers / McClatchy-Tribune

WASHINGTON — If the problem threatening to take down the economy is bad mortgages, then why isn’t mortgage insurance taking care of it?

In the 1980s and 1990s, most homebuyers could not get a mortgage with a down payment less than 20 percent unless they bought private mortgage insurance, or PMI. This insurance covers the lender in case the borrower can’t pay. It wasn’t cheap (about $150 a month for a $235,000 mortgage). And unlike mortgage interest, you couldn’t deduct it on your federal income taxes.

Between 2000 and 2007, lenders offered homebuyers unable to afford a large down payment several ways to get a house without mortgage insurance.

One of the most common was a “piggyback,” where the borrower took out two mortgages at once. The first mortgage covered 80 percent of the price. The second mortgage, usually with an adjustable rate, covered another 10, 15 or 20 percent of the price. Down payments ranged from 10 percent to nothing.

With house prices rising, it all looked good. Interest paid on both mortgages was tax-deductible. If the second loan was going to set at a high rate, the borrower could refinance with the rising value of the house.

But when the housing bubble popped, so did piggybacks.

“The loans that are in the most trouble are the loans that circumvented mortgage insurance,” said Jeff Lubar, spokesman for the Mortgage Insurance Cos. of America.

Karen Watson, who runs a Dallas mortgage company in Preston Center, said buyers of mortgage securities set the guidelines allowing borrowers to get home loans with no money down and no mortgage insurance. The underwriting and approval process was automated.

Mortgage securities buyers “came in and took on the risk that insurance companies were designed for,” she said.

Mortgage insurers got back in the game after persuading Congress to allow homebuyers to deduct their mortgage insurance payments. That law took effect on Jan. 1, 2007, but expires in 2010.

Watson said she was still offering piggyback mortgages until this spring, when the lenders “changed the guidelines almost ex post facto — 'We’re not offering these as of yesterday.’”

Despite the mayhem this month on Wall Street, she said mortgages are still being sold.

“People are getting used to the new guidelines, which are the old guidelines,” she said. “We’re doing what we used to do.”

Mum with Midas touch for property

By Lorna Tan

Ms Sharon Lie, 38, likes to be in charge when it comes to managing her own money.

Said the head of compensation and benefits at consumer finance provider GE Money Asia, the retail financial services unit of General Electric (GE): 'I am a firm believer in individuals taking charge of their own finances. As a wife and mother, I feel that women in particular should be able to handle their own finances.'

Her investment approach has evolved with her career and age. She admits that she took on more risks when she was younger, but says she has become more conservative since giving birth to her son, Noah, now 21 months old.

Apart from her forays into stocks and unit trusts, Ms Lie also invests in property. She bought her first flat when she was working in London in 1996; she sold it a year later at a 30 per cent profit. Currently, she has two properties: an apartment in Paris and a semi-detached home on the East Coast.

She spent a total of 10 years in Britain, including three years in London as an articled clerk and solicitor after getting her law degree at what was then the University College of Wales, Aberystwyth. This was followed by a four-year stint in Sydney as a consultant in executive compensation before she returned to Singapore in 2003.

She joined GE Money in 2004.

Ms Lie is married to Frenchman Olivier Maigniez, 37, a global account manager at Cisco Systems. They tied the knot in 2000 in Sydney.

In Singapore, GE Money is known for its James personal and auto loan packages and ezyCash.

Q: What are your money habits?

When I first started work, like most people, I had no spare cash to put in savings.

My then-boyfriend, who is now my husband, and I bought our first home within a year of starting work, and everything in our home - appliances and furniture - was bought with the help of loans. We knew depending on loans would be fine as long as we could afford them and we handled them prudently.

I learnt an important technique called 'pay yourself first'. What this means is you should use your salary to pay for your investments first and your bills after. This sounds risky, but somehow, it helps you to be responsible and manage your finances, and enables you to settle your loans and bills.

Currently, 25 per cent of my pay goes towards servicing my mortgage and 20 per cent towards cash savings and investments. The remainder is for expenses.

I keep very little cash and I usually have eight months' worth of my pay in United States shares.

Q: What financial planning have you done for yourself?

