Horizon, Host: Ted Simons

September 29, 2008


Host: Ted Simons

Economy

  |   Video
  • The $700 billion bailout failed in Congress. ASU Finance professor Anthony Sanders of the W.P. Carey School of Business.
Guests:
  • Anthony Sanders - Professor,W.P. Carey School of Finance, Arizona State University
Category: Business/Economy

View Transcript
Ted Simons:
It was a disastrous day on Wall Street. Congress failed to pass a bail-out plan for the financial industry. Stocks tumbled 777 points, biggest one-day point drop ever. Although it was the biggest drop ever in raw numbers, today's seven-point drop was well below the 20% fall of black Monday in 1987 and back in the depression. Here to talk about the financial markets is Anthony Sanders, professor of finance in the W.B. Carey's school of finance in Arizona. Good to see you again, Anthony. Today's drop, first of all, it was a surprise?

Anthony Sanders:
>> It wasn't a surprise it wasn't even in the top 10 of major percentage drops in the market but once the congress didn't end up passing the bail-out, I think people had expectations propped up they would, it let the gas out of the market and the market fell, as you pointed out.

Ted Simons:
>> More of the same if the same thing happens tomorrow and the next day or the next day and there's no talk of a plan?

Anthony Sanders:
>> It’s hard to do in capital markets. Capital markets, being stock markets, generally adjust very rapidly to information. So i don't want to take bets on tomorrow but it opens up and nothing happens, i wouldn't be surprised until there's a new announcement of the bill they're currently working on.

Ted Simons:
>> The bill they're currently working on, the one that failed, what was wrong with what they voted on? What were the complaints? It seemed to have the caps on executive pay. It seemed not to give all the money in one fell swoop. It seemed to even talk about, you know, making sure that government was in some way reassured that they would be paid back at a later date provided these companies made money. Weren't all those concerns met?

Anthony Sanders:
>> No they weren't. In fact, one could argue one of the reasons the stock market fell was that Paulson, if you'll remember, he originally asked for $700 billion. That's a big price tag! When they came back it dribbles. They said, you get half of it then you have to come back to congress and beg for it later. I think that may have actually scared some people in the market thinking we weren't serious about the bail-out. And there's another question whether we should be bailing out the banks anyway that caused a lot of this mess.

Ted Simons:
>> And to that second question, could the market -- could the credit market in particular fix itself?

Anthony Sanders:
>> Well, the credit market will eventually fix itself. It's a question of how much pain do we want to go through? I think what scared Paulson and Bernanke both was the list of banks on the endangered list almost. As we know, Wachovia, we've seen, you know, wamu go. National cities really got plastered today. A whole bunch of banks are lining up to kind of freeze up and go away.

Ted Simons:
>> Doesn't that get to the point where whether or not this is the -- I don't think anyone thought it was the panacea or the perfect plan but it was something eventually someone is going to have to lend money with some kind of reassurance they're going to get that money back.

Anthony Sanders:
>> The question is, they have to get capital in the system. Liquidity. That's what it's all about. The question, what's the best way to do this? They rushed through a plan. They got turned over. They didn't go for it. Republicans came back with an insurance plan which I got to admit, it's a better idea. But, we -- you know, they need to kind think this out and have probably a hearing. So it'll be awhile, i think, before they actually hammer something out on this.

Ted Simons:
>> We have the president. We have relatively moderate republicans and democrats all saying economic pearl harbor. Something has to be done. Do this. Do it now. Let's get going and then you've got most Americans, the vast majority of Americans who are say don't do it! What's the disconnect? What's going on here?



Anthony Sanders:
>> the disconnect is a lot of people, I think, don't realize -- really realize what terrible straits our banks are in.

Ted Simons:
>> oh.

Anthony Sanders:
>> It’s their own fault. Let's be honest. The question is that on the one hand, we can let them collapse and have a revisit of the great depression. I frankly don't really want to go through that myself. So, you know, i think trying to work out something that's more moderate play, but then they also have to put in whatever legislation they do to bail out the banks, they have to do something to the banks and legislation in congress that doesn’t allow this to repeat itself such as extending lots of credit to people who can't afford to repay it.

Ted Simons:
>> is there a sense that congress simply isn't taking this issue seriously enough?

