Tuesday, July 31, 2007

Oil Futures Close at Record Level

uly 31, 2007

The great oil rally, now in its fourth year, shows no sign of slowing down.

Oil prices reached a record today, exceeding last summer’s peak. Light, sweet crude oil futures for September delivery ended at $78.21 a barrel, up $1.38. It is the highest closing price since oil contracts began trading on the New York Mercantile Exchange in 1983.

Many analysts expect oil to keep rising this year. The previous high of $77.03 was set in July 2006 at the onset of Israel’s war in Lebanon. During today’s trading session, oil rose as high as $78.28 a barrel, falling a few pennies short of last year’s trading high of $78.40. Unlike last year’s jump, the gains on energy markets these past few weeks have not been caused mainly by geopolitical tensions, although these have not disappeared in Iraq, Iran or Venezuela. Rather, the latest surge is the result of tighter market conditions this summer and concerns about insufficient supplies.

Oil prices have risen by 28 percent since the beginning of the year. But that has not slowed the strong growth in oil consumption, bolstered by economic growth in the United States and Asia. Meanwhile, energy supplies have struggled to catch up while a raft of shutdowns at American refineries have crimped production at the busiest time of the year for gasoline.

“The bottom line is the market has tightened up for good,” said Jan Stuart, an energy economist at UBS. “From a crude oil fundamental perspective, we’re not at the middle of the up-cycle yet. We’ve got ways to go.”

Paradoxically, gasoline prices in the United States have been falling in recent weeks, despite the rise in oil, as domestic refineries have increased their output. The average price for gasoline nationwide is now $2.88 a gallon.

Meanwhile, global oil consumption is expected to keep growing and reach 86 million barrels a day this year, 1.5 million barrels more than in 2006, according to the International Energy Agency, an adviser to industrialized countries.

Within five years, the energy agency estimates demand reaching nearly 96 million barrels a day. In a recent report, it warned of a “supply crunch” if oil supplies fail to keep up with the pace of growth in demand.

Traders so far seem to have shrugged off questions about the resilience of the American economy. Last week, the Commerce Department said that the economy expanded at an annual rate of 3.4 percent in the second quarter, faster than analysts had expected.

“It’s a period of uncertainty,” said Antoine Halff, an energy analyst at Fimat. “There are mixed signals on the oil market as there are in the broader economy. You have signs that the economy is resilient, and at the same time there are concerns about inflation and about the stock markets.”

“There has been a very strong shift in market sentiment; everyone is bullish now,” Mr. Halff said, referring to the oil market.

A report by Deutsche Bank said today that Chinese oil demand would rise strongly next year as the Beijing Olympic games bolster the country’s economy. Chinese oil consumption, which last year was 7.16 million barrels a day, is expected to grow by an annual 6 percent over the next two years. By 2015, Deutsche Bank estimates China’s oil demand at 10 million barrels a day.

The rising oil prices prompted a senior OPEC official to suggest earlier this week that the oil cartel might act before its next scheduled meeting if prices reached $80 a barrel. The Organization of Petroleum Exporting Countries, which controls about 40 percent of global oil exports, next meets in Vienna on Sept. 11.

OPEC’s members appear divided over what to do next. The group’s most hawkish members, like Iran and Venezuela, oppose increasing output. Iran’s oil minister, Kazem Vaziri-Hamaneh, said on Sunday that he did not expect OPEC to consider changes to its output at its next meeting.

But Abdalla Salem el-Badri, OPEC’s secretary general, suggested on Monday that OPEC could release some of its spare capacity to drive down prices.

“A price above $80 also wouldn’t make us particularly pleased,” Mr. Badri said in an interview on Monday in the Austrian financial daily Wirtschaftsblatt. “We’re constantly monitoring the market and are therefore ready to adjust production if circumstances warrant this.”

Thanks to last year’s high prices, OPEC’s 12 members enjoyed a 22 percent jump in their petroleum exports, to $649.5 billion in 2006 compared with those in the previous year, according to the organization’s annual report, released today. The group’s total oil production, including that of the latest member Angola, was relatively flat at 32 million barrels of oil a day last year, up a mere 280,000 barrels a day from the previous year.

Mr. Badri estimated OPEC’s untapped production level at 3.5 million barrels a day.

But few analysts believe the oil-producing cartel has much capacity to act. The International Energy Agency estimates that OPEC’s sustainable spare capacity is 2.8 million barrels a day, much of it in Saudi Arabia.

Even at today’s levels, oil futures are still about $10 a barrel short of the all-time inflation-adjusted peak set in 1981. Oil prices would have to rise to about $90 a barrel to exceed that record.

But that prospect does not seem so distant — or inconceivable — anymore.

Goldman Sachs analysts warned in a recent report that without swift action from Saudi Arabia, oil prices could rise above $90 a barrel this fall. They said that an increase in OPEC production could help push prices down by $5 to $10 a barrel.

Some analysts said they were surprised by the market’s rapid gains this year.

“This uptrend that has been in place since 1998 has not ended yet,” said Tom Bentz, a senior energy analyst at BNP Paribas. “It’s been nearly 10 years now in this bull market and we still have to see higher prices.”

American Nightmare

To many people in the affluent Bay Area, losing a home to foreclosure sounds like a Depression-era relic or a Rust Belt phenomenon. Our real estate prices have defied gravity for so long; our job market is so strong; our cachet as a place to live seems so obvious. How could foreclosures happen here?

But in recent months, the Bay Area has proven to be home to numerous victims of the subprime loan debacle. Just like elsewhere in the country, people here with tarnished credit or limited funds bought houses that proved to be beyond their means, often putting little or no money down, and borrowing money through exotic, expensive loans that were virtual time bombs set to soar to unaffordable levels after an introductory period.

Aggressive mortgage brokers, voracious lenders and naive consumers combined to create an unstable situation. The tipping point came a year and a half ago when real estate prices started to flatten or fall in some areas. Suddenly, home buyers who had planned to refinance saw that door slammed shut because they no longer had equity in their houses and their "introductory rate" mortgages quickly became unaffordable as interest rates -- and their monthly payments -- rose. This year, almost 1 million people nationwide will enter a stage of foreclosure, according to RealtyTrac.com. That great tidal wave is ravaging the already beleaguered real estate market and causing repercussions from Wall Street to Washington, D.C.

In the second quarter of this year, 2,206 homes in the nine-county Bay Area were lost to foreclosure, according to real estate service DataQuick Information Systems. That was the highest number for this area since DataQuick started tracking foreclosures in 1988, and an almost nine-fold increase from 258 foreclosures in the April-June period last year. Also in the second quarter, DataQuick said 7,696 Bay Area homeowners received notices that they were in default on their mortgage payments -- the first step in the foreclosure process. That was more than double the 2,910 default notices received at the same time last year.

Some observers say that many of those facing foreclosure should never have bought a house. To be sure, many consumers were seduced by the American dream of homeownership and so financially unsophisticated that they didn't apply due diligence. For Bay Area residents, more than a decade of consistently rising home prices may have led to a mob mentality of people overeager to jump into the real estate market, confident they would quickly gain equity.

On the other side of the equation, many lenders pushed the envelope. For example, Ameriquest Mortgage Co., the nation's leading subprime lender, is now paying $325 million to 725,000 borrowers nationwide for allegedly improper sales practices, including failing to adequately disclose home-loan terms and rates, refinancing borrowers into inappropriate loans, inflating home appraisals, and charging excessive fees and prepayment penalties.

Foreclosures have a much broader impact than just misfortune for the people who lose their homes. Within neighborhoods, they cause real estate prices to sink because houses on the verge of foreclosure or already foreclosed upon often are resold at lower prices. That, in turn, has a ripple effect on the overall real estate market. Increasing foreclosures are one reason the current housing downturn has proven to be more severe and long-lasting than anticipated.

Foreclosures also take a deeply personal toll. As shown in these profiles of several Bay Area homeowners who got in over their heads, a foreclosure goes through many stages, and is an extended and complex process during which homeowners desperately search for solutions to save their homes and salvage their credit ratings.

Foreclosure trail

Foreclosure is a complicated process that usually takes many months. Here are some of the steps involved in a foreclosure.

Default: When a homeowner falls behind on mortgage payments -- how far behind varies with different lenders -- the bank sends a notice of default and records it with the county recorder's office. Homeowners can try to rectify the situation by bringing payments up to date or refinancing. They can try to sell the house, but selling for less than they owe on the mortgage -- a "short sale" -- requires approval from the lender and can have negative tax consequences. The percentage of default notices that result in foreclosure is rising. DataQuick Information Service said one year ago only 12 percent of defaults resulted in foreclosure. This year, 45.4 percent of defaults ended up being foreclosed.

Notice of trustee sale: Three months after the notice of default, the lender can announce that it is putting the property up for auction. The lender notifies the homeowner and files a notice with the county recorder's office. It is common for auctions to be postponed, sometimes multiple times and often at the last minute, as the homeowner tries to stave off foreclosure.

Auction: Properties are auctioned on the courthouse steps in the county where they are located. Because sales are all-cash and "as is," the vast majority of homes revert to the lender at auction. Once a house has been through a courthouse auction, a trustee's deed is filed with the county signifying that it no longer belongs to the homeowner and is a foreclosure.


Here are some places homeowners facing foreclosure can turn for assistance.

Your bank: Lenders stress that homeowners should contact their lender immediately if they have trouble making their mortgage payments. Ask to speak to the workout department. Ask if your loan can be modified, for example, by adding a year onto its term. Ask if you qualify for "forbearance" -- temporary reduction or suspension of payments.