I started a stock portfolio in 2003 when I returned to Singapore. It invested in US stocks, for an average return of 25 per cent a year.

My strategy was to exit when the upside or downside hit 20 per cent. I would monitor about 10 US stocks, and I traded them actively through my Sydney-based broker. However, I have since liquidated the shares, with the exception of one blue-chip technology stock that I'm still holding on to.

It was a lot of work, but I was solely responsible for the profit or loss, which was very satisfying. Now, most of my investments are in unit trusts as I'd rather spend the time with my son. Since he came, I have been more concerned about preserving my wealth and making sure there is money for him.

My risk outlook has changed a lot. I'm glad I took big risks when I was younger - borrowing and taking loans when needed, and accumulating more wealth. Now I'm more conservative.

The average returns of my equity funds are about 7 per cent a year now.

Q: What about insurance planning?

I am not a strong believer in buying insurance for investment purposes. Currently, I have mortgage insurance for my two properties and a whole life policy for my son.

Q: Tell us about your property investments?

Olivier and I believe that if you buy the right property at the right time, it will be an appreciating asset. We also believe in buying rather than renting the place we live in.

Our first property was a two-bedroom, 1,200 sq ft maisonette in the heart of London. We bought it in 1996 and sold it for a 30 per cent gain just over a year later.

After that, we bought a bigger ground-floor apartment with a garden in London, and lived there for two years before selling it at a 10 per cent profit.

In Sydney, I bought and sold two properties. I didn't make any profit out of them, but recouped all renovation and legal costs.

The most significant investment my husband and I share now is a gorgeous 1,100 sq ft apartment in Paris that we bought in 2003. We have never lived in it, and have no idea whether we will or when. But the thought of it makes us smile and keeps us motivated. You need to have a dream. Not all investments have to be sterile.

I think the property has appreciated nicely, but we have not checked and don't plan to as we have no intention of selling it. It is being rented out and the rental yield is about 5.2 per cent.

Q: Moneywise, what were your growing-up years like?

I am very fortunate to have parents who follow very different but extremely useful approaches to money. My dad, a civil engineer, is good at making the big money decisions. My mum, an ex-teacher, is great at managing day-to-day expenses and is the world's greatest bargainer.

Together with my two older siblings, we lived in a landed property in the East Coast. We had everything we wanted, but we also knew what it cost.

My mum used to say every cent counted and, when I was starting out, I rebelled against this, refusing to count my pennies. Now, I know she was right: No matter how much you earn, you need to watch what you spend. I would also say that you need to make whatever you save work for you.

Q: What has been a bad investment?

I lost a couple of thousand investing in an initial public offering. The company closed down after 18 months, so its shares were worth nothing and I lost everything.

The experience taught me not to be impulsive about investments, and I learnt that I have to examine the fundamentals of a business before sinking my money in.

Q: Your best investment to date?

My career has been my best investment. Obviously, if you are successful in your role, there are financial returns.

Working in a great organisation offers indirect financial benefits as well. It exposes you to clever people and their lifestyles. It also helps you gain insight into the workings of the business, and that helps you analyse other businesses and their potential.

In terms of financial investments, I made an excellent choice in 2002 when I invested in a Macquarie infrastructure fund. I invested my bonus and the average return has been about 15 per cent a year.

Q: What's your retirement plan?

My son. Seriously, I hope to have the two homes fully paid up and to have sufficient investments to provide an income stream. The icing on the cake would be to also own a ski chalet in the Italian Alps.

I would like to be able to retire at around 50. By then, I would like to be running my own business - perhaps a bookshop. My financial investments should need nothing more than monitoring at that point.

Q: And your home now is...?

A semi-detached, two-storey, 6,000 sq ft house on the East Coast. It was bought in May last year.

Q: And your car is..?

A bronze Saab.

AIG plummets after credit rating downgrades

NEW YORK (Reuters) - American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) shares plummeted in early trading Tuesday after the insurer's credit ratings were cut, jeopardizing efforts to raise cash necessary for its survival.

In pre-market trading, AIG shares were down $1.83, or 38.4 percent, at $2.93. They closed at $22.76 as recently as Sept 8.