Anthony Sanders:
>> Well, when I was listening to some of the debates on the floor of congress, i was scratching my head and saying, "oh come on! You've got to be kidding!" i think they -- i think some of them understand this is a real problem here but, again, it's -- you know, we have 30 days or more until the presidential election. There's a lot of things that were said that were disjoint from the economy. I think the average person that's -- that looks at the $700 billion bill -- and it could be higher, by the way it could be $1.5 trillion is my prediction by the time we start bundling everything together, I don't think -- again, I’m sympathetic. I think bail-outs are a terrible way to do business but if we don’t do something to get liquidity back into the market, we’ll have systemic fail which means a lot of stuff fails.

Ted Simons:
>> You mentioned Wachovia earlier. Talk about ContiGroup’s rescue of Wachovia. Difficult for me to say. Rescue of Wachovia. What's it mean?

Anthony Sanders:
>> Well, again, you know, the good news about all of this -- and there is good news -- the good news is we're kind of what they call calling the herd. We're taking the weaker members of the herd and killing them off for all intents and purposes merging them with the bank to result in a stronger bank. It'll reduce competition. It'll result -- you want to get some of the weaker banks if that’s true. How many do you want to get rid of? That's the question.

Ted Simons:
>> Indeed. What about foreign banks? How do they play in this?
Anthony Sanders:
>> Foreign banks are coming in. Mitsubishi made a play for Morgan Stanley. They'll be stepping in and providing capital. The ones that have it. Again, with the global -- this is a global crisis. Brazil was down, i think, 8% or 9% today. This is a global crisis. I don't know how much foreign banks capital have to pump into our system. That's the problem.

Ted Simons:
>> Indeed. I heard about a bank in England. I heard about a bank in Germany looking for folks to rescue them. It's going across the pond.

Anthony Sanders:
>> I heard of a few European banks failing. It's all over the place.

Ted Simons:
>> Hedge funds the next domino?

Anthony Sanders:
>> Well, hedge funds are a funny thing. They are not really hedge. They don't hedge risk. If they did, we wouldn't be talking about this. They just talk about super highly leveraged positions. Things like 99% debt and 1% equity. Yeah, well in a downturn market like that with no liquidity, yes. A lot of hedge funds going to blow up.

Ted Simons:
>> Last question, if a plan, a rescue plan, whatever form, is delayed, does that necessarily delay recovery of this crisis?

Anthony Sanders:
>> Well, it depends on what they want to do. Paulson and Bernanke's notion is flood the market with liquidity. Get tons of cash in there -- that they did today -- put tons of cash in there. If there's money, the market may start rebounding. Maybe that might work. We have to see. Give it a couple of days. One thing viewers should understand is even if we promise a $700 billion bail-out of banks for bad loans, that's going to take a heck of a long time to implement. They can't just walk into the bank and say here, give me all of your loans. They have to go and cherry pick. They have to figure out which ones of the banks are trying to sell and which ones the government wants to buy. It'll take awhile. So everyone has to show more patience.

Ted Simons:
>> All right, Tony thanks for joining us. We appreciate it.

Anthony Sanders:
>> Thanks a lot for having me, Ted.

Prop 201: Homeowners' Bill of Rights

  |   Video
  • Proposition 201 would change the Arizona Constitution to expand rights for homeowners. Hear both sides of the issue with guests Rebecca Friend of the AFL-CIO and Kevin O� Malley of the law firm Gallagher and Kennedy.
Guests:
  • Terry Goddard - Arizona Attorney General


View Transcript
Ted Simons:
>>> 8 out of 10 homeowners in serious trouble aren't getting the help they need for banks in negotiating a deal that might keep them in their homes, according to a new report issued by the state foreclosure prevention working group. Earlier, I spoke to Arizona attorney general Terry Goddard about that issue. And Terry Goddard, thank you for joining us on "horizon."

Terry Goddard:
>> Thank you, Ted. It's a pleasure.

Ted Simons:
>> update us, if you can, on efforts to keep homeowners out of foreclosure. How's that going?

Terry Goddard:
>> Well, I wish it was going better. Um, this is something that way predates the current crisis on Wall Street and in congress. A year ago, a group of attorney generals from a wide variety of states around the country met with the 20 largest loan servicing organizations in the United States. Over 80% of all the mortgage loans were represented around the table. And we had a -- I thought we had a consensus from that meeting that there were some win-win agreements out there where the mortgage lenders and their servicers could work much harder with the homeowners who were very distress to try to keep them in their properties. Let me be clear. These aren't the speculators. The people that bought 14 homes and said they lived in every one of them. These are the hard working people trying to live in the home that they are trying to buy. It's so much to the lender's benefit to be able to work something out that we thought we had a general agreement. We've been tracking it. The third report tracking our progress came out today. It was very disappointing it basically said the number of folks in foreclosure is up. Number in some kind of discussions with their loan companies is down. And the number that are going to short sale or foreclosure versus the number that are in some kind of a negotiated workout is significantly changed against the home owners.