ACORN Housing -- www.acornhousing.org; (866) 672-2676 or (888) 409-3557: This nonprofit has programs with many lenders to help homeowners negotiate affordable loan workouts, payment agreements and foreclosure prevention. It also advocates for policy reforms to stop predatory lending.

Neighborhood Assistance Corp. of America -- www.naca.com; (888) 302-6222: Nonprofit has a $1 billion fund to offer below-market refinances for people who are at risk of losing their homes. Homeowners must meet a variety of qualifications.

NeighborWorks America Homeownership Preservation Foundation -- links.sfgate.com/ZMV, (888) 995-4673: This community development group offers free foreclosure-avoidance counseling and assistance contacting lenders.

HUD-approved housing counseling agencies -- links.sfgate.com/ZMW(800) 569-4287: The U.S. Department of Housing and Urban Development sponsors housing counseling agencies throughout the country that offer advice at little or no cost.

Source: Chronicle research

Johnny Pitts, 42, loves tigers so much that he's crammed almost every inch of his bedroom with big-cat keepsakes. A life-size toy tiger and her two cubs crouch atop the tiger bedspread on his bed, nestled next to a tiger watercolor and a tiger rug. The remaining surfaces are decorated with African statues and inspirational Christian sayings.

"My home is my oasis," said Pitts, a cheerful and talkative man who works as a driver for San Francisco Muni. "It's like Disneyland come to life," he added proudly, showing off the hundreds of color magnets -- a vivid rain forest of tropical birds and exotic fruit -- adorning his kitchen.

Pitts' wide-eyed enthusiasm worked against him when he bought his house. A couple of years ago, a friend referred Pitts to a mortgage broker.

The broker, who also acted as Pitts' real estate agent, showed him the three-bedroom house on Oakland's MacArthur Boulevard. The 1930s bungalow was rundown and the street is a busy thoroughfare, but Pitts liked the neighborhood and agreed to buy the house for $429,950. Pitts said the broker told him his mortgage would be $2,000 a month with no down payment.

Pitts put himself entirely in the broker's hands. He didn't scrutinize the paperwork. He didn't get a home inspection. After he moved in, it turned out his mortgage payment was indeed $2,039. But there was a second mortgage with a payment of $841. Pitts makes about $4,000 a month, so that meant three-quarters of his income is eaten up by the mortgage.

After a few months, Pitts got a bill for supplemental property tax, which is a standard assessment for new owners. That $4,000 hit caused him to skip a couple of mortgage payments last year and he spent several months getting caught up.

"The money I put away for rainy days, my 'do not touch fund' is going away," he said.

Pitts said he fell behind on his mortgage again this year due to higher monthly charges for taxes. He's been working extra shifts and now has finally gotten caught up with his mortgage.

But there's a bigger problem around the corner.

Pitts' first mortgage, currently at an interest rate of 10.026 percent, will reset higher in October, adding $850 onto his payments. That would mean a monthly total of $3,730, plus several hundred more in taxes and insurance.

Meanwhile, the cooling real estate market means his house is now worth $330,000, according to an appraiser Pitts hired this month because he hopes to reduce his property taxes.

"I've learned all this new terminology," Pitts said ruefully. "I'm what they call 'upside down' -- that means I owe more than the house is worth. You have to have equity in your house to refinance, and I don't have any."

Pitts turned to nonprofit ACORN Housing for assistance. He hopes his lender will agree to modify his loan to avoid the huge increase in October or even to lower his payments. He plans to get a roommate and continue working extra shifts.

"All I'm asking for is a loan modification," Pitts said. "I make good money, I don't have other bills.''

The mortgage broker has closed his company and could not be located for comment. The mortgage originator, BNC Mortgage of Irvine, a subprime lender owned by Wall Street firm Lehman Bros., resold Pitts' mortgage, as is common in the business.

"As a responsible lender, BNC Mortgage works hard to ensure that its loans meet our underwriting guidelines," a spokesman said.

Pitts' loans are now being serviced by banking powerhouse Chase, part of JP Morgan Chase & Co. Chase declined to say who currently owns the loan.

"Chase has been working with (Pitts) over a number of months on getting current with the loan," said Tom Kelly, a Chase spokesman. "We are willing to work with him or a community group and look at possibilities. Sometimes when you're in a difficult financial situation, the choices might not be pretty."

In terms of modifying Pitts' loan, Kelly said: "We have to make sure it meets the legal and contractual obligations that we have with investors."

Meanwhile Pitts feels like he's gotten a lifetime's worth of financial education.

"This home ownership is not what it's cracked up to be," he said. "My home is my little piece of the Plymouth rock. I'm going to keep working like a dog to keep it."

Johnny Pitts

Pitts, 42, is a San Francisco Muni driver.

Monthly net income: About $4,000.

House: Three-bedroom, Oakland, purchased in 2005 for $429,950; recently appraised at $330,000.

Mortgage: $2,880 a month (not including taxes and insurance), due to reset to $3,730 a month in October.

Status: Fell behind on mortgage payments but has caught up. Will not be able to afford new mortgage rate in October.

Joann Gardner was scared. Mortgage payments on her family

home were now eight months in arrears. The lender planned to auction the house in foreclosure proceedings at noon. She was getting ready to drive to the Alameda County Courthouse to see what would happen. She pictured that "bigwigs, investors (would) fork out the money."

Just 90 minutes before the appointed time on July 3, Gardner got a phone call that the auction had been postponed for a month. Her real estate agent said the lender had agreed to allow time to try to sell the house to an investor who would rent it back to the family.

"It's a big load off my shoulders for now," said Gardner, a voluble woman with high cheekbones and an aquiline nose. "But I know it's just postponing the inevitable. They will be putting me out of the frying pan into something worse."

The inevitable seems to be that Gardner, 50, and her elderly parents will lose their modest two-bedroom home in Oakland's Sobrante Park neighborhood, where she's lived her whole life. Her parents bought the house in 1954 for $11,500 and raised their four children there, outliving two of them.

After refinancing more than a dozen times over the years to pull out money, the Gardners now owe $454,500 on the house. She thinks it is probably worth about $350,000.

Gardner said her lack of financial knowledge and the need for funds to fix up the house and pay off bills kept inducing her to refinance. Public records show that the home was refinanced four times in the past two years.

Each time, Gardner said, she didn't understand the mortgage terms, and the family did not receive as much cash out as they had expected.

"I've learned a valuable lesson at the expense of this house," she said. "People don't have your back."

On the July day when the auction was scheduled, the compact house brimmed with activity. In the back yard, crammed with tools and debris, Gardner's father, Johnnie Gardner, 86, shuffled stiffly around his pickup truck. Her mom, Estelle Gardner, 87, watched TV in her bedroom. Joann Gardner's great-nephew, Jaron Isom, 20, who stays in the small den, played computer games, while his visiting 4-year-old sister, Maaiah, scribbled out a series of drawings.

Joann Gardner and a neighbor sat at the kitchen table shaking their heads as they looked through the loan documents she and her dad had signed on Halloween, for the most-recent refinance, which went into effect in November.

"It would have to be an intervention from God if it turned around," Gardner said.

The papers show that the monthly payments for mortgage, interest and taxes are $3,362.

Johnnie Gardner's monthly income from Social Security and his pension from 45 years as an electrician at the Oakland Naval Supply Center is $3,144, while Joann Gardner made about $2,100 a month from her secretarial job.

How did Gardner think they would afford the mortgage?

"We were supposed to be cashed out $15,000," she said. "I thought with having that cushion, I'd take a little out each time, and as Daddy's checks came in, it would stack up to enough to pay for the mortgage, and my income would go for utilities and groceries."

Instead, after the lender paid off credit cards for her and her father totaling about $14,000, she only got $1,260.

Then she lost her job in February because she was taking too much time off to tend to her parents. Her mother has Alzheimer's, and her father has arthritis and digestion problems.

When the first mortgage payment came due, Gardner realized they were in over their heads and called the lender.

"They said, 'We can't help you, it's a done deal, you're going to have to try to make those payments,' " she said.

Ian Kideyz, a spokesman for the Gardners' mortgage broker, Apply4Homes of La Jolla, said the refinance helped the family because paying off the credit cards saved $666 in monthly payments, and their new mortgage payment of $3,007 (not including taxes and insurance) was only $133 more than their previous payment.

"I know they're upset because they can't make the payments, but they were put in a better situation," he said. "Their monthly obligations have been reduced. There were no excessive fees charged on this loan."

Chris Orlando, a spokesman for Argent Mortgage Co. of Irvine (Orange County), said, "Argent is a wholesale lender, which means the company had no direct interaction with the customer. We deal through independent brokers and they coordinate with their clients. The loan was approved within our underwriting guidelines based on documented income."

Because of her Alzheimer's disease, Estelle Gardner doesn't always remember that the house is in jeopardy, but sometimes she has moments of insight on the family's situation.

"I would hate to have to go to glory and leave them in the condition where they lose this home," she said. "I always kept up my bills."

The Gardner family

Johnnie Gardner, 86, and Estelle Gardner, 87. The elder Gardners are retired, and Joann Gardner, 50, stays home to care for them after losing her job in February.

Monthly net income: Johnnie Gardner's Social Security and pension payments of $3,144.

House: Two-bedroom, Oakland, purchased in 1954 for $11,500. After refinancing many times, there is no more equity in the home, which is probably worth about $350,000.

Mortgage: The Gardners owe $454,500. Monthly payments are $3,007 for the mortgage, plus $355 for taxes and insurance.

Status: Eight months in arrears; house scheduled for foreclosure auction Friday.

"This was my favorite wedding gift of all time," Vanessa Hahn said as she packed up her Cuisinart toaster, along with the few possessions still in her "fairy-tale" Fairfield home. In front of the spacious house hung a "For Sale" sign -- one of several in the subdivision.