Late Monday, Standard & Poor's cut New York-based AIG's long-term credit rating three notches to "A-minus" from "AA-minus," citing "reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses."

Moody's Investors Service on Monday cut AIG's rating two notches to "A2" from "Aa3," while Fitch cut its rating two notches to "A" from "AA-minus." Those agencies' new ratings are the equivalent of one notch higher than S&P's new rating.

The downgrades will make it much more difficult for AIG Chief Executive Robert Willumstad to raise cash. The company suffered $18 billion of losses in the last three quarters tied to guarantees it wrote on mortgage-linked derivatives.

AIG's struggles are mounting a day after Lehman Brothers Holdings Inc (LEH.P: Quote, Profile, Research, Stock Buzz) filed for Chapter 11 bankruptcy protection because of its own losses tied to mortgages and real estate.

JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) are examining putting together a $70 billion to $75 billion credit facility for AIG, a person familiar with the matter said on Monday.

Those efforts are supported by the U.S. Federal Reserve, which received a request for help from AIG on Sunday.

On Monday, New York Gov. David Paterson said the state would allow some of AIG's regulated insurance units to provide the parent company with $20 billion of liquid investments to address immediate liquidity needs.

(Reporting by Jonathan Stempel; editing by John Wallace)

Canaries' future hangs in balance

NORWICH City's future was in the balance today as Delia Smith effectively put the club up for sale.

It leaves the club at a pivotal point in its history - aspiring for Premiership status or settling for lower-league mediocrity.

It is understood that Delia and her husband, Michael Wynn Jones, are looking for new investors of all sizes, including outright ownership.

The joint majority shareholders looked set to call time on their 12-year love affair with the Canaries as fellow directors Andrew and Sharon Turner resigned from the board - leaving City with a £1.5m black hole to fill this year.

The Turners, who own financial services business Central Trust, will not be able to immediately recover £2.5m of interest-free loans to the club, which are on long-term repayment schedules.

But they will now not be making good their promise to put in another £1.5m this year.

It leaves City with a worrying cash shortfall, which could lead to a flurry of backroom redundancies and a frantic bid to cut the current £10m wage bill for playing staff.

It also means City boss Glenn Roeder will have less money to play with in the immediate future as he bids to turn a promising squad into one with real hope of a return to the Premiership.

However, in a development that would excite many City fans, the Turners' departure and Delia and Michael's apparent willingness to sell could reopen the door to billionaire businessman Peter Cullum, who two months ago made a failed £20m bid for ownership of the club.

Mr Turner, whose sub-prime mortgage business is valued at £275m, said: “It is true. It happened two weeks ago and it is a sad moment for us, obviously, but we are making no further comment.”

The couple, lifelong fans of the club, got involved when they bought the 5,000 shares of vice-chairman Barry Skipper, who stepped down from the board after 10 years last year.

In a statement, Delia, 67, and Michael, 67 later this month, said: “We would like to place on record our thanks to Andrew and Sharon for their hard work and endeavour since they joined us and their interest-free loans to the club totalling £2.5m.”

City chairman Roger Munby said the board was in “active conversations” with “more than one” potential investor.

But he admitted that club finances were “under active review”, and added: “If staff were to leave at the moment we wouldn't immediately replace them.”

He said: “We've got to recover our ground. This has put us back by £1.5m and it has put us back because we have lost two expert, fresh executive minds.”

Mr Munby said the club had been on track to move from loss-making to profit-making in the near future, and said the absence of the Turners' cash meant the situation was more likely to be “neutral”, which he said was “still no bad thing in football”.

He said: “It's a sad day. Andrew and Sharon have taken their own advice and made their own decision to leave, regrettably. Categorically this does not mean that there is a threat of the club going into administration.

“There are plans in hand. There's belt-tightening but fans can be reassured that the club is not in any embarrassed financial position.”

Two months ago Mr Cullum, ranked the 40th richest person in Britain and executive chairman of insurance giant Towergate, put in an offer of £20m to invest in new players in exchange for ownership of the Canaries.

The lifelong City fan and former Norwich City youth player, 57, was initially snubbed by the board. And when the two sides finally held talks, they quickly broke off with no agreement.

