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Showing posts from July, 2008

Socially Responsible Investors and the Housing Bill (Amy Rosenthal, Peter Murray, Angela Wang)

We anticipate that the Housing Bill will impact socially responsible investors via it's impact on low and moderate income communities. Mortgage borrowers will win; lenders will suffer some losses. Several sections in the law (for example, rules concerning disclosure) will now force lenders to fully explain to borrowers exactly how mortgage loan payments work. In addition, new borrower counseling programs are created to provide advice to borrowers.

The bill’s first impact on social investors will come in the form of block grants given to the states. These block grants are meant to spur investments in troubled neighborhoods. Many times, foreclosed homes drive down property values in the neighborhood, leading to more foreclosures. The grants are targeted to areas with large amounts of foreclosed properties, and will help to prevent domino effect cited above. Low to moderate income communities, which have been hit hardest by the increase in foreclosures, should specifically bene…

Expect other small banks to fail

From Alumni Connections, No. 44 - March 2008. Alumni Connections is a sampling of alumni news gleaned from media online and in print, including news submitted to Chicago GSB Magazine.

"William Michael Cunningham, Social Investing Advisor of Creative Investment Research, linked the failure of African-American-owned Douglass National Bank to the global mortgage crisis, according to a January 28 article in U.S. News & World Report. The bank, which originated in the 1940s, lost $1.3 million in 2007 and $4.3 million in 2006, the article said. Bad commercial real estate loans, not residential mortgage loans, led to recent losses, the article said. “It’s this secondary and tertiary impact of the crisis in the subprime market that’s beginning to impact smaller institutions mainly through [the slowdown in] consumer spending,” Cunningham told the magazine. He said he expects other small banks to fail, as a faltering economy inhibits borrowers’ ability to repay loans. Douglass is the fo…

Foreclosure Prevention Act of 2008 (Peter Murray)

The Foreclosure Prevention Act of 2008 is currently being debated and molded by members of Congress. The bill is a response to the escalating housing crisis which has had damaging effects on the economy as a whole. It was introduced by members of the Senate in February in hopes that foreclosure rates could be brought down and the rippling effects of these foreclosures could be averted.

The first step that this bill plans to enact is better access to Federal Housing Administration (FHA) loans for families in risk of foreclosure. This will provide safe, fixed-rate mortgages as well as counseling services to homeowners.

Struggling homeowners would then be able to refinance into lower cost, government insured mortgages. The influx of funds to the counseling program could potentially help as many as 500,000 Americans receive advice on how to better manage their home. This government spending also acts as a stimulus to fiscal policy which may consequently help the economy.

Federal Reserve Chairman Ben Bernanke’s Monetary Policy Report to the Senate Banking Committee (Emerson Bluhm)

In his semi annual Monetary Policy Report to the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke spoke about the current troubles in the economy, the future outlook and the FED’s plans to help the economy return to health. With an average of 94,000 jobs lost per month over the last six months, unemployment at 5.5%, home prices falling, rising inflation, soaring commodity prices and trouble at Freddie Mac and Fannie Mae, Bernanke was less than optimistic about the economy over the next year, forecasting extremely slow growth. While he claimed that the U.S. is technically not in a recession by a textbook definition, he acknowledged the hardships many Americans are facing with extremely low consumer confidence, declining wealth, and rising food and energy costs.

According to the Chairman, the housing crisis and rising commodities prices are at the center of the current economic problems. Bernanke told the committee that he believes the Treasury Department’s plan to ba…

Freddie and Fannie: What should be done now

Our recommendations for dealing with the housing GSEs are as follows:

1. Freddie Mac should be closed. Having a second housing GSE was supposed to provide competition and serve as a check on the first housing GSE, Fannie Mae. Clearly, this did not work. No need to continue, so:
2. Merge Freddie and Fannie. Instead of two failing agencies, we now have one. Allows for a concentration of focus, effort. Stabilize the resulting institution.
3. After one year, move Fannie back into HUD. Fannie Mae was separated from HUD in 1968. Time to reverse this. Moving Fannie into HUD extends the full faith and credit guarantee umbrella.

Time to revise the housing GSE experiment.

Guiyang Pharmaceutical Company (Feinan Xu)

On June 26, 2004, China CCTV reported a serious pollution accident caused by Baiwen, a pharmaceutical company in Guiyang, China. On June 8th, residents near the factory noticed “black snow” in the sky. Some began to have respiratory problems. The Guiyang environmental protection office started an investigation and found that the incident was caused by the factory: they neglected to install equipment required to get rid of the sulfur and other chemicals. This led to the leaking of large amount of sulfur. The local government then ordered the factory closed for further investigation.

After a month, the company installed the required equipment. The local government then released them from prosecution and fined the company 150,000 RMB.

One must know what duties he or she has toward his or her organization, as well as which duties the organization has toward the society to which it belongs, before he or she can begin to practice. In a community, reinforcement of good practices and punishme…