In a few hours, Vanessa and her toddler, Jonah, would leave for good to join her husband, Jeff, in Los Angeles, where he'd found a steady job. Jeff Hahn had already driven a U-Haul full of their furniture down the previous week, after the couple realized they could no longer make ends meet in the Bay Area.

Their monthly mortgage payments are now $5,000 -- about the same as their take-home income. Jeff's business of importing automotive parts for racing cars had failed to take off as quickly as he had hoped, and ate up all his savings. Vanessa's work as a behavioral therapist for autistic children isn't particularly high-paying; in fact, she'd recently switched to working in day care so she could bring Jonah along and cut down on child care bills.

They missed several mortgage payments. They put the house on the market without generating any interest. Then Jeff found the Los Angeles job.

"This is the only way to get out of this situation we're in," she said. "No one wants to leave an area they're so fond of."

Jeff Hahn bought the house, a nicely laid-out decade-old four-bedroom Colonial in a neighborhood of classic two-story homes, three years ago for $495,000. Later that year, he met Vanessa, they fell in love and started a family.

"When I first bought the house, everything was too good to be true," Jeff recalled. "No money down, instantly gaining $10,000 in equity. Written in very small print was that the loan will adjust in two years. Everybody I talked to said it would only be a (minimal) increase."

Instead his two loans, initially totaling $2,200 a month, hit $3,700 last September. When he tried to refinance, Hahn found out that he had been a victim of identity theft. And, as a newly self-employed person, he had to produce extra documentation on his income. All that slowed down the "refi" process for several months, during which the couple scrimped and borrowed to make the larger payments. Several loans fells through for various technicalities.

By the time a new loan finally came through in March, not only had the subprime mess caused banks to tighten their lending standards, but the home's value had dipped. Jeff had borrowed against the home's equity to pay off some bills and start his business. He also took out money to cover closing costs for the new $570,000 loan.

The 40-year fixed-rate loan, at an interest rate of 10.5 percent, carries monthly payments of $5,000. It was underwritten by BNC Mortgage of Irvine (Orange County), a subsidiary of Wall Street firm Lehman Bros. BNC said through a spokesman that it is a responsible lender and works hard to ensure that loans meet its underwriting guidelines.

Why did Hahn accept a loan with higher monthly payments?

"I was using credit cards to subsidize the payments" on the existing mortgage, he said. "I was about to miss a payment. My lender said, 'Take the loan, because it will save your credit, that's the first issue. Then you can sell the house.' "

The Hahns have not made any payments on the loan since it was funded in March.

"Honestly, I gave up once (monthly payments) hit $5,000," Jeff Hahn said. "I said I can't do this."

They have not received a notice of default -- the first step in the foreclosure process -- although they have received numerous calls and letters from Chase, which services the mortgage.

"If people don't make payments early in the mortgage, we try to act very quickly to contact them," said Chase spokesman Tom Kelly. "We need to talk to the person to find out what's going on."

The Hahns put their house on the market, only to discover that real estate prices were spiraling downward in their area. Their house, which had been appraised for $630,000 in January, was now worth less. They started out listing it at $575,000, and now have dropped the price to $555,000.

Selling for less than the outstanding mortgage is called a "short sale" and requires bank approval. It does not hurt a homeowner's credit as much as a foreclosure, but the late payments still appear on credit reports, and homeowners can end up liable for extra taxes. Chase's Kelly was unable to say what the status was of the Hahns' request for a short sale, but he said in general it takes 45 to 60 days to get a decision.

So far, the Hahns haven't received any offers.

"My neighbor is selling his house for $505,000," Hahn said. "My Realtor wants me to drop my price another 100 grand."

The job in Los Angeles seemed like one way to get financial stability.

What if the house goes into foreclosure? "We're hoping it sells before it goes down that road," Vanessa Hahn said. "We're in limbo now, doing what we can."

Jeff Hahn said he is bitter about his experience with home ownership.

"I've probably wasted $90,000 over the past three years and have nothing to show for it," he said. "I lost my house, have to relocate my family and ruined my credit. Now my family will probably never own a house again because we will be considered even more of a risk in the future."

The Hahn family

Jeffrey Hahn, 30, car-parts importer; Vanessa Hahn, 24, works with autistic children; and Jonah, 19 months.

Monthly net income: About $5,000 a month.

House: Four-bedroom in Fairfield, purchased in 2004 for $495,000.

Mortgage: Total owed on house is now $570,000; monthly payments are $5,000.

Status: Three months behind on mortgage; house on market for $555,000.

Carlos Cil, 32, cherishes his Hispanic heritage, wearing embroidered shirts from his native Guatemala, dancing with an Aztec troupe and decorating his house with colorful artifacts from home, as well as pieces from his wife Flore's native Peru.

When he bought a house two years ago, he trusted his mortgage broker because she's from Mexico, so he figured she would look out for a fellow immigrant.

Cil told the broker he could only afford $2,200 a month. He makes $2,600 a month as a painter for the Berkeley Unified School District, but is accustomed to picking up extra jobs to supplement his income so he figured he could stretch for a bit. His wife stays home full time with their 13-month-old son, Brandon.

Cil bought a three-bedroom home in Vallejo for $450,000 with no down payment. The mortgage brokerage acted as his real estate agent. He said he was told his monthly payments would be $2,600 a month. The day he signed the loan papers, he found out the payments would be $2,900 a month, not including taxes and insurance. Cil said he balked, but the brokerage assured him that he'd easily be able to refinance in less than a year to lower his payments.

Reza Khan, an official with Brokaw Capital Financing in San Jose, which brokered the loan, said his company went out of its way to look out for Cil's best interests. It did not include any prepayment penalties, even though those would have earned it more money, Khan said, thus giving Cil more flexibility to refinance. The home was appraised at $465,000 at the time of sale and then sold for $450,000, less a $10,000 seller credit arranged by Brokaw. "So in reality he got this house for $25,000 below market, back in 2005 when the market was booming," Khan said. "In that market, that was a great deal."

Khan said Cil signed a letter saying his income was sufficient for the loan. In such "stated income" loans, lenders do not verify the income, and charge a higher rate because the loans are riskier. Cil paid an interest rate of 7.15 percent on his primary loan and 9.75 percent on his secondary loan, Khan said.

"We've done everything by the book and we have every documentation to back it up," Khan said.

As has happened in many outlying parts of the Bay Area, home prices in Vallejo softened.

"After one year, I couldn't refinance because the value of the houses is not really high here in the neighborhood," Cil said. His brother, who had been staying with the couple and paying rent, moved out, which reduced their income.

Cil's initial mortgage payments did not include an impound account for insurance and property taxes. That was added about four months ago, bringing the monthly payments to $3,500. The loan is set to adjust still higher in September, when its two-year interest-only period will be up; he's not sure how much higher it will go.

Cil was determined not to miss a payment. He said he has been working 12 to 16 hours almost every Saturday and Sunday on extra painting jobs -- and he has kept current with the payments.

The couple did everything they could to economize, getting rid of their cable TV service, landline phone, and even taking bulbs out of light fixtures to cut electricity costs.

"Saving every little bit of money helps," Cil said, pointing to the tomatoes and chile peppers they grow in the sunny yard, along with marigolds for Día de los Muertos.

Keeping up with the payments has proven to be a saving grace.

Cil's steady payment record means he can qualify to refinance through Neighborhood Assistance Corp. of America, a nonprofit that has secured $1 billion from banks such as Bank of America and Citibank to help convert subprime mortgages into long-term loans with fixed rates. He should be able to get a 30-year fixed-rate loan at an interest rate of 1 point below market rate (about 5.75 percent) with no prepayment penalties, according to Winifred Gant, director of the assistance corporation's Oakland office. According to standard mortgage calculators, that would put Cil's monthly payments at $2,626 a month -- still a stretch. Cil said they might rent out rooms if the payments prove high.

"He's been making payments on time, which is a plus for him even though it's really difficult for him to do that," Gant said. "He's had no late payments on his mortgage. Clearly he's made every effort even at the expense of not paying something else. We can help people with late payments, but this is better."

Cil said he is hopeful that the new loan will work out.

"I keep my spirits up," he said. "I don't want to lose the house. It would be really sad to lose it when I've worked so hard."

The Cil family

Carlos Cil, 32, painter; Flore Cil, 28, homemaker; and Brandon, 13 months.

Monthly net income: $2,600 from full-time job (not counting side work).

House: Three-bedroom in Vallejo, purchased in 2005 for $450,000, not sure of current value.

Mortgage: Monthly payments are now $3,500 (including taxes) and are due to reset higher in September.

Status: Kept current on mortgage payments; hopes to refinance this week.

Monday, July 30, 2007

Cricket Swarms in Texas

I remember the crickets from when I was stationed at Ft. Hood, no one seems to remember them however...

This year, black field crickets have descended upon the University of Texas earlier, and in higher numbers, than ever before. In an attempt to reduce the infestation, UT has decided to sacrifice a 70-year-old tradition: This past weekend, it turned off its famed tower's lights.

The university's facilities department has hypothesized that the light, which marks victories and special events, might be attracting the crickets. To test this theory, the school is leaving the tower dark from from July 27-29, and again from August 3-5, to see if the cricket infestation subsides.

In an interview with Alex Cohen, Facilities Services Communications Coordinators Laurie Lentz discusses some of the biggest inconveniences of the cricket influx. In addition to nightly chirping, the pest pile-up causes an unpleasant odor and an unsightly mess.