Last night there was no comment from Mr Cullum.

But Mr Munby said a rekindling of the deal was “certainly a possibility”. He said: “We left the last discussions on amicable terms. Peter may class himself as one of the people who may be interested.”

He said he “could not say why” the Turners had walked away.

He said: “They left despite the fact that they are lifelong fans who harboured a lifelong ambition to be involved with the club. I'm sure their reasons must be very pressing. The situation has come up very quickly.”

Mr Munby said the Turners had carried out an audit of the club's finances and left behind a “strong strategy” that the club would be following through.

He said the board members were informed of the Turners' decision to leave via a series of individual telephone calls and the “odd meeting”.

Amid rumours of a boardroom split he said: “There's been no bust-up.”

Downshifting in the workplace: Options for balancing career and homelife

professionals all over the country are trading in their high-paying, high-stress careers, with their 60-hour weeks and $200 ties, for a more fulfilling life. This trend, known as downshifting, is catching on as overworked professionals look for balance in their lives.

“When you are stuck in the rat race trying to climb the ladder to career success, you often have to put so much of your life on hold,” said Julia Kennedy, assistant vice president of career services for 110 Everest schools located throughout North America. “You may end up sacrificing time with your family, not giving yourself time outdoors or putting your hobbies and passions on pause.”

Downshifting is one way professionals re-establish their priorities, Kennedy said.

“They recognize that perhaps their new careers won’t be as lucrative, but they will be more fulfilling,” she said.

Downshifting is one of many innovations to the traditional work culture that has redefined the workplace in the past few decades, including a rise in part-time, flex-time and work-from-home options.

The phenomenon of downshifting is due in part to generational differences between baby boomers and older generations, Kennedy said. While older generations saw work as something mandatory and not necessarily enjoyable, baby boomers believe they deserve fulfilling lives and careers.

Kennedy said there are many options for employees who want to balance between their careers and personal lives, without necessarily having to give up their jobs. For example, workers can say no to new projects, take on fewer projects or renegotiate work arrangements.

“If you aren’t ready for a complete career change, you still have a number of options,” she said. “For example, bargain for more vacation time instead of that annual raise. Or see if you can work from home or move to part-time work.”

But for some, small changes aren’t enough. There are many wake-up calls that encourage a complete career change. Whether it is the death of a close friend, a divorce or getting that dreaded pink slip because your company is downsizing, many professionals realize that life is too short to stay in a career they hate.

For those who might be considering downshifting, it’s important to consider how a career change could alter your life.

“You have to take your finances into consideration. There is a lot of planning that needs to happen before you make any big changes,” said Dr. Samuel Carrol, business department chairman at Everest University in Orange Park, Fla. “Specifically, you need to be thinking about how to meet costs of your insurance, children’s education and mortgage and retirement savings. That being said, with careful planning, changing careers can be done well and can be incredibly satisfying.”

In addition to financial planning, downshifting may also require going back to school.

“Many downshifters want to open a new business – perhaps a bed and breakfast, or local used-book store or massage therapy business,” Carrol said. “Starting a new business in something you are passionate about is a great way to find a fulfilling career, but at the same time, you want to make sure you have the knowledge you need to be successful. For example, if you want to become a massage therapist or bed-and-breakfast owner, you may need to take massage therapy classes or basic accounting and entrepreneurial courses before making that leap.”

Daniel Keller, a massage therapy instructor at Everest, has noticed an increase in older-age students.

“In our massage therapy program, we find a number of older and career-changing students,” Keller said. “This is something they have always been passionate about, but just didn’t have the time to devote to developing their expertise. … All are looking for a fulfilling career.”

The Madness of Bankers

Millions of words have been written about the ongoing financial disaster largely caused by the subprime mortgage mess. But the most concise and easiest to understand handbook on the issue is almost certainly Charles R. Morris’ The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash. The book, published in March, spent several weeks on The New York Times best-seller list, and for good reason: The book explains in clear language exactly what happened and why.

Morris, a lawyer and former banker who lives in Manhattan, has written 11 books. His articles have been published in myriad publications, including Atlantic Monthly, The New York Times and BusinessWeek. He exchanged e-mails with Observer contributing writer Robert Bryce in early August.

