News & Current Affairs

October 3, 2008

Biden and Palin debate

Biden and Palin debate

The two US vice-presidential candidates have traded blows on the financial crisis, climate change and foreign policy in their only TV debate.

Democrat Joe Biden sought to link Republican presidential candidate John McCain to the policies of President Bush, saying he was “no maverick”.

Republican Sarah Palin defended herself against claims of inexperience and said the McCain ticket would bring change.

Voter polls suggested Mr Biden had won but Mrs Palin did better than expected.

The debate at Washington University in St Louis, Missouri, was seen as particularly crucial for Mrs Palin, whose poll ratings have fallen.

Mrs Palin played to her strengths and her image as a mother in touch with ordinary Americans.

For the most part she spoke fluently but simply about the economy, climate change and the war in Iraq, our correspondent says, and there were few of the stumbling gaffes that have become the staple of late-night comedy shows.

Two polls conducted after the debate, by US networks CNN and CBS News, judged Mr Biden the winner. However, the CNN poll found a large majority thought Mrs Palin had done better than expected.

‘Hockey moms’

Asked by moderator Gwen Ifill who was at fault for the current problems with the US banking system, Mrs Palin blamed predatory lenders and “greed and corruption” on Wall Street.

It would be a travesty if we were to quit now in Iraq
Sarah Palin
Republican VP nominee

Senator McCain would “put partisanship aside” to help resolve the crisis, she said, and had raised the alarm over mortgage giants Fannie Mae and Freddie Mac long ago.

She said “Joe six-packs and hockey moms across the country” – referring to middle-class voters – needed to say “never again” to Wall Street chiefs.

Mrs Palin also accused Democratic presidential candidate Barack Obama of seeking to raise taxes but Mr Biden rejected that claim.

He said the economic crisis was evidence that the policies of the past eight years had been “the worst we’ve ever had” and accused Mr McCain of being “out of touch” on the economy.

Senator Obama’s plan to raise taxes on households earning over $250,000 was “fairness”, Mr Biden said, unlike Mr McCain’s proposals for more tax breaks for big companies.

‘Dead wrong’

On foreign policy, Mrs Palin accused Mr Obama of refusing to acknowledge that the “surge” strategy of extra troops in Iraq had worked.

He’s not been a maverick on virtually anything that people talk about around the kitchen table
Joe Biden
Democratic VP nominee

“It would be a travesty if we were to quit now in Iraq,” she said, describing Mr Obama’s plan to withdraw combat troops a “white flag of surrender”.

Mr Biden countered by saying Mr McCain had been “dead wrong” on Iraq and had yet to present a plan to end the conflict.

He said the US was wasting $10bn a month in Iraq while ignoring the real front line in the fight against terrorism, Afghanistan.

In turn, Mrs Palin said Mr Obama was naive for saying he was willing to talk directly to the leaders of Iran, North Korea and Cuba. “That is beyond bad judgment. That is dangerous,” she said.

The pair also sparred on the issue of climate change.

Mrs Palin, governor of energy-rich Alaska, said human activities were a factor in climate change but that climatic cycles were also an element. She urged US energy independence as part of the answer.

Key words used most frequently by Joe Biden in the debate

Mr Biden pointed to climate change as one of the major points on which the two campaigns differed, saying: “If you don’t understand what the cause is, it’s virtually impossible to come up with a solution.”

He said he and Mr Obama backed “clean-coal” technology and accused Mr McCain of having voted against funding for alternative energy projects and seeing only one solution: “Drill, drill, drill.”

While Mrs Palin described her party’s candidate as “the consummate maverick”, her rival argued that Mr McCain had followed the Bush administration’s policies on important issues such as Iraq.

“He’s not been a maverick on virtually anything that people talk about around the kitchen table,” Mr Biden said.

Overall, commentators highlighted Mrs Palin’s frequent use of a “folksy” style, for example using expressions like “doggone it” and telling her opponent: “Aw, say it ain’t so, Joe.”

They also noted how Mr Biden appeared emotional as he talked about raising his two young sons alone after a car crash killed his first wife.

Poll shift

According to a Pew Research Center poll, two-thirds of voters planned to follow the debate, far more than in 2004.

McCain and running mate Sarah Palin at Republican convention in St Paul on 4 September 2008

Sarah Palin was a huge hit at the Republican convention last month

A new poll by the Washington Post suggests that 60% of voters now see Mrs Palin as lacking the experience to be an effective president.