The reason for the early outbreak of crickets remains a mystery. Usually, black field crickets wait until late August or September to fly into cities from their rural habitats. After the summer droughts are broken by rainstorms, the crickets have mating flights and the insect outbreak begins. But this year, Austin received nearly twice as much rain as usual in June and temperatures were cooler. This meant that the ground was damp and ready for egg-laying earlier than usual.

Black field crickets usually lay their eggs in the autumn and the eggs remain in the soil through the winter. After they hatch, it then takes about three months for the crickets to develop into adults. Dry weather during development could mean that more crickets survive to adulthood. Severe droughts in Texas last year, combined with this year's early cool rains, may have been a recipe for the worst cricket outbreak in memory at UT.

So far, it is unclear whether turning off the tower lights will diminish the cricket population. Next week's repeat of this experiment may help UT decide if this practice could help rid the school of its pest problem.

Saturday, July 28, 2007

Pity Party

“Century 21 Real Estate’s CEO Thomas Kunz may have unintentionally hit the nail on the head when he declared that a ‘pity party’ is gripping the housing industry right now.”

“As this punishing, steep decline has taken hold, everyone from home builder CEOs to real-estate agents to mortgage lenders can’t get over the turn of events. At an auction of townhouses near Fort Myers, Fla., last month, homeowners who had bought into a development built by Levitt and Sons for $300,000 watched as neighboring properties sold for $145,000.”

“‘They promised us that they were not going to go below the market value,’ said one of the homeowners, in a newscast . ‘This is not fair,’ said another.”

“Century 21’s Kunz is fed up with that feel-bad-for-me camp. He hears that kind of talk every day, from buyers, sellers, agents, managers, brokers and more who are angry and confused by how things have turned out.”

“What I am seeing out there is a pity party for everyone involved in real-estate transactions,’ Kunz said.”

“In the end, though, he and everyone else in housing industry must fess up that they are reaping what they sowed. That’s little solace for home owners under water or facing foreclosures. But that’s the way markets work.”

Mueller v Gonzales

WASHINGTON: The White House labored to explain Friday how apparently contradictory testimony from Attorney General Alberto Gonzales and FBI Director Robert S. Mueller was not at odds.

Appearing before the Senate Judiciary Committee on Tuesday, Gonzales repeatedly and emphatically said President George W. Bush's secret warrantless domestic spying program was not the subject of internal disagreement in 2004 within the Bush administration. Mueller, appearing Thursday before the House Judiciary Committee, said it was.

The apparent contradiction only compounded problems for Gonzales, who is losing support among members of both parties even as he retains Bush's.

The Justice Department chief has been on the political defensive, mostly over doubts about his credibility, since Congress began investigating seven months ago the dismissals of U.S. attorneys. In the process, questions have arisen about Gonzales' involvement in the surveillance program, designed to monitor the international communications of people in the United States with suspected ties to terrorists.

White House press secretary Tony Snow said Gonzales testified accurately that there was no internal dispute over the spying activities the administration launched in 2001 that have since been called the "terrorist surveillance program," or TSP.

"There has never been at any juncture along the line any disagreement about the propriety or legality of that program," he said.

Snow stressed that the program's "legal basis" was not at issue and repeatedly emphasized that his statements only applied to a program as "defined very narrowly and carefully."

Otherwise, he did little to dispel the mystery.

He acknowledged that other matters were a subject of controversy. Since they are classified, however, he said he could not speak about what they were or even whether they were in any way connected to the eavesdropping program. The eavesdropping was conducted without public knowledge until it was disclosed in the media in December 2005 and without any court approval until last January, when the program was put under the authority of the Foreign Intelligence Surveillance Court.

"This is where you get into the fact that there is a possibility that there were broader discussions, and I'm not going to get into any of the context of those," Snow said. "There are many different things that involve the gathering or use of intelligence. Some of those may, in fact, have themselves been subjects of controversy."

The issue arose because former Deputy Attorney General James Comey told Congress that he, Mueller and former Attorney General John Ashcroft were among top Justice Department officials who believed the program was illegal and were prepared to resign over it.

Comey described a dramatic hospital bedside visit in March 2004 by then-White House Counsel Gonzales to Ashcroft that involved the dispute. Mueller also said this week that the hospital room confrontation concerned the terrorist surveillance program. Gonzales said it was not, as did Snow.

"I don't want to stand here as the judge to try to interpret for you what everybody means when they use that term, when they use 'terrorist surveillance program,' because it may have different significations to different people," Snow said. "I've told you the narrow construction that the attorney general has used."

When asked if both Mueller and Gonzales were telling the truth, Snow said, "Yes, I think so. ... I'm sure that both men were up there telling the truth and the whole truth as they understood it."

Gonzales testified previously that the dispute was over "operational capabilities" that remain classified.

During a secure briefing July 19 at the Capitol, Gonzales discussed the reasons behind the bedside visit, lawmakers told reporters immediately afterward. Democratic Rep. Sylvestre Reyes, who as chairman of the House Intelligence Committee is privy to classified details, said Gonzales explained the visit "very well in terms of why they had gone there."

But Reyes told The Associated Press on Friday that he found Gonzales' explanation "curious." Asked if he sees the distinction Gonzales made this week between the TSP and other unnamed activities, Reyes responded: "I don't see it."

Earlier Friday, White House spokeswoman Dana Perino accused Senate Democrats of waging a campaign of "constant attacks" aimed at bringing down Gonzales.

Not Made in China

Amid growing awareness of food perils, companies that spotlight where ingredients originate are enjoying new demand

Earlier this year, Swiss ingredient maker DSM Nutritional Products launched a "premium" Vitamin C. The marketing gambit: It comes from tidy Scotland instead of sprawling China, which provides 80% of the world's supply. But it was a tough sell. "We were struggling to get the price we thought was justified by the quality," says communications chief Alex Filz.

No more. Not after contaminated products from China ended up on supermarket shelves. Suddenly, "Not Made in China" has become a major selling point. DSM's Quali-C brand is flying out of its Scottish factory at more than double the price for bulk Vitamin C. "It's a tremendous business opportunity for us," says Filz (see BusinessWeek.com, 7/13/07, "China: Due for a Reality Check?").

In the midst of the imported food crisis, companies are finding clever ways to cash in. Some, like DSM, are playing the "not from China" card. Upscale New York grocery Fairway reassures consumers that none of its seafood is Chinese. Others see a growing business in making this global supply chain safer. One big player: IBM, which is pushing systems to trace the food supply from source to market. "Whenever there's a crisis, there will always be a silver lining for someone who can help alleviate whatever pain is out there," says crisis consultant Gene Grabowski, senior vice-president of Levick Strategic Communications.

Secaucus (N.J.) specialty dog food producer Freshpet found that silver lining. At the end of last year, it was selling its premium all-natural blend of meat and vegetables in a mere 200 stores. Most retailers said the idea was "interesting" but didn't bite, recalls co-founder Scott Morris.

Then pets began dying and, beginning in March, dozens of products were recalled because they might contain melamine from China, an industrial chemical. Freshpet threw out its only overseas ingredient, a protein component from Europe, and quickly ramped up its marketing. It printed big stickers for retailers to put on the refrigerator cases where its products are stocked, highlighting that the food was made daily with fresh, local ingredients. All of a sudden, the retailers who had given Freshpet the cold shoulder "started calling," says Morris. Now, roughly 1,000 stores offer its dog food, with another 1,000 coming by yearend. Projected 2007 sales have more than tripled to nearly $50 million. "Sometimes you're good--and you get lucky," he adds.

With today's global food supply, however, eliminating every particle from China is impossible for most major food companies. Even a simple product like a cereal bar contains ingredients from India, the Philippines--and China, which now supplies the bulk of the world's vitamins, apple juice, and other goods. "I think most people are surprised by the diversity of the sources," says ingredient consultant Peter Kovacs.

Instead, the latest woes have many food giants scrambling to ratchet up efforts to ensure the safety of imported ingredients. That's providing a big boost to a host of companies aiming to help with the task. While Kellogg's has long had systems in place to monitor its global food chain, for example, it has arranged additional third-party audits of its suppliers. Many companies are also broadening the list of things they're analyzing. "One of the reasons melamine slipped through is that no one knew to test for it," says Grabowski.

This increased scrutiny is good news to Gene Rider, North American consumer goods vice-president of Intertek Group PLC. Operating in 110 countries, with headquarters in London, the company offers a complete quality system for clients ranging from Kraft Food Inc. and Unilever to Nike and Microsoft Corp. Intertek will evaluate and train suppliers, test products, and provide other services. Since the latest bans and recalls, inquiries have more than doubled, says Rider. "Companies are increasingly asking to outsource their quality programs," he says. "It's tremendous for us."

IBM also sees a big opportunity in this market. One of the key steps to putting safe food on the dinner table is tracing the entire path of ingredients and products from fields and factories to grocery store shelves. Such a system sounds like a no-brainer, but in practice it's difficult, requiring sophisticated markers and software. "It's a global-information management problem," says Guy A. Blissett, head of consumer products at the IBM Institute for Business Value. The tech giant is trying to capitalize on that demand by providing the tracking tags and sensors to monitor shipments or processes, as well as the computers and software to make sense of it all.

Not only does such a system help boost safety and quality, says Blissett, it enables a company to offer up premium products. It's possible to document, for instance, that beef was grown without hormones, or that yogurt contains the advertised bacteria--and thus be able to charge a higher price.

Already, retailers overseas have found big profits by giving consumers just that kind of information. After outbreaks of Listeria bacteria and other tainted food in Europe, French hypermarket chain Carrefour created Quality Line products, which come from local farmers who have agreed to tough quality standards. The products are now offered in 15 countries and are increasingly popular. In Belgium, where feed contaminated by dioxin was fed to livestock, 98% of beef and 56% of pork carry the Quality Line stamp. Shoppers appreciate the extra assurance. "Whenever there is a crisis, our performance ends up being much better than that of competitors," says Roland Vaxelaire, director for quality, responsibility, and risk management at Carrefour in Paris.