Texas Observer: You wrote a recent piece for BusinessWeek in which you argue that it is “essential to shrink the hypertrophied financial sector.” Why has the financial sector grown so large over the past few decades?

Charles Morris: Financial rewards on Wall Street have been rising much faster than in the rest of the economy for about 20 years. Commerce Department surveys show that financial sector profits were more than 40 percent of all corporate profits in 2007, far out of proportion to their share of output. Those rewards sucked in the cream of each year’s B-school grads, top mathematicians and physicists, lawyers, etc. Couple that with the anti-regulatory atmosphere of the last couple decades, and we have seen an orgy of truly irresponsible, destructive “innovation”—anything to drive up earnings.

The subprime crisis was purely a Wall Street invention. Subprime lending had always been a tiny sliver of the mortgage market, mostly within the Federal Housing Administration. In 2004 or so, Wall Street realized they needed higher mortgage yields to sell the complicated, mortgage-backed structures that produced their biggest fees. They started acquiring subprime lenders, paying brokers premiums for high-yield mortgages and the like, until by 2006, high-risk mortgages were about a third of all new originations. Nobody seemed to care that most of them could never be repaid; the focus was just on the fees. It’s not much different from what happened with the infamous “investment trusts” that National City and other big banks were flogging in the late 1920s.


TO: Perhaps the most important single deregulatory move of the past few decades was the repeal of the Glass-Steagall Act, a law created in 1933 that kept banks, insurance companies, and brokerage houses from merging with each other. Glass-Steagall was replaced by the Gramm-Leach-Bliley Financial Services Modernization Act (named for the trio of Republicans who sponsored it, Sen. Phil Gramm of Texas, U.S. Rep. Jim Leach of Iowa, and U.S. Rep. Thomas Bliley of Virginia), which was signed into law in 1999. How culpable is Gramm for our current mess?

CM: Gramm-Leach was part of the zeitgeist, and by the time it was passed, the big banks had long since worked around the old rules, so Glass-Steagall had already become virtually a dead letter. Investment banks had been stripping away the bread-and-butter lending businesses of the commercial banks, so Gramm-Leach was partly just an attempt to restore some balance. The root problem wasn’t Gramm-Leach, but the prevailing dogma that self-regulated markets were inherently superior to supervised markets.

TO: Speaking of Glass-Steagall, you wrote in your book that Congress “should seriously consider restoring some version” of it, including the separation of commercial banking and investment banking. Why is this so important?

CM: Over the long term, financial sector profits have been about twice as high as corporate profits as a whole, which flies in the face of economic theory. High peak profits at financial companies make sense because they are so highly leveraged. But that should also expose them to commensurately greater losses, so profits would be about average over the cycle. But we tend to socialize financial sector losses, as we’re doing now, while allowing partners and shareholders to keep their profits from the booms.

I think we need a rigid distinction between regulated and unregulated financial companies. Only the regulated sectors would have access to deposit insurance, the Fed window, etc., while there would be strong legal bars against government support for the unregulated sector. [The “Fed window” refers to lending that the Federal Reserve normally provides to depository commercial banks. The Fed recently opened its “window” to Wall Street investment banks.]

The regulated sectors would have strict leverage rules, and be intentionally a bit boring. Enforcing such distinctions would require very carefully crafted legislation. And I admit it would probably be hard to pass. Everyone deplores “moral hazard,” but bankers make a lot of money when they succumb to it.

TO: In our recent phone conversation, we talked about the role of hedge funds and their use of leverage, which is magnifying the potential damage of the derivatives now being employed. You said, “We can’t control hedge funds. But we can stop regulated banks from lending to hedge funds.” What effect will that prohibition on lending have?