Ted Simons:
>> is this for lack of trying on the lender's part? What's going on here?

Terry Goddard:
>> It’s hard to say. There was a blip around January where we had an awful lot of these discussions and they've tapered off since. That's something I find very hard to explain because I think enlightened self-interest would carry the day here. The fact that it would cost up to $50,000 to do a foreclosure and resale of a property and there's all kinds of opportunities for slips and losses of money for the lender, so they have a strong incentive to sit down across the table from a borrower who is in default or getting into default but wants to make it happen to work out the loans. Unfortunately, that's not going to happen. They're going to short sale or foreclosure. Here in Arizona, our numbers for august were 14,000 homes either in foreclosure or in pre-foreclosure. That's a tidal wave across the country. Over 300,000 across the United States.



Ted Simons:
>> is there -- quickly without getting too, you know, deep inside baseball here. A loan modification plan that makes sense to you that you're not seeing enough of?

Terry Goddard:
>> We’re not seeing decisions from the companies sitting down with the homeowners saying, let's look at your ability to pay and our ability to modify the loan in a way that you can afford it. It won't work for everybody. What we've asked the loan companies to do is put the decision-maker, not some clerk, not just someone who answers the phone and takes messages but someone from the company at the table. That's what we've asked for. That's what we're calling on. We're meeting separately. By we, i mean attorney generals from a number of states meeting with a number of companies to have someone take the lead -- and i think someone will. I'm optimistic about this, to essentially say, our policy to go forward is to favorite home owner and try to get the workouts to happen in three quarters of the time or some percentage that’s much higher than we're seeing today. I think it'll be to their advantage. I think they're going to do much better in the marketplace and save money in the long run if they can do that.

Ted Simons:
>> Let’s talk about foreclosure fraud. How much are you seeing out there?

Terry Goddard:
>> we're seeing a lot. It's a direct result in the increase in the number of foreclosures and the lack of ability to work with the lending companies. And for them to work with the homeowner because we have here in Arizona many, many people who are desperate. Unfortunately when you're desperate and panicked, sometimes you get into bad deals. There's some fraud artists out there and very unscrupulous people who show up on the doorstep of someone who is in financial trouble their mortgage and says, "We’re here to help you. We're here to either keep you in your house or save your credit through a quick sale." Unfortunately, we just brought an indictment against a company called harvest properties in Tucson who had been doing that for sometime who they were make something very unfavorable sales for the homeowner who was in trouble. Another series of indictments from the week before were against companies that were doing what we call foreclosure rescue scams. They basically force the homeowner or trick the homeowner into a sale lease back when they thought they were just doing some kind of an interim loan to be able to stay in their house.

Ted Simons:
>> we talked before a little bit about this. Give us an update, if you will, regarding mortgage fraud and how much that's out there?

Terry Goddard:
>> the flip side of what we saw a lot of, unfortunately, were borrowers who seemed to be tricked into getting more loan than they can afford. Just today, we indicted a woman in scottsdale who were taking advantage of that system perhaps. She was getting loans based upon a financial statement that was purely fraudulent it showed she had way more income than she actually did. She bought houses way beyond her means and quickly managed to refinance them with compliant loan officer who was also indicted. The bottom-line is she sucked $1 million in cash out of six properties. Those immediately go into foreclosure. The crisis that we're dealing with is not just about individual homeowners, it's about greedy speculators who went to the trough and the properties that they were buying are now the ones that are sitting empty. The grass isn't cut. The entire neighborhood's valuation is sinking as a result of these bad deals.

Ted Simons:
>> all right. Well, terry, thank you for joining us. We appreciate it.

Terry Goddard:
>> Thank you. I wish I had better news.