For now, big U.S. chains are just beginning to move in that direction, with certified organic foods and produce labeled with the country of origin. But Blissett says a high level of interest is fueling his business. "Consumer product companies are realizing that, to be competitive, they need to have a robust traceability system." And IBM isn't just waiting for the market to develop. Recently it has tried aggressively to drum up customers with the help of a survey showing that nearly 40% of consumers are already changing what food they buy because of safety concerns.

In recent years, food producers have been under relentless pressure to buy ingredients at the lowest price. That, inevitably, led them to China. Now, says DSM's Filz, they increasingly are "moving away from decisions made just on price to something like a stamp or seal." No surprise then that DSM is creating such a seal, which would guarantee the quality, reliability, and traceability of its products. That's good for safety--and for DSM's business.

Friday, July 27, 2007

F.B.I. Chief Gives Account at Odds With Gonzales’s

July 27, 2007

WASHINGTON, July 26 — The director of the F.B.I. offered testimony Thursday that sharply conflicted with Attorney General Alberto R. Gonzales’s sworn statements about a 2004 confrontation in which top Justice Department officials threatened to resign over a secret intelligence operation.

The director, Robert S. Mueller III, told the House Judiciary Committee that the confrontation was about the National Security Agency’s counterterrorist eavesdropping program, describing it as “an N.S.A. program that has been much discussed.” His testimony was a serious blow to Mr. Gonzales, who insisted at a Senate hearing on Tuesday that there were no disagreements inside the Bush administration about the program at the time of those discussions or at any other time.

The director’s remarks were especially significant because Mr. Mueller is the Justice Department’s chief law enforcement official. He also played a crucial role in the 2004 dispute over the program, intervening with President Bush to help deal with the threat of mass resignations that grew out of a day of emergency meetings at the White House and at the hospital bedside of John Ashcroft, who was then attorney general.

In a separate development, Senate Democrats, who were unaware of Mr. Mueller’s comments, demanded the appointment of a special counsel to investigate whether Mr. Gonzales committed perjury in his testimony on Tuesday about the intelligence dispute. The Senate Judiciary Committee, meanwhile, issued a subpoena to Karl Rove, the White House senior political adviser, and another presidential aide, J. Scott Jennings, for testimony about the dismissal of federal prosecutors, another issue that has dogged Mr. Gonzales.

White House officials said the Democrats had engaged in political gamesmanship.

“What we are witnessing is an out-of-control Congress which spends time calling for special prosecutors, starting investigations, issuing subpoenas and generally just trying to settle scores,” said Scott M. Stanzel, a White House spokesman. “All the while they fail to pass appropriations bills and important issues like immigration reform, energy and other problems go unanswered.”

The conflict underscored how Mr. Gonzales’s troubles have expanded beyond accusations of improper political influence in the dismissal of United States attorneys to the handling of the eavesdropping program, in which Mr. Gonzales was significantly involved in his previous post as White House counsel.

“I had an understanding that the discussion was on a N.S.A. program,” Mr. Mueller said in answer to a question from Representative Sheila Jackson Lee, Democrat of Texas, in a hearing before the House Judiciary Committee.

Asked whether he was referring to the Terrorist Surveillance Program, or T.S.P., he replied, “The discussion was on a national N.S.A. program that has been much discussed, yes.”

Mr. Mueller said he had taken notes of some of his conversations about the issue, and after the hearing the committee asked him to produce them.

An F.B.I. spokesman declined Thursday night to elaborate on Mr. Mueller’s testimony.

In a four-hour appearance before the Senate Judiciary Committee on Tuesday, Mr. Gonzales denied that the dispute arose over the Terrorist Surveillance Program, whose existence was confirmed by President Bush in December 2005 after it had been disclosed by The New York Times. Mr. Gonzales said it centered on “other intelligence activities.”

Brian Roehrkasse, a spokesman for the Justice Department, said Thursday night that Mr. Gonzales had testified truthfully, saying “confusion is inevitable when complicated classified activities are discussed in a public forum where the greatest care must be used not to compromise sensitive intelligence operations.”

The spokesman said that when Mr. Gonzales had said there had been no controversy about the eavesdropping operation, he was referring only to the program to intercept international communications that Mr. Bush publicly confirmed.

“The disagreement that occurred in March 2004 concerned the legal basis for intelligence activities that have not been publicly disclosed and that remain highly classified,” Mr. Roehrkasse said.

The four senators seeking an inquiry into Mr. Gonzales’s testimony sent a letter to the Justice Department saying “it is apparent that the attorney general has provided at a minimum half-truths and misleading statements.”

The senators asked for the appointment of a special counsel. While the Justice Department is not obliged to act on their request, the letter reflected the chasm of distrust that has opened between lawmakers on the Judiciary Committee and Mr. Gonzales.

The senators who signed the letter were Russell D. Feingold of Wisconsin, Dianne Feinstein of California, Charles E. Schumer of New York and Sheldon Whitehouse of Rhode Island. Ms. Feinstein, Mr. Feingold and Mr. Whitehouse are members of the Intelligence Committee and have been briefed on the intelligence programs at issue.

The senators’ letter was sent to Paul D. Clement, the solicitor general, because Mr. Gonzales is recused from investigations of his own conduct. In addition to his statements to Congress about the intelligence controversy, the letter raised the possibility that Mr. Gonzales had lied about the prosecutor firings.

In what amounted to a warning to the attorney general, Senator Patrick J. Leahy, Democrat of Vermont and chairman of the Judiciary Committee, sent Mr. Gonzales the transcript of Tuesday’s hearing, asking him to “mark any changes you wish to make to correct, clarify or supplement your answers so that, consistent with your oath, they are the whole truth.”

Similar requests are routinely sent to witnesses after hearings, but Mr. Leahy’s pointed language underscored his view of the seriousness of the dispute over Mr. Gonzales’s veracity.

Still, neither Mr. Leahy nor Senator Arlen Specter of Pennsylvania, the committee’s top Republican and a tough critic of Mr. Gonzales, joined in the call for a perjury investigation.

“I don’t think you rush off precipitously and ask for appointment of special counsel to run that kind of an investigation,” Mr. Specter said.

Doubts about Mr. Gonzales’s version of events in March 2004 grew after James B. Comey, the former deputy attorney general, testified in May that he and other Justice Department officials were prepared to resign over legal objections to an intelligence program that appeared to be the N.S.A. program.

Mr. Gonzales’s testimony Tuesday was his first since Mr. Comey’s account drew national attention. He stuck to his account, repeatedly saying that the dispute involved a different intelligence activity.

Mr. Gonzales described an emergency meeting with Congressional leaders at the White House on March 10, 2004, to discuss the dispute. That evening, he and the White House chief of staff, Andrew H. Card Jr., went to the hospital bedside of Mr. Ashcroft in an unsuccessful effort to get his reauthorization for the secret program.

Lawmakers present at the afternoon meeting have given various accounts, but several have said that only one program, the Terrorist Surveillance Program, was discussed.

In addition, in testimony last year, Gen. Michael V. Hayden, who was the N.S.A. director when the program started and now heads the Central Intelligence Agency, said the March 2004 meeting involved the Terrorist Surveillance Program.

see also

Judge Voids Ordinance on Illegal Immigrants


A federal judge in Pennsylvania yesterday struck down ordinances adopted by the City of Hazleton to bar illegal immigrants from working or renting homes there, the most resounding legal blow so far to local efforts across the country to crack down on illegal immigration.

The decision, by Judge James M. Munley of Federal District Court, presents a new roadblock to local officials who want to take action against illegal immigration after broad federal legislation to address the issue failed in the Senate last month.

Judge Munley ruled that ordinances first passed last July by the Hazleton City Council interfered with federal law, which regulates immigration, and violated the due process rights of employers, landlords and illegal immigrants.

The ruling resonated beyond Hazleton because the town was the first in the country to pass such measures, after its mayor, Louis J. Barletta, vowed last year to make the city “one of the toughest places in the United States” for illegal immigrants. Many other local initiatives were modeled on Hazleton’s ordinances, which were never put into effect because of the legal challenge.

“Whatever frustrations officials of the City of Hazleton may feel about the current state of immigration enforcement,” Judge Munley wrote in the 206-page decision, “the nature of the political system in the United States prohibits the city from enacting ordinances that disrupt a carefully drawn federal statutory scheme.”

Mr. Barletta said the city would appeal and would fight to the United States Supreme Court if necessary.

“I will not sit back because the federal government has refused to do its job,” Mr. Barletta said at a news conference on the steps of City Hall.

Judge Munley reached his conclusion after a full hearing of the issues in a bench trial, the first such trial in the various legal challenges to local ordinances restricting illegal immigration. The challenge was brought by the American Civil Liberties Union, the Puerto Rican Legal Defense and Education Fund and Cozen O’Connor, a private law firm.

The judge emphasized that illegal immigrants had the same civil rights as legal immigrants and citizens.

“Hazleton, in its zeal to control the presence of a group deemed undesirable, violated the rights of such people, as well as others within the community,” he wrote.

Kris W. Kobach, a University of Missouri law professor who assisted Hazleton, called the ruling “an extraordinarily bold activist decision.” Mr. Kobach said Judge Munley had misconstrued the limitations on cities like Hazleton in making laws on immigration, which is generally subject to federal law.

According to the Puerto Rican Legal Defense and Education Fund, more than 100 municipalities have considered ordinances to crack down on illegal immigrants.