One-third say they are less likely to vote for Senator McCain, as a result.

Independent voters, who are not affiliated to either political party, have the most sceptical views of the 44-year-old Alaska governor.

Another poll, for CBS News, gives Senator Barack Obama 49% to 40% for Mr McCain.

It is the latest in a series of opinion polls that have shown a significant shift in the direction of Mr Obama since the economic crisis began.

Mrs Palin, whose fiery speech at last month’s Republican convention inspired Christian conservatives, produces unusually strong feelings – both positive and negative – among voters.

Key words used most frequently by Sarah Palin in the debate

Although Mrs Palin has succeeded in mobilising conservative Republicans, her key challenge is to appeal to the swing voters who could determine who will win the battleground states, analysts say.

In particular, she needs to win over the “Wal-Mart moms” – white, working-class married women.

A recent poll of customers of discount giant Wal-Mart suggested that Mr McCain was slightly ahead with this group in Ohio and Florida, while Mr Obama was leading in Virginia and Colorado.

Meanwhile, the McCain campaign is scaling back its operations in another swing state, Michigan, effectively conceding the advantage to Mr Obama there.

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September 10, 2008

US budget deficit seen at $438bn

US budget deficit seen at $438bn

People on Fifth Avenue, New York

Economic weakness could presage a recession, the CBO warns

The US budget deficit is expected to reach a record $438bn in 2009, according to estimates from the Congressional Budget Office (CBO).

It also warns the deficit could go higher as the figure does not take into account possible government costs for taking over Fannie Mae and Freddie Mac.

The CBO added the US government will run a deficit of $407bn this year.

During the next fiscal year – starting on 1 October – a “turbulent” economy would cut revenues, the CBO warned.

‘Increase in spending’

The CBO estimate for 2009 does not include the possible costs of rescuing the two stricken giant mortgage firms, which was announced on Sunday.

Its assessment of $438bn would breach the 2004 record of $413bn and far outstrip the $161bn budget shortfall last year.

“The significant expansion in the deficit is the result of a substantial increase in spending and a halt in revenue growth,” the CBO report said.

In 2008, the CBO estimates, federal spending will be 8.3% higher than it was in 2007; at the same time, total revenues will be less than they were in 2007.

‘Past recessions’

At a news conference, CBO director Peter Orszag said it was too soon to say whether the US officially is in a recession.

But he said that the recent rise in unemployment and economic weakness “are consistent with the pattern seen in past recessions, the past few recessions to be precise”.

He also said CBO’s budget estimates did not take into account possible costs related to the US government for taking over Fannie and Freddie.

But he said the cost of the operation should be directly incorporated into the federal budget, which could further swell deficits.

September 7, 2008

US lenders ‘face state takeover’

US lenders ‘face state takeover’

Home repossessed in US

US mortgage giants Freddie Mac and Fannie Mae are set to be put under government control in an attempt to rescue the firms, media reports say.

Treasury Secretary Henry Paulson will outline government plans at a news conference at 1100 (1600 BST).

The move to shore up the shareholder-owned firms, which hold or guarantee half the US mortgage debt, would be the US’s largest ever financial bail-out.

In July, Congress approved a plan aimed

at offering them more liquidity.

This followed huge losses by the two firms as result of a big increase in defaults and repossessions in the US housing market.

‘Management told’

On Saturday, a senior politician, Barney Frank, chairman of the House Financial Services Committee, said US Treasury Secretary Henry Paulson had told him the government would use its powers to ensure the continued and stable functioning of the companies.

The Washington Post, quoting senior administration sources, said the firms would be put under a legal status known as “conservatorship” which would greatly reduce the value of the two companies’ common stock.

BBC Business Editor Robert Peston
This is an event of profound significance for the global economy
BBC Business Editor Robert Peston

Other securities – including company debt and preferred shares – would be guaranteed by the government, the paper added.

The New York Times reported that senior executives at Freddie Mac and Fannie Mae were informed about the plan on Friday.

The Wall Street Journal said it would include changes in the top management.

There would also be quarterly infusions of cash to keep both firms afloat, the papers say. The total cost to taxpayers is not known but could amount to billions of dollars, they add.

The government was being forced to step in because it was dangerous for the US economy for doubts to persist about the two firms’ viability.