CM: There are many different kinds of hedge funds, of course. But a common strategy is to earn outsized returns by using extremely high leverage; and the leveraged lending, most of the time, comes from banks. If rich people want to invest in high-risk, high-leverage undertakings, that’s their business. But regulated banks with a potential claim on public support shouldn’t be allowed to lend to them, or be allowed to lend only with a very high capital penalty. If a hedge fund, or a highly leveraged investment bank, a Goldman Sachs, say, is at risk of failing, the core banking and payments system won’t be at risk. The corollary of that, of course, is that if a hedge fund or an unregulated investment bank, say, gets into big trouble, they must simply fail, no matter how much damage it causes, which is why the barriers to a bailout would have to be written into law. Markets can’t work if there is a “social safety net” for the biggest players.

TO: It’s obvious from your book that you are no fan of Alan Greenspan and his laissez-faire attitude toward financial markets. How responsible is he for our current situation?

CM: To state it as generously as possible: Greenspan is the classic case of a good man in a job for much too long. Starting with the 1987 market crash, he built his reputation as a financial genius by intervening, often very adroitly, to supply fresh market capital at moments of crisis. He did the same thing after 9/11 and the 2001-2002 recession, but then kept rates much too low for much too long. His anti-regulatory zealotry also blinded him to the obvious asset bubble building up. And that’s not hindsight; there were a lot of warnings, including from other governments.

TO: Given your book’s take on Paul Volcker and how he addressed the problems in the U.S. economy in the 1980s, it appears that you favor higher interest rates as a way to strengthen the dollar and therefore restore credibility to the U.S. financial system. That will almost certainly lower oil prices. It’s also likely to trigger a sharp recession. But you think that a quick (and likely painful) recession is the best cure for our financial ailments. Why?

CM: By my rough count, the federal government has already poured some $2 trillion into propping up the financial sector—that’s including new Fed lending facilities, expanded lending by Freddie and Fannie (much of which goes to buying up mortgages from banks), the spending rebates, the new housing bill, and so on.

Consumers have been spending far more than their incomes, at least since 2004 or so, personal savings rates are near zero, retirements are looming, we have crippling trade deficits and a collapsing dollar, which is a big factor in the oil price rise. And the current federal strategy is just to keep all that going, pouring in borrowed federal money to make up for the fall in consumer borrowing.

It’s the most shortsighted, let’s-get-through-the-next-month strategy possible—not unlike strapped consumers playing credit-card roulette. I fear we’re just making the ultimate reckoning worse and worse, much as Japan did when it covered up its asset bubble through the 1990s.

The recessions that Volcker triggered in 1981 and 1982 were awful, but he managed to wrench the country onto a radically different course. I don’t think there’s any choice. Consumer spending rates are still near an all-time peak relative to income, and overall debt is still rising. We need a radical change of course. Whether McCain or Obama wins the presidency, they should try to get this behind them in their first two years.


TO: I agree that we need better regulation of financial institutions. But it appears that financial chicanery happens on a regular, almost predictable cycle. In the ’80s we had Ivan Boesky and Michael Milken. In the ’90s we had the savings and loan debacle and the Barings Bank meltdown. In the early ’00s, we had Enron and Adelphia. We’ll never be able to stop all the scam artists, but will more regulation reduce the frequency of the disasters?

CM: My hopes are more modest than that. I just want to stop the scams going on now. If Wall Street and its lobbyists have their way, we’ll end up with a total Wall Street bailout, plus some cosmetic regulatory changes ... It’s the same kind of thing that’s proved such a brilliant success at the Department of Homeland Security.

TO: Perhaps your most important recommendation is this: “Force tough leverage constraints on regulated institutions while moving all risky exposures onto the balance sheet.” Enron and other companies were experts at moving their risky assets off the balance sheet. If we are to achieve better regulation of assets and assure that they get properly accounted for on the balance sheet, won’t that require better funding of regulatory agencies like the Securities and Exchange Commission?

CM: There are two ways to defeat regulation: One is to pass toothless laws; the other is to pass tough laws and not finance them. The [Food and Drug Administration] is perhaps the classic case of the second one, even more than the SEC. But, yes, it’s pointless to create regulatory regimes without the tools to do their jobs.

TO: Your book is titled The Trillion Dollar Meltdown. Will the final cost be $1 trillion? Or more?

CM: More. It looks like probably $1.5 to $2 trillion at this point, although there may never be a final accounting.