On June 19 a federal judge issued a preliminary injunction against a housing ordinance similar to Hazleton’s in Farmers Branch, Tex., a Dallas suburb. The ordinance, which voters approved in May, would have imposed fines on landlords who rented to illegal immigrants.

Last Friday, the city of Valley Park, Mo., rescinded a similar housing ordinance, after one version of it was struck down in March by a state judge and a revised ordinance brought new state and federal challenges. Similar ordinances were dropped in Escondido, Calif.

Mr. Barletta, the Hazleton mayor, has championed the city’s ordinances because he said illegal immigrants had unleashed a crime wave in Hazleton and had overburdened health and other public services.

At the nine-day trial in March, A.C.L.U. lawyers worked as hard to debunk those claims as they did to undercut the city’s legal arguments. They showed that 4 of 428 violent crimes in Hazleton in the last six years could be attributed to illegal immigrants.

“This opinion should be a glaring red stop light for any local officials thinking about passing similar laws,” said Witold Walczak, the lead A.C.L.U. lawyer in the case.

Among the plaintiffs were four illegal immigrants. Judge Munley allowed them to remain anonymous and to testify through depositions.

This month Pennsylvania prosecutors dropped murder charges against two immigrants in the May 2006 shooting of Derek Kichline, a Hazleton resident whom Mr. Barletta often cited as a victim of an illegal immigrant crime wave. The prosecutors said that important witnesses were not available to testify, including one illegal immigrant who had been deported by federal authorities.

Mr. Barletta and his campaign against illegal immigrants have remained popular in Hazleton, a faded coal-mining center 80 miles northwest of Philadelphia that has recently seen a manufacturing revival. In a mayoral primary in May, Mr. Barletta handily won both the Republican and the Democratic nominations.

Thursday, July 26, 2007

"It's pretty scary actually because I'm not very good at flying,

Federal officials are downplaying an alert sent to airport security officers that warned them to look out for terrorists practicing to carry explosive components onto aircraft.

The July 20 bulletin said security officials at airports in San Diego, Milwaukee, Houston and Baltimore have seized "wires, switches, pipes or tubes, cell phone components and dense clay-like substances," including block cheese.

There have been four seizures, involving both male and female passengers, since last September. The people with the items had no criminal history but officials called their explanations for having the items "questionable."

A TSA spokesperson told 11Alive's Elaine Reyes that the bulletin was routine and that there was no credible specific threat to the U.S. Still, the warning made some travelers at Hartsfield-Jackson Atlanta International Airport nervous.

"It's pretty scary actually because I'm not very good at flying, I'm a little nervous but I think it will go okay," said traveler Jenna Sherrill.

"I wasn't surprised, people are bent on terrorism and they can be very creative and it's good to know TSA is on top of things," said traveler David Reid.

The bulletin urged security and law enforcement personnel to be aware of "ordinary items that look like improvised explosive device components."

Electronic Game Shuts down airport

LONG BEACH, Calif. — A suspicious item in checked luggage that prompted the evacuation of a terminal at Long Beach Airport on Thursday turned out to be an electronic game, authorities said.

Several hundred people were evacuated from the terminal for about 90 minutes and five arriving aircraft were held on the tarmac until the all-clear was given.

The item was discovered in a bag by federal Transportation Security Administration workers at about 9:30 a.m., agency spokeswoman Jennifer Peppin said.

"It is basically a handheld game board that a passenger packed," she told Fox News Channel.

"It certainly was nothing but it certainly looked like something. It had all the wires and components that you would see in an explosive device," Peppin said

Democrats Urge Perjury Probe of Gonzales

Thursday July 26, 2007 5:46 PM


Associated Press Writer

WASHINGTON (AP) - Senate Democrats called for a perjury investigation against Attorney General Alberto Gonzales on Thursday and subpoenaed top presidential aide Karl Rove in a deepening political and legal clash with the Bush administration.

``It has become apparent that the attorney general has provided at a minimum half-truths and misleading statements,'' four Democrats on the Senate Judiciary Committee wrote in a letter to Solicitor General Paul Clement.

They dispatched the letter shortly before Sen. Patrick Leahy, D-Vt., announced the subpoena of Rove, the president's top political strategist, in remarks on the Senate floor.

``We have now reached a point where the accumulated evidence shows that political considerations factored into the unprecedented firing of at least nine United States Attorneys last year,'' said Leahy, the chairman of the Senate Judiciary Committee.

In response, White House spokesman Tony Fratto said, ``Every day congressional Democrats prove that they're more interested in headlines than doing the business Americans want them to do. And Americans are now taking notice that this Congress, under Democratic leadership, is failing to tackle important issues,'' he said.

Gonzales is at the center of the U.S. attorney controversy, but the call for a perjury probe involved alleged conflicts between testimony he gave the Judiciary Committee in two appearances, one last year and the other this week. The issue revolves around whether there was internal administration dissent over the president's warrantless wiretapping program.

As for the firing of the prosecutors, e-mails released by the Justice Department show Gonzales' aides conferred with Rove on the matter.

Leahy also said he was issuing a subpoena for J. Scott Jennings, a White House political aide.

``For over four months, I have exhausted every avenue seeking the voluntary cooperation of Karl Rove and J. Scott Jennings, but to no avail,'' the Vermont lawmaker said. ``They and the White House have stonewalled every request. Indeed, the White House is choosing to withhold documents and is instructing witnesses who are former officials to refuse to answer questions and provide relevant information and documents.''

New Home Sales Down Substantially

Thursday July 26, 12:46 pm ET
By Martin Crutsinger, AP Economics Writer
Sales of New Homes Plunge by the Largest Amount in 5 Months, Commerce Department Reports

WASHINGTON (AP) -- Sales of new homes fell in June by the largest amount in five months as the housing industry continued to struggle with its worst downturn in 16 years. The median home price also fell.

The Commerce Department reported that sales of new single-family homes dropped by 6.6 percent last month to a seasonally adjusted annual rate of 834,000 units. The decline was more than triple what had been expected and was the largest percentage drop since sales fell by 12.7 percent in January. Sales are now 22.3 percent below the level of a year ago.

The median price of a new home sold last month dropped to $237,900, down by 2.2 percent from a year ago. It was the biggest year-over-year price drop since a 6.5 percent fall in April. The median price is the point where half the homes sold for more and half for less.

The big drop in new home sales followed a report Wednesday showing that existing home sales dropped by 3.8 percent in June to a five-year low. The weakness reflects spreading troubles in the mortgage market as more borrowers are defaulting on their loans, dumping those homes back on an already glutted market. In addition, banks and other lenders are tightening their standards, making it harder for prospective buyers to qualify for loans.

By region of the country, new home sales fell by 27.1 percent in the Northeast, 22.5 percent in the West and 17.1 percent in the Midwest. Only the South saw an increase in sales, a gain of 7.6 percent.

Economists believe the weakness in housing could linger through the rest of this year until a huge overhang of unsold homes is worked down. For June, the inventory of unsold new homes was unchanged at 537,000 units.

In other economic news, the Commerce Department said that orders for big-ticket manufactured products increased by 1.4 percent last month, the best showing since a 5.1 percent increase in March. Orders had declined by 2.3 percent in May.

The June strength in durable goods orders was concentrated in orders for commercial airplanes, which soared by 28.7 percent, reflecting strong demand for Boeing Co. aircraft. Aircraft orders, which are extremely volatile from month to month, had fallen by 21 percent in May.

Meanwhile, the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits fell to 301,000 last week, a drop of 2,000 from the previous week. The performance was better than the slight rise that economists had been expecting.

Economists believe that the economy regained momentum in the spring after a lackluster start to the year in which economic growth slowed to a dismal annual rate of 0.7 percent from January through March, the weakest showing in more than four years.

The government will report on April-June growth on Friday, with many analysts believing the report will show a solid rebound to growth of around 3.2 percent despite continued troubles in the housing industry.

The report on orders for durable goods, items expected to last at least three years, showed that the strength was concentrated in aircraft with many other sectors showing declines last month.

Overall transportation orders were up 6.1 percent, but that reflected the 28.7 percent jump in demand for commercial airliners and a 9.9 percent rise in orders for military aircraft. Orders for autos were down 1.4 percent last month.

Outside of transportation, orders fell by 0.5 percent, reflecting weakness in a number of other categories. That was the second straight drop in orders excluding transportation.

Orders for non-defense capital goods excluding aircraft, a category that is considered a good proxy for business investment, fell by 0.7 percent last week following an even bigger 1.5 percent decline in May.

Other sectors showing weakness were primary metals, including steel, which dropped by 3.6 percent and computers and electronic products, down 4.6 percent.

Wednesday, July 25, 2007

BP gets break on dumping in lake

Refinery expansion entices Indiana

By Michael Hawthorne

Tribune staff reporter

July 15, 2007

The massive BP oil refinery in Whiting, Ind., is planning to dump significantly more ammonia and industrial sludge into Lake Michigan, running counter to years of efforts to clean up the Great Lakes.

Indiana regulators exempted BP from state environmental laws to clear the way for a $3.8 billion expansion that will allow the company to refine heavier Canadian crude oil. They justified the move in part by noting the project will create 80 new jobs.

Under BP's new state water permit, the refinery -- already one of the largest polluters along the Great Lakes -- can release 54 percent more ammonia and 35 percent more sludge into Lake Michigan each day. Ammonia promotes algae blooms that can kill fish, while sludge is full of concentrated heavy metals.

The refinery will still meet federal water pollution guidelines. But federal and state officials acknowledge this marks the first time in years that a company has been allowed to dump more toxic waste into Lake Michigan.