Struggling homeowners

HAVE YOUR SAY

Government control over larger portions of the economy can only end badly

TB, US

The two contenders for the US presidency, Barack Obama and John McCain, have been briefed on the takeover by Mr Paulson.

“We’ve got to keep people in their homes,” said the Republican candidate, John McCain.

“There’s got to be restructuring, there’s got to be reorganisation, and there’s got to be some confidence that we’ve stopped this downward spiral,” he added, saying that the takeover of Fannie Mae and Freddie Mac must not benefit executives at the two companies.

The Democratic Party candidate, Barack Obama, said any action should be focused “on whether it will strengthen our economy and help struggling homeowners”.

“We must not allow government intervention to protect investors and speculators who relied on the government to reap massive profits,” he said, adding “we must protect taxpayers, not bail out the shareholders and management of Fannie Mae and Freddie Mac”.

Fragile

On Friday, America’s Mortgage Bankers Association reported that at the end of June, about four million homeowners with a mortgage – representing a record 9% – either were behind in their payments or faced repossession.

In the past year, the financial crisis has taken a heavy toll on both Fannie Mae and Freddie Mac.

The country’s two largest buyers and backers of mortgages lost a combined $3.1bn between April and June.

Both companies say they have the resources to weather the losses, but their shares have fallen sharply on fears that they could go bankrupt as borrowers default.

The rescue plan passed by Congress in July gave the US government the authority to buy shares and offer liquidity to companies to keep them afloat.

Many analysts believe their collapse would be a major shock to the already fragile global financial system.

Together, the two firms own or guarantee about $5.3 trillion worth of home loans – about half the outstanding mortgages in the US.

That is about 25 times as big as the obligations of Northern Rock – which was nationalised by the UK government earlier this year, and twice the size of the UK economy.

August 9, 2008

Fannie Mae unveils loss of $2.3bn

Fannie Mae unveils loss of $2.3bn

Courtesy BBC

Problems in the US housing market have pushed mortgage finance company Fannie Mae into the red.

The group sank to a net loss of $2.3bn in the three months to 30 June, against a profit of $1.97bn last year.

It comes days after its sister company Freddie Mac posted worse-than-expected results and its top executive warned house price falls are not over yet.

Both government sponsored firms own, or guarantee, nearly half of the nation’s mortgage debt.

Shares in Fannie Mae sank in the wake of the announcement, falling 9.8% to $8.98.

Difficult market

As mortgage guarantors, Fannie Mae and Freddie Mac, must pay out when people default on their loans.

But as a result of recent woes in the US housing market and subsequent sub-prime crisis the pair have run into severe difficulty.

Fannie Mae says it has the capital to weather the storm, but its looking more and more stormy by the day
John Raines,
Exclusive Analysis

Fannie Mae said that the current housing crisis had added to its woes to the tune of $5.3bn in credit expenses.

The latest losses at the firm – which came in at more than three times analysts’ estimates – followed a $2.2bn loss for the first three months of the year.

“Our second-quarter results reflect challenging conditions in the housing and mortgage markets that began in 2006 and have deepened through 2007 and 2008,” said Daniel H Mudd, president and chief executive officer of Fannie Mae.

Cost cutting

He added that the firm had also taken steps to raise an additional $7bn to help it tackle the “most difficult US housing market in more than 70 years”.

As part of the plan Fannie Mae is slashing its dividend by more than 85% to 0.05 cents, raising its fees and has taken steps to cut its costs by 10%.

The group also said it would stop purchasing ‘Alt-A’ loans – loans made to borrowers with good credit but little proof of their income, or people who either put down a small deposit, or no deposit, for their loan.

But there was little to offer hope in near-term future with Fannie Mae warning that increased volatility in capital markets and deteriorating credit conditions meant that it would face more losses.

Bail-out

Last month, the federal government offered a financial lifeline to the two beleaguered companies offering to extend their line of credit.

However, the financial aid may leave the taxpayer facing a bill of $25bn over the next two years.

“The taxpayer is stuck if they have to be bailed out,” John Raines, deputy director of political risk for Exclusive Analysis told the BBC.

He added that reports had suggested the actual cost could end up being anywhere in the region of between $10bn to $100bn.

“Right now, Fannie Mae says it has the capital to weather the storm, but its looking more and more stormy by the day.”

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