Terry Goddard

  |   Video
  • Arizona Attorney General Terry Goddard joins us to discuss a variety of issues, including lending in Arizona and the new student loan code of conduct.
Guests:
  • Rebecca Friend - AFL-CIO
  • Kevin O’Malley - Gallagher and Kennedy law firm


View Transcript
Ted Simons:
>>> Tonight, we talk about proposition 201, the homeowners’ bill of rights initiative. Before we get started, here are highlights of the initiative. It'll create a 10-year warranty on new homes. It would give homeowners the right to demand correction of construction defects. It would allow the homeowner the right to participate in getting the contractor to do repairs. If an agreement is not reached it allows the homeowners to sue the builder. Homeowners could recover legal costs. Builder cannot. Homeowners could sometimes recover compensatory damages. Relationship between the lender and the builder must be disclosed. There'd be a right to cancel a contract within 100 days and get most of the deposit back. A seller's agent would be prohibited in participating in false mortgage applications. Here to speak in favor of proposition 201 is Rebecca Friend of the afl-cio and speaking against the measure is Kevin O’Malley of the law firm Gallagher and Kennedy. Thank you, both, for joining us on "horizon."

Rebecca Friend:
>> Thank you.

Kevin O’Malley:
>> Thank you.

Ted Simons:
>> Rebecca, why do we need this law?

Rebecca Friend:
>> We started hearing concerns from two groups, workers that were building these homes and homeowners, and the concerns weren’t being addressed by the builders. So we believe that this is legislation that is needed. The legislature took out a lot of homeowner protections in 2002. We believe that we took this to the voters to see if they'll put some of those protections back in.

Ted Simons:
>> protecting the homeowner. Sounds like a pretty good idea.


Kevin O’Malley:
>> Of course it is. Actually, the choice here is about more lawsuits prompted by out-of-state unions that are providing most of the funding for this proposition and a proposition that is written by ape an out-of-state lawyer who didn't participate in the process that Rebecca is talking about. Five or six years ago, there were meetings about all the interested stakeholders in this process that included homeowners groups, contractors and insurance companies, anyone that had to do with the process. We also sat down and worked through this and came up with a process that works it gets homes fixed and fixed quickly and without lawsuits. Now, we have someone coming from out of state telling us we’re more in favor of lawsuits and not in favor of getting the homes fixed when they need it.

Ted Simons:
>> Talk about lawsuits necessary and otherwise. Does this just mean a whole bunch more?

Rebecca Friend:
>> Certainly this law doesn't bypass the arbitration section, the adr. You can't do that federal law protects that preventing any state from doing that. This, we're talking about a family's largest investment. The median income in Arizona in 2007 was a little bit around $45,000 or $47,000. New home costs in 2007, median cost was $283,000. So you're talking about a family's largest investment. If you go buy a new car for $30,000, you can get an 8-10 year warranty. We're saying you should be able to do this on a new home. We're not inventing the wheel on this. There are several states that have stronger laws than Arizona two states, New Jersey and Louisiana have a 10-year warranty on new homes.

Ted Simons:
>> Talk about what happened five or six years ago and the resulting law? Do you want to take it to what happened prior to the law? Does that jump the law? What is happening here?

Rebecca Friend:
>> This makes to new law. Speak to Kevin’s concern that this is an out-of-state union that funded it. The union that funded it primarily is the sheet metal workers from in state. Out-of-state lawyer, all propositions need to have a lawyer to write the language. You have to make the law fit with existing law. Not violate state or federal law.

Ted Simons:
>> are you saying homeowners had enough protection? Is there room for more? Are you saying it's good enough as it is?



Kevin O’Malley:
>> The system that works right now works very, very well. The legislature held open and public meetings about this. There was bipartisan support. The governor signed these bills into law because it provides an even and balanced system Rebecca says we're not taking away the right for arbitration. If you read this bill, that's exactly what it does. Instead of allowing people to get together, mediate or arbitrate their disputes that strikes the language from the existing law and forces people into litigation it takes away people's rights. It takes away the rights of the homeowners and the builders to get together and solve their problems themselves.

Ted Simons:
>> Talk about that. Does this keep folks -- I mean, do you have to go to court now?

Rebecca Friend:
>> No, absolutely not. And in fact, um, you do have a choice of contractors. You have to have someone that have a clean record with the registrar of contractors. The home builder could certainly be one of those. What we're saying is homeowners need a way to address the situations when they're not fixed. We did a study on faulty homes. We studied 400 home owners. I have the survey. Out of those, 59% of the homeowners had defects that wasn’t addressed by the builder.

Ted Simons:
>> A 10-year warranty which is addressed here as well. Why isn't that such a great idea?