BP, which aggressively markets itself as an environmentally friendly corporation, is investing heavily in Canadian crude oil to reduce its reliance on sources in the Middle East. Extracting petroleum from the thick goop is a dirtier process than conventional methods. It also requires more energy that could significantly increase greenhouse gases linked to global warming.

Environmental groups and dozens of neighbors pleaded with BP to install more effective pollution controls at the nation's fourth-largest refinery, which rises above the lakeshore about 3 miles southeast of the Illinois-Indiana border.

"We're not necessarily opposed to this project," said Lee Botts, founder of the Alliance for the Great Lakes. "But if they are investing all of these billions, they surely can afford to spend some more to protect the lake."

State and federal regulators, though, agreed last month with the London-based company that there isn't enough room at the 1,400-acre site to upgrade the refinery's water treatment plant.

The company will now be allowed to dump an average of 1,584 pounds of ammonia and 4,925 pounds of sludge into Lake Michigan every day. The additional sludge is the maximum allowed under federal guidelines.

Company officials insisted they did everything they could to keep more pollution out of the lake.

"It's important for us to get our product to market with minimal environmental impact," said Tom Keilman, a BP spokesman. "We've taken a number of steps to improve our water treatment and meet our commitments to environmental stewardship."

BP can process more than 400,000 barrels of crude oil daily at the plant, which was built in 1889 by John D. Rockefeller's Standard Oil Co. Total production is expected to grow by 15 percent by the time the expansion project is finished in 2011.

In sharp contrast to the greenways and parks that line Lake Michigan in Chicago, a string of industrial behemoths lie along the heavily polluted southern shore just a few miles away. The steady flow of oil, grease and chemicals into the lake from steel mills, refineries and factories -- once largely unchecked -- drew national attention that helped prompt Congress to pass the Clean Water Act during the early 1970s.

Paul Higginbotham, chief of the water permits section at the Indiana Department of Environmental Management, said that when BP broached the idea of expanding the refinery, it sought permission to pump twice as much ammonia into the lake. The state ended up allowing an amount more than the company currently discharges but less than federal or state limits.

He said regulators still are unsure about the ecological effects of the relatively new refining process BP plans to use. "We ratcheted it down quite a bit from what it could have been," Higginbotham said.

The request to dump more chemicals into the lake ran counter to a provision of the Clean Water Act that prohibits any downgrade in water quality near a pollution source even if discharge limits are met. To get around that rule, state regulators are allowing BP to install equipment that mixes its toxic waste with clean lake water about 200 feet offshore.

Actively diluting pollution this way by creating what is known as a mixing zone is banned in Lake Michigan under Indiana law. Regulators granted BP the first-ever exemption.

The U.S. Environmental Protection Agency has been pushing to eliminate mixing zones around the Great Lakes on the grounds that they threaten humans, fish and wildlife. Yet EPA officials did not object to Indiana's decision, agreeing with the state that BP's project would not harm the environment.

Federal officials also did not step in when the state granted BP another exemption that enables the company to increase water pollution as long as the total amount of wastewater doesn't change. BP said its flow into Lake Michigan will remain about 21 million gallons a day.

In response to public protests, state officials justified the additional pollution by concluding the project will create more jobs and "increase the diversity and security of oil supplies to the Midwestern United States." A rarely invoked state law trumps anti-pollution rules if a company offers "important social or economic benefits."

In the last four months, more than 40 people e-mailed comments to Indiana officials about BP's water permit. One of the few supportive messages came from Kay Nelson, environmental director of the Northwest Indiana Forum, an economic development organization that includes a BP executive among its board of directors. She hailed the company's discussions with state and community leaders as a model for others to follow.

Nearly all of the other comments, though, focused on the extra pollution in Lake Michigan.

"This is exactly the type of trade-off that we can no longer allow," wrote Shannon Sabel of West Lafayette, Ind. "Possible lower gas prices (I'll believe that when I see it!) against further contamination of our water is as shortsighted as it is irrational."

Monday, July 23, 2007


Feingold to Introduce Resolutions Censuring President Bush, Vice President Cheney, and Other Administration Officials

July 22, 2007

Washington, D.C. – U.S. Senator Russ Feingold announced today that he will introduce two censure resolutions condemning the President, Vice President and other administration officials for misconduct relating to the war in Iraq and for their repeated assaults on the rule of law. Feingold called the resolutions appropriate and necessary steps for Congress to rebuke an administration that is responsible for some of the worst misconduct and the worst abuses of the law in American history.

“Censure is about holding the administration accountable,” Feingold said. “Congress needs to formally condemn the President and members of the administration for misconduct before and during the Iraq war, and for undermining the rule of law at home. Censure is not a cure for the devastating toll this administration’s actions have taken on this country. But when future generations look back at the terrible misconduct of this administration, they need to see that a co-equal branch of government stood up and held to account those who violated the principles on which this nation was founded.”

Feingold will work with his colleagues, as well as seek input from his constituents and the American people, as he crafts the final language of the resolutions. The first resolution will condemn the President and others for misconduct relating to the war in Iraq including:

  • Overstating the case that Saddam Hussein had WMD, particularly nuclear weapons, and falsely implying a relationship with al Qaeda and links to 9/11.

  • Failing to plan for the civil conflict and humanitarian problems that the intelligence community predicted.

  • Over-stretching the Army, Marine Corps and Guard with prolonged deployments.

  • Justifying our military involvement in Iraq by repeatedly distorting the situation on the ground there.

The second resolution will focus on the administration’s attack on the rule of law with respect to, among other things:

  • The illegal NSA warrantless wiretapping program.

  • Extreme policies on torture, the Geneva Conventions, and detainees at Guantanamo.

  • The refusal to recognize legitimate congressional oversight into the improper firings of U.S. Attorneys.

In March 2006, Feingold introduced a resolution censuring the President for authorizing and misleading Congress and the public about the illegal NSA warrantless wiretapping program. In January 2007, the administration finally brought its wiretapping program within the FISA statute.

“At my town hall meetings, online, and everywhere I go, I hear the American people demanding that the President and his administration be held accountable for their misconduct, both with regard to the disastrous war in Iraq and their flagrant abuse of the rule of law. Censure is a relatively modest response, but one that puts Congress on record condemning their actions, both for the American people today and for future generations,” Feingold said.

Feingold is encouraging people to email suggestions of what to include in the censure resolution. People can email Senator Feingold at Russell_Feingold@feingold.senate.gov or visit his webpage at http://feingold.senate.gov.

Saturday, July 21, 2007

OxyContin Maker, 3 Execs Fined $634.5M

Purdue Pharma, 3 Executives Ordered to Pay $634.5M Fine for Misleading Public About OxyContin ABINGDON, Va. (AP) -- Purdue Pharma L.P., the maker of OxyContin, and three of its executives were ordered Friday to pay a $634.5 million fine for misleading the public about the painkiller's risk of addiction.

U.S. District Judge James Jones levied the fine on Purdue, its top lawyer and former president and former chief medical officer after a hearing that lasted about three-and-a-half hours. The hearing included statements by numerous people who said their lives were changed forever by addiction to OxyContin, a trade name for a long-acting form of the painkiller oxycodone.

Designed to be swallowed whole and digested over 12 hours, the pills can produce a heroin-like high if crushed and then swallowed, snorted or injected.

From 1996 to 2001, the number of oxycodone-related deaths nationwide increased fivefold while the annual number of OxyContin prescriptions increased nearly 20-fold, according to a report by the U.S. Drug Enforcement Administration. In 2002, the DEA said the drug caused 146 deaths and contributed to another 318.

Purdue, its top lawyer and former president and former chief medical officer pleaded guilty in May to claiming to doctors that OxyContin was less addictive and less subject to abuse than other pain medications. The sentencing Friday ends the national case.

Michael Friedman, who retired in June as Purdue's president, general counsel Howard Udell and former chief medical officer Paul Goldenheim each pleaded guilty to a misdemeanor count of misbranding the drug. Of the total fine, $34.5 million was levied on those three.

Jones placed the company on probation for five years and each of the executives on probation for three years. He also ordered the three to perform 400 hours of community service related to prevention of prescription drug abuse.

Former New York City Mayor Rudolph Giuliani played a central role in negotiating on behalf of Purdue with federal prosecutors, but Jones said "I completely reject" suggestions that political influence resulted in a lesser punishment for Purdue.

Many of the nearly 20 speakers called for jail terms for Friedman, Udell and Goldenheim, saying the fines were a small price for the devastation to lives from OxyContin addiction.

"Money can't buy all the lives that are lost," said Robert Palmisano, 23, who said he was addicted to OxyContin for four years but has been off the drug for 17 months.

Attorneys for the three executives said giving them criminal convictions was punishment enough, and noted they were charged because of their job titles, not because they themselves promoted OxyContin as a drug with little addiction potential.

"They are not here today because of any acts of misconduct on their part," defense attorney Howard Shapiro said. "They are good men."

The speakers, many of whose children died after trying the drug only once, disagreed.

"I feel you are legal drug users, nothing more than a large corporate drug cartel," Lee Nuss of Palm Coast, Fla., said as she addressed the Purdue Pharma contingent.

Nuss held up a stone urn slightly larger than a pill bottle that she said contained her 18-year-old son's ashes.

Attorneys for both sides acknowledged the pain of those who had lost loved ones, but urged Jones to accept the plea agreement.

"By pleading guilty they acknowledged that doing nothing was not good enough," Assistant U.S. Attorney Randy Ramseyer said. "We cannot bring those people back. It's not something this case can do."

Dillie Walker and his wife Joyce of Bay City, Mich., testified on behalf of Purdue that OxyContin has enabled them to function again despite chronic pain.

"I don't get high from it. It goes straight to my pain," Dillie Walker said.

