Bizzy’s AM Coffee Biz-Econ Links (022306)

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• Foreclosures up, minorities more harshly affected (really) — This is because credit score thesholds for loan approvals were lowered by quasi-governmental entities Fannie Mae and Freddie Mac (Fan and Fred) that buy loans from lenders to keep the mortgage deal flow going. More risky loans were then made. The sad fact is that a disproportionate percentage of minority borrowers have low credit scores, and “benefitted” by getting these riskier loans. As you would expect, the foreclosure rate on risky loans is higher, so the “beneficiaries” who shouldn’t have been approved in the first place are seeing the punishing downside of lax credit standards. Here’s a stat: “In Cuyahoga County, which includes Cleveland ….. court filings by lenders seeking to foreclose on delinquent borrowers totaled more than 11,000 in 2005, more than triple the number in 1995.” In an ideal world, people would sit down and figure out whether they can afford to make the payments on a loan. In the real world, people assume they can afford it because the lender says they can. I’m not it’s saying right, but it is what it is, and responsible businesspeople on the lending side of the equation should take this into account. Fan and Fred should never have relaxed their standards as much as they did, and lenders should have been more prudent in their loan approvals. The economy may yet pay a heavy price for all of this opportunism. More discussion of the dangers Fan and Fred have allowed to seep into the economy is at this BizzyBlog post from October.
• Google has lost a round in a copyright case with potentially big ramifications — even though the case in question is about sexually explicit “thumbnails,” the implication appears to be that showing small versions of various pictures and graphics found around the web in a picture search may be illegal.
• Google has decided it won’t hand over data requested by Uncle Sam — interesting, in light of a post you will see here later this morning.
• Better question — Why is individual search information collected and stored in the first place, when most people oppose it? I think at a minimum you should be asked if you want to opt in to having information about your searches saved and stored. If you don’t specifically say yes, they can’t do it, period.
• If this kind of thinking had been dominant at the beginning of the 20th century, the automobile would never have made it to market.
• Paying to NOT have your info sold (HT Techdirt) — To play Fight Night 3 online, you agree to this language: “Thanks to ESPN, you can play this EA Sports product online as part of EA Nation at no charge! By accepting the ESPN sponsorship, I will allow ESPN to pay my $2.00 online subscription for this game and understand that ESPN may contact me with offers and promotions such as subscriptions to ESPN the Magazine and ESPN Insider.” You then have a choice to pay the $2 by credit card to avoid the harassment. Ridiculous.

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• The Wall Street Journal reports that premiums employers pay for employee family health care coverage are about the same per month as a typical mortgage loan payment.

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UPDATE to Foreclosure item above: E-mailer JH tipped me off to this AP item in today’s NY Times, which says in part:

Revelations of alleged improprieties at Fannie Mae, the nation’s second-largest financial institution after Citigroup Inc., have continued to cascade.

The former director of OFHEO told Congress that Fannie Mae employees falsified signatures on accounting transactions that helped the company meet earnings targets for 1998, allowing $27 million in bonuses to be paid to top executives. The regulator, Armando Falcon, also said that Fannie Mae broke accounting rules by keeping the most desirable mortgage-based securities for itself and selling the less attractive ones to investors.

Fannie Mae and Freddie Mac, its smaller rival in the $8 trillion home-mortgage market, buy and guarantee repayment of billions of dollars of home loans each year from banks and other lenders, then bundle them into securities that are resold to investors worldwide.

Two points: First, any officers who got bonuses as a result of the accounting games must pay the ill-gotten portions of their bonuses back, and should be sued if they don’t. Second, if it’s true that bondholders are getting the financially shaky leftovers as collateral, and if this wasn’t widely known before, the mortgage-backed securities market is in for a rough time.