Kevin O’Malley:
>> First of all, under existing law, homeowner haves an eight-year warranty. If the problem developed in the eighth year, you have a nine-year warranty. That's not what this is about. This is not about warranties. Our builders stand behind their product already. It's about whether or not you want the problems to be addressed in two or three years on litigation with hundreds of thousands of dollars of fees for everyone or whether you want the current system which avoids litigation and has people sit down in a dialogue and provide for example a reasonable list of the problems. Under this proposition, the homeowner no longer has to tell where you the defects are in the home. How are we going to get things fixed if they don't tell you what the problems are in the home?

Rebecca Friend:
>> J.D. powers says within homes, there's 11.5% problems. Is that what we want in Arizona where we have a median income where it's working families. This is your largest investment. Shouldn't it be protected as much as your car?

Ted Simons:
>> Why shouldn't home buyers, why shouldn't consumer in order to stave off some of the frivolous lawsuits or unnecessary lawsuits, however you want to describe them, why should they be responsible for the legal costs?


Rebecca Friend:
>> What we're assuming is there'll be frivolous lawsuits. We held the minimum wage initiative. What we heard is it'll be involved in identity theft. That's a fallacy. There's nothing that proves we will have increased courts or increased legal fees or increased anything except the homeowners getting the defects fixed.

Kevin O’Malley:
>> Ted, here is the problem. Right now, here is the existing law. Under existing law, if you file -- if you go through the process and determine you don't like the offer that's made by the builder and go to a lawsuit, at the end of the lawsuit, if do you better than offer that was made to you before the lawsuit started, you win. You get your attorney's fees and the expert witness fees. If on the other hand out-of-state lawyers come in, file lawsuits that are frivolous, have no merit and you go to litigation, at the end of the day, the jury said, you know what? Mr. Builder did you a good job. Under this proposition, they're striking that out saying no matter how frivolous or unmeritorious the lawsuit is the builder never gets the fees. It'll incentivize the out-of-state lawyers to file the lawsuits hoping it get a big payday with no risk of having to address the problems they filed in the lawsuit.

Ted Simons:
>> Prior to 2002, was there a problem with unnecessary lawsuits against home builders?

Kevin O’Malley:
>> There was a problem with unnecessary lawsuits. We saw it starting in California. It's come over here. There's been lawyers and there's been expert witnesses that have opened shop here in Arizona to file lawsuits. And as I mentioned before, the purpose of the group getting together at the state legislature was to find a way we could avoid lawsuits. That's what the notice and opportunity repair bill was all about. Avoid lawsuits and get problems fixed. Now what we're talking about is let's dismantle that system and force this into litigation.

Ted Simons:
>> It -- please.

Rebecca Friend:
>> Well, certainly, Kevin, you know, i read bios. Kevin represented home builders. He's representing a group that's got interests. If you look at who is representing this bill, it's the chambers and the homeowners and the lawyers that represent them. They didn't go in to make this better in 2002. They went in to strip out the homeowner's rights.

Ted Simons:
>> If we look for who is behind the proposition, you see unions, why?

Rebecca Friend:
>> You see unions, because we hear from workers and homeowners all the time. We get a lot of calls at the afl-cio that have nothing to do with unions or nothing to do with union organizations. They have to do with workers and working families because they know we stand up for their rights.

Kevin O’Malley:
>> Ted, when we got together in 2002, sitting in the table were representatives of homeowners' associations, lawyers that sue builders were at the table as well as insurance companies and multihousing groups. Why is it we need an out-of-state lawyer to tell us in Arizona and tell that group of interested people that the unions think we should do something different.

Ted Simons:
>> Last question, we got like 30 seconds here, is that a major part of your opposition? The idea of unionizing?

Kevin O’Malley:
>> No. No. No. It's not about unions. It's about if you want to be part of the process, we're worthy in the last five years sitting down with everyone that’s interested including the homeowners. We had homeowners' groups in our meetings. Where is the homeowners' interests? It's not being represented by the union.

Ted Simons:
>> all right, we have to stop it right there thank you, both, for joining us. We appreciate it.

Kevin O’Malley:
>> Thank you Ted.

Rebecca Friend:
>> Thank you.

What's on?

Content Partner:

  About KAET Contact Support Legal Follow Us  
  About Eight
Mission/Impact
History
Site Map
Pressroom
Contact Us
Sign up for e-news
Pledge to Eight
Donate Monthly
Volunteer
Other ways to support
FCC Public Files
Privacy Policy
Facebook
Twitter
YouTube
Google+
Pinterest
 

Need help accessing? Contact disabilityaccess@asu.edu

Eight is a member-supported service of Arizona State University    Copyright Arizona Board of Regents