But Kenny Keith of Roanoke said it took very little time for him to get addicted after he was prescribed OxyContin.

"The withdrawals were worse than the pain I was having," he said.

Jones said he would have preferred to have the plea agreements call for spending money on education of those at risk of drug abuse and treatment of those who are addicted to OxyContin. But Jones said he would not reject the agreement.

"Many young people mistakenly believe today that prescription drugs are safer than other drugs," Jones said.

The fines are to be distributed to state and federal law enforcement agencies, the federal government, federal and state Medicaid programs, a Virginia prescription monitoring program and individuals who had sued the company. About $5 million will go toward a six-year company program to monitor compliance with the agreement.

Survivors of the victims want the Food and Drug Administration to reclassify OxyContin for use only for severe pain. The drug currently can be prescribed for moderate pain.

Purdue, based in Stamford, Conn., has said it accepted responsibility for its employees' actions and has put in place training and monitoring programs to ensure overpromotion of OxyContin doesn't happen again. But officials objected to any ties between the plea agreement and abuse of the drug.

The coal-mining region of southwest Virginia where the sentencing took place has had a number of oxycodone-related deaths -- 119 from 2003 through 2005, according to the state medical examiner's office.

Friday, July 20, 2007

Beazer's downward spiral continues

Amid the worst housing sales slump in more than a decade, 2007 has been a particularly trying year for Atlanta-based Beazer Homes.

Its stock price has plunged to values less than half the size of its January levels.

Meantime, Beazer is facing lawsuits from its customers, employees and stockholders, federal inquiries into its mortgage lending and other corporate practices and the abrupt departures of three of its top executives, all since the first of the year.

Legal and housing experts expect Beazer's troubles to drag on well into 2008, but predict that the company will ultimately emerge intact though perhaps structurally altered.

Barry Ritholtz, president of Ritholtz Research and Analytics, said the recent acquisition of Beazer stock by the hedge fund Moore Capital Management indicates a confidence that the stock price, currently a value, will recover.

"My best guess is that they [Beazer] will survive this," Ritholz said. "But it's no more than a guess."

Ritholtz points out that the federal inquiries and the firings earlier this year of the company's chief counsel and chief accountant were prompted by allegations of questionable business practices. But none of the complaints against Beazer arose from financial deception, which would pose greater dangers to the company's long-term survival.

"As far as we know, their sales, their revenue and their profit were real," Ritholtz said. "This is an ethical situation."

Leslie Kratcoski, Beazer's vice president of investor relations and corporate communications, said an outside team is conducting a review of Beazer's business practices.

Other than news releases and required Securities and Exchange Commission filings the company has issued since the inquiries began, Kratcoski said Beazer has no new information to reveal about its legal and regulatory matters.

The thick of Beazer's turmoil began in March when a series of reports in the Charlotte Observer detailed foreclosure rates of more than 20 percent in Beazer communities near Charlotte, N.C. News of the inquiries and lawsuits soon followed.

Ken Jones, a real estate and corporate practice attorney with the Atlanta firm of Hall Booth Smith & Slover, agreed with Ritholtz's assessment of Beazer's current status.

"If there doesn't come a rash of homeowner lawsuits and [the federal probe] stays in the corporate governance area, I think they can survive," Jones said.

But he noted that a further shake-out of leadership at Beazer is likely as it works through the process and aftermath of the inquiry.

"There's probably going to have to be some sort of wholesale change on the board of directors," Jones said.

CEO's future

Similarly, the fate of Beazer CEO Ian McCarthy could be hanging in the balance, said attorney Jacob Frenkel, chairman of the securities enforcement and white collar crime practice at the Rockville, Md., firm Shulman Rogers Gandal Pordy and Ecker.

In situations like Beazer's, Frenkel said, boards of directors frequently move quickly, sometimes too quickly, to rid the company of anyone associated with suspect activities, even if they have done nothing wrong.

"Over the past five years, we've seen companies move out people who were in charge of areas that have come under scrutiny," Frenkel said. "Boards are often too quick to act."

But despite the recent departures of several of his top lieutenants, McCarthy continues to guide the company. The longer he continues, the greater the likelihood he will remain at its helm, according to Frenkel.

"It is too early to determine who is likely to survive, but it is a good indication that his leadership has been appropriate," Frenkel said.

Frenkel cautioned that the federal probe will not yield any charges or findings for a long time, possibly as much as 18 months, and that the fate of the lawsuits hangs on the probe's outcome.

"It's impossible to tell yet what will come of this," Frenkel said.

Meantime, the lawsuits will remain procedural "jockeying for position," according to Frenkel.

"There's a big explosion when the news [of a probe] hits. Then, it's wait and see," Frenkel said.

Stock swoon, suits

But the troubles have made investors wary. Beazer stock, which was trading at more than $46 per share at the beginning of the year, plunged to less than $23 per share after the company fired its chief accountant for attempting to shred documents in violation of Beazer policies.

On Thursday, Beazer's stock hit $20.73 per share.

Since the launch of a U.S. Housing and Urban Development inquiry into Beazer's mortgage lending practices in Charlotte, stockholders have filed lawsuits against Beazer over what they say is the company's failure to disclose its lending practices and high foreclosure rates in its communities.

Buyers are suing over the high foreclosure rates, which they claim have damaged their property values.

And participants in Beazer's own 401(k) plan are suing over the company's disclosure practices because a significant portion of the 401(k) funds are invested in company stock.

All of the suits are seeking class action status.

Takeover target?

Meantime, the falling stock price could make the company an attractive acquisition for a well-financed rival in an industry poised for consolidation. With strategic land holdings in attractive markets, Beazer's portfolio could become a strong lure with stock prices at attractive levels.

"Companies with depressed stock prices recognized by experts to have retained their intrinsic value certainly become takeover [targets]," said Frenkel.

But suitors are likely to wait until the housing market shows signs of recovery and the outcome of the probe is more clear, lest they inherit a company with extensive liabilities as well. And shareholders will wait nervously for earnings while the probe and lawsuits run their course.

Beazer officials will report quarterly earnings next Thursday. In their January report, they disclosed a quarterly loss of $59 million for the last three months of 2006.

Price of bread at record high!

HEARD the one about the sharemarket's new record high? On Wednesday the Dow Jones Industrial Average briefly breached the 14,000-point level, and on Friday the sharemarket barometer closed above 14,000 for the first time, at 14,000.41.

Even last week, as the Dow picked up sharply, we were hearing about "A record day on Wall Street" in the NBC Nightly News broadcast. The Wall Street Journal led its Friday paper with this headline: "Dow again soars to record high despite unease".

Technically, all the talk about records is perfectly accurate. But it's also fundamentally wrong. In fact, the attention that's being showered on "Dow 14,000" goes a long way towards explaining why our economy has become so susceptible to speculative bubbles.

The idea stock prices tend to rise over time really should not be surprising. The price of almost everything rises over time, thanks to inflation. Each year, the government prints more money, which is the main reason that the price of groceries, cars, clothes and, yes, stocks keeps on going up. Of course, incomes are rising, too.

This doesn't mean, however, that everything is always getting more expensive and everyone is always getting richer (which would be a contradiction). And the sharemarket's record high does not mean that stocks have been a wonderful investment lately. They haven't been.

The Standard & Poor 500-stock index, which is a much better measure than the Dow, closed Thursday at 1553.08, just 1.4 per cent higher than the peak it reached in March 2000. Think about what that means. While the price of nearly everything has risen over the past seven years, stocks have barely budged. They have only marginally outperformed cash sitting in a bureau drawer. So if we are going to talk about a sharemarket record, we should be doing the same for a whole lot of other things: "Loaves of bread surge to new highs".

This can sound like statistical nitpicking, but it actually relates to something quite important. When you overlook inflation, you can start to think that every investment is a can't-miss investment, because its value always seems to be going up. This mistake, combined with the enormous attention that society now devotes to the value of its investments, helps create the conditions for a bubble.

A few years ago, I was interviewing a US real estate agent in the Midwest, and she mentioned that her daughter had recently sold her house for 30 per cent more than she had bought it for a decade earlier. "Where else can you get a return like that?" the agent asked. One answer, which I didn't give, is a boring old savings account.

The only meaningful way to measure an investment is to strip away the distortions caused by inflation. You're then able to focus on its real value - what it can buy in the marketplace - rather than just a number on a piece of paper.

A good rule of thumb is that something appearing to have doubled in price or value since the early 1980s costs the same now, in real terms, as it did then. When you make these adjustments, it becomes disturbingly obvious that stocks and real estate are by no means can't-miss investments.

The average house in the New York region sold for roughly the same nominal price in 1997 as it had in 1988, which in inflation-adjusted terms means its value dropped 31 per cent. House prices in New York didn't exceed their 1988 real value until 2002. Then, of course, they soared like never before.

The sharemarket has suffered through even longer stretches of mediocrity. The S&P 500 first went over 100 in the summer of 1968. In today's dollars, that means it was up near 600. It then entered a long period in which it failed to keep pace with inflation - leading to BusinessWeek's famous 1979 cover article, "The death of equities" - and didn't exceed its real 1968 high until 1992. Over the next eight years, it tripled, even after taking inflation into account.

Today, the S&P remains 17 per cent below its inflation-adjusted 2000 peak, which could be considered good news. If the market isn't really at a record high, it may still have a lot of running room. But I wouldn't be too confident about that. Relative to their earnings, stocks remain more expensive than they have been at any time except the 1920s and the 1990s.

That's the thing about bubbles: they usually take a long time to overcome. The normal pattern after a huge boom - like the sort we recently had in stocks and then real estate - is years if not decades in which an investment doesn't keep up with savings accounts. That's not so much of a record.