Car dealer Butch Suntrup adds insurance to his business

By Christopher Boyce
ST. LOUIS POST-DISPATCH
08/17/2008

Butch Suntrup has been selling cars since 1974, and has been a dealership owner since 1985.

But in April, he expanded his horizons to auto insurance. True, it's not that much of a stretch from his core business. For that reason, he chastised himself a bit when the idea first was pitched to him.

"I hit myself in the head and said, 'This a no-brainer,'" Suntrup said. "I was disappointed I didn't come up with it."

The expansion comes at a time when auto dealers need to create new revenue streams. Many dealerships are facing slumping sales due to the sluggish economy.

Beyond that, vehicle quality is steadily improving, so revenue from vehicle repair is expected to slip in the near future, said Mark Rikess, chief executive of dealership consulting firm The Rikess Group in Burbank, Calif.

For the next three years, "It will be survival of the fittest," Rikess said. "So dealerships, being entrepreneurially driven, will become more creative in finding sources for revenue."

Butch Suntrup and his brother, Craig Suntrup, jointly own three dealerships in south St. Louis County: Suntrup Hyundai, Kia, and Nissan-VW. They also own a mortgage brokerage business.

Butch Suntrup said his decision to begin selling auto insurance was not driven by fear of the slumping industry, but by excitement about the new business.

Chesterfield-based Equity One Franchisers LLC pitched the idea to Suntrup in late 2007. Equity One owns GlobalGreen Insurance Agency, an insurance-agency franchise that sells policies of well-known companies such as Travelers Cos., SafeCo Corp. and MetLife Inc.

It didn't take much to convince Suntrup of the potential value.

"It'll be as big as another auto store," he said of the GlobalGreen insurance franchise. "It'll never compare in revenue, but this will be more profitable because this has so many fewer employees."

His GlobalGreen franchise opened for business in April from an office in Creve Coeur, though Butch Suntrup said eventually it will place agents at his and his brother's dealerships. Dealerships owned by other Suntrup family members aren't involved in this insurance business.

The three Suntrup dealerships are the first area auto dealerships to open a Global­Green insurance franchise, but they aren't expected to be the last. Ray Spears, president and chief executive with Equity One, said his company already has sold a franchise to E$ell Express Classics & AutoSales, a dealer in Waterloo, and is working on other deals.

Outside of auto dealers, Equity One has sold eight GlobalGreen franchises.

In the early 1990s, many dealerships began selling their own insurance, according to Rikess. However, dealers ultimately struggled to inspire the kind of confidence consumers desire from their insurance companies.

"With insurance, the question is, 'When I have a problem, are they going to make things easy for me?'" Rikess said. "For most people, dealerships generally don't" make things easy.

Suntrup acknowledged this perception, saying he witnessed many leery customers when his dealership incorporated a mortgage brokerage in 2006.

But while some customers will balk at the idea of buying auto insurance at a dealership, Suntrup thinks more will appreciate the convenience of having all their needs serviced by one business.

"If they feel comfortable enough to spend $25,000 for a car with us, there is some level of trust," Suntrup said.

The dealership also will benefit from selling well-known insurance brands, said Art Spinella, president of consumer research firm CNW Marketing Research Inc. in Bandon, Ore. He said most auto dealers in the early 1990s were selling their own plans.

Still, it can be tough to woo consumers away from their existing insurers. Spinella said many people rarely switch insurers, assuming the discounts they get for renewing a policy earn them the best deal. However, he also noted that dealerships encounter plenty of first-time car buyers who have no established insurer.

Suntrup thinks there will be plenty of opportunities, saying his three dealerships sell about 500 vehicles per month. However, Suntrup said he and most of his employees are learning the insurance business, so he has taken on only about 120 customers thus far.

Still, Suntrup is careful not to spread himself too thin. He hired his daughter, Lindsey Suntrup, to learn — and eventually manage — the insurance business.

Lindsey Suntrup, 25, was never interested in selling cars but said she's excited about learning the insurance business and capitalizing on the complementary family partnership. She hopes the business eventually will grow into selling house, life and business insurance as well.

"I think we're on the cusp of a new era," she said. "So many companies are expanding horizontally instead of vertically to broaden resources for income."